MP Materials' High Costs Warrant Caution: Can It Protect Margins?

MP Materials Corp. MP has experienced a significant jump in its costs of sales since the past year. In 2024, MP’s cost of sales nearly doubled to $192.6 million from $92.7 million in 2023. Costs accounted for approximately 94% of revenues in 2024, a sharp rise compared with 37% in 2023, attributed to the elevated production costs due to the initial ramp of production of separated products.

Due to the start of Stage II production, the upward trend in costs began in the first quarter of 2024 and persisted throughout the year. This trend continued in the first quarter of 2025, with the cost of sales rising 37% year over year to $48 million, or 80% of revenues.

In the first quarter of 2025, the cost of sales was primarily impacted by higher production costs related to a higher mix of refined product sales compared with the prior year. Separated product production costs are presently elevated on a per-unit basis, given the currently low utilization of the refining facilities as the company ramps up to normalized production levels. 

Despite higher revenues in the quarter, elevated production costs led to a loss of 12 cents per share for Material Processing in the first quarter, wider than the year-ago quarter’s loss of four cents.

The company’s decision to increase production of separated rare earth products at Mountain Pass is expected to result in higher costs in 2025, given that these products are more expensive to produce than rare earth concentrates. Additionally, the ongoing ramp-up in the output of magnetic precursor materials will further contribute to elevated production expenses.

A Quick Look at Cost Trends of Peers

Energy Fuels UUUU recently commenced the production of heavy rare earth element oxides at its White Mesa Mill at pilot scale and is expected to produce separated heavy rare earth oxides on a commercial scale as early as the fourth quarter of 2026. 

Energy Fuels witnessed a 64% surge in its cost of sales to $18 million in the first quarter of 2025 due to higher costs related to the mining of lower-grade Heavy Mineral Sand (HMS) products at the end of the Kwale mine life, which was completed as of Dec. 31, 2024. Energy Fuels had not incurred costs applicable to rare earth elements in the quarter. 

In fiscal 2024, Energy Fuels saw a 208% increase in costs to $55.9 million due to costs applicable to HMS as well as higher uranium purchases. Costs represented 72% of revenues in 2024 and 107% of revenues in the first quarter of 2025. 

Idaho Strategic Resources IDR is a gold producer and critical minerals/rare earth element exploration company. Idaho Strategic Resources saw a 34% increase in cost of sales and other direct production costs to $3 million, or 42% of revenues, in the first quarter of 2025. Idaho Strategic’s costs moved up 32% to $10.86 million in 2024 and were 42% of revenues.

MP’s Price Performance, Valuation & Estimates

MP Materials shares have skyrocketed 290.1% so far this year compared with the industry’s 16.1% growth.

MP is trading at a forward 12-month price/sales multiple of 23.28X, a significant premium to the industry’s 1.24X. It has a Value Score of F.

The Zacks Consensus Estimate for MP Materials’ 2025 earnings is pegged at a loss of 43 cents per share. However, the bottom-line estimate for 2026 is pegged at earnings of 71 cents per share, indicating a solid improvement. The estimates for both 2025 and 2026 have moved up in the past 60 days, as shown below.

The company currently carries a Zacks Rank #3 (Hold). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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