Q1 2024 MP Materials Corp Earnings Call

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Operator: Excuse me, everyone. Please remain holding, and the conference will begin momentarily. Again, please remain holding. The conference will begin momentarily.

Speaker Change: Excuse me everyone. Please remain holding and the conference will begin momentarily again, please remain holding the conference will begin momentarily.

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Speaker Change: Hello.

Speaker Change: [music].

Victoria: Thank you for attending the Mp Materials first quarter 2024 earnings call and webcast. My name is Victoria, and I'll be your moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star followed by 1 on your telephone. I would now like to pass the conference over to your host, Martin Sheehan, Head of Investor Relations.

Victoria: Good afternoon. Thank you for attending the MP materials first quarter 2024 earnings call and webcast. My name is Victoria and I'll be your moderator today.

Victoria: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to ask a question. Please press star followed by one on your telephone keypad I would now like to pass the conference over to your host Martin <unk> head of Investor Relations. Thank you. Please proceed to Martin.

Victoria: Thank you. You may proceed, Martin. Thank you, operator, and good afternoon, everyone. 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. 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.

Martin: Thank you operator, and good afternoon, everyone and welcome to the MP materials first quarter 2024 earnings Conference call with me today from MP materials are Jim Lapinski, founder Chairman and Chief Executive Officer, Michael Rosenthal, founder and Chief operating Officer, and Ryan Corbin, Chief Financial Officer as a reminder, today's.

Victoria: Factors that may cause companies' actual results to differ materially from these statements are included in today's presentation, earnings release, and NRSEC files. 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. Additionally, 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. Jim?

Martin: Discussion will contain forward looking statements relating to future events and expectations that are subject to various assumptions and caveats factors that may cause company's actual results to differ materially from these statements are included in today's presentation earnings release and in our SEC filings.

Speaker Change: 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 Jim.

Martin Sheehan: Thanks, Martin. Hello, everyone. As is our usual program, I will open by covering some year-to-date highlights. Ryan will then go through our financial performance and operating KPIs. Michael will follow that with an overview and updates on mountain pass operations. And I will then come back with some closing remarks before Q&A. So let's start on slide four.

Jim: Thanks, Martin and Hello, everyone.

James Henry Litinsky: As is our usual program I will open by covering some year to date highlights.

Jim: Ian will then go through our financial performance and operating Kpis, Michael will follow that with an overview and update on mountain pass operations and I will then come back with some closing remarks before Q&A.

Speaker Change: So let's start on slide four.

James Henry Litinsky: As Michael hinted on our fourth quarter call, our concentrate production in the first quarter was outstanding. We produced the second highest tonnage of REO in Mountain Pass history, and plant uptime was at near record levels.

Jim: As Michael hinted at on our fourth quarter call our concentrate production in the first quarter was outstanding.

Speaker Change: We produced the second highest tonnage of Oreo in mountain past history.

Speaker Change: <unk> uptime was at near record levels.

Michael Stuart Rosenthal: This was a particularly impressive quarter of upstream execution, given that we are operating with the backdrop of continued downstream optimization and site expansion efforts. As discussed in detail last quarter, we are tactically managing our refining ramp in light of the market environment. We are focused on near-term cash flow optimization while we position for maximum long-term profitability.

Jim: This was a particularly impressive quarter of upstream execution given that we are operating with the backdrop of continued downstream optimization and site expansion efforts.

Jim: As discussed in detail last quarter, we are tactically managing our refining ramp in light of the market environment. We are focused on near term cash flow optimization, while we position for maximum long term profitability.

Jim: Consequently record level production this quarter meant strong concentrate sales.

James Henry Litinsky: Record-level production this quarter meant strong concentrate sales. In addition, the team continued to advance projects on Upstream 60K, our effort to increase Mountain Pass upstream output by approximately 50% over the next four years with modest levels of incremental investment. We expect this to create significant value for shareholders over time, and we are very pleased with what we are seeing so far on this execution journey. Moving to the midstream,

Jim: In addition, the team continued to advance projects on upstream 60, K our effort to increase mountain pass upstream output by approximately 50% over the next four years with modest levels of incremental investment.

Jim: We expect this to create significant value for shareholders over time, and we are very pleased with what we're seeing so far on this execution journey.

Jim: Moving to the midstream.

James Henry Litinsky: We made our first NDPR metal sales out of Vietnam in the quarter, with most of that going to our Japanese partners through our Sumitomo relationship. We are steadily expanding our ex-China customer base, with initial deliveries of NDPR oxide and metal to these new customers. We are building trust as a reliable supplier of on-spec separated products. We expect these sales to ramp significantly as we support growing downstream demand outside of China. And, of course, as Michael laid out in February, and we'll discuss in more detail in a minute, we are making solid headway on dialing in process conditions and implementing important improvements to optimize production and reduce costs in our separations business, which we expect will allow us to make step-change improvements in output in the back half of the year. Moving on to our downstream magnetics business, we made tremendous progress in the quarter. I am very pleased to announce that the initial 1000 metric ton design capacity of Fort Worth is fully committed.

Jim: We made our first NDP, our metal sales out of Vietnam in the quarter with most of that going to our Japanese partners through our Sumitomo relationship.

Jim: We are steadily expanding our ex China customer base.

Jim: With initial deliveries of <unk> oxide and metal to these new customers. We are building trust as a reliable supplier of on spec separated products.

Jim: We expect these sales to ramp significantly as we support growing downstream demand outside of China.

Jim: And of course as Michael laid out in February and will discuss in more detail in a minute, we are making solid headway on dialing in process conditions and implementing important improvements to optimize production and reduce costs in our separation business.

Jim: Which we expect will allow us to make step change improvements in output in the back half of the year.

Jim: Moving onto our downstream magnetics business, we made tremendous progress in the quarter.

Jim: I am very pleased to announce that the initial 1000 metric ton design capacity of Fort worth is fully committed.

James Henry Litinsky: We have a lot of execution to do, but this is certainly a major milestone in the development of the business and is risk-reducing from a financial standpoint. As far as operations are concerned, we successfully completed a commercial-scale North American Electra winning pilot with exciting results. We advanced installation and commissioning activities of magnet precursor materials in Fort Worth.

Jim: We have a lot of execution to do but this is certainly a major milestone in the development of the business and his risk reducing from a financial standpoint.

Jim: As far as operations, we successfully completed a commercial scale North American electro winning pilot with exciting results.

