December 08, 2022

MP Materials is riding the rare earths tonnes per year train

MP Materials Corp. (NYSE: MP) emerged from the Chapter 11 of Molycorp and is the only producing rare earths mine in the USA. At one time the in the 1990s it was producing upwards of 40% of the world’s rare earths.  MP has a current market cap of US$5.6 billion, which puts it slightly ahead of Lynas Rare Earths Ltd. (ASX: LYC), which is the biggest producer of separated rare earths outside of China. Combined their market caps exceed the annual revenue of separated rare earths globally.

MP has made some interesting news this year. Q1 revenues of US$166.3 million which is 50% of their revenues from all of 2021. This is due to the high pricing of Neodymium (Nd) and Praseodymium (Pr) in Q1 of this year. Based on Roskill’s report of 2015, MP’s content of NdPr is 16.3% of the total volume. This may vary a little but it is likely to be the two elements that set the pricing for their concentrate as the balance of the materials are of little value. Looking at a basket price, NdPr will account for 93-94% of the total value, assuming all elements were sold which is doubtful as the Chinese have lots of the remaining elements, especially Cerium and Lanthanum. Gross margins in Q1 2022 were 88%, up from 81% in 2021, but I expect this will fall for the balance of the year as NdPr prices are now 20-25% lower than Q1 peaks. Either way, MP is poised to improve its Net Income to US$168.4 million. MP has done a good job in their sales price to China for their concentrate. I calculate they are getting somewhere in the range of 40-50% of market value, which is high versus traditional pricing for concentrate which I have seen at 25-30%.

In April a definitive supply agreement was announced between MP Materials and GM to supply rare earth alloy and magnets for GM’s EV program. This is significant as it would restore NdPr rare earth metal, alloy and magnet production. The USA does produce Samarium Cobalt magnets but these are typically used in military applications. There is no indication on what technology will be used to produce the metal, which in China is a messy process. Planned capacity is 1,000 metric tonnes of NdFeB magnets. This will require 280-300 tonnes of NdPr. The previous Molycorp plant was designed to produce 20,000 tonnes of REO of which NdPr would account for over 3,000 tonnes.

This does leave the question as to where MP will sell the remaining NdPr. Europe has one metal/alloy producer and one magnet producer, and Japan is the other logical market, but Lynas owns 80% of the Japanese market and has a shorter supply line. What is left is China. Also to supply other US car producers MP would have to expand capacity, and it is not clear what limits or exclusivity GM has with MP Materials.

The challenge is that the original plant was designed as a single train of 20,000 tonnes per year. Nowhere in China is there a single train much larger than 5,000 tonnes per year (TPY). Lynas built four 5,500 TPY trains. This allows flexibility should there be issues like reduced demand during COVID where one or two trains can be shutdown to allow matching with demand, or if one train has operational issues. I would expect that MP, with the input from Shenghe Resources (a related party of MP whose ultimate parent is Shenghe Resources Holding Co., Ltd., a rare earth company listed on the Shanghai Stock Exchange, and as of its March 31, 2022 quarterly report, a buyer of MP’s rare earth concentrate that accounted for more than 90% of MP’s product sales), will reconfigure the plant to be more flexible. Also MP, like anyone else, will not go from zero to 20,000 TPY overnight. There will be a qualification process and time to acquire accounts so multiple trains makes sense as one penetrates a market as they can be brought on as the business grows.

The other news was that the US Department of Defense (DOD) granted MP $35 million to build a heavy rare earths at Mountain Pass. I find this interesting as Mt. Pass has 98.6% of its content in light rare earths. This would mean at a run rate of 20,000 TPY the total output of the heavy rare earths would be 280 TPY. The only real valuable heavy rare earths are Terbium (Tb) and Dysprosium (Dy) which would total about 10 TPY combined. At today’s pricing, which for Tb is high, in my opinion, this plant would generate revenues of $10-11 million per year.

Overall MP has been doing well – selling concentrate to China. What will happen to profits as they move downstream only time will tell.

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5 responses

  1. Jack Lifton Avatar
    Jack Lifton

    Alastair,
    China strictly prohibits the transfer of many metal processing technologies. Among them are rare earth separation and rare earth metal-making process technologies. MP has recently sold mixed rare earth fluorides and neodymium chloride to a Chinese customer. I am guessing that this was done to test whether the MP fluorides can be further used to make acceptable magnet grade metal and if the neodymium chloride can be used to make neodymium fluoride. But such testing might require disclosure of some prohibited aspects of Chinese metalmaking process technology. The MP fluorides and chloride were sold at very high over-market prices. I personally wonder if someone in China could be using this sale to transfer money and/or technical assistance to someone outside of China so as to skirt the laws against technology transfer. As you say, rare earth metal making in China is a messy business.
    Jack

  2. Tracy Weslosky Avatar
    Tracy Weslosky

    Brilliant. Insightful. Alastair, there is only 1 person on the planet that could have written this informative analysis and that is you – thank you. Clean, matter-of-fact text, this is a reflection of your what? 30+ years of experience in this sector? Again, many thanks…enjoying my coffee and re-reading. Well done. Thank you.

  3. Alastair Avatar
    Alastair

    As always Jack you are well tuned into what is going on in rare earths. Interesting hypothesis on sales price

  4. Rare Earths Investor Avatar
    Rare Earths Investor

    Thanks for the article.

    GM also has an agreement with GE to cooperate over opportunities to improve supplies of heavy and light rare earth materials and magnets, etc in the US. So, maybe despite GE’s recent move with Arafura, they may also be interested in GM’s potential relationship with MP products.

    It is also, IMHO, interesting to note that GM signed (along with the MP) an agreement with a German magnet maker VAC (I believe this included both companies building a magnet factory in the US?).
    Maybe here we also have a supply security move by GM. MP’s magnet-making factory buildout and production is untested and we are talking production/supply for 2023-2024 (not much time for overcoming trial-and-error production here).

    However, we may also have a move by GM (with Mary Barra), to make sure that with today’s politics in the US, GM are at least showing support on paper for a DoD/ Biden RE favorite in MP?

    As you say it is going to be very interesting to see how MP meets it ‘bold promises. IMO, as they navigate the complex interaction between OEM needs, DoD/Biden Admin’ strategic backing, US (Senate) politics, and other RE entity competitors for the few feedstock, processing and magnet-making slots that will come available, initially to 2024 in N. America.

    Again, thanks for writing and raising questions about MPs’ progress.

    GLTA – REI

  5. LIUNINGGD Avatar
    LIUNINGGD

    The rare earth reserves in the United States are not weak. Earlier, the rare earth mines in the United States were not exploited because the price of rare earths exported by China was too cheap. Now that the prices of rare earths exported by China have risen, the United States has begun to mine its own rare earths. The United States is only bent on suppressing China.

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