Q3 2023 MP Materials Corp Earnings Call

Speaker 1: one continues to come along.

Speaker 1: We must remember that achieving great results in the upstream stage of the business is critical. As that is a key driver for the cost structure of the operation.

I wanted to know that we did not sell all the concentrate we produced this quarter as significant amounts were sent along into our stage two midstream circuits for refining

We have now completed the line fill of concentrate needed to charge all our downstream production circuits.

The takeaway here is that we are now at the stage where feeding product into the front end of stage two means that the finish product is going out the back end.

Ryan will go into more detail on this later.

More importantly, I have some exciting news to share.

Many of you have heard me say that the nearest term highest return on capital and lowest-risk source of incremental American rare earth supply would be brownfield improvement and capacity increases at mountain pass.

Well.....

Our Stage 1 Maximization and Expansion efforts are yielding fruit.

Today...

We are announcing upstream 60K, which is our strategy to drive towards the goal of a 50% increase in Oreo produced within four years with modest incremental capital investment.

This suggests that we have the potential for enormous enterprise value creation over the next few years.

Michael will provide more details.

Lastly, on the downstream business, we have officially moved into the office portion of the magnetic factor in Fort Worth.

This is remarkable as we only broke ground 18 months ago.

Our first major piece of process equipment has been installed in the factory, and we expect a lot more progress in the coming months and throughout 2024.

Despite the treacherous macro environment,

We believe the commercial landscape provides opportunity to grow our magnetic spinners.

We are making substantial progress toward a high return on capital expansion of this facility. We are making substantial progress toward a high return on capital expansion of this facility.

But we expect only to do so if it can be done in a wrist-managed way.

We are always thinking like owners and we'll update you on that accordingly.

With that, let me turn it over to Ryan to run through our KPIs and financials.

right

Thanks Jim, let's start the discussion on slide six. This slide has a bit of a new look from prior quarters as we've added NDPR production volumes to the far right.

As we've talked about in the past, our operating metrics will evolve as we shift from concentrate production in sales to NDPR oxide and metal production in sales.

So, over time, you will see certain uptrim-related metrics fall away with updated metrics that represent our transition into separated products.

I would also point out that you will see slightly different revenue headings on our P&L, which will also likely evolve over the coming quarters.

What remains clear is the strong production volumes for Q3 on the far left of the slide at 10,766 metric tons is very consistent with both Q2 and last year's Q3 production.

Sales volumes dropped about 1,499 metric tons compared to Q3 2022 and 1,094 metric tonsOf places protected includes 1. Spr bombing and no

These declines were primarily due to the work-in-process line fills that Jim just mentioned and that we spoke about on prior calls.

As a reminder, operating equipment at each stage to process circuit, as well as intermediate product storage, needed to be filled with upstream product.

We have now absorbed all of that concentrate into these circuits and transitioned to converting some of that uptrim volume into separated products, with 50 metric tons of NDPR outside produced in the quarter.

As we've also previewed, our transition to separated products comes with a change in the duration of our sales cycle, with a slightly longer time to revenue for separated products than with our concentrate product.

Early NDPR production is primarily being used to build inventory at our tooling partners to begin production of NDPR metal, which is further extending the time to revenue on the products produced this quarter.

So this one time transition is reducing our upstream sales and earnings without yet seeing the benefit of the mid-stream revenue and earnings. But we will quickly lap this impact as we move into 2024.

On realized pricing highlighted in the middle of the page, you can see what the impact of lower NDPR market pricing had on a realized price of RIO in concentrate, down just over 50% year over year. Supplyntally pricing declined about 8%, to $5,718 per metric ton, a bit better than expectations as pricing stabilized and recovered late in the quarter.

Lastly on this slide, our production cost per metric ton, excluding stage 2 related costs, was essentially flat sequentially at about $1600.

Including stage 2 related costs, the cost for metric time was a little over $2,000.

As you'd expect, we brought on a tremendous amount of incremental maintenance headcount that mostly flows through the P&L and makes up a large portion of the $400 per metric ton that is staged here related.

With these changes to our operations and with the launch of scale separated product production, we will evolve our reporting of cost metrics going forward.

Moving to slide seven, on the far left, you can see the combined impact on revenues from the lower realized pricing and our lower sales volumes.

In this instance, lower sales volumes of concentrate is counterintuitively a bit positive for us, as it means more internal consumption for NDPR production and eventually sales.

As you can see, with most of the revenue decline driven by lower pricing, we see this flow through to our EBITDA in the quarter.

Despite weak pricing and additional stage 2 costs without corresponding sales, we reported a still solid EBITDA margin of 30% in the quarter.

And moving to the far right, most of the change and adjusted EBITDA flow through to our adjusted net income and therefore our adjusted deluded ETS.

Positively impacting the comparison was the significant interest income of roughly $14 million we are earning on our large-cathed balance.

I would also point out that despite the challenging pricing environment, as Jim said, stage one continues to generate a modest amount of free cash flow as our cash from operations in the quarter was roughly 11 billion, which includes significant investments in stage two related costs and working capital, while our non-growth cap-ets was only $4 million.

I'll talk more about campaign shortly, but to finish the thought on our P&L, we did see about $6 million of higher start-up costs compared to last year's third quarter, understandably driven by the final push of commissioning of stage two, ahead of production of separated products within the quarter.

