The Best Rare-Earth Stock to Buy and Hold for the Next Decade

Rare-earth elements have emerged as a crucial resource for energy and national security. As a result, the United States is taking steps to break China's dominance over this global supply chain. In February, the U.S. launched Project Vault, a $12 billion initiative to create a strategic reserve of 60 critical minerals vital to economic and national security.

At the center of these are the magnets used for everything from technology to renewables to national defense applications. When it comes to domestic rare-earth mining and processing, MP Materials (NYSE: MP) stands out. Here's what makes MP Materials a top rare-earth stock right now.

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MP Materials has a historic deal with the U.S. government

MP Materials is currently the only large-scale producer of rare-earth elements in the Western Hemisphere. While other companies are in the permitting or construction phases, MP owns Mountain Pass, one of the world's highest-grade rare-earth mineral deposits, and has begun producing commercial magnets at its Independence facility in Texas. Its ability to extract and process these critical minerals gives the company a first-mover advantage over competitors in the space.

MP Materials was an early beneficiary of the U.S. government's push into securing rare-earth and critical minerals. Last July, the U.S. Department of Defense entered into a public-private partnership with MP Materials.

As part of this agreement, the Department invested $400 million in preferred stock to fund MP's 10X magnet facility and holds a 15% stake in the company. To protect MP from aggressive price cuts from Chinese suppliers, the government will pay MP a minimum of $110/kg for NdPr (Neodymium-Praseodymium) oxide, even if market prices fall below that level. In addition, for 10 years following the construction of the 10X facility, the U.S. government will ensure that 100% of the magnets produced will be purchased by defense and commercial customers.

MP has partnered with some major companies

Last year, MP produced 50,000 metric tons of Rare Earth Oxide (REO), a 12% year-over-year increase. As of May, the company has transitioned from mining ore to producing separated oxides and finished magnets on U.S. soil. In the first quarter, it produced 917 metric tons of separated NdPr oxide, and is currently producing magnetic precursor products and alloy flakes at its Fort Worth facility. It expects to earn its first revenue from these finished magnets in the second half of this year.

In addition to the Department of Defense, MP has secured long-term offtake agreements with General Motors for finished magnets used in its electric motors, and with Apple for recycled rare-earth magnets from end-of-life Apple products, which it will manufacture into new magnets. In February, it signed what it called an "enormous" long-term supply contract with a "leading industrial and technology company," rumored to be a major U.S. or European automaker.

A top domestic rare-earth mineral stock

While competitors look to build up their mining and processing capabilities, MP Materials has a key first-mover advantage thanks to its Mountain Pass facility and processing facility in Texas. The company was the first to sign a major deal with the U.S. government, and the floor on its products ensures a long-term buyer of its magnets for at least 10 years. For investors looking to capitalize on the growing demand for domestic rare-earth minerals, MP Materials is a top pick today.

Courtney Carlsen has positions in MP Materials. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.