MP Materials Corp.

Good afternoon and thank you for attending today's MP Materials second quarter 2022 earnings conference call. My name is Austin and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Martin Sheehan with MP Materials. Martin, please proceed.

Thank you, operator, and good day, everyone. Welcome to the MP Materials second quarter 2022 earnings call. With me today from MP Materials are Jim Litinsky, founder, chairman, and chief executive officer, Michael Rosenthal, founder and chief operating officer, and Ryan Corbett, chief financial officer. Before we get to our opening remarks, As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation, earnings release, and in our SEC filings. In addition, we have included some non-GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation and earnings release. Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, the earnings release and slide presentation are available on our website. With that, I'll turn the call over to Jim. Jim.

Thanks, Martin, and thank you all for joining us this afternoon. Let me start by giving you a quick rundown on our plan for today's call. First, I will open with the highlights of the quarter, followed by Ryan's review of our financials and KPIs, And then I'll return to update you on stages two and three progress and address some highlights from our just published and inaugural ESG report before opening the call up to Q&A. So let's get started on slide four. Our second quarter results continue to demonstrate solid execution. In the quarter, we produced 10,300 metric tons and sold 10,000 metric tons of rarison concentrate. Both figures are consistent with last year's second quarter. Given the significant increase in construction on site, investment in maximizing the long-term value of the mineral resource, as well as planning and coordinating for stage two commissioning, we are really pleased with the team's ability to focus and deliver on hitting world-class production and shipping targets. Similar to last quarter, we executed well throughout the quarter, maintaining cost discipline and benefited from record realized prices. This resulted in another quarter of solid financial performance. Revenue was up 96% year-over-year to $143.6 million. Adjusted EBITDA was up 137% to $110 million. Our adjusted EBITDA margin expanded 13 points to 77%, and we earned 43 cents per share in adjusted diluted EPS, an increase of 139%. This strong financial performance brought our year-to-date normalized Stage 1 free cash flow to approximately $227.7 million. Ryan will provide additional detail on the KPIs that drove this strong performance in just a minute. But first, with regards to Stages 2 and 3, as we've previously highlighted, our primary focus continues to be on completing construction of our Stage 2 optimization project this year which remains on track. Construction pace continued to ramp, and we expect to maintain the current pace into the fourth quarter. We remain on target for mechanical completion by year end, and we've begun pre-commissioning, which includes checkouts and initial performance testing on both legacy and new circuits in preparation for commissioning. In addition, our Stage 3 facility is going vertical and forward, and we remain heavily focused on key hires, procurement of long lead equipment, and other items tracking for a late 2023 start of product for magnetic alloys. I'll provide a few more details on Stages 2 and 3 in just a minute, but first let me turn the call over to Ryan to run through our results in a bit more detail. Ryan?