Now that the majority of these assets are achieving commercial production, this line item should start to decline, beginning in Q4 as it relates to mountain pass. But there will still be some costs related to the start of a work-work facility, expected in that line item, until commercial production's there.

In addition, depreciation, depletion, and amortization increased to just under $17 billion in the quarter and lying with our comments from our last earnings call.

The year-over-year increase of nearly $15 million was driven by over $350 million of assets put into service over the last 12 months, most of which were related to Stage 2 and other investments in Mountain Pass.

We do expect this will continue to climb as we put more assets into service in the common quarters, including portions of the Texas Magnetic Facility.

Lastly, on the P&L, relative to last quarter, our full year expected gap tax rate is up a couple of percentage points, but you will see reflected as a slight increase in our year-to-date tax rate.

This is partially driven by ongoing updates to our calculations of the 45X production tax credit and its impact to 2023, as well as our ongoing prioritization of minimizing cash taxes in the near and medium term versus optimizing the gap rate.

Similar to last quarter, small updates in the full year rate had an outsized impact on the current quarters book tax rate, given the small pre-task net loss.

Turning to the balance sheet, our cash balance remains very robust at nearly $1.1 billion of gross cash and just under $400 million on a net basis.

Total catapex in the quarter was about $59 million, while growth catapex was $55 million.

And.

We now expect to spend up to 270 million in total CAPEX this year. Down from the 300 million, we were expecting a quarter ago.

Growth capital of approximately $250 million, primarily consists of stage three heavy rare earth separations, as well as other investments in mountain paths.

The reduction in our forecast is primarily due to the timing of payments, as well as a strong focus on capital efficiency.

With Stage 2 capital spending behind us, our expectations for the overall budget on our other major projects, heavy separations and Stage 3, remain generally intact with our prior views.

In addition to upstream 60-TED, the Stage 1 expansion goal Jim mentioned. We continue to evaluate other exciting but smaller investment to mountain pass. And additionally, are evaluating a high return on capital expansion of capacity at our Texas Stage 3 facility.

We expect to provide further details on our 2024 capital plans on our Q4 call. But as always, we remain extremely focused on cash on cash returns and maintaining our fortress balance sheet.

Taking a quick look at Q4 for you. Upstream and midstream production volumes will be affected by our typical one week plant turnaround.

We may sound like a broken record when we talk about how this was our most thorough shutdown to date, but this is especially true this time around, with work performed on all of our stage 1 and stage 2 circuits, and all supporting infrastructure.

Note that we expect concentrate sales volumes with the client a fair amount quarter of a quarter as we ramp our NDPR production and consume a greater portion of upstream production internally.

But as we stated last quarter, much of our initial output of NEPR outside is going to Southeast Asia to build inventory at our metal tolling partners. And therefore, we don't expect material sales volumes from our NEPR production to begin until Q1.

Concentrate realized pricing will likely be flat to slightly up sequentially, assuming recent NDPR pricing stability holds in the coming weeks.

Importantly, as I stated in my opening, as we get through this transition period of shifting from concentrate cells to NDPR oxide and metal cells.

And with line of sight to hitting our full production targets, we would expect to see results start to improve off of a likely trough from our transition impact in Q4 as we move through 2024.

Needless to say, we expect the success of Michael's team will begin to become more evident in the financials as we enter 2024.

With that, I'll turn it over to Michael to give you a more detailed update on those successes.

Thanks Ryan. Turning to slide eight, you could see some of our October production waiting to be shipped off site.

It was a solid operational quarter for our upstream business.

Concentrate production was down just slightly year over year, primarily due to higher unplanned downtime, but both periods were generally within normal ranges.

In the quarter, we produced concentrate at a record grade, which gave us an opportunity to experiment with operating at a slightly higher end of the grade versus recovery curve.

We also advanced two exciting flotation circuit upgrade projects that we believe will, over time, drive further improvements in concentrate production.

First, we started up a long-awaited FROF camera and automated float control system that incorporates both manual parameters and AI to make adjustments to the flotation circuit.

Like an experienced set of human eyes, we now have a camera mounted atop each flotation cell.

The cameras are collecting data on flotation speed, bubble size and color, and probably other things we haven't even thought of.

As we learn, the system learns, and our team learns how to learn from it.

For now, we are still in trial operations, but we expect this trove of data and computer learning to help gradually improve flotation circuit consistency and performance.

Second, we began construction on a significant enhancement to our grinding circuit. We believe this will unburden our current grinding mill while ensuring more ore is ground to the optimal particle size and basmatite liberation.

Given the enormous disparity we observe in the mineral recovery of different sized particles, we are optimistic that this will produce a notable recovery uplift after it comes online next year.

The Stage 2 midstream operations continued to grind out progress day after day.

Operations are by no means as smooth and predictable as we would like, but by now we have worked through the vast majority of the initial mechanical issues and instrumentation challenges that were most disruptive in previous periods.

To be sure, quite a few areas for improvement remain.

The performance of our separation circuits has largely exceeded our conservative expectations and should continue to improve as our technical and operational teams gain experience.

The addition of redundant QC vessels and isolation capability in our NDPR production circuits as part of the Stage 2 optimization project has increased our resilience to minor process variability and ensured greater first pass on spec capability.

In 3Q, product finishing of NDPR suffered from several premature failures caused by poor construction workmanship.

These held back 3Q production and bottlenecked the circuits upstream, including separations.

This has been restored in October and we are confident that we are over the hump of most of these types of issues.

