Q2 2023 MP Materials Corp Earnings Call
Joining us today.
Let me give you a brief overview of today's call.
To begin I will discuss the second quarter and more recent highlights.
Ryan will then run through the financials and Kpis, followed by Michael who will review stage to progress I will then provide some closing commentary before Q&A.
So let's begin on slide four and jump right to the middle of the slide under stage two for important and exciting news.
We have officially started production of separated rare Earths at mountain pass Michael and the team have done an incredible job on stage two particularly over the last several months to advanced commissioning.
Let me be very clear.
We still have a lot of work to do to get each circuit to operate reliably and ramp up production volumes, but the chemistry and separations processes are working as expected.
We expect to begin shipping separated and EPR oxide to customers this quarter.
So with the critical caveat that we must still work relentlessly towards our mission.
I want to reiterate that achieving refined rare earth production is a milestone worth celebrating for all of us at MP, our shareholders as well as everyone in America.
Moving back to the left of the slide in the second quarter, we achieved record stage, one production for a quarter, which included a planned maintenance shutdown.
In fact this.
This was our third highest quarterly production volume ever with the only two greater quarters being ones, where we did not have a one week planned shutdown.
This translated into strong financial performance, despite difficult pricing comparisons and Ryan will provide more detail on this in a moment.
Nonetheless, the team stage one execution this quarter was very impressive, especially when we consider all of the activity on our site related to stage two commissioning and those achievements.
Lastly, our stage three downstream magnetics business continues to advance across many functions. We are now installing some of the first metal an alloy making equipment in our Fort worth facility.
Other key equipment is in transit with the goal to begin installation during the remainder of the year.
Fort worth is going to be the epicenter of magnetics in the western World.
Along with the scale of the metal alloy and magnet manufacturing, we are establishing a state of the art R&D piloting and product development area at the facility.
Some of this equipment is already in the process of being installed and we continue to make important hires across the magnetics team.
In fact MP the company overall, just surpassed the 600 employee Mark yes.
Yet as we add depth and expertise across our sites in mountain pass Dallas Fort worth and Las Vegas, We remain maniacally focused on preserving our owner operator culture.
With that let me turn it over to Ryan Brian .
Thanks, Jim turning to slide six as Jim mentioned stage. One production continued at impressive rates as we produced 10863 times of Oreo and concentrate in the quarter modest improvement in uptime ore grade and feed rate combined to drive a 5% increase in production volumes compared to last year.
The improved feed grade and feed rate combined with strong recoveries to produced the second highest plant productivity, which we measure in tons of Oreo per hour of uptime in our history, demonstrating the steady progress in improving efficiency in the flotation process moving to sales volumes to higher production led to 3% growth in <unk>.
Sold volume, reaching 10271 metric tons in the quarter.
This is despite an increasing amount of production being sent through the various stage two circuits as we commission.
As a reminder, we expect about two weeks of production or a bit under 2000 metric tons of Oreo to be absorbed permanently into the downstream circuits at stage two production ramps and through June we have seen about one third of that total consistent.
The last two thirds will likely be consumed and therefore not available for sale over the next two quarters.
Realized pricing in the quarter fell 55% year over year, driven by the decline in the price of <unk>, which represents the lion's share of the value of the oreos and concentrate.
The decline was slightly better than we thought it would be when we last spoke in may as the NDP, our pricing had a modest uptick for part of the quarter.
Since then pricing has again fallen into the low to mid $60 per kilogram and as such right. Now we are likely to see a low teens percentage decline in sequential realized prices in Q3.
And lastly on the far right production cost climbed 11% over last year in part from the growth in our head count as we commission stage, two and prepare it for full operations and to a lesser extent, we continue to see slight year over year growth in materials and supplies cost one area that has been a real positive.
Our combined heat and power plant, where we have been able to reduce outside vendor and third party training costs as our own empty staff has gained critical experience driven plant efficiencies and operated with fewer bugs. We expect these kinds of successes will come over time with other parts of our stage two process and as we attained targeted.
Reliability from the operating equipment.
As a reminder, as we move to the back half of the year and begin preparing to migrate to stage two production. Some of these stage one kpis will sunset as we evolve our reporting to focus on our transition to separated products and railroads metal sales.
Moving to slide seven.
The far left of the slide revenue of $64 million declined by 55% driven by the lower realized pricing, we just discussed as well as a small amount of rare earth fluoride sales in last year's second quarter.