Thanks, Jim. As Jim just highlighted, Q2 was another strong quarter operationally and financially, and we delivered it even as construction activity at Mountain Pass approached its peak. As I go through the details, I'll point out how the numbers reflect both continued efforts to optimize production and step-ups in Stage 2-related work. On slide 6, and starting with the bottom-left graph, as Jim mentioned, production volumes remain very solid, in line with last year's output at 10,300 metric tons. There are a few considerations in comparing period to period that I'll remind everybody about. As we've stated in prior quarters, while we remain focused on Stage 2 pre-commissioning, We are always working to optimize our stage one reagent schemes, as well as looking to understand bottlenecks and tradeoffs to maximize REO production over time. A major advantage of our ore body is consistency and mineralogy, but we continue to optimize our feed grade and composition to maximize the life of mine, which can drive some lumpiness quarter to quarter, but supports production growth over the medium and long term. This is particularly true this year as we incorporate changes afforded by the new and larger mine plan and lower cutoff grade as discussed on our fourth quarter call. Also, recall that we typically take at least a one-week shutdown for preventative plant maintenance in the second and fourth quarters, so we generally have lower output in those quarters, which we saw here in Q2 sequentially. As we mentioned, a major focus for the remainder of the year is completing the transition to stage two operations, particularly in the concentrate drying and roasting areas that tie directly into our existing flotation and concentrate filtration circuits. As we prepare for Stage 2 commissioning and our second semiannual outage in the fourth quarter that may include additional Stage 2 tie-ins, we expect Q3 production to look similar to the first quarter of this year. We currently project that our fourth quarter outage may be slightly longer than the prior year. Moving clockwise on the chart to sales volumes, our logistics team continues to manage well through a highly dynamic shipping environment, allowing us to continue to ship the vast majority of our production each quarter. As you see on the top right, pricing remains strong in the quarter, up about 90% year-over-year and 1% quarter-over-quarter. On a sequential basis, recall that NDPR pricing hit a recent high in the early March timeframe, and given the slight lag in our realized prices versus market agencies, some of that strong March pricing was realized in our Q2 results. NDPR pricing has recently pulled back to below $120 per kilogram, and given our realized pricing is highly correlated with NDPR pricing, we expect to see a decline in our Q3 realized pricing versus Q2 in the mid-teens percentage points if current prices hold, although it will remain nicely ahead of last year's Q3. Lastly, on the bottom right graph of the slide, core Stage 1 production costs, despite inflationary pressure, remain roughly in the $1,300 to $1,400 per metric ton range. Keep in mind, we are usually on a higher end of this range during quarters with a maintenance shutdown. In the second quarter, excluding the growth in Stage 2 advanced recommissioning-related costs, year-over-year core production costs were roughly flat at just over $1,400 per metric ton. The higher year-over-year Stage 2-related costs, were mostly associated with impacts from the restart of our combined heat and power plant early this year, as well as continued hiring of the operation and maintenance of future circuits. As you will recall from our last earnings call, the heat and power plants must run at a certain minimum power output for operational and permit compliance, and as such is currently generating power in excess of stage one needs, which we are primarily dissipating in our load banks. The cost of this temporary inefficiency represents just over half of the $350 per metric ton impact in the quarter and will, of course, continue for the next couple of quarters as we commission and scale Stage 2 operations. The Stage 2 related costs impacting our overall production costs went from about $290 to $350 per metric ton sequentially, mainly due to lower quarterly shipping volumes in the denominator. And of course, given our focus on getting to stage two commissioning, we will ramp our hiring in the back half of the year. Summarizing our results on slide seven, you can see that on a year-over-year basis, revenue was up 96%, adjusted EBITDA up 137%, diluted adjusted EPS up 139%, and EBITDA margins increased 13 percentage points, all primarily driven by higher realized pricing. And with regards to our profitability metrics, cost controls, and production efficiencies outweighing inflationary pressures. Quarter-over-quarter comparisons for all four metrics were primarily impacted by the lower shipments in the quarter versus Q1. Moving to Slide 8, year-to-date normalized Stage 1 free cash flow grew to $227.7 million through the end of June, driven by higher operating cash flows generated from improved profitability. Net capital expenditures totaled $117.5 million year-to-date, with another approximately $32 million of CapEx-related payables on the balance sheet at the end of the quarter. As we talked about earlier this year, CapEx will be back-loaded, ramping as the year progresses, primarily related to our three key investments. First, completion of the light rare earth portion of the Stage 2 construction and related investments and mountain paths. second, our Fort Worth Magnetics facility, and lastly, initial investments and heavy separations and recycling at Mountain Pass. So while Stage 1's strong cash flow has funded our investments to date this year, we would expect to see the impact of the higher capex spend on free cash flow in the back half of the year, but we will only need to draw modestly on our Fortress balance sheet to absorb this rampant spend. Regarding the balance sheet, we took advantage of the recent rise in Treasury rates to invest a portion of our cash balance into higher-yielding, short-duration U.S. government-backed securities in the quarter. As such, we close the quarter with approximately $600 million of short-term investments in addition to $664 million of cash and cash equivalents for a total balance of $1.26 billion of cash equivalents and short-term investments. You will see the impact of this move from cash into short-term investments on the cash flow statement when we file our 10-Q. In summary, another strong quarter across the board for the company's operations. Production, cost control, and demand for our product continue to highlight the significant early success of our three-stage strategy, which gives us further confidence in our ability to execute on stages two and three. And with that, I'll turn it back to Jim. Jim?

