Q4 2023 MP Materials Corp Earnings Call
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Ladies and gentlemen, please remain holding a conference call will begin momentarily.
Again, please remain holding a conference call will begin momentarily.
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Sierra: Where can you hear the thunder? You'd better run; you'd better head over to Buying bread for my men in Brazil. Hello everyone. Thank you for attending today's Mp Materials fourth quarter 2023 earnings call. My name is Sierra, and I'll be your moderator today. All lines will be muted during the prepared remarks from our manager, giving an opportunity for questions and answers. If you'd like to ask a question, press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Martin Sheehan. Thank you, Operator, and good afternoon, everyone. Welcome to the Mp Materials fourth quarter 2023 earnings conference call. With me today from Mp Materials are Jim Litinsky, Founder, Chairman, and Chief Executive Officer, Michael Rosenthal, Founder and Chief Operating Officer, and Ryan Corbett, Chief Financial Officer.
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[noise] Hello, everyone. Thank you for attending today's M.
P materials fourth quarter of 2023 earnings call.
My name is Sierra and I'll be your moderator today.
I'll have to be muted during the prepared remarks more management team with an opportunity for questions and answers at the end.
If you'd like to ask a question press star one on your telephone keypad.
I would not like the past the conference over to our host Martin Sheen.
Thank you operator, good afternoon, everyone welcome to the M. P materials fourth quarter of 2023 earnings Conference call with me today from M. P materials or Jim Burtynsky, founder, Chairman and Chief Executive Officer, Michael Rosenthal, founder and Chief operating Officer, and Ryan Corbett Chief Financial Officer.
Sierra: As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation, earnings release, and NRSEC filings. In addition, we have included some non-GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings release and the appendix to today's slide presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, the earnings release and slide presentation are available on our website. With that, I'll turn the call over to Jim.
As a reminder, today's discussion will contain forward looking statements relating to future events and expectations that are subject to various assumptions and caveat factors that may cause the company's actual was supposed to differ materially from these statements are included in today's presentation earnings release and in our SEC filings. In addition, we have included some non-GAAP financial measures industries Dentation.
Reconciliation to the most directly comparable GAAP financial measures can be found in today's earnings release in the appendix two today slide presentation any reference at our discussion today to EBITDA means adjusted EBITDA. Finally, the earnings release and slide presentation are available on our website with that I'll turn the call over to Jim Jim.
Martin Sheehan: Thanks, Martin. Good afternoon, everyone. Let me begin with a brief overview of today's call. First, I will discuss the highlights from the fourth quarter and full year 2023, while adding some important context from the first two months of 2024. Ryan will then run through our financials and KPIs, followed by Michael, who will review our operational progress. I will then close with my macro commentary before turning the call over to Q&A.
Thanks, Martin good afternoon, everyone.
Let me begin with a brief overview of today's call <unk>.
First I will discuss the highlights from the fourth quarter and full year of 2023, while adding some important context from the first two months of 2024.
Ryan will then run through our financials and K P eyes, followed by Michael who will review our operational progress.
I will then close with my macro commentary before turning the call over to Q&A.
Jim Litinsky: Moving on to slide four, despite facing formidable market headwinds, MP executed diligently throughout 2023 across all three stages of our business. In our upstream concentrate business, we exceeded 40,000 metric tons of REO production for the third consecutive year. The MP team now has over six full years of production under our belt. We continue to learn, increase productivity, and identify new opportunities for value creation. To that end, in November, we announced Upstream 60K, our plan to increase REO production approximately 50% over the next four years with modest incremental spend. This announcement was the culmination of extensive research, development, and piloting activity focused on sustainably unlocking even more value from the Mountain Pass Research Center. We have already begun some of the physical aspects of this expansion.
Moving on to slide four.
Despite facing formidable market headwinds M. P executed diligently throughout 2000 twenty-three across all three stages of our business.
And our upstream concentrate business, we exceeded 40000 metric tons of Oreo production for the third consecutive year <unk>.
The empty team now has over six full years of production under our belt, we continue to learn.
Increase productivity and identify new opportunities for value creation.
To that end in November we announced upstream 60, K R plan to increase Oreo production approximately 50% over the next four years with modest incremental spend.
This announcement was the culmination of extensive research development and piloting activity focused on sustainably unlocking even more value from the mountain pass resource we have already begun to some of the physical aspects of this expansion.
Jim Litinsky: As many of you have heard me say repeatedly, we believe expansion at Mountain Pass is the quickest, lowest risk, and highest return on capital source of rare earth growth in the Western world. Assuming we can achieve our goals, it means that we can generate multiples on our invested capital with this expansion. That is remarkable, especially in this pricing environment. So, for example, where you may see news stories of large rare earth deposits, those are often uneconomic at almost any price.
As many of you have heard me say repeatedly we believe expansion at mountain pass is the quickest lowest risk and highest return on capital source of rare Earths growth in the western World.
Assuming we can achieve our goals. It means that we can generate multiples on our invested capital with this expansion.
That is remarkable especially in this pricing environment.
So for example, where you may see new stories of large rare earth deposits those are often on economic at almost any price.
Jim Litinsky: New projects underway now and those that are seeking funding will likely end up destroying capital at these or even materially higher prices. And it's hard to imagine any greenfield project right now, even in China, can generate a positive return at today's prices. At MP, though, we are in a unique position as a low-cost producer with a world-class resource and significant assets already in place to economically grow our upstream substantially through the down cycle. Moving on to our midstream business. In 2023, we established and ramped up production of separated rare earth products, including NDPR oxide. This represents a huge milestone for MP and our mission.
New projects underway, now and or those that are seeking funding will likely end up destroying capital at these or even materially higher prices.
And it's hard to imagine any Greenfield project right now even in China can generate a positive return at today's prices.
At M. P. Though we are in the unique position as a low cost producer with a world class resource and significant assets already in place to economically grow our upstream substantially through the downcycle.
Moving onto our midstream business in 2023, we established and ramp production of separated railroad products, including NDP are oxide.
This represents a huge milestone for M P and our mission Ryan and Michael will walk you through how we are tactically approaching the coming months financially and operationally in a moment.
Jim Litinsky: Ryan and Michael will walk you through how we are tactically approaching the coming months financially and operationally in a moment. To expand our customer opportunity set for separated products, we recently began producing NDPR metal in Vietnam. We have also begun trial production of NDPR metal in a North American pilot facility, and we look forward to making metal in Fort Worth this year.
To expand our customer opportunities that for separated products. We recently began producing NDP are metal in Vietnam.
We have also begun trial production of NDP are metal in a north American pilot facility, and we look forward to making metal in Fort worth this year.
Jim Litinsky: During the fourth quarter, we delivered our first batch of NDPR oxide to a customer in South Korea, and we expect more sales across Southeast Asia. Importantly, we now have firm commitments for a significant portion of our NDPR from Japanese customers via our Sumitomo distribution relationship. So look for those sales to be material this year and even higher next year. Lastly, in our downstream magnetics business, we continue to add substantial depth to our team and capability set. Engineering and Operations are now situated under one roof in our Magnetics Headquarters in Fort Worth and, as I said a moment ago, are working diligently towards the start of commercial metal production on site. This means we expect Stage 3 to start producing revenue and modest positive EBITDA later this year, which is very exciting. Ryan will cover more on this later.
During the fourth quarter, we delivered our first batch of N D. P. R oxide to a customer in South Korea, and we expect more sales across southeast Asia.
Importantly.
We now have firm commitments for a significant portion of our N DPR from Japanese customers via our Sumitomo distribution relationship. So look for those sales to be material this year and even higher next year <unk>.
Lastly, and our downstream magnetics business, we continue to add substantial depth to our team and capabilities that.
Engineering and operations are now situated in under one roof and our magnetics headquarters in Fort worth and as I said, a moment ago are working diligently towards the start of commercial metal production on site.
This means we expect stage three to start producing revenue and modest positive EBITDA later this year, which is very exciting Ryan will cover more on this later.
Jim Litinsky: In summary, while the pricing environment has been very frustrating, our team has executed extraordinarily well. We've made a lot of progress on all fronts. I will have more to say on the macro environment and MP in my closing remarks, but for now, I will turn the call over to Ryan to discuss our KPIs and financial results.
In summary, while the pricing environment has been very frustrating our team has executed extraordinarily well.
We've made a lot of progress on all fronts I'll have more to say on the macro environment and M. P. In my closing remarks, but for now let me turn the call over to Ryan to discuss our Kpis and financial results Ryan.
Ryan Corbett: Thanks, Jim. Now, let's turn to slide six and review our full year operational KPIs. Starting on the far left, we produced more than forty one thousand five hundred tons of REO and concentrate in twenty twenty three, exceeding forty thousand tons for the third consecutive year, despite a significant focus on stage two commissioning and ramp throughout the year. Sales volumes were down around 6,000 tons year over year, primarily due to the initial charging of our stage two circuits with REO, as well as the consumption of REO in concentrate in the downstream circuits to produce Lower production volumes in Q4, as well as the timing of sales in 2022, also modestly impacted the comparison.
Thanks, Jim, Let's turn to slide six and review our full year operational Kpis.
Starting on the far left we produced more than 41500 tons of Oreo and concentrate in 2023 exceeding 40000 tons for the third consecutive year. Despite a significant focus on stage do commissioning and rammed throughout the year.
Sales volumes were down around 6000 tons a year over year, primarily due to the initial charging of our stage two circuits with Oreo as well as the consumption of Oreo and concentrate in the downstream circuits to produce NDP R and other separated products and a third and fourth quarters.
Lower production volumes in queue for as well as the timing of sales in 2022 also modestly impacted the comparison.
Ryan Corbett: Moving to the middle of the slide, our realized price declined significantly alongside a pullback in the price of NDPR in the market. Moving to the right, production costs increased $330 per ton, driven primarily by stage two ramp activities, including longer plant turnarounds and the impact of descaling a standalone concentrate production, given a fair amount of our stage one concentrate production costs are fixed. Spreading those costs, as well as plant turnaround and general site-wide costs over smaller sales volumes results in this lower fixed cost absorption.
Moving to the middle of the slide Ah realized price declines significantly alongside a pullback in the price of N. D. P are in the market.
Moving to the right production costs increased $330 per ton driven primarily by stage to ramp activities, including longer plant turnarounds and the impact of Descaling a stand alone concentrate production.
Given a fair amount of our stage one concentrate production costs are fixed spreading those cost as well as plant turnaround in general sitewide costs over smaller sales volumes results in this lower fixed cost absorption.
Ryan Corbett: Lastly, on the far right, we produced 200 metric tons of NDPR oxide in 2023, closing our inaugural year of stage two production with a nice sequential lift in the fourth quarter as we guided on our last call, moving to slide seven in our full-year finance. Revenue in 2023 was impacted primarily by the decline in realized prices, as well as the change in volumes previously discussed as we ramp up stage two. Lastly, we continue to make certain modest investments in our corporate infrastructure, some of which will continue through the early part of 2024 before declining in the back half of the year, most notably an investment in a new SAP implementation that goes live in Q2. Despite the lower average price during the year, EBITDA margins were still quite robust at 40%.
Lastly on the far right. We produce 200 metric tons of NDP are oxide in 2023 closing our inaugural year stage to production with a nice sequential lift in the fourth quarter as we guided two on our last call.
Moving to slide seven in our full year financials revenue in 2023 was impacted primarily by the decline and realized prices as well as the change in volumes previously discussed as we ramp stage to the.
The flow through of pricing was the primary driver of the decline and adjusted EBITDA. In addition to the fixed cost absorption just discussed.
