The U.S. Department of Defense invested in MP Materials last year, and gave the company a price guarantee.
Reuters reports the government is now reconsidering the wisdom of offering price guarantees to other miners.
MP Materials should be safe from such reconsideration.
Six months ago, MP Materials (NYSE: MP) investors got some excellent news. The U.S. government — specifically, the Department of Defense — would invest $400 million in MP Materials preferred convertible stock.
More than that, DOD signed a 10-year supply agreement to buy all the rare-earth metals that MP could produce, and gave the company a price guarantee to purchase its neodymium-praseodymium at least $110 per kilogram.
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Today, worries are rising that the price guarantee might go away, and this is taking a toll on MP Materials stock price, now down 9.4% at 1:15 p.m. ET.
Image source: Getty Images.
Where did this worry come from? As Reuters reports today: “The Trump administration is stepping back from plans to guarantee a minimum price for U.S. critical minerals projects, a tacit acknowledgment of a lack of congressional funding and the complexity of setting market pricing.”
But here’s the thing: Reuters cites sources confirming the government will not extend similar price guarantees to more recent recipients of government investment. The guarantees given to MP Materials, in contrast, appear to be written into the contract already. As such, they should remain binding. And that means the worries that MP’s price guarantee (which amounts to a promise of a government subsidy if market prices for Nd-Pr fall) might go away are probably overblown.
Mind you, this doesn’t necessarily mean MP stock is a “buy.” The company lost money in both 2024 and 2025 and is expected to earn only about $0.31 per share in 2026. At a share price north of $60, that’s a P/E ratio of almost 200!
MP’s going to have to grow earnings awfully fast to justify that valuation. Until it proves it can, I consider the stock overpriced.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.
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