And given the nature of our commodity business, the $79 $5 million drop in revenue drove a similar decline in adjusted EBITDA to $27 million.
Third graphic on the page highlights that tightly managing our cost structure combined with the low cost nature of our scaled facility and world class ore body allowed us to generate a very robust, 42% adjusted EBITDA margin, particularly when considering recent and EPR market pricing.
I would also point out that despite the very weak pricing in the quarter stage, one continue to generate a modest amount of positive normalized free cash flow when removing our growth capex of $53 million in the quarter and that was with a significant cash tax payment in April moving to the far right of the slide are.
Adjusted diluted EPS declined to <unk> in the quarter, primarily driven by the lower adjusted EBITDA, but three quick comments on some below the line items, which had <unk> impact on our adjusted EPS.
With the current interest rate environment, we continue to put our large cash balance to work for US primarily in short term treasury securities generating over $10 million a quarter in interest income recognized on the other income line of our income statement.
Second with us putting over $300 million of assets into service over the last year, we are starting to see our quarterly depreciation expense tick up as we would expect.
As such we would expect a roughly 50% sequential increase in the depreciation depletion and amortization line item in Q3 with some additional growth in Q4 as we also start putting some of our stage three assets into service.
And while we are on the related topic of Capex. We continue to expect about $300 million of spend in 2023, having spent about 130 billion through June .
And lastly on the P&L, whereas total income tax expense in the quarter was down year over year due to the lower pretax income our updated expectations for full year effective tax rate increased slightly which caused an outsized impact on Q2s rate with additional information and research on how we.
Expect to implement the <unk> 45 ex provision we have upped our full year tax rate for GAAP purposes to the mid twenty's to be clear, we have not updated our view on the cash benefit to the company, which we expect to be meaningful but from a GAAP perspective, those benefits to the income statement may be spread.
For a longer period.
<unk> full year tax forecast created a catch up for the first half, which will look to outsized in Q2, given the much lower sequential pretax income looking at the whole first half our effective tax rate was roughly 23%.
Before turning it to Michael I would also remind everyone that when we do begin shipping and DPR oxide. The actual sales cycle is going to be longer depending on where the product is delivered.
For example, much of our initial production of NDP, our oxide will be converted to metal bipolar and southeast Asia before being delivered to our end customers shipping times alone to southeast Asia will likely take three to four weeks not to mentioned that needed inventory buildup overs facility as well as production and delivery times.
As such we expect <unk> revenue will likely be recognized predominantly in Q1 for the shipments that begin starting this quarter.
With that I'll turn it over to Michael Michael.
Thanks, Sean.
Turning to slide eight.
Two was a very productive and busy quarter for the separation.
Concentrate production and product grade increased modestly year over year, despite the semi annual planned shutdown.
This is partially attributable to less unplanned downtime.
It is a solid accomplishment considering the very intense cross training personnel reallocation and resource sharing challenges presented by the states to commissioning.
The results also led to some extent.
Lutz have continued optimization efforts and metallurgy and operational execution.
As a reminder, we expect generally stable stage, one production year over year in the short term, but hope to achieve periodic step changes in output types of certain discreet projects in our pipeline.
Commissioning activity and Brett accelerated throughout the quarter and into Q3.
All stage two circuits are now in active operations.
My previous comments remain valid commission.
Commissioning of the process the demand patience and perseverance.
With very high blood steps forward and frustrating setbacks.
However, overall I am quite encouraged with the progress.
Most importantly, we have so far avoided any major health and safety incident.
So we cannot become complacent.
I'd like to thank our employees throughout the organization for their hard work flexibility and resilience during this stressful time.
In Q2 and more so into Q3, we began bulk and individual separation and begin product finishing.
In Q3, we expect to begin modest shipments of NDP oxide, along with length of the material product and the production of Seg plus.
We're pleased that the process chemistry, and major equipment appear capable of operating in line with the stage two design basis.
We view this as a major success given the complexity of the process.
Our confidence extends across the hydro metallurgy railroad separation and product, finishing circuit, but it is still early days in each piece of equipment and process experiences its own challenges along the path to stability.
We had the enormous advantage of inheriting and DPR separation facility that has produced on spec materials in the past.
And it was recommissioned in a manner that allows us to quickly produce on spec material again.
To avoid for fitting this advantage that shaped many months of the commissioning process. We continue to proceed prudently both upstream and separation circuit.