Lastly, we continued to make certain modest investments in our corporate infrastructure some of which will continue through the early part of 2024 before declining in the back half of the year, most notably an investment in a new essay implementation that goes live in Q2.
Despite the lower average price during the year EBITDA margins were still quite robust at 40% <unk>.
Ryan Corbett: The change in adjusted diluted EPS was primarily impacted by the same drivers just discussed, in addition to higher depreciation brought on by additional assets, namely the rest of the stage two circuits being placed into service during the year, partially offset by higher interest income on our cash balance and lower income tax. Turning to slide eight in our fourth quarter results, concentrate production of 9,257 tons was down year over year, primarily due to higher downtime, both planned and unplanned, in the quarter. Michael will expand on this in a Production costs increased $373 per metric ton sequentially from the combination of our longer, more detailed plant turnaround, as well as the more pronounced descaling on our stage one production costs in the quarter, for context on plant turnaround expenses. We think about stage one related facilities at Mountain Pass as essentially three interconnected operations.
The change and adjusted diluted EPS was primarily impacted by the same drivers just discussed in addition to higher depreciation brought on by additional assets, namely the rest of the stage two circuits being placed into service during the year, partially offset by higher interest income on our cash balance and lower income tax expense.
Turning slide eight and our fourth quarter results concentrate production of 9257 tonnes was down year over year, primarily due to higher downtime, both planned and unplanned in the quarter Michael will expand on this in a moment.
Concentrate sales volumes fell around 2000 tonnes sequentially as we consumed more concentrate in stage two circuits to produce NDP R and other refined products.
Production costs increased $373 per metric ton sequentially from the combination of our longer more detailed plant turnaround as well as the more pronounced descaling on our stage, one production costs and the quarter.
For context on the plant turnaround expenses, we think about stage one related facilities, a mountain pass as essentially three interconnected operations with mining and crushing Beneficiate <unk> and tailings management the primary targets along with Sitewide infrastructure of our power plant water treatment plant at others with.
Ryan Corbett: With mining and crushing, beneficiation, and tailings management, the primary targets, along with site-wide infrastructure of our power plant, water treatment plant, and others, with stage two now in service, these turnarounds now encompass nine additional processes, including our drying and roasting circuits, leach, impurity removal, brine purification, separation circuits, and multiple product finishing, as well as a corresponding increase in site-wide infrastructure and support. I cannot emphasize enough how well the maintenance and operations teams performed this quarter with all of these. One further note on production costs is that the stage two portion is down sequentially and year over year as more of these costs are now building into inventory, following the NDPR product through the midstream refining and metallization processes versus being expensed through the P&L.
Stage two now in service. These turnarounds now encompass nine additional plants, including are drawing and roasting circuits leech impurity removal, Brian purification separation circuits multiple product, finishing circuits as well as a corresponding increase in sitewide infrastructure and support.
Functions I cannot emphasize enough how well the maintenance and operations teams performed this quarter with all of these new demands.
One further note on the production costs is that the stage to portion is down sequentially and year over year as more of these costs are now building into inventory following the NDP, our product through the midstream refining and meditation processes versus being expense through the piano.
Ryan Corbett: Note also that some of our cost of goods sold in the quarter was related to our modest NDPR sales, as well as other rare earth product sales, and were not included in the production cost category. When you strip out all of the one-timers and more difficult comparisons, we see baseline concentrate production costs up low to mid single digits here. Lastly, in the quarter, we determined that the carrying cost of a portion of our early separated product inventory exceeded its net realizable value based on the recent rapid decline in spot prices.
Note also that some of our cost of goods sold in the quarter was related to our modest NDP, our sales as well as other railroad product sales and we're not included in the production cost calculation.
When you strip out all of the one timers and more difficult compares we see baseline concentrate production costs up a low to mid single digits here over here.
Lastly in the quarter, we determined that the carrying cost of a portion of our early separated product inventory exceeded its net realizable value based on the recent rapid decline it spot pricing.
Ryan Corbett: As we've spoken about in the past, our early cost of production of separated products is higher than our expected costs once we reach our full production levels, given we are staffed for higher production rates and early production often requires additional labor and certain rework that will not recur once operations normalize. This resulted in us taking a write-down of $2.3 million in the quarter, which was included in costs of sales in the P&L and impacted our adjusted EBIT.
As we spoken about in the past or early cost of production are separated product is higher than our expected costs. Once we reach our full production levels. Given we are staffed for higher production rates and early production often requires additional labor and certain rework that will not recur once operations normal lives there.
This resulted in us taking a right down to a $2.3 million in the quarter, which was included in cost of sales in the P&L and impacted our adjusted EBITDA.
Ryan Corbett: More than half of this charge was related to Lanthanum products, where our per unit cost of production is particularly sensitive to throughput but where we aren't yet pushing to maximize volumes as we put the finishing touches on the logistics and supply chain to serve our North American Lanthanum customers. These charges are not unexpected as we ramp up the plant and may continue into Q1. That said, peeling back the onion and looking at the circuit by circuit cost profile gives us further confidence in achieving our expected per unit cost profile as we ramp towards run rate. Moving to slide nine, you can see our revenue and adjusted EBITDA results, again, impacted mainly by pricing and our concentrate sales volumes, as previously. With regard to concentrate pricing specifically, assuming current spot prices hold for the remainder of the current quarter, we would expect a mid-team sequential decline in first quarter realized concentrate prices.
More than half of this charge was related to lanthanum products, where our per unit cost of production is particularly sensitive to throughput, but where we aren't yet pushing to maximize volumes as we put the finishing touches on the logistics and supply chain to serve our north American lanthanum customers <unk>.
These charges are not unexpected as we ramp the plant and May continue into Q1 that said peeling back the onion and looking at the circuit by circuit cost profile gives us further confidence in achieving are expected per unit cost profile as we ramp towards the run rate levels.
Moving to slide nine you can see our revenue and adjusted EBITDA results again impacted mainly by pricing and our concentrate sales volumes as previously discussed.
With regards to concentrate pricing specifically, assuming current spot prices hold for the remainder of the current quarter. We would expect a mid teen sequential decline in first quarter realized concentrate pricing.
Ryan Corbett: As for NDPR oxide pricing and oxide equivalent prices for metal sales, we expect prices to reflect a more significant difference, with Q1 prices based off of the Q4 average market price. We expect our realizations to be roughly in the middle of the calculated spot market price and the spot price net of Chinese V8. Moving on to the balance sheet and our CapEx spend in 2023. We ended the year with just under $1 billion of gross cash and over $300 million of net cash.
I asked for NDP are oxide pricing and oxide equivalent prices for metal sales, we expect prices to reflect a more notable lack with Q1 prices based off of the queue for average market price.
We expect our realizations to be roughly in the middle of the calculated spot market price and the spot price net of Chinese V T.
Moving onto the balance sheet and our capex spend in 2023.
We ended the year with just under $1 billion of gross cash and over $300 million of net cash <unk>.
Ryan Corbett: As for CapEx, we spent $262 million on gross CapEx, or $259 million net of $2.8 million received from the Department of Defense. Net growth capex totaled $244 million with roughly $15 million of maintenance capex during. Regarding cash flow, 2023 was a year of significant investment in working capital, with some amount of permanent increases in work in process inventory from our commissioning and ramp up of stage two, as well as spare parts and raw materials, as we endeavor to maintain the same world-class uptime levels in stage two as we've seen in stage one. Further working capital investment was also required in semi-finished goods to fill certain sales and toll processing channels with separated product inventory to maintain sufficient on the ground inventory for continuous metal production.
<unk> Capex, we spent $262 million on gross capex or $259 million net of $2.8 million received from the department of defense.
Net growth Capex totaled $244 million with roughly $15 million of maintenance capex during the year.
Regarding cash flow 2023 was a year of significant investment in working capital with some amount of permanent increases a work in process inventory from our commissioning and ramp up upstaged too as well as spare parts and raw materials as we endeavor to maintain the same world class upped.
I'm levels in stage two as we've seen in stage one.
Further working capital investment was also required in semi finished goods to fill certain sales and told processing channels with separated product inventory to maintain sufficient on the ground inventory for continuous metal production.
Ryan Corbett: These investments will set us up to meet our growing customer needs, particularly in Japan, and maintain operational flexibility. While some of that investment is therefore semi-permanent, some will indeed convert to revenue and cash flow starting in Q1 as we ramp up our sales of NDPR Metal to Japan, which I'll talk about in a moment. In addition, we invested approximately $10 million in Q4 in V-Rex Holdco, the ultimate owner of our primary toll processing partner in Vietnam.
These investments will set us up to meet or growing customer needs, particularly in Japan and maintain operational flexibility.
While some of that investment is therefore semi permanent some will indeed convert to revenue and cash flow starting in Q1, as we ramp our sales of N D. P R metal to Japan, which I'll talk about in a moment.
Further we invested approximately $10 million in queue for in V. Rex Holdco, the ultimate owner of our primary told processing partner in Vietnam.
Ryan Corbett: This investment funded the expansion of the V-REX metalization facility and gives us a 49% stake in the business. Through this investment, we have secured the ability to ultimately reduce as much as two-thirds of Mountain Pass's target NDPR oxide output into metal, significantly expanding the number of markets and customers we can serve, particularly outside of China. We will recognize our proportional share of VREC's financial results as an equity method investment in our financial statements, which will modestly impact our net income and EPS comparisons beginning in. While we generally did not provide forward-looking guidance, I do want to walk through how we think about 2024 operationally and financially. First,
This investment funded the expansion of the <unk> facility and gives us a 49% stake in the business.
Through this investment we have secured the ability to ultimately reduce as much as two thirds of mountain passes target and DPR oxide output into metal significantly expanding the number of markets and customers, we conserve particularly outside of China. We will recognize are proportional share of <unk> financial results.
As an equity method investment in our financial statements, which will modestly impact our net income and E. B S compares beginning in Q1.
While we generally do not provide forward looking guidance I do want to walk through how we think about 2024 operationally and financially.
Firstly.
Ryan Corbett: As it relates to separated product sales, depending on the timing of shipping, we expect to book a little more than 100 tons of NDPR sales in the first quarter. Michael will cover our production ramp in more detail in a moment, but given the current pricing environment, I wanted to highlight that we are now tactically responding to this market environment by managing our separations ramp for the remainder of the year. Our goal this year is to maximize our near-term cash flow potential while we position MP for maximum long-term growth. To be clear, we remain extremely confident in our ability to achieve our targeted throughput levels and production costs, but how we get there really matters in a low price environment. Let me provide an illustrative example.
As it relates to separated product sales, depending on the timing of shipping we expect to book a little more than 100 tons of NDP our sales in the first quarter.
Michael will cover our production ramp in more detail in a moment, but given the current pricing environment I wanted to highlight that we are now tactically responding to this market environment by managing our separations ramp for the remainder of the year.
Our goal this year is to maximize our near term cashflow potential while we position M. P for maximum longterm upside.
To be clear, we remain extremely confident in our ability to achieve our targeted throughput levels and production costs, but how we get there really matters and a low price environment let.
Let me provide an illustrative example.
Ryan Corbett: We capture the significant majority of our theoretical gross profit via our concentrate business. But as we move downstream to refining, we capture material incremental profitability. The higher the NDPR price, the greater the incremental profit potential. Because our concentrate product is saleable, though, we always want to think about that as an opportunity, versus a state of the world where our refined product cost structure is not fully optimal, put simply every single dollar of incremental variable costs that we can avoid as we optimize our process condition, is weighed against the opportunity cost of selling our upstream product, ordinarily we would not think so much about, at say 90 or $150 NDPR, shaving say $2 per kilogram off of production costs is less important relative to maximizing the refining ramp as quickly as possible.
