MP Materials stock has soared 300% this year. Why does Goldman advise buying them?

Goldman Sachs recommended buying shares of rare earth metals producer MP Materials. This company has become one of the main beneficiaries of the escalating conflict between the U.S. and China, which has raised fears of supply shortages of these key elements for U.S. manufacturing. MP Materials operates the only currently active rare earth element mine in the US. Its capitalization has soared more than 300% this year.

Investment bank Goldman Sachs began coverage of MP Materials securities, the operator of the only U.S. rare earth deposit, and immediately recommended buying them, reports CNBC. The set target price of $77 implies a potential upside of 21% relative to the closing level of trading on November 19.

MP Materials stock jumped 8.6% to $63.6 on Wednesday and continued to rise in the postmarket. The company's value has more than quadrupled since the beginning of the year

Goldman Sachs noted the company's unique position as the largest rare earth producer in the Western Hemisphere. It specializes in the production of neodymium-praseodymium oxide, a raw material required for the production of magnets in electronics.

"We believe MP Materials' entry into the deeper stages of the production chain - in-house raw material processing and magnet production, accelerated by its partnership with the U.S. government - will strategically strengthen its position as a key element of the rare earth supply chain," Goldman Sachs analyst Brian Lee wrote in a note quoted by CNBC. - We expect significant revenue and EBITDA growth, and the vertical integration will unlock the potential for margin improvement."

The analyst believes that MP's vertical integration efforts as part of its mine-to-magnet strategy should "unlock significant value" for the stock. Another "value-creating mechanism," he says, could be the construction of a processing facility that would produce magnets for Apple.

Lee also recalled that under MP Materials' July agreement with the U.S. Department of Defense, the manufacturer fixed the minimum price for neodymium-praseodymium oxide at $110 per kilogram for the next ten years. The agreement includes Pentagon equity participation and an off-take contract - a long-term buy-back agreement. "The partnership with the Ministry of Defense actually sets a minimum price for MP for raw materials and thus protects the company from sharp fluctuations in the commodity market. At the same time, if the market price turns out to be higher than the agreed price, MP will receive all the additional revenue. In essence, the company has a guaranteed price floor and unlimited potential for revenue growth," the Goldman analyst explained.

MP Materials shares were also supported on Wednesday by news that the company has entered into an agreement with the U.S. Department of Defense and Saudi Arabian mining company Maaden - to establish a rare earth metals processing facility in the kingdom. MP and the Pentagon will own 49% of the joint venture. The DOD will finance the U.S. portion of the project, while MP will provide technical and marketing expertise.

Goldman Sachs in late October warned investors about the risks of disruption of global supply chains of rare earth metals, which are associated primarily with high dependence on China and geopolitical tensions. Problems at only 10% of companies dependent on this raw material would result in multibillion-dollar losses and inflationary pressures, the bank said. It identified three companies whose securities will help investors hedge against these risks - including MP Materials.

Two other defensive bets, according to the bank, are Australia's Iluka Resources, which specializes in mining and processing minerals, primarily titanium ores, and Australia's largest rare earth element producer Lynas Rare Earths.

In total, MP Materials has 14 buy recommendations out of 17, MarketWatch shows . And over the past month, there were four more analysts with a bullish stance. Three are neutral (Hold rating), up from six a month ago.

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