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A rare earths mine in the California desert goes bankrupt; a hedge fund manager brings it back to life. Years later, a new powerful backer arrives, promising that such financial distress will never be an issue again. This is the tale of MP Materials, the subject of the Trump administration’s strangest intervention in corporate America yet.
MP mines a compound known as neodymium-praseodymium oxide, or NdPr for short. It refines the resource and then uses that product to make magnets needed for electric vehicles, robotics and multiple weapons programmes. MP also happens to be the only major non-Chinese player in the global NdPr market.
That novelty has attracted the interest of the US Department of Defense, which has now entered into a “public private partnership” with MP. Under this deal, Uncle Sam will become an investor, customer, price guarantor, and profit sharer. American taxpayers will stump up $400mn for convertible preferred shares equivalent to around a tenth of the company’s shares, as well as providing a $150mn low interest loan.
James Litinsky, who saved the mine back in the day and remains MP’s chief executive, insists that the deal represents a win for free market principles. Certainly, the market is appreciative. MP shares shot up 50 per cent when the investment was announced; the company’s enterprise value has reached almost $9bn, around 14 times the annual ebitda it says it could soon hit. Litinsky’s shares are now worth over $600mn.
The deal between MP and the Pentagon is borne of two forces: first, a desperate need to secure rare-earth materials needed for advanced technologies. Second, an intense economic and military rivalry between China and the US that is reshaping global supply chains.
That explains why the government is prepared to put its money on the line. For a decade, the US administration will ensure MP a minimum price of $110 per kilogramme of NdPr, well above the current price. In return, it gets a cut of the upside if market prices exceed that level. MP’s new public-sector patrons have also agreed to purchase all the eventual output of a new mega magnet manufacturing facility under construction.
Litinsky recently said his company should have the attention of Tesla boss Elon Musk and Nvidia chief Jensen Huang. Ultimately, it’s President Donald Trump who answered the call. But strange deals create strange bedfellows. When Litinsky was extracting the mine known as Mountain Pass out of bankruptcy, he enlisted a Chinese company, Shenghe Resources, which still owns a stake of less than 10 per cent of MP. Litinsky now complains of “Chinese mercantilism” as the industry’s “existential issue”.
That kind of patriotic talk has won the attention — and the dollars — of the US government. Litinsky has smartly played to the moment, winning both cash and a captive customer. Taxpayers may justly wonder which private businesses possessed of a critical product and a Chinese competitive threat will be next.