MP Materials (NYSE: MP) recently announced it had signed a supply agreement with a new, unnamed customer. That news, along with its second-quarter earnings report, has proven to be quite the catalyst for the rare-earth stock, which has rallied more than 10% since the announcement. While MP Materials has publicly named many other noteworthy new customers (e.g., Apple and the Department of Defense), it's keeping this one secret for now.
All it revealed is that it's a significant long-term offtake agreement with a U.S. aerospace and defense customer for separated gadolinium, one of the 17 rare-earth metals. The customer's name isn't what's significant here. Let's break down why the deal itself matters for MP Materials stock.
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Continue » MP Materials currently makes most of its revenue from NdPr oxide and metal (a fused blend of neodymium and praseodymium, two rare-earth elements). It's an important material for electric vehicles, robotics, and electronics. During the second quarter, MP Materials generated $94.4 million in revenue from NdPr oxide and metal sales, accounting for 87% of its total revenue.
With that context, let's turn to the deal. The company noted that the contract with the unnamed U.S. aerospace and defense customer is "significant" and "at attractive economics." This suggests it should be a meaningful future contributor to revenue. It's also for separated gadolinium, which will expand its HREE (heavy rare-earth elements) product portfolio, providing additional diversification.
The deal also expands its customer base. That's a lot of benefits in one contract. It builds on its previously disclosed large-scale deals with Apple and the DoD.
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