The race to finding the best ways to play the secular growth electrification provides is on. Investors in MP Materials (NYSE:MP) stock are betting the supply chain is the best way to play this space.
Indeed, I’m a firm believer that indirect “picks and shovels” plays on most sectors can often provide better risk-adjusted returns over time. In MP’s case, this certainly holds true.
MP is a rare earth miner providing the key elements necessary for battery development today. As North America’s largest miner of rare-earth minerals, MP has gotten a lot of attention of late for good reason.
The vast majority of rare-earth minerals produced globally currently come from China. MP provides absolutely mission-critical domestic supply of these essential minerals.
Given the rather shaky state of U.S.-China relations these days, this is important. MP is largely viewed as a national priority from a political standpoint. Investors making a bet on MP are making a bet on the prioritization of domestic production of critical elements which could become a topic of national security in the years to come.
Additionally, these rare-earth minerals are core to the development of the next-generation technologies we’ll need in the future. The world is electrifying at a rapid pace, and battery production levels that will be required for the world to achieve global emissions reductions will ultimately rely on a steady supply of these minerals.
Let’s take a deeper look at what MP Materials does, and why this stock is on my watch list right now.
MP Stock: Yet Another Highly-Anticipated SPAC
MP was brought to market mid-2020 via a special purpose acquisition company (SPAC) merger. The combination was between MP and Fortress Value Acquisition Corp. The proceeds from the SPAC totaled $545 million. These funds are intended to be used in the build-out of a world-class rare-earth minerals supply chain in the U.S.
In addition to funds raised via its SPAC IPO, the company has been busy raising capital by other means.
Last month, MP Materials announced a $500 million green convertible note offering to institutional investors. Additionally, a secondary public offering of 6 million shares at $35 per share was issued March 24.
MP stock did take a hit after these announcements. However, the hope is that the long-term growth prospects arising from additional capital raises will outweigh the near-term dilutive nature of these raises.
Mountain Pass Mine Key to MP’s Growth
The company’s core asset – its Mountain Pass mine – is where the majority of these funds will be spent.
MP’s Mountain Pass mine in Nevada is touted as a “one-of-a-kind, world-class asset, consisting of fully integrated and co-located mining and processing capabilities.”
The company’s recoverable rare earth reserves are estimated to be around 800,000 tons. Additionally, these reserves are of extremely high grade. The company estimates an average 8% ore grade. This makes Mountain Pass one of the highest-grade rare-earth mineral mines in the world.
Additionally, the Mountain Pass mine is an environmentalist’s friend. The company notes that around 95% of the water used is recyclable. Its dry tailings process also allows for the manufacture of reagents used in the separation and processing of rare-earth minerals.
MP currently ships rare-earth concentrate abroad to be processed. In the future, the company hopes to be able to refine its rare earth concentrate in-house. This would allow for the production of NdPr magnets.
Accordingly, MP has targeted 2025 for the production of NdPr magnets. This is a bold goal, but one which the company believes is viable due in part to its access to equity markets.
The Bottom Line
MP stock provides investors with an incredible “picks and shovels” play on electrification. By owning the resource underpinning the technological innovation of tomorrow, investors can obtain direct exposure to power secular growth with (arguably) significantly less risk.
The company’s rare-earth mineral production powers everything from the EV revolution to clean energy, digital technologies, and other military applications as well. Accordingly, I see MP as a company with among the most favorable political tailwinds a mining company could ever hope for.
Indeed, battery development is often taken for granted or glossed over when it comes to the electrification growth discussion. Batteries and improved battery technologies are at the core of the electrification trend. How these batteries come to be ought to be of utmost importance to investors today.
For investors looking for top-notch mining exposure, MP is one of the best options to consider today, in my view.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.