MP Materials Corp.

Ladies and gentlemen, welcome to the MP Materials Financial Results conference call and webcast. My name is Charlie and I will be coordinating your call today. If you would like to ask a question during the presentation, you may register to do so by pressing star followed by one on your telephone keypad. I will now hand over to your host, Head of Investor Relations, Martin Sheen, to begin. Martin, please go ahead.

Thank you, Operator, and good day, everyone. Welcome to MP Materials' first quarter 2021 earnings call. With me today are James Latinsky, Chairman and Chief Executive Officer of MP Materials, Michael Rosenthal, Chief Operating Officer, and Ryan Corbett, Chief Financial Officer. To follow along with our discussion today, we encourage you to download our slides from our investor website. Before we get to James and Ryan's opening remarks, I'd like to remind you that during today's call, we will make certain forward-looking statements that do not constitute historical facts under the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this communication. For more information about factors that may cause actual results to materially differ from forward-looking statements, please refer to the cautionary language in the earnings release and in our filings with the SEC, including the risk factors section in our recent SEC filings. During the call, management will also discuss certain non-GAAP financial measures, which we believe to be useful in evaluating MP materials operating performance. These measures should not be considered in isolation or as a substitute for MP materials financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our current report on Form 8-K filed today and can be found on our website, investors.mpmaterials.com. And please check our investor website regularly and follow us on Twitter, Instagram, and LinkedIn, where we often provide news and information on the company. With that, I'll turn the call over to Jim. Jim? Thanks, Martin, and thank you to everyone joining us on the call this afternoon. I'm going to cover a few things today. First, I will recap the highlights of our outstanding first quarter results. Second, I will provide a quick update on our stage two optimization plan and mountain pass. Then I will turn it over to Ryan for some more color on our performance. And finally, I will make some closing comments before opening it up for Q&A. Let's start with the first quarter highlights on slide four. we achieved record first quarter production and sales volumes these numbers show the significant operating leverage we can achieve when higher ndpr prices meet best-in-class production costs our revenue nearly tripled year-over-year adjusted EBITDA was up more than six-fold and our adjusted EBITDA margin more than doubled year-over-year to over 57 percent i will talk more about our record sales and production volumes in a minute The other big highlight in the quarter was our green convertible bond offering. I would like to spend a moment on the green convert. I know the initial market reaction to the transaction was not as we had hoped, but I would like to take you all through our logic so you can better understand why we did it and what this means for long-term value creation. First, as we talked about last quarter, we are seeing activity accelerate in the electrification and decarbonization supply chain. particularly related to EVs, the scale of the global acceleration in capital investment is mind-boggling. A recent IEA report stated that while it took 10 years to reach 10 million EVs on the road in 2020, they expected that over the next 10 years, by 2030, this number would climb to 145 million. This may seem like staggering growth, but that would only be about 7% of the global fleet. And this excludes two and three wheelers, where there is also huge potential for electrification. By the way, the IEA report followed up their EV study right away with a look at critical materials. So MP is not capital markets reliant, but we are opportunistic. We now have the firepower to make what we believe are extremely attractive, highly accretive investments towards our mission, regardless of market conditions. And if attractive opportunities do not present themselves, we can always return the capital to shareholders, the largest of whom is me. We believe this option value in our very conservative capital structure is valuable to us all. Second, some of you have heard me talk about the importance of the green bond market. I have been a vocal proponent of this mechanism for the electrification and decarbonization revolution. Better pricing the externalities across global industry will instill further capital markets constraints on the bad actors and benefits on the good actors. I strongly believe that this bifurcation is just getting started. It is a moral and financial imperative that we position MP to be one of the good actors for this decade plus theme to come. it will likely shape conversations with industrial and government participants in the years to come. We see it already. So we look forward to the challenge of our shareholders and the market holding us to these higher standards and believe this is a source of competitive differentiation in our industry, particularly when you look at our competition in rare earths. So in the end, I think the green bond created very attractive, low-cost optionality for us. I believe it enhanced our value creation prospects as various stakeholders gained further confidence that MP is a reliable thought leader. We believe we have the proper platform for the future, and we will continue to build upon our reputation for execution, both operationally and financially. In conclusion on the quarter, stage two is on track and stage three is accelerating. I will discuss these, but let's move on to slide five first to cover more detail on our strong execution in the quarter. Starting on the top left, you can see that our sales volume was up 18% versus last year. Q1 is usually seasonally weak due to Chinese New Year, but with the impact of a COVID year-over-year comparison, coupled with even greater demand from increased electrification, we did not see much usual seasonal impact. By the way, logistics have been a real challenge throughout the world lately, so our operations team deserves a lot of credit for navigating such difficult conditions to a great result for us all. And on the top right, you can see the strong pricing we achieved for Concentrate as the market appetite for NDPR continues to power higher. Pricing for NDPR increased throughout Q1 and remained very strong through April. Pricing for Concentrate followed a similar pattern in Q1 and remained strong. Do not forget that our concentrate sales represent commensurate separated NDPR in the market. Stage two production means we will enjoy that massive uplift of refined product revenue without creating incremental global supply of separated NDPR. Our revenue in a given quarter is obviously a function of