{"id":60314,"date":"2023-09-13T05:09:14","date_gmt":"2023-09-13T09:09:14","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/mp-materials-stock-geopolitical-wager-on-ree-industry-fragmentation-nysemp\/"},"modified":"2023-09-13T05:09:21","modified_gmt":"2023-09-13T09:09:21","slug":"mp-materials-stock-geopolitical-wager-on-ree-industry-fragmentation-nysemp","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=60314","title":{"rendered":"MP Materials Stock: Geopolitical Wager On REE Industry Fragmentation (NYSE:MP)"},"content":{"rendered":"
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<\/picture>
<\/figcaption><\/figure>\n<\/p>\n

Thesis<\/strong><\/h2>\n

MP Materials (NYSE:MP<\/span>) is a distinct company operating in a niche market. It is among the few rare earth element [REE] miners with operational mine in the Western Hemisphere. MP plans to become a fully integrated company covering upstream, midstream, and downstream operations. The company has solid financials to support its expansion plans. In short, MP is a geopolitical bet on REE market fragmentation.<\/span><\/p>\n

Rare earth elements 101<\/strong><\/h2>\n

REE, along with uranium, are truly geopolitical instruments to assert power. A few countries and state-owned enterprises dominate its production. The dominant players are China in REE and Russia in uranium. Those commodities are trump cards in the hands of their ruling elites. However, these pronounced imbalances present an excellent opportunity for asymmetric investments.<\/p>\n

The group of elements on the row labeled “lanthanides” on the periodic table of details, marked in blue, are rare earth elements. However, due to their similar chemical characteristics, yttrium (Y) and scandium (Sc) are also considered REEs.<\/span><\/p>\n

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\"Periodic<\/span>
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E Tech resources<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

These elements are collectively known as “rare earth” since they were initially discovered in uncommon minerals and were difficult to extract. They are not particularly rare findings in the Earth’s crust. Many high-tech applications rely on rare earth elements, such as electronics, renewable energy technologies (including wind turbines and electric vehicle batteries), catalysts, and more. This is because of their unique characteristics. They are also used to produce powerful permanent magnets, which are crucial for many modern technologies. The image below shows the significant purposes of REE:<\/p>\n

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\"REE<\/span>
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E Tech resources<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Due to the importance of rare earth elements in various industries, their supply has strategic significance. For example, the magnets in some of America’s commercial and military equipment and Virginia-class attack submarines are made from REE.<\/p>\n

The world depends heavily on China for various materials, including REE.<\/p>\n

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\"Share<\/span>
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International Energy Agency <\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

China dominates in extraction and processing. The quote from an insightful article published in Politico summarizes it:<\/p>\n

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China could easily decide to restrict access to rare earths again, with disastrous consequences. Today, China accounts for 63 percent of the world\u2019s rare earth mining, 85 percent of rare earth processing, and 92 percent of rare earth magnet production. Rare earth alloys and magnets that China controls are critical components in missiles, firearms, radars, and stealth aircraft.<\/p>\n<\/blockquote>\n

Company Overview<\/strong><\/h2>\n

MP Materials Corp. is one of the few producers of rare earth materials in the Western Hemisphere.<\/p>\n

The company <\/span><\/span><\/span>owns <\/span><\/span><\/span>and <\/span><\/span>operates <\/span><\/span>the <\/span><\/span>Mountain <\/span><\/span><\/span>Pass <\/span><\/span><\/span>Rare <\/span><\/span><\/span>mien <\/span><\/span><\/span>and <\/span><\/span><\/span>North <\/span><\/span>America’s <\/span><\/span><\/span>sole <\/span><\/span><\/span>facility for mining and processing <\/span><\/span>rare earths.<\/span><\/span><\/span> <\/span>MP <\/span><\/span><\/span>Materials <\/span><\/span><\/span>is <\/span><\/span><\/span>transitioning <\/span><\/span>from <\/span><\/span><\/span>producing <\/span><\/span>and <\/span><\/span>selling <\/span><\/span><\/span>rare <\/span><\/span>earth <\/span><\/span><\/span>concentrate, <\/span><\/span><\/span>which <\/span><\/span>they <\/span><\/span><\/span>ship to <\/span><\/span><\/span>China for refining, <\/span><\/span><\/span>to <\/span><\/span><\/span>producing <\/span><\/span><\/span>and <\/span><\/span><\/span>selling <\/span><\/span><\/span>separated <\/span><\/span><\/span>rare <\/span><\/span><\/span>earth <\/span><\/span><\/span>commodities <\/span><\/span><\/span>globally<\/span><\/span><\/span>.<\/span><\/span><\/span><\/p>\n

