MP Materials Corp. (ML) is the owner and operator of the Mountain Pass facility, one of the world's largest integrated rare earth mining and processing facilities and the only major rare earth resource in the Western Hemisphere, explains analyst Matthew Miller, in CFRA Research's The Outlook.
MP produces a concentrate that contains about 15% of the rare earth content consumed globally. Rare earth elements (REE) are fundamental building blocks of the modern economy, enabling end-products across several industries, including transportation, clean energy, robotics, national defense, and consumer electronics.
Neodymium (Nd) and Praseodymium (Pr) are rare earth elements that, in combination, form neodymium-praseodymium (NdPr), which represents MP's primary revenue opportunity. NdPr is most often utilized in NdPr magnets, which are made predominantly from an alloy of NdPr, iron, and boron.
NdPr magnets are the most widely used type of rare earth magnets and are critical for many advanced technologies that are experiencing strong secular growth, including electric vehicles (EVs), drones, defense systems, medical equipment, wind turbines, robotics, and many others. The rapid growth of these advanced motion technologies is expected to drive strong demand growth for NdPr.
MP is enhancing value along the supply chain with each stage of its strategic plan. The company currently produces a rare earth concentrate, but starting in 2022, MP will start separating the concentrate into higher-value products, such as high-purity separated NdPr oxide, lanthanum, cerium oxides and carbonates, and a heavy rare earth concentrate.
MP plans to integrate further downstream into the business of upgrading NdPr into metal alloys and magnets, ultimately expanding MP's presence as a global source for NdPr magnetics. The integration of magnet production would establish MP as the first and only fully integrated source of supply for rare earth magnets in the Western Hemisphere.
MP announced a binding, long-term agreement with General Motors (GM) to supply rare earth materials, alloy, and finished magnets for the electric motors in more than a dozen models using GM's Ultium Platform, with a gradual production ramp that begins in 2023.
Our Strong Buy opinion is driven by our view that MP is poised to be the lowest cost (and the most environmentally friendly) producer of rare earth and NdPr magnets in the world.
During 2021, MP benefited from appreciating REE prices and strong operating performance. At the same time, MP is currently only capturing a fraction of the value chain. Separation facilities are expected to ramp up during most of 2022, which is expected to double revenue and EBITDA, and (while 2022 will be a transition year) 2023 is expected to be the first full year producing higher value separated oxides.
We expect several positive catalysts in 2022, including continued strength in REE pricing and company guidance regarding the potential earnings uplift from magnet production.
Our 12-month target price of $57 is 55.3x our 2022 EPS estimate, which is in line with REE firms globally. MP is trading at an attractive PEG ratio of around 0.8x.
We think MP will be more volatile that its peers in the metals and mining industry, but the company offers significantly more upside and a compelling way to gain leverage to positive trends in electrification. The stock carries CFRA's highest investment recommendation of 5-STARS, or Strong Buy.
Risks to our view include higher costs or delays associated with the construction and start-up of its magnet manufacturing plant and market price declines of REE.