In regards to the trajectory stage to operational performance.
With a steady one.
On consistent and safe execution and held this manifest in upturn mineral recovery and throughput.
With the prior phase of commissioning and commercial operations behind US we are now working towards achieving incrementally higher up tons and certain circuits, while maintaining modest throughput.
Defying and resolving temporary bottlenecks before ramping throughput to our targeted run rate.
As we do so we are as we fully anticipated seeing.
Inconsistency in the performance of certain areas of the plant more regularly than we expect in stabilized operations.
But we are confident that the chemistry works inconsistency that can come from a wide variety of sources.
<unk>, new and legacy instruments and automation controls programming.
Secondary process equipment and material handling.
As I've said previously we remain focused on the overall mission and will not sacrifice long term success sustainability and profitability of our operation for near term announcements, but the bottom line is that we are overwhelmed by the commitment of our team and very pleased with our stage II progress and with that I'll turn it back over to Jim.
Thanks, Michael.
Before we go to Q&A.
I wanted to provide some updated perspective on our industry and the general supply demand environment, both present and future.
<unk> pricing remained weak throughout the quarter trading and an approximate range in the low to mid <unk> per kilogram.
This was mainly a continuation of the conditions we discussed in May.
We see the electric vehicle and E mobility categories experiencing strong growth, we expect those to continue to grow at least 20% to 30% per year for quite some time.
However, industrial applications wind turbines hard disk drives speakers for Pcs and smartphones and other consumer electronics applications have been weak throughout 2023.
Certainly the economic conditions in China are hitting those categories significantly.
As a reminder, about the split between electric transport and then all of the other industrial and consumer applications and our industry is currently approximately 25% to 75% respectively.
This means that in the near term a 5% hiccup in those traditional spaces can effectively wipe out the accelerating demand in evs.
Of course this is a short term phenomenon because of the compounding effect of growth verticals begins to Trump the influence of legacy industries within a couple of years.
Then of course, the volatile nature here works both ways.
On the supply side, we think 2023 has been impacted by the reopening of the border between <unk> in China.
We understand that there was a fair amount of pent up inventory from Myanmar mining production that entered China over the first six months of the year.
I would encourage anyone interested to Google for stories about toxic rare earth mining in human rights abuses in Myanmar.
The supply, obviously interferes with normal market forces and more importantly, it hurts American national security and humanity.
We expect though that this relative impact of supply is transitory.
So net net as I have said many times before.
Anything can happen in commodities prices in the short term.
That said, we view the recent soft pricing environment is explainable by identifiable market factors on both the demand and the supply side that Fortunately seem to be mostly behind us. Therefore from our vantage point, the long term prospects for our industry and the value of our platform remain extraordinary.
On that note.
We thought we would be doing shareholders and the Quants a disservice. If we did not at least mentioned the words artificial intelligence on today's call. So let's go ahead and move to slide nine.
All of these pictures were created using the <unk> image creator, which is powered by Darling.
We had a little competition internally here at MP to see who can do the best prompted to generate images that outline how exciting mp's opportunity is in this new AI future.
The picture on the left is one railroad mining could look like in the year 2014.
This one is somewhat fantastical, but I think now we have some better ideas for what Michael's next uniform might look like.
The second image is what is supposed to be the Chicago Skyline, a couple of decades from now where evs autonomous vehicles, EV Tau and drones are dominant modes of electric transport our motion.
I think we would all agree that this is a reasonable depiction of what might be a reality in the not so distant future.
This is a world where the demand for rare Earth Magnetics is many multiples of what we see today.
The third slide is where things get interesting.
Here, we have both larger pedal and bipedal robots the more colloquial terms you might've otherwise heard for these are robot dogs and humanoid robots.
At first blush, even as recently as earlier this year before the launch of chat GBP. These objects might've seemed like totally distant fantasies, but we are already seeing companies apply large language models to robots like these.
Check out Youtube, where you can see a number of videos where various companies are showing off robots. Just like these that are able to be directed with spoken language robot to use small motors called actuators in their joints to enable movement and provide balanced strength and dexterity Maggie.
Magnets, primarily rare Earth magnets are what power that motion.
In simple terms think of an EV is essentially a robot on wheels. It has a large battery and in most cases are rare earth magnet and its motor transforming the stored energy in the motion.
Robot has a small battery and then lots of actuators around the structure.
When size weight and performance matter rare Earth magnets win.