Jim: We advanced installation and commissioning activities of magnet precursor materials in Fort worth.

James Henry Litinsky: In addition, we began commissioning our magnet prototyping line, which, by the way, is quite a scaled operation relative to anything in the Western world. This is critical as we expect Fort Worth to be the IP generation and operational know-how center for a powerhouse global manufacturer of scale. What we are building now is important; finish magnets are very much an engineered product, and there are a variety of market verticals. In addition to a wide range of standard magnet grades, each end magnet customer has its own requirements for performance, form factor, shape, coating, and heat resistance.

Jim: In addition, we began commissioning our magnet prototyping line, which by the way is quite a scaled operation relative to anything in the western World.

Jim: This is critical as we expect Fort worth to be the IP generation and operational Knowhow center for a powerhouse global manufacturer of scale.

Jim: What we are building now is important.

James Henry Litinsky: Finished magnets are very much an engineered product and there are a variety of market verticals.

Jim: In addition to a wide range of standard magnet grades each and magnet customer has its own requirement for performance form factor shape coding and heat resistance.

James Henry Litinsky: Our pilot line allows us, using smaller scale equipment similar to our commercial scale and often manufactured by the same vendors, to prototype specific magnets for customer qualification and process optimization. This really matters for long-term use cases beyond just scaling up for the EV hybrid, wind turbine, or HVAC growth opportunities; vast commercial and national security use cases such as humanoid robotics and drones are going to need suppliers who can be more of a partner with scale instead of solely sourcing with mass subsidized mercantilist manufacturers with competing priorities, to say the least, as we set up this business.

Jim: Our pilot line allows us.

Jim: Smaller scale equipment similar to our commercial scale and often manufactured by the same vendors to prototype specific magnets for customer qualification and process optimization.

Jim: This really matters for long term use cases beyond just scaling up for the EV hybrid wind turbine or HVAC growth opportunities.

Jim: <unk> commercial and National security use cases, such as humanoid robotics and drones are going to need suppliers, who can be more of a partner with scale instead of solely sourcing with mass subsidized mercantilists manufacturers with competing priorities to say the least.

Jim: But.

James Henry Litinsky: As we set up this business, we will be maniacal about sources and uses and overall capital return and efficiency.

James Henry Litinsky: We will be maniacal about sources and uses and overall capital return and efficiency. We have to be thoughtful about how we manage risk and what are the right approaches to take to scale. In April, we received an initial $50 million prepayment for the manufacture and delivery of magnet precursor materials, which will begin later this year. We also recently announced a $58.5 million award of Advanced Energy Project Tax Credits from the U.S. government, also known as the 48C Tax Credit Program. It is important to note that the application process for this funding was incredibly competitive. We believe it was roughly 10 times oversubscribed.

Jim: We have to be thoughtful about how we manage risk and what are the right approaches to take to scale.

Jim: In April we received an initial $15 million prepayment for the manufacture and delivery of magnet precursor materials, which will begin later this year.

Jim: We also recently announced a $58 $5 million award of advanced Energy project tax credits from the U S. Government also known as the <unk> 48, the tax credit program.

Jim: It is important to note that the application process for this funding was incredibly competitive.

Jim: We believe it was roughly 10 times oversubscribed.

James Henry Litinsky: Winning this award highlights the significance of our mission, the unique technical and commercial capabilities of our team, and the high-impact nature of this project. Many of you have heard me talk repeatedly about how much capital structure matters, especially given the volatile nature of our industry and regardless of any short-term shareholder pressure. We have been consistent in highlighting how much we recognize that thoughtful financial execution is key to our long-term success and value creation. I have made clear that we would act methodically when we could do thoughtful things with material impact. Well, that's it.

James Henry Litinsky: Winning this award highlights the significance of our mission to unique technical and commercial capabilities of our team and the high impact nature of this project.

Jim: Lastly.

Jim: Many of you have heard me talk repeatedly about how much capital structure matters.

James Henry Litinsky: Especially given the volatile nature of our industry.

James Henry Litinsky: And regardless of any short term oriented shareholder pressured.

James Henry Litinsky: We have been consistent and highlighting how much we recognize that thoughtful financial execution is key to our long term success and value creation.

James Henry Litinsky: I have made clear we.

James Henry Litinsky: Would act methodically when we could do thoughtful things with material impact.

James Henry Litinsky: Well.

James Henry Litinsky: In March, we were able to be opportunistic in a substantial way across our capital structure. We issued a new $747.5 million 2030 convertible with a low 3% coupon and, in parallel, effectuated a capped call that set the economic equivalent conversion price at a 100% premium to the then share price. This computes to a 4.7% effective cost of debt capital for MP through 2030 until our share price exceeds $31. We primarily utilized these proceeds to repurchase $480 million of our 2026 notes for about $0.89 on the dollar and, most importantly, bought back 7.3% of the company at a price we believe is heavily depressed relative to MP's intrinsic value. In addition, we have the added benefit of pushing the vast majority of our debt maturities out by a number of years to 2030.

James Henry Litinsky: In March we were able to be opportunistic in a substantial way across our capital structure.

James Henry Litinsky: We issued a new 747 $5 million 2030 convertible with a low 3% coupon and in parallel effectuate a capped call that the economic equivalent conversion price at a 100% premium to the then share price.

James Henry Litinsky: This compares to a four 7% effective cost of debt capital MP through 2030 until our share price exceeds $31.

James Henry Litinsky: Primarily utilize these proceeds to repurchase $480 million of our 2026 notes for about 89 cents on the dollar.

James Henry Litinsky: And most importantly bought back seven 3% of the company at a price. We believe is heavily depressed relative to intrinsic value.

James Henry Litinsky: In addition, we have the added benefit of pushing the vast majority of our debt maturities out by a number of years tissue <unk>.

James Henry Litinsky: So in summary, we navigated another quarter of difficult down cycle macro conditions in our industry with relentless execution, both operationally and financially. Material value creation is often recognized on a lag, and I think this quarter will be appreciated by investors over time. With that, I will turn it over to Ryan to go through our financial performance and KPIs.

James Henry Litinsky: So in summary, we navigated another quarter of difficult down cycle macro conditions in our industry with relentless execution, both operationally and financially.

Ryan: <unk> value creation is often recognized on a lag and I think this quarter will be appreciated by investors over time.