sales volumes and pricing. There can be modest timing differences between production volumes and sales volumes over time, particularly due to shipping. Yet long-term financial results are ultimately driven by our ability to produce as much as we can as efficiently as we can. Internally, we closely watch our throughput or feed rate, the recovery or what percentage of the REO fed into the mill results in saleable product on an REO basis, and plant uptime as the main drivers of our business. production volumes remain strong in the quarter, with 9,849 metric tons produced. Over the last 12 months, we've produced nearly 39,000 metric tons of rare earth oxides in concentrate. You can also see here that production costs remain very low at $14.75 a metric ton. Costs were up a bit versus last year, in large part due to timing of plant turnarounds and the reagent trial we talked about last quarter, which was completed towards the end of January. We also increased hiring in anticipation of future growth. We now have over 320 dedicated employees doing incredible work towards our mission. These are challenging jobs with high expectations, and the MP team knows we have some naysayers. The idea that an American company can compete globally in rare earths while preserving stringent environmental standards does not serve the preferred narratives of certain opportunists. But here we are. Most importantly, I would like to tell you very humbly that we recently hit a milestone of going 365 consecutive days and over 400,000 work hours without an injury causing someone to miss work. Fantastic results like we reported today only mean something when they occur behind a first priority cultural focus on safety. Let's move on to slide six for a quick update on stage two. As many of you know, stage two is our plan to move from today's profitable concentrate production to separating rare earth oxides. Success means we will have restored the downstream production of these critical elements to the United States of America. Stage two is also expected to provide significant upside to our financial profile, which Ryan will talk about in a bit more detail. Last quarter, we covered some details of our optimization plan, including CapEx, and how we believe we significantly de-risked Stage 2 relative to last year. We made a lot of continued progress during the quarter. We completed the pre-civil site work. The foundation work for critical new equipment is in progress. The fabrication of the roaster is nearly complete, with delivery expected very soon. Some ancillary components of the roaster and material handling equipment have actually already arrived on site. The fabrication of the Sol Crystallizer is nearly complete, and we actually have key portions of it delivered and on-site as well. See the cool photo on the left side of the page there. So, net-net, we're making a lot of progress executing Stage 2, and I look forward to keeping you posted. Now, with that, I will turn it over to Ryan. Ryan? Thanks, Jim, and hello, everyone. Jim already covered a few of the financial highlights, but let me give you some additional thoughts on the quarter, and I'll begin on slide eight. As Jim pointed out, our year-over-year revenue nearly tripled, but we also saw over 40% growth compared to Q4. This was driven by 46% growth in realized pricing to nearly $6,000 per metric ton of REO. Meanwhile, our adjusted EBITDA increased over 80% from Q4. Jim also mentioned the leverage of our model from NDPR pricing. Our REO product margin increased from just over $1,200 per metric ton a year ago and $2,500 in Q4 to over $4,400 in Q1, driven almost entirely by the price of NDPR and its impact on the price of our concentrates. The result of which is that sequentially our revenues increased $18 million, whereas our EBITDA increased $15 million. So as we've discussed, the vast majority of incremental revenues flow through to the bottom line, causing our sequential EBITDA margin to improve almost 15 percentage points. Compared to the first quarter of 2020, the 70% flow-through of revenue to EBITDA is less stark, although still excellent, primarily driven by the growth in headcount as we prepare for Stage 2 in the build-out of our public company infrastructure. However, our sequential performance is more indicative of what we expect in the future. And finally, regarding the impact of Stage 2 on our financials, assuming current NDPR pricing and our expected cost of operating Stage 2 we gave back in July, on an apples-to-apples basis, our Q1 product margin of $4,400 per metric ton of REO produced through the mill would roughly double at full run rate production through Stage 2. Now, we have a way to go to get Stage 2 up and running and to run great production levels in 2023. And anything can happen to the pricing of NDPR in the meantime. But we did want to give you a feel for the improved profitability Stage 2 brings to the table. Lastly, I would add that our Q2 is shaping up to be strong, driven by NDPR and concentrate pricing. Of course, the West Coast ports are still experiencing delays, and so as with this past quarter, the timing of shipments is the primary unknown. However, for the full year, we continue to expect full-year production to increase slightly versus 2020, resulting in very strong full-year 2021 results, given what we're seeing in the market. Moving on to the next slide, last quarter we looked at our full-year cash flow of Stage 1 operations. Here we've updated it for the first quarter. And similar to last quarter as well, in the appendix, you'll see a detailed walk of how we get from our adjusted EBITDA to our reported operating cash flow and then our reported free cash flow. looking specifically at slide nine on the left side of the chart you can see our free cash flow for the quarter was a use of 10 million dollars but adjusted for our off-take pay down of 11 million dollars the capex spent on our stage two optimization plant recommissioning activities and related projects in the quarter as well as one-time deal expenses our stage one process generated over 21 million dollars of normalized free cash flow in the first quarter That's over $80 million on an annualized basis compared to $34 million in fiscal year 2020. That's also a very strong 35% free cash flow market, up from 25% for the full year 2020. Keep in mind that the offtake balance is essentially debt, but per US GAAP, the impact of the pay down of that agreement, because our offtake partner retains a portion of the cash from sales of products to pay down the obligation, the impact runs through operating cash flow instead of financing in the cash flow statement, as might be expected, which is why we believe it's relevant to add it back to our free cash flow for a comparable metric. Moving to slide 10, I'll give a quick update on our balance sheet. As discussed earlier, the green bond resulted in net proceeds of over $672 million, and combined with our performance in the quarter, results in a cash balance of nearly $1.2 billion