For many robotics use cases, a rare earth permanent magnet is likely going to be the only solution for certain actuators.
How this will all play out and over what timeframe is anyone's guess.
For a rough order of magnitude, though today's QUADRA pedal and bipedal robots might use anywhere between two and three kilograms of endy PR.
A robot doing a major strength tasks or one needing balance for some kind of security or military or case is likely going to need even more <unk> per unit than three kilograms.
This compares to about <unk>.
<unk> five to $1 five kilograms in a typical EV.
Roughly 85 million cars are produced per year, and there are about $1 4 billion cars on the road.
Earlier this year Elon musk predicted that AI robots would eventually outnumber humans.
Yes, she turns out to be correct.
It would suggest that the size of the opportunity for MP will be many multiples that of Evs.
Moreover, in EV applications rare Earths have maintained a 90 plus percent share.
Even as there is an understandable conversation around the tradeoffs of significantly better performance with rare.
Versus the cost and our supply chain availability and other risks and.
In robotics, given the space limitations and performance needs.
It is very likely that there will be a significant percentage of use cases.
Our substitution is just not feasible at any price.
I would also add that it is also less likely that the Chinese are going to want to provide magnets to American companies and in an area with such direct military applications.
So to conclude.
Excitement is playing out right now in the public markets via the chip companies Mega cap Tac and a handful of other companies.
But profound change from AI over time is likely going to come from the next layer of innovation on top of the infrastructure layer.
Robotics is going to be an important disruptive vertical where we believe AI is pulling forward into the next few years where might have taken decades.
I do not know when but at some point investors are going to start to price that into platforms like ours too.
With that let's open it up to questions operator.
Okay.
Absolutely not.
We begin the Q&A session, if you'd like to ask a question. Please press star followed by one or you touched on can you Pat.
For any reason you would like to turn loose that question. Please press star followed by Tim again to ask a question press Star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
We'll pause briefly to allow questions to generate in Q.
The first question comes from the line of Matt Summerville with D. A Davidson. Please proceed.
Thanks, Good evening.
Two questions.
I think I heard Jim.
Comment you made around Myanmar can you talk about whether you think that supply spigot. If you will in bound into China has normalized at this point or do you still feel like there's still some excess inventory to be <unk>.
Brought over the border so to speak so I guess that's literal.
Sure Hey, Matt.
Thanks for the question so.
Tough to really know.
What I would say is what we.
That border was shut off for the most part and there was a lot of inventory that built.
And.
From.
Everything that we've heard about.
Sort of a huge rush of supply.
That team.
Came through kind of throughout this year. So we think it's sort of a one time impact of excess supply.
And are we believe there has been a recent crackdown on that and so I guess, that's a long winded way of saying.
Our belief is that that's pretty transitory, but as an impact obviously that supply exists in some form but.
That's what we see from this standpoint.
Got it and then just as a follow up I was wondering if you could comment on now that you've produced on spec material what kind of first pass yield you are seeing out of the separation and finishing the operations and how that compares to where you thought those those first pass yield okay.
Okay.
Thanks for the question this is Michael.
I guess, there's so many parts of the process. It's hard to give you a single answer and we don't expect our.
Initial production yields.
Two.
From concentrated to finished product too.
To be at our desired long term.
Yields we expect there'll be a significant improvement.
But I guess, what I'd say is that we started up our separation process with equipment that had produced on spec material in the past.
It was restarted in a manner to quickly produce on spec and we're quite pleased with.
The separation circuits are working.
And similarly optimistic about how the finishing processes.
Probably leave it at that unless you follow up.
Well, we can leave it there thanks Michael.
Thanks, Matt.
Thank you.
The next question comes from the line of Carlos de Alba with Morgan Stanley . Please proceed.
Yes. Thank you good afternoon, everyone.
Nicole.
I just wanted to follow up on the discussion on the site.
Stage two.
And so is it fair to say then based on the comment that you had earlier.
That all critical steps all critical processes.
Had been running and running and is now just a matter of fine tuning and making sure that you can run all the secrets all those processes in a consistent manner and then just improving.
I guess, all the time and metrics like that but.
Critical steps are already all running and you feel comfortable with that.
I think thats, a pretty fair statement, certainly the product, finishing as his last in line.
You can't put.
The proxy materials into parts of those.
Circuits to run them. So they've had less time I would say it's slightly less.
Yes.