Jim: With that I will turn it over to Ryan to go through our financial performance and Kpis Ryan.

Ryan S. Corbett: Thanks, Jim. Turning to slide six, I will walk through our operating metrics for stage one on the left side of the page and our stage two metrics on the right. In the upstream business, we produced 11,151 metric tons of REO and concentrate in the, a 4.5% increase over the last year and over 20% more than Q4, mainly due to near record uptimes and higher. This higher production, combined with our focus on efficiently increasing NDPR production, which we discussed in detail last quarter, resulted in strong sales of REO and concentrate of 9,332 metric tons.

Ryan: Thanks, Jim turning to slide six I will walk through our operating metrics for stage one on the left hand side of the page and our stage two metrics on the right and.

Ryan S. Corbett: In the upstream business, we produced 11151 metric tons of Oreo and concentrate in the quarter, a four 5% increase over the last year and over 20% more than Q4, mainly due to near record uptime and higher fee rates.

Ryan S. Corbett: This higher production combined with our focus on efficiently increasing and EPR production, we discussed in detail last quarter resulted in strong sales of Oreo and concentrate of 9332 metric tons.

Ryan S. Corbett: This is down year over year as we consumed nearly a quarter of our concentrate production for downstream operations versus last year, when we had all of our concentrate production available. Our realized price of REO and concentrate declined to $4,294 per metric ton due to the overall weak market pricing for rare earth materials.

Ryan S. Corbett: This is down year over year, as we consumed nearly a quarter of our concentrate production for downstream operations versus last year. When we had all of our concentrate production available for sale.

Ryan S. Corbett: Our realized price of Oreo and concentrate declined to $4294 per metric ton due to the overall weak market pricing and rare earth materials.

Ryan S. Corbett: As we look at Q2, should prices hold in the mid $50 per kilogram range for NDPR, we would expect prices to be down mid single digit percentages sequentially as we deal with the slight lag in price realization. Moving to the right side of the slide, as Michael mentioned in February, NDPR production volumes were roughly in line with our Q4 output at 131 million units. As we look at Q2, given some of the continued optimization steps we are taking here in April and May, even with our one-week plant shutdown, which was just completed, we would expect NDPR production to roughly double.

Ryan S. Corbett: As we look at Q2 should prices hold in the mid $50 per kilogram range for <unk>, we would expect pricing to be down mid single digit percentages sequentially as we deal with a slight lag in price realizations.

Ryan S. Corbett: Moving to the right side of the slide as Michael mentioned in February and DPR production volumes were roughly in line with our Q4 output at 131 metric tons.

Ryan S. Corbett: As we look at Q2, given some of the continued optimization steps. We are taking here in April and May even with our one week plant shutdown, which was just completed we would expect NDP our production to roughly double in Q2.

Ryan S. Corbett: And, as Jim stated, we would expect much more meaningful step-ups in production in the back half of the year, which Michael will discuss. Looking at NDPR sales volumes, we sold 134 metric tons of NDPR on an oxide equivalent basis, mainly to customers in Japan.

Ryan S. Corbett: And as Jim stated, we would expect much more meaningful step ups in production in the back half of the year, which Michael will discuss shortly.

Ryan S. Corbett: Looking at <unk> sales volumes, we sold 134 metric tons of NDP are on an oxide equivalent basis, mainly to customers in Japan.

Ryan S. Corbett: I would note that NDPR sales volumes will naturally lag production volumes as significant portions of our production are being toll processed into metal in Vietnam, as we've discussed in prior court cases. This is part of the working capital investment you see on our balance sheet as we scale this midstream business. The lag on any given unit of production, of course, depends on a variety of factors, but we generally are seeing at least two to four months as we continue to fill the tolling channel and convert production into sales. Lastly, on the far right.

Ryan S. Corbett: You'll see our realized price per kilogram of NDPR was $62, which, as we mentioned in February, exhibits a more notable lag to market prices than that of constant, with Q1 sales prices primarily based off fourth-quarter market indices. As such, we expect Q2's realized prices to decline approximately 20% following the trend we saw in market prices for Q1 over Q4. Turning to slide seven, revenues declined from last year to $48.7 million, driven by lower concentrate realized pricing and sales, partially offset by the beginning of sales of NDPR oxide and metal.

Ryan S. Corbett: Sequentially, sales improved 18% due to the increase in sales of NDPR oxide, and Adjusted EBITDA and related margins declined year-over-year to negative $1.2 million and negative 3%, respectively, in the quarter, primarily due to lower realized pricing for concentrate just discussed, which impacts EBITDA on a dollar-for-dollar basis, as well as the current subscale production of separated products. Adjusted EBITDA was impacted by a $6 million inventory reserve taken in Q1, which was included in the cost of sales on the. So before this reserve and the costs for magnetics embedded in our operations, our concentrate business remains nicely profitable, even if there are multi-year lows in commodity prices.

Ryan S. Corbett: As we discussed last quarter, our early cost of production of separated products is higher than our expected costs once we reach more normalized production levels, given we are staffed for higher production rates and early production often requires additional processing, labor, and certain rework that should not recur once operations normalize, with these impacts and the rapid deterioration in market price. We reserve for certain inventory where costs are currently estimated to exceed net realizable value.

Ryan S. Corbett: This is not unexpected as we ramp up the plant and may continue for a short period as we finish our initial optimization. That said, we remain steadfastly confident in ultimately achieving a best in class per unit cost profile, and we should see improvements later this year as our production ramps toward run rate. On the far right, you will see adjusted diluted EPS was a four-set loss driven by lower adjusted EBITDA and higher depreciation from the significant amount of assets placed in service over the last. This was partially offset by lower tax expense in the quarter due to lower pre-tax.

Ryan S. Corbett: GAP EPS was also impacted by a $46.3 million gain associated with the early extinguishment of the majority of our 2026 convertible notes, which leads me to slide eight. We haven't shown a slide like this in some time, but given the significant transactions that took place in the quarter, we thought we would give an updated rundown of the changes. So, running through the transaction. First, in early March, we issued $747.5 million of new 3% convertible notes due in 2030, strengthening an already solid balance sheet by materially extending the maturities on our debt, with the primary use of the proceeds being to buy back a large portion of our existing 2026 debt. The new notes convert at a 40% premium to the share price on the date of the transaction, or $21.74 per share on a stand-alone basis.

