Money manager James Litinsky turned a bad junk bond bet into MP Materials, which now operates a thriving rare earths mine and will begin manufacturing supermagnets for electric vehicles next year.
By Christopher Helman, Forbes Staff
J
ames Litinsky first visited the Mountain Pass rare earths mine in 2015 because he was worried about the $40 million his hedge fund had sunk into distressed bonds issued by mine owner Molycorp. He came away stunned by the enormousness of the site in the mountains above California’s Mojave Desert and its status as the only U.S. source for certain strategic metals, including the neodymium used in “supermagnets” needed for electric vehicles, MRI machines, computer hard drives and fighter jets. “I was hooked,” he says.
A few months later, Molycorp filed for bankruptcy and Litinsky went on to make a risky play to salvage both the mine and his investors’ money. So what if he knew nothing about mining or complex rare earths chemistry? So what if “rare” earths got their name because they are so difficult to extract and refine? So what if the mine, by the time he got it in 2017, had been mothballed and reduced to a 600-foot-deep pit filled with 30 million gallons of water? With his Yale degree in economics and a J.D. and MBA from Northwestern, he was cocky—and confident the numbers were compelling.
China mines and refines 80% of the world’s rare earths. Those numbers give Washington policymakers cold sweats given the industrial and military importance of the metals. From the start, Litinsky shrewdly calculated he could count on federal support if he went into the rare earths business—which indeed he has received, to the tune of $105 million from both the Trump and Biden administrations. Perhaps more surprising is the degree of assistance he has received from the Chinese, who have helped him finance and rebuild the Mountain Pass site—and have proven to be some of its most loyal customers.
It hasn’t all been smooth going, but the gamble has paid off, making the 46-year-old Litinsky worth at least $400 million, Forbes estimates. He has wound down JHL Capital Group, his Chicago-based hedge fund, which at its peak had $2 billion in assets under management, and spends his days as CEO of MP Materials, which operates the now-thriving Mountain Pass mine and is finishing a Fort Worth, Texas, facility that will refine rare earths into high-performance metals.
After going public in 2020 at $10 a share in a SPAC deal that raised $545 million, MP’s stock shot to $56 as the price of its most valuable output—neodymium-praseodymium powder—spiked at $150,000 per metric ton. China has since flooded the market, and prices are just a third of that now, driving MP’s shares down to $15. But MP still has a market cap of $2.4 billion, making Litinsky’s 11% stake worth $265 million—adding to the profits he reaped from his hedge fund.
When Litinsky finished distributions from JHL in 2023, much of it in MP stock, he crowed in a farewell letter that the fund’s gross annual compound return since 2006 came to 23.4%, compared to 9.5% for the S&P 500. According to SEC filings, JHL had attracted a roster of billionaire-linked investors, including Seth Klarman’s Baupost Group, Leon Cooperman’s Omega Associates and Barry Sternlicht’s Jaws Capital.
HOW TO PLAY IT
By John Dobosz
Mining rare earth minerals from the ground requires a significant investment in equipment to extract, transport and process the prized materials. The world’s largest mining equipment maker is heavy equipment giant Caterpillar. The Irving, Texas–based company generated 20% of its $67 billion 2023 total revenue from its resource industries division, which manufactures machinery used in mine and quarry operations. Wall Street sees earnings in 2024 growing 2.3% to $21.69 per share. At 15 times earnings, CAT trades well below the 21.5 price-earnings ratio of the S&P 500 Index. It also makes excellent use of capital, boasting a 59.8% return on equity and 13.2% return on assets. Dividends have grown 7.3% annually over the past decade, and the stock yields 1.7%.
John Dobosz is editor of Forbes Dividend Investor, Forbes Billionaire Investor and Forbes Premium Income Report.
Litinsky is moving to make MP less vulnerable to swings in commodity prices by integrating vertically. MP is spending some $200 million to build the nation’s first new supermagnet plant in decades in a 200,000-square-foot space at billionaire Ross Perot Jr.’s Alliance Texas complex north of Fort Worth. Starting late next year, U.S.-, German- and Italian-made equipment will transform rare earth oxides into 1,000 tons per year of the strongest magnets on earth. MP already has a contract to sell magnets to General Motors for use in electric vehicles.
The mine takeover wasn’t the first time Litinsky made a gutsy bet. In 2006, with just a few years of experience in finance, he launched his own hedge fund—eponymously named JHL Capital Group—with $11 million in backing from Chicago real estate investor and former Forbes 400 member Judd Malkin. “If you really believe you can do something and are naive enough to take on the challenge, start as early as you can,” says Litinsky, who began trading stocks (and reading Forbes) as a teen.
