Q2 2022 MP Materials Corp Earnings Call
Year, and 1% quarter over quarter.
On a sequential basis recall, the NDP, our pricing hit a recent high in the early March time frame and given the slight lag in our realized prices versus market agencies. Some of that strong March pricing was realized in our Q2 results.
AEP, our pricing has recently pulled back to below $120 per kilogram and given our realized pricing is highly correlated with <unk> pricing we have.
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, one production costs. Despite inflationary pressure remained roughly in the 13% to 14 $100 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 two.
<unk> reconditioning related costs year over year core production costs were roughly flat at just over <unk> hundred dollars per metric ton.
The higher year over year stage, two 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 were primarily dissipating and a lot of banks. The cost of this temporary inefficiency represents just over half of the 350.
Per metric ton impact in the quarter and we will of course continue for the next couple of quarters as we commission and scale stage two operation.
The stage two related costs impacting our overall production cost 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 the 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 of 139% and EBITDA margins increased 13 percentage points, all primarily driven by higher realized pricing.
With regards to our profitability metrics cost controls and production efficiencies outweighed inflationary pressures.
<unk> over quarter comparisons for all four metrics were primarily impacted by the lower shipments in the quarter versus Q1.
Moving to slide eight year to date normalized stage, one 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 likelihood of a portion of the stage two construction and related investments in mountain pass.
Our Fort worth Magnetics facility, and lastly, initial investments in heavy separations and recycling and mountain paths.
So while stage one strong cash flow is 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 drop modestly on our fortress balance sheet to absorb this ramping 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 closed the quarter with approximately $600 million of short term investments in addition to $664 million of cash and cash.
<unk> for a total balance of $1 6 billion of cash equivalents and short term investments you.
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.
In summary, another strong quarter across the board to the company's operations production cost control and demand for our products continue to highlight the significant early success of our three state strategy, which gives us further confidence in our ability to execute on stages two and three.
That I'll turn it back to Jim Jim.
Thanks, Brian , Let's turn to slide 10 to discuss our progress on downstream expansion in the quarter.
Here's a good shot of our concentrate driver and call center two of the major stage to optimization projects that 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.
Electricians, and Pipefitters and iron workers onsite 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 advance 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, our onsite chip.
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 circuit.
This will be a very important first step in a re commissioning efforts and regarding the re commissioning of existing assets.
We also made important progress on a number of fronts in the second quarter.
We completed upgrades to our and DPR separation facilities completed work on parts of our impurity removal and iron removal processes continued upgrades to process automation hardware and software.
<unk> work on part of our Brian recovery and treatment facilities and Recommissioned, our upgraded Brian Concentrator facility, which is a critical precursor to successfully operate in our salt crystallized and maintaining sitewide water balance.
We also continued front end engineering of our heavy rare of 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.
You will recall last quarter, we showed a picture with the initial grading of the site underway.
You can see in this updated picture the concrete slab on grade as port 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.
The most important things to note one.
Our mission, we will create a western supply of sustainably sourced raw materials that are critical to electrifying the world.
<unk>, we operate the most environmentally responsible rare earth production site in the world a significant competitive advantage for us going forward.
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.
Worth locations, adding nearly 50 people in the second quarter and bringing our total head count 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 Oreo 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 where 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 nonexecutive employees, a restricted stock grant.
So not only is the U S capability in our industry is 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.
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Our first question is with Matt Summerville from D. A Davidson Matt Your line is open.
Yeah.
Thanks, Good evening guys.
First Jim you made last call you gave a little bit of an overview on what you thought was driving and DPR pricing at that point kind of heading south off of the late February early March.
And I was wondering if you could kind of do a similar market assessment on what you think is driving more recent pricing actions sub 128 kilogram and then I have a follow up.
Yes.
Sure, So hey, Matt.
Well as I said last time and Youll always hear me say every time.
Commodities are commodities and no one really knows and theyre driven by supply and demand and it.
It's hard to predict what I would say.
This is ultimately a market and in the last few months the global economy has really obviously deteriorated post Russia.
Theres 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.
As we think about our commodity which.
<unk>.
