With rising demand for advanced computing hardware and renewable energy solutions, many investors have hope for the rare-earth elements (REEs) niche of the mining industry. These materials are prized for their high electric conductivity and magnetic properties, but they can be quite expensive to mine. Fortunately, just a trace amount of a REE like cerium, neodymium, lanthanum, or terbium can go a long way in the manufacture of all sorts of items from batteries to medical equipment.
More REEs will be needed in the decade ahead and some estimates point to this corner of the mining industry growing at a double-digit percentage in the next five years or so.
Most REE production takes place in China, so many investors looking for a U.S.-based company have landed on MP Materials (MP 5.94%) as a top way to invest in this space. It’s the only publicly traded U.S.-based REE producer, and it’s been a wild but profitable ride since MP became a publicly traded company a couple of years ago. But did Apple (AAPL 6.14%) just douse the party with cold water?
When Apple talks, people listen
Rare-earth elements are getting plenty of hype, and MP is benefiting. Not only is global demand headed up, but there’s also political motivation for a U.S.-based producer to succeed to reduce dependence on China’s REE market. Though shares have been hit fairly hard by the bear market of 2022, MP has still doubled in price since its 2020 IPO, clobbering the 5% return of the S&P 500 over that same span of time.
But not everyone wants to keep increasing use of newly mined REEs. During the company’s Oct. 27 earnings call with analysts, Apple (AAPL 6.14%) CEO Tim Cook said:
Across our entire product lineup, we also continue to source more materials through recycling while taking less from the Earth. Every iPhone 14 is made with 100% recycled rare-earth elements in all magnets, including those used in MagSafe. And in a first for Apple Watch and iPad, we’re using recycled gold in the plating of multiple printed circuit boards in our newest devices. While we’re working to reduce the footprint of our hardware, we’re making changes to our software to be more environmentally friendly with the soon-to-be released Clean Energy charging feature for iPhone.
While details of its recycled REE supply chain are scant, to say the least, a few tiny REE recycling businesses have appeared in the U.S. in recent years. One recycling technology developed by a segment of the U.S. Department of Energy has apparently been licensed by a small materials engineering company based in Iowa. Other government initiatives are underway to spur on REE recycling, too.
Investors in MP Materials will want to watch how things develop and how Apple influences the industry.
Is MP Materials sunk?
On one hand, maybe MP stock won’t be a great investment after all if Apple leans into this. Apple is one of the largest tech hardware companies and it has quite the track record of finding novel ways to squeeze its material suppliers to maximize its own profit margins. Besides being able to tout its earth-friendly (or maybe “earth-friendlier”) recycled products supply chain, no doubt Apple’s switch to reused REEs comes with a long-term profit margin improvement target.
On the other hand, demand for rare-earth elements is rising quickly, and even some early estimates for REE recycling growth merely match the expected growth rate of overall demand. Mined or reprocessed, the world will need more of these elements for use in things like electric cars and energy grid storage (giant battery packs).
And though MP’s growth has slowed as 2022 has dragged on, it isn’t exactly hurting. Q3 2022 revenue increased 25% year over year to $124 million, and net income increased 48% to $63 million. The company currently derives its revenue from the sale of REE concentrate, but it’s busy working on a material refining facility and a value-added magnetics operation as well. If it can build out a full-scale operation, perhaps recycled REEs will one day become part of MP’s business, too.
At this point, there isn’t much indication that Apple’s recycled iPhone components will dent demand for MP’s production. But if you’re an MP shareholder, it’s worth keeping tabs on this development now that MP has the ball rolling on its mining operations. Shares of MP Materials now trade for 22 times trailing-12-month earnings, close to the cheapest valuation it’s had since going public, so it’s worth a look.
Nicholas Rossolillo and his clients have positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.