MP Materials Stock Upgraded to Buy Amid US-China Tensions

MP Materials, the owner of the Mountain Pass mine in California, the sole active rare earth mine in the United States, has seen its stock rating upgraded to "buy" by Morgan Stanley. The target price for MP Materials is set at $34 per share. This upgrade comes amidst escalating geopolitical tensions between the United States and China, which have heightened the uncertainty surrounding the supply of critical minerals.

MP Materials' strategic value to the U.S. is underscored by its unique position in the global rare earth supply chain. China currently dominates the global rare earth refining and processing sector, making the supply chain of critical minerals a top consideration in the current geopolitical climate. MP Materials stands out as the most vertically integrated rare earth company outside of China, controlling the entire supply chain from mining to processing. This vertical integration is crucial in mitigating risks associated with supply chain disruptions.

In April, China implemented export controls on seven rare earth elements in response to tariffs imposed by the Trump administration. Despite subsequent trade negotiations, these restrictions remain in effect, emphasizing the need for a domestic supply of rare earth elements. This situation positions MP Materials as a key player in the U.S. market, given its ability to provide a stable and secure supply of these critical minerals.

The U.S. government has also taken steps to support domestic rare earth production. President Trump recently relaxed certain provisions of the Defense Production Act, potentially allowing the federal government to purchase rare earths at prices above market rates. Morgan Stanley believes that MP Materials is well-positioned to benefit from this policy shift, further enhancing its strategic importance.

MP Materials is currently in the process of building a fully domestic rare earth supply chain in the United States. The company plans to commence commercial production of rare earth magnets, which are essential components in electric vehicle motors, offshore wind turbines, and future markets such as humanoid robots. This initiative aligns with the growing demand for these technologies and positions MP Materials at the forefront of the rare earth industry.

Morgan Stanley anticipates that MP Materials will experience negative free cash flow over the next two years. However, the firm expects that the company's strong balance sheet will enable it to achieve positive cash flow by 2027. This financial outlook, combined with the company's strategic position in the rare earth supply chain, makes MP Materials an attractive investment opportunity in the current geopolitical environment.