The large growth cases of course going into the auto supply chain actually auto sales in the U S are a really good sort of relative relative to where they were prior to the price decline beginning because there had been such shortages in backlogs and and frankly.
Employment is still great. So even as we it feels like and it is my.
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 continued strong in so we don't see that here I would say on the Chinese side.
It's always hard to read the tea leaves.
What's going on over there but.
Certainly with all the Lockdowns, you've seen sort of a setback.
In auto sales there.
And so there is nothing that we see with respect to our market in particular 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 confidence.
Context, because I think it's important to.
To view at all from the landscape at least you asked for my macro view, if you recall early last year.
<unk>.
In early 'twenty, one 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 and then I think.
As the year unfolded people realize it wasn't transitory I still think that that analogy holds.
I think that we've we've hit this period, where we've now the economy has now taken a hit.
Cause of all of the factors that we don't need to rehash.
And so commodities prices have pulled in and I think there is a bit of sort of celebration out there. If you will but if you go back to that seven years analogy and again there is no such thing as a perfect analogy, but.
There was a period of a year or so in the mid seventies, where things pull back growth slowed, but then actually because of the supply challenges warrants solved they accelerated higher even again in the late seventies and I I actually think we're in sort of that period, where we've had we've had this pullback.
All commodities have kind of pulled in.
But.
Whether whether the next 369 months or.
Fine or challenging we're very challenging as we look out a year or two or beyond when when eventually markets pick back up, particularly with all 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.
Through dramatic spike, but 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 gave you a fault and then if I.
Just to add that I think it goes without saying that of course.
We sell we sell everything we can make we certainly don't in any way.
C C impact so we remain very bullish that every everything that we've said before about the rise of electrification in the demand for and EPR.
We're very bullish.
Go ahead with the follow up.
Got it.
Yes, 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, where you start to test.
Some of the equipment some of the facilities so relative to that $3 50, how much chunkier. If you will when we get from there in the back half of the year.
Yeah, Hey, Matt, It's Ryan I can take that.
I would say if you look at the $3 <unk> sequentially versus the 290, if you do the math on 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.
Youre getting the <unk> scaling problem from a lower sequential shipment.
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 <unk>.
Costs that I do think we'll 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 would also flag, though that based on that 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 it's kind of it's 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 would flag overall on this point certainly is.
We've made very clear as we ramp that this will become a transition year as we move into producing our stage two products and so you can expect certainly to your point I think.
The impacts of that on the 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.
Yeah.
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 inflation or format in the proposed Bill there is 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 and if it is passed would this be applied to each stage of your operations or maybe just stage. Two for example, any kind of.
At insight you might have into that would be it would be great.
Sure.
So robyn.
Big picture just to lay the background.
The Bill is.
Of course, it is not passed and I've heard there's there was a headline that theyre going to vote Saturday, who knows but.
From what we see from the Bill obviously, it goes without saying that it's it's it'll accelerate electrification evs wind turbines electric heat pumps. It's it's it's really fantastic for our supply chain.
And of course, it's just sort of a more positive fuel to the fire evolve the things that we've been talking about and the importance of everything that we've been doing it. This has obviously been the mission that we've been on so when we think about all of the supply chain challenges that we've had and then and now we've said repeatedly governor.
And industry wants us to get more stuff onshore this but this bill and the chips at all.
Great and positive steps forward.
So really great I mean, I think I think it's fair to say that this bill kind of came out there and it was a somewhat of a surprise to everyone. Because it was just people werent expecting and if we look at the contents 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 is certainly we have to read the fine print and what's pass and.
Make sure our tax team is working closely on which aspects of 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.
Very very good for us.
And so we're happy to see it and it will be it is something that will be a material benefit to us as we see it as written of course anything can happen and it certainly has.
As in past, but but it's pretty great.
Understood and maybe just a quick follow up on that and somewhat related but either way yes.
Right.
Oh go ahead finish without go ahead.
And I was just going to say.
For those who.
Don't know, maybe no, but but the it's.
It's a tax credit is written so it's 10% whatever that cost me is it would mean, 10% and thats actually a credit you would get so it could be.
Could be material dollars to us which is great.