This <\/span><\/span><\/span>strategic <\/span><\/span><\/span>shift <\/span><\/span><\/span>places <\/span><\/span><\/span>MP <\/span><\/span><\/span>Materials <\/span><\/span><\/span>in <\/span><\/span><\/span>a <\/span><\/span><\/span>pivotal <\/span><\/span>position <\/span><\/span>in <\/span><\/span><\/span>the <\/span><\/span>supply <\/span><\/span><\/span>chain <\/span><\/span><\/span>for <\/span><\/span><\/span>essential <\/span><\/span><\/span>components <\/span><\/span>for <\/span><\/span><\/span>cutting-edge <\/span><\/span>technologies<\/span><\/span>. <\/span>This <\/span><\/span>is <\/span><\/span><\/span>in <\/span><\/span><\/span>addition <\/span><\/span>to <\/span><\/span>their <\/span><\/span><\/span>partnerships <\/span><\/span><\/span>and <\/span><\/span><\/span>expansion <\/span><\/span>plans. <\/span><\/span><\/span><\/span><\/span><\/span><\/span>The image below from the last company’s presentation shows the stages:<\/p>\n

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\"Company<\/span>
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MP Materials company presentation <\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Stage 1:<\/strong><\/h3>\n

MP Materials’ operations center is the Mountain Pass Mine and Processing Facility\u2014the concentrate production at this facility is marketed to Chinese refiners. About 15% of the rare earths produced globally are produced by the Mountain Pass mine, which started operating again in 2012 after years of idleness.<\/p>\n

MP Materials’ Stage 1 operations sell concentrate products to Shenghe Resource Holding for further distribution to other downstream refiners in China. Except for MP Materials’ refining capabilities (which are currently undergoing renovation as part of the Stage 2 project) and one other plant in Malaysia, there are few downstream rare earth refining factories of scale outside of China. This reality is the main driving force behind MP Materials’ goal to reintroduce this vital industrial capability to the United States.<\/p>\n

Stage 2:<\/strong><\/h3>\n

Stage I provided a solid foundation with concentrate production, while Stage II was about refining. By converting to supplying rare earth elements, particularly the highly sought-after NdPr oxide, the company is positioned to capture a larger market share and demand higher prices. By focusing on NdPr oxide, MP Materials is effectively chasing these expanding industries, possibly ensuring continuous demand.<\/p>\n

The partnerships with Sumitomo Corporation of America demonstrate MP Materials’ growth potential. These partnerships provide broad revenue streams and a solid business plan to withstand market fluctuations. In essence, Stage II will highlight MP Materials’ transformation into a market leader for rare earths on a global scale.<\/p>\n

Additionally, the business has started construction on a brand-new manufacturing plant in Fort Worth, Texas, where the Mountain Pass minerals will be transformed into metals, alloys, and magnets.<\/p>\n

Stage 3:<\/strong><\/h3>\n

With the collaboration between MP Materials and General Motors (GM), a significant turning point in the transition toward electrification has been attained. Thanks to a long-term supply agreement, the Ultium Platform from GM will have a dependable domestic source of crucial rare earth materials. This will begin a new age of American independence in the electric vehicle supply chain.<\/p>\n

Shareholders<\/strong><\/h2>\n

The company`s shareholders are worth special mentioning. The image below from Market Screener shows who are the major shareholders in MP:<\/p>\n

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\"MP<\/span>
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Market Screener <\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

James Litinsky is MP`s CEO, owning 10.3 % of the company shares. Besides that, he is the CEO and founder of JHL Capital Group, the largest shareholder. JHL is an alternative investment firm. More interesting is the third largest investor: Shenghe Resources. As stated by Senator Lisa Murkowski, Chinese enterprise among the shareholders represents risks considering the tensions between China and the US and the crucial importance of REE for the US defense industry.<\/p>\n

Company Financials<\/strong><\/h2>\n

The company balance sheet is impressive, considering the declining revenues and significant investments in expansion. The table below shows the liquidity and solvency metrics. The data is from the last company report:<\/p>\n

<\/span><\/p>\n\n\n\n\n\n\n\n\n\n\n
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EBITDA\/Interest expense<\/p>\n<\/td>\n

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35.8<\/p>\n<\/td>\n<\/tr>\n

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EBITDA-CAPEX\/Interest expense<\/p>\n<\/td>\n

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-27.2<\/p>\n<\/td>\n<\/tr>\n

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Quick Ratio<\/p>\n<\/td>\n

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16.1<\/p>\n<\/td>\n<\/tr>\n

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Current Ratio<\/p>\n<\/td>\n

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15.1<\/p>\n<\/td>\n<\/tr>\n

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Net debt\/EBITDA<\/p>\n<\/td>\n

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(1.3)<\/p>\n<\/td>\n<\/tr>\n

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Net Debt\/ EBITDA – CAPEX<\/p>\n<\/td>\n

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1.7<\/p>\n<\/td>\n<\/tr>\n

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Long-term debt\/Equity<\/p>\n<\/td>\n

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50.1 %<\/p>\n<\/td>\n<\/tr>\n

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Total debt\/Equity<\/p>\n<\/td>\n

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50.2 %<\/p>\n<\/td>\n<\/tr>\n

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Total liabilities\/Total assets<\/p>\n<\/td>\n

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40.4 %<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

<\/span><\/span>