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All right, we're going to switch gears a little bit. Shares of rare earth magnet producer MP Material soaring in today's session, up as much as 60%, right now up about 50%, so just off its highs of the session. This is after securing a $400 million equity investment from the US Department of Defense to build a new plant with a $1 billion financing commitment from JP Morgan Chase and Goldman Sachs. So, we wanted to talk about the deal and what this really means in terms of US capabilities of rare earth magnets. We welcome back Jim Latinsky. He's founder, chairman, and CEO of the 7.2 billion market cap MP Materials. He is with us from Las Vegas, Nevada. And we also have with us our own Joe Doe. He's Bloomberg News economic statecraft reporter who first introduced us to Jim just a few months ago. So thank you for doing that Joe. Joe is with us in studio. Welcome to both of you. Hey Jim, we want to kick it off with you. Welcome. Welcome. Hey, lay it out for us. What exactly does this investment do for you and what will it do for rare earth magnet production in the US and when will we feel that impact here in the United States?
Absolutely. So there are three pillars to DoD's investment today. DoD made an investment in MP. They also provided us with a long-term, a 10-year price floor contract that allows us to earn a fair return on the commodity. And then they also provided a 100% offtake for a new magnet facility that we're building that will significantly expand. It will 10x our magnet capacity. What's so important about this is that with the supply chain, as you may have heard me say, if we have all the rare earths in the world, if we don't have the downstream, if we don't have the magnet production, or vice versa, if we have magnet production but don't have the rare earths, then it's all for naught. So it's really important to look at this supply chain on a vertical basis. So you really have to credit President Trump and his administration and, of course, our partners at the Pentagon for looking at this challenge and recognizing that MP has put together a vertically integrated champion and the best solution to catalyze this supply chain is making a substantial commitment to us, which they've done. We're very excited about that. And lastly, I would just say that this is a huge win for taxpayers because the structure of the deal is such that not only is DoD now economically our largest shareholder, but they have upside participation in both the commodity and in the magnet business. Hey Joe, come on in here because you understand this space like pretty much nobody else. Talk to us about what you see as significant about an investment such as this, especially from a position of economic statecraft.
Well, I wanted to ask Jim about that. Jim, I feel like you're underplaying what has come out today. Can you give us size and scope, put into context why this is such a big deal in your industry and what's unique about it?
Thanks, Joe. It's good to see you. So, I think, not to get too wonky, but I would recommend, since we are on Bloomberg, for those on our investor relations, we obviously put out a deck for this morning's call, and I really encourage people to look at that and we go through a lot of the economics, but I'll give you the summary, which is that we have totally transformed MP's business overnight. We've gone from, you know, the challenge Joe, as you know, is that the Chinese historically have sold rare earths at a substantial loss because they use it mercantilistically as a strategic source of control of the downstream.
Which is a way of saying that they will flood the market to take market share, which is one of the things that has always scared investors away from your company and other companies in this space.
Correct. And so if you look at the math, we basically have transformed MP where we can earn, we have long-term contracted cash flows. So we have 10-year agreements where essentially if you look out normalized, we believe we can do $650 million plus of EBITDA. And this has taken our business from what was sort of a volatile commodity business to a long-term contracted economic platform, which enables us to make further investments downstream. And those investments downstream, we now have a 100% offtake with DoD as a customer. And if I can, Joe, let me add one more point that I think is so important because you hit the nail on the head about the Chinese flooding the market. The Chinese very thoughtfully realize that, particularly when we think about physical AI and the future of warfare, robotics, drones, the Chinese are willing to lose billions to play for trillions of dollars of downstream market cap. And when we think about our great leaders in technology, whether it's Jensen Huang or Elon Musk, talking about robotics being potentially the largest industry in the history of the world, rare earth magnets are important, very important, extremely critical feedstock to that. And so we've got to preserve that trillions of dollars of downstream enterprise value. And that obviously is what we're about at MP, making sure that our downstream industry has that feedstock. And obviously today's announcement ensures that we can make those investments.
