Pick-and-Shovel AI: A Rare Opportunity to Profit From Rare Earth Metals

Rare earth elements come from a small section of the periodic table. There are just 17 in all, just barely distinguishable from one another. Though they’re not “rare” in the sense of being scarce – in fact, one of them is more prevalent in the Earth’s crust than copper – they’re called rare earth elements because finding quantities that are pure enough for industrial use is expensive and requires processing enormous amounts of raw ore.

These elements are an increasingly large component of the technologies being developed to power the modern world, used widely in electrical systems, semiconductor chips, magnets, different types of high-tech glass, and laser emitters. Demand for them is only going to increase as production ramps up in sectors like electric vehicles and the next generation of AI-enabled microchips.

That’s why the ability to mine and refine rare earth elements is at the heart of the conflict between the U.S. and China over access to chip technology. As the U.S. has sought to limit China’s access to the cloud computing platforms that would allow it to develop AI applications, China has responded by placing export restrictions on gallium and germanium, two critical elements used in semiconductor production.

Analysts fear that rare earth elements may be the next escalation in this conflict because China controls so much of the world’s supply. Because of that, the rest of the world is moving quickly to reduce its dependencies and create domestic supply chains for semiconductor manufacturing.

That means this sector is about to become a growth industry, and if China goes the distance and cuts us off completely, it’ll be a roaring bull market for any domestic firms able to meet that demand.

It so happens we already have a company headquartered in Las Vegas that’s positioned to take advantage of this, and the upside potential here is massive.

Why MP Materials Could Be the Biggest Winner of the Chip Wars

MP Materials Corp. (MP) was founded in 2017 when the Mountain Pass mine in California was acquired by JHL Capital Group, which quickly created an entity to take over operations and reopen the mine. With very few competitors in the space, MP quickly rose over the next six years to become a leader in rare earth oxide mining, providing an estimated 15% of total global production and boasting a soaring $2.29 billion market cap.

Its main output is neodymium-praseodymium (NdPr), a material found in high-strength magnets used in electric motors. And while the company has so far been focused on simply producing the rare earth concentrates that get refined into industrial products by factories in China, the current moment is pushing them to a much loftier goal – becoming the first vertically integrated rare earth magnetics producer in the world.

To that end, it started building a new facility in Fort Worth, Texas, a manufacturing facility that can take the raw materials produced by MP’s mines and convert them into metal alloys, magnets and other high-tech components that American companies need. When it opens in 2025, it will be the only such facility in the world outside of China and Japan.

Of course, this means that MP Materials is attracting a bunch of attention from the entity most invested in establishing a domestic supply chain for rare earth goods: the United States government.

Since July 2020, the Department of Defense has been heavily involved in funding MP’s efforts to expand its production capabilities, with millions of dollars flowing in from multiple contracts. A 2021 collaboration with the Department of Energy is researching new ways of extracting rare earth elements from common materials like coal. And just last year the Biden administration announced a further $35 million earmarked to help expand the kinds of rare earth minerals MP can process. This includes the so-called “heavy” rare earth elements, like dysprosium and terbium, which are currently produced in only China and Myanmar.

With the market for rare earth elements projected to grow to $5.5 billion in just five years and geopolitical tensions driving a new initiative to hedge against supply chain risks, MP Materials is already way ahead of competitors in its bid to be the provider of what the United States needs for these products. While there are a handful of other startups working on getting into the market, MP is the only one with a functioning mine, and it could be the only viable domestic producer for years.

For investors who want exposure to what could be one of the most vital growth markets of the next decade, MP is simply a must-own stock.

Action to Take: Buy MP Materials Corp. (NYSE: MP) at market.