Thanks, Ryan. Let's turn to slide 10 to discuss our progress on downstream expansion in the quarter. Here's a good shot of our concentrate dryer and calciner, two of the major stage two optimization projects at Mountain Pass. We mentioned last quarter that construction had re-accelerated, and we have now hit peak effort on site. We also mentioned adding a night shift, and as such, we now have craft labor, think electricians, pipe fitters, and iron workers, on site nearly 20 hours a day, six days a week, over two shifts. We expect to sustain this effort into the fourth quarter. In certain areas where construction is more advanced, our project team has already begun mechanical checkouts of construction and started identifying a punch list of items to complete the job. For the balance of the project, the remaining critical path items are largely related to piping, electrical, and ancillary equipment installation. We do continue to work through isolated supply chain issues, but at this point, nearly all process equipment, tanks, pumps, steel, pipe, electrical wire, and process instruments are on site. Chips and other automation control equipment have proven the most unpredictable supply chain challenges, and we are working diligently to manage through those. The great news is that as of today, we don't see any impediments to starting performance testing in the fourth quarter, largely in process sequence, beginning with the concentrate dryer, calciner, and leach circuits. This will be a very important first step in our recommissioning efforts. And regarding the recommissioning of existing assets, we also made important progress on a number of fronts in the second quarter. We completed upgrades to our NDPR separation facility, completed work on parts of our impurity removal and iron removal processes, continued upgrades to process automation hardware and software, completed work on part of our brine recovery and treatment facilities, and recommissioned our upgraded brine concentrator facility, which is a critical precursor to successfully operating our salt crystallizer and maintaining site-wide water balance. We also continued front-end engineering of our heavy rare earth separation and finishing circuits and began key procurement activities. We also advanced our integrated magnet recycling plans to provide the most comprehensive and efficient recycling capability for various end of life and process waste across our two sites. Many other optimization projects are underway, and we are excited that they are also on pace to be complete to support stage two commissioning and operations. Moving to stage three on slide 11. It's early, but we are off to a great start. If you will recall last quarter, we showed a picture with the initial grading of the site underway. You can see in this updated picture that concrete slab on grade is poured and we started going vertical with the walls. So most of the foundations are completed as our underground utilities. We have also established a supply base for all our major process equipment and have placed the orders for key long lead manufacturing equipment to support the start of alloy production. Importantly, We continue to grow a talented team with a focus on project execution and process and product engineering. Moving on to slide 12, I just wanted to briefly touch on our inaugural ESG report, which we published a week or so ago. You can find it on our website under the sustainability heading or in the investor section under resources. There are some great highlights listed on the slide, although I won't go through it all. The most important things to know are one, Our mission will create a Western supply of sustainably sourced raw materials that are critical to electrifying the world. Two, we operate the most environmentally responsible rare earth production site in the world, a significant competitive advantage for us going forward. And three, we know that it is our people that drive our success. So we remain very focused on hiring and developing a diverse and talented workforce. We view our owner-operator culture as another key competitive advantage for us, and we continue to grow and add new talent across our Mountain Pass, Las Vegas, and Fort Worth locations, adding nearly 50 people in the second quarter and bringing our total headcount to roughly 450. So in wrapping up, I wanted to highlight that in early July, we reached our five-year anniversary as a company. I realize to many of you that we've only been a public company for about 20 months. But the original formation of the company by Michael and myself dates back to 2017. Thanks to the MP team, Mountain Pass is now producing more annual REO content than it ever has in its 70-year history. And therefore, that means that the United States of America has never before produced as much rare earth content domestically. To highlight and reward the incredible efforts of the team, And to show our commitment to our owner-operator culture, in July, we awarded all non-executive employees a restricted stock grant. So not only is the U.S. capability in our industry stronger than it has ever been, but we are continuing to build upon our culture of shared success across all members of our team. MP is already a remarkable success story over the past five years. But our team operates with the mindset that MP is an iconic American company just getting started on its journey. I remain incredibly optimistic about our future. With that, let's open it up for questions.

Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. If, for any reason, you would like to remove that question, please press star followed by two. Again, to ask a question press star one. If you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question is with Matt Somerville from DA Davidson. Matt, your line is open.

Thanks, and good evening, guys. First, Jim, last call, you gave a little bit of an overview on what you thought was driving MDPR pricing at that point, kind of heading south off of the late February, early March highs. And I was wondering if you could kind of do a similar market assessment on what you think is driving more recent pricing actions of 120 a kilogram, and then I have a follow-up. Sure.

So, hey, Matt. Well, as I said last time, and you'll always hear me say every time, commodities are commodities, and no one really knows, and they're driven by supply and demand, and it's hard to predict. What I would say is this is ultimately a market, and in the last few months, the global economy has – really obviously deteriorated post-Russia. There's been a lot of challenges. We've seen across the commodity landscape prices have come down. And so certainly any commodity is not going to be immune from that. As we think about our commodity, which the, you know, a large growth case is, of course, going into the auto supply chain. Actually, auto sales in the U.S. are really good, sort of relative to where they were prior to the price decline beginning, because there have been such shortages and backlogs. And frankly, employment is still great. So even as it feels like, and it is, my belief is we're in a recession. It started throughout the beginning of the year on a real basis. Employment is still strong. So that means auto sales continue strong. And so We don't see that here. I would say on the Chinese side, you know, it's always hard to read the tea leaves and what's going on over there. But certainly with all of the lockdowns, you've seen sort of a setback in auto sales there. And so there's nothing that we see with respect to our market in particular, you know, other than sort of that kind of the dramatic geopolitical landscape that is impacting everything. What I would say, and just stepping back, Matt, to give further context, because I think it's important to view it all from the landscape of, at least you asked for my macro view. If you recall, early last year, in early 21, when people were talking about transitory inflation, I think I was one of the early people to come out and say, I don't think it's so transitory. The better analogy is thinking about the reverberating supply chain shocks of the 1973 Arab oil embargo and what that did to the economy. And then I think as the year unfolded, people realized it wasn't transitory. I still think that that analogy holds. I think that we've hit this period where the economy has now taken a hit because of all the factors that we don't need to rehash. And so commodities prices have pulled in. And I think there's a bit of sort of celebration out there, if you will. But if you go back to that 70s analogy, and again, there's no such thing as a perfect analogy, but there was a period of a year or so in the mid 70s where things pulled back, growth slowed. But then actually, because the supply challenges weren't solved, they accelerated higher even again into the late 70s. And I actually think we're in sort of that period where we've had this pullback. So all commodities have kind of pulled in. But Whether the next three, six, nine months are fine or challenging or very challenging, as we look out a year or two or beyond when eventually markets pick back up, particularly with all of the investment going into electrification, I think we're going to see a reacceleration pretty much irrespective of what the Fed does, barring some Volcker-like true dramatic spike. But again, these are supply issues. And so you can't deal with supply issues just by short-term cutting demand because ultimately economies need to grow on a real basis over a long period of time. So anyway, I give your follow-up. And if I didn't, just to end that, I think it goes without saying that, of course, we sell everything we can make. We certainly don't in any way see impacts. So we remain very bullish. Everything that we've said before about the rise of electrification and the demand for NDPR, we're very bullish. So go ahead.