Jim, the Defense Department is famously not splashy about anything. It's hard to argue that this was not flashy. $400 million equity investment in a publicly traded company. Have they ever done this before?
I think it's a pretty unprecedented situation and I think that this is obviously a very unique circumstance and obviously we are honored and humbled by it, Joe. And as you know, since we've been talking for many years, I guess there's the old expression that it takes a lifetime of hard work to become an overnight success. We've been at this for 10 years at MP. And actually, interestingly enough, today is the eighth anniversary of my co-founder and I buying the Mountain Pass assets out of bankruptcy eight years ago, where we began the turnaround to restore this full supply chain. And I think that DoD and the administration realize that we've got to look at the supply chain holistically. And hopefully this is a model for future other scenarios where we have strategic industries that we have to return and we've got to figure out a way to take on mercantilist economics. So this is, I think, hopefully a good model in doing so.
So Jim, to that point, you operate in a specific portion of the rare earth space when it comes to these magnets. In your view, because you're in this space, where does the US still lag and where does the US need to invest in order to try to catch up, if even possible?
Well, we're vertically integrated. At MP, we are, and there's nobody like this.
But I just mean from a materials and processing perspective. I understand you are vertically integrated, but what about for all of the rare earths that will be in demand in the near future?
Sure. Well, so there are two major categories. There are the light and the heavies. And as part of this announcement, DoD is actually also committing some capital for us to build out Samarium separation at Mountain Pass. Samarium is a feedstock into a different kind of magnet that's actually really critical for military purposes as well. And so if you essentially, Tim, if you want to refine, so forget the ore bodies around the world, if you want to refine and separate them to then become feedstock to magnets, there are two places to do it: there's the Chinese sphere of influence or Mountain Pass, California. And so I think this basically catalyzes us to move downstream and really be able to have MP as an economic platform that can encourage additional investment really in all spheres in mining and across the stream all the way down to magnets.
You know, Jim, I think people are listening and they're like, 'Yeah, if we're thinking about developing our supply chains here and making and creating national security for things that are so important to so many different aspects of our lives here in the United States, people are going to say, 'Yeah, this makes sense.' But do you feel like this is potentially a step towards you becoming a state-owned enterprise?
Oh, not at all. Not at all. In fact, I think it's actually the opposite, which is for the first time we see an actual data point of how we in the West with free market capitalism can take on mercantilism, but doing so in a way that is along with our value system. So let's be very clear about this. DoD is becoming economically our largest shareholder. They will vote with our board and they expect us to be a thriving public company. They want us to continue to run the company for shareholders and obviously their interest will be a benefit for taxpayers to the extent that we continue to compound, which we expect, and then they also have upside sharing. And so I want to really remind people that if you look at this deal, it was a win-win-win. Obviously the market likes it. I think our economic platform has totally changed, but we're serving a key national security initiative, enabling trillions of dollars of downstream enterprise value to be more secure, but the taxpayer also has upside in this. And so I think that this is, again, it's a new model. It's unprecedented in a sense, but it's of course because we're facing a challenge that we haven't faced before.
Yeah. I guess on some level, Jim, the upside the taxpayer has is if your stock goes up, the investment that the DoD has goes up. I was talking to an investor today asking about this and I said, 'Well, what does it mean for the taxpayer?' And they said, 'Really, it all means is a better bet on national security issues.' So I might push back.
If I may, yeah, if I may push back because if you look at the structure of the deal, it's not just the shareholding. There are three pillars. It's the shareholding. There's then upside participation in the commodity. And then there's also upside participation in our magnet business. So there's actually three different mechanisms of upside sharing for the taxpayer.
And can you clarify one thing in the details? The agreement, it's $130 floor, right? Or is it 110? Sorry.
It's $110 floor. That is just for the actual concentrate refined and metal. That is not batteries, right?
Sorry, that is not permanent magnets.
