Fund manager James · Littinski turned a bad junk bond investment into a $400 million fortune with the help of a Chinese company. His MP Materials operates a strategically important rare earth mine and will begin manufacturing super magnets for electric vehicles next year.
James · Litinsky first visited the Mountain Pass rare earth mine in 2015 because he was very concerned about the $40 million his hedge fund had invested in a distressed bond issued by the mine's owner, Molycorp.
But after his tour, he was struck by the sheer size of the mine in the mountains above the Mojave Desert in California and its status as the sole source of certain strategic metals in United States, including neodymium used in electric vehicles, magnetic resonance imaging machines (MRIs), computer hard drives and "super magnets" for fighter jets. "My interest was completely piqued." He said.
A few months later, Molycorp filed for bankruptcy, and Littinski decided to embark on a risky plan to save the mine and his investors' funds at the same time. Even though he didn't know anything about mining or the complex chemistry of rare earths, even though "rare earths" got their name because they were difficult to extract and refine, and even though by the time he finally took over in 2017, the mine had come to a halt and turned into a pit 600 feet deep filled with 30 million gallons of water, but so what? With a degree in economics from Yale University and a J.D. and MBA from Northwestern University, Littynsky is confident — and thinks he's got a big bargain.
图片来源：TREVOR PAUL FOR FORBES
80% of the world's rare earths are mined and purified in China.
Given the industrial and military importance of these metals, this ratio has made policymakers in Washington break out in a cold sweat. So, from the very beginning, Littynsky shrewdly expected that if he entered the rare earth industry, he would definitely get the support of the US federal government. As it turned out, he guessed right – Trump and the Biden administration did provide him with $105 million in funding. But perhaps even more surprisingly, he also received a lot of help from a Chinese company that funded and helped him rebuild the Perth Hill mine and became one of the mine's most loyal customers.
Although it wasn't all smooth sailing, the bet paid off. Forbes estimates that the 46-year-old is worth more than $400 million. He has shut down his Chicago-based hedge fund, JHL Capital Group, which at its peak had $2 billion in assets under management, and now serves as CEO of MP Materials, running the booming Mount Paz mine full-time and building a plant in Fort Worth, Texas, where it can refine rare earths into high-performance metals.
Since the reopening of the Mount Perth mine in 2018, MP Materials has mined 42 million tonnes of rock and extracted 207,000 tonnes of rare earth oxides. IMAGE CREDIT: MICHAEL TESSLER
It took Littingski and his team 18 months to straighten out the basic refining operations before they began investing in new equipment and more profitable products. The bags contained 1,000 kilograms of rare earth oxides. IMAGE CREDIT: MICHAEL TESSLER
In 2020, MP went public through a special purpose acquisition company (SPAC) at $10 per share, raising $545 million. At one point, the stock price soared to $56 as the price of its most valuable product, praseodymium-neodymium powder, soared to $150,000 per metric tonne. But then, as Chinese neodymium powder flooded the market, the product is now only a third of what it was then, and MP's share price fell to $15 as a result. But MP still has a market capitalization of $2.4 billion, Littingski holds 11% of the shares, worth $265 million, and the rest of his net worth comes from his previous profits from hedge funds.
When Littingski completed the JHL fund's dividends in 2023 (most of which were shares of MP), he said in his farewell letter that the fund had a compound annual total return of 23.4% since 2006, compared to 9.5% for the S&P 500 (S&P 500). United States Securities and Exchange Commission (SEC) filings show that JHL has attracted a number of investment firms behind billionaires, such as ·Seth Klarman's Baupost Group, Leon · Leon Cooperman's Omega Associates and ·Barry Sternlicht's Jaws Capital.
Litinski now plans to work to mitigate the impact of commodity price volatility on MP by integrating upstream and downstream. MP is spending $2·00 million to build a 200,000-square-foot facility at billionaire Ross Perot Jr.'s Alliance Texas complex north of Fort Worth, the nation's first new supermagnet factory in decades. Starting at the end of next year, equipment made in the United States, Germany and Italy will convert rare earth oxides into 1,000 tons of the planet's strongest magnet per year. MP has signed a contract with General Motors to sell magnetic materials for electric vehicles.
The takeover of the mine was not Littingsky's first daring venture.
In 2006, with only a few years of financial experience, he founded JHL Capital Group, a hedge fund of the same name, with the support of Judd ·Malkin, a Chicago real estate investor and former Forbes United States 400 list, with $11 million. "If you really believe you can do something, and you're honest enough to take on a challenge, the sooner you start, the better." Littinski said he started trading stocks (and reading Forbes) as a teenager.
