A surge in commodity prices has the market gearing up for the start of what looks like a possible new supercycle.
Commodities are being driven up by massive stimulus spending by governments attempting to revive their economies as the world begins to see the proverbial light at the end of the coronavirus pandemic tunnel.
Copper prices have surged more than 13% so far this year to highs not seen since 2011. Oil is back up to pre-pandemic levels. Soybeans and corn have both rallied to multi-year highs.
One corner of the commodities market that is seeing increasing interest is the rare earth sector, which is reaping the benefits of the flood of money into electrification and ESG investing themes. And rare earth miners in particular getting a boost.
MP Materials (NYSE: MP) is one such miner and its stock is up more than 27% so far this year.
The company focuses its production on Neodymium-Praseodymium (NdPr), which is a rare earth material used in high-strength permanent magnets that power traction motors in everything from EVs to robotics to wind turbines and drones.
MP Materials went public last July in a SPAC merger. Morgan Stanley initiated coverage of the stock this week, issuing a price target of $57 – 39% higher than the price as of this writing.
“MP is the largest U.S.-based miner of rare earths,” wrote Morgan Stanley analyst Carlos De Alba, who added that the company is “a play on accelerating adoption of electric vehicles and electrification trends in wind turbines.”
“If you like EV, you’ll love MP,” De Alba added, noting that the company is more than just a “story stock” and comes with a “strong balance sheet and positive cash from operations.”
Uranium stocks have also been on the move with the metal rising more than 20% over the last year.
Denison Mines (OTC: DNN) is one such uranium miner. The stock is up 59% so far this year, and nearly 200% over the last 12 months.
Neo Performance Materials (OTC: NOPMF) is another uranium miner that’s been on the move lately, gaining nearly 31% year-to-date. The stock got an upgrade from Stifel Canada this week following the announcement that it has partnered with Energy Fuels Inc (OTC: UUUU) to produce rare earth materials together.
In a note, Stifel said the move into rare earths is a “multi-year growth opportunity” for Neo.
“Uranium sector supply/demand balance is the tightest we’ve seen since pre-Fukushima,” said GJL Research analyst Gordon Johnson, referring to the nuclear catastrophe in Japan in 2011. “When you add to this, uranium stocks are now gaining attention from ESG investors due to their low GHG footprint and quintessential role as a clean energy alternative, we see the set-up for incremental/new Uranium investments as opportune.”
Johnson added that the uranium industry could see even more gains on the horizon as it appears large funds are slowly increasing their positions.
“If true, this could go on for a long time as they build significant positions ahead of the inevitable price rise in the commodity,” Johnson added.