J P M O R G A N North America Equity Research 14 November 2025 MP Materials Upgrade to Overweight on Underappreciated National Security Importance and Unmatched Earnings Visibility Following 3Q results (link), we update our MP Model with 10Q items and new accounting guidance for its landmark DoD deal (link), including the $110/kg NdPr price floor kicking in Oct-1. On our revised estimates and MTM pricing, we upgrade shares to Overweight with a slightly lower $74 PT for ~29% implied upside (vs. prior Neutral ...

Company Overview - MP Materials is the only rare-earth mining and processing facility of scale in the U.S., operating at the Mountain Pass Mine in California, which has over 18 million metric tons of rare-earth oxide equivalent in the ground [3] - The company has a market capitalization of $12.5 billion and has seen its stock price increase by 330% year-to-date, largely due to U.S. government investment [4] Financial Performance - In Q2 2025, MP Materials reported revenues of $57.4 million, an increase of 84% from the previous year [6] - The company achieved record production of 597 metric tons of neodymium-praseodymium (NdPr), marking a 119% annual growth, and a 45% increase in rare-earth oxide (REO) production to 13,145 metric tons [6] - NdPr sales volumes more than tripled year-over-year, reaching 443 metric tons [6] Market Reaction - Despite the positive financial performance, MP Materials' shares dropped by 7.4% recently, attributed to the potential thawing of U.S.-China relations and the implications for rare earth exports [3][4]

Summary of Key Points from the Conference Call on Rare Earths Industry Overview - **Industry Focus**: Rare Earths (REEs) - **Current Context**: Increased attention on rare earths due to China's export license ban and U.S. policy responses, including the U.S.-Australian Critical Minerals and MP-DoD deals. Major players like Lynas and MP Materials have seen stock increases of up to 375% year-to-date [2][26]. Key Insights 1. **Dependence on Chinese Supply**: - China controls approximately 60-70% of global rare earth material supply, 90% of refining and separation capacity, and 90% of permanent magnet output. - Recent export controls have reduced oxide exports by 20-30% year-over-year [2][3]. 2. **Development Timeline for Western Mines**: - Developing rare earth mines and processing facilities in Europe and the U.S. is a lengthy process, with Lynas' Mount Weld project taking about 8 years from announcement to commissioning. - Iluka's Eneabba project is expected to be operational by 2028, while Ramaco in the Powder River Basin targets first production in mid-late 2027 [3][4]. 3. **Geological Potential of Projects**: - Existing projects like MP Materials' Mountain Pass and Lynas' Mount Weld are noted for their higher grades. - Clay and coal ash deposits may offer more economic development opportunities compared to traditional hard rock deposits [4][5]. 4. **Challenges in Scaling Magnet Production**: - The West lacks expertise in refining and magnet production, which is currently concentrated in China. - Sourcing heavy rare earths is difficult, as most sources are associated with China [7]. 5. **Impact of China's Technology Export Controls**: - China's limitations on sharing intellectual property related to magnet and refining technologies will delay Western production ramp-up but will not completely halt progress [8]. 6. **Significance of the MP-DoD Deal**: - The deal between MP Materials and the U.S. Department of Defense is expected to stabilize U.S. rare earth production and support the scaling of NdFeB magnets from 2,000 to 10,000 tonnes. - However, the U.S. is still several years away from self-sufficiency due to technological gaps with China [9]. 7. **Price Outlook and Market Dynamics**: - The U.S. Government's price guarantee of $110/kg for NdPr equivalent is crucial for maintaining a viable market outside China. - A bifurcated pricing model between the West and China is anticipated, with forecasts of $75-80/kg for the next 2-3 years [10]. 8. **Demand Growth Projections**: - Historical demand for rare earths has grown at 3-5% annually, expected to increase to around 10% in the next 3-5 years, driven by applications in EVs, wind turbines, and technology sectors [11]. 9. **Recycling Potential**: - Currently, recycling meets only 1-2% of rare earth magnet demand outside China, with potential to supply up to 10% by 2030, contingent on technological advancements [12]. Additional Considerations - **Investment Risks**: The mining sector is subject to commodity price volatility, political, financial, and operational risks that could significantly impact performance [13]. - **Market Prices**: As of October 22, 2025, stock prices for key players are Iluka Resources at A$7.57, Lynas Rare Earths at A$18.33, and MP Materials Corp at US$74.11 [26].

Core Viewpoint - Larvotto Resources (ASX:LRV) has received a takeover offer from United States Antimony Corporation at $1.40 per share, which is perceived as low by investors on HotCopper [1] Group 1: Company Developments - Larvotto Resources is recognized for having Australia's largest undeveloped antimony project, along with evidence of gold and tungsten at its Hillgrove site [2] - The latest reports indicate that no minerals have been extracted yet, suggesting that both American and Australian companies are closely monitoring developments in the sector [3] - The takeover offer from USAC coincides with a diplomatic meeting between U.S. President Donald Trump and Australian Prime Minister Anthony Albanese, focusing on access to critical mineral deposits [3][4] Group 2: Market Context - The Australian rare earths sector has seen positive momentum, particularly following China's restrictions on rare earth exports [5] - There is potential for Australia to introduce price floors for critical minerals, similar to actions taken by the Pentagon for MP Materials earlier this year [5] - Larvotto Resources last traded at $1.31 per share, indicating a slight difference from the takeover offer [5]

