Q3 2021 Mp Materials Corp Earnings Call
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Hello, all under warm welcome to the M. P materials third quarter 'twenty to 'twenty one earnings call.
My name is Lydia and on your operator today.
If you'd like to ask a question at the end of the presentation. You May do so my question Star followed by one on your telephone keypad.
It's my pleasure to now hand, you over to our highest Martin Sheehan head of Investor Relations. Please go ahead, when you're already thank you operator, and good day, everyone. Welcome to MP materials third quarter 2021 earnings call with me today are Jim Lapinski, Chairman and Chief Executive Officer of MP materials, Michael Rosenthal, Chief operating officer.
And Ryan Corbett, Chief Financial Officer, before we get to gyms, 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.
Setting up the prepared remarks, we will open it up for Q&A.
So let's start with the third quarter highlights on slide four.
The MP team continues to perform above and beyond even our own high expectations again, setting new records for production and sales volumes.
Across the board every department continues to improve processes, and overall execution, which when combined with select equipment upgrades is driving higher utilization of our assets and higher production volumes. These.
These factors have produced a meaningful increase in our total output for the quarter.
I would also add that we produced more Oreo and just this quarter than our predecessor produced and its best year ever.
Let me repeat that.
MP materials produced more Oreo in just this quarter than the predecessor entity did in their best year ever.
<unk> is just really incredible and it is also particularly remarkable when we think about all the operational logistical and labor challenges going on related to Covid I am so proud of our team.
I would also like to give a special thanks to our logistics team.
Despite significant shipping and trucking challenges throughout the economy.
We shipped over 12000 metric tons of Oreo in the quarter.
This represents a 30% increase over Q2 the.
The ingenuity and dedication of the MP team is just awesome.
And we've said this before we are selling everything we can produce strong global demand for rare Earth materials resulted in a 127% year over year increase in realized prices.
This is being driven primarily by endy PR as well as other magnetic rarest contained in our concentrate the combination of higher volumes and higher pricing led to revenues more than doubling year over year to $99 8 million.
The strong pricing combined with continued diligent cost management helped to demonstrate the leverage in our operating model with adjusted EBITDA, increasing nearly six times year over year to $68 3 million.
And the progress we are making towards the end of the year more on stage, two and stage three and a bit but for now let me turn it over to Ryan for more details on our quarter.
Thank you Jim and welcome everyone.
Ill be beginning on slide six and starting in the bottom left hand corner as Jim mentioned production volumes hitting record highs in the quarter. As we produced just under 12000 metric tons of contained wherewithal cuts. This was an 18% increase over last year's production and a 16% increase off of Q2's production a meaningful increase particularly since you bought.
Recall that Q2 was the previous record for the company.
As Jim also mentioned every department is making improvements in their processes and procedures, which are adding up to improved production results are.
Our mining team is ensuring consistent ore availability and feed grade to the mill, while supporting higher feed rates. Our maintenance staff is ensuring record up times by staying ahead of where trends and implementing strategic equipment upgrades.
In the face of an extremely challenging supply chain environment, our procurement and logistics teams are ensuring we have the necessary consumables and repair parts in a timely manner as well as supporting the outbound logistics needs of record production volumes.
Our operations and engineering teams continue to improve our processes and our execution, leading to steady and sustainable increases in production.
Always expected to make improvements in our production efficiency, but the team has executed well ahead of plant.
Moving clockwise on the page to our sales volumes you can see the timing of shipments resulted in our selling through all of our production and then some this resulted in a 36% increase in metric tons of Oreo shipped to over 12800 metric tons, a 30% increase over the second quarter.
As you can imagine given the stress on the logistics supply chain. This was a particularly heroic accomplishment and as we often point out shipping volumes and production volumes, usually don't light up quarter to quarter, but over time, they even out this quarter. The team was able to tackle the modest inventory that had built up over the last few quarters, but in the current.
Environment, it's even harder to predict the exact timing of shipments.
Moving on as you can see in the top right as Jim mentioned are realized pricing remains very strong and grew 5% sequentially driven by continued strength and NDP our prices.