What's the follow-up? Got it. Yeah, I was just going to ask if you could give a little more help on how the unabsorbed production costs for stage two will ramp in the back half, because it sounds like you have somewhat of a milestone perhaps coming in the fourth quarter when you start to test some of the equipment, some of the facilities. So relative to that 350, how much chunkier, if you will, will we get from there in the back half of the year?

Yeah, hey Matt, it's Ryan. I can take that. I'd say if you look at the 350 sequentially versus the 290, if you do the math on you know, the product that was sold through versus those numbers, the total dollars didn't actually change that meaningfully. The ramp on a per unit basis is to your point, you know, you're getting the descaling from a lower sequential shipment. I'd say if you look at those dollars and how those may change over the course of the year, as we talked about in the prepared remarks, about half of that impact is the inefficiency of the combined heat and power plant that will certainly continue And then the other half is primarily related to labor and other associated costs that I do think will start to scale a little bit in Q3 and a bit more in Q. We don't have specific guidance on that, but I think it is fair to assume, obviously taking into account the ups and downs of sequential production. If you just look at it on a dollars basis, certainly in Q4, as we start to meaningfully ramp hiring, you will start to see a bit more of an impact. I'd also flag, though, that based on the type of costs we're incurring, those costs can find themselves in capitalized project costs as well. So it's not like all of our hiring is going to make its way into this. But I would be prepared for a little bit of a step up in the back half of the year. And then the one other thing I'd flag overall on this point certainly is we've made very clear as we ramp that, you know, this will become a transition year as we move into producing our stage two products. And so, you know, you can expect certainly to your point, I think, you know, the impacts of that on the financial statements as we begin to ramp. Obviously, we're extremely excited about the progress we've been making, but the reality is as we transition, you will start to see that.

Understood. Thank you, guys. Thank you. Next question.

Our next question is with Robin Fielder from BMO. Robin, your line is open.

Hey, guys. Nice quarter. I have a question on the Inflation Reform Act. In the proposed bill, there's a section on a potential production tax credit of about 10% for critical material processing, specifically in your case. But I'm curious to know if you have any insight into that and how that might look like for you guys specifically. if it is passed, would this be applied to each stage of your operations or maybe just stage two, for example, any kind of unique insight you might have into that would be, will be great.

Sure. Um, so Robin, well, big picture, just to lay the background, um, the bill is, of course it's not passed. And I, I've heard there's, there was a headline that they're going to vote Saturday, who knows, but, um, From what we see from the bill, obviously it goes without saying that it'll accelerate electrification, EVs, wind turbines, electric heat pumps. It's really fantastic for our supply chain. And of course, it's just sort of a more positive fuel to the fire of all the things that we've been talking about and the importance of everything that we've been doing. This has obviously been the mission that we've been on. So when we think about all the supply chain challenges that we've had. And then, and now, um, you know, we we've said repeatedly government and industry wants us to get more stuff on shore. This, you know, both, both this bill and the chips act are all, you know, great and positive steps forward. Um, so really great. I mean, I think, I think it's fair to say that this, the bill kind of came out there and it was a somewhat of a surprise to everyone because it was, you know, just people, people weren't expecting it. And, and, If we look at the content as what's in the bill today, it's fantastic for us. And we do, yes, to answer your question directly on the production tax credit, we believe that our operation will be eligible for that. Certainly, we have to read the fine print and what's passed and make sure our tax team is working closely on which aspects of the stages of our operation specifically apply if you will and but I would I think it's fair to say from initial reading it should be you know very very good for us and and so we're happy to see it and it will be you know it is something that will be a material benefit to us as we see it as written of course anything can happen and certainly you know hasn't passed but but it's it's pretty great

Understood, and maybe just a quick follow-up on that and somewhat related. By the way, yeah, go ahead. Oh, go ahead. Finish your thought.

