Shares of MP Materials Corp (MP -1.85%), the company that bought the assets of bankrupt Molycorp before its recent SPAC IPO, fell nearly 18% on Tuesday when it first announced a big stock and debt offering, then fell almost 9% more when the company revealed the details of how it will be pricing those offerings yesterday.
Today though, the rare-earth miner is bouncing back -- and MP Materials stock is up 10.5% as of noon EDT.
Clearly, investors needed some time to digest the details of yesterday's news. But now that they have had that time...have they come to the correct conclusion that this big stock-and-debt offering is not all bad news?
I think so.
Consider: The 6.9 million MP shares going up for auction represent about 10.8% of all shares outstanding. That's a big chunk of the company's shares, and seeing "selling shareholders" unload so much stock all at one go certainly seems to have shaken investor confidence in the company. According to data from S&P Global Market Intelligence, "10.8%" represents the majority of shares currently held by "institutional" owners (hedge funds, venture capital firms, and big investment banks).
Ordinarily I'd think their rush for the exits would be cause for concern, except for the fact that these are folks who invested in a turnaround of formerly bankrupt Molycorp years ago and have enjoyed superb profits since they made that investment -- but so far mostly just "paper profits." That they'd be interested in cashing out their winning bets now, and at long last converting them into bankable profits, is actually pretty understandable.
And yet, at the same time as insiders are cashing out -- with no benefit from this sale accruing to MP -- MP is also raising plenty of cash on its own, selling as much as $690 million in "green" convertible notes that will cost the company only 0.25% annually in interest. Yes, these notes anticipate getting converted into common stock eventually, and yes, this will eventually result in stock dilution for MP shareholders -- but only at a conversion price of $44.28 per share.
Relative to where they trade today, that means MP's new debt investors are counting on the stock going up at least 20% over the next few years, and probably more than that. This, to me, sounds like good news for shareholders -- and perhaps a good reason for MP stock to be bouncing back today.