We capture the significant majority of our theoretical gross profit via our concentrate business, but as we move downstream to refining we capture material incremental profitability.
The higher the NDP, our price the greater the incremental profit potential.
Because our concentrate product a saleable, though we always want to think about that as an opportunity cost versus the state of the world where are refined product cost structure is not fully optimized put.
Put simply every single dollar of incremental variable costs that we can avoid as we optimize our process conditions is weighed against the opportunity cost of selling our upstream product.
Ordinarily we would not think so much about this at say 90 or 150 dollar N D. P. R. Shaving say $2 per kilogram off a production costs is less important relative to maximizing the refining ramp as quickly as possible.
Ryan Corbett: But again, illustratively, and not as any kind of guidance, at a $35 per kilogram normalized production cost of refined oxide in a $50 NDPR world, $2 of unnecessary inefficiencies might eat up most or exceed a lot of the incremental benefit net of the opportunity cost when you factor in all of the flow-through impact. So think of this as mainly just a 2024 model consideration. But MP is uniquely positioned with added downside production by ramping more methodically in a low price environment. We will be thoughtful about utilizing that advantage, and Michael will expand on this in more detail in a moment. Turning to our magnetics business, we are thrilled with our early progress and expect early revenue and modest positive EBITDA contributions from Fort Worth metal sales starting later this year.
But again <unk> and not as any kind of guidance at a 35 dollar per kilogram normalized production cost of refined oxide in a 50 dollar N D. P. R world $2 of unnecessary inefficiencies might eat up most or exceed a lot of the incremental benefit.
Net of the opportunity cost when you factor in all of the flow through impacts.
So think of this as mainly just a 2024 model consideration, but M. B is uniquely positioned with added downside protection by ramping more methodically and a low price environment.
We will be thoughtful about utilizing that advantage and Michael will expand on this in more detail in a moment.
Turning to our Magnetics business, we are thrilled with our early progress and expect early revenue and modest positive EBITDA contributions from Fort worth metal sales starting later this year.
Ryan Corbett: Importantly, as we focus on capital efficient growth, we expect the cash flow impact of early production of magnetic precursor products in Fort Worth to be much more meaningful than their P&L impact, given our current expectation of hitting certain production milestones that will result in material product prepayments, which we expect to be reflected in our financial statements as deferred revenue. While customer discussions are still ongoing, and we must continue to execute strongly, we expect that operational success in delivering early American-made NDPR metal to our customers this year should result in our sources and uses of cash in the magnetics business being roughly neutral in 2024. Regarding CapEx, we have consistently guided to a roughly $700 million net growth capital plan for the last couple of years as our total cost to achieve our goals of full rare separations of mountain pass and magnet and precursor product production in Fort Worth. Importantly, we remain within the margin of error on that assessment, despite enduring inflation since our initial forecast, while we had initially expected slightly higher capex than reported in 2020. Some of that spend will slip to 20. So for the full year of 24, we expect to spend between approximately 200 to 250 million dollars on total CapEx, including maintenance CapEx.
Importantly, as we focus on Capitol efficient growth, we expect the cash flow impact.
Early production of magnetic precursor products in fort worth to be much more meaningful than their P&L impact given our current expectation of hitting certain production milestones that will result in material product prepayments, which we expect to be reflected in our financial statements as deferred revenue.
While customer discussions are still ongoing and we must continue to execute strongly we expect the operation of success in delivering early American made N D. P. R metal to our customers. This year should result in our sources and uses of cash in the magnetics business being roughly new.
Neutral in 2024.
Regarding capex, we have consistently guided to a roughly 700 million dollar net growth capital plan for the last couple of years as our total cost to achieve our goals are full rare separations, a mountain pass and magnet and precursor product production in Fort worth.
Importantly, we remain within the margin of error on that assessment, despite enduring inflation since our initial forecast.
While we had initially expected slightly higher Capex then reported in 2023 some of that spanned will slip to 2024.
So for the full year of 24, we expect to spend between approximately $200 million to $250 million on total capex, including maintenance Capex.
Ryan Corbett: Within this capital plan, we expect to continue to make strong progress on our previously disclosed initiatives, as well as further some of the early stages of Upstream 60K and other potential high return investments in Mountain Pass that will further strengthen and improve our production cost profile. Even with this investment, we expect to maintain a very strong capital position through this pricing downside, taking into account the current spot price. And with all of the caveats that go into forecasting, both regarding pricing expectations as well as regarding our timeline to execution, we expect to end 2024 with at least 200 to 250 million dollars of net cash on the balance sheet, or greater than $900 million of gross cash, with our strongly cash-generative concentrate business.
Within this capital plan, we expect to continue to make strong progress on our previously disclosed initiatives as well as further some of the early stages of upstream 60, K and other potential high return investments in mountain pass that will further strengthen and improve our production cost profile.
Even with this investment we expect to maintain a very strong capital position through this pricing downcycle.
Taken current spot prices and with all of the caveat that go into forecasting both regarding pricing expectations as well as regarding our timeline to execution.
We expect to end in 2024 with at least $200 million to $250 million of net cash on the balance sheet or greater than $900 million of gross cash.
With our strongly cash generative concentrate business, a thoughtful ramp up stage, two and normalization of the relevant working capital investment.
Ryan Corbett: A Thoughtful Ramp of Stage 2 and Normalization of the Relevant Working Capital Investments, as well as achievement of milestones in Stage 3, leading to certain product prepayments, and the receipt of the initial 45x production tax credit, we see strongly positive operating cash flow, funding a significant portion of our capital plan. With that expectation set and a lot of execution ahead of us, I will turn it over to Michael to discuss our Q4 operational results. Michael, thanks Ryan. The fourth quarter was an exciting but challenging quarter for the Mountain Pass operation.
As well as achievement of milestones in stage, three leading to a certain product prepayments and the receipt of initial forty-five X production tax credits <unk>.
We see strongly positive operating cash flow funding a significant portion of our capital plan.
With that expectation set and a lot of execution ahead of us I will turn it over to Michael to discuss our queue for operational results Michael.
Thanks Ryan.
The fourth quarter was an exciting but challenging quarter for the mountain pass operation.
Michael Rosenthal: In our upstream business, concentrate production per operating hour was up year over year. However, several factors combine for lower operating hours and, therefore, concentrate production. As Ryan just discussed, in October, we had our first site-wide scheduled outage that included all of the Stage 2 operations. The outage was well executed and completed on schedule.
And Ah upstream business concentrate production per upgrading hour was up year over year.
However, several factors combined for lower operating hours and therefore concentrate production.
As Ryan just discussed in October we had our first sitewide scheduled outage that included all of the stage two operations.
The outage was well executed and completed on schedule.
Michael Rosenthal: Upon restart in early November, we returned to solid performance with less rework required than is often the case. However, several events in December collectively cost us approximately six days of production in the mill. Approximately four of these were the result of unexpected power plant outages.
Upon restart in early November we returned to solid performance with less rework required that is often the case.
However, several events in December collectively cost us approximately six days of production in the Bill.
Approximately four of these were the result of unexpected Powerplant outages.
Michael Rosenthal: On two consecutive weekends, two ancillary instruments in our power plant failed approximately four months prior to their planned replacement. Instrument life was somewhat skewed from the several years of powered up but non-operating status of the plants. And while the cause was promptly identified, and we had parts available, service was not immediately available locally. It was an important lesson learned, and we are confident that our current preventative maintenance scheduling procedures will prevent an issue like this from ever reoccurring. Also in December, we pulled forward certain grinding circuit maintenance that we had expected to not need until our next outage. This cost us another day and a half of production, but it has released additional grinding circuit capacity and improved grind stability into 2024.
On two consecutive weekends to ancillary instruments in a power plant failed approximately four months prior to their planned replacement.
Instrument life was somewhat skewed from the several years of powered up but none operating status of the plans and.
And while the cause was promptly identified and we head parts available services not immediately available locally.
It was an important lesson learned and we are confident that our current preventative maintenance scheduling procedures will prevent an issue like this from ever reoccurring.
Also in December we pulled forward certain grinding circuit maintenance that we had expected to not need until our next outage.
This cost us another day and a half of production.
But it has released additional grinding circuit capacity and improved Glen stability into 2024.
Michael Rosenthal: You know, our upstream operations had another solid year with over 92% uptime. In addition, 2023 resulted in our highest level of audio production per hour of uptime, demonstrating our continued efforts to improve efficiency and productivity. We expect renewed growth in 2024. As previously mentioned, the Stage 2 midstream circuits had their inaugural scheduled outage, providing us with the opportunity to conduct a thorough inspection of the new equipment after three to nine months of service. On a positive note, there were few serious mechanical discoveries or surprises. However, we identified more rubber wear than expected in certain rubber-lined vessels and agitators.
You know our upstream operations had another solid year with over 92% uptime.
In addition, 2023 resulted in our highest level of audio production per hour of uptime.
Demonstrating our continued efforts to improve efficiency and productivity.
We expect for renewed growth in 2024.
As previously mentioned the stage to midstream circuits had <unk> scheduled outage.
Letting us with the opportunity to conduct a thorough inspection of the new equipment. After three to nine months of service.
On a positive note there were few serious mechanical discoveries or surprises.
However, we identified more rubber with an expected and certain rubber lined vessels and agitators.
Michael Rosenthal: After a thorough review, we attribute the issue to subpart installation workmanship rather than to inappropriate materials of construction for the service. Unfortunately, addressing these issues required a comprehensive process of de-inventorying, preparing, curing, and re-inventorying circuits, which led to a slower recovery from the outage than planned. Part of the Stage 2 Optimization Project included the installation of a new cerium extraction section in our existing separation circuit that separates NDPR from lanthanum and cerium. However, in the fourth quarter, we identified an excursion in the new section that impacted NDPR production quality. We took appropriate action to restore stability, though this resulted in several weeks of lost output. Recognizing this new risk, we have adjusted our monitoring and models, and are confident we have put this issue behind us for good. During this incident, we took the opportunity to implement certain changes that significantly increased concentration in the circuit and are expected to result in higher throughput capability and stability going forward. Despite all these challenges, we produced 150 tons of NDPR oxide in the quarter, three times that of the previous period.
After a thorough review we attribute the issue to subpart installation workmanship, rather than to inappropriate materials of construction for the service.
Unfortunately addressing these issues required a comprehensive process at the inventory preparing hearing and read inventory and circuits, which led to a slower recovery from the outage than planned.
Part of the stage to optimization project included the installation of a new serial extractions section existing separation circuit that separates <unk> from <unk>.
In the fourth quarter, we identified an excursion in the new section that impacted the N D. P O production quality.
We took appropriate action to restore stability. So this resulted in several weeks of lost output.
Recognizing this new risk we have adjusted our monitoring and models and are confident we have put this issue behind us for good.
During this incident, we took the opportunity to implement certain changes that significantly increased concentration in the circuit and is expected to result in higher throughput capability and stability going forward.
Despite all these challenges we produced 150 tons of N. D. P are all excited in the quarter.
Three times that of the previous period.
Michael Rosenthal: In summary, after several quarters with all Stage 2 circuits in operation, we have reached a significant turning point. We can feel that most circuits, particularly those that were commissioned earlier in 2023, as well as our operations teams, are starting to come together. The core chemistry and technology continue to perform, and this progress bolsters my confidence that production volumes and quality will continue to improve. Importantly, in the last two quarters, we have qualified our NDPR oxide and NDPR metal with many of our major customers and target customers.