Truckers can't even catch a glimpse of the 600-foot pit at the Mount Paz mine on Interstate 15. IMAGE CREDIT: MICHAEL TESSLER
JHL has done well during the financial crisis, increasing earnings by 18 percent in 2008 and 30 percent in 2009 by shorting real estate investment trusts (REIFs) and "a number of bankrupt regional banks," Littingski said. "It allowed me to reach escape velocity and earn the right to stay and develop."
He began to "look for the pearls of the sea." In 2014, he credited himself with Molycorp, an industrial metals company that was running out of cash amid low rare earth prices and problems with the operation of the Perth Hill mine. Oaktree Capital Management had just made a $400 million emergency loan to Molycorp at the time at an interest rate of 12 percent, and Littinski thought he could take advantage of the crisis to buy some of Molycorp's heavily discounted old bonds secured by the Perth Hill mine.
However, during the period of the bankruptcy reorganization, it became clear that Oaktree Capital's interests were very different from those of JHL. Oaktree Capital, which manages $170 billion in assets, has taken over Molycorp's lucrative high-end metallurgical business, but is happy to abandon the Passhill mine, which they want to hand over to the government for environmental cleanup as a heavily polluted area. The move would invalidate the mine's operating license and render JHL's bonds worthless.
But Littingski has a legal trump card in his hands: Bankruptcy law allows secured creditors to engage in "debt bidding," in which they use the face value of their bonds as currency to acquire assets securing claims. JHL's Molycorp bonds have a face value of US$300 million. As a result, Littingsky made a claim bid for the rights to the Pasts Hill Mine. This is the first step in saving the mine, but he still needs funds to buy and restart the mine.
Then it was the turn of the Chinese to play. Littinski persuaded Chengdu-based rare earth giant Shenghe Resources to fund his bid for the remainder of the Pats Hill mine, which Littinski and JHL won in a bankruptcy auction in June 2017 for just $20.5 million. He pre-sold the output of these businesses to Shenghe for $50 million, and the proceeds were used to restart operations. Shenghe Resources currently holds an 8% stake in MP.
However, financing may be the easiest part of restarting the Perth Hill mine. The mine was a mess, a muddy crater half a mile wide. Bill Klesse, one of JHL's investors and retired Valero Energy chief executive, and some engineers inspected ·the site and warned Littingski that "it's going to be very, very difficult." Still, despite the water seepage problem, Litinsky was thrilled to get the asset at such a cheap price: after all, Molycorp had already invested $2 billion in the mine after it acquired it in 2008. If you can buy a world-class asset at a price below replacement cost at the end of the cycle, luck will come your way. He said.
With the help of Chinese technology, the MP team spent 18 months restarting the mine and overhauling the process of grinding, refining and refining rare earths.
The update includes the bubbling cauldron, which was previously monitored by the human eye, now connected to an AI-powered camera that monitors the size of the bubbles on the surface 24 hours a day to optimize the refining process. Since the restart of the mine in 2018, MP production has tripled. When Littinski took over, the mine had only eight employees, and now that number has risen to 740. In 2022, MP netted $290 million due to high rare metal prices. Last year, the net profit was only $24 million due to a drop in market prices.
In Mount Pass, giant dump trucks transport 100 tonnes of ore from the pit to the crushing plant. IMAGE CREDIT: MICHAEL TESSLER
MP Materials extracts powdered rare earth oxides (right) from basalt ore excavated from the mountain pass (left), such as the praseodymium-neodymium oxide. IMAGE CREDIT: MICHAEL TESSLER
Litinski plans to increase production by 50% over the next four years, while the mine is expected to have another 30 years of productive life – perhaps even longer if MP can find more rare earths under its nearby 15,000 acres. He said hopefully that such deposits, which are pushed out of the surface by magma, often stretch for tens of miles.
In addition, he has out-of-the-money options on MP "Overburden Mountain" – i.e. 62 million tonnes of mined hard rock with less than 2.5% mineral content, which is too low to be cost-effective to process, especially when compared to the 6% average mineral content of the rock in Mount Pass. Litinski said that if one day the price is right and the technology allows, the MP can also handle the pile of rocks. How long is this day? It depends on the demand trajectory, he said. After all, a self-assembled AI robot may require a lot of super magnets.
This article is translated from
https://www.forbes.com/sites/christopherhelman/2024/07/30/chinese-investors--helped-save-a-strategic-us-mine-and-made-this-american-rich/
文： Christopher Helman
Translation: Vivian
Forbes China exclusive manuscript, please do not reprint without permission