Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of America's Biggest Rare-Earth Metals Company Crashed Today

By Rich Smith - Mar 24, 2021 at 5:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

MP Materials announced a sale of shares and debt. Investors weren't pleased.

What happened

Shares of MP Materials (MP -0.48%), the company known as Molycorp prior to its recent SPAC IPO and currently "the largest rare earth materials producer in the Western Hemisphere," fell Wednesday, closing 9.4% lower.

In twin press releases, the rare-earth metals miner announced that some of its shareholders intend to sell as many as 6.9 million shares of common stock for $35 per share on Friday. Simultaneously, MP Materials itself will sell up to $690 million worth of "0.25% Green Convertible Senior Notes due 2026" (i.e., debt).    

Simple red arrow declining stock chart on a white checked background

Image source: Getty Images.

So what

Because the stock sale will be conducted by shareholders selling their existing shares, no new shares will be created, and there will be no stock dilution from that offering. However, for the same reason, this means that MP Materials will receive none of the expected $241.5 million proceeds of the sale.

Not to worry, though. The proceeds of the notes offering will go to MP Materials, and with these proceeds being more than twice as great as what the share sale will generate, this is a much bigger deal. It will put a lot more money in the company's hands to spend on both "general corporate purposes" and also "eligible green projects" (such as, one presumes, accelerating production of Neodymium-Praseodymium rare earths for use in producing the kinds of magnets that drive the electric motors of electric vehicles and wind turbines).

Now what

Here's why MP Materials shares closed down today: Yes, the company is getting a lot of cash that it can use for investment in building its business, and yes, it's getting a downright terrific interest rate on this debt.

On the other hand, if converted into stock at "approximately $44.28 per share" as envisioned in the press release, these convertible notes have the potential to convert into as many as 15.6 million shares of new MP Materials stock, which would cause current investors to suffer stock dilution of about 8.4%.

Unless and until that happens, though, I still see MP Materials getting access to a large pile of cash at a very attractive rate. On balance, I have to think this is a good thing for the company.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

MP Materials Corp. Stock Quote
MP Materials Corp.
MP
$35.31 (-0.48%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.