Finally, the very high up times combined with effective cost controls resulted in a 6% decline in our production costs versus the second quarter and a 4% increase year over year, which is a reminder include significant incremental costs from hiring ahead of stage, two recommissioning, where certain costs cannot be capitalized and are therefore included in our production.
Cost metrics. This impact is highlighted in the yellow bar in the graph to give them more apples to apples comparison, which would have resulted in a decline of about 3% year over year, when excluding the approximately $100 per metric ton of Oreo of Precommissioning expense.
Looking forward to queue for I would also remind everyone that my comments regarding the turnaround also manifest in unit production costs, given the lower uptime inefficiency as well as the additional costs associated with the maintenance effort.
Let's move to slide seven.
And spent a lot of time on that last lied to highlight all the amazing things. The team is doing so I'll cut to the chase here revenues of nearly $100 million were up 143% year over year, and 36% sequentially driven by a simple P times Q I highlighted on the prior slide the revenue growth and solid cost containment resulted in EBITDA grow.
Nearly sixfold to $68.3 million, which was 47% higher than the second quarter.
$28 2 million shares as of September 30th.
I'll now move to slide eight.
Our normalized stage, one free cash flow remains extremely strong driven by the financial results. We just discussed this chart is on a year to date basis. So starting with our reported free cash flow of negative $13 3 million and adjusting for our offtake paydown of $38 9 million.
$80 million of growth Capex, and another $2 3 million of transaction and one time items.
<unk> had a normalized stage, one free cash flow of over $107 million or a 46% margin on year to date revenues.
Keep in mind. The reason, we adjust out our offtake paydown does that the offtake balances essentially debt, but the impact of the pay down of that agreement runs through our operating cash flow instead of financing as we've discussed in prior quarters.
I would also point out that in the appendix, we have a detailed walk of how we get from our adjusted EBITDA to our reported operating cash flow and then our reported free cash flow on that slide you will see some growth in working capital this quarter as a result of the large number of shipments taking place in late September due to the port congestion.
We have since received the entirety of the cash from these lumpier receivables, which will show up in our fourth quarter free cash flow numbers.
Lastly, in the quarter, we paid down our offtake agreement with Shanghai resources by an additional $60 million, leaving roughly $33 million remaining.
At this pace, which would assume continued strong concentrate pricing as well as consistent production and shipping about in past, we would expect to pay off the remaining about in early 2022.
As a reminder, we are entitled to pay off the balance in full at anytime with cash on hand, particularly as it is nearly a rounding error in the context of our $1 2 billion cash balance we have not elected to do this as we continue to pay down the balance quite rapidly via the traditional offtake mechanism and we also believe that maintaining a <unk>.
Balance aligns the incentives of our distributor to maximize the company's profitability.
I would also remind everyone that we have the flexibility to sell our product, where we choose and as you can imagine given the rising demand for rare earth materials globally customers and distributors regularly express interest in the company's current and future production above concentrated oxides.
I'll turn it back to Jim to give you more details on stage two stage three.
Thanks, Brian before I start on slide 10, I wanted to point out that we added a section of cool photos towards the back of the deck, which shows some of the ongoing progress that mountain paths. So please take some time to have a look.
As I mentioned in my opening stage II and related work continued to make nice progress.
Although not specifically related to stage two we had a very successful first firing of both of our combined heat and power or CHP turbines in the quarter and have now begun continuous performance testing.
These turbines each generate north of 12 megawatts of power and re commissioning. This facility is important for a couple of reasons.
Phase II will require significantly more power than stage, one so having a dedicated power source fed by a pipeline lateral should further improve the reliability of our processes.
We believe the CHP could cut our energy costs significantly and will provide us excess steam for our processes, which we would otherwise have to consume energy to generate importantly.
Importantly, we expect the plant to come online on a full time basis by early next year.
Also in the quarter, we recommissioned, our water treatment plant and for the last two months have been producing on spec reverse osmosis or Ro water.
This is also critical for stage two.
As you can imagine to attain the purity levels needed to produce on spec and EPR and other separated worse we.