As we look to 4Q and beyond, we are increasingly confident in our ability to reach our production targets.

With enough operational time now under our belt in most plant areas.

We are encountering fewer entirely unexpected problems and now spend most of our time addressing our known pain points.

In the next few quarters, we will continue to focus first on increasing process stability.

Next, on ensuring longer uninterrupted runtimes, and then on increasing planned throughput rates

We believe this approach satisfies our business needs and commercial commitments while we finalize product qualification and testing with our customers, and complete the same for Told Metal.

I expect several more quarters of hard work and ups and downs before we hit our stride.

but we have a more clear line of sight to our production goals and feel optimistic about our progress.

Once again, I'd like to thank our teams for their hard work.

We completed another quarter without a lost time injury and are working unwaveringly through commissioning.

I'm really proud of our team's achievements and I'm confident that we have the technical and operational talent in place to reach our goal.

Before I turn it over, I want to provide a bit more detail on our upstream 60k expansion strategy.

Although we've been heavily focused on Stage 2 for the past three years, we've never lost sight of the high return opportunity in our upstream business.

Over the past several calls, I have described a strategy of building upon our stable Stage 1 operations by targeting modest growth from operational improvements and certain low-cost projects while pursuing more step change growth from larger investments.

Our efforts toward step change growth have been picking up steam over the past 6 to 12 months.

Over the past year, our growing team of metallurgists and technicians has been working in conjunction with our geologists, plant operators, and process engineers to expand our understanding of our ore body and flotation performance.

They have engaged in extensive R&D and piloting efforts to develop hybrid turn process improvements to our existing concentrator facility, while also evaluating more ambitious growth opportunities.

I highlighted two of these incremental projects earlier, and I believe there are many more behind those.

The teams have been working diligently to develop a plan to better utilize the entire Mountain Pass resource.

Our sight is blessed with a truly world-class ore body.

The richness and ease of processing is perhaps second to none.

Because of this, the sulfide clean deposit has been somewhat taken for granted over the past 70 years of mining.

As an example, we have calculated a 2.5% cutoff grade for our resource, while many development projects with much more complicated mineralogy, flowsheets, and geographies published reports with cutoff grades below 1%.

In fact, for much of Mountain Pass's recent history, the cutoff grade was 5%.

which gives a sense of what might have been ignored as uneconomic in the past.

Over the past 18 months, we have piloted small and commercial scale equipment with marginal feedstocks from Mountain Pass and also on slipstreams pulled from our flotation plants.

While it is early days, we really like what we see.

At this point, we have enough real-world pilot data to take the next steps of project development.

Adding it up, we are confident that between reagent optimization, operational improvement,

small capital projects in our concentrator, and the investment in additional beneficiation capability targeted at underutilized resources. In four years, we can increase our overall REO produced in concentrate by approximately 50%.

With that, I will turn it back to Jim.

Thanks, Michael. Let's wrap up on slide 9 with this gorgeous picture at Mountain Pass.

Please take a moment to enjoy this pretty view of revenue on a mountain landscape.

As we look around the world though, the picture is not so pretty at all.

I think it is fair to say that most of us are seeing things

we never expected to see.

The sad truth is that nothing can be taken for granted at such a perilous time.

With major conflicts in Europe and in the Middle East, it is possible that a third theater or region of war erupts, or just that things continue to devolve materially from here.

We certainly hope it does not.

an MP

We believe.

that despite her faults, America has been the greatest force for good in the history of the world. We pray that that continues.

in our industry.

It has been a very difficult year and that started before the events of October .

There are concerns about the pace of electrification and EV adoption.

Interest rates moved higher.

Chinese industry and the global industrial economy remain challenged.

Specifically, commodities prices and the company's leverage of the materials for electrification are out of favor right now.

But despite near-term turbulence in the market, the long-term secular cycle we believe is largely intact and bodes well for the price of our products and the value of our company.

which makes our share price at current levels something we are very surprised to see.

And as Michael and I discussed earlier,

We've been laying the groundwork for further long-term and high return on capital enterprise value creation at MP.

in essence.

It is likely that no rare earth project in the Western world would make sense again if you do not think our set of assets demonstrates incredible and asymmetric value from here.

In the meantime, recent global events remind us that what we have achieved at MPE is important for America.

We are proud of that.

With that, I will open it up for questions.

Operator?

We will now begin the Q&A session. You would like to ask a question, please dial star followed by one on your touch tone keypad. If for any reason you would like to remove that question, please press star followed by two.

Again, to ask a question, press star 1.

As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question.

We will pause here briefly to allow questions to generate in queue.

The first question is from the line of Matt Somerville with DA Davidson. You may proceed. You may proceed.

Thanks guys. 1st, I obviously want to talk about the big announcement you're making regarding stage 1 and I guess I want to understand as you look out over the next 4 years. Is this a linear ramp from 40,000 tons to 60,000 tons? Do you think about on a commensurate basis adding more realizing stage 2 still ramping, but adding more stage 2 capability alongside that? Or maybe that capability is already inherent with the asset base you have on the ground. Maybe if you can just talk through that to start, that would be helpful.

Sure. Hey, Matt, it's Ryan. I'll start. And Michael, if there's anything I missed, please jump in. But.

As it relates to upstream 60K, we don't expect this to be a linear progression to 60,000 times upstream. We laid out our over four-year timeframe.

Given that we think there will be incremental upgrades to our current production and our current milling flotation circuit that will come to pass in the much shorter term.