There's a little bit more.
Work to do before we can we can.
Yes, just to say that all of the all of the bugs are worked out or.
100% confident but I would say that's not chemistry, there, that's just kind of physical material.
Processing.
But otherwise I think your statement is correct.
The general processes are working we feel comfortable that what we've designed is able to perform too.
The design basis of our circuits and that with time, we will get through greater throughput and reliability.
And pro.
Performance field.
Alright, that's quite encouraging and then would you how do you feel that you are.
Measuring against against the timetable that you had.
Plan or defined four four.
<unk> are you.
On time, and you figure out a little bit ahead are you a little bit behind.
Behind the schedule, how would you characterize that.
No I think we've said all along that the process will be non linear so it's sort of hard to.
To kind of benchmark against unexpected we knew there'd be a lot of them.
Unexpected.
Unexpected challenges and we continue to see.
Okay.
Does that play out certainly.
There are many challenges as we anticipated and then challenges in places.
We thought it would be a little bit easier.
Overall, we're really proud of the team and how they are working through those challenges.
So comfortable that.
So.
The targets, we set out our remain our targets.
Alright fair enough and maybe last question.
Ryan.
What could you comment on the cash flow generation in the quarter.
Think I calculate.
We calculate this something around $10 million.
In <unk> that was below expectations, both consensus and our own. Despite the fact that you guys beat.
On EBITDA right, but also the consensus on our number so some color there would be great.
Sure Hey, Carlos.
I think probably the missing piece on consensus versus what we actually achieved was likely a fairly significant mid $20 million cash tax payment.
Relating to prior year taxes until obviously as you know after a mismatch between P&L.
P&L timing and cash flow timing on that cash tax payment.
So that is the vast majority of the Delta obviously a few.
Normalized for that we would have probably significantly beat consensus on those numbers.
Alright, thanks, Thank you.
Thank you.
Okay.
The next question comes from the line of George <unk>.
Piano, Chris Lyon Canaccord <unk>. Please proceed.
Hey, good afternoon, everyone and thanks for taking my question.
<unk>.
I, just like maybe a little bit of an update as you now start to ramp.
And the PR production as to what you think your production costs per kilogram will be going forward.
Sure Hey, George.
We'll stick with George G.
Well I can take that it's Ryan I think what I'd say on production cost is obviously its early I think we've been very clear that.
The early production is going to come at a different cost structure than the run rate production of course as you would expect.
We are we are obviously very proud of our position on the cost curve, that's well demonstrated in our stage one business.
We continue to have significant confidence in maintaining that lead in that position on the cost curve as we transition to stage two separated product production.
We gave a little color to investors and analysts when we originally went public on.
Where we think roughly cost per kilogram would be for any PR.
A lot of things that since then have changed namely commodity reagents, but theres also a lot that is.
They stayed the same and so.
This is something that I think other than major commodities and inflation.
As Michael laid out with the chemistry working the way that we expect that as the fundamental driver.
Of.
The the economic framework that we laid out to all of you and so we don't expect that to change which is super encouraging.
Yes.
Great. Thank you and maybe as a follow up.
Last quarter, Jim you made a statement that you would think that at $60 a kilogram.
China, Inc is likely unprofitable or is that still your view and do you suspect that in and around this price range, we should see some stabilization.
Hey, George Thanks.
Asset prices prices in May were roughly around where they are today. So that statement is still true I mean, we.
It's always very difficult to read the tea leaves in China and.
If you recall and I said something like this last quarter, but.
It's difficult because there is always the ability to sort of shift to various things across various entities.
As they do in the supply chain or in the stream if you will.
So but from everything that we see.
That remains the case and so it is encouraging and you know as I said in the prepared remarks.
We think that those.
These items are behind.
Somewhat behind us and so pricing feels more stable here and I would argue that for all the reasons Ive stated that.
That downside volatility that we saw there as always.
Not if but when likelihood that theres that upside volatility the other way right it gets reflexive but.
We shall see.
Thanks.
Thanks. Thanks next question.
The next question comes from the line of David <unk> with PD Cowen. Please proceed.
Thanks for the time guys, Jim I'm tempted to ask you about the timeline for getting depth pump to work at mountain pass.
I guess I'll hold off on that one.
<unk>.
But the.
I am curious.
As you as you think about.
I thought the idea was in the second quarter.
You all would be withholding some inventory or perhaps a greater amount of inventory to be used in the stage two testing.
