Why MP Materials Stock Plummeted Today

Shares of MP Materials (NYSE: MP), America's biggest miner of rare earth metals, tumbled 8.3% through 10:10 a.m. ET Wednesday after President Donald Trump posted on Truth Social about a new trade deal reached with the Chinese delegation in London last night:

"OUR DEAL WITH CHINA IS DONE, SUBJECT TO FINAL APPROVAL WITH PRESIDENT XI AND ME. FULL MAGNETS, AND ANY NECESSARY RARE EARTHS, WILL BE SUPPLIED, UP FRONT, BY CHINA. ... WE ARE GETTING A TOTAL OF 55% TARIFFS, CHINA IS GETTING 10%."

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Why investors are selling MP stock today

Let's put the tariffs question to the side for a moment, and focus on the rare earths aspect -- and what it means for MP Materials stock.

MP Materials mines rare earth ore in the U.S., aiming to reduce reliance on rare earths mined in China, and capitalize on any high prices China charges for its rare earths by charging similar prices for domestically produced rare earths. MP is also building a refining business, purifying the rare earth oxides that it mines. And MP aims to build a business manufacturing rare earth magnets from those purified rare earths, for sale to U.S. automakers, clean energy companies, and other users.

Logically, easier imports of rare earth magnets from China -- that's what President Trump is talking about up above -- should be bad news for MP's business, because competition from China will hurt the prices it can charge. That's why investors are selling MP stock today.

Why MP Materials stock might be a buy

However, MP is still building up its magnets business, which is small-scale at present, making the magnets issue moot. More important to MP Materials is its ability to sell unrefined rare earths to China, for refining over there. At present, this accounts for 80% of MP Materials' annual revenue. And now the president says MP will be able to do that again, at only a 10% tariff.

Contrary to what the stock market seems to be telling you by selling off MP Materials, this is actually good news. MP Materials stock should be going up today.

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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.