We need to use highly purified water. So this is another important milestone to achieve ahead of stage two commissioning.
We will also use this water in the CHP plant as well as to assist on a limited basis with our stage one processes.
Specifically related to stage two.
To that end, we are dedicating resources to advancing this capability, including ongoing joint development projects with significant industry and governmental entities. We believe MP is naturally positioned to be a global leader in rare Earth magnet recycling in time and look forward to providing more detail in the future.
Before moving on to our stage three update I wanted to remind everyone of the discussion we had last quarter.
As you know.
<unk> doesn't seem to go by without a new story discussing the various supply chain labor logistics and or materials challenges happening throughout the global economy.
Like others, we are managing in real time, the cost schedule and other inflationary impacts that are out there.
We wish we could be precise around known unknowns and unknown unknowns, but that is not possible. What we can tell you, though is what matters to us all as shareholders and that is the great news, we believe any incremental costs pale in comparison to the operating cash flow we are generating.
And Moreover, we continue to see what feels like a dramatic acceleration of the long term asset value of what we already have in place as well as that of what we are continuing to create a M. P.
Moving on to stage III.
We continue to build out our team develop our production and market strategy and engage with a wide array of customers. We remain on track and are incredibly excited to share the vision of our first U S metal and magnetics facility towards the year end.
With that I'd like to shift gears before Q&A to share some market updates and other thoughts.
So.
Into the imports of permanent magnets, nearly all of which currently come from China.
Lastly.
I would like to take a moment to reflect on M. P. How.
How we began what we've been through and where we believe we are going.
I hope it will help you better understand our business our culture.
The risks we have taken on.
The opportunity for shareholders and most importantly, why we must succeed.
We founded this company in 2017.
At the time Mountain pass was sitting in bankruptcy and care maintenance with eight employees.
The predecessor failure to achieve operational stability led many texts include incorrectly that mountain pass was a busted site.
We however had conviction and where mountain pass should sit on the cost curve and had to fight for the opportunity to prove it.
We contributed capital just to keep the process going before closing on the acquisition.
As the key bankruptcy parties pushed furiously to push mountain pass into reclamation.
This means that an invaluable American industrial site would've been destroyed and the permits loss.
With limited resources amidst a bankruptcy battle, where we were outgunned.
<unk> north of 270 million per year of run rate adjusted EBITDA.
We also have $1.2 billion in cash and our mission continues.
Yet.
No matter, how big our team gets <unk>.
Fighting long odds against conventional wisdom is our corporate DNA.
Every step of the way, we have had naysayers detractors and worse.
Our critics do have one thing right, though.
What <unk> is trying to accomplish is complex challenging and painstaking.
We have been crystal clear since day, one they're moving a multibillion dollar supply chain will not happen overnight.
We must be pragmatic, we must be methodical and we must continuously learned from our inevitable mistakes and be relentless.
Many of you have heard me say this but I must say it again.
We believe MP success is critical.
And we are proud to represent a symbol of America is renewed reinvigorated manufacturing spirit as electrification transforms the global economy.
We will be unwavering until it is done.
With that.
Let's open it up for questions.
Operator.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad down.
Julia a question. Please press star followed by chain and when preparing to ask you a question, please and showing you'll find it unmated lately.
First question today comes from call Us to Algarve Morgan Stanley call US. Your line is open. Please go ahead.
Hi, Carlos your line is open.
Yeah, sorry, I was on mute.
Hello, Good afternoon, very good quarter.
So if I may 1st question would be on fourth quarter output is there anything that you can comment given the plan maintenance that you have you had already.
Any last question.
And what time.
More or less around where.
When do you expect to be able to give us more precise timing for the cold commissioning or hot commissioning.
Stage two.
Yes, that's what I was getting maybe I'll I'll take this one up for Ryan.
But.
I want to just kind of be clear as we've said probably I think every earnings call since we became public that.
We really expect next year to be a transition year, we're going to have some cost in front of first fire so to speak when we commission.
We really expect next year to be a transition year, we're going to have some cost in front of first fire so to speak when we commission.
And so there'll be some advance work and obviously it takes a little while.
