Surging demand for magnetic materials (NdPr) catalyst for stellar Q1 2021 results for MP Materials
December 2020 and March 2021 were the two highest months ever for electric car sales. In March 2021, global electric car sales were up 173% YoY reaching 8.2% market share. Europe sales rose 169% YoY reaching 16% share, China sales rose 244% YoY reaching 11% share.
Given EV sales are forecast to reach 30-50% this decade it looks like the Neodymium (Nd) and Praseodymium (Pr) or “NdPr”, “magnetic materials” demand is only going to increase from here. It is forecast that EVs consume ~5% of annual NdPr production today, but may consume ~100% of current annual production by 2035.
Neodymium (Nd) & Praseodymium (Pr) prices surged higher the past 6 months
The top two western NdPr producers are MP Materials Corp. (NYSE: MP) and Lynas Rare Earths Limited (ASX: LYC). Today I take a look at MP Materials who state that they are the largest producer of rare earth materials in the Western Hemisphere.
MP Materials was listed in 2020 as a result of the SPAC merger with Fortress Value Acquisition Corp. (FVAC) at US10.00 a share. The merger completed on November 18, 2020. The timing for investors was exquisite with NdPr prices beginning their ~100% price rise from early November 2020.
MP Materials owns and operates the open pit Mountain Pass Mine in California USA, the only integrated rare earth mining and processing site in North America. This gives MP Materials a very high strategic value to the United States. Mountain Pass plans to have an output of 5,000 metric tons pa of NdPr, starting in 2022.
MP Materials state: “Mountain Pass is a world-class asset, consisting of fully integrated and co-located mining and processing capabilities. The self-contained nature of our operations – with mining, milling, separations, and finishing all on one site – affords us significant cost advantages and mitigates operational risks. The Mountain Pass mine contains more than 800k tons of recoverable rare earth oxides with an average 8% ore grade, one of the highest quality known deposits in the world.”
MP Materials Mountain Pass mine and processing plants in California USA
Source: MP Materials website
With Stage 1 of the mine completed MP Materials now produces approximately 15% of the global supply of rare earths, currently in the form of an intermediate product—rare earth concentrate—that requires further processing in Asia. Following completion of the second stage of recommissioning, expected by 2022, MP Materials will relaunch its onsite processing facilities thereby resulting in the USA having a self-sufficient U.S. rare earth industry.
MP Materials has recently completed design improvements that de-risk Stage II. The design improvements are expected to improve recoveries, provide flexibility and enhance the environmental footprint.
The results of a March 2021 announcement of a private institutional offering of $600 million principal amount of MP Materials 0.25% Green Convertible Senior Notes due 2026 has not yet been updated to the market. In any case, MP Materials has sufficient cash to complete their Stage II project.
MP Materials achieved a record Q4 2020 on the back of rising NdPr prices
As we saw in Q4, 2020, Q1 2021 should also bring stellar results on the back of high NdPr prices during the Q1 quarter. MP Materials is due to announce Q1, 2021 results tomorrow, May 6, 2021, after the close. The consensus earning per share is US$0.09. In MP Materials March 18 2021 presentation the Company stated: “Current REO (rare earth oxides) pricing environment implies strong YoY and QoQ profitability growth in Q1.”
MP Materials turnaround is forecast to continue in 2022 and 2023
From a net loss in 2020, MP Materials is forecast to have a net income of $68 million in 2021, $101 million in 2022, and $238 million in 2023. Now that’s an impressive net income ramp! This equates to MP materials forecast PE ratios of 83 in 2021, to 56 in 2022, and 23 in 2023.
Finally, in April 2021 it was announced that Morgan Stanley adjusted their MP Materials’ Price Target to $41 from $57, keeping their overweight rating.
Demand for key magnet rare earths (NdPr) looks set to soar the next decade boosted especially from demand from electric motors used in EVs, some wind turbines, drones, consumer electronics, defense systems and many other high-growth, advanced technologies.
MP Materials’ Mountain Pass Mine is already a prized US mine and one of U.S strategic importance. Forecast net income growth assumes they can execute their Stage II plans successfully and become a fully integrated US rare earth end products (especially NdPr) producer in 2022, without any reliance on Asia. Perhaps MP Materials is priced for perfection or perhaps they are priced for their strategic importance. Only time will tell. Feel free to add your comments in the section below.
Disclosure: The author is long MP Materials (NYSE: MP) and Lynas Rare Earths Limited (ASX: LYC).