at the end of Q1. In addition, the balance of our offtake agreement was reduced to $60 million in the quarter. As many of you are aware, the SEC recently issued guidance regarding the accounting treatment of warrants typically associated with SPACs and de-SPAC issuers. Each company's situation is unique, and we have closely evaluated our specific facts and circumstances considering this new guidance. In consultation with our outside legal counsel and external auditors, we believe that our outstanding public warrants continue to meet the requirements for equity classification and that no change in accounting treatment or restatement is necessary. Additionally, regarding the public warrants, we announced on Tuesday our intention to redeem these warrants and require a cashless exercise during the redemption period. Given our capital position, this allows us to reduce dilution to our shareholders by foregoing the cash underlying the war and strike price. With the strong confidence we have in the cash flow profile of our current and go-forward plan, this was the value-maximizing path for shareholders. With the conversion ratio discussed in our redemption notice and excluding the impact of the convertible note as it is out of the money, our current share count is approximately 178.3 million shares. Now I'll turn it back to Jim to wrap up. Thanks, Ryan. Before Q&A, I would like to take a moment to summarize why we believe MP is so well positioned to become a Western champion of the electrification and sustainability revolution. First, we have a co-located set of unique world-class assets. These are our ore body and our nearly $2 billion state-of-the-art processing and separations facility. Let me start with our ore body. We have a bass in a site ore body, which contains north of a 7% mix of rare earths, one of the highest anywhere in the world. Most mines are in the 1% to 2% range, and some speculative mines are well under 1%. That means our competition must mine three to seven times more total rock to get the same oreo output out of the ground. And that in turn means more reagents, more processing, and more time. That all means much higher operating costs. Additionally, A bath in a site or body allows for roasting without the use of additional chemicals at lower temperatures and with fewer potential emissions. We also do not have the radioactivity issues you may have read about elsewhere. These factors compound our early advantage from both a cost and environmental impact standpoint. And then we have a $2 billion state-of-the-art co-located facility in California. There are few such facilities of this scale and none in the world that are co-located with the mine like we have at Mountain Pass. This further reduces transportation, shipping, and environmental costs. We believe the quality of our ore body, plus this state-of-the-art facility, positions us to become the world's lowest cost producer of separated NDPR, assuming we execute. Second, we have structural and financial advantages. Those advantages are scale, time to market, and scarcity value. All are aligned with a compelling long-term demand outlook for our primary product. Remember that just building a plant of enough scale to compete will take years and bear significant costs, especially with escalating materials prices like we talked about on our last call. Hopefully, we gave some of you an early hint at this emerging industrial trend that was subsequently confirmed by many companies this earnings season, including Berkshire Hathaway this past weekend. Materials and labor inflation is happening across the economy, which means the replacement cost of many things is headed much higher. We believe this trend is a powerful tailwind for MP's structural advantage beyond simply a reasonable expectation that the price of NDPR should move up with inflation and then some due to demand. Other than a competitor potentially building a refining plant in Texas, which is still not financed or permitted, let alone broken ground in construction, We do not see any material Western supply coming online anytime soon. There has not even been any significant fundraising for such projects, despite NDPR pricing climbing north of $85 a kilo. The often told joke is that rare earths are not rare. That's true, but it misses the bigger point. What is extremely rare is a scaled, economically viable deposit. and the time cost and expertise to bring any such deposit online only compounds that scarcity third our stage one process is profitable and cash generative we did go public via a spac and our business is levered to electrification one could simplistically bucket mp with the hyper speculative electrification group many of which we believe will not generate cash flow for years and some others which also may have very aspirational projection targets Yet our existing operations are not speculative, and we have materially outperformed the original Stage 1 projections we laid out at the time of our GoPublic announcement in July of last year. In addition, our Stage 2 is fully funded and expected to come online sometime next year. Obviously, our expectation is that this will accelerate our financial performance. Fourth, we have an owner-operator culture with a sustainability focus. From my earlier discussion on the green bond, you know that we believe our platform gives us a competitive advantage. Every qualifying employee was granted shares when we went public, and I remain the largest shareholder of the company. We are committed to our vision, and our incentives are aligned with you. And lastly, we are at the ground floor of what we believe will be a decade-plus transformational growth opportunity. Some of you may have seen a cover story in the Wall Street Journal on Tuesday about the evolution of the auto supply chain for the age of electrification. We also tweeted it the other day in case you missed it. The auto industry faces existential risk from the past practice of just-in-time manufacturing. This new era is one where the ability to vertically integrate the supply chain is a source of strategic advantage. Companies are now competing for the kinds of scarce resources that are exactly what we have at MP. This is why you have seen companies like Tesla and others talking about mining in recent months. The semiconductor mess makes this an even hotter topic, and we see it now in conversations. Our Stage 3 efforts continue at a furious pace. I know many of you want lots of details, but we will share with you what we can when we think appropriate. I would point out, though, that regardless of the path we take, our mission is to restore the full domestic supply chain. And remember, this is not just about the auto supply chain. Rare earth permanent magnets are also important to so many growth industries of tomorrow, like wind turbines and drones, and then maybe some currently unexpected ones like air taxis. Who knows exactly what will come next, but the opportunity is ours. With that, let's go to Q&A. Operator?

Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, it's star followed by 2. Our first question comes from David Deckelbaum of Cowan. Your line is open. Please go ahead.

Good morning, Jim and Ryan. Michael, thanks for taking the questions. Sure. How's it going? Sorry. Good. Sorry about the connection. I just wanted to discuss, just so I'm clear on your trajectory through the year. In the first quarter, it looks like there was some delayed sales due to shipments. You talked about the ports just still having some issues, but, you know, was this a global issue? You know, did the did the canal at all have any impacts on slowed shipments in 1Q, and should we naturally see it catch up in the second quarter?

Okay, Ryan, why don't you take that? Yeah, sure. Yeah, hey, David. You know, I'd say our original expectation that, you know, we flagged on the last call was that just given the congestion we had seen in the L.A. ports, given we ship out of Long Beach and L.A. port, um you know that that shipments frankly are lumpy um you know we're only able to get uh product to the port um within a certain period of time of that product uh planning to leave the port and so when there is congestion you know that limits our ability to ship out product what we did see is a pretty heroic effort from our operations and logistics teams to get out from what you saw A very significant portion of our production did sell in the quarter, and that's why production volume and sales volume matched pretty closely this quarter in an even better shape than what we even see typically seasonally in Q1, given we tend to see a seasonal Q1 slowdown on the shipping side from Chinese New Year on the import side. I'd say the ports have become a bit less congested, but it is still something that we watch very closely. And so what I would say is that it's something that we have on our radar that we continue to watch. We think it should improve over the course of the year, and certainly we think on a medium-long-term basis, our full-year sales and production should match very, very closely. We just want to be clear that in any given quarter, shipping can impact revenue recognized just given that lumpiness.

Thanks, Ryan. I'll try to just stick to two questions here so I can be kind to others. Jim, you talked about sort of progressing on Stage 3. And I guess I just wanted to square your comments with, you know, you talked about the success, obviously, in the green convert. When we think about those proceeds, do we think about that as being sort of held for investment in Stage 3? Or, you know, do you look at those converts as being flexible beyond what you've already outlined between Stage 2 and Stage 3? perhaps for other potentially creative opportunities that we're not thinking about?

Well, so you know that obviously if you look at the business, we have a cash flow positive business today in our core. Stage two is limited amount of capital relative to our cash balance. I think the way to think about it is we have a fortress balance sheet and a platform that is increasingly becoming the thought leader in this Western supply chain in our space. And so what I would say is that convert really created a lot of optionality in our capital structure to take advantage of what we see out there. And if we don't find a very attractive way to utilize that capital, we can return it to shareholders. And again, we've come at this from an investment perspective. So we're fully aware of returns on capital and making sure that things make sense. We're going to stay on mission. I mean, if the question is, is the capital going to be utilized to kind of go in some other direction or something like that, um we are plenty busy with with our near-term plans of of executing stage two and then you know as i've said plenty we have a you know pretty uh great stage three team that i work closely with of sort of materials sciences scientists and technologists and business development folks and and so we we are looking very closely at a number of buy build and or jb opportunities as as i've said You can imagine that the chatter up and down the supply chain has just dramatically accelerated. I mean, it was already very loud back last year. I think that that just, again, look at the Wall Street Journal a couple days ago and think about what's happening in the supply chain with semiconductors. and so i think the fact that we now have positioned ourselves as not only um you know a credible counterparty not that we weren't but i think that this just sort of adds to the momentum with respect to that um but also um you know shows that we are you know holding ourselves to account in the capital markets with the kind of standards that that both consumers and our industrial potential partners um would want to hold us to just creates a lot of value sort of writ large um and so that that's sort of the logic behind it but you know again I would remind you that we're all you know we are the large shareholders here so we're not looking to go on sort of you know Fantasy directions in other ways we're really looking to complete our mission um you know do so in a in a proper way and make a lot of money for shareholders

Thanks for the responses, guys. Sure.

Our next question comes from Tim Natanas of Bank of America. Your line is open. Please go ahead. Oh, hey, good afternoon, guys.

Hi, Tim. Nice to connect.

Hello. Yeah, definitely. So I wanted to circle back on the longstanding guidance you've had in the past of $250 million EBITDA by the time that stage two is fully ramped up, assumedly full year 2023. And I might have heard this wrong, so I just wanted to clarify. I thought others might appreciate it. There was a comment saying that when stage two is fully up and running, EBITDA could be double at current prices, what it was in the first quarter. And first off, I guess I just want to clarify if that's true. And if that were true, then the run rate would be about, I want to say, $264 million. So can you just let us know if that was indeed the right way to think about those comments?