In summary, after several quarters with all staged two circuits in operation we have reached a significant turning point.
We can feel that most circuits, particularly those that were commissioned earlier in 2023 as.
As well as our operations teams are starting to come together.
The core chemistry and technology continue to perform.
This progress bolsters my confidence that production volumes and quality will continue to improve.
Importantly in the last two quarters, we have qualified are NDP oxide and metal with many of our major customers and target customers.
Michael Rosenthal: So going forward, we will more quickly convert production into revenue. However, in the current pricing environment, we are even more focused on extracting operational efficiencies and reducing the variable cost of production as we increase NDPR production volumes. Where yields have room for improvement, we are focusing on optimization before pushing volume for volume's sake. Our existing low-cost concentrate operation affords us the flexibility to take this prudent approach that maximizes profits and cash generation while ensuring we drive towards our integrated model and market-leading cost structure for separated products.
So going forward, we were more quickly convert production into revenue.
However in the current pricing environment, we are even more focused on extracting operational efficiencies.
Reducing the variable cost of production as we increase NDP our production volumes.
Where yields have room for improvement, we are focusing on optimization before pushing volume for volume sake.
Our existing low cost concentrate operation affords us the flexibility to take this prudent approach that maximises profits and cash generation, while ensuring we drive towards our integrated model and market leading cost structure for separated products.
Michael Rosenthal: For the latter, we continue to make important progress. To this end, I'd like to reiterate that all circuits are running at commercial volumes, sufficient to evaluate capability and chemistry, although we continue to run at relatively lower uptime in certain circuits.
For the latter we continue to make important progress.
To this end I'd like to reiterate that all circuits are running a commercial volumes sufficient to evaluate capability in chemistry.
But we continued to run that relatively lower uptime in certain circuits.
Michael Rosenthal: To some extent, this creates higher costs in the near term when viewed solely from the lens of stage 2 operations. In the short term, we are incurring incremental variable costs from certain inefficiencies, bottlenecks, and other factors, and admittedly areas where we must improve our execution. We're working furiously to address these.
To some extent this creates higher costs in the near term when viewed solely for millions of stage two operations.
In the short term, we are incurring incremental variable costs from certain inefficiencies bottlenecks.
And admittedly areas, where we must improve our execution.
We are working furiously to address these and week after week, we see progress.
Michael Rosenthal: And week after week, we see progress. Sometimes progress in one area reveals an additional opportunity for improvement elsewhere. I'd like to provide a few examples of the types of improvements we are making at this stage so you can understand our philosophy. In our leach circuit, we have been working towards achieving and consistently maintaining our target 85% cerium rejection with very high NDPR recovery.
Cause sometimes progress in one area reveals additional opportunity for improvement elsewhere.
I'd like to provide a few examples of the types of improvements we are making at this stage. So you can understand the philosophy.
<unk> took it we have been working towards achieving and consistently maintaining our target 85 per cent cerium rejection with very high NDP recovery.
Michael Rosenthal: This will reduce reagent consumption per ton of NDPR produced and other variable costs. Recently, we've made several key breakthroughs with NDPR yield increasing more than 5% while at the same time driving a 5% plus Absolute Improvement in Theory and Rejection. There is still opportunity to improve further, but we believe the gains to date to be sustainable and will be more evident in our 2Q production and financial results. Next, the first step of our separation process involves the bulk separation of light rare earths from heavy rare earths, or SEG+.
This will reduce reagent consumption per ton of N. D. P are produced and other variable costs.
Recently, we've made several key breakthroughs with NDP or yield increasing more than 5% while at the same time driving a five per cent plus.
Absolute improvement in theory and rejection.
There's still opportunity to improve further but.
But we believe the games to date to be sustainable.
And will be more evident in our two Q production and financial results.
Next the first step of our separation process involves the bulk separation of <unk> from heavier it's or S. C G plus.
Michael Rosenthal: Our primary focus here is on the efficiency and effectiveness of this separation, limiting the amount of light where it's in our SEG plus and vice versa. We had initially assumed greater than 5% of the SEG plus fraction would be ND and PR, but this is now down to less than 0.5% over 90% of the time. At the same time, we remain focused on 100% on spec for samarium in the light rare earth fraction.
Our primary focus here is on the efficiency and effectiveness of the separation.
Limiting the amount of light, where it's S C G plus and vice versa.
We had initially assumed greater than five per cent of the S. C. G plus fraction would be N D. M. P. R.
This is now down to less than 0.5% over 90 per cent of the time.
At the same time, we remain focused on 100 per cent on spec for some area in the library attraction.
Michael Rosenthal: These improvements benefit NDPR production volume per ton of concentrate produced. And with greater stability, we have achieved a 25% reduction in reagent usage per ton of feed in this particular circuit down to our target levels, with additional opportunity to improve from here. Lastly, Lanthanum production, which represents the largest volume of our production but only a single digit percentage of target revenue. We've recently seen a one-third increase in per shift production capability. However, this is an area where we have significant room for operational and mechanical debottlenecking to reduce our cost of production. We will look to implement several low-cost upgrades in 2Q that will help reduce the burden on our operators and maintenance teams.
These improvements benefit M. B P. R production volume per ton of concentrated produced.
And with greater stability, we have achieved the 25 per cent reduction in reagent usage per ton of feed in this particular circuit down to our target levels.
With additional opportunity to improve them here.
Lastly, lanthanum production, which represents the largest volume of our production, but only a single digit percentage of target revenue.
We've recently seen a one third increase and push shift production capability.
However, this is an area, where we have significant room for operational and mechanical debottlenecking to reduce our cost of production.
We will look to influence of a low cost upgrades in two Q that will help reduce the burden on our operators and maintenance teams.
Michael Rosenthal: We expect to achieve a return on investment for these upgrades in under a year. As for OneCube, we expect that concentrate production will return to normal run rates, and the power plant will operate at the greater than 99.9% reliability that we've experienced for the first two years of operation. Given our commitment to ramping as efficiently as possible in the current environment, we have spent much of January and February achieving operational efficiencies and reducing variable costs through focused attention on the above projects. Therefore, in 1Q, we do not expect significant growth in NDPR production relative to 4Q.
We expect to achieve a return on investment for these upgrades in under a year.
As for <unk>.
Expect a concentrated production will return to normal run rates and the power plant will upgrade at the greater than 99.9% reliability that we've experience for the first two years of operation.
Given a commitment to ramping as efficiently as possible in the current environment. We have spent much of January and February extracting operational efficiencies and reducing variable cost.
They're focused attention on the above project.
Therefore, and <unk>, we do not expect significant growth in N D. P. R production relative to four Q.
Michael Rosenthal: The difference will be made up for by higher concentrate production. But from 2Q on, we expect the volume of unspecified oxide we produce will grow materially, which will also result in more obvious improvements in our cost of production. And with that, I'll turn it back over to Jim. Thanks, Michael. As you just heard from Michael, the team at Mountain Pass is doing an excellent job.
The defense will be made up for by higher concentrated production.
But from two Q on we expect the volume of Unstick oxide, we produce will grow materially.
Which will also result in more obvious improvements in a constant production.
And with that I'll turn it back over to Jim.
Thanks, Michael.
As you just heard from Michael the team at Mountain pass is doing an excellent job.
Jim Litinsky: We are executing on a lot of levels, whether it be on production efficiencies, the refining ramp, or the upstream expansion. The theme can be set for the magnetic. A lot of progress has been made, and they are working maniacally towards first revenue while being mindful of capital spending. Unfortunately, the market has not been kind, to say the least. The price of NDPR has collapsed nearly 70% from its peak in 2022.
We are executing on a lot of levels, whether it beyond production efficiencies.
Refining ramp or the upstream expansion.
The same can be set for the magnetics team.
A lot of progress has been made and they are working maniacally towards first revenue, while being mindful capital spend.
Unfortunately, the market has not been kind to say the least.
The price of NDP or has collapsed nearly 70% from its peak in 2022.
Jim Litinsky: The decline has been particularly steep over the past year, beginning essentially just as we were about to commission stage two. I know we have discussed on recent calls the demand impacts from macro factors and basic industries in China. But I think it is obvious to state that something bigger and more dramatic has happened in recent months. The pendulum has officially swung.
The decline has been particularly steep over the past year, beginning essentially just as we were about to commission stage too.
I know we have discussed on recent calls the demand impacts from the macro factors in basic industries in China, but.
But I think it is obvious to state that's something bigger and more dramatic has happened in recent months.
The pendulum has officially swung.
Jim Litinsky: Wall Street has decided it is Armageddon for the electric vehicle right now. We have all seen the press reports around the disappointing EV sales versus expectations and the rising inventory. This was followed by announcements from a number of major OEMs around increased capital discipline and slowing down electrification timelines. However, one bright spot has been the dramatic acceleration in hybrid sales, which is bullish for NDPR demand relative to existing ice penetration levels, in any case, for a variety of reasons. The timeline to electrification has been extended, and therefore the near term prospects for critical materials are now worse versus recent prior expectations.
Wall Street has decided it is armageddon for the electric vehicle right now.
We have all seen the press reports around the disappointing EV sales versus expectations and the rising inventories.
This was followed by announcements from a number of major Oems around increased capital discipline and slowing down electric vacation timelines.
One bright spot has been the dramatic acceleration in hybrid sales, which is bullish ran DPR demand relative to existing ice penetration levels.
In any case.
For a variety of reasons the timeline to electrification has been extended and therefore, the near term prospects for critical materials are now worse versus recent prior expectations.
Jim Litinsky: The cost of capital is now higher. We are seeing some stress, and my guess is we will see some distress out there. Some materials projects have been canceled, and I assume more will be. That's it.
The cost of capital is now higher we are seeing some stress and my guess is we will see some distress out there.
Some materials projects have been cancelled and I assume more will be.
That said.
Jim Litinsky: It is not economically rational to paint that broad brush equally across the material space. For example, in rare earths, China controls in excess of 80% of the market via two supermajors, and then the remaining almost 20% is MP and Linus.
It is not economically rational to paint that broadbrush equally across the materials space.
And railroads, China controls in excess of 80 per cent of the market via two Supermajors and then the remaining almost 20% is empty and Linus.
Jim Litinsky: Whatever Western EV reset is happening now, the Chinese OEMs are not stopping their downstream expansion, and the strategic value of what we have remains. That said, the pricing environment is not something we can control. Neither is the pace of EV penetration, nor the geopolitical landscape.
Whatever western easy reset is happening now the Chinese Oems are not stopping there downstream expansion the strategic value of what we have remains.
That said the pricing environment is not something we can control.
Neither is the pace of V V penetration, nor the geopolitical landscape.
Jim Litinsky: Those will be what they will be. What we can control is our operational execution and our financial and corporate management. Not so long ago, when our share price and NDPR prices were much higher, a number of aggressive investors pushed us to extend our balance sheet and buy back a significant amount of stock.
Those will be what they will be.
Well, we can control is our operational execution, and our financial and corporate management.
Not so long ago, when our share price and NDP our prices were much higher.
A number of aggressive investors pushed us to extend our balance sheet and buyback a significant amount of stock.
Jim Litinsky: We made clear then that although we firmly believe in our execution capabilities and the long-term value of our assets, we are in a cyclical sector where we have to think about a variety of long-term scenarios. There is a lot of inherent leverage in commodity prices, so we have to proceed accordingly. Our decision to maintain a prudent balance sheet was the right decision.
We made clear then that although we firmly believe in our execution capabilities in the long term value of our assets. We are in a cyclical sector, where we have to think about a variety of longterm scenarios.