Core Insights - MP Materials Corp. reported a negative operating cash flow of $66.8 million in the first half of 2025, a significant decline from an outflow of $10.3 million in the same period last year, primarily due to deferred revenues and inventory buildup [1][8] - The company has experienced a downturn in cash flow performance since 2022, closely tracking the decline in rare earth prices and lower demand for magnetic products [2][3] Financial Performance - In 2023, cash flow from operations decreased by 82% year over year to $62.7 million, with further declines in 2024, where operating cash flow dropped 79% to $13.3 million [3] - Free cash flow was negative $196 million in 2023 and negative $173 million in 2024, indicating ongoing financial challenges [3] Cost and Expense Dynamics - Higher production costs associated with separated products and increased selling, general, and administrative expenses due to workforce expansion have pressured operating margins and cash flows [4] Production and Revenue Outlook - On a positive note, NdPr production volumes are increasing, and a recent U.S. Department of Defense agreement establishes a price floor of $110 per kilogram for NdPr products, which may stabilize future cash flows [5][8] - The decision to halt rare earth shipments to China has led to a rebound in rare earth prices, potentially improving cash flow performance moving forward [6] Market Performance and Valuation - MP Materials' shares have surged 372.9% year-to-date, significantly outperforming the industry average growth of 29.9% [7] - The company is trading at a forward 12-month price/sales multiple of 25.13X, which is a substantial premium compared to the industry average of 1.46X [10] Earnings Estimates - The Zacks Consensus Estimate for MP Materials' 2025 earnings is a loss of 28 cents per share, an improvement from a loss of 44 cents in 2024, with a projected earnings of 91 cents per share in 2026 [11]

Investment Rating - The industry investment rating is In-Line [5][17]. Core Viewpoints - The report emphasizes the need for Western governments and OEMs to support ex-China rare earth producers to establish independent supply chains, particularly in light of the US DoD's recent partnership with MP Materials, which includes a price floor guarantee for NdPr [1][2][3]. - The report identifies LYC (Lynas Rare Earths) and ILU (Iluka Resources) as key beneficiaries of the bifurcation in rare earth pricing and government support initiatives [4][3]. Summary by Sections Rare Earths Market Dynamics - The US DoD has agreed to a 10-year price floor guarantee of US$110/kg for NdPr starting from Q4 2025, which is expected to influence other countries to develop their own rare earth supply chains [2]. - There is a growing demand for high-performance rare earth magnets, potentially doubling current demand by 2050, driven by applications in defense, wind energy, and electric vehicles [3]. Company-Specific Insights - LYC is finalizing approvals for a heavy rare earth separation facility funded by the US DoD and is expected to reach a production capacity of 12ktpa NdPr [4][14]. - ILU is viewed as undervalued with potential upside from its rare earths refinery, and its mineral sands sales volumes are expected to improve in the coming years [26][32]. Financial Projections - LYC's revenue projections indicate growth from A$463 million in FY24 to A$1,390 million by FY27, with a diluted EPS expected to rise from A$0.1 to A$0.3 over the same period [21]. - ILU's revenue is projected to increase from A$1,123 million in FY25 to A$1,296 million, with EBITDA expected to rise significantly [41].

Group 1 - The U.S. Department of Defense will become the largest shareholder of MP Materials by purchasing $400 million in preferred stock to support the company's expansion of rare earth processing and magnet production capacity [1][4] - MP Materials operates the only active rare earth mine in the U.S. and plans to build a second magnet manufacturing plant, expected to be operational by 2028 with an annual capacity of 10,000 tons of rare earth magnets [1][3] - The collaboration includes a ten-year price guarantee and product procurement commitment from the Department of Defense to ensure a stable supply of rare earth magnets [1][4] Group 2 - The new plant, named "10X," will enhance domestic production capacity and serve both defense and commercial customers, with rare earth magnets being critical for electric vehicles, wind turbines, and military electronics [3] - The Department of Defense will purchase newly issued convertible preferred stock from MP Materials, which will account for approximately 15% of the company's total equity as of July 9 [4] - The Department of Defense has set a price floor of $110 per kilogram for MP Materials' NdPr products, which are essential for manufacturing permanent magnets, ensuring procurement of 100% of the plant's output for ten years [4]

Investment Rating - The report maintains an Underweight (UW) rating on Lynas Rare Earths and a Neutral (N) rating on MP Materials [2][9]. Core Insights - The rare earths industry is facing significant supply chain disruptions due to China's export restrictions on key heavies like Terbium and Dysprosium, which are critical for electric vehicles and advanced technologies [9]. - Despite potential trade negotiations between the US and China, the damage to the supply chain may be lasting, prompting a shift towards developing non-Chinese sources of rare earths [9]. - The oil sector is expected to see strong refining margins, with a projected surplus of 2.6 million barrels per day (mbd) in Q4 2025, leading to a price floor for Brent crude between $55-60 and WTI between $50-55 [3][15]. Rare Earths Sector Summary - China controls approximately 70% of rare earth production, 85% of processing capacity, and 99% of heavies production, which has led to a scramble for alternative sources among automakers [9]. - Lynas Rare Earths and MP Materials are identified as key beneficiaries of the push for ex-China supply, with Lynas having over 85% exposure to NdPr, which is not currently restricted [9]. - The report expresses caution regarding the sustainability of the current rally in rare earth prices and the timing of commercial production volumes from alternative sources [9]. Oil Sector Summary - The report highlights five conditions necessary for crude prices to decline, with only two expected to materialize: a surge in OECD inventories and a flattening crude curve [15]. - Refining margins are anticipated to remain strong due to limited new capacity coming online, influenced by China's export restrictions and closures of US/EU plants [3][15]. - The report suggests that product stocks are expected to build, but low starting levels should support prices and margins [15].