Yeah, so the number... Go ahead, Jim. Brian, you want to... Well, let me just say, the number that you're referencing refers to the number that was in the GoPublic transaction from July of last year. And that represented a number based on a midpoint of potential NDPR prices, with specifically $70 NDPR. We obviously are, you know, sort of in the mid-80s today. You can do the math. We also said on last call that we believed that we were able to make some improvements on our potential operating costs from what we see with respect to a normalized 2023 on an apples to apples basis versus last year. We haven't updated guidance for new prices, but I think with those moving parts, you can probably put together numbers and think through the significant operating leverage that we have. Ryan, I don't know if you want to add on to that. Yeah, Tim, I think there's some confusion on just talking about product margin versus totally the dot. So I think that's the disconnect. We were talking about product margin, looking at our current production in stage one. If we were separating it, that product margin would double. But to Jim's point, no change in our guidance whatsoever in terms of what we think the cost structure looks like pro forma for stage two. So as Jim mentioned, that midpoint of $70 of NDPR, we had guided to approximately $250 million of EBITDA. If you look at the slides and information that we put out that time, we did sort of a low and high NDPR case as well, just to sensitize for you what that looks like. And that $90 case that's in our slides was $362 million of EBITDA. Absolutely no change from that guidance.

Okay. That's super helpful. Thank you for that. And then if I could, our second question is just, I recognize that you talk about stage three, but aren't prepared to elaborate on what that might look like. I appreciate that. But just wondering if you can comment on any thoughts about heavy rare earths and separation or production there, and when we might get any update on timing for stage three, please.

Sure. On the heavy side, the only thing that we have put out publicly was that we have a project with DOD, and that release was late last year, and that speaks for itself. We haven't otherwise said anything with respect to heavies, so I'll just let that speak for itself. And then as far as Stage 3 updates, obviously, as you can imagine, we understand the investors want to know as much as they possibly can. And, you know, we'd love to be as transparent as we possibly can. we have to just kind of keep moving forward and do what we think is right. We want to make sure that whatever it is that we sort of tell you or share is, you know, is heavily vetted real or whatever. We're not looking to kind of, you know, put out a bunch of stuff until it's you know appropriate uh and so that's really all I have to say on that front uh obviously we'll we'll make stage three announcements as soon as we possibly can when appropriate understood thanks guys yeah of course our next question comes from of Deutsche Bank your line is open please go ahead

Yeah, hi. Thanks for taking my questions. So my first question is on stage, the commercial side of stage two, target makers or any potential offtake agreements for your stage two products?

So it cut out there, but I think you asked, do we have any offtake contracts for stage two? Yeah, yeah. Have you had any discussion on that? Well, you can imagine that, I mean, you know, from quite a while ago, but you can imagine that conversations are particularly hot these days given everything that's happened in the supply chain and specifically semiconductors and, frankly, the importance of our space. I referenced an IEA report that just recently came out. We actually also tweeted that, and then there was a follow-up around critical materials. We really do see what we have as being extremely strategic to the downstream OEMs and, frankly, other industrial participants as the world electrifies. I've taken the view, and frankly, I think it's fair to say we got a little bit of maybe criticism isn't the right word but questioning last year about why we wouldn't uh you know sign off take contracts um and and you know what i've you know sort of consistently said is that i believe that we are you know headed into a game changer regime here we have a very strategic asset and and um the world wants what we've got um and so we want to make sure that whenever we do contract that we are doing so in a way that we think maximizes value for all of us. And so to the extent that we wanted to go out and sign a contract, I'm highly confident we could do so. But we have not done anything at this time. And obviously, never say never. We could change our minds tomorrow and you could see something. But, you know, we have not to date done anything. And just real quick, you know, I think I'd flag also, obviously, the thing that I think people lose sight of is this is not a new supply, right? This supply is being consumed in the market today. And so, you know, we have all the confidence that this can be consumed on the spot market. And I think to Jim's point, the reason we're not trying to lock in prices here is because we're incredibly bullish, the future pricing of the materials. Obviously, never say never, as Jim said. I think the other thing to keep in mind is we do have you know, what we view as a very strategic asset in our current, you know, offtake arrangement and marketing ability into, you know, the Asian market. And so, you know, I think we can continue to leverage that, you know, as we would like to with stage two product. It's not, you know, it's not limited to stage one product.

Okay, thank you. My second question is on the market. So one of your peers talked about Chinese players looking to expand capacity over the next three years. Do you have any insights on whether these are crossing capacities or just on the mining side or what it means to the overall market? Yeah, you know, I'm glad you asked that.