Go ahead. Oh, no, I was just going to say, for those who don't know, maybe you know, but it's a tax credit as written, so it's 10%. Whatever that cost means is it would mean 10%, and that's actually a credit you would get. So this could be material dollars to us. which is great. Sorry, go ahead, definitely.

And, you know, let's just say this is past, and obviously I agree with you, it would certainly help to accelerate all these end markets that, you know, you would benefit from. And earlier, you know, this week, we saw Linus decide to upside their capacity plans ahead of even what they were originally planning. Just curious, with everything going on, like, have you guys thought about potentially changing plans on the upstream side? or is it still likely more of a focus for you maybe only after stage two and three are completed?

Well, as you know, I've always said that my belief is that the quickest, lowest risk, highest return, additional Western supply would be expansion of mountain pass. And I feel very strongly about that. I would tell you that our near-term priority is getting stages two and three executed right. We're obviously just about to begin commissioning, and so we want to make sure that all hands are on deck to make sure that we get what we have in the coming months done right. So that's the primary focus. But over time, it's certainly adding additional capacity is a very high return endeavor for us. You know, I can't really address their specific announcement. It was hard to see in that announcement. You know, obviously, you'd have to ask them about their own capacity expansion, how much of that was really kind of catch-up CapEx or other cost overruns versus sort of prior numbers. And again, that's more them. But I can tell you that the takeaway I had from that release from, you know, what we see, and I think that I think it's just a really, really powerful thing to reiterate, is that supply in this space requires scale. And particularly when you have a growth market like this, there'll be a lot of what I'll call juniors out there doing capital formation. There'll be a lot of people raising capital as they should. I mean, it's, we need more supply. And so, um, The reality is, though, is this is, you know, look at their numbers, look at our numbers, the amount of capital invested. This is a scale business that requires a lot of investment and time. And you don't, you know, it takes years. And so I think that it just is another data point to remind everyone that we're really well positioned and to sort of take advantage of this growth cycle and To the extent that there are parties out there that, you know, learn the hard way, what I'm saying, you know, I think that we'll be in a good position to frankly help those parties and get that supply online. And then lastly, I would say, and I think that this is an important thing to highlight with respect to their announcement, is I did notice that one thing, and I only would reference it because I think it's an important thing to mention about MP, is that with respect to their announcement, one of the things that was a big component of it was, bringing their environmental standards um uh up to speed so to speak with something closer to the the dry tailings process we have at mount pass and so we have repeatedly you know uh state you know to discuss that you know how much investment and how important that was that we are the most sustainable producer in this space and so frankly it was great to see them make some of those you know announce and hopefully make some of those investments too because So, we all want to make sure that production in this space is environmentally friendly as it can be. But I do also think it, again, highlights how far ahead we are, and we're proud of that.

Great. Thanks a lot.

Our next question is from George from Canon Core Ingenuity. George, your line is open. Hey, George.

Hey, gentlemen. Thanks so much for taking my question and great results. So I'd just like to ask a little bit about several announcements that we've seen from some of the major traditional auto EMs regarding battery and EV materials. I'm sure you've seen them recently from Ford and GM. Obviously, GM's already a partner, but I'd like to just kind of pick your brain on what's happening with you guys and what you kind of see over the next 12, 24 months, call it, in terms of additional announcements, additional deals, just because the scurry to secure material seems to be at an apex. And I'm wondering what that means for MP.

Yeah. Well, let me give you the takeaway punchline, and then I'll give you some detail. But I think the best way to describe it, we are not demand-constrained. We are very supply constrained in this space. There is no shortage of OEMs that recognize that all aspects of the critical materials supply chain, obviously with the announcements you just mentioned, are important. But in particular, our space, given the unique attributes, frankly, of our industry, as well as the unique attributes of Mountain Pass and some of the benefits that we can provide with respect to certainty and rule of law jurisdiction and environmental standards. And so, and I would also add, it's not just auto, right? It's, you know, wind, it's other, you know, there are a number of verticals for electrification that this will be relevant for. And as auto scrambles for materials, that of course means other areas need to scramble as well. And so that's a long-winded way of saying the the conversations continue and have increased. I wouldn't really address any specific conversations other than to say that we really believe that we have something very valuable and strategic. And we also want to make sure that the deals, remember that these deals take, whether I'm not going to address a specific deal, but these deals that we might do, if you will, or have done are long-term deals. And it's really important that we get the economics right to maximize return for shareholders. And it's really important that we also, as an organization, do deals and take on the kind of partners that we think are going to be great long-term partners for our business. And so we are spending, I mean, that's a significant chunk of management time thinking through all the iterations of the deals and JV type opportunities that we have. And I think it's fair to say this is only really accelerating because we know that where penetration is in electrification and we know where it's going. And of course, if the Inflation Reduction Act passes, it will accelerate even again. And so we're in a great spot and we just need to execute.