Sorry go ahead, that's all right.
Let's just say this is passed and obviously I agree with you. It certainly helped to accelerate all of these end markets.
You would benefit from.
And earlier.
This week, we saw Linus 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 a 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.
Sure.
We're obviously just beginning 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 is is a very high return endeavor for us.
I can't really address their specific announcement it was hard to see in that announcement, 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 of them, but I can tell you that the takeaway I had from that release from what we see and I think.
But 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.
Our growth market like this there'll be a lot of.
What I'll call Juniors out there doing capital formation, and there'll be a lot of people raising capital as they should I mean, it's we need more supply.
And so.
<unk>.
The reality is though is this is look at their numbers look at our numbers the amount of capital invested. This is a this is a scale business that requires a lot of investment in time and you don't.
You take years, and so I think that it it just is another.
Data point to remind everyone that.
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 learned the hard way, what im saying I think that will 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 as I didn't notice that one thing.
I only would reference that because I think it's an important thing to mention about M. P is that with respect to their announcement one of the things that was a big component of it.
Was bringing their environmental standards.
Up to speed sort of speak with something closer to the dry tailings process, we havent non pass and so we have repeatedly.
State to discuss 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 <unk>.
Announcing hopefully make some of those investments too because we all want to make sure that production in this spaces is.
Environmentally friendly as it can be but I do also think it again highlights how.
How far ahead, we are and we're proud of that.
Great. Thanks, a lot.
On your question is from George <unk>.
Again, our Rockies from Canaccord Genuity.
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 Oems regarding.
Battery and EV materials I'm sure you've seen them recently from Ford GM, Obviously, GM is already a partner, but I'd like to just kind of pick your brain on what's happening with you guys.
What you see over the next 12 to 24 months call. It in terms of.
Additional announcements additional deals just because the scurry to secure materials seems to be.
I had an apex and I'm wondering what that means for M. P.
Yeah.
Well, let me give you the.
The takeaway punch line, 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 there are theres no shortage of Oems that recognize that all aspects of the critical material 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 <unk> 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.
When it's other 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.
<unk>.
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 and are we.
We also want to make sure that the deals remember that these deals take whether it I'm not going to address the specific deal, but these deals that we might do if you will or or or have done.
Our 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 is fair to say if you.
This is only really accelerating because the.
We know that where our penetration is in electrification and we know where it's going and of course, if the inflation reduction out 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 as well.
What do you think about future deals.
Future deal structuring.
Is there a potential for four 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 what are the most economic alternatives.
Well the answer is there is certainly demand for both.
You may have heard me historically say that.
I think long term, our magnetics business could well 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 and magnetics, we have the ability to to grow horizontally and.
Other feed ore.
Who knows what unfolds in the future as far as more and 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 where an owner operator culture as you know I'm the largest shareholder and so we're thinking about this from a what is what is the most thoughtful way we can maximize long term enterprise value per M. P.
As well as make sure that we are.
Doing things again, just going back to what I said before it's just so important.
Making sure that we can take on things that we can execute and so we're always thinking about risk and reward and and those tradeoffs and and we won't be in a rush.
We are.
I think when you look at these deals you see that given what we have.
We're years and billions ahead.
So we just need to make sure that we.
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.
Okay.
Thank you.
Yeah.
Our next question is with Ben <unk> from Baird.
Your line is open.
Good evening.
Afternoon.
On on.
On pricing differential between what you think domestic production.
We'll be versus.
Going through charter if there is one this is my first question.
Yes.
Brian do you want to take that.
I assume then your you are talking about Magna.
Anywhere along the process.
For stage two.
So do you expect to keep it short.
Sure.
Well obviously.
With oxide, we sell a commodity that is dominated by the Chinese supply chain and therefore.
It has been and will be for some period of time going forward priced.
Is it China domestic product I do think though what youre seeing in back to Jim's comments, a moment ago about Uber.
The required scale to really grow supply ex China is youre seeing the scaled players outside of China gained scale, including us.
So over time will that manifest in.
A different type of pricing scheme for our product that's absolutely possible is 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 AD magnetics. 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.