I, just wanted to confirm whether that happens or not and.
You know, if we should still be anticipating that.
That you're effectively still selling a significant amount of concentrate in the back half of this year.
Hey, David It's Ryan I can take that.
What what I've laid out in the prepared remarks was.
Absolutely a reiteration of that expectation.
Pretty significant amount of inventory that gets consumed in discount.
Extreme circuits as we commission.
About roughly two weeks worth or let's call. It just shy of 2000 tons of Oreo.
We as of June 30th had consumed about a third of that and so it's safe to say that the remainder of that will get consumed as we ramp.
And hopefully as quickly as possible.
And so I would absolutely.
Expect as you model out Q3, and even Q4 to think about not just the impact of.
The rest of that inventory getting consumed as effectively landfill into.
The downstream circuits, but in addition, I talked a little bit in the remarks about the sales cycle as we transition to separate products.
So with that I, just want to reiterate obviously the timing there.
As we start to consume that Oreo and concentrate each of the downstream circuits converted into separated product and then either satellite on or.
Bring it to <unk> to beat to turn into metal and sell to our ultimate customers. There is also the timing impact.
Of that longer sales cycle, and certainly as you would expect as we ramp our separated product production.
And as we sort of continue to fill that channel, particularly the metal production channel. This will get lap it will be a onetime impact but it is important to think about over the next few quarters. The impact that that will have on the financial model.
Ryan that's a nice segue into my follow up which is just for my own edification. The sales cycle is expected to be six months for getting the NV PR metal because I guess when you sell concentrate.
Shanghai is taking delivery of that cargo at the port.
You can recognize revenue as soon as that we export versus when they are using a tolling arrangement you don't recognize revenue until the product that's still I guess technically your resource until it ends up in the hands of the customer.
Sure. It's a good question I'd say.
<unk> is probably not the right answer there.
Certainly it's significantly longer than.
Then our current sales cycle for concentrate.
To clarify the prepared remarks that I think you are keying in on what we had talked about is.
Separated and EPR production any PR oxide production and shipments that are happening later in this quarter. So later in Q3 likely much of that revenue could be Q1 revenue. So end of Q3 beginning of Q1 is not is not quite six months.
Shorter than that for sure however longer than exactly what you laid out.
That our sales cycle is right now that we deliver our product to the port at long Beach and title transfers there that's when our revenue recognition happens for concentrate today.
Flat, though that not all separated products will be <unk>.
Subject to the longer sales cycle part of our products will remain our products as they get told into metal and then the revenue recognition is.
Likely at the Port in Southeast Asia, when its delivered to customers to be distributed to broader Asia, India, Japan, primarily.
There will be instances, where we sell oxide at the port of long beach as well and so there really will be a mix what I mentioned and I think is important to keep in mind just for the next quarter or two is that our early <unk> shipments likely will be told into metal and so these early shipments sorted.
To help you guys think about your models will likely be subject to that longer sales cycle.
But as we carry forward and sort of start to make more product and broaden the customer base and things like that there will be a mix.
Yeah, Thanks for the clarification Ron.
Sure. Thanks.
Next question.
The next question comes from the line of Lawson Winder with Bank of America. Please proceed.
Yeah.
Thank you operator, and good evening, gentlemen, nice quarter and great update.
Okay. So I wanted to try and put a bit of a finer point on the ramp up should we still be modeling a run rate of 6000 tons of and EPR in.
For full year 2024.
I'm I'm happy to start its Ryan and then Michael if you have anything else to talk about on the commissioning side feel free to jump in but.
What I would say is frankly, a reiteration of Michael's commentary that based on what we've seen run rate production.
At the end of the year remains our goal it's not linear it's it's difficult to perfectly forecast by that.
And that very much remains our goal.
There are certain areas that im sure Mike will get better expand on that that will continue to tweak to improve throughput and all of that versus what we're seeing now.
As you think about 'twenty, four though I'd say, it's kind of early to predict exactly what our output and importantly sales volumes will be.
For 2024 at this point.
We've got a lot of work to do as I mentioned in the coming months to finish commissioning and to ramp production.
And so I'd say stay tuned we'll continue to update you on the progress and well we'll update you.
On calls going forward, but as we always do we will formulate our 2024 on our next year production and sales plan based on customer demand and on market conditions. Once we get closer to that time period.