May I ask a follow-up to that? When you think about future deal structuring, is there potential for demand just for your rare earth material, or do you plan on structuring everything going forward from a magnet perspective? Or does it not matter whatever the most economic return is?

Well, the answer is there's certainly demand for both. You know, you may have heard me historically say that I think long-term our magnetics business could, will, you know, will be larger than the underlying current expected output of our ore body today, right? Because we have the ability to take advantage of the opportunity to really grow in magnetics. We have the ability to grow horizontally and, you know, take other feed or, you know, or who knows what unfolds in the future as far as more material. But to answer your question, we certainly have opportunities on both two and three. And I think you should expect us to be economic. And, you know, we're an owner operator culture, as you know, I'm the largest shareholder. And so we're thinking about this from a, you know, what is the most thoughtful way we can maximize long-term enterprise value for MP, as well as make sure that we are um, doing things again, just going back to what I said before, it's just so important, um, is making sure that we can take on things that we can execute. And so we're always thinking about risk and reward and, um, and those trade offs and, and we won't be in a rush. Um, we, we are, I think when you look at these deals, you see that given them what we have, um, we're years and billions ahead. Uh, so we just need to make sure that we, um, frankly, don't mess up that position. And the way we don't mess up that position is by being thoughtful about what the right long-term deals are and then making sure that we're a good partner to our partners. Thank you.

Our next question is with Ben Callow from Baird. Ben, your line is open.

Hey, guys. Good evening. Good afternoon. Just on pricing differential between what you think domestic production will be versus going through China if there is one. That's my first question.

Ryan, do you want to take that?

I assume, Ben, you're talking about magnets?

Anywhere along the process for stage two or stage three, just if you'd expect to get a premium.

Well, obviously, with oxide, we sell a commodity that is dominated by the Chinese supply chain and therefore has been and will be for some period of time going forward priced as a China domestic product. I do think, though, what you're seeing, and back to Jim's comments a moment ago, about the required scale to really grow supply X China is you're seeing the scaled players outside of China gain scale, including us. And so over time, will that manifest in a different type of pricing scheme for our products? It's absolutely possible. It's something that we talk about and think about. But at the end of the day right now, for the short term, this is priced on a China domestic basis. I think when you get to looking at magnets, it is not a commodity, and it's a lot harder to make any specific comment about pricing other than to say we've been very clear from the beginning about what our strategy is in the magnetic space, which is to build our capability as quickly as we can, get to scale, drive significant scale, and come down the cost curve as quickly as we can. That's exactly what we've done at Mountain Pass on the oxide side. And that's exactly what we hope to do on the magnetic side. The reality is that day one, our goal is not to try to come out and beat China on pricing. That's not realistic with a thousand metric ton facility. But that's also not necessarily what customers are looking for day one. And so I think we have a great opportunity to partner with the right partners, as Jim just talked about, and get to scale as quickly as possible to come down that cost curve. You know, there are a lot of things that we are able to do as somewhat of a green field in the magnetic space as it relates to automation and other process technologies. And importantly, you know, one thing that's underappreciated about our competitive advantage in the magnetic space is part of the reason the market is so liquid on the magnet side in China is they have the ability to deal with the waste that comes off of the process steps of magnet making due to their separation capabilities in country. We will not just have it in country, we'll have it integrated into the same company. And so I think that the competitive advantage we get by having Mountain Pass and our Stage 3 facility integrated should not be underestimated. And it's something that we intend to continue to leverage over time as we grow scale. I know that hopefully that addresses your question overall, Ben.

That's great. I know, Jim, you said you're focused on stage two and three before anything else, but are you doing work now on expansion at Mount Pass? And thank you very much.