There is a lot of inherent leveraging commodities prices. So we have to proceed accordingly.
Our decision to maintain a prudent balance sheet was the right decision.
Jim Litinsky: Now, though, it seems like the market pendulum has swung too far given the uniquely strategic nature, low cost position, and replacement cost value of our assets. I think it is fair to say, given some recent press reports, that there are others who really understand our assets and appreciate them. So, I wanted to mention this to lay the groundwork that I'm not going to comment on M&A speculation at this time. If asked, I will just keep referring you back to this section in the transcript. So I hope you are enjoying it live right now.
Now though.
It seems like the market pendulum has swung too far given the uniquely strategic nature low cost position and replacement cost value of our assets.
I think it is fair to say given some recent press reports that there are others, who really understand our assets and I appreciate your best.
So I wanted to mention is to lay the groundwork that I'm not going to comment on M&A speculation at this time.
<unk> asked I will just keep referring you back to this section in the transcript. So I hope you are enjoying it alive right now.
Jim Litinsky: However... I want to be crystal clear. I'm the largest shareholder, our management team, and our employees are large shareholders. We take our fiduciary duties extremely seriously.
However.
I wanted to be Crystal clear.
And the largest shareholder our management team and our employees are large shareholders, we take our fiduciary duties extremely seriously.
Jim Litinsky: To the extent that something makes sense to do in the future, we will do it. You can count on us to be opportunistic and thoughtful in the meantime. All aspects of our organization will continue to operate with a somewhat new playbook.
To the extent something makes sense to do in the future we will do it.
You can count on us to be opportunistic and thoughtful and.
In the meantime.
All aspects of our organization will continue to execute with a somewhat new playbook.
Jim Litinsky: In the down cycle, the cost of capital is higher. That adds risk. And it means timing and payback matter more than achieving a manufactured deadline. Having the intellectual fortitude to throw out prior plans or assumptions and to remain critical and to remain unemotional is paramount. It also means there are more home run opportunities.
The downcycle the cost of capital is higher.
Adds risk and it means timing and payback matter more than achieving manufactured deadlines having.
Having the intellectual fortitude to thrive prior plans or assumptions to be critical and to remain unemotional is paramount.
It also means there are more home run opportunities.
Operator: MP exists now as a result of one of those periods, so I do think patients with us will be rewarded. With that, operator. Thank you. We will now begin the Q&A session. If you'd like to ask a question, press star followed by one on your telephone keypad to remove your question. Star, followed by.
M. P exists now as a result of one of those periods. So I do think patients with us will be rewarded.
With that.
Operator.
Thank you.
We went out again and the Q&A session.
If you'd like to ask a question. Please press start I'll buy one on your telephone keypad.
Chairman of your question I start followed by two.
David Adam Deckelbaum: If you are using a telephone, please pick up your handset before asking your question. Our first question today comes from David Deckelbaum with P.D. Cowan.
And if you're using a speaker phone please pick up your handset before asking your question.
Our first question that H as in David <unk> P. D. Cowan. Please proceed.
David Adam Deckelbaum: Thanks, Jim, Ryan, and Michael, and I appreciate you taking my questions today. I guess I just wanted to understand, you know. Hey guys, just between Ryan and Michael and Ryan, you kind of laid out that obviously with MDPR pricing now at like 55 kilo, the efficiency that you give up versus selling concentrate. I guess I kind of just wanted to spread that with Michael's comments around.
Thanks, Jim Ryan and Michael and I appreciate you taking my questions today.
I guess I just wanted to understand.
Hey, guys.
Just between Ryan and Michael and Brian you kind of like laid out that obviously with MVP, our price email like 55 and Q O.
The efficiency that you give up just versus selling concentrate I guess I kinda just wanted to square that with Michael's comments around.
David Adam Deckelbaum: Just making some operational enhancements around the separation facility this year. You know, if I take all of that together... has the organization changed how they think about what the max rate or the target is for NDPR production? Is it still in that sort of 500 ton a month range?
Just making some operational enhancements around the separation facility this year.
You know if I, if I take all of that together.
You know have has the organization changed how they think about what the.
The the Max rate or the target is for N D. P. P and excuse me M. P. P. R productions is it still and that sort of 500 ton a month range.
Ryan Corbett: or looking at things more fully now, is there a more balanced approach that we should expect over the long term? Irrespective of where prices assume that we get back to you know, a 70 to $90 incentive of, Sure. Hey, David, it's Ryan.
Or looking at things more fulsome now is there is there a more balanced approach that we should expect over the longterm irrespective of where prices assuming that we will get back to you know Ah 70 to 90 dollar incentive level.
Sure Hey, David is Ryan I'll start I might push back on the 70 to 90 incentive level, but that's another question that we can we can address separately I think the answer your your core question. There is no change in our view of our longterm target production and our view frankly of where we think we will get <unk>.
Ryan Corbett: I'll start. I might push back on the 70 to 90 incentive level, but that's another question that we can address separately. I think to answer your core question, there is no change in our view of our long-term target production and our view, frankly, of where we think we will get from a cost structure perspective. You know, we are very confident from the early results that we've seen in being a low cost producer to the world, and we continue to build significant confidence in reaching our target production. I think what we're really trying to say is in these early stages of production, there are inherent early inefficiencies that, again, at a $70 to $90 price point, that incremental variable cost for those inefficiencies might not matter so much when you look at the incremental profit pool available going from concentrate to oxide. When you're at a $50 price point, that profit pool, the incremental profit pool, is a lot smaller.
From a cost structure perspective, you know, we we are very confident from the early results that we've seen and being a low cost producer to the world and we continue to build significant confidence in reaching our target production I think what we're really trying to say is in these early stages of production there are inherent.
Orally inefficiencies that again at a 70 to 90 dollar price point that that incremental variable cost for those inefficiencies might not matter. So much when you look at the incremental profit pool available going from concentrate to oxide when you're ready to $50 price point that profit pool the incremental <unk>.
<unk> was a lot smaller and so all we're really saying is we're thinking very very closely about that incremental profit pool versus inefficiencies and the opportunity cost of selling some of that upstream product as con in the interim and so I think the big message here is we.
Ryan Corbett: And so all we're really saying is we're thinking very, very closely about that incremental profit pool versus inefficiencies and the opportunity cost of selling some of that upstream product as a con in the interim. And so I think the big message here is we want to be scaled and ready for the upcycle, but we are not going to push volume for volume's sake. How we get to our target is really what matters in this pricing environment. That's it. I don't know, Michael, if you have anything else you'd add to a permanent operation. Tom.
We want to be scaled and ready for the upcycle, but we're not going to push volume for volume sake, how we get to our target is really what matters in this pricing environment that that's the message.
Michael If you have anything else you would add on Ah from an operational perspective.
Ryan Corbett: Not too much to add there. I think we're very comfortable with the ability to meet those production volumes that we had targeted. And as Ryan said, we're going to work through that in the most efficient way as soon as possible. I was hoping that you could give a little bit of color on just the 45x.
Not too much that there I think we're very comfortable with the ability to to meet those production volumes that we can tell you that and that's Bryan said, we're gonna work through that and the most efficient way which is possible.
I appreciate it.
I was hoping that you could give a little bit of color on just the 45 Bucks I think you mentioned that is.
Ryan Corbett: I think you mentioned it as a source of funds this year. Could you just refresh us on the timing and is that something that you've already applied for? And I guess just when we might have some more visibility around that? Sure. So David, the 45 X is the production tax credit on the critical mineral side for NDPR oxide.
Source of funds. This year could you just refresh us on the timing and is that something that you've already applied for I guess this was the expectation when we might have some more visibility around that.
Sure.
So David the 45 acts is the production tax credit on the critical mineral side for N D. P. R oxide, you'll actually see on the balance sheet and in the press release that we have nearly a 20 million dollar government grant receivable.
Ryan Corbett: You'll actually see on the balance sheet in the press release that we have nearly a $20 million government grant receivable. There's a lot of nuance to this calculation, and you're probably aware of that. There's quite a bit of ongoing dialogue with Treasury as we speak about exactly the various definitions of costs that make it into this calculation. What we've put into our existing receivable, and to my point earlier about this being a source of funds on the order of magnitude of $19 million in 2024, is based on a conservative approach to the proposed regulation. Um, 1 of the nuances of our unique facts and circumstances here is the fact that we put hundreds of millions of dollars of stage 2 related assets into service this year in order to meet our NDPR production and made certain sales during the year.
There is a lot of nuance to this calculation and you're probably aware that.
There was quite a bit of ongoing dialogue with treasury as we speak about exactly the various definition of costs that make it into this calculation, what we put into our existing receivable into my point earlier about this being a source of funds on the order of magnitude of $90 million in 2024 is based off of concern.
It is approach to the proposed regulations.
One of the nuances of our unique facts and circumstances here is the fact that we point hundreds of millions of dollars of stage two related assets into service. This year in order to meet our N D. P. R production and made certain sales in the year and so you know those nuances allow us to take.
Ryan Corbett: And so, you know, those nuances allow us to take, um, uh, an initial credit in 2024, and then, of course, there would be ongoing production tax credits going forward, targeting that at 10% of production costs. I think the overall debate right now with Treasury is, what exactly is the definition of production cost? And so we'll get back to you on that. But again, we feel confident in the numbers that we put forward. Here are the very conservative ones.
An initial credit in 2024, and then of course, they would be ongoing production tax credits going forward that that's targeted at 10% of production costs I think the overall debate right now with Treasury is what exactly is the definition of production cost and so we'll get back to you on that.
[noise], one, but again, we feel confident in the numbers that we put forward here are the the very conservative interpretation of that.
Ryan Corbett: Thanks, Ryan. Thanks, guys. Thanks, David. Our next question today comes from George Giannakis on behalf of Canada. Please proceed. Everyone, good afternoon.
Thanks, Ryan Thanks, guys.
Thanksgiving.
My next question today comes from Georgiana lift category.
Please proceed.
Everyone. Good afternoon. Thanks for taking my questions I'd like to ask Jim about your assessment on the pricing environment and we've had this discussion on conference calls past and we've broken through the 60 dollar level at which she thought that China, Inc was relatively unprofitable.
George Giannakis: Thanks for taking my question. I'd like to ask Jim about your assessments of the pricing environment. We've had this discussion on conference calls in the past, and we've broken through that $60 level at which he thought that China Inc was relatively unprofitable. Curious as to whether that's still your current thinking, and if that's so, how long you expect this to be at this level, given that... It's hard to make money. Thank you. Sure, George.
I'm curious as to whether that still your current thinking and and if so how long you expect us to be at this level given that.
Taught to make money at 50 Bucks. Thank you.
Sure George so with the caveat that I'll be always when it comes to pricing things are pretty unpredictable and I'm certainly not one who's gonna be able to you know.
Jim Litinsky: So with the caveat that, always, when it comes to pricing, you know, things are pretty unpredictable, and I'm certainly not one who's going to be able to, you know, perfectly pick the direction of commodity prices, but I'll give some puts and takes here. I mean, I think as we look around the EV landscape, there's a lot of talk. There's a lot of moving parts, with respect to interest rates and models and being disappointed, range anxiety, you know different moving parts, but remember that 75% of demand is still basic industries in China, and those macro impacts are still kind of flowing through. So it's really hard to distill sort of what the moving parts are in this quarter.
Perfectly pick the direction of commodities prices, but I'll give some puts and takes here I mean, I think as we look around the <unk> landscape you know there's a lot of talk there's a lot of moving parts.
With respect to interest rates and models and you know being a disappointment arrange anxiety.
You know different moving parts, but.