To get things going so we feel very good about our normalized 2023 reiterating that but.
But maybe for modeling purposes, Ryan if you can try to be you know if you want to help a little bit on that front, but I can't.
Yes, I mean look I think target on.
Yes.
Carlos as I think that.
Where we are today I think it's fair to assume that second half is when we would.
When do we have first stock side.
Not at this point being more specific than that we will continue to update all of you as we move along with with the project, but as Jim said.
Obviously, hopefully the results this quarter speak to our ability to continue to improve our stage one processes, which obviously gives us a significant amount of confidence in what we will be able to achieve through stage two given the Oreo, we're producing upstream in stage one.
This quarter and how are you feeling on and sort of the Gibson takes their between cost and timing right now.
Sure. So great question I think we try to be as specific as we can in the script, which is which is just there are there's you mean you see these headlines every day about supply chains and everything and you can see from the pictures. We've we're really we've made a lot of progress but you.
Just don't know.
What's around the corner, so we want to just be.
Awful.
Until until the job is done and so.
You see what we see out there, but as we said earlier.
The the project is going really well certainly there are.
Yeah lots of inflationary impacts in the economy, we we've sort of openly stated that.
And and so we're just managing through all of that last quarter. We gave the example of what we were able to do with D O D and D pass and getting some items that.
That were at risk of kind of getting the schedule off kind of getting those in order and we continue to work through things like that to execute in but I do want to reiterate I mean, I think and I understand people are particularly sensitive to this given.
Sort of the predecessor, and given challenges of Greenfield sites and coming online I mean, let's not forget that at the end of the day. This is a very cash generative business, while we wait.
I think it's fair to say after this quarter. We we're we're really executing very well so we're generating a lot of cash and as I said earlier.
Whatever whatever sort of.
When we kind of add it all up and the yen whatever amounts we're talking about here really pale in comparison to the operating casual we already have as a business.
This is going to be.
Perhaps a small step you know not necessarily not necessarily a pilot, but it would be consuming the minority of your N D. P. R.
As you think about some of these other opportunities.
Do you foresee sort of taking on a large splash Allah like a stage to sort of project.
Within the next three to five years or do you think that this is going to be more of a testing the waters setting of pilots small iterative process.
Yeah. So great question, Thanks for asking David I think that's something.
Something that I'm not sure people fully appreciate yet about our capability recycling.
Recycling from from the standpoint of when you think about recycling a rare earth magnet it really is.
And our magnetics process and so that is something I think in the in the very near term as we kind of think about rolling out stay tuned through the yearend right as we think about.
Magnetics, we are going to want to make sure that we have that capability to be to be really efficient economic competitive to to the competitors out there but.
Then I think beyond that over time, the larger opportunity will be there will be.
Spend bear with magnets around from Evs wind turbines to all of this stuff and the natural party to recycle those even if there are major recycles of other stuff like lithium and whatnot. The natural party hopefully will be us leading some of that effort. So.
We're focused on it.
It sounds great Jim certainly not of the desert of opportunity out there. Good luck CTO is no yes.
Thank you. Thank you.
Our next question comes from fatigue person Aten of Deutsche Bank. Your line is open.
And we continue to move along in terms of.
So.
Preconstruction site work and other evaluations.
That infrastructure, so continue to move along in and evaluate the opportunity.
Okay.
Okay.
Okay.
My next question is on the production volumes. So you indicated some downtime.
Lower production volumes for fourth quarter.
But given the operational improvements you have seen in the past quarters in terms of higher feed rates higher recoveries, how should we think about the sustainable run rate on an annualized basis.
Sure.
Well I'll, just I'm going to I'm going to use it as an opportunity to once again reiterate because I just think it's a really powerful thing and I think that the entire team at MP.
It should just be very proud when we think about this quarter. The fact that we produced more Oreo this quarter than the predecessor did in their best year ever.
EVAR is just it's an extraordinary.
Achievement and it shows it goes to just sort of.
The <unk>.
The culture of execution that we have here and so I'm just I'm really proud of the entire team on that front. So I just think it's worth reiterating that that is just a remarkable stat.
