Why MP Materials Rallied Today

Key Points

• It was reported the Trump administration is seeking equity stakes in miners of critical materials.

• The report followed another report Tuesday that the government may take a 10% stake in a key U.S. lithium miner.

• MP Materials has already made a deal with the government in July, but it appears more could be coming along these lines.

• 10 stocks we like better than MP Materials ›

Shares of rare earths miner MP Materials (NYSE: MP) rallied 8% on Thursday.

MP Materials didn't announce any company-specific news, but the stock has rallied since July, when the U.S. government took a stake in the rare earths miner and refiner.

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On Tuesday, it was reported that the Trump administration may take a stake in another miner of critical materials, Lithium Materials (NYSE: LAC). Then today, another report disclosed the government was looking to take strategic equity stakes in other mining companies as well.

The investment appetite of the Trump administration appeared to lift the stocks of most of these critical materials miners, regardless of whether the administration had already invested in them or not.

The government is getting more involved in critical industries

On Tuesday, Reuters reported that the Trump administration is in talks to potentially take up to a 10% stake in lithium miner Lithium America. The investment was likely to come into the form of free warrants given to the government, which would then seek to guarantee sales to American carmakers.

Then on Thursday, The Information reported that the Trump administration was now looking to take more stakes in several other U.S. companies engaged in mining critical materials, especially those engaged in mining battery materials.

While the U.S. has already inked a deal with MP Materials, the prospect of more strategic deals on the horizon is apparently getting investors more enthusiastic. And of course, even though the deal with MP entails a massive production increase and price floor, it's possible the government could expand that deal or cajole more commercial customers to buy rare earths from MP.

Image source: Getty Images.

State capitalism for miners?

While not unusual in other countries, it's not typical for the U.S. government to take equity stakes in public companies. But even though government equity stakes have been dilutive to shareholders, the majority of stocks in which the government has gotten involved as an active investor have taken off higher this year. Thus, it appears the backing of the administration is outweighing the negative dilutive effects in these companies -- at least for now.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.