Remember that 75% of demand is still basic industries in China.
And those macro impacts are still kind of flowing through so it's really hard to distill.
Sort of what what are the moving parts in this quarter, but again longterm I just go back to.
Jim Litinsky: But again, long term, I just go back to at these levels, pretty much as I said in the earlier comments, at these levels, new projects don't make any sense. We actually saw some headlines this past week of a big project in Australia with government funding that is having huge cost overruns and is potentially uneconomic. Even some of the analyst reports were talking about $90 NDPR is NPV negative.
At these levels pretty much as as I said in your earlier comments at these levels new projects don't make any sense. We actually saw we saw some headlines this past week of a big project in Australia with with government funding that is having a huge cost overruns and is potentially an economic.
You know even up to you know there was some of the analyst reports, we're talking about $90 NDP R. As NPV negative and so I think in this environment.
Jim Litinsky: And so I think in this environment. What we've seen is that there's been a lot of supply destruction as well as demand destruction. And so there are just so many moving parts. But again, I keep going back to at these levels, at some point, the macro headwinds around 75%, you know, associated with sort of basic industries like HVAC or consumer electronics and some of the pullbacks that we've had in China, coupled with the 25%, maybe disappointing in EVs relative to what prior expectations were as sort of some of the demand destruction. But then, sort of commensurate with that, there is this supply destruction. And then, I guess the last thing I would say on that is that I do think that on the demand side. This is really a hiccup or, you know, or sort of an air pocket.
What we've seen is is that there's been a lot of.
Supply destruction as well as there has been demand destruction and so there's just so many moving parts.
But again I keep going back to.
Add these levels at some point the macro headwinds around 75%.
Associated with sort of basic industries, like H back or consumer electronics and some of the pullback. So we've had in China, coupled with the 25% maybe disappointing and Eevees relative.
What prior expectations were sort of some of the demand disruption, but then sort of commensurate with that is is this supply disruption and then I guess the last thing I would say on that is that I.
I do think that on the demand side.
This is really a hiccup.
We're sort of an air pocket and by that I mean, if you look at what's happening out there where there is sort of a lot of talk about is the <unk> you know sort of concern about the E V and you're you're seeing you know a lot of concern around the landscape hybrid sales are going Crazy right. You are seeing hybrid sales go up 80, 90% in some cases and and so when we think about evie penetration.
Jim Litinsky: And by that, I mean, if you look at what's happening out there, where, you know, there's sort of a lot of talk about the EV, you know, sort of concern about the EV, and you're seeing, you know, a lot of concern around the landscape, hybrid sales are going crazy, right? You're seeing hybrid sales go up 80, 90% in some cases. And, so when we think about EV penetration, let's not forget that hybrids typically utilize 50% to two-thirds of the incremental NDPR that an ICE vehicle would use.
And let's not forget that hybrids typically utilise 50.
50% to 50% to two thirds of the incremental NDP are that an ice vehicle.
Jim Litinsky: And so if we're in this new state of the world where hybrids are going to be a big portion of the combined electric slash battery electric plug-in hybrid demand, I think that you're going to sort of see that growth of that 25% get back on track faster than people might think. And then, you know, sort of some of the other macro things that will play out through China. So that's a long-winded way of saying, you know, again, with respect to commodity prices, we don't know, but this environment is certainly, you know, demand will come back. And then the supply destruction has been, you know, pretty remarkable as well. So, you know, we remain medium and long-term bullish, but, you know, in the short term, it's anyone's guess. I really appreciate the colors.
Would use and so if we're in this new state of the World, where hybrids are going to be a big portion of the combined electric slash.
Battery electric plug in hybrid demand I think that you're going to sort of see that growth of that 25 per cent get back on track.
You know faster than people might think and then sort of some of the other macro things that will play out through China. So that's a long winded way of saying again with respect to commodities prices. We don't know, but this environment is certainly demand will come back and then the supply destruction has been you know pretty remarkable.
<unk> as well, so we remain medium and long-term bullish but.
The short term is anyone's guess.
I really appreciate that color. Thank you for that maybe this is a follow up I know you said your piece on the rumored Linus merger or takeover I'm. Just curious if you can entertain us <unk> what would be the industrial logic.
Jim Litinsky: Thank you for that. Maybe just as a follow-up, I know you said your piece on the rumored Linus merger or takeover, but I'm just curious if you can entertain us.
George Giannakis: What would be the industrial logic of something like that, and your openness. Thank you.
Of something like that.
In your opinion thank you.
[laughter]. So I I was I was wondering how many different ways I would get asked this question and what phone jokes I could have I guess, that's a good way to ask yet I mean I I.
Jim Litinsky: So I was wondering how many different ways I would get asked this question and and what fun jokes I could have, and I guess that's a good way to ask it. I mean, I I guess I'll just refer you back to the script. I don't want to, comment on any M&A speculation. I appreciate the way you're asking. I mean, I guess what I would say is that objectively, when you look at any company in a generic sense, there are always things that companies can learn from each other and cut costs around and all of that. So your guess around all those kinds of things, if you're looking at a specific situation, there certainly are those things. But again, I'm not going to comment other than to just refer you back to what I said in the script. I appreciate that. Thank you.
I guess I'll just refer you back to the script I don't want to comment on any M&A speculation I. Appreciate the way you are asking I mean, I guess, what I would say is that objectively. When you look at you know any company in <unk>.
Generic sense, there are always things that companies can learn from each other and and cut costs around and all of that so.
Your your guests around all those kinds of things if you're looking at a specific situation you know there there is.
There certainly are those things, but but again I'm not gonna I'm not gonna comment other than just refer you back to what I said in the script.
I appreciate that thank you.
Carlos de Alba: Sure. Our next question of the day comes from Carlos de Alba, Wolf Morgan.
Sure.
Our next question today comes from cause to Apple with Morgan Stanley. Please proceed.
Ryan Corbett: Yeah, thank you. Hello, guys. So a question is, I think Ryan mentioned a prepayment that you will get on some of your downstream, I didn't understand if it was downstream or offsite sales. Can you comment a little bit more as to the level of this prepayment? And when do you expect to get it so we can properly model that? Hey, Carlos, it's Ryan.
Yeah. Thank you.
Okay sure. So the question is.
I think I mentioned about a prepayment that you will get on some of your.
Downstream understanding.
Understanding was downstream or or Oh site sales and can you comment and it'd be more as to the level of of these prepayment.
When do you expect to get it. So so we kind of property model that.
Hey, Carlos it's Ryan.
Ryan Corbett: You were right. What we were talking about was related to the Fort Worth Magnetics business and an expectation of prepayments over the course of the year that likely would help cover a very significant portion of the capex that's remaining for that facility. We're not going to go into specific details on timing or quantum. Obviously, as I mentioned in my prepared remarks, customer conversations are ongoing. The major message, though, is that with the operational success that we expect and that we're pushing towards as rapidly as possible, I tried to give you guys the building blocks to understand where we expect to end the year from a balance sheet and capital perspective. I think you can take those remarks and do with them what you will to back solve into the quantum year.
You were right. What we were talking about was related to the Fort worth Magnetics business and an expectation of prepayments over the course of the year.
That likely would help cover a very significant portion of the Capex that's remaining for that facility.
We're not gonna go into specific details on on timing or quantum obviously as I mentioned in my prepared remarks customer conversations are ongoing I think the the major message, though is that with no operational success that we expect in that we're pushing towards.
As rapidly as possible I tried to give you guys. The building blocks to understand where we expect to end of year from a balance sheet and capital perspective, and so I think you can take those remarks and kind of do it the more you will to tobacco hauled into the quantum here, but a lot of puts and takes but I think it's something that obviously is at a very positive.
Ryan Corbett: A lot of put and takes, but I think it's something that obviously is a very positive measure of our success as we go through the, All right, okay, thanks. And you also mentioned the investment that you did, I think, in the firing company of the Vietnam tolling company that you're working with, and I think you own 49% now. Is there an expectation that you stay at that level, or would you potentially like to integrate a little bit more and maybe fully control that operation so you have maybe a little bit more of your destiny in that tooling process? It's a great question.
A measure of success of ours as we go through the course of the year.
Alright, Okay. Thanks, and you also mentioned that the investment that Judy thinking the buying company of the Vietnam.
Taunting company that you were working with and I think you owned 49% now is there an expectation that you stay at that.
That level.
Or would you potentially like to integrate I'll be more than maybe fully control that operations that have maybe.
You mean, you control I've, even more of your destiny on that tooling process.
Yeah. It is a great question.
Ryan Corbett: You know, the 49% stake that we have in the business was really a factor of the amount of growth capital that we put in in order to support the growth and potential output at that facility. I don't think we have any particular prescriptive view on how things may look over time. Other than to say, I think the structure that we have in place right now is working very well for us. In addition to the investment, we obviously have the tolling arrangement, which provides us with a lot of certainty as to the amount of volumes that we'll be able to drive through that facility over time. And so, as it stands right now, I think that we've accomplished quite a bit with the combination of the tolling framework and investment. All right. Thank you very much.
The 49% stake do we have in the business was really a factor of the amount of growth capital that we put in order to support the growth and potential output at that facility. I don't think we have any particular proscriptive view on how things may look over time other than to say.
I think the structure that we have in place right. Now is is working very well for US. In addition to the investment. We obviously have the tolling arrangement, which provides us with a lot of certainty as to the amount of volume that we'll be able to drive through that facility over time and so as it stands right now I think that we've accomplished quite a bit with the.
A combination of the the tolling framework and investment it'd be Rex.
Alright, Thank you very much.
Corinne Blanchard: Thanks Carlos. Our next question comes from Corinne Blanchard with Deutsche Bank. Hey, good afternoon.
Thanks for those.
Our next question comes on screen Blanchard with Deutsche Bank.
Please proceed.
Hey, good afternoon, maybe could you talk about the faith Street. So you say you completing the construction of the the <unk> can you walk US again about the timing <unk> is there any remaining kept pace and how much.
Ryan Corbett: Maybe you could talk about phase three? So you say you completed the construction of the Texas facility. Can you walk us through again about the timing expected there? Is there any remaining CAPEX and ours? Yeah, great. It's Ryan.
Yeah, <unk> I'll I'll take that.
Ryan Corbett: I'll take that sort of follow-up on my answer to Carlos as it relates to stage 3 in the Fort Worth facility, the building itself, and a lot of the support infrastructure that has been completed and is in service. But we continue to bring significant capital equipment into that building and continue to sit out the factory to meet both our magnet production target date at the end of 2025 as well as the in service of precursor products, metal, and alloy ahead of that. And so some of my commentary earlier was in regard to our expectation of producing metal at the DFW facility later this year. And that would drive certain customer prepayments based on our success in those initiatives.
Sort of following on you know my my answer to Carlos as it relates to stage three in the Fort worth facility. The building itself and a lot of the support infrastructure that has been completed and is in service.
But we continue to bring significant capital equipment into that building and continue to sit out the factory to meet both are magnet production target date at the end of 2025 as well as the in service of precursor products metal an alloy ahead of that and so.
Some of my commentary earlier <unk> was in regard to our expectation for producing nettle at the DFW facility later, this year and that would drive certain customer prepayments based on our success in those initiatives.
Ryan Corbett: So certainly, there is still more capital to go on that plant. But as it relates to 2024 from a cash flow perspective, assuming we continue to execute, I think a really important thing here is sort of the balanced cash flow impact of the investment in stage 3 versus the prepayment for products in stage 3. Okay. So, Maybe it's a difficult question, and obviously, everyone is trying to kind of get that answer.
