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The United States is seeking to secure its supply of critical minerals and rare earth elements, and MP Materials (MP) is one of the leading players in this sector. Last year, the U.S. rare earth producer entered into a historic agreement with the government. For investors considering MP Materials, the following two points are reasons to buy, while one point constitutes a sell signal.
MP Materials owns and operates the Mountain Pass mine in California, one of the world’s most richly endowed rare earth deposits and currently the only active rare earth mine in the United States. The mine is a high-grade deposit, with total rare earth element concentrations of approximately 7% to 9%.
The company also employs a vertically integrated business model, encompassing upstream mining, raw material refining, and downstream metalization and alloying. MP’s processing capabilities allow it to produce large volumes of rare earth oxide concentrate, as well as separated neodymium-praseodymium (NdPr) oxide and metal, which are critical raw materials for high-performance permanent magnets used in electric vehicle motors, military guidance systems, and artificial intelligence data centers.
With its mining operations and integrated business model, MP Materials has established a first-mover advantage in the domestic “mine-to-magnet” supply chain.
Last year, MP Materials reached a landmark public-private partnership with the U.S. government. As part of the agreement, the U.S. government became the largest shareholder of MP Materials through a $400 million convertible preferred stock investment.
The agreement also includes a ten-year price protection agreement (PPA) that sets a minimum guaranteed price of $110 per kilogram for NdPr products produced at Mountain Pass. This price floor provides MP with predictable revenue while protecting it from predatory pricing strategies that may be employed by state-subsidized foreign competitors, which could flood the market with cheap materials.
Investors saw the effect of this arrangement firsthand in MP Materials’ first-quarter earnings report, when its price protection agreement revenue added $42.3 million to earnings. In that quarter, MP achieved record NdPr production of 917 metric tons, with sales rising 49% to $90.6 million. As a result, MP’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved to $36.6 million, compared with a loss of $2.7 billion in the same period last year.
While MP Materials already has the infrastructure to mine and process critical minerals, it must continue to expand to meet growing demand for domestically sourced materials. To that end, the company is building a rare earth magnet manufacturing campus called “10X” in Northlake, Texas. The facility is designed to expand total finished neodymium-iron-boron magnet capacity to approximately 10,000 metric tons per year, with commercial production expected to begin in 2028.
MP Materials estimates that developing the 10X project will require approximately $1.25 billion. Although the project has received some government subsidies, the company will still need to borrow funds, and the capital intensity could pressure cash flow during development. Any delays in construction could affect its projected growth. Moreover, if U.S.-China trade relations improve substantially, U.S. regulators may place less emphasis on developing domestic critical minerals.
In the months following its agreement with the U.S. government, MP Materials’ stock price surged to as high as $100 per share. However, market enthusiasm for the stock has faded, and the share price is now down 46% from its 52-week high. The stock currently trades at approximately 54 times expected 2027 earnings, making it vulnerable if production ramp-up or margin expansion encounters difficulties.
Investors should be aware of the risks associated with holding MP Materials. Nevertheless, the company holds a first-mover advantage in the domestic critical minerals space, and its agreement with the U.S. government provides unique protections that help secure future revenue. If you are bullish on the prospects for building a domestic “mine-to-magnet” supply chain, MP Materials is one of the top stocks to watch at this time.