With that I think.
Ryan touched on some of the stuff for next quarter, but I think youre talking about sort of more longer term improvements.
Business and bringing on stage two assets thoughtfully over 2022.
Okay. Thank you and congrats on a great set of numbers.
Thank you I appreciate it next question.
The next question comes from Tyler Langton of Jpmorgan Tyler Your line is open.
Hey, good evening, thanks for taking my questions.
Could you just provide a little bit of color.
On sort of how much capex is left for stage two and then sort of how much is kind of fixed and how much could be sort of exposed to cost inflation.
So great question.
A good way of asking it in a more detailed way we haven't.
Given those numbers out so.
So obviously, if we were to do that we would be backing into.
Something specific that we want to make sure that we're not.
Backing into yet.
So.
I don't know what we can tell you on that front, but maybe Brian if you want to take a crack at it as well and sort of what.
Got it.
Capex answer his question sure go ahead.
Sure Matt.
We had spoken about the stage two.
Project overall being about a $220 million project.
Obviously, that's sort of the number.
From several quarters ago.
We don't provide a specific breakout on on Capex spent to date on what what goes where I would say of the approximately $80 million of growth Capex that we spent so far this year a significant majority of it is stage two related but there are pretty significant sums of capital.
And therefore, the combined heat and power plant and water treatment plant and re commissioning so I would not assume that all of the capital that we've spent this year a stage two related.
I think the thing that becomes a bit difficult.
To triangulate into for everybody, obviously as Michael talked about some of the.
The Preconstruction site investigations.
Investigations and things like that for heavy rare. It's there are a lot of things that sort of tie into the rest of the plant so putting putting a pin in it is a bit difficult I think the reality is we'll continue to update you as we go along.
On our progress on the capital spending for stage, two but that's about as far as as we've disclosed to date.
Okay. Thanks.
And then maybe just for stage three I mean is that something where you consider taking on a partner or is it something where the.
More of the focus is to sort of build and operate it yourself.
Yes.
Well so.
I won't steal the Thunder from our announcement before year end as far as what our first step is going to be.
Historically, we said <unk> <unk> JV.
And that remains the case, obviously, we said on the last call.
Someone asked this or maybe it doesn't track of time here if it was a one before but.
The fact that we're it must have been the last call. The fact that we're announcing before year end means we're building something.
And so there is at least that.
Easter egg sort of speak.
But.
So we are building something.
And but I would also just step back and say longer term, how we view this because I just think it's important to understand at all.
We will produce.
You have our target NPR, but we view the magnetics opportunity.
As something that is actually larger than what our current underlying content production is.
If you look at EV penetration.
Just that alone not to mention all of the other electrification stuff.
This is a very large opportunity it is.
And what's fascinating about it is it's something that in the west it's very challenging to do.
Unless you are positioned like us where you feel like you have some certainty upstream in the supply chain right and I think whether it was just to give an example, because I saw it on CNBC. This morning. The CFO of forward was talking about moving upstream every.
OEM is talking about moving upstream I think what people are realizing is that if you play out these numbers right pick look at the market cap that is just in evs right. So add up Tesla GM Ford Volkswagen all of them lucid revealed to be.
There's trillions of market cap and then take the 2030 Street numbers.
And then cut those in half a few months.
And what you see is the amount of magnetics required I E. The amount of rare earths required that really.
It's such an enormous opportunity relative to our business today I think one other analyst.
No.
Noted, we need three more mountain passes in the west and so all of this needs to get built.
And so.
We're going to take our first step, but here's the important thing is we're going to take a first step.
But we really want to make sure that people understand that our stage three we don't Rob Peter to pay Paul. So our next step is going to have to be thoughtful very attractive high return on capital.
And so we want to be thoughtful about how we how we do this initially but also make sure that we're executing as well that we're the best at it.
So that we can build a great and bigger business.
That's obviously the longer term opportunity and then lastly, what I would just say is if you think about all the Oems I think and I've said this in the opening remarks. The semiconductor issue really is the ghost Christmas future I think that that has not been lost.