But there will also be the opportunity for step change that will come a little bit later in that period.

I think one of the things that's pretty exciting about this is that some of this step change growth may actually come from.

you know, let's call it alternative sources, if you will, the material that we classify right now as waste.

sub our cutoff grade we actually have had really exciting results.

from that.

tailings, some of these other opportunities where we expect this to be incredibly value-accretive, not just because we're growing our upstream production by 50%, but also because of the sources.

of that REO. So we're incredibly excited about that.

And.

I think in terms of your question on the stage two capacity, what I'd say there is our focus is on delivering the 6,000 tons that we've committed to first. And so I don't wanna make any promises to you about exactly how and when this upstream material may get separated. But I think it's safe to say that as we designed the circuit, the downstream circuits, we did incorporate plenty of engineering factors and things of that sort. So we will continue to look at that opportunity to add even incremental value above and beyond what we're talking about with the upstream expansion.

Got it. And then just to Jim's last point, you know, with the stock price where it is realizing you guys want to maintain a very healthy balance sheet. Having said that, does that give you does that change the way you're thinking about capital deployment? Obviously, plenty of growth projects on the drawing board here. No doubt about it, but.

Do you think about share repurchase differently given market conditions?

Thank you. Thank you.

Sure, thanks Matt. And yes, as I said on the remarks, I think we're very surprised to see the share price where it is. And I think you've generally heard my views with respect to capital allocation on prior calls. But of course, I think it's always worth repeating that we are owner operators. I'm the largest shareholder of the company. You can imagine that we spend every waking moment thinking about allocation of capital and how to create value for all shareholders.

What I would say, I think, just to sort of put in my kind of terms, what we've announced today with upstream 60K. If you look at our valuation today, and of course, commodities businesses are volatile, they are cyclical, and let's say hypothetically even.

You believe this is a cyclical trough valuation and we're just around 3 billion. What we basically announced today is that with modest incremental capital, we can expand over the next four years.

50% REO, which in theory means that assuming we do that right, that is just a 50% increase in enterprise value, right? That should be worth one and a half billion at trough levels. If you assume a normalized value over the last few years, that's probably worth double that or more, several billion. The point is that.

that when we think about our assets,

The return on capital is just enormous if you can invest, you know a modest amount and get many multiples

Those are the kinds of investments that we want to make sure that we have the flexibility to make, because particularly given the environment that we're in, first and foremost we must have a fortress balance sheet.

That has been sacred to the company from the very beginning and we've been clear about that.

But then from there, we want to make sure that we can do all the sequencing thoughtfully. With that all said, I kind of look at the screen here and scratch my head. With that all as a preface, I reserve the right to do anything here. Stay tuned. But again, just what we have announced today is what we believe is going to be some enormous value creation for shareholders.

Appreciate the color. Thanks, Jim.

Sure.

Thank you. The next question is from the line of Lawrence Alexander with Jefferies. You may proceed.

Good afternoon. Two questions. First, just to follow on that, can you…

sort of help narrow down

what you mean by

you know incremental or you know, sort of cap, you know capital required for the expansion either in terms of the capital you expect to spend or you know, including working capital and also or in terms of like payback.

At some kind of normalized price, can you just get you help people sort of frame that?

Sure.

I didn't get a great line on that. Could you repeat that Lauren? Sorry. Sure. What do you expect to spend for the REO expansion?

At this point, what we expect is sort of order of magnitude about $200 million.

And as we laid out this plan occurring over the next four years, you know, I don't expect that spend to be linear either.

Bye.

I think that probably gives you a sense. We're talking about.

a 50% expansion in our upstream production. And obviously you've seen how profitable that business is and can be. And so, with that level of spend, I think this sort of speaks to exactly what the point that Jim was trying to make a minute ago. And I think it's just important for us to highlight that the embedded value of our assets here, being able to spend that quantum of capital to grow our business at that scale, is something we're very excited about.

And then can you give a little bit of a more granular update for how your thinking has evolved around the cadence?

or the financial metrics for the magnet business.

Sure.

There's really no change in cadence there. The thing that I would highlight is we did mention in our prepared remarks, we're looking very closely at, you know, similar in a lot of ways to, you know, what we laid out in the upstream, a very high return on capital potential expansion of the downstream business, given the scale that we, you know, that we've gotten by making the initial investment in that facility. We see a lot of interest from customers and a very good opportunity to expand scale there. And so there's really no change in how we think about, you know, the go forward plan or metrics on the stage three business.

And then just lastly on the regulatory front, can you just give a quick update on what you're seeing particularly in the US around? Is there any chance of movement on any of the magnet bills?

Sure. Well, we finally have a speaker of the house, so that's progress.

I think we're heading into an election season, and particularly given what's going on around the world, I think it'd be aggressive to say that we expect anything in the very short term. What I would say I would look out for, I think one big area from the magnet standpoint would be, there's a bipartisan committee in the House, the Select Committee on China, which is discussed doing something on that front. And so I do think,

that we will see something on this front. But again, I mean, you see what's going on in Washington on both sides on all fronts. And so we're certainly not relying on that with respect to the magnet business. But we do think that...

