Everything about MP materials is three digits

Atmospheric CO2 levels hit an all-time high (since humans started taking measurements, at least) of 420 parts per million in April, as The Wall Street Journal reported on Thursday – and that’s probably bad news for global warming. But here’s something else that happened on Thursday: A rare earth metal mining company PM materials (deputy -5.18%) Absolutely crushed its first-quarter earnings estimates.

Rare earths, such as PM-mined neodymium and praseodymium, are essential for making the rare-earth magnets that drive the electric motors powering most electric vehicles (EVs) today — and which, proponents hope , will help solve the climate crisis tomorrow . It is therefore logical that with the increase in sales of electric vehicles in the world, the sales of MP Materials also increase. Even knowing that, however, the numbers MP just presented for the first fiscal quarter of 2022 are pretty mind-boggling.

Artist’s conception of MP Materials’ new Stage III rare earth magnet factory. Image source: MP Materials.

Two-digit numbers…and three-digits too

For the first quarter, MP reported “adjusted” earnings per share (EPS) of $0.50 and sales of $166.3 million, respectively 22% and 21% higher than Wall Street had expected. . Those double-digit beats made Q1 a clear win for MP, but put those numbers in context to show just how impressive this quarter really was:

  • MP Materials revenue jumped 177% year over year.
  • Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) jumped 301%.
  • EPS increased fivefold – up exactly 400% when calculated using generally accepted accounting principles (GAAP).
  • And total net profit increased by 431% (slightly more than EPS because MP issued some new shares).

Now, it’s worth pointing out that a lot of those gains – but not all of them – can be explained by the fact that MP benefited from a 135% increase in the price of rare earth oxides year over year. other. This is partly due to “higher demand for rare earths leading to higher market prices”, and possibly also supply chain constraints (as more than half of the world’s rare earths come from China , which has suffered supply chain issues as it battles to contain a Covid outbreak). A decline in demand or an increase in the supply of rare earths could cause prices to fall in the future, slowing MP’s future earnings growth.

Additionally, MP’s earnings are growing from a very small base – MP was earning less than a penny a share a year ago – helping the company produce all those triple-digit earnings. Yet much of MP’s work is in what the company calls “Phase I” of development, with work on progressing to phase II separation of rare earth oxides underway, and phase III – construction of a special facility to manufacture rare-earth magnets – – is just beginning.

Also keep in mind that all this development work is a cash drain. By my calculations, MP Materials’ free cash flow is about $53 million over the past 12 months, or only about 25% of reported net income. Future investments in Phases II and III could further limit FCF growth.

All of that being said, overall I think as MP Materials evolves from a rare earth miner to a rare earth magnet manufacturer, its GAAP earnings and cash earnings have good chance of continuing to grow strongly.

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