Baird advises another rare earth miner. This is a new player in the market

Analyst Baird recommended buying shares in Ramaco Resources, a small company that could help the U.S. reduce its dependence on China for rare earth metals. Ramaco was originally a coal miner, but in the process stumbled upon a deposit of these elements and is now developing the country's first new mine in more than seven decades. The company's securities are up nearly 350% since the beginning of the year. According to Baird, the company will soon receive support from the U.S. authorities - like other local producers.

Baird analyst Ben Kallo initiated coverage on shares of coal miner Ramaco Resources, which unexpectedly discovered a large rare earth deposit Brook Mine in 2023, Barron's reports . Kallo recommended buying the company's securities with a $63 target price, which implies a 28% upside from current levels.

The analyst values Ramaco based on a 13x multiple to projected EBITDA earnings, which he estimates will reach $444 million by 2030. He believes it will take the company several years to ramp up production from its discovery. "2030 will likely be the first year when Ramaco reaches a stable production level and can realize the full potential of the Brook Mine," Kallo said.

Against the backdrop of China's threats to restrict US exports of rare-earth minerals produced by it, whose share in global processing is about 85%, investors have started looking for alternative suppliers, Barron's explains. This has led to an increase in the value of US mining companies.

Kallo believes that Ramaco will also receive support from the US authorities. According to him, "new agreements between the government and developers of critical minerals are expected soon.

Ramaco is mostly known for mining coal for the steel industry, but that business is now under pressure due to overproduction in China, CNBC points out. In 2023, the company unexpectedly discovered that its Brook Mine coal mine in Wyoming is located in a rare earth element deposit. Mining consultants revealed that the resource zone could contain up to 1.7 million tons of metal oxides. The mine site will be the first new rare earth mine in the United States in more than seven decades, CNBC reports .

In June, Ramaco began construction of a pilot plant to process these elements, which is expected to start up next year. It will operate for about a year to determine the format and parameters of the future industrial enterprise. It is not yet known how much the project will require investment and whether Ramaco will be able to fully finance it on its own. CEO Randall Atkins explained that coal sales will allow the company to reduce overall costs and thus ensure extremely low production costs of the critical minerals.

"Brook Mine has the potential to partially solve the acute shortage of rare earth elements and critical minerals," said the head of Ramaco Resources. - From a national security perspective, we will no longer have to ship our ore to China or other countries for processing.

Atkins estimates that the mine will be able to produce approximately 1,400 metric tons of metals per year.

Ramaco shares were worth $49 at the last close on October 16, and at the beginning of October, before China threatened to impose new restrictions, they were worth less than $34, Barron's recalls. Since the beginning of the year, the company's securities have risen in price by almost 350%. At the same time, they fell in price by 5.3% on October 17.

According to FactSet data cited by Barron's, Ramaco stock is covered by seven analysts, all of whom recommend "buy." The average target price is roughly in line with current quotes, but analysts are not keeping up with the rapid growth in Ramaco stock, Barron's says. Kallo's $63 target is the highest on Wall Street.

As of today, there is only one facility in the United States for the extraction and processing of rare earth elements - Mountain Pass in California. It is owned by MP Materials, which received $35 million from the U.S. Department of Defense to build a plant to process these minerals. The deal between the government and MP Materials, which stipulates a minimum price for the producer's key products, has lifted its shares by almost 437% since the beginning of the year, Barron's emphasizes.

Kallo also covers MP Materials securities, which he values at $80, based on a 23x multiple to 2030 forecast EBITDA. This assumes a 3.6% decline from current levels.

This article was AI-translated and verified by a human editor