I found that some of that commentary out there, you know, whether it's companies or analysts or media, I find a little perplexing. I have a totally different view of it. So for, let me first say, nobody knows what's going to happen in the next month or couple months on pricing. You know, that in the short-term commodities can be obviously extraordinarily volatile. So with that caveat, I think when it comes to China, you really have to think instead of looking at sort of Western media or sort of Western protagonists, if you will, I think it's best to actually look what they're doing and saying inside China. And in March, the current head of the Ministry of Industry and Information, MIIT, who's also the previous chairman of Chinalco, one of the large state-owned aluminum and rare earth producers, So made some very interesting public statements. And by the way, the MIIT is the primary regulator of the rare earth industry and, you know, much of China's overall industrial development. So this was the head of that. And so according to the reports, he stated that, Rare earth producers face a number of environmental problems with excessive mining and refining, kind of creating low prices. He actually went on to say that the prices reflect earth, not that they're rare. And I was surprised this didn't get further coverage. He went on to say that over the course of the Chinese market dominance, rare earths have been over-extracted, resulting in environmental devastation. uh and that um prices for these and this is a direct quote industrial gold doesn't reflect their full value um so he you know and by the way uh you know he he obviously um these are to refer to it as industrial gold is quite an interesting thing and for the head of miit um you know an organization that's really focused on economic development to talk about externalities in such a strong way was fascinating. And so I actually believe, and our team believes, and again, it's China, we're just kind of trying to read tea leaves, that Chinese government policy has shifted from one of market dominance at any cost, sort of to wanting a more sustainable, profitable industry that better reflects the overall costs of the externalities. And if you think about it, this actually foots with common sense. The rare earth industry, is call it four or five billion globally. Now, I think it's going to grow by many multiples over the coming years. But this is a this feeds into a trillion plus opportunity downstream. And look at the New York Stock Exchange. Right. There are massive Chinese companies that are now competing globally. And so why would the Chinese government and again, this is just our opinion from what we read, you know, so but Why would they subsidize industrial gold to the rest of the world when they're competing against the rest of the world? And so I think that because the last cycle was really sort of a quick boom-bust around a demand shock, and there was obviously the debacle of our predecessor that really had nothing to do with China, and there's sort of a lot of talk in the media, I think people are missing that the bigger picture thing of what's happening here And, you know, I always like to say that the next decade very rarely looks like the last decade. And so I think people are backward looking. Analysts like to just sort of slap a $70 number on NDPR and say, oh, okay, at 70, that's the price of of marginal development, and then therefore prices can't go beyond that. And that's just not how things work in the real world. You know, this is painstaking work. You know, we've been at this for quite some time. These are multibillion-dollar facilities. Even if you had unlimited capital and unlimited human capital and you had the ore body and, you know, you had the permitting, none of which exists, you know, in scale right now in the Western world, this still takes several years. And so China, in our view, has already shifted to a policy of profitability because they're not focused on the last prior decade. They're focused on the forward one. And so, you know, I just think people are missing that. Again, it's our opinion. It's what we see. You know, things could always change. But that's really our perspective on this. And so I think that we are headed into, again, with the caveat that the short term is always potentially messy, we are headed into a 2.0 cycle. And I do believe, I've said this repeatedly, that prices in the new cycle typically go to the inflation-adjusted prior peak and then some. And I believe that. So that's our perspective for when it's worth.

Thank you. That's helpful, Kala. Thank you.

Our next question comes from Ben Callow of Bard. Your line is open. Please go ahead.

Hey, guys. Hey, Jim. Hey, Ben. How you doing? Thanks. Good. See, I'm fired up.

Yeah, hey, you know. We're on a mission.

It's good. It's good. You know, we're ending our two weeks of heavy earnings, and you've been there before. You know, inflation comes up a bunch, and labor, and when you talk about stage two, stage three, I guess my question is just about, you know, and now I'm past where it is, how you... you know, how labor is, I guess, getting people to work at your company, I guess, is my first question. And then the supply chain, like through China, you know, you talked about it a bit. Is there more onshoring, like a greenfield is better? opportunity than to do something else, like to acquire something in China because of worries about trade tensions.