Ryan S. Corbett: But, in connection with this offering, we entered into capped call transactions to effectively increase the premium on the 2030 notes to 100%, or $31.06 per share. The 3% coupon on the notes, while higher than our near-dated debt, reflecting the current interest rate environment, remains below the current market rate we receive on our cash investments, continuing to provide positive carry, and when including the cost of the capped calls, the all-in cost of the notes is approximately 4.7% until conversion, a very positive outcome.

Ryan S. Corbett: As mentioned, the primary use of proceeds from the offering was to repurchase $480 million of our existing 2026 convertible notes, which we did for $428.6 million, or $0.89 of par value, which drove the $46.3 million gain. I would also note that we made the election to pay any principal remaining on the 2026 notes in cash at maturity, so the shares underlying the remaining principal will fall out of our diluted share count calculations in future periods. Importantly, we also used $200.8 million to buy back 13 million shares, a fairly substantial retirement of 7.3% of the company's outstanding shares.

Ryan S. Corbett: We have always said that we would be opportunistic on capital return, given how we have positioned our balance sheet and given the confidence we have in our go-forward plan, as well as the substantial drawdown in our market value, in line with the current down cycle in NDPR prices. We saw a significant opportunity to create value for shareholders while maintaining a prudent balance. As of March 31st, we are roughly net debt neutral after undertaking all of these transactions and continuing to invest in the required working capital to grow our midstream business.

Ryan S. Corbett: And despite weak commodity prices, we continue to expect our balance sheet to remain robust, with several cash contributors in the short and medium term beyond our base, including significant product prepayments in our magnetics business, as well as the substantial cash impacts of both our 45x and 48c taxes, which I will discuss in more detail in a moment. To term out the vast majority of our debt maturities while capturing the value of both our depressed share price and the below par price of our existing notes, we expect will prove prescient as we look to a stabilization and recovery in our commodity prices, as well as continued execution on our business.

Ryan S. Corbett: To put all of these transactions into a simpler form, particularly as it relates to the impacts on our share count, we have laid out the changes on the left-hand side of the slide. Please note that our GAP diluted share count does not incorporate the anti-dilutive impact of the capped call transactions, which you can see incorporated in our adjusted figure on the bottom.

Ryan S. Corbett: And the table on the right side of the page walks you through the bridge from the left-hand side to a calculation of market cap and enterprise value, which would capture the principle of the convertible notes in the debt calculation and not in shares or markets regarding our cash. I'd note that subsequent to quarter end, and so not reflected on our Q1 balance sheet, we received an initial prepayment of $50 million for magnetic precursor products in stage.

Ryan S. Corbett: And we expect a further $100 million in payments, assuming we hit our operational hurdles over the next 12 months. In addition, we expect approximately $20 million in cash from the IRS when we file our tax return here soon for 2020.

Ryan S. Corbett: And lastly, while timing and monetization options are still not finalized, we expect to realize $58.5 million from our 40 AC tax credits that we've discussed in the not-too-distant future. All told, that is over $220 million in sources of cash that we can expect beyond our base business operation. As it relates to cash flow in this first quarter, our cash from operations, in particular our working capital, was impacted by several discrete items, which are bridged in a slide in the appendix.

Ryan S. Corbett: I would flag that our major NDPR metal deliveries were booked very late in the quarter, so cash was received in April. Additionally, we continue to build work in process inventory and finished goods inventory as we begin to further scale downstream production here in the next several months, and importantly, as we continue to feed the tolled metal sales channel. Lastly, we had a significant one-time cash spend on transaction costs in the quarter from costs recorded in both the Q4 and Q1 P&L and made our typical Q1 annual bonus payouts to a Regarding gross capex, we spent approximately $51.8 million in the quarter in line with our full year outlook of $200 to $250 million, including maintenance capex. With that, I will turn it over to Michael. Thank you, Ryan. Turning to slide nine.

Michael Stuart Rosenthal: Here is a picture of our leach circuit, one of the areas I spoke about last quarter, where our focus is on optimizing NDPR recoveries while sustaining high cerium rejection. And on slide 10, we have an overhead shot of our separations pad, with the light rarity separation circuit on the far left, to the right of which are our product finishing circuits, water treatment plants, and power plants. Slide 11 shows storage racks of our NDPR oxide in one metric ton super sacks waiting to be shipped.

Michael Stuart Rosenthal: The highlight of the quarter was, of course, the very strong production in our upstream business, where, with the adjustments made in the prior quarter, we were able to achieve slightly higher throughput per operating hour with a stable recovery end grade. This, combined with less unplanned downtime and better operational execution and some adjustments to the cleaner flotation operation, resulted in solid production growth year over year. We had a modest headwind from reagent adjustments that temporarily impacted recovery. Looking ahead, the first upstream 60K projects may begin trial operations in the third quarter. These include enhancements to the grinding circuit and a large-scale pilot flotation cell to improve rougher performance and deep bottleneck cleaner flotation.

Michael Stuart Rosenthal: As with most new processes, we expect these could cause instability and or lower uptime before the benefits come through. But we are very excited about the long-term opportunity of both of these projects. As mentioned on last quarter's call, we spent much of the first quarter working to improve the efficiency of our midstream operations. We are making very good progress, as part of these efforts and improvements and given some unforeseen challenges. We ended up temporarily inventorying additional volumes of intermediate streams rather than seeing them through to finish product volume. This partially contributed to the higher unit cost of production in Q4 and, to a greater extent, in Q1.

Michael Stuart Rosenthal: However, we made several breakthroughs that we expect to contribute to stable, low-cost production. In addition to those developments that I mentioned on the Q4 call, we made additional progress later in Q1 and into April in purification, separation, and product finishing. Adding it all up, we saw a slight decline in production quarter over quarter to 131 tons. Of this, over half was packaged in March. April continued to improve on production per operating day. In late April, we began our first semi-annual site-wide maintenance outage of 2024.

Michael Stuart Rosenthal: We undertook two major projects that coincided with the end of the life of assets installed by our predecessors. This included replacing and upgrading one of our power plant turbines and replacing the motor on our grinding machine. When complete later in Q2, the power plant turbine project should allow for higher generating capacity at lower operating cost and heat rate. The upstream business resumed normal production on schedule, and we are quite pleased with the results since its restart.

