MP Materials: A Domestic Rare Earth Monopoly

MP Materials Company Overview

Rare earth elements (REEs) are a group of seventeen rare elements that are essential ingredients for a wide range of modern technologies due to their unique magnetic, luminescent, and electrochemical properties. Zacks Rank #3 (Hold) stock MP Materials (MP) is America’s only vertically integrated rare earth producer. At its site in Mountain Pass, California, the company mainly mines and processes rare earth elements, particularly Neodymium-Praseodymium (NdPr), which are integral components in high-strength permanent magnets. These rare earth magnets are irreplaceable because, without them, it’s impossible to produce electric vehicle motors, wind turbines, robotics, advanced defense systems, and a wide range of consumer electronics such as smartphones. Beyond its California mine, MP Materials is expanding its magnet manufacturing capacity with new facilities in Texas.

MP Scores DoD Investment

The COVID-19 pandemic highlighted to the world the fragility of the global supply chain. Although tensions between the US and China have cooled somewhat from their peak during the tariff standoff earlier this year, President Donald Trump has insisted that the US onshore and secure critical supply chain components, especially those needed for national security. Because rare earth elements are essential for defense and critical commercial applications, the Department of Defense (DoD) awarded MP Materials a lucrative contract in early July, which includes a $400 million investment in preferred stock and a $150 million loan to help the firm expand its processing capabilities. In addition, DoD has pledged to purchase all of MP’s neodymium-praseodymium oxide production from its new facility, ensuring a minimum price that will be paid.

Apple Commits $500 Million to MP Materials

Tech giant Apple (AAPL) is one of the largest purchasers of rare earth elements globally. On July 15^th, Apple announced that it would invest $500 million into MP Materials to purchase American-made rare earth magnets. Additionally, Apple will use its endless resources to help establish a ‘cutting-edge rare earth recycling line in Mountain Pass, California, and develop novel magnet materials and innovative processing technologies to enhance magnet performance.’

MP Builds Rare, High-Tight Flag Chart Pattern

When it comes to price action, power and distance are often correlated. Following the DoD contract, MP shares bolted 50% in a single trading session as trading volumes soared to seven times the norm. A few weeks later, shares jumped another 20% as volume soared following the Apple news. MP shares have now more than doubled over the past month, forming a classic high-tight flag pattern. While shares may seem extended to amateur investors, such patterns have historically led to robust gains, especially in companies with bullish catalysts like MP.

MP Call Flow

Deep-pocketed options traders have been piling into December $75 MP calls, suggesting high bullish conviction in the stock into year-end.

Bottom Line

MP Materials enjoys a monopoly on domestic US rare earth mining and production. In addition to its stranglehold on the rare earth market, MP stands to benefit from significant headwinds, including an investment from the US DoD, and a deal with Apple.

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This article originally published on Zacks Investment Research (zacks.com).

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