RARE EARTHS: THIS CHANGES EVERYTHING!

WHY SHARE PRICES ARE EXPLODING NOW

MEGATREND "RARE EARTHS"

Rare earths as an asset class have been a classic fashionable topic up to now. Every few years there have been

price spikes for the most important metals such as neodymium or praseodymium, which then led to short-term

This led to sometimes explosive price rises for the industry representatives á la Lynas and Co. The two major

bull markets took place in 2011 and 2021, when the prices for neodymium praseodymium oxide (from which the coveted magnets are then

coveted magnets are extracted) had risen to around $115 per kg.

These two bull market highs can easily be seen in the all-time chart of Lynas (abbreviation in Germany:

LYI; WKN 871899), the (so far) blue chip among rare earth shares:

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LYNAS all-time chart

However, the 20+ year chart also shows that in the past it was not even possible to earn money

even with this blue chip. The lean periods with low prices were too long, during which the

producers kept their heads above water with price-diluting capital increases due to a lack of free cash flow.

It is therefore completely understandable that there have been few long-term investors in rare earths to date.

investors in rare earths. The years since the last boom have been characterized by persistent price fantasies, which have

never really materialized. In other words, speculators hoped that the Chinese Central Committee would curb exports of important rare earths.

The background: 70% of global annual production comes from China, almost 50% from the Bayon

Obo mine in Inner Mongolia:

Source: Google View

And almost more importantly, over 90% of global processing capacity is also located in China.

Chinese soil. This has so far resulted in a high level of dependency for the rest of the world, especially

also for the USA.

In fact, China announced in February 2025 that it would monitor its own producers more closely. In April

this was followed by an official restriction on the export of initially seven rare earths. China's focus is on

China's focus is on metals that can be used for both civilian and military purposes (dual

use). Separate export licenses are now required here. This is also intended to curb the flourishing black

be curbed.

As a result, the prices for rare earth shares have risen, but the prices for the metals themselves have remained almost completely unaffected.

almost completely unaffected.

In this respect, interest quickly waned again - until the bombshell dropped last Thursday, July 10:

The US Department of Defense bought directly into MP Materials (US abbreviation MP; WKN A2QHVL).

which is to become the first fully integrated rare earths play in the USA.

The Department of Defense (DoD) is securing a total of 15% of the company through the direct purchase of shares and additional options.

a total of 15% of the company at a price of USD 30.03. The mere fact that the US government is prepared to inject equity directly into MP Materials is an absolute game changer. This validates the investment story for the share and the risks have fallen considerably.

Above all, because there is another important component to the deal, which in my view has not yet been discussed enough in the media:

warrants, loans, and price floor and offtake commitments - that extend for more than a decade.

- DoD has entered into a 10-year agreement establishing a price floor commitment of $110 per

kilogram for MP Materials' NdPr products stockpiled or sold, reducing vulnerability to non-market forces and ensuring stable and predictable cash flow with shared upside.

- For a period of 10 years following the construction of the 10X Facility, DoD has agreed to ensure that 100% of the magnets produced at the 10X Facility will be purchased by defense and commercial customers with shared upside.

The DoD, i.e. the US Department of Defense, has signed a 10-year purchase agreement with MP for neodymium

with MP for neodymium-praseodymium products, with the assurance that they will pay at least $110 per kilogram.

gram.

By way of comparison, the current market price for neodymium-praseodymium oxide is $57, i.e. just about half the agreed price.

half of this agreed price.

This means that all the old calculations for the fair value of MP shares can be thrown out the window.

My calculation with the price target of $31 was based on $70 per kg. Neodymium-praseodymium oxide and a cost of $40 per kg.

Suddenly, the gross margin per kg is no longer $30, but $70 - and that with much greater planning certainty.

with much greater planning certainty.

MP will also build the so-called 10X Facility, a giant factory in which neodymium-praseodymium magnets will be produced directly.

magnets are produced. The Ministry of Defense guarantees that 100% of these magnets

will be purchased by customers from the defense industry and other commercial customers, with the resulting profits being shared between the parties.

