MP Materials – $MP- Latest Idea – February 3, 2022

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February 3, 2022 - SHORT MP MATERIALS ($MP)

MP Materials Corp. (“MP” or the “Company”) owns and operates the Mountain Pass mine in California. Shenghe Resources Holdings Co., Ltd. (“Shenghe”) (CH: 600392) is a publicly traded Chinese state-owned rare earth metals refiner and producer who co-invested alongside JHL Capital Group LLC (“JHL”) and QVT Financial LP (“QVT”) (all three parties collectively “MP Insiders”) to buy the Mountain Pass mine out of bankruptcy in 2017.

Shenghe is a MP related party, owns 8% of MP shares, and is MP’s ~100% customer who had rights to 100% of MP’s production and 100% of MP’s net income until Shenghe fully recouped its investment.

We believe that since 2Q’21, MP and Shenghe executed an abusive transfer price manipulation scheme whereby Shenghe overpaid for MP concentrates to artificially inflate MP’s profits. The 2021 scheme conveniently coincided with the SPAC insider lock-up expiration so that MP Insiders could sell MP stock at artificially inflated prices.

As a result, Shenghe’s profits collapsed, MP’s profits soared, and MP Insiders dumped US$ 400+ million worth of MP stock in 2021 (this figure may increase as we await Shenghe’s yearly reported changes to MP shareholdings).

Evidence of transfer mispricing first appeared in 2Q’21 Chinese Customs records and Shenghe’s Chinese quarterly result segment disclosures. Chinese Customs records show 2Q’21 was the first time that Shenghe paid MP above market price as compared to Shenghe’s reported resale price. Shenghe’s Chinese filings show that in 2Q’21 & 3Q’21, Shenghe’s gross margins collapsed to 4% and 0.3%, respectively, down from ~25-30% on average since 2018.

Results from a 3Q’19 German academic economic feasibility study concluded that MP’s ore is not economically viable to harvest for rare earth metals while 12 of the 13 other well known rare earth mines outside of China are economically feasible at today’s current market prices.

A bill of lading filed on January 21, 2022 with the US Customs Office disclosed that MP purchased from a Shenghe subsidiary 19,614 kg of “bastnasite concentrate hts 253090” shipped from Shanghai China to Long Beach California, USA. MP’s business is to dig up California soil and export bastnasite concentrates to China. MP does not disclose anywhere in its SEC filings about processing third party bastnasite concentrate samples from third party mines in Mountain Pass California. So why did MP import bastnasite concentrates from China to California? We can only speculate: potential returned product or potential round-tripped inventory?

MP resold Molycorp’s failed “mine to magnets” downstream investment strategy to raise capital during a time of heightened EV adoption interest which resulted in unrealistic future profitability estimates from Wall Street analysts.

We are short MP and think that its stock is going lower.

Table of Contents:
1. CHINESE CUSTOMS RECORDS SHOW OVERPAYMENT FROM SHENGHE TO MP
2. MP ARTIFICIALLY INFLATED 2021 PROFITS FROM RELATED PARTY DEALINGS
3. INDEPENDENT STUDY FOUND MP OXIDE ECONOMICALLY UNVIABLE
4. US CUSTOMS RECORDS SHOW SHIPMENTS FROM: CHINA TO LONG BEACH?!?
5. US$ 400+ MILLION MP INSIDER SALES IN 2021
6. SHENGHE BENEFITS
7. FINAL THOUGHTS

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Bonitas is Short MP Materials $MP. We believe $MP & Shenghe executed an abusive transfer price manipulation scheme to overpay for $MP concentrates. Shenghe’s profits collapsed, $MP’s profits soared, and $MP Insiders dumped US$ 400+ million worth of $MP stock in 2021. (1/x)

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