JHL did well in the financial crisis, gaining 18% in 2008 and 30% in 2009 by shorting REITs and “some of the regional banks that became zeroes,” Litinsky says. “That allowed me to hit escape velocity. I earned the right to stay and grow.”
He started “looking for babies thrown out with the bathwater.” In 2014, he thought he’d found one in Molycorp, an industrial metals company that was burning through cash amid low rare earths prices and operational problems at Mountain Pass. Oaktree Capital Management had just given Molycorp an emergency loan of $400 million at 12%, and he figured he could piggyback on that action by buying some of Molycorp’s deeply discounted older debt, secured by the Mountain Pass site.
During the bankruptcy restructuring, however, it became clear that Oaktree and JHL had very different interests. Oaktree, with its $170 billion in assets, took over Molycorp’s profitable high-end metallurgy business but was happy to abandon Mountain Pass, which it wanted to turn over to the government for environmental cleanup as a Superfund site. That would have voided the mine’s permits to operate and made the bonds JHL held worthless.
But Litinsky had a legal ace up his sleeve: Bankruptcy law allows a secured creditor to make a “credit bid” in which it uses the face value of its claim as currency to acquire assets securing the claim. JHL’s Molycorp bonds had a face value of $300 million. So Litinsky made a credit bid for Mountain Pass’ mineral rights. It was a first step toward saving the mine, but he still needed cash to buy and restart the mine itself.
Little Big Picture
BAR TAB
The best things in life definitely aren’t free. MP Materials’ customers spend north of $23 per pound for some of James Litinsky’s rare earths. For comparison, here’s how much a standard 16-ounce pint glass of a few common— and exotic—liquids would set you back.
New York City tap water: $0.0008
Nascar fuel: $3.25
Blood plasma: $70
Chanel No. 5 perfume: $10,000
Macallan 1926 Valerio Adami Scotch: $1.7 million
Rattlesnake antivenom: $32,000
Hemgenix hemophilia treatment: $10 million
Enter the Chinese. Litinsky convinced rare earths giant Shenghe Resources, based in Chengdu, to help finance his bid for the rest of the Mountain Pass operations, which Litinsky and JHL won in a June 2017 bankruptcy auction for just $20.5 million. He presold output to Shenghe for $50 million, enough to restart operations. In some quarters, the ploy raised eyebrows. Shenghe is partially owned by the Chinese government, and wasn’t part of the point here to bolster America’s position in rare earths minerals? Litinsky shrugs off such criticism. “If there’s some issue where we need to put the country first, of course we will, but right now, in a global economy we will sell to the customers that pay the highest price.” He’s still selling some of his mine output to Shenghe, which currently owns 8% of MP.
The financing was arguably the easiest part of restarting Mountain Pass. The mine was a wreck, little more than a half-mile-wide flooded mud hole. One of JHL’s investors, retired Valero Energy CEO Bill Klesse, says he scoped out the site with some fellow engineers and warned Litinsky, “This is going to be very difficult.” Flooding be damned, Litinsky was excited about how cheaply he was getting the property: Molycorp had invested $2 billion into the mine after acquiring it in 2008. “If you can buy a world-class asset at a discount to replacement cost at the bottom of a cycle, luck finds you,” he says.
It took 18 months, and technical help from the Chinese, but the MP team restarted the mine and overhauled the site’s process of milling, concentrating and refining rare earths. Among the updates: Where human eyes used to watch over bubbling cauldrons, cameras connected to AI systems now continually measure the size of surface bubbles to optimize the chemical processes. Since restarting the mine in 2018, MP has trip-led output. The mine’s headcount, just eight when Litinsky took over, is up to 740 now. In 2022, with high rare metal prices on its side, MP netted $290 million. Last year, with prices down, net income was just $24 million.
Litinsky plans to boost output by 50% over the next four years and figures the site has 30 years of production left—or more if MP can find additional rare earths hotspots on the 15,000 acres it controls nearby. This kind of deposit, pushed out of the earth by magma, often stretches dozens of miles, he says hopefully.
Plus, he has an out-of-the-money option on MP’s “overburden hill”—that’s 62 million tons of excavated hard rock with ore content under 2.5%, which is too low to be economically processed now, particularly with Mountain Pass rock averaging a rich 6% ore content. Someday, if the price is right and technology allows, MP could process the pile, Litinsky says. How soon? That will depend, he says, on the trajectory of demand. Self-assembling artificially intelligent robots might need a lot of supermagnets.