Michael Stuart Rosenthal: Several of the bottlenecking projects were implemented in our midstream business, both during the outage and thereafter, with one important project still underway. As a result, and as expected, there will be a slight offset in the timing of restart of some of these midstream assets compared to the upstream ones. NDPR oxide production in Q2 will therefore depend upon the exact timing and trajectory of the restart.

Michael Stuart Rosenthal: Nonetheless, we are targeting to approximately double production volumes here in Q2, with another significant increase in Q3. Therefore, I would reiterate my previous guidance that we will only push volume when we can do so while also lowering our fixed and variable unit costs of production. All in all, we are feeling very positive about our recent operating performance. However, we have enormous room to improve our processes and improve our internal execution. Our largest challenges and frustrations are mechanical reliability that I strongly believe is in no way a reflection of our process conditions or design. Additionally, supply chains continue to be brutally slow.

Michael Stuart Rosenthal: And this has delayed our ability to address some of the problems. However, we are starting to reach the end of these long lead times and are seeing the benefit of more reliable equipment. With this, we expect to improve our throughput with lower fixed and variable costs of production, higher yields, and less product rework. Before I turn it back to Jim, I'd like to highlight that we recently completed our fourth full year without a lost time injury.

Speaker Change: Before I turn it back to Jim I'd like to highlight but we recently completed our fourth full year without a lost time injury.

Michael Stuart Rosenthal: This is a remarkable achievement considering the complexity and growth of the operation and the number of new employees we have brought into the Mp Materials family. I want to thank all of our teams in Las Vegas, Mountain Pass, and Fort Worth for their incredible efforts every day.

Jim: This is a remarkable achievement considering the complexity and growth of the operation and the number of new employees, we have brought into the MP materials family.

Michael Stuart Rosenthal: I want to thank all of our teams in Las Vegas, Northern pass in Fort worth for their incredible efforts every day.

James Henry Litinsky: With that, I will turn it back over to Jim. Thanks, Michael. Let's move on to slide 12, where you can see a gorgeous night shot of our initial magnetics facility in Fort Worth. This looks like a rendering, but it isn't.

Michael Stuart Rosenthal: With that I will turn it back over to Jim.

Jim: Thanks, Michael.

Jim: Let's move on to Slide 12, where you can see a gorgeous knights shot of our initial magnetics facility in Fort worth.

James Henry Litinsky: This looks like a rendering but actually it is not.

James Henry Litinsky: This is real and is the road side view of our facility that spans 250,000 square feet and houses manufacturing operations, R&D, and our Magnetics Headquarters. As I said earlier... We are making a lot of progress across our business. Unfortunately, this was another dismal quarter for NDPR prices.

James Henry Litinsky: This is real and is the road front side view of our facility that spans 250000 square feet and houses manufacturing operations R&D and our magnetics headquarters.

James Henry Litinsky: As I said earlier, we are making a lot of progress across our businesses.

James Henry Litinsky: Unfortunately.

James Henry Litinsky: This was another dismal quarter for and DPR prices we.

James Henry Litinsky: We see some green shoots with recent price action, but the trajectory to a market recovery is, of course, outside of our knowledge and or control. As I've noted, though, I strongly suspect that most of Chinese industry is losing money at these prices. Some of you may have seen headlines about a recent high-level U.S. government visit, including the Treasury Secretary, to China last month, where discussions centered around China's state-led economic behavior

Jim: We see some green shoots with recent price action, but the trajectory to a market recovery is of course outside of our knowledge and ore control.

James Henry Litinsky: As I've noted, though.

James Henry Litinsky: Strongly suspect that most of Chinese industry is losing money at these prices.

James Henry Litinsky: Some of you may have seen headlines about a recent high level U S government visit including the Treasury Secretary to China last month, where discussion centered around China's state led economic behavior.

James Henry Litinsky: I doubt any of us would be surprised if this topic reaches a hysteric pitch as we approach the election season. Regardless of the cause, there is no doubt that recent market conditions have crushed Western and Allied attempts to broaden private investment in the rare earth supply chain. In addition, with so many investor revisions around expectations for EV penetration, or at least the timing of it, critical materials investing in general, especially for those that are battery inputs, is out of favor. There are some important distinctions, though, for rare earths and permanent magnets that will eventually matter, first, as it relates to EV penetration.

James Henry Litinsky: I doubt any of us would be surprised if this topic heightened into a hysteric pitch as we approach the election season.

James Henry Litinsky: Regardless of the cause there is no doubt that recent market conditions have crushed western and allied attempts to broaden private investment in the rare earth supply chain.

James Henry Litinsky: In addition, with so many investor revisions around expectations for EV penetration or at least the timing of it critical materials investing in general, especially for those that are battery inputs is out of favor.

James Henry Litinsky: There are some important distinctions, though for rare earth and permanent magnets that will eventually matter.

James Henry Litinsky: First as it relates to EV penetration there is still growth, albeit slower growth and hybrids are picking up a lot of the expectations slack.

James Henry Litinsky: There is still growth, albeit slower growth, and hybrids are picking up a lot of the slack. In March in the U.S., for example, plug-in hybrids grew 56% year over year. This resulted in 19% year-over-year overall growth for electrified vehicles, i.e., those that are either battery electric vehicles or plug-in hybrid electric vehicles, to remind you. The permanent magnets are in the motors, not the battery.

James Henry Litinsky: In March in the U S. For example, plug in hybrids grew 56% year over year.

James Henry Litinsky: This resulted in 19% year over year overall growth for electrified vehicles I E. Those that are either battery electric vehicles or plug in hybrid electric vehicles.

James Henry Litinsky: To remind you.

James Henry Litinsky: Permanent magnets are in the motors not the battery.

James Henry Litinsky: Hybrids still utilize a lot of permanent magnet content. So if the transition to full EVs involves increased short-term penetration of hybrids, we believe the rare earth industry is somewhat agnostic. Moreover, as the West revisits and reorients assumptions, China is still leading the way on electrified penetration.

James Henry Litinsky: Hybrid still utilize a lot of permanent magnet content. So if the transition to full evs involves increased short term penetration of hybrids. We believe the rare earth industry is somewhat agnostic.

James Henry Litinsky: Rover.

James Henry Litinsky: As the west revisits and reorient assumptions shine.

James Henry Litinsky: China is still leading the way on electrified penetration.