That's all NDPR products. So you're right, concentrate, oxide, and metal. And then when you move downstream though, we also have 100% offtake for the new facility that we're going to build called 10X. And as part of that offtake, we'll have a minimum EBITDA guarantee and then there'll be a catchup for DoD and then we'll share, we're 50/50 partners. And so again, Joe, this is a transformational public-private partnership that was really, really well represented in the structure.
But Jim, one thing you probably will be getting a lot of pushback from investors, from media, whoever, saying what we just brought up, which is your biggest stockholder will be the Defense Department. And doesn't that bring a concern that the federal government has so much say in what is supposed to be a publicly traded private company?
Well, actually, interestingly, as part of our deal, DoD will be voting their shares with our board. And so I really think that this is again, it's a new structure that contemplates the fact that we need to be a successful public company. So this is very different. I know that there may be historical examples of where the government needed to come in and rescue an industry. It's actually the opposite of what's happening here. The government wants to achieve an important national security objective and we at MP are able to help them achieve that objective. And so they are going to help support us in accelerating investment in our space and they're going to create the conditions that allow us to invest with a fair return on capital and not be attacked, so to speak, by mercantilism. And in exchange for that, they're going to expect some upside. And so again, I think this is hopefully a new model that we can utilize across some of these verticals that are really challenging for us where we've been unable to fully restore industries because we're facing competition that is thinking differently.
Sorry, we only have a minute left and I just want to hear from you how this deal came together and the timeline here. Who did you speak to? Who first reached out? Trips to Washington, trips to Chicago or Nevada? Like, how did it all come together and when did the discussions first start?
Yeah. Well, we've been having a great, active dialogue with the Pentagon going back to the first Trump administration and through the Biden administration and now obviously the Trump administration. And obviously this is a nonpartisan issue, getting this supply chain back. Suffice to say that what we have been, as you know, in our mission, we've been focused on this single point of failure since the inception of the company post Liberation Day, as we saw the Chinese utilize rare earth magnets in the trade disputes that basically the cutoff of rare earth magnets had the threat of sending our economy into a deep tailspin. And so that really accelerated some of this discussion.
Got to ask you though, did you actually talk with President Trump about this? Like who finally said gotta do it, signed it?
Well, I think you can look at the transaction documents which were signed at the top levels of the Pentagon. So this was a conversation from the very top levels of the Pentagon.
Is that a yes on the president?
Yeah. So this is again, I don't want to specifically name names of who we spoke to and how the conversations went about, but I will tell you that the president has directly mandated that we fix this supply chain and so that is public, you can see that. And so the president mandated the secretary on down to fix this supply chain and I think that this is really bold and decisive action to make that happen.
Investors certainly taking note. As we said, your stock up 50%. I'm going to say thank you. Thank you. Thank you because there's three of us and we really appreciated your time and having a conversation with you on this because it does sound like it's pretty significant in terms of what happens with rare earths here in the United States. Jim, thank you. Thank you. Stay in touch.
You bet. Jim Latinsky, he's founder, chairman, and CEO of MP Materials. And of course, our own Joe Doe, Bloomberg News economic statecraft reporter, is going to be back with us in the next hour. Joe, thank you so much.
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Airlines definitely in focus on this Thursday rallying. So too are many stocks in the travel and leisure space. Trading up thanks to Delta Airlines which reinstated a profit outlook for the year and said travelers are coming back, prompting its stock to surge amid a fresh sense of confidence in the beaten down US consumer. Just one number I want to throw out at you. S&P super composite airlines subindustry index rallying close to 12% today. It's still down 5% year to date. So a little bit of perspective, up a lot today but still down for the year.
Well here with a look at the airline space. Great to have back with us Sheila Kayallu. She's managing director in equity research at Jefferies. She joins us here in the Bloomberg Business Week studio. Sheila, three months ago, we would have been sitting here talking about Delta being the first major carrier to pull its guidance. Perhaps a couple days later, we'd be talking about United coming out with those two different scenarios. A lot has changed in just 3 months. What happened?