You actually touched on a really interesting point, there and that is formulating your sales based on marketing and market condition. So I mean, one of your competitors made some comments along those lines recently is that is that how you kind of think about the market I mean, if the market is not willing to take the material does mpg's hold it back.
<unk>.
Yeah.
It's a it's a great question.
I think the great thing about what we've built here is a platform where we have product flexibility bright we have the ability to produce stage one product stage two products, we're making great progress on stage three.
We have that as a lever to pull as well and so we always as a management team are focused on.
Maximizing shareholder value and so if that means changing.
Changing our product mix for a period of time so be it.
But to be clear, we have not seen any pushback or any lack of demand we have lots of conversations and lots of demand in the.
The goal now is to thoughtfully build out our sales channel and think about before downstream of our business.
Okay, Yes, that's great color and then maybe just finally I wanted to kind of understand the heavy rare earth.
Separation circuit is that going to ramp up right on the back of this but should we be modeling some costs for that in 2024 is this something thats going to happen a little later on like maybe 25 or 20, <unk> and if it is happening next year, how should we kind of think about that in terms of like impact on the.
<unk>.
Yes.
Yes, we'll know by the way I'm glad you raised that since you mentioned one.
One of our peers I'm guessing youre wondering about heavies and Theres, probably just for understanding the overall project, maybe just a little important background for those who don't know but.
Early in 'twenty two.
Both us and Linus were given awards by the Department of Defense actually our award was announced by the President himself.
To us so that was exciting we've talked about that.
And then there was an announcement of.
Something with our peer a couple of days ago, but what I would tell you on that is I think it's.
Pretty clear that.
Understand the importance of a level playing field and good competition.
Across across the spectrum here.
We are.
Fiduciary and you can imagine that.
Given how much has changed since early last year.
In the World that we would certainly expect to proceed.
With projects that we believe are economically attractive and that we believe are.
<unk>.
A competitor we believe we have a good competitive position. So I think what I'm trying to get at and being sort of direct as I can is that you should expect if you. If you kind of heard everything I just said that.
We are.
In discussions and we believe that we will have.
Equal support or similar support for our mission with respect to heavy so I think that Thats, a very positive thing.
We recently saw in so.
I think I would leave it at that as far as the as far as the heavy project is related just to say that again, you can probably deduce.
From what I'm, saying that I think that we.
We will continue to.
Some some good things on that front and then lastly, I think you asked about timing.
These project is.
To be online for the magnetics business and that.
That timing remains on track.
Thanks, so much guys great quarter.
Sure. Thanks.
Thank you.
The next question comes from the line of Laurence Alexander with Jefferies. Please proceed.
Good afternoon, I guess first of all could you just give a quick update on your thoughts around capex for this year and next year.
Just given kind of the milestone <unk> hits and kind of the inflationary pressures, we're hearing about from other companies.
Yes, sure Hey, Laurent it's Ryan.
We mentioned earlier on in the call that our original Capex guidance for the year of $300 million remains intact.
And we tend not to give.
Capex guidance further out than that but what we had laid out obviously a couple of years ago in laying out sort of the broader capital plan across stage, two and stage three was that $700 million investment.
And that also remains on track certainly as you know the stage to spend is essentially behind us.
Except for some small items from a timing perspective.
And so if there are other projects that we're continually investing in our mountain pass. In addition of course to our our stage three business and so we've done about $130 million year to date in Capex.
We continue to see that 300 is that.
Fair number to model for the rest of the year.
And then just to clarify two points you made in the earlier in the Q&A.
With respect to the kind of 6000 production run rates given the lag you were talking about in terms of it flowing through the P&L.
What are you trying to get at the comparable run rate from 2024 would be 75% 80% of that.
And then I guess the other issue is with respect to the prices. The asps on stage two that you will flow through the P&L.
Can we assume that you are using that youll be at a realized mark to prices or will there be some level of discount either through partnership arrangements or because you're kind of building relationships with customers, who you expect to translate into magnet customers can you just give a sense for.
How.
How closely we should hold you to.
Whatever kind of public market index as we used for stage two.
Sure, Yes, I can take both of those.
As it relates to the timing and the sales cycle.
I don't think we were trying to make any specific comment as to 2024 I think that.
Yes, we were actually trying to avoid that since we don't give guidance, but what I would say on that is.
If you have an assumption.
Our goal has remained to get to run rate production.
By the end of 2023.
Also we're trying to consistently flag of course that.