James Henry Litinsky: The growth there was 35% in March on a larger base, and we should see electrified penetration in China in excess of 50% by next year. As we push through this tough period, there is something even more powerful happening that should remind everyone how important our mission is. In recent months, we have seen BYD, NIO, Li Auto, and Xiaopeng introduce extraordinary electrified products at remarkably low cost to the rest of the world.

James Henry Litinsky: The growth there was 35% in March on a larger base and we should see electrified penetration in China in excess of 50% by next year.

James Henry Litinsky: As we push through this tough period.

James Henry Litinsky: There is something even more powerful happening that should remind everyone. How important our mission is.

James Henry Litinsky: In recent months, we have seen BYD Neo Lee auto and Xiaopeng introduced extraordinary electrified products.

James Henry Litinsky: Remarkably low cost to the rest of the world.

James Henry Litinsky: For those of you who have followed us, we've been talking about this evolution since 2020 when we went public. The historical criticism around EV penetration has been that they are too expensive, and given all the bearishness on Wall Street in recent months, maybe some are not fully appreciating a broader point.

James Henry Litinsky: For those of you who have followed US we have been talking about this evolution since 2020, when we went public.

James Henry Litinsky: The historical criticism around EV penetration was that they were too expensive.

James Henry Litinsky: And all the Bearishness on Wall Street in recent months maybe.

James Henry Litinsky: Maybe some are not fully appreciating a broader point.

James Henry Litinsky: Electrified vehicles are now essentially on pricing par with ICE, if not even cheaper in many cases, especially those made by Chinese automakers. To what extent, then, can state-led behavior around resources, specifically the sale of rare earths at a loss, persist in the face of full-on downstream expansion into global competition with all the major OEMs? Our guess is that, for both economic and political reasons, the price of our products will eventually explode into a true market-driven price. Some Western companies are better positioned than others.

James Henry Litinsky: Electrified vehicles are now essentially on pricing par with ice if not even cheaper in many cases, especially those made by Chinese automakers.

James Henry Litinsky: To what extent them can state led behavior around resources, specifically the sale of rare Earths at a loss persist in the face of a full on downstream expansion into global competition with all of the major Oems.

James Henry Litinsky: Our guess is that for both economic and political reasons the price of our products will eventually explode into true market driven pricing.

James Henry Litinsky: Some western companies are better positioned than others, we should expect to see major disruption in the coming years as Chinese Oems displace some western ones and global prowess.

James Henry Litinsky: We should expect to see major disruption in the coming years as Chinese OEMs displace some Western ones in global prowess. This leads to one final and more important strategic thought. This same theme around the rise of the Chinese industry, evolving from supply chain domination to full downstream leadership, applies also to humanoid robotics and drones. Humanoid robots, now accelerated into reality with AI, are likely to utilize multiples per unit of magnet content versus that of EVs. The national security implications here are extraordinary.

James Henry Litinsky: This leads to one final and more important strategic thought.

James Henry Litinsky: This same theme around the rise of Chinese industry evolving from supply chain domination to full downstream leadership apply.

James Henry Litinsky: Applies also and humanoid robotics and drones.

James Henry Litinsky: Humanoid robots now accelerated into reality with AI are likely to utilize multiples per unit of magnet content versus that of Evs.

James Henry Litinsky: The National security implications here are extraordinary.

James Henry Litinsky: For us in America, the runway to think about this issue is longer than an automobile's but should begin now. There is no doubt that the logical conclusion of all this is that M.P.'s mission matters. With that, let's open it up for Q&A. Operator?

James Henry Litinsky: For Us in America, the runway to think about this issue is longer than in autos, but should begin now.

James Henry Litinsky: There is no doubt, though that the logical conclusion of all this is that <unk> mission matters with that let's open it up for Q&A operator.

Operator: Of course. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If, for any reason, you would like to remove a question, please press star followed by two.

Speaker Change: Of course, we will now begin the question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one.

Operator: Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of Matt Summerville with D.A. Davidson & Co. Your line is now open.

Operator: As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question.

Operator: Our first question comes from the line of Matt Summerville with D. A Davidson <unk> co.

Matt J. Summerville: Your line is now open.

Matt J. Summerville: Maybe help out a little bit with the expected go forward ramp cadence on stage two in the back half. I know what you said kind of qualitatively, Michael. But I guess I'm curious as to, you know, what, time, or at what price.

Matt J. Summerville: Maybe help out a little bit with the expected go forward ramp cadence on stage two in the back half I know, what you said kind of qualitatively Michael.

Matt J. Summerville: But I guess I'm curious as to.

Matt J. Summerville: At what time or at what price.

Ryan S. Corbett: And I'd like to try and distinguish between the two. Do you think the stage two operation will kind of hit its run rate? And is there a price where you're more likely to stockpile WIP or FGI versus, you know, putting that tonnage into the market? What's the right way to kind of think about how that matrix, and I'm sure it is a matrix, how that all kind of, Sure. Hey Matt, it's Ryan.

Ryan: Put that tonnage into the market, but what's the right way to kind of think about how that matrix and I'm sure. It is a matrix how that all kind of looks here.

Ryan S. Corbett: I'll start us off, and then maybe Michael can give some specific examples. But, you know, I think the way to think about it is that our viewpoint on ramping methodically, you know, based on maximizing cash flow has not changed. I think the great thing about our model here is that we do have, you know, a profitable further upstream product that we can sell where there's a significant amount of profitability embedded. I think the thing that you're hearing from Michael and hearing from us is that we have a very clear line of sight at this point, given the optimizations that are ongoing and that have already been completed.

Ryan S. Corbett: Sure Hey, Matt, It's Ryan I'll start us off and then maybe Michael can give some specific examples but.

Ryan S. Corbett: Think the way to think about it is our our viewpoint on ramping methodically based on maximizing cash flow has not changed I think the great thing about our model here is that we do have a profitable further upstream product that we can sell.

Ryan S. Corbett: There's a significant amount of the profitability embedded.

Ryan S. Corbett: That are ongoing and that have already been completed.

Ryan S. Corbett: You know, we're talking about very specific mechanical optimizations where that framework that we laid out of lowering the incremental variable cost is very clearly ahead of us in the near term and over the next several quarters. And so with that, that gives us the confidence to tell you we see that, and so we can start ramping. And so, you know, for sure, we will continue to sort of watch that trade-off between the two.

Michael: Talking about very specific mechanical optimizations, where that framework that we laid out of lowering the incremental variable cost is very clearly ahead of us in the near term and over the next several quarters and so with that that gives us the confidence to tell you we see that and so we can start ramping and so for sure we will.