A lot has changed, but I also think it hasn't. So, I'm not really buying this burst with the airline performance. Delta did reinstate guidance. The midpoint's about 50 cents higher than what the street expected. But I think trends are stable. So they're taking up estimates about 10% and that's what's moving all the airlines. But I still think it's haves and have-nots. So if you look at Delta's numbers, Main Cabin was down 5% in terms of pricing. Like what do you see that's down 5% and you think that's a stock that should be up 15%? Especially when you look at American and Southwest performance. So is the main cabin issue?
I was going to ask you about that because there was some positivity and optimism at the front of the plane and for Premium International and for loyalty stuff, but if you're not filling the main cabin, then that's a sign of a consumer that's not at the extreme high end not doing so well, right?
Yeah, I think the low-end consumer is still in the same position it was three months ago, and we could see that with the down 5, but Delta is adamant that they're going to exit the year probably in the positive territory. And I think that's a still show-me story. But I think for some of the other airlines that are seeing the same performance as Delta is today, with the exception of United that had an 8K out last night just to steal some of Delta's thunder, because that's the way they work, American and Southwest are up about the same amount. And Southwest is delaying some of its initiatives, which means there's probably book away. They have an activist involved who wants them to do assigned seats, etc., charge for bag fees, and they're delaying some of those initiatives to Q4. So I think it still shows that the consumer is soft and Delta's guidance is fine, but it still reflects a second half that's improving from what we saw in Q2.
Consumer soft because of, you know, it's interesting. Let me go back for a second because Delta's CEO Ed Bastian said travel in the US is recovering, corporate travel is strengthening with consumers becoming a little numb to ongoing trade disputes. So you say a little bit softness in consumers. Is it because of trade?
Main cabin. Mostly the main cabin. But one of the things they did say that was interesting was July was one of their best cash days ever.
So they're still seeing some advanced bookings come in.
So the consumer is becoming immune because they're seeing some visibility. They're finally booking their holiday. Whereas although Q2 free cash flow was good, they said they missed out about $500 million of free cash flow because people didn't book vacations yet. So they weren't putting the ticket price. So they were holding back.
Yeah. So they have some green shoots of confidence, but I still think it's mainly because the premium is really solid.
Like I think of some of our business travel, we've done a lot in the last, I feel like, four to six weeks and some West Coast trips and stuff and some of the flights, the tickets were a lot. Some of them not so much.
Like it was quite a range and it was all business class.
I guess it has a lot to do with it. I mean, it has to do with the competition on the routes and the dynamic pricing and how many people bought tickets, etc. One thing that I'm still surprised about is business travel still hasn't completely recovered to pre-pandemic levels.
No. And even air traffic is only up 4% versus 2019 levels at the end of last year. So, we're still we've lost out on five years of traffic, which I think is surprising for most.
So, Ed Bastian at Delta said that business travel is down 15 to 20% since pre-pandemic.
Yeah, I think it might be at 90% recovered. So, it's a little bit less than that. And it's better for Delta than it is for others.
Does it ever come back completely? I think so. I think people want to do in person. You know, at Jefferies, we have a four-day mandate or five-day mandate. I forget. I think I obliged to it. But in general, I think it's in person. I was in three different countries in the last four weeks. So, lots of business travel on our end, too.
How does geopolitics impact any of it or how do you factor that into some of your research?
I think we're seeing some of that. So, one of the interesting things about transatlantic for Delta, their Atlantic has been really strong. Tough comps with the yields because everybody wants to go to Europe. But what they're seeing is Europe point of sale. So consumers in Europe are hesitant to book and have trips into the US. And we'll hear from like Air Canada that I cover, if Canadian consumers are not necessarily coming to the US, whether that's a currency issue or whether it's just political stigma. So that's one of the things to keep an eye out on as well.
United's actually outperforming Delta today up more than 15 and a half%. Why is that?
Few things. I think the book away with the New York issues was only around like one-third of a point. So 30 to 40 million even though I did book away from United.
So did we. We canceled United tickets to fly out of JFK instead.