yeah um so on your point on inflation uh it's a great question i i believe you're on our last call and i think we we hopefully can get credit for giving folks an early kind of view on this before it became commonplace this quarter um we were seeing significant rises in you know in prices across materials across lots of things and we we worked furiously to get our stage two optimization contracted. And so I think that that was a great strategic asset that we achieved for our shareholders. I think that, and you're seeing this in the capital markets, there's a bit of a regime change where you're seeing the commodities producers really starting, and it's not, obviously it's not rare, it's steel, it's copper. where you're seeing some of these things get going. And I think people aren't realizing this is a new cycle, right? We've had a decade-long bear market. And in the real world, things are just not as easy to just slap on new supply. It's not all shale. And so the THE WAY TO THINK ABOUT IT IS THESE KINDS OF BUSINESSES TYPICALLY ACTUALLY HAVE THE MOST UPSIDE OPERATING LEVERAGE TO THAT PHENOMENON. SO TO THE EXTENT THAT YOU BELIEVE INFLATION IS HERE, TO THE EXTENT THAT YOU BELIEVE COMMODITIES PRICES ARE You know, these are the kinds of companies you want to be investing in. And, you know, if it's a cycle just getting going, it's just getting going. Again, that's my personal view. As far as our labor, to answer your question, you know, when you look at the math, it's very small relative to the operating leverage that comes from pricing as, you know, as the sort of the cycle kicks in. I would say from a talent perspective, like anyone out there, we're actually growing quite a bit. We've sort of stated that. But I think our going public and, frankly, the importance of our mission, both from an environmental and national security standpoint, really sort of strikes the passion of a lot of people. And so I think that we've seen – You know, a lot of really talented people who want to come join us. And obviously we've been hiring them. And so our team just continues to grow. And so I think that our ability to kind of build talent, you know, is still there. I think we have the benefit of, again, being such a unique company and unique set of assets. But I would imagine it is sort of very hard out there. you know, in general for what that opinion is worth. And I would also say, I think that again speaks to the strategic advantage we have because whoever's out there trying to raise capital, and again, we have seen no capital formation in the Western world for this stuff. Whatever they thought it cost last week, you know, it's a lot more expensive and it's going to be a lot more expensive next week. And so that just sort of speaks to the reflexivity of kind of, you know, what we're facing today And so, you know, again, yeah, labor costs can go up, but I think that we have attracted a lot of talent. I hope we will continue to attract great talent. You know, if you have friends that are engineers, send us their resumes. We're always looking for great people, but I think that's what we're seeing. Those trends that you're witnessing are a tailwind for us, we believe. The only thing I'd add on that. Yeah, go ahead, Brian. Go ahead, Brian. Yeah, Ben, I think some context to just on sort of location. I think we obviously are proud of the fact that we have really what we think is the only co-located asset, and we're in the Mojave. And so when we say that, people think of us being in the middle of the Mojave, but we're 45 minutes outside of the city of Las Vegas. And so our ability to attract talent – It has not been an issue at all. We've been able to grow pretty well both on the corporate side and the operation side. And I think you can see in the results the reason we continue to be able to drive pretty significant efficiencies. Growing production despite many fewer production days this quarter year over year is the fact that we have been adding, for example, probably the best maintenance staff that we've had, plant maintenance, ever. and we expect that to continue. And, you know, we're gearing up ahead of stage two, and we expect to be able to kind of, you know, extract efficiencies out of that as well, just given the quality of the folks that we've been able to attract. So, you know, that has not been an issue. And to Jim's point, importantly, If inflation is here, the leverage for us is just right where prices on our product will go up. We'll have a bigger impact than the impact to our costs from a labor perspective. The one thing I wanted to hit on your second question about sort of the onshoring and is it better to do something greenfield in the U.S.? ? you know versus um you know having some sort of jv or something rob is not going to comment on specifics of stage three but i think your question hits on exactly why you know we think we have such an incredible competitive advantage both in our current business and in our potential stage three um where you know we are the only co-located asset of scale and so Absolutely, our customers and the end users of these products, you know, the industrial end users are seeing what has happened with the supply chain with semiconductors and, you know, having a mine on one continent and a processing facility on another continent and then, you know, another piece of that, you know, on a third, it's just not an acceptable risk for some of these customers. And so I think we're just absolutely in full position, you know, given our co-location and the scale of our asset. And I think that'll sort of, you know, that is the competitive advantage when we think about stage three and moving into magnetics is access and secure access to raw materials.

Maybe on that front, too, we had some lithium guys report today. And the question is how difficult it is to get lithium. And there's a bunch of, I think, Jim, you talked about the juniors out there trying to make a mind. And so you've got Linus down there in Australia. And how long does it take to make a mine like you guys have? If you guys had a guess from your engineers.

Yeah, I mean, well, that's – and it's a great question, and we try to make that point because there's – this is hard. It takes years. I mean, it's – And you need, you know, one, you need an ore body to start, right? If you don't have an economic ore body, you know, you'll often, sometimes you'll hear from juniors, oh, we have this new technology, right? We have, we're going to, we have a smarter way to process, you know, that. I'm typically skeptical of those claims. I mean, you might as well, you know, I think if someone came out and said, I have a new way to make, some guy in his garage said, I have a new way to make a computer chip. and I'm going to compete against Intel and build a fab, and it's only going to cost me a billion, I think people would be a little skeptical. With some of these juniors out there that are making these claims, I think there's a little bit of that where just there needs to be a significant capital raise. But it really does require – this is a chemical plant. I mean, it's complex and difficult to do. And so one, you got to start with the ore body. And so if you have a 1% ore body, you just can't be economic, you know, again, unless you change the laws of chemistry. And then but then from there, you got to get financed, you got to get permitted. And then by the way, you have to go out and hire tons of people who know what they're doing. And frankly, the only people in the Western world who have any experience doing this is that are at MP materials. And so we just think that this is really just such a powerful source of strategic advantage for us. You know, we've also said that we believe the lowest risk, nearest term, highest return on capital source of new supply would be one, you know, us getting more efficient in Mountain Pass, that's obvious, but is us doing some kind of expansion at Mountain Pass where we made an investment. Now, obviously, I'm not saying anything today, and we would obviously kind of BE VERY SPECIFIC IF WE WERE TO MAKE AN ANNOUNCEMENT ON THAT FRONT, BUT THAT WOULD BE LIKELY THE NEAREST SORT OF SOURCE OF WESTERN SUPPLY, AT LEAST AS FAR AS WE SEE IT TODAY. And so, again, I just think that this idea that, you know, you'll see all sorts of Western supply. I mean, we haven't even yet really seen real capital formation, let alone actual facilities. And that'll take time. And by the way, even with an experienced operator that in theory would ship material from the other side of the world to here, you still have to get the financing in place and you have to get permit it. And you've got to build it. And so anyway, you get my point. I just think that there's a lot of stuff here. You basically have people, I get this question all the time, well, Jim, rare earths aren't rare. Well, yeah, that's totally beside the point. what's rare is actually having an ore body that can be done economically, then having the human capital, the financial capital, the expert, you know, and then going out and making it happen over a number of years. And so, you know, that's, again, I just, I think people miss that. And so we try to, you know, hopefully that's helpful. I don't know if Ryan or Michael, do you want anything on that? No, no, go ahead. Yeah, I mean, the only thing I'd say is, you know, to your point on lithium, I think that that's why we're so incredibly bullish about our particular piece of sort of this electrification. um you know materials is the supply demand function um you know in rare earths it is just much more difficult to add supply um you know than many of the other materials i think you know we're all incredibly bullish all of these materials given the demand that we see but i think the critical differentiator all of us likely will see this this demand boom but the supply and how difficult it is to add supply is what's very unique and you know pun intended rare in our space Yeah, and I'm glad Ryan addressed the lithium point. I guess I forgot to do that. Lithium, just as an example, you have a lot of production in South America. Then you have sort of the North Carolina area and Nevada. There are lots of areas where, to the extent the investment is made, with time you can get product online. And, again, as Ryan said, we're bullish on all of this stuff. I think just the game changer that's happening in the commodities space with respect to electrification is pretty amazing. But this is very different than lithium for the exact reason that you have to find an ore body that can be economic just to get in the game. And we don't know of one that exists in the Western world today.