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 Thats 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 1000 metric ton facility, but thats 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. There are a lot of things that we are able to do at.
As somewhat of a greenfield in the magnetic space as it relates to automation and other process technologies and importantly.
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 magnum, making due to their separation capabilities in country.
We will not just have it in country, we will have it integrated into the same company.
So I think that the competitive advantage, we get by having mountain pass and our stage three facility integrated should not be underestimated and is something that we intend to continue to leverage overtime as we grow scale. So.
Hopefully that addresses your question.
Overall.
Yes.
That's great.
I know, Jim you said Youre focused on stage two and three.
Before anything else.
Are you doing work now on an expansion.
Mel bus.
And thank you very much.
Okay.
Well sure.
You should imagine that we are.
These are very long lead items and you should imagine that we're thinking about long term growth.
You know for example, when we did.
If you look at our business about a year ago.
A little over a year ago. After we went public having our magnetics business with something we said to the market was a 2025 plus.
Vision, if you will and but we're working on it and then I think it's fair to say that you fast forward a year ahead and use.
I mean, even where we're really.
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 just extraordinary and it's because we just we continue to grow at just outstanding human capital on that front and obviously you tilt wall is going up in a long term deal with GM and our businesses.
Really taking shape and it's awesome and exciting to see.
That's a long winded way of saying that.
It's sort of hard to discuss two years ago kind of what that was but if you fast forward two years look at where we are today and.
So.
We are looking at all sorts of ways to grow the business in earlier stages mid stages later stages and I think we will 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 just.
But again, we have to we have to take it step by step and do the things when you said it we have to execute.
The coming months on getting stage II going so we'll take this one step at a time.
Thank you.
Sure.
Yeah.
Our next question is with corn blank card from Deutsche Bank.
Your line is open.
Hey, good evening, Thank you for taking the time.
<unk> has been on separate budgets at maybe two the first one on pricing.
Got it.
Our price in China, maybe in <unk> view, but what do you think it will continue over the next six to 12 months and then the second question can you just remind me what makes the <unk>.
For the phase three for let's say Pat thank.
Thank you.
I'm sorry, what was the last part you said the next big.
And then they stay upfront it takes US 18 stage three extension.
The next stage okay.
Well, let me maybe do the first part and then I'll yes.
Yes sure so.
The so on the first part.
Covered some of the.
Pricing of <unk> earlier, but actually one tiny thing that I just realized I didn't cover that I think is actually relevant is is this is a.
Seasonally weak period.
Some of the summer months in an EPR.
No.
For what it's worth this is that but again I would.
Just remind you that.
It is it is a market rate and we've seen all global commodities.
Pull back end.
I would just.
Reiterate my comments about we never whenever I'm asked 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 recover earlier on the inflation reduction after all of the things that.
Or some of the OEM announcements and prepayments were 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 is a realization that we don't have enough of this stuff and it's the easy thing about commodities as you can you can do the math and look at the supply and the demand.
And you can make estimates about growth and then look at what's out there.
And so I.
I think that the supply demand dynamic in our spaces.
Theres really no other commodity I'd, rather be in I mean, it's really.
Awesome, and we're well positioned.
And so.
But as far as kind of the pullback from.
Yes.
Few months ago to now other than sort of the market and obviously, China was shut down for a while.
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, 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 where we're building the facility.
And we're.
Getting all ordering in designing the process flow and getting all of the equipment.
And building the team.
And the first step will be obviously will complete the facility will will get.
The equipment ready for alloy production and as we've said we expect late 2023, we will be selling alloy.
G M and and then from there we will continue.
Continue Q.
To go down into magnets and we our dealers will be.
Making magnets for them in 2025.
So.
That is I think that was the the steps on the question on the steps for stage III did I Miss that or.
<unk>.
If you want on that all up nicely I.
Thank you and I'll, let perfect. Thank you.
Okay. Thank you yes.
Next question is with Lawson Winder from Bank of America.
Allison Your line is open.
Yeah.
Good evening gentlemen, thank you for the update.
Yeah.
I just wanted to ask about the concentrate pricing discounts.
Discount.
You guys get pure concentrate versus spot oxide praises.
