MP Materials Stock: A Rare Earth Metals Juggernaut
Video: Overview of MP Materials and the US-China rare earths conflict
Transcript
MP Materials is one of the two large producers of rare earth metals outside of China, with the ticker MP, listed on the NYSE and a market cap of around $10 billion
In this video we will review the rare earth metals markets, the geopolitical tensions there between the United States and China. As well as the investment fundamentals of MP Materials, whether it’s worth taking a position in.
The rare earth elements, or metals, consist of the 17 various materials listed on the screen. They are used to create a variety of different crucial products. Aerospace components, superconductors, batteries, magnets, nuclear reactor control rods. It’s obvious why we need these materials.
The problem? China dominates the production of these metals. The entire supply chain is controlled by the Chinese. China produces around 60-70% of the supply of these crucial resources. The country owns an even larger percentage of the refining and processing capabilities. So, the West is dangerously dependent on China. Who can shut off exports at any times. As they have for some of these materials in the past.
Just a few months ago, China imposed export restrictions on seven medium and heavy rare earth metals. This was the cause of tense negotiations as China has essentially been holding the global economy hostage with its near monopoly over these industries.
Inevitably, neither the United States nor China can afford to let restrictions like that last for very long, so they recently reached a deal to mutually roll back retaliatory trade actions. So, China will resume supplying these rare earths to the West again.
But these tensions have made it clear that the United States is vulnerable, so we have been making investments to increase production outside of hostile nations like China. That’s where MP Materials comes in.
And that is exactly why the U.S. Department of Defense just signed a multi-billion-dollar commitment deal with MP Materials for a magnet production facility in the United States. This includes pricing floor guarantees for when buying the magnets, an offtake agreement, and a $400 million investment in MP’s stock. As of July, the DoD is now the largest shareholder of the stock, holding 15%. That magnet facility is expected to be completed in 2028. So, the United States is clearly committed to developing new domestic rare earths manufacturing capabilities. This trend is what makes MP such an interesting stock.
The company’s central goal is to become a scaled and vertically integrated rare earths producer, operating across the entire supply chain from mining the metals to producing finished products, aka the magnets used in munitions, electric vehicles, and more.
The company operates the Mountain Pass rare earths mine in California, situated in the Mojave Desert. The mine was previously owned by Molycorp until MP Materials took over control in 2017. MP bought the mine out of bankruptcy for $20 million. And since it has upgraded many of its operations and equipment, since this mine has been in operation since the 1950s.
Since there are 17 different rare earth metals, all of them with different supply and demand fundamentals… it’s important to know which metals this mine tends to find. The best approximations I could find were from 1980 estimates, so it may have changed slightly by now. But this is the best I got.
The mine is incredibly high-grade for a rare earths deposit. Grade, meaning how much ore can be found in the rock, on average. The grade of the ore body at Mountain Pass is approximately 6-8% total rare earth oxides (or TREO). This is significantly better than other global deposits, which typically range from 1-2%, and if not lower. Mining grades continue to decline as we have already mined out a large amount of the high-grade deposits around the world in the past. So, this is a great deposit.
Estimates from the 1980s tell us that the approximate percentage of the rare earths in the mineral body are as follows:
Cerium is 50% of the TREO found in the mine
Lanthanum is 34%
Neodymium is 11%
Praseodymiun is 4%
And all of the other metals are around .5 percent of the ore or less
While many of these metals are valuable, our focus is primarily on the neodymium and the praseodymium, or NdPr. Because those metals combined are used in the magnets that the company plans to produce as part of the Department of Defense investment.
The production ramp up of Mountain Pass was laid out in a three stage plan:
The first stage was mining rare earth concentrate at a majority rare earth oxide content. All of that ore was originally being shipped to the Chinese company Shenghe Resources, which is actually a minority shareholder in MP. Those metals were being separated in China, but those shipments have now been halted. So, revenues will decline temporarily.
Their goal is to mine 15,000 metric tons of rare earths from Mountain Pass, per quarter. Which they are getting relatively close to doing with 12,000 being produced in Q1.
The second stage was creating midstream operations to separate and refine the rare earths themselves. Which is now being done with the NdPr oxides for magnets. Their annual production target is to output 6,075 metric tonnes of NdPr oxide.
The third and final expansion stage is underway, taking NdPr oxide to produce neodymium-iron-boron alloy for magnets. Which they will be manufacturing in-house, at a facility in Texas.
MP has already started delivering NdPr metal and is expected to start producing finished magnet product by the end of this year. The initial facility, called Independence, will target a production capacity of 1,000 metric tons per year of magnets.
