MP Materials: Mining Supplier of Magnets for Electric VehiclesMar 19, 2021
Today we'll be covering another "Chamath" stock, in MP Materials (MP)! Similar to earlier in the week, when we covered Desktop Metal (DM), this is another stock in the clean energy sector that has been highly covered due to the celebrity investment from Chamath. So who is MP and what do they do? MP is the largest American rare-earth materials mining company who provides the world with a sustainable, low-cost supply chain of coveted materials that help power the modern economy. This investment is not only an ESG (socially responsible) investment but an investment into electrification of vehicles, planes, trains, etc. Factor in the companies strong balance sheet and income stream and we're extremely excited for the future of this company for all the reasons described above.
As the largest US-based miner of rare earths, MP is a different way to play the trend of traditional oil combustion based engines to electrification and the EV supply chain. What we mean by this is often people today are investing in the consumer facing end of this trend (i.e. Tesla, GM, etc.) but this takes a few steps back on the supply chain and is a rare chance to offer an investment into the raw materials into this space. MP provides Tesla and other companies "electrifying" the world the materials needed to build their businesses! The thesis here is that if clean energy increases in demand, MP will be the one to supply it. So rather than pick the company who will either win the EV space, wind turbine, etc., this is a way to just participate in a general increase in demand across the sector!
Now that you understand what MP is and why it is a differentiated way to invest in green energy, let's discuss what MP is doing that is so exciting!
- MP's core product, NdPr, is one of the core components of the magnets used in most EV motors and a growing number of wind turbines. As the largest rare earth's miner, if EV grows, demand for NdPr will grow too. Amidst the backdrop of this shift to clean energy we are forecasting demand for their product to grow roughly 10% year over year for the foreseeable future! Given the raw materials are "rare", MP is in a unique position to truly dominate the space that has to use NdPr to build the engines that power the industry!
- While MP is growing they're actually looking to launch new products further down the supply chain! What this means is that while they're the biggest rare earths seller, they're now looking to start selling refined rare earth compounds. While this may not seem like a big difference, it is a massive shift for them! We project this new product line can help boost revenues by over 50% and EBITDA by 100%! This reason they can do this is because they've been funded enough and have enough income to be able to support this shift! This is key. MP is in unique position to truly dominate and continue growing massively if they do this successfully.
- Today over 60% of rare earth mining is done in China for US products. We however see this changing for two reasons. 1) There is a large range of military defense applications that require these raw materials. Given our reluctance to rely on China for our national security we see more and more of this reliance coming back onshore to the USA. 2) The US, from an economic perspective, also does not want to rely on China for its raw materials powering the next wave of energy production. Therefore, the US has already started to creative incentives to have companies use these materials from companies like MP! These two factors are huge! If this trend continues (which we forecast it will), MP (as the largest US based rare earth's miner) will be in a massive position to capture an increasing market size.
While we are extremely bullish on MP we are still aware that there are risks to our overweight thesis. Should the underlying commodity prices of NdPr change drastically, this could have a massive implication on the revenue stream MP relies on. However, we are comfortable taking that risk in the long term and project MP to be a massive winner in the clean energy mining space! If they can do this, we project over $500M in annual revenue by the year 2025. This backs into a stock price target of $57.50 with significant upside!
Price Target: $57.50
Target Date: 6-8 Months