A new type of "pay dirt" is emerging that might be even more profitable than oil; concentrated deposits of rare earth minerals are needed for high-tech applications like electro-magnets and EV batteries, explains Adam Johnson, growth stock expert and editor of Bullseye Brief.

China owns the vast majority of these increasingly essential inputs, with Australia as a distant second, but the single largest and most productive rare earths mine sits in California… about an 90 minutes from Las Vegas.

The property represents 15% of the world’s know reserves but could satisfy decades worth of electric vehicle demand, since its mineral concentration is six times greater than mines operating elsewhere.

As a result, this single operation in California is the world’s lowest cost producer, and since the owners are also building a nearby electro-magnet production facility, it’s evolving into the only truly vertical operation of its kind.

MP Materials Corp. (MP) is the world’s lowest cost producer and only US miner of rare earth minerals for electro-magnets and next-generation battery components. These evolving technologies simultaneously increase total output while extending battery life… they also make wind turbines more efficient, missiles more accurate and locomotives more powerful.

Mineral deposits at the company’s California mine account for 15% the world’s known rare earths reserves and have six times the mineral content of other mines. It’s a strategic asset and a guaranteed source of domestic supply, freeing the US of Chinese dependance. As an environmentally sensitive producer, MP Minerals returns 95% of its tailings to the ground and very little offsite water is used in the mining process.

A major capex campaign has entered its third and final phase, resulting in the company being able to mine and refine minerals, as well as produce finished electro-magnets. MP Minerals will be the world’s first and only fully integrated supplier of electro-magnets — and the world’s lowest cost producer.

Mountain Pass is the only combined mining and refining operation in the Western Hemisphere. Once the Phase III magnet production facility is finished later this year, MP Materials will be able to fabricate its own electro-magnets, thereby capturing every link up the value-added chain. This will further distinguish MP Materials as the global leader in rare earths.

Shares trade at just 10 times forward estimates. I arrive at my price target by smoothing consensus estimates on the mining business and adding an early ramp of the magnet business. Margins on mining are about 40%, while magnet production generates an incremental 15% to net income in the first two years (2024 and 2025).

This combination results in estimated 2025 EPS of $2.67, which I multiply by a peer P/E ratio of 25x to arrive at $67. I could run this model out to 2020 and discount back to the present, but I think this initial approach is sufficient, especially since it implies more than a doubling of the stock price.

Overall, the company is profitable and the stock is reasonably cheap. I love seeing an American company leading the world in clean energy technology, and I’m adding it the the Bullseye portfolio.

Subscribe to Bullseye Brief here…