Here's 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.
I suspect this reflects that the.
Honeys industry has much longer separation than it is concentrate but I look at your views on what you think is driving that.
And whether you think that could continue downward and then at some point.
We get to.
The situation, we're selling concentrate into China is actually a higher value added selling oxide given the 25% tariff.
Hey, listen it's Ryan I can take that what I'd 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.
We're selling into for separation facilities.
Obviously your tracks quite closely to the <unk> price, but there are some supply and demand.
Nuances and the way those tend to manifest is when NTP or pricing goes up the discount implied tends to go down and vice versa, and so obviously you've seen the trend over the last couple of years and DPR pricing has gone in one direction and so our discount is gone and the other to.
To the extent the flip happens you would see the flip side of that.
In terms of your comment on an oxide versus concentrate.
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 that that will take some 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.
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.
Okay.
And then maybe just to follow up on that.
Are you really able to kind of quantify what your expectation is in terms of.
How much of your product youll be selling outside of China, and 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 few couple of 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 the trends that we've been talking about.
Broadly continue to accelerate.
And youre starting to see not just certainly the supply additions on our commodity but.
Supply additions on the magnetic side in.
In areas outside of China, and so you can expect that obviously, that's going to come with the requisite incremental demand and so.
As Jim mentioned, we continue to try to be very methodical in how we approach.
These deal certainly with our initial Fort worth Magnetics facility being sub 10% of our demand we will in the short term have.
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.
Okay.
Thank you very much.
Our final question shall come from Avi Saxena from Northland.
<unk> Your line is open.
Yeah. So most of the question luminescence influenza.
One thing for you.
Still business other than GM have you seen any theres no disability Lucas from any other party that you could share with us.
So.
So well.
As I.
Im kind of discussed and I'll just I'll just reiterate we yes I mean the.
The amount of customers, who love I'll just use my favorite line, which is we're not demand constrained we're supply constrained.
There's a lot of interest from a lot of parties, it's not just the Oems, It's Oems wind and a number of other use cases.
You should imagine, we're having conversations but we're not going to name specific parties.
And when we.
Have something.
Specific we'll will obviously shared with everyone.
Everyone.
Sure.
Hello.
The GM.
On track So I know you just with the more like Mako Litchfield is selling.
Yes.
135, you'll have some <unk>.
So is there any.
Timeline constraint.
The GM or I mean is there anything that could put a company in terms of timeline constraints.
Yeah.
Well I don't want to discuss any specific terms of any specific deal.
But.
Aye.
Couldn't go into that but I think I think what you're asking is.
Are we or can we how quickly can we get this.
Going I think.
Or is there some what are the risks so I can kind of address it from from both directions. If you will and I would say that.
We are working as quickly as possible frankly for.
Two years from now.
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 is people want their supply chain.
Sword, its strategic economically it's important national security wise and so the ability to have a complete end to end.
Mining in the United States of America, Metallize at 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 they can so we're we're trying to get that done.
As soon as possible as.
As far as.
Issues were.
If something were to take longer or is there some kind of.
Issue with that I mean, I think that people are pretty well aware that there is all sorts of disruption in the world.
There is 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.
There were a number of items that debt.
<unk> 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 where we are in constant contact with any major certainly gmos.
Publicly stated deal, but any major customer that we would ever have we would be in constant contact with them make sure that we're fully transparent about our operation, but we do have the rare earth magnet supply chain as it is important is a deep pass item right. So it's not just industry that wants to help us downstream.
Downstream industry wants to help us get online as soon as possible but.
The department of defense.
It does as well.
So we try to utilize that when appropriate to to get things that debt.
Are having trouble in.
Certainly as we look around I think the world. How some of these issues have really eased up and I think we've we've done a good job again on navigating this stuff in our stage two and we have we have lead time on on stage three and that work is ongoing today and so hopefully we've learned some lessons from the prior process to make this process.
Easier but of course there'll be there are always new challenges.
But we have our knives sharpened and ready and we just keep moving forward to get it done.
Right. 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 management team for any closing remarks.
Yeah.
Well, thank you everyone.
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 lines.