MP Materials Corp.

Company Overview: MP Materials Corp. (NYSE: MP) is involved in rare earth materials production and owns and operates the Mountain Pass Rare Earth Mine and Processing Facility in California. Separated rare earth elements are critical inputs to the world’s most efficient and powerful magnets in electric vehicles (EVs), drones, defence systems, wind turbines and various advanced technologies.

­­­­­­MP Details

Material Business Updates

Quarterly Historical Trend

The top line trended upward to US$166.3 million in Q1FY22 from US$60.0 million in Q1FY21, with a significant contribution from recent price and volume developments at the beginning of FY22. Operational efficiency improved, as illustrated by margin expansion.

First Quarter FY22 Performance:

Full-Year FY21 Performance:

Top 10 Shareholders:

The top 10 shareholders together form ~62.10% of the total shareholding. JHL Capital Group LLC and QVT Financial LP [Activist] hold a maximum stake in the company at ~­­­21.51% and ~9.56%, respectively.

Key Metrics:

Revenue increased dramatically, driven by the rising realised price of rare earth oxide (REO) in concentrate and MT sold. The QoQ increase in gross margins in MT sold was driven by spiked production volumes and the timing of shipments. The current ratio has increased as working capital begins to cluster, aligning with rising production levels.

Outlook:

Key Risks:

China’s economic activities, export policy, and policy on rare earth production or the import of rare earth feedstock may negatively impact the financial conditions. The company’s continued growth depends upon the ability to execute the Stage II project at Mountain Pass, being the only rare earth processing and mining facility.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

Performance Details: The company has delivered 1-month and 6-month returns of ~-27.03% and ~8.16%, respectively. The stock is trading lower than the average of the 52-week high price of US$60.19 and the 52-week low price of US$23.18.

Valuation Rationale: A slight premium has been applied to the peers’ average EV/Sales multiple (NTM) (Peer Average), considering decent production prospects from Stage II construction and a spike in REO price. For valuation, a few peers like Compass Minerals International Inc (NYSE: CMP), Piedmont Lithium Inc (NASDAQ: PLL), Materion Corp (NYSE: MTRN), and others have been considered.

Investment Rationale: Considering the sustainable fundamental growth, rising market demand for REO, increasing production prospects, improved pipeline, current trading levels, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the closing market price of US$38.29 per share, up by ~1.59%, as of 09 May 2022.

Markets are currently trading in a highly volatile zone due to specific macroeconomic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

MP Daily Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.