Ryan S. Corbett: We will continue to sort of watch that.

Ryan S. Corbett: Tradeoff between the two but I think thats the core message in terms of your question on stockpiling.

Ryan S. Corbett: But I think that's the core message in terms of your question on stockpiles. I think what I talked about at the beginning is that we have the ability to flex between separated products and more upstream products. And so that's generally how we would think about things. So we're implicitly holding back NDPR production at this point if you think about it that way. And so I don't know, Mike, if you have some thoughts on the specific items you're seeing here to help Matt with timing and quantum.

Ryan S. Corbett: I think what I talked about at the beginning is we have the ability to flex between separated products and more upstream products and so that's generally how we would think about things. So were implicitly holding back NDP. Our production at this point, if you think about it that way and so I don't know Mike. If you have some thoughts on the specific items you are seeing here to help help Matt on timing.

Michael Stuart Rosenthal: So Ryan touched upon a lot of it. I think, in the 2nd quarter into early 3rd quarter, a lot of these long-lead items that we've been waiting for should start to be received and installed. We've already started to see it in March and April, and at that point, we'll have a greater ability to increase throughput, and then we'll still be balancing the. Fixed and Variable Cost Leverage as we look at how we execute in the market.

Mike: Quantum so Ryan touched upon a lot of it I think in the second quarter into early third quarter a lot of these long lead items that have been.

Michael Stuart Rosenthal: We've been waiting for it should start to be received and installed and we've already started to see it in March and April.

Michael Stuart Rosenthal: At that point, we will have a greater ability to increase throughput and then we'll still be balancing the.

Michael Stuart Rosenthal: Fixed and variable cost leverage as we as we looked at how we execute into the margin.

Michael Stuart Rosenthal: Right.

Speaker Change: Thank you.

Michael Stuart Rosenthal: Thank you. And then just as a follow-up question, as it pertains to upstream 60, what are maybe the two or three major milestones we should be looking for out of MP over the next 12 months? And will that, you know, 40,000 tons per year to 60,000, will that scale linearly? What's the right way to think about how that scales? Is it more front-end loaded, back-end loaded, et cetera?

Speaker Change: As a follow up question as it pertains to upstream 60, what are maybe the two or three kind of major milestones, we should be looking for out of empty over the next 12 months and will that.

Michael Stuart Rosenthal: 40000 tons per year to 60000 will that scale linearly, what's the right way to think about how that scales is it more front end loaded back end loaded et cetera. Thank you.

Michael Stuart Rosenthal: Bob.

Michael Stuart Rosenthal: Thank you. Thanks, Matt. In terms of the cadence, I think we said I would look for it to be more back-end loaded. There's going to be a series of incremental improvements, more step function, and then perhaps even larger growth initiatives. Obviously, the larger initiatives will be more back-end heavy, but we are optimistic about some of these smaller projects and what they can do. And, as I mentioned, we do have two that are coming online at the end of this year.

Michael Stuart Rosenthal: But.

Michael Stuart Rosenthal: But in terms of the cadence I think we've said it I would look to be more backend loaded there's going to be a series of increments.

Michael Stuart Rosenthal: Incremental.

Michael Stuart Rosenthal: Improvements more step function and then perhaps even larger.

Michael Stuart Rosenthal: Growth initiatives, obviously, the larger initiatives will be more backend loaded.

Michael Stuart Rosenthal: But we are optimistic about some of these smaller projects and what they can do and as I mentioned, we do have two that are coming on line at the back of this year.

Michael Stuart Rosenthal: As with all projects, we would assume that initially there will be perhaps a negative impact from disruption and or uptime before we start to see the benefit. So, I would say early next year before we would expect to start to see the real impact of 60K. But we still work on normal optimizations, and that was evident this quarter.

Michael Stuart Rosenthal: As with all projects, we would assume that initially there'll be perhaps a negative impact from disruption in the upturn before we start to see the benefit. So I would say early next year before we would expect to start to see.

Michael Stuart Rosenthal: The real impact of 60 K.

Michael Stuart Rosenthal: But we still work on normal optimization and that was what you saw evident this quarter.

Speaker Change: Understood. Thank you guys next question.

Operator: Next question. Thanks. Thank you for your question. The next question comes from George Gianarikas with Canaccord Genuity. Your line is now open.

Speaker Change: Thank you for your question.

George Gianarikas: Line is now open.

Operator: Hi, thank you for taking my question. Speaking of value creation, and this is just sort of me reading the tea leaves here a little bit, it appears that a very wealthy individual or entity in Australia appears to be trying to do just that, acquiring significant stakes in several rare earth assets across the Western world and maybe trying to cobble them together.

Operator: Speaking of value creation, and this is just sort of reading the tea leaves here a little bit.

Operator: It appears that a very wealthy individual or entity in Australia appears to be trying to do just that by.

Operator: Acquiring significant stakes in several rare earth assets across the western World and maybe.

George Gianarikas: To the extent you can share just maybe some line of thinking here, what are the synergies in doing that, and do you kind of see that as a rational response to... China Inc., who appears to be trying to make life difficult for several Western suppliers as non-Chinese refining ramps? Thank you very much. Yeah, sure. Thanks, George. So I guess that was a creative, although somewhat expected, way of asking the M&

Speaker Change: China, Inc, who appears to be trying to make life difficult for several western suppliers as non Chinese refining ramps. Thank you very much.

George Gianarikas: So I appreciate it. So obviously, you're referring to Gina Reinhart and her stake in MP. I mean, for those who don't know, she's certainly a very well respected investor globally, and in, you know, Australia, particularly. So, you know, I believe she's the richest person in Australia.

Speaker Change: Yes sure. Thanks, George So I guess that was a.

Speaker Change: So obviously youre, referring to of Gina Rinehart in her stake in MP.

George Gianarikas: And.

Speaker Change: She took a large taken us I think obviously it.

James Henry Litinsky: And, and, you know, she took a large stake in us. I think, obviously, it speaks to the value that we believe we're creating here at MP and how much value there is in our shares. And so I think that she sees that as far as sort of her motivations or the motivations of other shareholders or conversations that we may have with other shareholders or companies, you know, I'm not, I'm not going to comment on those kinds of things. But it certainly is, you know, it's certainly always nice to have a third party that understands your industry very well to recognize that your shares are undervalued. Okay, thank you so much.