The overlap from a timing perspective of production and sales that we experienced now is not the same.
Correlation in production and sales that will experience once we're producing separating products and so I.
I think you are on the right track, but certainly if you were modeling 100%.
Run rate starting 12 31, you would not have 6000 tons of NPR solid necessarily recognized as revenue in 2024, I think that's a fair a fair statement.
Remind me your second second 0.2nd question, just how closely is still here pricing today.
Today at this time.
Yes.
On.
Twice a week, we will have a variety of different contract structures that are that are based on the indices that we all look at.
I think the thing that will be interesting there as well is.
A difference potentially in in.
Timing.
And then a variety of different contract structures.
As it relates to realized price versus market price. So.
I think as we get closer to <unk>.
Significant sales volume will continue to keep you updated there, but theres not going to be an easy pinpoint.
For me to be able to give you at this point to say, Hey, you know take market and not or subtract, but we'll do our best to keep you updated from a modeling perspective as we get closer.
And just I guess with respect to the kind of one other question earlier just to help us understand the game theory, if you were to decide that.
If you were to produce.
Yes.
But then keep it off the market, what's the shelf life of the product.
How long could you hold it off the market and still monetize it at the same economics.
Mike just to be clear, we don't have any expectation of keeping product off the market at this time.
So I don't know is that.
This is Mike.
Okay.
Yes.
Okay.
Yes, I guess.
Yeah.
Theoretical terms I don't believe there should be a shelf life of oxide.
The metal alloy may have considerations of.
Of note oxidizing.
Okay. Thanks.
Okay.
Thank you.
The next question comes from Atlanta, Avi Sinha with low client capital. Please proceed.
Yeah. Thanks for taking my question.
Just quickly on the.
You have a production facility in Texas. So could you confirm if your maintenance of the <unk> cohort and the 48 C and to get diabetes that we can talk about.
We had a little trouble hearing you, but I think the question was.
It was about 40 AC is that right.
Right.
Certainly the investment is covered under the <unk>.
Right.
On that point.
Since we spoke about this last.
Have been some further updates and clarifications regarding 48 C and how it relates to our stage three business at our in our DFW facility.
I think the important update there was.
From Treasury.
<unk>.
Magnetics was specifically called out as a priority.
That said, it's definitely too early to know if we will directly benefit from this program at this specific facility.
And as you can expect for competitive reasons, we're not going to discuss specific support we may or may not be seeking from the federal government in a competitive process.
You could certainly expect that we're always monitoring.
These sorts of opportunities and will avail ourselves of any opportunities that arise.
Thank you Alright, I think we can do one more Rick.
Thank you absolutely.
The final question comes from Carlos de Alba with Morgan Stanley .
Please proceed.
Yeah. Thank you very much I'll keep it brief I just wanted to see if you have any color on the startup cost.
No.
Those are not normalized out of EBITDA, but just some.
How do you see the progression they came down quarter on quarter is this a trend that we should expect to continue or not really.
Carlos I'm Bummed I thought you were coming back onto congratulated us on our big milestone this quarter.
Yeah.
It goes without saying.
That goes without saying.
Thank you goodbye.
It's a fair question I'd say.
The reason you probably saw it come down a little bit sequentially.
Is that we started.
To enter into more normalized operations.
Various circuits as we bring them on mining process order. So as we've talked about consistently we've been bringing.
Each step of the process online testing it getting it up to sort of what we would consider commercial operations and so since we had.
<unk> been running some of the most upstream parts of the circuits.
For a relatively significant period of time since we guided to Jude.
Part of those costs kind of fell out of the startup category I think that that phenomenon will continue but.
We've rapidly added significantly more circuits.
Into ongoing operation.
Recently and so.
By their very nature sort of startup and nonrecurring costs are very difficult to model and predict but I would say a fair way to estimate is I think our Q2 numbers are probably are to think about for.
Q3, and Q4, and then obviously what would tail off very meaningfully.
Alright, great. Thank you very much.
Thanks, Carlos Thank you.
There are no additional questions at this time I will now hand, it back to Jim and Steve. Please proceed.
Yeah. Thanks, I just wanted to say this was.
An exciting milestone for us and so we're.
I'm really proud of the team for for the.
The hard work and.
We will get back to work over here and we look forward to talking to you all next quarter. Thanks, everyone.
Yeah.
That concludes today's conference call. Thank you you may now disconnect your line.
That concludes today's.