Growing tensions with authoritarian countries have accentuated the need for America and its allies to be more self-reliant on critical minerals. These include rare earth element (REE), the supply of which China has a stranglehold, asserts Stephen Leeb, editor of Real World Investing.
MP Materials (MP) is our nation’s best hope to change that. The company owns and operates the Mountain Pass mine (California), the only active REE mine and processing facility on U.S. soil. The mine has ore grade of 6.3% — considered to be world class — and is expected to have at least another 35 years of life.
MP produces neodymium-praseodymium (both on the USGS critical minerals list), or NdPr, used in high-strength magnets that are found in many products such as in electric vehicles (EVs), robots, wind turbines and a large number of electronic devices. The company is the largest non-Chinese supplier of rare earth oxide in the world, with about a 15% market share.
Currently, MP still sends the rare earth concentrate to China for processing, but that is expected to change soon. The company is working on expanding operations. Its goal is to become a fully-integrated producer, going from producing the ore to being able to fully refine the ore by the end of 2023 and to being able to make the finished magnets at a plant in Texas, by 2025.
We were not fully convinced that MP would be able to achieve vertical integration because processing REEs produces very toxic waste, but it is looking more likely now as MP has the full backing of the U.S. government to restore domestic REE production capability to America.
Washington has awarded MP roughly $12 million, and in February 2022, the Department of Defense invested $35 million into the company and will provide support to help MP become U.S.’ only integrated producer. It is, effectively, a government-sanctioned monopoly with potentially a long growth runway ahead.
MP reached profitability in the four quarter of 2020 and it has been free cash flow positive as well since the March 2022 quarter despite ongoing capital spending toward vertical integration mentioned above thanks to strong NdPr pricing.
In the most recently reported quarter as of this writing, the average realized price grew 90% while costs only increased 14%. In recent months, NdPr prices have fallen from recent highs, but the long-term supply/demand outlook is very favorable. According to some estimates, by 2030, the global shortage of NdPr could reach close to 20,000 metric tons.
Questions remain how well MP can control costs in the current inflationary environment as it works on the expansion projects that will make it the only vertically integrated rare earth producer in the West, but so far so good. It helps immensely that the company has Washington firmly in its corner because America needs MP to succeed as a matter of national security.