As something happens, it's a strong possibility that something helpful there gets tacked on. But to get to the heart of your question, just kind of adding on to what Ryan was discussing before with the magnet business, we understand that we're building a business from scratch there. And the governor is, again, making sure that we are proceeding thoughtfully in a way that is a high return on capital and that we're managing risk with respect to building out that business. So, you know,

We aren't just going to kind of go out and aggressively spend. And frankly, even if there were legislation as such, we are going to do things that make economic sense. We are not waiting on government help there, but we want to continue to hit sort of base hits on that front before there is anything much larger. And of course, obviously, what we've got, if you see the scale of what we have in Fort Worth today, it's a pretty big start. For more information, visit www.fema.gov

Thank you.

Sure. Thank you. Next question. The next. Okay.

The next question is from the line of Carlos de Alba with Morgan Stanley . You may proceed.

Hello, guys. Good afternoon. So the question I have is you talk about potentially increasing by multiples the production that you had of NEPR oxide in the fourth quarter, and you feel, like Michael said, that you guys feel very comfortable enriching your guidance for your production targets for the fourth quarter. I wonder if you can maybe quantify a little bit more this and narrow the range of possibilities, just giving how important it is, the cadence of how you guys ramp up the oxide production.

That'll be my first question

Thanks Carlos. We're pretty excited with the progress we're making. I'd be reluctant to give too much clarity on what we expect, but we do expect continued progress in the fourth quarter and even more notable progress.

into the next year.

—

We are seeing more stability, more reliability, and we're going to continue to focus on stability, reliability, longer, uninterrupted.

periods of uptime and then focus really on throughput.

Yeah, and Carlos, the only thing I'd add there is Ryan. I think, you know, importantly, what we're also focused on here is ramping production profitably and sustainably and not just chasing volume at all costs. And so I think Michael and his team have done an incredible job achieving that so far. And so, you know, we probably expect to have a few more quarters of ramp before we hit our stride, but we're very, very happy with where we are today. Fathers, Brandon This is a final campaign and we've made a new marketing strategy this year to do that, and to call for ads to become a more HA lac type campaign, and to buy adcont Appeals aversion, adcont injustice invite, adcont

All right, okay and I heard you correctly

in saying that you expect to have already sales of NDPR oxide and or metal in the fourth quarter?

What we mentioned is expecting the majority of sales, even of the Q3 production, to occur in Q1. So certainly not ruling out Q4 sales, but in thinking about the sales cycle and the timing of that sales cycle that I've laid out in the past, particularly because this initial set of volumes is building up a set of inventory and polling partners. So this early production is a uniquely slow sales cycle in terms of the transition from concentrate to oxide or metal. I don't expect the sales cycle to always be exactly this pace, but I think that's important as you guys look at your models for Q4 and Q1.

All right, good. And our last question is on the 200 million, give or take, that you expect to spend in the upstream 60K project, is this – how should we think about the cadence or the pace of the disbursements? Is this something that might take – maybe start next year and accelerate over the next four years? Or, yeah, how do you see that disbursement? Yeah, I talked to goofy Rick for a short, Nish, recently. He's talking about runners… … …

Sure.

What I say on that front is, I think the exciting thing about this project is there are many different pathways for us to hit that target. We've gotten enough confidence in the initial test work to lay out this strategy. But like I said, a couple of different ways to get there. I'd expect that the outlay may start very modestly next year and then be a bit backloaded as we likely look at those step changes towards the back portion of that guided four years.

Alright, great, thank you, congrats guys.

Thanks.

Thank you. The next question is from the line of George Deonarchos with Canaccord Genuity. You may proceed.

Thank you for taking my questions. First...

I'd like to ask about the pricing environment. A couple of few quarters ago, Jimmy talked about

That's $60 a kilogram kind of being a bottom for NDPR prices globally just based on

profitability of China Inc. and it seems to be somewhat pressured because we seem to bounce off that level a couple of times despite a weakening EV market. So any update in your thinking there and whether or not we can continue to at least bounce around these levels for the time being before EV sales accelerate?

Sure, thank you George. I always like a question that starts with giving me credit for being prescient. So thanks on that.

So, you know, and EPR is sitting roughly around 70. If you think about the world today, sort of versus several months ago, it's correct that we've seen. We've seen a lot of the pricing has pretty much held in, but in that time period, if you think about it. We've seen deteriorating trends, you know, whether if we, if we look at this quarter. You know, across electrification and whether it was the OEM themselves, both the new ones and maybe what some would consider legacy ones, the research analysts, or some of the semiconductor companies feeding into the supply chain. You sort of seen this.

feeling around a slowdown in electrification relative to what people thought.

Simultaneously, you've seen.

some wind projects canceled, some major wind turbine projects canceled, and so relative to what people thought and actually though

Even with all of that, prices have held in very well. And so I think it does speak to the fact that we have been bouncing around the bottom because the economics just really require, I mean, there's only so long that parties want to lose money. And so certainly it makes zero economic sense at these levels for any incremental supply.

really anywhere in the, at least in the non-Chinese world, outside of our upstream 60K, which also makes our upstream 60K so exciting because we, for very little incremental capital, can create what we believe to be very large, long-term enterprise value and have very attractive economics out of the gate. And so I think that will, I think hopefully that will prove Prussian as well, that, you know, that.

We have positioned ourselves to be able to make these kinds of investments at times like now where you'd have to be crazy to invest in a green field sort of elsewhere in the world with prices here relative to, frankly, buying MP stock for sure.