Well, sure. And you should imagine that we are, These are very long-lead items, and you should imagine that we're thinking about long-term growth. For example, if you look at our business, about a year ago, or a little over a year ago after we went public, having a magnetics business was something we said to the market was a 2025-plus vision, if you will, but we were working on it. And then I think it's fair to say that you fast-forward a year ahead and um, you see, yeah, it's, I mean, even we're, we're really, um, I'm really proud of the team. I mean, what we've accomplished in the last year and change on the magnetics on moving that forward is, is just extraordinary. And it's cause we, we just, you know, we continue to grow as just outstanding human capital on that front. And, and, and obviously, you know, we have tilt walls going up and a long-term deal with GM and, and, um, a business that's, that's, you know, really taking shape and it's, it's awesome and exciting to see. And, um, I mean, that's a long-winded way of saying that, you know, it's sort of hard to discuss two years ago kind of what that was. But if you fast forward two years, you know, look at what we have today. And so we are looking at all sorts of ways to grow the business in earlier stages, mid-stages, later stages. And, you know, I think we'll be able to do that for years to come. And so you should assume that we're thinking about all the things we can and But, you know, again, we have to take it step by step and do the things. I mean, you said it, you know, we have to execute in the coming months on getting stage two going. So we'll take this one step at a time.

Thank you.

Sure.

Our next question is with Corinne Blancard from Deutsche Bank. Corinne, your line is open.

Hey, good evening. Thank you for taking the time. Also, my question has been answered, but I just have maybe two. The first one on pricing, spot price in China, maybe interested to hear your view about where you think it would continue over the next six to 12 months. And then the second question, can you just remind me what are the next big steps for the stage three for the Texas facilities? Thank you.

I'm sorry, what was the last part you said, the next big step?

The next stage for the Texas facility, the Stage 3 expansion.

The next stage. Okay. Well, let me do the first part again, and then I'll, yeah, next, sir. So, on the first part, I covered some of the, you know, pricing of NDPR earlier, but actually one tiny thing that I, you know, I just realized I didn't cover that I think is actually relevant is this is, a seasonally weak period, you know, the kind of some of the summer months in NDPR. So for what it's worth, this is that. But again, I would, you know, just remind you that it is a market, right? And we've seen all global commodities pull back. And I would just reiterate my comments about we never, you know, whenever I'm asked a question on pricing, I honestly, I have no clue in the very short term and then in the medium and long term supply and demand are going to be the drivers and from everything that we see and then of course we as we covered earlier on the inflation reduction act or all the things that um or you know some of the the oem announcements and prepayments for commodities from everything we see in the supply chain whether it's on the business side or on the government side people are trying to accelerate this transition and there's a realization that we don't have enough of this stuff and it's you know, the easy thing about commodities is you can, you can do the math and look at the supply and the demand and, you know, you can make estimates about growth and then look at what's out there. And, and so, um, I think that the supply demand dynamic in our space is, is, um, you know, there's really no other commodity I'd rather be in. I mean, it's really, um, awesome and, and, um, we're well positioned. Uh, and so, um, you know, but, but as far as kind of the pullback from, you know, a few months ago to now, other than sort of the market and, you know, obviously China was shut down for a while. You know, your guess is as good as mine on that front for short-term movement. As far as stage three, I think, and feel free to follow up if I missed sort of the intent of the question, but the next step, so that really the, what we're doing right now is we're building the facility and we're, you know, getting all ordering and designing the process flow and getting all of the equipment and building the team. And the first step will be, you know, obviously we'll complete the facility. We'll, we'll get the equipment ready for alloy production. And, you know, as we've said, we expect late 2023, we will be selling alloy to GM. And, and then from there we will continue to, to go down into magnets and our dealers will be making magnets for them in 2025. So I think that was the question on the steps for stage three. Did I miss that? Or if you want to follow up.

That's very helpful. Thank you. No, that's perfect. Thank you.

Okay. Thank you.

Yeah. Next question is with Lawson Winder from Bank of America. Lawson, your line is open.

Good evening, gentlemen. Thank you for the update. Hey. I just wanted to ask about the concentrate pricing discount. So, the discount that you guys get for your concentrate versus Spock oxide prices. appears to be trending pretty solidly lower it looks like it was flat this quarter versus last quarter but if i just look on a longer term basis clear trend downward now i suspect this reflects that uh the chinese industry is much longer separation than it is uh concentrate but but i'd love to get your views on what you think is driving that um and whether you think that could continue downward and then i mean at some point we get to a situation where selling concentrate into china is actually a higher value add in selling oxide given the 25% tariff.

Hey, Lawson. It's Ryan. I can take that. What I say on the discount is we've talked a little bit about this before in terms of trying to triangulate the implied discount. Because of the way the market works in China, obviously there is really a discrete market that we're selling into for separation facilities. you know, versus obviously attracts quite closely to the NDPR price, but there are some supply and demand nuances. And the way those tend to manifest is when NDPR pricing goes up, the discount implied tends to go down and vice versa. And so obviously, you know, you've seen the trend over the last couple of years, NDPR pricing has gone in one direction. And so our discount has gone in the other direction. To the extent the flip happens, you would see the flip side of that. In terms of your comment on oxide versus concentrate, what I would say there is that we continue to be very bullish on the opportunity to sell oxide outside of China. We've been very clear that that will take some time as we transition, but I think just look at the actions of the other players in the market. Don't just take our word for it. Clearly, you know, with the capacity additions that you're seeing from other players in the space, there really is a significant amount of unfilled demand for our product outside of China. And that has always been the strategy for moving downstream into stage two. And then, of course, building up our own internal consumption on stage three. So that remains the focus.