On all the major manufacturers globally and everybody is starting to think about upstream in the supply chain and if you are somebody who is thinking about your magnetic situation.
And do you want to do something and you want to have a phone.
Non Chinese supply chain, we're really your only realistic option and so you can imagine that that.
Has occurred to many parties and so you can imagine that.
We would be having conversations with with some or all of those parties.
And I think unlike maybe other scenarios, we are not in a rush.
Two.
Just get something done for the sake of it we believe we have something enormously strategic and valuable and so we want to make sure. We have the right partners. The right deal the right customers all of those things that we can build a much larger broader business.
That's how we're thinking about it I know that probably doesn't give you a lot of specifics but.
That's how we're thinking about it and so longer term what I would say is again the.
You should expect that the <unk> JV aspects all of those may be part of an ultimate long term solution.
But hopefully in very near term youll get some specifics from us of an initial step.
I appreciate the color that's helpful. And then just final question.
Are you is there anything just in China, we've heard about sort of the impact of power restrictions on lots of different industries are you hearing anything about I guess restrictions or the power restrictions impacting rare earth production over there.
And so I mean.
But this isn't going to do it but you've obviously seen and DPR prices continue to go higher.
And I think thats.
Probably driven by just the enormous demand I mean, I think the the the intensity of the reach outs that we have received from parties has has increased even more so than last quarter. So I think that's a function of.
The increased realization of potential shortages of material. So that is very attractive as far as the outages. There is nothing that I'm, particularly aware of.
Aye.
I think what Youre asking is sort of similar to what's happening with aluminum right, where there is shortages and it's driving the price of aluminum here, but I actually do think its irrelevant analogy. So I don't think its not something thats kind of happened that we've noticed in the last couple of weeks or anything like that but it's a really excellent analogy to think about how people in the supply.
Our thinking about this issue and they are thinking about it.
Across all of these things and this is not one this is more let's say more than one party that understand the risk to having the vast majority of raw materials come from one place right and again I think I mentioned this.
In the air.
As a big development during the quarter, but.
Would not underestimate.
How important of a evolution. It is that China is consolidating its big six into a big too.
I think and I've said this on prior calls and again.
I just think it's a really big point.
If you think back a decade or two decades ago, there really wasn't much electrification I think that the Chinese wanted to take over this industry.
But when you think about the world today.
Look at the public markets Neo Chow Pong BYD Lee auto there are they are these.
These are huge manufacturers and so I think that there is probably an increased utilization.
That where are their own manufacturer is going to get enough supply let alone do we want to subsidize the west right. It doesn't make sense to destroy our own environment to subsidize and again I'm, just making up names Tesla GM Volkswagen whomever to compete against our major Oems that are now going global.
<unk> actually really seen a sea shift in in the strategic mindset.
From them and again this is just our reading of the tea leaves, but it's intuitive right, which is they are now positioning their upstream to feed into their downstream and so I think that.
The western manufacturers are realizing that.
We're not going to China is not going to destroy their environment to subsidize our supply chain anymore. We better go figure out our supply chain and then of course, our phone rings, which is nice.
Thats It for me appreciate all the color.
Yes.
Our next question comes from Matt Summerville of D. A Davidson.
Your line is open.
Thanks, So just two quick questions first with the production number I mean, I want to underscore that a little bit as well being.
2025% higher in this quarter than any other quarter that at least I've looked at going back historically I think that's a huge step function of why could we not just apply simple algebra to that and say, okay. If 10, a quarter became 12, then why doesn't.
6000, plus tonnes of MVP R purified and EPR.
Is that not 6500 6600.
Hey, Michael since you live in Mountain pass you want to take that one.
Thank you Ed.
Talk a little bit like last quarter.
Yes, we can.
Continue to make improvements in our process and I'm really proud of our team and Theyre working very hard.
From operations engineering maintenance et cetera.
Do believe we have made sustainable improvements, but with those improvements we continue to do trials and try to improve that further and sometimes they work and sometimes they work less well.
So sometimes it's two steps forward one step back.
But we're constantly moving forward.
And I think the biggest opportunity for.
Improvement in leverage to the financial model is improving.