And then lastly, what I would say is just as I think about trends is we can't forget about the reality of October and what has happened this past month in the world. And what I mean by that is, of course, there's gonna be global macro impacts and I think all of us see that. But,

I think that that is a further strengthening of the theme. You know, there's a theme that we've talked about on calls over the last couple years about a deep, you know, de-globalization, you know, people starting to think about supply chains and making sure there isn't single point of failure risk. And now I would actually add another piece of that theme, which is a remilitarization.

along with the globalization. And I think we see that certainly in, you know, unfortunately the procurement that must happen around weapons globally.

And so.

That trend I think and obviously that's just beginning but I think you have to think about whether it's robotics

guttiness, some of these other things, that that actually is going to be a significant source of demand in the coming couple of years. And I think that that's actually a kind of demand that will favor.

our supply chain for obvious reasons.

And then lastly, I probably should have touched on this with respect to electrification and slowing down, you know, perception of slowing down because the interest rates are higher and there's some weakness, but...

You know, you saw a big announcement from Toyota recently about investing more in hybrids.

And let's not forget that if we do go into a world where hybrids have higher penetration along the way to electrification, you know, hybrids typically utilize two-thirds...

of the amount of incremental NDPR that say a straight EV would use. And so that's also just bullish for growth relative to just slower penetration. So anyway, adding all that up, what I would say is...

Certainly, I think that the bottom, I called several months ago, remains intact. I think that the bottom, I called several months ago, remains intact.

The short term the economy's challenged. I think people are very nervous So who knows what the next couple months look like? But all of those trends are very bullish for a year or two out particularly the re militarization, which is a totally new theme That I think you know is gonna is gonna become very powerful in the capital markets in 2024

Maybe just as a quick follow-up to that. Thank you.

Can you kind of illuminate us as to what your.

reduction cost.

per kilogram will be as you reach steady state production.

for NDPR.

Sure, George, it's Ryan. I'll take that one.

Certainly with our initial production this quarter and ramping that as quickly as possible and as profitably as possible, it's a little bit early to home in on exactly what cost per kilogram will be given where we are right now. What we want to do is see operations at full-scale efficient run rate production before we start making other promises here. What I would say though is when we went public we gave some rough guidelines on our expected cost of production at that point and as you can imagine at that point.

Those numbers were based on an amount of estimates as to exactly how the chemistry would work in the plant. And so I think what I've talked about in prior calls is what we see there, we're very, very pleased with. So we think our assumptions there will prove correct or conservative.

The other thing to keep in mind though is

Stage two in particular on a variable cost basis is heavily dependent on commodity reagents and those have seen pretty significant price increases as has labor and energy and so our hope is that as we get up and running and add scale and efficiency that those, you know eventually offset each other but you know, it's it's a little bit early days to give more definitive information at this point, you know, however, I I close by saying with everything that we've seen to date we remain confident in our ability to maintain our position as a low-cost producer in this industry.

Thank you.

Thank you. The next question is from the line of Abhishek Sinha with Northland Capital Markets. You may proceed.

Hi, this is Kailash on behalf of Abhisheena.

So, we saw the recent news on Malaysia's export ban of rare earths and we just wanted to know what your outlook is on that and if you sort of want to ramp up production based on that supply squeeze.

Well, the thing...

The Malaysian news, I think, just had to do, I think there were a lot of headlines. I think actually the Malaysia news had to do with the Malaysian government wanting to capture more of the value chain aside from just sending some material, they wanted to kind of have actually more industry. But obviously we don't operate in Malaysian that really doesn't impact how we think about things over stateside right now. So I really see no impact with respect to us from that.

Sure. As a follow-up, we just wanted to know what premiums you experience with NDPR, or sites for NDPR4?

I'm sorry, can you repeat that?

We have just to know what premium new experience for NDPR oxides over NDPR ore.

Okay.

Got it. Yeah, I assume you're talking about sort of, you know, the bridge from

concentrate to oxide you know I think you know the way we we think about the uplift in moving to separation is

You know, it's not just a focus on the price and the revenue side that the focus for us obviously is on incremental margin dollars.

And so, obviously both, you know.

Con and oxide are quoted in the market. And so you guys can kind of do the math there. But as we ramp the plant.

and get what we expect to be a fairly consistent cost of production once we hit target levels.

you know, the amount of NDPR in our con is about 15.7%. And so you can sort of do the math there on, you know, expected cost of production for the oxide versus con, but, you know, putting that all together, you know, we're very pleased with, you know, what we expect to be a nice uplift in both revenue and profit dollars as we move to separation.

Thanks. What's happening there? How many oil candies did we pour besides Increase?

Thank you. The next question is from the line of Karin Blanchard with Deutsche Bank. You may proceed.

Hey good afternoon guys. Could you maybe talk about the shipment time and delivery time for the NDPR outside and the timing of when the revenue would be recognized for the shipment?

Sure, hey, Karina, I'll take that. I'd refer you back to our comments in the last call and what we talked about a little bit earlier, which is that the Zee's initial shipments of oxide, particularly the Q3 production as well as early Q4 production.

We are prioritizing building an inventory level in the tolling channel.

in order for to start in earnest.

There needs to be a visibility to consist in inventory on site.

to get the electric winning process started and running efficiently.

