Penn Wealth Publishing

2020.11.01 Penn Wealth Report Vol 8 Issue 04

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Penn Wealth Report investment intelligence command & control tactical Awareness 8 penn wealth Report volume 8 issue 04 01 nov 2020 Copyright 2020. All Rights Reserved. Mining operations at Mountain Pass; Image courtesy of MP Materials Metals & Mining Rebuilding America's Rare Earth Juggernaut Fortress Value Acquisition Corp is funding America's return to rare earth mining; it is about time someone takes the lead. For the better part of a decade, we have decried the disgraceful US abandonment of rare earth min- ing—the discovery and extraction of mineral resources needed in high-tech equipment, from EV batteries to the latest generation of American jet fighters. is was akin to the US decision to give up its ability to launch astronauts into space with American rockets from American soil. e latter offense forced us to rely on the good graces of Russia; the former, on China. Both decisions were near-treasonous, in our opinion. e last US-based rare earth miner was Molycorp, which extracted minerals from the Mountain Pass mine in the Mojave Desert region of California. Up until not that long ago, Mountain Pass was the world's foremost supplier of seventeen critical rare earth minerals. Mountain Pass began operations in 1952 during the heat of the Cold War. Not only did the mine turn out to be a major source of uranium deposits, it also held the moniker of being the single largest source of rare minerals—substances needed for the rapidly-advanc- ing field of electronics—in the world over the course of four decades. en, in the late '80s and early '90s, China began a massive and wanton effort to control the rare earth industry. With little concern about the effects on the land, and no concern for private rights, the Communist Party of China began systematically tak- ing ownership of a growing number of mines in the country. Simultaneously, they also began creating relationships with both Western and Japanese mining partners to "gain" the intellectual property needed to dominate the market. e next step in the master plan was to flood the market with these critical materials, forcing private companies such as Molycorp to become unprofitable. Once out of the way, China would have the leverage needed to control the market. anks to Western apa- thy, the plan worked beautifully: Molycorp went out of business and China began restricting the export of these materials at will. Fortress Value, MP Materials, and America's return. Fortress Value Acquisition Corp FVAC $12 is a special-pur- pose acquisition company (SPAC) which funds specific, highly-promising enterprises with the goal of unlocking shareholder value. e SPAC recently partnered with MP Materials—a firm founded by part of the Molycorp creditor group—whose stated mission is to "restore the full rare earth supply chain to the United States of America." MP Materials owns and operates the Mountain Pass mining operation. In effect, investors can now buy ownership in America's resurgent rare earth mining business by purchasing shares of Fortress Value. But should they? Top US officials, both within the DoD and the Trump administration, have made it clear that the US must regain its leadership in this arena for national security purposes. Couple that with the fact that MP Materials is the only major domestic player, and the outlook is promising. Our biggest challenge with the investment right now is the lack of financials—this reinvigorated entity is simply too new for the figures to paint an accurate picture of valuation. MP had $10M in EBITDA in Q1, and it projects that figure will grow to an annualized rate of $250M by 2023. Still, these are projections. In our opinion, the strongest positive driver for the company going forward is the global EV renaissance. All electric motors in every EV battery require rare earth materials to function, and manufacturers such as Tesla TSLA $2,050 will soon have an American supplier. While we're not ready to place Fortress Value in a Penn strategy just yet, it is on our radar. If nothing else, this is one more sign that we continue our economic decoupling from China, and that is a good thing.

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