Goldman Sachs Says to Buy MP Stock. Here’s What It Says to Sell.

A rare-earth magnet is being inspected at MP Materials’ Independence facility in Fort Worth, Texas. Coming into Wednesday trading, MP stock was up 275% year to date. (Courtesy MP Materials)

Key Points

• Goldman Sachs initiated coverage on MP Materials with a Buy rating and a $77 price target, citing a Defense Department deal.
• Goldman Sachs launched coverage on Ramaco Resources with a Sell rating and a $16 price target due to low-grade ore.
• GiolMP Materials shares rose 4.2% to $60.95, while Ramaco Resources shares fell 1.4% to $19.74 in premarket trading.

Shares of two rare-earth companies headed in opposite directions on Wednesday, moved by calls from Goldman Sachs and news of a rare-earth deal in the Middle East.

On Wednesday, Goldman analyst Brian Lee launched coverage of MP Materials , the largest rare-earth miner in the Western Hemisphere, with a Buy rating and $77 price target, citing a deal with the Defense Department.

In July, the Pentagon and MP signed an agreement for rare-earth supply that included an equity stake, a price floor for rare-earth materials, and a guaranteed customer for rare-earth magnets MP plans to produce. The deal provides significant earnings power for MP later in the decade.

“We expect significant revenue and Ebitda growth, while vertical integration unlocks margin upside,” wrote Lee.

Also helping MP shares was a new deal struck between the Defense Department, MP, and the Saudi Arabian mining company Maaden. The trio is forming a joint venture in Saudi Arabia for the refining of rare-earth elements.

MP doesn’t have to provide capital, only expertise.

“We are honored that the U.S. government asked MP to partner on a project of this magnitude and importance for America and its allies,” said MP CEO James Litinsky in a news release. “This agreement will be beneficial to MP and our industry, and it further aligns U.S. and Saudi interests.”

Goldman isn’t so sure about the outlook for aspiring rare-earth miner Ramaco Resources. It launched coverage with a Sell rating and $16 price target. The company’s Brook Mine in Wyoming has low-grade ore, making the project, which doesn’t produce rare-earth materials yet, risky.

Ramaco shares fell 13.3%, closing at $17.35, while the S&P 500 and Dow Jones Industrial Average rose 0.4% and 0.1%, respectively. MP shares added 8.6%, closing at $63.55.

Coming into Wednesday trading, MP and Ramaco shares were down 28% and 56% over the past month. Shares shot higher in early October after threats by China to restrict rare-earth exports.

China dominates rare-earth production with an estimated 85% of processing capacity for the materials, which end up in everything from iPhones to fighter jets. China’s position in the industry is the reason the Defense Department moved to create a domestic rare-earth supply chain with MP.

Gains faded as trade tensions with China eased. The detente, however, doesn’t mean that the U.S. and Western companies will continue to rely on China for rare-earth supply.

With the new ratings, 75% of analysts covering Ramaco stock rate shares Buy with one, Goldman Sachs, rating it Sell, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Ramaco stock is about $40.

For MP, 82% of analysts rate shares Buy. The average analyst price target is about $80 a share.

Write to Al Root at allen.root@dowjones.com