And so, you know, what that causes for us is, given the fact that we maintain title of the oxide all the way through the production of metal, it really just slows the recognition of revenue because we will sell it for our purposes once it is turned into metal and at the port or location of delivery after being converted. And so that's why we've said for, you know, these cute reshortments and cute borschtments you know, we don't expect to see, you know, much impact until Q1. You can expect, you know, certainly our intention is to also sell oxide as oxide. And so, you know, there are a variety of different contracting.

structures we have, you know, a little bit shorter turn, some longer turn. But this transition as we go from, you know, effectively selling 100% of our con to consuming a significant amount of our con and then needing to get through this initial feeling of the channel. You know, it is.

is what's it driving this change? And so, you know, if you think about...

Why it takes as long as it does. I'll just give you sort of a rough walk. If you think about getting it to port from mountain pass to spend a week at port, it's probably about three weeks at sea, and then you need to get converted if we're talking about metals, so that could take up to a month. And then we gotta get it to the customer. So that's two to two and a half months. Once we fill that channel though, that impact for us gets lapsed very quickly. So that's what's occurring in the background right now, and we look forward to getting that channel filled. So we can start showing you some some oxide and that'll revenue in the piano.

Where do you think you would be placing the volume? Meaning how do that fit that expansion with the demand?

Oh, Jayce. Hi, Paul. Jayce, Karin. Can you ask those again?

Yeah, like another extension that you were talking about, like, you know, 50% extension by over the next four years. Just wondering what the capacity of the market to absorb those additional volume. So just kind of like, you know, how do you view this?

bonding still

Yes, all right, we were just having a little trouble here in your first bite. I think you're asking about the expansion and where we expect to sell those volumes. You know, I think the important thing to keep in mind is

as we transition to selling oxide and metal from concentrate.

You know, those volumes, that over 40,000 tons of production that we are making today historically has been sold primarily into the Chinese market and no longer will be as a con product. And so, you know, there is absolutely separation capacity for an additional 20,000 tons. We have no concern about that. And then, you know, we're also pretty pleased with what we've seen in terms of development of various, you know, ex-China, you know, sources. And so, you know, we feel very good about the ability to place that volume. And just given all the dynamics that Jim touched on, you know.

given the time frame that we're talking about, we feel very good about bringing that incremental volume to bear into the market.

Okay, thank you.

I.

Thank you. The next question is from the line of Bill Peterson with JP Morgan. You may proceed. Speed.

Yeah, I get after a minute and that takes for taking our questions. I wanted to come back to the market that Jim was describing as related to the question around pricing. So, yeah, clearly, you need to be in the wind as challenged, but I think you've also kind of seen some challenges and even kind of a more traditional uses, which I think accounts like you talked about 75%. So assuming that's still week two, where do you see pricing being held up? I do see pockets of supply coming offline. And then I guess looking ahead, you know, your peers recent permanent extension of Malaysia. Do you think that could lend a lead to further supply discipline for China as they think about first half 24 quotas?

Well, as far as quotas, I would tell you that, it's always difficult to read the tea leaves in China. We try to do our best, but I don't have a view on that for next year. I do think, I've said historically that, and I think that their behavior has followed this, but if you think about the evolution,

of

the electrification world specifically EVs and you see there was a big BYD price cut announced in some markets just, I think it was today or maybe it was yesterday, but.

with the Chinese having moved downstream, I think that you are seeing a transition of a strategic transition to focus on making sure that there's.

Supply growth to feed their downstream industry, but not enough supply growth to subsidize the Western competitors And so I do think that that speaks to again sort of

Continue to disciple and ya'll group

But for discipline around, they will make sure that there is a reasonable amount of supply for their own producers, and those producers are growing quite substantially. As far as, and hopefully this is a great question Bill, I think, as far pricing now with all these headwinds.

I view that, and now you have to take me with a grain of salt because I run a rarest company, but I view that as very bullish in that the shocks that this market has absorbed this year, when we think about the vast majority of demand still being the straight GDP industries that have been severely impacted in China, and we think about the slowdown in recent months with EVs and wind turbine projects canceled. And so I...

I think though it does speak to the reason you ask me what the reason is and I think the reason is the map, right, is just...

There is a lot of demand for this stuff and supply meets demand somewhere. There's demand destruction when prices get too high, but then there's also more demand when prices go lower. And those meet, those curves meet. And so I meant what I said when I think that there's down here in the 60s and the 70s, it's just really difficult. You certainly, at these prices in the 70s, I frankly don't think, if I were looking out certainly anywhere in the world outside of China and then China has its own realities, but anywhere in the world.

I think you'd have to be crazy to be an investor in a rare earth project, a green field, unless you, NDPR prices were at least 1, 20, 140, substantially higher from here, if you want any kind of reasonable return on your capital for the risk in the time. And so to me that just speaks to, there's just gonna be, you know, Western world supply constraint and it speaks to the economics down here. And so I do think again, we're kind of bouncing along this bottom. I don't know if it lasts.

You know, another month, another year or two, but, but, you know, those are my, those are my general thoughts around kind of medium and longer term, tailwinds.

No, yeah, thanks for that. Those things was in those insights. Sure. One I asked about stage three with my second question. So, you know, I guess, how do you think about the way it is progress on the construction equipment set up? I may have missed it, but are you still expecting to begin alloy production by the year end this year? And I guess what are the key sort of milestones we should be looking out for with stage three?

Yeah, no, great question. So things are going really well in phase three. We've made a lot of progress. One point of note for those who don't know, there's the big pieces of, you know, when you take oxide, the big pieces that get to a magnet are metal, alloy, and then magnet.

and actually in working with our primary customer and other discussions.

