A Rare-Earth Minerals Miner Is About to Go Public. It's a Play on Auto Electrification. -- Barrons.com
11/10/20, 11:16 AM
Another electric-vehicle-related SPAC merger is moving closer to fruition. The special purpose acquisition company Fortress Value Acquisition has scheduled a shareholder meeting for Friday to vote on its pending merger with MP Materials.
The vote has a couple of implications for investors. One shouldn't matter. But one definitely does.
After the merger, Fortress Value's stock symbol will change from "FVAC" to "MP" -- probably Tuesday or Wednesday of the coming week. That shouldn't be a big event for investors, but a few EV-related SPACs have gotten a bump from a stock-symbol change. Fisker (FSR) stock, for instance, jumped 13% around the closing of its SPAC merger and stock-symbol change. Lordstown Motors (RIDE) rose about 4% around the time of its change.
Stock symbols might not matter. Or, at least, they shouldn't. Shareholder votes do, but investors should expect the merger to close without much drama. Fortress Value shares are trading at roughly $11.75 -- versus the SPAC's cash in trust of about $10 per share. The market is clearly ascribing value to the deal.
At the time of the merger, SPAC shareholders also have the option of redeeming their stock for a proportionate share of the cash in Fortress Value's trust. But with the stock trading for about $1.75 more than the cash value, redemptions are likely to be close to zero. On closing and after expenses, MP Materials will get roughly $500 million to execute its business plan. That includes $345 million from Fortress Value, in addition to a $200 million private investment in public equity, or PIPE, from a collection of individual and institutional investors.
MP is partly an EV investment, but it isn't an auto maker like Tesla (TSLA). From a site in the southeastern California desert, it mines rare-earth minerals that go into magnets used in electric motors. About 9% of the magnets derived from MP-type materials go into EV motors. That share, however, is set to rise as EV penetration of the car market increases. Roughly two million EVs were sold around the world in 2019. That number could hit as much as 30 million by 2030, if some of the more optimistic projections are met.
"We don't need to take over the industry," MP Materials Chairman James Litinsky said. "We just need to build a nice business based on the output we have to have a tremendous opportunity."
Right now, MP mines a rare-earth concentrate that is processed and refined by others downstream, mostly in China. Some of the cash from the SPAC merger will be used to build competing refineries in North America so MP can sell more finished rare-earth products to magnet makers.
MP expects a big step up in product prices and projected profitability from its vertical integration. Today, MP can ship about 37,000 metric tons of rare- earth oxide concentrate. After refining, it plans to ship about 6,075 metric tons of Neodymium Praseodymium, or NdPr, rare-earth metals for magnets. MP says 6,000 metric tons of NdPr can make magnets for six or seven million EVs.
"Tesla is moving upstream into materials, we're moving downstream into magnetics," Litinsky said. He will also become CEO once the deal closes next week. "Hopefully valuations will meet somewhere in the middle. I say that in jest, but what Elon Musk is saying -- and I think the rest of the auto industry will follow -- is that the materials supply chain matters, it's a source of edge. We've got that asset."
The company expects its profit to go from about $30 million to $250 million between 2020 and 2023. There will be about 147 million shares of MP outstanding after the transaction, valuing the company's stock at roughly $1.7 billion. Fortress Value and MP sellers have an additional 21.5 million shares that vest if the stock hits certain levels in the coming years.
EVs have been a good space for investors in 2020. The stocks Barron's tracks are up about 400% year to date on average, crushing comparable returns of the Dow Jones Industrial Average and S&P 500.
Write to Al Root at firstname.lastname@example.org and Nicholas Jasinski email@example.com
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