Certainly there is still more more capital to go on that on the plant, but as it relates to 2024 from a cash flow perspective, assuming we continue to execute I think a really important thing here is sort of a balanced cash flow impact of the investment in stage three versus the.
Prepayment for products in stage three.
Mmk so.
Maybe it does make a question and I was trying to get help get that <unk>.
Jim Litinsky: You have already started to talk a little bit about it. But do you have a critical price in love? Where you have to reconsider, you know, phase three, where you have to reconsider some of the cadence and the volume for phase two. I think six months ago, nine months ago, we would have thought it would be like around that 50 to 60. Where we are now, it seems like obviously it's a challenge, but maybe it's not like a critical price level. So I'm just trying to get to, you know, which one at which price level.
Do you have like a crazy cat pricing <unk>.
When you actually when it comes to that you know <unk>, when you're actually calling to get some of the <unk> and the volume for Saint Q I think I was like Oh nine months ago, we would have solved <unk>.
<unk> well, we all know it <unk> <unk>.
<unk>, but maybe it's not a printing cat pricing advice I'm just trying to.
To get to that you know, which <unk> price <unk>.
Jim Litinsky: Do you already want to change this project? Sure. Well, Crenn, let me, there's multiple parts to that. Let me, let me take them all.
You already get into changing the sorry to hear that.
Sure what kind of let me there's multiple parts of that let me, let me take them all with.
Jim Litinsky: With respect to stage three, I think we were very careful in how we set up that business going way back to the beginning and making sure, I think if you were on some of our earlier calls, we said repeatedly that we weren't going to rob Peter to pay Paul. In other words, we were viewing that business as a standalone business where we have to earn an attractive return on capital to make that investment. And so as we proceeded with that, we structured, you know, initial contracts to make sure that we felt like that was an attractive business.
Back to stage three I think we were very careful in how we setup that business going way back to the beginning and making sure I think if you were on some of our earlier calls we we said repeatedly that we weren't going to Rob Peter to pay Paul in other words, we reviewing that business as a standard.
Loan business, where we have to earn an attractive return on capital to make that investment and so as we proceeded with that we structured.
Initial contracts to make sure that we felt like that was an attractive business. There's no doubt that the the playbook around the world has changed with respect to the cost of capital of the overall perception of electrification and the pace of penetration, but what what I would tell you on that is that.
Jim Litinsky: There's no doubt that the playbook around the world has changed with respect to the cost of capital, the overall perception of electrification, and the pace of penetration. But what I would tell you about that is that we're talking about a Western world supply chain that basically doesn't exist. And so going from zero to something is still a very attractive opportunity. To the extent that something changes, we're always flexible and opportunistic and are willing to, you know, throw out any playbook at any time, if that makes sense. But, you know, from everything we see on the ground today, even though the environment is tough, from what we're hearing from customers, there's still a desire for this supply chain to exist. Admittedly, there's just a lot of pain and challenge from a capital and execution standpoint to make all of that happen, kind of writ large.
We're talking about the western world's supply chain that basically doesn't exist and so going from zero to something is still a very attractive opportunity to the extent that something changes were always flexible and opportunistic and are willing to you know.
Throughout any playbook at any time, if that makes sense, but you know from everything we see underground today, even though the environment is tough from what we're hearing from customers. There's still desire for this supply chain to exist admittedly, there's just a lot of pain and challenge with with from a capital and.
Execution standpoint to make.
All that happened kind of writ large with respect to overall other prices I I just want to take you back too because I think it's really important you know and and forgive me. If I say this repeatedly I know I I kind of addresses earlier, we can't predict commodities prices.
Jim Litinsky: With respect to overall other prices, I just want to take you back to, because I think it's really important, you know, and forgive me if I say this repeatedly. I know I kind of addressed this earlier. We can't predict commodity prices. You know, nobody knows. Even the people on the inside, nobody knows.
Nobody knows.
Even though people on the inside nobody knows and all you can do is physician yourselves sort of act with within the things that you can control and from the beginning we set up our balance sheet to make sure that we could survive a variety of environments and if you look at our business today, just just look at our <unk>.
Jim Litinsky: And all you can do is position yourselves, you know; you sort of act within the things that you can control. And from the beginning, we set up our balance sheet to make sure that we could survive in a variety of environments. And if you look at our business today, just, just look at our initial concentrate business, we're a low-cost producer to the world. And so as things get uneconomic, of course, they can be uneconomic for a period of time, but they cannot persist that way indefinitely forever.
<unk> concentrate business, we're a low cost producer to the world and so as things get an economic of course, they can be on economic for a period of time, but they cannot persist that way indefinitely forever and so what we focus on it as being absolutely low cost and that's why again, we wanted to highlight.
Jim Litinsky: And so, what we focus on is being absolutely low cost. And that's why, again, on the call today, there are a couple of things about our business. We're not standing still in this environment. You know, 60K upstream is a modest amount of capital to expand our REO output by approximately 50%. That's incredible.
On the call today, there's a couple of things about our business, we're not standing still in this environment ups.
Upstream 60, K is a modest amount of capital to expand our Oreo output by approximately 50 per cent. That's incredible I mean, if you think about and again I get that the pendulum is sort of to the negative today, but if you think about.
Jim Litinsky: I mean, if you think about, and again, I get that the pendulum is sort of swinging to the negative today, but if you think about, you know, when EVs were as cool as AI is today, right, a few years ago, people perceived the assets of MP before we had done a lot of this work to be worth 10 billion. So now, add that by 50%.
When when Eevees, whereas cool as AI is today right a few years ago you know.
People perceived.
The acids a M. P. Before we had done a lot of his work to be worth 10 billion. So now add that by 50% and that means the new upside is 15 billion without adjusting for inflation over a long period of time and so the point is is that the pendulum swing back and forth you know.
Jim Litinsky: And that means the new upside is 15 billion without adjusting for inflation over a long period of time. And so the point is that these pendulums swing back and forth. You know, all we can do is control the things that we can control and work on executing this. And so that's also why, lastly, I just, the last point is that I thought Ryan's comments were really important with respect to stage two.
All we can do is control the things that we can control and work on executing this and so.
That's also why lastly, I'd just the last point is I felt Brian's comments were really important.
With respect to stay issue. We you know the new playbook as we are thinking very thoughtfully about making sure that our stage to ignore refining is ultra low cost and we've made incredible progress in that business, but we have a long way to go and if if prices were at 150 M. B P. R. We might not care about.
Jim Litinsky: We, you know, the new playbook is that we are thinking very thoughtfully about making sure that our stage two, you know, our refining is ultra-low cost. We've made incredible progress in that business, but we have a long way to go. And if, you know, if prices were at 150 NDPR, you know, we might not care about, you know, a few bucks here, a few bucks there in cost, but in this environment, we do. And I do think also that having to fight through and survive environments like this is what makes for great operations, right? When you have no alternative but to get your costs down because you need to survive, that's when you really do a lot of great work. And we've lived through that, right?
You know a few bucks here are a few bucks there of course, but in this environment, we do and I do think also that having to fight through and survive environments. Like this is what makes for great operations right. When when when you have when you have no alternative but to get your costs down because you need to survive.
<unk>, that's when you really do a lot of great work and we've lived through that right. If we.
Jim Litinsky: If you, we, you know, we took control of these assets in 17 and, you know, it was hand to mouth for quite some time. We went through a cycle of, you know, a down cycle and survived very strongly. And so, no doubt that this time we will. And that's how we're thinking about things. We do not spend a lot of time trying to predict price. Great, thank you very much.
<unk> took control these assets and 17 and it was hand amount for quite some time, we went through a cycle of of you know Ah downcycle and survived very strongly and so no doubt that this time, we will and and that's how we're thinking about things, we do not spend a lotta time trying to predict prices.
Alright, Thank you very much good luck.
Bill Peterson: Our next question comes from Bill Peterson with J.P. Morgan. Please proceed. Yeah, hi, good afternoon.
Our next question got some bell Pietersen was J P. Morgan.
These proceed.
Yeah, Hi, good afternoon. Thanks for taking the question I'd like to ask what kind of fire question similar lines of questions in a different way.
Bill Peterson: Thanks for taking the question. I like to ask this kind of prior question or similar lines of questions in a different way. You know, is there kind of a right level of pricing where you would cycle more through stage two and maybe, I guess, is there a minimum level you would need to run to, to try to improve sort of the bottlenecking, yield, overall cost improvements across separation, and finishing? Is there like a minimum level?
Is there a kind of a right level of pricing, where you would cycle more from stage to end.
Maybe I guess is there a minimum level you'd you'd need to run too I.
I guess, maybe continue to try to improve sort of debottlenecking yield overall cost of permits across separation, finishing is there like a minimum level in other words can you may cost improvements about running a lower rate is stage two such that if there was a higher price environment. You can you can really take advantage of that.
Bill Peterson: In other words, can you make cost improvements by running a lower-rated stage two such that if it was a higher priced environment, you could really take advantage of that? Michael, do you want to go ahead? Yeah, hi, this is Michael.
So that leverage.
Michael you're going to go ahead.
Michael Rosenthal: Sorry about that. I think just to start off the last part of that question, we are currently running all circuits at commercial and significant throughput volumes, so we are able at those levels to demonstrate chemistry, demonstrate throughput capability, and demonstrate the effectiveness of our process. So that's not a question.
Yeah, Hi, this is Michael sorry about that I think just to set up the the last part of that question. We are currently running all circuits that commercial.
Insignificant throughput volumes. So we are able at those levels to demonstrate chemistry to demonstrate throughput capability and demonstrate the effectiveness of our processes. So that's another question, we do run at lower uptime.
Michael Rosenthal: We do run at lower uptime in parts of the stage two business or all of the stage two business than we do in the upstream business. As we continue to make improvements in each area of the operation, we will see that cost structure come down, and the trade-off that Ryan talked about, running through Stage 2 versus running at more modest volumes and producing more concentrate for sale, we'll see that pendulum also swing, and so we expect, and I mentioned starting 2Q, we expect, that can become more noticeable. But as we get older, Lachlede Thank you, method We will run more material through the leach once it gets that far, we will have to produce it as a finished product.
In parts of the stage do business or all of the stage the business that we do in.
Upstream business.
As we continue to make improvements in each area of the operation, we will see that cost structure come down and the the the trade off that Ryan talked about running through stage two vs running at more modest volumes and producing more concentrated person will see that that.
And I'm also swing and so we expect and I mentioned.
Yeah, it's starting to QE expect.
That could become more noticeable.
But you know as we get.
The shields.
Area or in a position, where we are maximizing recovery of N. P. R. At the most.
Reagent effective.
Method, we will run more material <unk> once you get that far.
We will have to produce it as a finished product.
Michael Rosenthal: But we wanna make sure that also when we're at that point, we're not losing yield, losing material through inefficient operations in, for example, purification processes or losing material in product finishing. So all of those things, we want to make sure that we have the process, the integrated process, running efficiently before we push through volume and end up losing sort of hard-won gains, you know, in one part of the process. So we're very confident that we'll do that because we see it every day.
But we wanted to make sure that also when we were at that point, we're not losing wheeled losing material.
Inefficient operations in for example.
Vacation processes or losing.
Uhm material in private permission.
So all of those things we wanted to make sure that we have the process integrated process.
Running efficiently before we pushed through volume and ended up losing.
One game.
You know in one part of the process.
So we're very confident that we'll do that we see every day, we see the progress every single day.