We actually shift the focus to metal, internally produced metal, because that's really more of a a sailable broader product. And actually we are making...

in pilot scale metal today.

So that is a big achievement for the Stage 3 team. So we are on track and then, you know, certainly with respect to alloy, that's never sort of a long-term business. The goal is magnetics, right? The goal is to make magnets. Metal and alloy are just intermediate products that are nice.

revenue to satisfy customers and and and brought in the market of people who can receive things but the goal is or magnets

on that front, our magnetic team is about 60 people. We just moved into this. We said earlier we...

moved into the building.

You know, we have a, and it's really, you know, an incredible site because what we've done is we've set up.

the research and engineering to really be connected to the factory. And so we're just going to have a lot of great interaction.

between our research, our engineering, and the operators. And so, you know, that all is happening. It's gonna take us a while, obviously, to be producing Magnetism, to be doing it at scale, but I am.

I am very pleased with how that's been developing and of course with the caveat that with anything we do is in particularly in building a business from scratch.

You know, these are painstaking things and we wanna make sure, particularly because it's our capital at risk that we're doing things methodically and thoughtfully and it's going well.

Thank you again for the colouring seat there.

Short.

Thank you. The next question is from the line of Lawson Winter with Bank of America. You may proceed.

Thank you, operator and good evening gentlemen. Thank you for fitting me and I appreciate it. I wanted to ask about heavy separation and I'm hoping to be prepared to provide a little bit more specificity around the heavy separation project. I want to be clear, is it designed to process only or from Mountain Pass or is the idea that it'll take both Mountain Pass and third party or and then to get a little bit more to the specifics. When do you expect the suspension to be complete, how long do you expect it to ramp up? What will be the main products and what's the impact that is?

Thank you.

I'm not going to start with that one. First of all, we're very pleased to be producing high quality S&G plus the key feedstock for RHG, our heavier separation facility. But the facility is designed to accommodate third-party feedstocks as well. Perhaps even a majority of the feedstock would be expected to come from third-party feedstocks.

in terms of the progress.

The engineering work is advancing through detailed engineering. Certain separation equipment is on site, and a lot more is on its way.

You know, continuing a theme from early in the call, from a procurement and build out standpoint, we're committed to delivering the project in scale and flexible capacity in the most capital-efficient way possible. So we're really looking at that very, very carefully. Yeah, we believe we're very well positioned to deliver the project more efficiently and more quickly than any other project outside of China.

Yeah, and lots of men in terms of, I would just add, sorry, but I was just gonna add, we mentioned this on the last call, but.

When you think about, I think this is just relevant so you can sort of understand thought process here, but if we go back to 2022, the DOD actually made awards to both MP and Linus, and then there was a substantial follow on award earlier this year. And we made clear on the last call that we had requested a level playing field and had every expectation that DOD was going to continue to support our project. And so I would just say that the government moves at their own pace, and it's never as quick as we would like, but, you know.

reiterated Michael's words, we certainly think we're positioned to be, you know, to be the quickest on line.

And Jim, just to complete the thought that I missed, the priority products are dysprosium and terbium from that, although we'll produce other heavier as well. And our biggest priority is to support our stage 3. Customer and the customers of our stage 3 business.

Okay, thank you for taking my question.

Thank you. Thank you.

Thank you.

Thank you. Our last question today comes from David Dekelbaum with TD Cowan. You may proceed.

Thanks Ryan, Jim, and Michael for taking my questions today.

You know, maybe just to put a pin and everything in this conversation. I'm curious just Ryan if you could kind of put bookends just how we think about capital progression or spending progression.

the ensuing years you guys highlighted a lot of projects that appear to be of low capital intensity and high return on capital. When we think about the 300 million or so of growth capex this year in the foreseeable future should we think about that as a peak year of growth capital and I guess how much do you see that stepping down in the years ahead?

Sure, David. Yeah, so the one thing I would flag just to.

highlight one change in our guidance for this year is I did mention in the prepared remarks and you'll you'll see it in our filings tomorrow that we expect to spend 270 million now this year versus the 300 that we had previously expected.

That's primarily from some of the initiatives that Michael talked about, about just trying to be as capital efficient as possible as we progress these projects. We obviously have continued to earn a pretty, a pretty nice return on our cash on our balance sheet. And so we just want to be thoughtful about.

timing and pacing of capital.

You know, you're absolutely right that we talked about a lot of exciting, you know, relatively low capital intensity, high return projects. It's a little bit early for me to provide multi-year guidance or specific 2024 guidance. We do intend to provide 2024 guidance.

on next quarter's earnings call, excuse me. But what I would say is,

This year's capital plan includes a pretty significant chunk of stage three CAPX, which is quite a big project.

And so, I think that's important to think about what a normalized spend profile would look like. We just wanna reserve our rights to do other very high return on capital projects and I spend a lot of time with Michael out of mountain pass trying to find those and there's a pretty long list. So we will continue to keep you updated on that, but certainly we are very focused that is Jim laid out in terms of our alignment year on making this a very high pre-castling business. And so, we are always stacking up our projects and potential organic projects and making sure that they meet a pretty high return threshold.

Thanks Ryan, I appreciate that. And I just wanted to confirm Michael, as you guys think about targeting this expansion to 60,000 tons a year on the upstream side, is it fair to say that you don't necessarily intend to become a concentrated producer, or rare earth concentrate producer and distributor that you would be doing this with the visibility of being able to convert that material over time?