The improvement in recovery and so we continue to focus on that.
But you are correct. If the contained RVO goes up in a concentrated yes can do the math and that would result in more in the PR.
Coming available for separation.
Yes.
Got it.
It's pretty easy to pick up a newspaper and see some pretty striking statistics on just how clogged the ports have been for Los Angeles, and long Beach, which I assume given youre not that far from there you'd probably rely on those pretty heavily so maybe just talk a little bit about how you're managing it I mean, you say, it's very clear everyone's managing it well.
How are you managing through that on a daily basis and was there a discernible hit to your P&L, albeit we may not be able to see it just due to the inherent leverage in the model, but was there a quantifiable hit to the P&L from expedited freight et cetera. This quarter.
Wrangler.
That's right, yes, Im happy to take it it's a great question.
Said in a couple of times, but I'll say it again, we are tremendously proud of the team and what they were able to accomplish not only getting out record production, but obviously as we've talked about.
Nauseum the timing is not always perfect and so they were able to get out there.
The small amount of inventory they just turned it back up into the system over the last couple of quarters.
The reality of the port is that even with.
The incremental hours that the long term and are now working the pinch.
Pinch point as you would expect as soon as you address one piece moved somewhere else. So originally over the course of the entire year. It spanned a sprint to get shipping.
Shipping capacity outbound shipping capacity.
We are lucky in that we are an exporter and so and being an exporter.
See freight pricing is not remotely had the step function that the.
Great.
And imports have suffered.
But what's happened is now that we've been able to secure capacity on an outbound basis on sea freight trucking has become the pinch point and I'm sure you've heard this and many other conference calls.
So it's sort of a bit of whack them all.
As soon as one piece of it is fixed another another crops up but I think that we are addressing it the best that we can.
You can actually see in our P&L, we disclose.
A reconciliation of our of our production cost Kpis exactly what the.
The shipping and freight costs are for the business.
And so youll notice on a per ton basis. It has not moved meaningfully and again.
From a lot of hard work from the team.
It has seen some inflation, which is not unexpected but just given the sheer.
Amount of improvements that the rest of the operational folks have been able to achieve that is a bit drowned out in in the overall numbers, but it's something that we will continue to execute on and hopefully be able to continue to overcome over the next couple of quarters, but.
Everyone can see.
The numbers on the amount of ships out there and it continues to go up so it is.
It's a full time job for a lot of folks here.
Got it thank you guys.
Sure.
Thank you. Our final question comes from George <unk> of Bob George Your line is open.
Hey, guys, Hey, George for Sneaking me in.
Sure I had a quick question.
GM and their recent announcement with GE and it fits into this narrative.
Of the U S and western auto Oems trying to procure.
Cereals, but I'm curious if you had any more detailed thoughts on that particular announcement. Thank you.
Let me see what I want to say on that it was obviously a.
Beautiful announcement.
And we noticed and we.
Applauded and I think that that announcement.
Is indicative of a.
Lot of the conversations that you can imagine are happening.
<unk> large.
And I think it highlights.
The importance of exactly what we're doing in our mission and.
It was pretty cool.
Okay.
Yeah.
Oh, yes.
<unk> will follow later on that one I would like to you. If you could expand on your on your thoughts on the Chinese restructuring.
And yes.
Exactly why you think it was bullish as you think.
For <unk> I think I understand the broad logic, but if you can just share any more details there I'd appreciate it.
Yeah, I mean, I think that.
If you look back and again this is just reading the tea leaves so you always.
Do your own work on this front, but from what we see.
If you kind of look at the arc over the last decade or two right there were hundreds of players.
Many illegal ones.
There was essentially no regard for the environment, particularly in the south of China with with.
Clays in Gist and toxic water going places wherever you can go on Youtube and see.
Stuff in the north and the south whatever.
That was cleaned up over time with a consolidation into.
Six majors.
And even throughout that process there was a continued.
Continued crackdown on some of the.
Illegal mining.
That had occurred in some of the when you hear of the quota system, that's really about getting the illegal mining into the legal.
Production system, and then what I think you saw here.
