James Litinsky: Rare Earths Taking Center Stage in the Electric Vehicle Boom

Published on
December 8th, 2020
Duration
76 minutes

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James Litinsky: Rare Earths Taking Center Stage in the Electric Vehicle Boom

The Interview ·
Featuring James Litinsky

Published on: December 8th, 2020 • Duration: 76 minutes

James Litinsky, founder and CEO of MP Materials ($MP), is joined by Real Vision editor Jack Farley to discuss his mission to restore to North America the rare earth supply chain, which for decades has been dominated by China. Litinsky highlights the critical role rare earth elements are playing in the economy of the future, explaining their uses in electric vehicles, wind turbines, and other markets that are set to dramatically expand. After Litinsky shares his experience in MP Materials’ going public via a special purpose acquisition company (SPAC), he and Farley discuss the properties of MP Materials’ Mountain Pass mine that make it uniquely able to produce rare earth concentrate at a low cost and in an environmentally-friendly manner. Lastly, Litinsky, a former hedge fund manager, puts back on his "investor" hat to share his macro framework. For the Real Vision "Discoveries" documentary on the Mountain Pass mine, click here: https://www.realvision.com/shows/discoveries/videos/the-rare-earth-metal-megatrend. For more about MP Materials, click here: https://mpmaterials.com/. Filmed on December 2, 2020. Key Learnings: Litinsky believes rare earths are an effective "picks and shovels" play on the exponential growth of electric vehicles (EVs), since all electric vehicles require Neodymium Praseodymium (NdPr) magnets to power their motors, and since EV stocks are priced to perfection and are largely in the pre-profit stage (and in some cases, pre-revenue). Litinsky argues that the rich ore body of the Mountain Pass mine best positions MP Materials to command market share, calling the mine "the Saudi Arabia of Rare Earths."