And then maybe just to follow up on that, are you somehow able to kind of quantify what your expectation is in terms of how much of your product you'll be selling outside of China, maybe in year one or two? Maybe it's a little too early, but I know you have been developing your own internal selling capability. Just wondering if you might have a little bit more clarity on that than you did maybe a couple quarters ago.

It is certainly safe to assume that we have a bit more clarity now than we did then. But at this point, we're not giving specific forward guidance. I'd say that the trends that we've been talking about broadly continue to accelerate. And you're starting to see not just certainly the supply additions on our commodity, but supply additions on the magnetic side in areas like outside of china and so you can expect that obviously that's going to come with the requisite incremental demand and so uh as as jim mentioned we continue to try to be very methodical and how we approach um these deals certainly with our our initial fort worth magnetics facility you know being some 10 of our demand we we will in the short term have um a significant amount of oxide to sell into the open market and our goal is to sell as much of that outside of china as we can

Thank you very much.

Our final question shall come from Abhishek Sinha from Northland. Abhishek, your line is open.

Yeah, hi. So most of the questions I'm going to answer, just wondering one thing. For your downstream business, other than GM, have you seen any other noticeable increase from any other party that you could share with us?

So, well, uh, as I've kind of discussed and I'll just, I'll just reiterate, we, yeah, I mean the, the amount of customers who are, I love all, I'll just use my favorite line, which is we're not demand constrained. We're supply constrained. Um, there's a lot of interest from a lot of parties. It's not just the OEMs, you know, it's OEMs, wind and a number of other use cases. Um, You should imagine we're having conversations, but we're not going to name specific parties. And when we have something specific, we'll obviously share it with everyone. Sure.

And then just to follow up for the GM contract. So I know you discussed about like late 23, you'll be selling a lot. And then 2025, you'll have some magnets and stuff. So is there any... a timeline constraint that you're contractually bound by with the GM or, I mean, is there anything that, that, that could put a company in terms of timeline constraints?

Well, I, I don't want to discuss any specific terms of, of any specific deal. But I, so I, I couldn't go into that, but I think, I think what you're asking is, you know, are we, How quickly can we get this going, I think? Or what are the risks? So I can kind of address it from both directions, if you will. And I would say that we are working as quickly as possible, frankly, for at least two years. The biggest question we typically get from government and industry actors is, how quickly can you get this all done, right? People want this supply chain restored. It's strategic economically. It's important national security-wise. And so the ability to have a complete end-to-end, mine it in the United States of America, metallize it, alloy it, and turn it into a magnet, having the full supply chain here is important to all of us. And so we've been working as quickly as we can. So we're trying to get that done as soon as possible. As far as, you know, issues where if, you know, if something were to take longer, is there some kind of, you know, issue with that? I mean, I think that people are pretty well aware that there's all sorts of disruption in the world. There's supply chain challenges. And so, but we're planning ahead for that. I mean, I think we, if you kind of look at the progression of our stage two and, you know, there were a number of items that happened. created challenges throughout the way. As I like to say, it's a knife fight. But the big thing, and I think that maybe this will sort of help remember that as we're building this out, one, we're certainly, you would imagine that we're in constant contact with any major, certainly GM, who's a publicly stated deal, but any major customer that we would ever have, we would be in constant contact with and make sure that we're fully transparent about our operation. Um, but we, we do have, um, the rare earth magnet supply chain is, is, is important, is a deep pass item, right? So it's not just, um, industry that wants to help us downstream, you know, the downstream industry wants to help us get online as soon as possible. But, um, you know, the, the department of defense, uh, does as well. Uh, and so we, we try to utilize that when appropriate to, to, you know, get things that, that, um, you know, are, are having trouble and, Um, certainly as we look around, I think the world has, some of these issues have really eased up and I think we've, we've done a good job again on navigating the stuff in, in our stage two. And, and we have, we have lead time on, on, um, stage three and that work is ongoing today. And so hopefully we've learned some lessons from the prior process to make this process, uh, easier. Um, but of course there'll be, there are always new challenges, uh, but we, we have our knives sharpened and ready, uh, and we just keep, keep moving forward to get it done.

Thank you very much. That's all I have. Sure.

That concludes today's Q&A. So I'd like to pass the conference back to the management team for any closing remarks.

Yeah. Well, thank you, everyone. We appreciate tonight, and we look forward to seeing you all soon. Have a great night.

That concludes today's call. Thank you for your participation. You may now disconnect your line.