MP Materials Stock an Opportunistic Rare Earths Pullback Play
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Nevada-based rare earths miner MP Materials (NYSE: MP) stock peaked around $51.78 and has been steadily selling off since then despite reporting stellar earnings. The Company is the largest operating U.S. miner of rare earth oxides (REO) in the western hemisphere used to process neodymium and praseodymium (NdPr) magnets supplying 15% of the world’s demand. These magnets are used in everything from consumer electronics to speakers and HVAC systems. Most importantly, they are a key essential component of electric vehicle (EV) powertrains, robotics, and wind turbines. These magnets are essential for the future of EVs and clean and renewable energy products like wind turbines. In fact, Tesla (NASDAQ: TSLA), General Motors (NYSE: GM) and Ford Motor (NYSE: F) all use NdPr magnets in their respective e-powertrains. The Biden Infrastructure Plan is expected to accelerate the creation U.S. supply chains for rare earths to further minimize the reliance on China, which supplies nearly 80% of U.S. demand. While MP is currently exporting its rare earth concentrate to be processed in China, it is in early stages of constructing its own onsite processing facilities. Prudent investors looking for a U.S. miner and producer of rare earths materials can monitor shares of MP Materials for opportunistic pullback levels to consider building a position.
Q4 2020 Earnings Release
On March 18, 2021, MP Materials released Q4 2020 results for the quarter ending in December 2020. The Company reported adjusted earnings per share (EPS) of $0.18, excluding non-recurring items, versus consensus analyst estimates of $0.04, a $0.14 beat and 297% YoY growth to $18 million. Revenues grew 100% year-over-year (YoY) to $42.2 million, beating estimates by $4.67 million. Full-year 2020 production and sales volume rose 40% YoY. MP Materials CEO James Litinsky stated, “We ramped up our production of rare earths by nearly 40%, scaled our team to over 300 people, and put in motion our Stage II optimization plan at Mountain Pass. The accelerating global transformation towards electrification and decarbonization is creating strong demand for critical rare earth materials. These trends present a bright outlook for the Company as we prepare to begin delivering separated rare earth oxides in 2022.”
Conference Call Takeaways
CEO Litinsky set the tone, “2021 is about execution on Stage II… our plan to move from today’s profitable concentrate production to separating rare earth oxides, thereby restoring downstream production of these critical elements in the United States of America. Upon completion of this project in 2022, we will be scaling towards full annual run-rate production of more than 6,000 metric tons of NdPr… We expect 2023 will be the first full year production at these levels. Keep in mind though that the 2023 target of $250 million normalized EBITDA that we outlines last year, assumed a spot NdPr price of $70 per kilo. NdPr spot today is actually roughly $88.” Construction is underway and the team has made significant design improvements to de-risk the project and reduce operating costs by 10% in Stage II. The Company should benefit from what its believes is “the beginning stages of a demand-driven commodity cycle.”
MP Materials has multiple tailwinds ranging from the EV revolution bolstering rare earth materials demand for batteries and magnets, the Biden Infrastructure Bill aimed and bolstering U.S. inventories of rare earths and uranium stockpiles, and the global clean energy initiatives. The global initiative to rein in China’s stronghold on rare earth materials is another powerful tailwind as MP sets to become a vertically integrated operation seeking to process its own products. While shares are still trading at a heavy premium, prudent investors can look to take advantage of the continued selling to consider take advantage of opportunistic pullback levels.
MP Price Trajectories
Using the rifle charts on weekly and daily time frames provides a precision view of the landscape for MP stock. The weekly rifle chart pup breakout peaked abruptly at the $51.78 Fibonacci (fib) level. Shares collapsed quickly before bouncing twice off the $32.94 fib. Each of the bounce attempts failed to retake the weekly 5-period moving average (MA) which has turned down at $40.88. The weekly stochastic formed a bearish mini inverse pup that rejected off the 80-band starting its oscillation down. The daily rifle chart market structure low (MSL) triggered above $40.74 but failed to hold above as a weekly market structure high (MSH) sell triggered below $37.14. The daily 5-period MA resistance continues to slope down at $37.34. The daily stochastic mini inverse pup targets the daily lower Bollinger Bands (BBs) at the $30.68 fib. Both rifle charts are bearish and thus prudent investors should be patient to wait for deep opportunistic pullback levels at the $26.68 fib, $24.67 fib, $23.11 fib, $20.48 fib, and the $17.99 fib. Upside trajectories range from the $45.09 fib up to $57.51 sticky 2.50s zone.