The 10X facility, which they have yet to determine a location for, will be much larger, increasing production capacity to around 10,000 metric tonnes per year. That is estimated to begin commissioning in 2028.
Transitioning from the lower end of the supply chain, just selling raw ore, to selling refined products like magnets… makes MP more interesting. They can probably receive higher margins depending on how things play out. Especially with a pricing floor from the Department of Defense.
When it comes to partnerships, MP has obviously been making strides with the Department of Defense since securing a rare earths supply chain is a matter of national security. But they have also made separate agreements with both General Motors and Apple.
General Motors is an offtaker for alloy and magnets from the initial Independence magnet facility.
Apple has also partnered with MP in a $500 million deal for magnets from that same facility. And establishing a supply chain for recycling old magnets at the Mountain Pass mine.
Further emphasizing this company’s importance, they are now working with high-profile companies seeking to localize the supply of key materials.
MP has also signed an MoU with the Saudi Arabian mining company Maaden. The largest mining company in the middle east, owned by the Saudis. They are going to work on developing a rare earths supply chain within Saudi Arabia. So, those could be some valuable joint ventures to establish another source for supply from a friendlier region than China.
In terms of valuation… significant growth is likely priced in at this point. Going off their slides they were estimating at least $650 million in EBITDA when Independence and the 10X magnet facilities are up and running, after ramp up. So, that would be in 2028 to 2029.
There will likely be additional growth opportunities from now until then, but going off today’s market cap of around $10 billion. Enterprise value is pretty similar, so an EV/EBITDA of 15x. And that is based off of projections for several years from now. What multiple MP Materials deserves… who knows. Your guess is as good as mine. This is a pretty unique situation.
We’re talking about a producer that mines around 10% of the world’s supply of some of these critical metals that are important to a variety of supply chains, located entirely in a safe jurisdiction in the United States. If you know of any comparables like that then feel free to post about it in the comments below.
Lynas Rare Earths, the other large rare earths producer outside of China is trading at quite high multiples. They are not generating very high profits yet either.
But your standard mining company like Rio Tinto or Barrick Gold trade at EV/EBITDA multiples of around 5-6. Yes, MP is a unique situation, but it’s not cut and dry whether you should be buying the stock or not after it has increased drastically. It could continue to do well, of course, but the stock has already moved up dramatically.
The stock has already doubled in price from when I made my video on rare earth mining investment options in June. Just a month ago.
Talking financials, things are going to take a downturn. As I mentioned earlier, MP has ceased all shipments of rare earths to China for processing, so they have to ramp up those operations on U.S. soil.
But before that even takes effect, we have the results from the first quarter of 2025. Revenues were around $60 million. After you account for cost of sales, SG&A, as well as depreciation, depletion, etc… MP was operating at a loss. Total operating expenses came in at $95 million. This resulted in a net loss of $22 million for the quarter.
It seems like financial results will be shaky until they start producing magnets in large numbers. But that’s why they have a solid balance sheet.
Total cash reserves and short term investments added up to $760 million. That does not include the recent raise that MP just did. On July 17th, MP is taking advantage of the run in the stock price to raise $650 million through a public offering. A great idea considering how much the stock has moved. But dilution risk is still high as MP is using their high stock price to fuel expansion.
The total liabilities were at $1.3 billion. Most of that being long-term debt at $850 million, which is maturing years from now. So, the company is doing well when it comes to the balance sheet. They have various sources they can receive funding from, whether that be raising money from the market or receiving funding from several different partners.
MP is also going to receive $1 billion in a committed financing facility from Goldman Sachs and JP Morgan, which should fund all planned capex for the 10X magnet facility.
With all of the positive aspects to the business being said, they have a lot of momentum on their side. Great growth prospects. But I think the valuation is getting extended here, as it likely already was before the stock jumped 100% since I talked about it last month.
Does that mean the stock won’t move up even higher… certainly not. We’re talking about strategic assets getting government support and a significant amount of news coverage. So, of course the stock could keep climbing. But I think it’s risky to say that MP Materials is a no-brainer buy at a $10 billion market cap. We’re pricing in years of growth, even if we assume they will trade at a far higher multiple than the industry standard.
We’ve seen with the nuclear energy stocks that valuations can get out of hand for years, and stay that way, but on the flip side if we see the stock market start to drop broadly… then an unprofitable mining company with significant capital expenditures is not going to perform well. So, these are situations I just tend to avoid, personally. But deciding what investments to buy is, as always, up to you.