There’s a New Rare-Earth Stock for Investors to Buy

A clean coal tunnel and stacking tube stand under construction at a Ramaco Resources facility near Wylo, West Virginia, in 2017. (Andrew Harrer/Bloomberg)

Key Points

• Baird initiated coverage of Ramaco Resources with a Buy rating and a $63 price target, citing its potential in rare-earth elements.
• Ramaco Resources, a metallurgical coal producer, is developing its Brook Mine, which holds significant heavy rare-earth element deposits.
• Analyst Ben Kallo anticipates government support for Ramaco, expecting critical mineral deals between the U.S. government and miners.

Rare-earth minerals’ role at the center of the trade war between the U.S. and China has left investors scrambling for options on how to play the conflict. One of the latest ideas is the metallurgical coal producer Ramaco Resources.

Baird analyst Ben Kallo launched coverage of the company on Wednesday with a Buy rating and a target of $63 for the price.

Ramaco stock traded as high as $54.35 before closing at $49.48, up 3.4% on the day. The S&P 500 and Dow Jones Industrial Average fell 0.6% and 0.7%, respectively.

The jump adds to the stock’s recent rally. Shares were below $34 apiece at the start of the month, before China threatened new export controls on rare earth minerals. It dominates the industry, processing some 85% of rare-earth materials globally.

Rare-earth materials mainly end up in magnets that are critical for electric vehicles, wind turbines, fighter jets, and a host of other products. China has threatened export restrictions in the past, which is one reason the Defense Department recently invested in MP Materials, the largest rare-earth producer in the Western Hemisphere, to ensure security of supply down the road.

The deal, which includes a price floor for key products, has sent MP shares up almost 500% year to date, entering Thursday’s trading.

Ramaco stock was up more than 400% year to date. While the company produces coal used in steelmaking, it is also developing its Brook Mine in Wyoming, which contains a significant deposit of heavy rare-earth elements and other critical minerals.

Kallo believes there is more room to run. “Every indication we have received from third-party media outlets and company checks leads us to believe that more critical mineral deals between the U.S. [government] and developers are near,” he wrote. “We see it as likely that [Ramaco] will receive some form of government support.”

He values Ramaco at 13 times the $444 million in earnings before interest, taxes, depreciation, and amortization he expects the company to produce in 2030. “It will take several years for Ramaco Resources to ramp operations at the Brook Mine, and 2030 will likely be the first year of smooth, full run-rate production,” Kallo wrote.

Kallo also covers MP stock. He rates it Buy and has an $80 price target, valuing it at 23 times estimated 2030 Ebitda. MP, however, is producing rare-earth products already, making it a lower-risk bet.

With the new Buy rating, seven analysts cover the stock, according to FactSet. All seven rate shares Buy. 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 $46, a little below where shares are trading. Analysts have had trouble keeping up as the shares have soared. Kallo’s $63 target is the highest on Wall Street.

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