Investor sentiment whiplashed over rare-earth stocks this week.
MP Materials (MP 5.45%) stock declined by 10.7% in the week to Friday morning, as sentiment toward the rare-earth sector shifted through the week. Here’s what’s impacting investor thinking this week.
A rare week for rare-earth stocks
The week began with a bang over USA Rare Earth’s agreement with the U.S. government, which will result in $277 million in Federal Funding and a $1.3 billion loan under the CHIPS Act. In addition, USA Rare Earth agreed $1.5 billion in private investment. It’s an exciting development that helps derisk the company’s business plan and secure a domestic supply of rare earth magnets.
The market has speculated over such a deal ever since MP Materials agreed to a transformative public-private partnership with the U.S. Government in July.
Today’s Change
(-5.45%) $-3.39
Current Price
$58.77
Key Data Points
Market Cap
$11B
Day’s Range
$57.50 – $63.64
52wk Range
$18.64 – $100.25
Volume
10M
Avg Vol
9.5M
Gross Margin
-2627.54%
Why the agreements are different
However, there are key differences between the two agreements, and two of them are driving market speculation this week. First, MP Materials entered into an agreement with the Department of Defense (DoD) that established a 10-year pricing floor of $110 per kg for MP Materials NdPr (Neodymium-Praseodymium) products. Second, the DoD agreed to make sure that all the magnets produced at a new “10X” facility will”be purchased by defense and commercial customers with shared upside.
These are extremely favorable terms that USA Rare Earth did not receive in its agreement. Fast forward a few days a Reuters article appeared, implying that the government was moving away from price floor agreements.
Image source: Getty Images.
What it means to MP Materials
While MP Materials already has an agreement and should not be affected by any potential change in the administration’s approach to price floors. Still, it’s fair to argue that the developments highlight the political risk inherent in public-private partnerships. The increased recognition of that risk sent the stock lower this week, and it’s a risk to consider before buying. Not least because policies, administrations, and policies within administrations are subject to change.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.
