MP Materials (MP): Rare Earth Minerals Mining Company IPO Review

MP Materials Corp. (NYSE: MP) was formed out of Molycorp after it filed for bankruptcy in 2015. MP acquired Mountain Pass mine and other assets from Molycorp in 2017. Currently, it is the only major U.S-based company that is engaged in mining and processing rare earth elements used in a wide range of industries.

Most U.S. companies engaged in mining rare earths had to sell their operations, as they could not compete in the market due to lower prices offered by Chinese firms. However, in recent years, the U.S. government has been keen to boost domestic processing of rare earths to reduce its dependence on China amid an ongoing trade conflict with the second biggest economy of the world. China is currently the largest producer of rare earths. It previously threatened to stop their export to the U.S amid heightened trade tensions between the two countries.

MP states in its mission that it wants to resume the complete rare earth supply chain for the local industries and eliminate dependence on China. It is the only company in the U.S. that can supply the rare earths crucial for strategically important industries.

MP went public in November 2020 after completing its merger with a SPAC called Fortress Value Acquisition Corp. Its shares started trading on the NYSE on November 18. MP’s stock price has increased significantly since going public. One of the key reasons behind the surge was its strong financial performance for the third quarter, with profit climbing more than five folds.

Meanwhile, increasing demand for electric vehicles (EVs) has also been driving the share price of MP, which is a major supplier of rare earth magnets to EV manufacturers. The booming EV market is expected to further lift the demand for permanent magnets used in battery production. A report from Brand Essence Research states that the global rare earth elements market size is expected to hit $20.6 billion by 2025, significantly higher than $2.80 billion in 2018.

MP CEO James Litinsky said in an interview with Jim Cramer last month, “Whatever the battery technology is, we think we’re a picks-and-shovels play for this movement.” Litinsky was highlighting the role played by MP in supplying the magnets needed by U.S-based EV manufacturers.

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MP shares started trading around $15 after its public listing. Its stock value has more than doubled since November. Its shares are currently trading around a price of $31 per share. The total market value of the company is just over $5 billion. Given that Molycorp was once a high flying stock valued at $5 billion and ended up in bankruptcy, investors have to be cautious about MP Materials. Things were fine and dandy when the rare earth elements’ prices are sky high, however, Chinese suppliers could flood the market at some point in the future and drive MP into bankruptcy. Molycorp didn’t fail because it was led by idiots, it failed because it couldn’t compete with the Chinese. If MP Materials doesn’t get political protection and/or subsidies, its fate might not be different.