This means that although MP has to hand over part of the profits from the sale of the magnets, it has a 100% guarantee that everything will be purchased.

The DoD wants MP to become a fully integrated producer that covers virtually the entire value chain.

value chain - to make itself independent of China.

The next bombshell followed on Tuesday: none other than iPhone giant Apple has signed a $500 million contract with MP.

a 500 million dollar contract with MP Materials to secure access to neodymium and praseodymium magnets.

praseodymium magnets. Apple's CEO Tim Cook is quoted as saying: "Rare earth materials are essential to making advanced technology, and this partnership will secure the supply of these important materials in the United States.

strengthen the supply of these important materials in the United States."

And Apple is likely to be just the beginning. Many other technology companies are likely to follow, especially

from the hardware sector. Because the share price has gone through the roof following these two deals, MP is using the momentum for an additional capital increase:

It is selling 11.82 million shares at a price of $55 per share, with subscribers able to exercise the option for an additional 1.77 million shares.

million shares. The price was only around 10% below the previous day's closing price, which is remarkable in view of the previous share price explosion. MP Materials will thus receive a further $600 million gross.

What you have to understand - and what makes the whole thing so interesting - is that completely new framework conditions are emerging. New supply chains, in principle a protected environment, perhaps comparable to that of

traditional energy supply, where there are also strong regulations that safeguard profits.

$LYC (-2,14 %) could follow MP Materials.

A prolonged consolidation since the beginning of 2023 in a relatively narrow price range has broken upwards. The reason: Lynas is also being drawn into the western hemisphere by the USA - and thus into the protected

environment.

Lynas is still the only fully integrated supplier of rare earths outside China of any significant size, which in itself makes the company

size, which in itself makes the company interesting for the USA. There are extensive production

facilities in Malaysia and Australia. However, Lynas is still in China's sphere of influence.

China claims, for example, that there is a problem with increased radioactivity in the air around the mining and production sites in Malaysia.

radioactivity in the ores around the mining and production sites in Malaysia. Whether this is true or whether this radioactivity was already present in the deposits

deposits - when tin was still being produced there - is controversial.

And, above all, the heavy earths dysprosium and terbium, which are important for the defense sector, are processed in Malaysia.

processing takes place in Malaysia, but further processing into magnetic products still takes place in China.

This is naturally a thorn in the side of the US government. As a result, Lynas had already announced under the Biden presidency

received funding from the US Department of Defense in June 2022 under the Biden presidency. The aim is to build

of a plant for separating heavy rare earth metals in Texas. The amount of funding from

by the DoD was increased from the original $120 million in August 2023 to around $258 million. Also

also still under the Biden administration. It is quite possible that under Trump - similar to MP Materials

- there will also be a further increase in production at Lynas.

At MP Materials, the focus is on the production of neodymium-praseodymium magnets. These are

mainly used for electric motors:

Dysprosium and terbium, on the other hand, are valued above all because they increase the heat resistance and stability of materials at extreme temperatures.

of materials at extreme temperatures

Accordingly, dysprosium and terbium are to be processed directly in the USA at the Lynas separation plant in Texas.

to ensure the supply here, especially for the military sector.

If we look at the current political developments, where the USA is now, for example, also supplying Ukraine

Ukraine with weapons against Russia because Trump no longer wants to be led around by the nose by Putin.

Putin, the military sector could become even more important in the future. And not to forget: We have NATO, where the member states now have to rearm massively. They also have to secure the

supply of rare earths. It is quite possible that additional supply agreements and deals with Lynas will be concluded.

If we look at the market capitalizations, Lynas is valued at around $6 billion, while MP Materials is valued at almost

almost $10 billion, taking into account the capital increase.

And this is despite the fact that Lynas is already an established producer and is (at least just) profitable despite the low prices for rare earths. I could well imagine that the share has some catching up to do and will rise even more strongly if there is a corresponding news flow. I am more skeptical about the Chinese plays, as they are likely to continue to suffer from low prices and subdued demand from China.

I will probably pick up a few pieces of $LYC (-2,14 %) and leave them lying around. That worked well for $MP (-0,5 %) worked well too 😉