It's just a continuation of that theme.
As a very strategic process.
Which is I think in the beginning there was sort of a free for all of production of materials and magnets too.
Be the low cost producer irrespective of profitability and an externality impact right to takeover and industry, but the longer term objective.
It was likely I would I would think is ultimately about GDP and jobs right that is political power in China is driven by GDP and jobs and so I think that now that there has been.
Downstream movement, right and look at the major companies that have moved and broad jobs there downstream in this space.
Now that that has occurred.
Chinese industry has not just accepted that they've moved downstream themselves and they want to compete and to their.
To their credit right. This is a brilliant strategic move to utilize and industry to then move downstream.
But it wasn't lost on them that there were some very significant environmental impacts.
And that subsidy.
Which was helpful. Historically.
Makes little to no sense in a world, where they now have their own downstream competitors and those downstream competitors want to get product and so what I think this is setting up for is those two large entities will be able to satisfy demand downstream demands of <unk>.
Industrial.
Leaders.
And I think that consolidating that into.
Northern or southern or for our light and heavy.
<unk> provides much more centralized control over that upstream.
To then figure out, how and when and where to feed into the downstream.
But I think it would be a big stretch to then assume that the whole point of that would be to say hey, okay. Western OEM, here's some magnets that are below market rate because we just want to keep making magnets right that doesn't make any sense and so.
The that is I think that is sort of the.
The long historical strategic narrative that we see and so I think it's again it's.
Down too.
Just think of think of for example, semiconductors I think there were a lot of people who.
Thought Oh this is a $2 chip.
This can be made somewhere else forever.
And I think what we're seeing is if for whatever reason there is an interruption in that that is done ex essential and so.
Maybe there'll be some excess supply maybe there won't but then the question is if you are.
A huge company today and you see there was an article on Bloomberg today about.
The.
Magnate who runs.
<unk>.
And their use of going upstream and dominating materials to move downstream in batteries and what you realize is that.
If you're a downstream player.
I don't think that youre going to want to risk.
Your existence your business on that supply chain not not even if you don't believe it's enough areas. It's just it's a strategic risk and by the way that's not this pieces not just sort of Jim's musings. This is what we're hearing.
For downstream parties now the challenge and this is what we like to highlight on our asset value when people if you're thinking about.
$1 million to $1 million or whatever then the number on the small the small stuff is when you think about if this huge amount of material and magnetics needs to exist in the west.
Who's going to build all this stuff when if there is a very cheap cost of capital downstream because the market cap of EV makers for example is.
Through the roof, but when you have mining and materials trading.
With higher cost of capital how is all this stuff is going to get made particularly when you think about the fact that this is challenging stuff it takes years right.
So I just think this is setting up for people should go out and.
Do this math of look at the 2030 projections again look at the 2030 projections of what all of this market cap is suggesting in global industry for the electrification and then go check your various commodities and in particular I think Andy PR, it's very striking and Something's got to give right and maybe it's something in the middle of <unk>.
There can always be some substitution some areas but of course, if you substitute in some areas. There are tradeoffs of other commodities and significant losses of performance with batteries and other commodities and losing out to your competition and so I believe and I said this last quarter that what youre going to see us.
There are some early.
Oems that have figured this out that are already solved.
Solving this problem and then the ones that are that are sort of last to figure this out.
Their businesses may literally fail or they'll need a bailout of some kind and so that's why I believe that we are uniquely well positioned.
<unk>.
And I mean, this with the utmost humility, but I do believe in five or so years, they'll need us more than we'll need them.
And so we want to balance being.
<unk> mission and thoughtful and.
And making sure that we serve our strategic objective of making sure that we can satisfy a lot of industry participants with obviously doing what's right for shareholders.
Thanks.
Sure.
That's the end of the Q&A. Thank you.
On the call back to Mr. James James Keith for closing remarks.
Okay, well. Thank you everyone, obviously want to say again, thanks to the MP team.
Really outstanding quarter, and execution and we look forward to talking to you all soon have a great day.
Bye.
This concludes today's call. Thank you for joining you may now disconnect your line.