Comments

Transcript

  • NZ
    Nathan Z.
    15 December 2020 @ 19:33
    Something I found while researching about MP that remove some of the glow: https://resourceworld.com/rare-earths-sector-a-challenge-can-anyone-stand-up-to-the-chinese/
    • bt
      brian t.
      28 December 2020 @ 21:40
      I find it hard to listen to every pump when not all the information is discussed in a company, with out talking about the whole sector, (hard questions). It has value in bringing a discussion forward in topics. Lets not forget water started to trade in futures, in California, as it become rare! All mines require water in the operations!
  • JR
    John R.
    12 December 2020 @ 22:17
    Super impressive CEO. It's not often one sees a shot caller as visibly devoted to his company's long term success.
  • JR
    John R.
    12 December 2020 @ 21:06
    My concern re: MP remains what it always has been... very little moat if China decides to flood the market to kill of all competition.
  • AB
    Avik B.
    10 December 2020 @ 07:12
    has anyone figured out why MP warrants trade at a massive discount to intrinsic value? 11,50 strike 7-year warrants trade at 9.00 when the stock is at 26.
    • JF
      Jack F. | Real Vision
      10 December 2020 @ 20:49
      interesting. I will look into that
    • JR
      John R.
      12 December 2020 @ 21:04
      Find any helpful info in your exploration of the issue, Jack?
  • bt
    brian t.
    10 December 2020 @ 05:53
    Mines in those regions are limited to water! California water Futures begin trading amid fear of scarcity-Bloomberg reports.
    • MK
      Matt K.
      12 December 2020 @ 14:16
      Buy PICO then
  • SS
    Simeon S.
    8 December 2020 @ 12:11
    Looking at price moves in the index mentioned, it seems supply is very quick to hit market when price goes up.
    • bt
      brian t.
      10 December 2020 @ 04:34
      That is always the play, like BHP diamonds, hold back to keep prices inflated! This is China...the long game of GO.....
  • PS
    Patrick S.
    8 December 2020 @ 18:21
    Jack, I want to preface my remarks by saying, that I do like Real Vision, and that I am a very pleased shareholder of MP. I am up over 75% to date and I do believe that the company can continue to do well. I watched this interview to learn something more about the management of the company. HOwever, .....this was an interview that I hope you NEVER repeat. It was worse than anything I could watch on CNBC. This was a love in. There were no tough questions, not even an attempt to critically review what was being said. Often, you tried to outdo the CEO on his promotion of the company. Some question that could have sobered the conversation may have been, what impact does rare earth mining have on the environment in California? What are you doing to mitigate this? If China is expecting to get fully electric by 2030 and there are not enough rare earth supplies, do you think this is an achievable goal? WHere can you see the company having problems?/......etc. I don't want to be negative on the fact that you and James were enthusiastic on the company, but you may as well have brought out the the "kittens". Sorry to be critical. This is not the first RV interview that has been all show and no substance, but i do hope that it is one that you can learn from. After all, life is all about learning. Cheers
    • JF
      Jack F. | Real Vision
      8 December 2020 @ 23:36
      Hi Patrick, thank you for sharing your feedback, I always welcome constructive criticism (I really do). And judging by the like ratio of your comment, others feel the same way. Which means a lot to me. I think I could've asked James a few more hardball questions. Such as "When can you see your company having problems?" and "is China's lead insurmountable?" That being said, one of the things I've noted that most successful interviews on Real Vision have is that they rely on a certain amount of goodwill between the guests. For example, Kiril Sokoloff's wonderful conversation with Stan Druckenmiller, which many consider the flagship example of Real Vision at its best (to be clear - *not* comparing me to Kiril or James to Druck. Merely comparing the "vibe" or "spirit" of the interview). So to me your criticism is less poignant for the style (since the style has worked in countless interviews beforehand) and more a criticism of the type of guest we have on - CEOs rather than investors, who are the normal type of RV guests. CEOs i.e. people who have perhaps *too* much in the game, who can never exit their position, etc. For example, you get the CEO of Ford on, they are going to say that the future of cars is electric vehicles and that it's in Detroit, 10 times out of 10 (h/t Wiethe). I do think James is *literally* the perfect person to bridge that gap. He ran a billion dollar hedge fund successfully for many years, and he stumbled upon an asset that he perceived was simply too good so he became the CEO of it. And if you listen, he speaks like an investor, not a CEO. Sure, he is incentivized for the company to do well, but so is anyone who owns the stock or any other stock. A lot of people talk their book. I might add - we have had a lot of precious metals CEOs on Real Vision. And in some cases the interview is even more charitable to them than I was to James. I gave James the chance to tell his story. Yes, I extended him some courtesy. But I think I got a lot in return for my goodwill. He went in detail on SPACs, ESG, and electric vehicles in a way he hasn't in any other interview. He's done a lot of 3-minute hits on CNBC and the like but no one has gotten him to go in-depth on these key issues. So I am proud of the interview for that. At the end of the day, Patrick, I do hear your point. I welcome the feedback of all Real Vision members but the fact that you are a shareholder in MP makes me reconsider how I conducted that interview. I should have pushed back more, and I am sure James would have had very thought-provoking answers that would have made the conversation even more fruitful. I too cringe when I'm watching CNBC and a host says "I was just talking to [CEO of some company trading at 50x Price-to-sales] and they are an absolute genius." So I am very sensitive to your point. Thanks for sharing your perspective, and if you (or anyone else) wants to give me more feedback please do so, I welcome it. Either comment here or DM me on the Exchange. Thank you.