Michael Rosenthal: We see progress every single day, and we see that the process works. We just also see opportunity to do it better and, in the current pricing environment, the necessity of pushing volume just for volume's sake. To repeat what we've already said, that economic trade-off is not..., and products part. And then on the pricing, like what kind of, I mean, there are some numbers, 70 to 90, that may not be attractive. Maybe 150 is what is the right price? How do you guys think about the framework without making? Yeah, Bill, this is Ryan.
See that the process work.
Which is also see opportunities to do it better than the current pricing environment.
<unk>.
Pushing volume <unk> repeat what was there you said.
Economic tradeoffs with <unk>.
Stark.
And then on the pricing like what kind of I mean.
There are some number 70 to 90 that may not be attractive maybe 150 years, what what what is the right <unk>. How do you guys think about the framework without may make more sense.
Yeah. This is Ryan I think quite yet.
Ryan Corbett: I think my, uh, my offense. Maybe I'll start, Mike. Feel free to jump in. But my offhand comment on 70 to 90 was not that it was unattractive. It was that I do not think for many greenfield projects that that is actually the incentive price. I think there are a lot of hopeful projects out there that think they will be profitable at 70 to 90 and likely will not be, which is referring back to Jim's comment. That's exactly what we've seen. Probably one of the largest potential additions to supply in the Western world. So that was my comment.
By off at.
Yeah, maybe I'll start by feel free to jump in but my off hand comment on 70 to 90 was not that it was unattractive. It was that I do not think for many greenfield projects that that is actually the incentive price I think there are a lot of hopeful projects out there that think they will be economic and 70 to 90 and likely will not be which is.
Referring back to Jim's comment that's exactly what we've seen in probably one of the largest potential additions to supply in the western World. So that was my comment I think 70 to 90 again you know you can do the math on the incremental profit potential of going from selling concentrate to separating the product and selling it as oxide there was.
Ryan Corbett: I think 70 to 90 again, you know, you can do the math on the incremental profit potential of going from selling concentrate to separating the product and selling it as oxide. There is significant incremental profit at 70 and at 90, and there's incremental profit at 55, but we know that there are parts of the process that are sub-optimal. I think what Michael is walking you through is, We make the decision every single day whether to run or not based on the trade-off of the potential profit we get in our upstream product versus pushing sub-optimized product and maybe losing yield or adding an incremental dollar to a variable cost that makes that trade-off not worth it at these prices just to push volume for volume.
Significant incremental profited 70, and at 90, there's incremental profit at 55, but if we know that there are parts of the process that are Suboptimized I think where Michael is walking you through is.
We make the decision every single day, whether to run or not based on the trade off of the potential profit we get in our upstream product versus pushing sub optimized product and maybe losing yield or adding an incremental dollar or two a variable cost that makes that tradeoff not worth it at these prices just.
Ryan Corbett: And I just want to add, because I referenced it, but expand upon it, because I know I've probably, again, like a broken record, have talked about this on a lot of calls where when we think about global supply and how hard it is to get this stuff online, you know, from a financial analysis perspective, it's sort of very easy to pick an incentive price and then sort of assign that number and expect that people will come online and, The practical reality is, and again, as Ryan just referenced, look at sort of the biggest source of potential incremental supply that was expected to come online out of Australia has just come out and said massive cost overruns, does not necessarily have the capital to complete, sort of needing support. Because the reality is that these are really hard things to get online.
Push volume for volume sake.
And I just wanted to add because I I references, but expand upon it because I know I've, probably again like a broken record have talked about this on a lot of calls where when we think about <unk>.
Global supply and how hard it is to get this stuff online.
From a from a financial analysis perspective, it's it's sort of very easy to pick an incentive price and then sort of a sign that number and expect that people will come online and you know they can earn an attractive return at that number.
Practical realities and again as Ryan just reference look at sort of the biggest source of potential incremental supply that was expected to come online out of Australia has just come out and said massive cost overruns.
It does not necessarily have the capital to complete you know sort of needing needing support because there's there's the reality is that these are really hard things to get online and again, that's why I go back to you know the value of what we have again, if you take any amount of medium or long term view the ability to.
Jim Litinsky: And again, that's why I go back to the value of what we have. Again, if you take any amount of a medium or long-term view, the ability to get this supply online is really challenging. That's also why upstream... Brian Sponheimer, MP Materials, Matt Summerville, David Deckelbaum, MP Materials, to get our cost structure down because we know that the pendulum will ultimately swing and typically, the cycle seems to be moving faster these days. And so that pendulum may swing back even more fast, much more quickly than people. Yeah, that's all well understood.
Get this apply online it's really challenging that's also why you upstream.
Mmk was a religious realm.
Relevant thing that people should appreciate about what we believe is our ability to bring on incremental supply, but also to be clear that the comment when Brian was giving those numbers that was not to suggest that there's not a lot of incremental propertied 70, or 90 that was not the point. There is it's at these prices here, we are being extra thoughtful.
Because we just want to maximize our cash flow, but we are still working very maniacally to get our cost structure down because we know that the pendulum will ultimately swing and typically it <unk>.
Bill Peterson: I like to ask M&A questions in a different way, but actually kind of, maybe similar to know what you're kind of getting at. You mentioned earlier about the stress assets. Are there actually, I'm not talking about, you know, the rumored M&A; I'm talking about, are there other assets out there that may make sense for you to take on as you think about a long-term potential market or, or even areas like heavy rare earths, as opposed to light, you know, as part of your magnetization efforts, things like that. I just wondered if that's of interest to you.
<unk> seemed to be moving faster these days and so that the pendulum may swing back even much more fat you know much more quickly than than people think.
Oh, Yeah, Yeah, that's all well understood I'd like to ask M&A in a different way that actually kind of maybe this similar to to know.
You kind of get them that you mentioned earlier about distressed assets are they're actually I'm not talking about the rumored M&A I'm talking about are there other assets out there that may make sense for you to take on as you think about a longterm potential market or or even areas like heavy rarest as opposed to like.
Part of your bags inspiration efforts things like that I'm, just I'm just wondering if that's of interest.
Jim Litinsky: As, as, you know, maybe assets are on a low valuation these days. Yeah, absolutely. I mean, that's why we, you know, we, it is very important for us to have positioned the company to be able to be offensive at times like now. And we've talked about how our expectation is that, over a long period of time, we'll be able to pick up, you know, a lot of invested dollars at 10 cents, if you will. I do think there's typically a disconnect where you have, you know, someone who started it or promoted it or whatever, and they think it's going to cost x, and they want to get y discount rate. And then, what inevitably happens is it turns out it costs 3x, and the discount rate is y plus something. And so there typically needs to be catalysts that cause those two perspectives to converge on something that is sort of doable for all sides. And times like now are the kinds of times that cause that weather to happen.
As maybe Patrick Miller valuation these days.
Yeah, absolutely I mean, that's why we.
<unk>. It is very important for us to have positioned the company to be able to be offensive at times like now and we've talked about how our expectation is over a long period of time will be able to pick up.
A lot of dark.
Invested dollars at 10 cents. If you will I do think there is typically when you think about a project. There is typically a disconnect where you have.
Someone who's.
Started it or promoted or whatever and they think it's gonna cost acts and you know they Wanna get why discount rates and then would have an <unk> inevitably happens is it turns out across three X and the discount rate is wide plus something and so you know.
There needs to be typically catalysts that.
Cause those two perspectives to converge to you know something that is sort of doable for all sides.
And you know <unk>.
Times like now are the kinds of times that cause that weather you know.
Jim Litinsky: And so that's a long-winded way of saying that we're always looking opportunistically and expect that there will be some opportunities out of this. But again, whatever the investment is, I think I go back to upstream 60K, which is, from an opportunity standpoint, is an enormous home run relative to anything we see out there right now. Yeah, next question. Thanks, Bill. Our final question comes from David Sunderland with Bayard.
That caused that to happen and so that's a long winded way of saying that we're you know we're always.
Looking opportunistically and expect that there will be some opportunities out of this but again.
You know whatever the investment is I think the <unk> I go back to upstream 60, K, which is.
From a from an opportunity standpoint is an enormous home run relative to anything we see out there right now.
Yeah make next question thanks, though.
Yeah.
Our final question comes from data Center line with May I.
David Adam Deckelbaum: Please proceed. Hey guys, thanks for the update. Appreciate the time. I was just wondering if you could talk a little bit more about the physical expansion that's already been completed for upstream 60k, maybe any increment of capital that will be spent on that this year, and just how we think about volumes ramping up from that over the next four years. Mike, do you want to kick us off?
Please proceed.
Hey, guys. Thanks for the update appreciate the time was just wondering if you could talk a little bit more about the physical expansion. That's already been completed for upstream 60, K, maybe any incremental capital that will be spent on that this year and just how we think about volumes ramping up from that over the next four years.
Do you think why do you want to kick us off.
Michael Rosenthal: The total amount of capital spent this year will be relatively modest. Equipment Expansion to our grinding circuit, which we think will help at least some additional capacity there and also result in More Efficient Grinding, which we think will be a key contributor to better flotation recovery. That's the one capital activity that we have ongoing, other piloting activities, and we're working to execute all of these plans as capital efficiently as possible. As I've said in the past, there are sort of three ways of looking at it. One is sort of optimization, which is effectively no capital. Others are sort of modest.
That's right. The total amount of capital spent this year will be relatively modest we have a smaller.
Equipment expansion too According circuit, which we think will help.
At least some additional capacity there.
And also resolved and.
More efficient grinding, which we think will be a key contributor to a better location recovery.
That's the one cat.
Capital activity that we have ongoing.
Significant.
Other piloting activity.
And we're working to execute all of these plans is capital efficiently as possible.
As I said in the past week instead of three ways of looking at it one instead of optimizations with her actively no capital.
Capital Investment that we hope will have a sort of step change improvement, and then there's the possibility of larger, larger investments, which will be much bigger and potential throughput increases or over for production. So the one project I'm going on now... that we talked about is in the second category with modest modest capital that we hope could be some degree of step change in that recovery, but we don't have that built into our plans for this year. We hope to bring it online sometime in the second half of the year.
There is a sort of modest.
Capital investments that we hope have sort of that change improvement and then there's the possibility of some larger larger investments, which.
I'd be too much bigger.
Potential throughput increases or.
For production so.
The one project I'm going though.
That.
We talked about it in the the second category with <unk>.
Modest capital that <unk> to some degree a step change in the amount of coverage, but we don't have that.
Broke into a into a plans for this year.
And we hope to bring it online sometimes that can help with you.
Awesome, thanks guys. Thank you all for your questions. That will conclude the Q&A session, so I will now turn the conference over to Jem Lutynski for further questions. Well, thank you, everyone. And, you know, I just wanted to reiterate that despite what is clearly a tough pricing environment, I think the execution across the board, across all stages of our business, has been really remarkable. And I have no doubt that we are positioned very well for the coming months and years ahead. So, you know, we wish prices were higher, but we won't focus on that. We'll just keep working on the things that we can control and continue to execute for you all. So we look forward to seeing you next quarter. Thanks, everyone. That will conclude today's conference call. Thank you all for your participation; you may now disconnect your line.
Awesome. Thanks, guys.
Thank you all for your questions.
That will conclude the Q&A session I will now turn the conference over the Jamaluddin ski for further remarks.
Okay, well, thank you everyone and I just wanted to reiterate that despite what is clearly a tough and pricing environment I think the execution across the board across all stages of our business.
<unk> has been really remarkable and I have no doubt that we are positioned very well for the coming months and years ahead. So we we wish prices were higher but we won't focus on it will just keep.
Working on the things that we can control and continuing to execute for you also we look forward to seeing you next corner. Thanks, everyone.
That'll complete today's conference call.
Thank you all for your participation you may now disconnect your line.