MP Materials: Is This Chamath Palihapitiya-Backed Company a Buy?

Since going public via SPAC merger, rare earth mining company MP Materials (NYSE:MP) has been an outstanding performer for its shareholders. With many applications in the fast-growing electric vehicle industry and some interesting competitive advantages, is the company worth a look now? In this Fool Live video clip, recorded on March 15 during a show about Chamath Palihapitiya’s investments, contributors Brian Withers, Dan Caplinger, and Matt Frankel, CFP, discuss MP Materials and whether it could be worth a look for long-term investors.

Matt Frankel: This one finalized its SPAC merger in the fourth quarter of 2020. Ticker symbol is MP. MP Materials, the MP stands for Mountain Pass. This is a company that mines rare Earth metals and it’s planning to really scale up and be an integrated producer of rare earth magnets.

Why is that significant? Rare Earth magnets are a key component in electric vehicles. It’s really an EV market play. The EV motor magnet market is worth $710 million a year currently. It’s expected to scale up to over $10 billion a year in 2030. This is a big market.

The stock is trading at a big premium. SPACs are usually valued at $10 a share before the deal, give or take. It’s trading at about $45 right now. It’s fair to say that this one has been a pretty successful SPAC IPO. The company raised $545 million in the IPO to scale up their operations. Right now they are the biggest rare earth producer outside of China. Most of the companies that make rare earth magnets for electric vehicles are in China. The company’s premise is that we need an integrated producer in the Western Hemisphere and that’s where MP comes in. Do either of you guys know anything about this company and whether it’s worth paying that $45 a share for it?

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Dan Caplinger: Not so much about this company. I took a quick look. I just amused the rare-earth metal craze it’s back. I was around in the early mid-2018 when we had our first round of rare earth metal mining with Molycorp, which I looked up is now privately traded. I just posted an article on the chat on lessons from the failed rare earth investment hype. I am curious if we’re not going to end up replaying that, obviously, the EV market has evolved a lot. It might be different this time, but call me skeptical at this point.

Brian Withers: Yes, for me mining is something that’s under my radar. Probably not going to go there.

Frankel: We’ll they are expecting to scale their revenue pretty quickly. They had about $100 million in revenue in 2020 and they’re expecting $415 million in 2023.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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