    • NL
      Nikola L.
      9 December 2020 @ 05:27
      Overall very informative and in the coming weeks I will probably buy few shares as well. I really like the high grades which means the company can survive If there is downturn which I can’t see. At same time I agree that young Jack could have asked few tough ones. Afterall the CEO is seating on the other side so press him with few curly questions. Having said all this I do like James. He sounds genuine. I don’t think he is smooth talker (as per some comments further up or down) or snake oil salesman. I find him to be competent and brave too. James and his team managed to turn the company and their investment around and he deserves credit. I am yet to look at their books but I doubt he will be claiming to be making profit on RV if he doesn’t. Important question is how much profit and what are the costs compared to other rare earth operations. As high grade operation this joint should have really fat margins. I would expect that.
    • PS
      Patrick S.
      9 December 2020 @ 14:55
      Hi Jack and thanks for understanding that it is constructive criticism. One additional comment. You said. "So to me your criticism is less poignant for the style (since the style has worked in countless interviews beforehand) and more a criticism of the type of guest we have on - CEOs rather than investors, who are the normal type of RV guests. CEOs i.e. people who have perhaps *too* much in the game, who can never exit their position, etc. For example, you get the CEO of Ford on, they are going to say that the future of cars is electric vehicles and that it's in Detroit, 10 times out of 10 (h/t Wiethe)." In fact as someone who has worked in the mining industry for decades (ouch, that hurts to say that,) I want an interviewer to bring out the best information form the CEO not be a cheerleader. Often there is more pushback on investors than there was on James. If I have a meeting with an investor who spends an hour cheerleading my company, I often just shut up and let him/her take over the cheerleading. (One of us is superfluous.) Enough said. Cheers
    • JF
      Jack F. | Real Vision
      9 December 2020 @ 17:06
      Understood, thanks Patrick
  • SW
    Suzanne W.
    9 December 2020 @ 12:21
    Great interview on a topic I knew little about until now. Thanks for shining such an enthusiastic light on this company and industry.
  • RL
    Randall L.
    9 December 2020 @ 11:18
    Jack I think the criticisms may stem from the fact that the resource sector is a pretty rough and tumble world there's a lot of salesmen out there and a whole lot of failures for every moonshot success watch how Matt Gordon roughs up his interviewees on Crux investor.... Ok let's look to the rare earth industry outside of China "the western hemisphere" MP is not the only game in town as stated in the interview far from it the largest producer is Lynas and in fact their production and processing is not just a future scenario it's a present reality and their market cap is half that of MP materials (revenues many many multiples of MP) And even taking into account that reality they're at 41 priced earning ratio and they're a well-run company that's been doing this a long time in a very sophisticated fashion so how overvalued must MP materials glittery twinkle star valuation must be?
  • AW
    Austin W.
    9 December 2020 @ 04:28
    These two had great chemistry. Particularly well done interview.
  • JH
    Joseph H.
    9 December 2020 @ 04:20
    I really enjoyed that, thank you James & Jack. Not the major theme I know but the bit on SPACs was particularly clarifying for me. Thanks
  • SM
    Siddharth M.
    8 December 2020 @ 18:36
    When are they going to be profitable?
    • JF
      Jack F. | Real Vision
      9 December 2020 @ 00:17
      They reported a net income loss of 45.9 million dollars for the first three quarters. But this is including a $66 million one-time charge they paid to their Chinese marketer and distributor, Leshan Shenghe Rare Earth Co., Ltd. It's my understanding that this sum was paid to Shengehe in order to renegotiate a 2017 deal whereby Shenghe would have have received 35% of net profits from resulting sales up until 2047. So basically a royalty. If you don't include this one-time charge, the company has made just over $20 million dollars this year. Their official adjusted EBITDA is $24.6 million, adjusted for tarriffs, depreciation, etc.
  • JS
    John S.
    8 December 2020 @ 22:24
    Jack, what precisely is brilliant about Ross Sorkin?
    • JF
      Jack F. | Real Vision
      9 December 2020 @ 00:01
      Too Big to Fail is a very well-researched book. TBTF + The Devils are Here by Bethany McLean is the best two-punch combo to understand the Great Financial Crisis, in my view. Big short as well obviously
  • CJ
    Christopher J.
    8 December 2020 @ 18:46
    Got to be careful of smooth talking CEO's. Been burnt here in medicine, biotech and finance before. Let's hope this is the exception. Great narrative so invested a smidgeon!
  • GA
    Gerald A.
    8 December 2020 @ 16:40
    Rare earth metals mining and refining. How I learned to love the environmental devastation of low level radioactive waste rock often dumped in now radioactive lakes. Your "green" energy revolution.
  • AD
    Andrew D.
    8 December 2020 @ 10:26
    Great Interview! Is there a link to the video that RV did on the MP site? Thanks!
    • MW
      Max W. | Real Vision
      8 December 2020 @ 15:06
      https://www.realvision.com/shows/discoveries/videos/the-rare-earth-metal-megatrend
    • JF
      Jack F. | Real Vision
      8 December 2020 @ 15:07
      Beat me to it! Thanks Max
  • BC
    Brandon C.
    8 December 2020 @ 14:43
    MP up 50% since this was filmed 6 days ago
  • RW
    Richard W.
    8 December 2020 @ 14:40
    What a complete waste of time. I don’t pay my subscription to listen to advertorials
  • CB
    Chris B.
    8 December 2020 @ 12:53
    Just wait until the rest of the world finds out how much spare rare earth separation capacity exists in China and how quickly it can be turned on!