Thank you. That's helpful.

Our next question comes from Serena Rocha of Morgan Stanley. The line is open. Please go ahead.

Hey, everyone. Thanks for taking my question. I'll apologize in advance if this was already asked. I got disconnected for a minute from the call. But I'm wondering if you could give us some additional color in terms of the pace of CapEx, either as we think about the rest of this year or thinking Stage two, overall, how do we, do we assume just a steady pace within, you know, that budget and the timeline minus what was, you know, spent this quarter? Could it be more weighted towards the back end of the project or lumpy throughout? What's the best?

Yeah, so we have not given any guidance around, you know, sort of specific timing on Stage 2 CapEx. But maybe, Ryan, you can sort of not answer the question in a more artful, detailed way and give any helpful color. Yeah, no, there is certainly the chance for it to be lumpy. I think we did sort of discuss at a very high level, you know, as with any of these projects, it's a little bit lighter in the beginning and it gets a little bit heavier towards the end as, you know, parts of the project complete. So, you know, I certainly wouldn't draw a straight line. There will be lumpiness just based on, you know, certain milestones that are achieved. You know, but certainly I'd say, you know, you saw our spend this quarter. Next quarter will be, you know, lighter than I'd say, you know, the following few quarters.

Okay. Okay. Got it. That's helpful. Thank you.

We have time to take one more question. So Subhash Chaudhry from Northland, your line is open. Please go ahead.

Thank you. Of course, how are you? Good, thank you. You might have obliquely referred to it, and I hopped on the call late, so you might have explicitly referred to it, but that IEA report, it talks to two things, reduced supply through control of illegal mining in China, and then also perhaps tightened processing because of this revised Waste Pollution Act, Solid Waste Pollution Act, which seems like it's about six months old. Can you elaborate on that? And sort of, do you have an opinion if those are meaningful events to kind of, you know, a response to that scenario that China will just you know, will flood the globe with supplies.

Yeah. And so I cover this, but I just I will. I think it's a great question because it's really critical to understand. I think that there's that idea of flooding in our in our opinion, from what we read there, obviously anything can change. But That idea of flooding is really a backward-looking thing without recognition of Chinese strategic imperatives and pronouncements. The most senior Chinese rare earth official, the head of the MIIT, refers to rare earths as industrial gold and wants the prices to reflect the environmental externalities. And if you just think about it logically, I don't see how China would benefit from subsidizing an industry so that the Western world can now compete better with their dominant downstream companies, which is where the jobs and dollars and yuan are at stake, right? So I just think that the world has evolved enough where the the access to resources are really of such strategic value and that they want to compete downstream. And so they don't want to destroy their environment to help Western competitors. Again, opinion, this is just based on kind of what we read in here. And so I think that, you know, I take that at face value to the extent that the head rare earth regulator is saying that prices need to reflect the idea that they're rare, not that they're earth, and calls it industrial gold. You know, I think that it's fair to think that rare earth prices, particularly relative to where they are today, and frankly, on a dollars basis, are, you know, probably headed higher. But that's our perspective on it. And, Subhash, on your question on illegal mining and the reduction there, I think one important nuance that some don't appreciate also is, you know, when you've seen announcements about increased quotas, which, you know, I think people like to focus on those headlines, you know, in our opinion, a significant amount of that is bringing illegal mining into into the regulated fold because of exactly what Jim just laid out, China trying to clean up the environmental impact, which their country and their citizens are demanding. And so when people look at supply models and take the increased quotas and just add that and don't make the right to illegal mining, which admittedly is hard. You know, by its nature, it's hard to measure. But that is, you know, with what we've seen in the industry there, that is a lot of what's going on. And so I think that that is a pretty important factor in driving, you know, the supply balance in China.

Okay. No, that's very helpful. So we might be double counting if we don't include the illegal mines. Well, exactly.

And when it comes to, yeah, when you're adding to supply from increased quotas, I think the thought would be look very closely at how much of that is already contained in the market, but is illegal mining.

Helpful, guys. Thank you. Yeah, sure.

There are no further questions, so I will now hand the call back over to James Satinsky.

Okay, sure. Thank you. Well, thank you, everyone, for listening today. We are sort of very proud of our execution here. I think the team did a really great job, and we look forward to next quarter's updates with you, and have a great night.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.