George Gianarikas: It speaks to the value that we believe we're creating here at <unk> and how much value there is.

James Henry Litinsky: In our shares and so I think that she sees that as far as sort of her motivations or the motivations of other shareholders are conversations that we may have with other shareholders of our companies.

James Henry Litinsky: Not going to comment on those kinds of things, but it certainly is.

James Henry Litinsky: It's certainly always is nice to have.

James Henry Litinsky: A third party that.

James Henry Litinsky: Your shares are undervalued.

George Gianarikas: And maybe just as a follow-up question. Just curious, you know, to the extent you can bring down costs, as you discussed extensively in the call, can you kind of help us understand what your cost per kilogram of NDPR will be as we approach sort of the end of the year? Just trying to understand what EBITDA positive is for you guys as you become more of a refiner. Yeah, sure, George. It's Ryan.

Speaker Change: Okay. Thank you so much and maybe just as a follow different question.

George Gianarikas: Just curious to the extent you can bring down costs as you discussed extensively on the call.

George Gianarikas: You kind of help us understand what your cost per kilowatt Graham and EPR will be as we approach the end of the year.

George Gianarikas: Just trying to understand what we're EBITDA positive is for you guys as you become more of a refinery or at the company. Thank you.

Ryan S. Corbett: I'll take that. What I'd say on the cost structure for the midstream businesses is that certainly what we're seeing at this point is very much expected as you ramp up a plant of the scale that we are. I think when you're operating something of this size under normal utilization levels, and with all the puts and takes that we've talked about, the results aren't unexpected. And frankly, we have the data on a circuit by circuit basis that's highly granular that gives us a lot of confidence in the go-forward cost structure that we expect to hit. You know, we haven't put a specific dollar figure out there, but we have continued to have very strong confidence in being best in class when it comes to a unit cost perspective in the midstream business.

George Gianarikas: Yes, sure George It's Ryan I'll take that.

Ryan S. Corbett: What I'd say on on the cost structure.

Ryan S. Corbett: For the midstream businesses.

Ryan S. Corbett: Really what we're seeing at this point is very much.

Ryan S. Corbett: <unk>.

Ryan S. Corbett: I think when you're operating something of this size under.

Ryan S. Corbett: Normal utilization levels and with all the puts and takes that we've talked about.

Ryan S. Corbett: Results arent unexpected and frankly.

Ryan S. Corbett: Continued very strong confidence in being best in class when it comes to a unit cost perspective in the midstream business.

George Gianarikas: To your question on Ibidal positive, you know, look, we're in this period of transition and in a period of, you know, in a lot of ways, max pain as we ramp it up as we fill the channel, etc. And so, you know, we do expect this to pass, but I would remind you also that, you know, given the puts and takes and the moving pieces for our Ibidal result this quarter, behind all of those things is a highly profitable concentrate business.

Ryan S. Corbett: To your question on EBITDA positive.

George Gianarikas: We're in this period of transition in a period of a lot of ways Max pain as we as we ramp it as we fill the channel etcetera and so we do expect this to past, but I would remind you also that given the puts and takes in the moving pieces for our EBITDA result, this quarter behind all of those things as a highly profitable concentrate business.

George Gianarikas: And so think about the fact that, you know, we've got this ramp operation in midstream, and we're subscale in addition to funding the magnetics business. You know, we continue to have strong cash flow and profitability from the concentrate business. And so we'll continue to execute and optimize over the course of the year and remain very confident in hitting our target. Thank you. Next question. Thanks, George.

George Gianarikas: <unk>.

Speaker Change: Thank you. Thanks next question Thanks George.

Operator: Thank you for your question. Our next question comes from the line of Lawrence Alexander with Jeffrey. Your line is now open. Hey everyone, this is Kevin S. on behalf of Lawrence.

Operator: I guess my first question is about electronics. So if that cycle turns up, I guess I'm just wondering, do you guys have more leverage on phones and smaller devices or maybe more to PCs and desktops? Sure, this is Ryan. In terms of magnetic content in sort of general consumer electronics, it is a real segment as it relates to magnetic content. I mean, it's probably teens or 20%.

Operator: Hey, everyone. This is Kevin Estok on for Laurence.

Speaker Change: I guess my first question is about electronics, so as that cycle turns up I guess I was just wondering do you guys have more leverage to phones and smart devices or maybe more of a PC and desktops.

Ryan: So it is real I think that we've seen a confluence of events over the last 12 months 18 months really where hard disk drives have been had been in a negative cycle Pcs were in a negative cycle in smartphones or in a negative cycle. So on a per unit basis. These magnets are very small but in aggregate they matter I do.

Operator: Think that.

Ryan: All of them contribute and so some of the things that we think about is what we started to see from from our customers downstream and the magnetic supply chain is the start of a more positive cycle in hard disk drives and as you think about everything you hear out there with.

Ryan S. Corbett: So, it is real. And so, some of the things that we think about are, you know, what we started to see from our customers downstream in the magnetic supply chain is the start of a more positive cycle in hard disk drives. And as you think about everything you hear out there with, you know... So, this is AI mixing with AI. Here's AI for the bots.

Speaker Change: It makes sense.

Ryan S. Corbett: But no, you know, really, that cycle has, you know, certainly started to pick back up. And so, we're cautiously optimistic that that can go from a negative contributor to magnetic demand to a positive one here, hopefully. Okay, got it. Thank you.

Ryan S. Corbett: Hi.

Ryan S. Corbett: For the for the box.

Ryan S. Corbett: But really that cycle has has certainly started to pick back up and so on.

Ryan S. Corbett: We're cautiously optimistic that that can go from a negative contributor to magnetic demand to a positive one year hopefully soon.

Ryan S. Corbett: And then I guess my last question is just curious to hear what you're seeing in terms of inventory build downstream or just, you know, sort of inventory levels. Yeah, sure. Well, you know, it's interesting. It's always, given the concentration in China and our industry, it's always hard to read the tea leaves, as you've heard me say a million times. I know that, you know, Albemarle came out this morning and said that they were seeing very low levels of inventory, obviously sort of a different vertical, but, you know, some of the same effects. So that's a data point out there.

Ryan S. Corbett: And then I guess my last question just.

Ryan S. Corbett: Just to hear what youre seeing in terms of inventory build downstream or just sort of inventory levels.

Ryan S. Corbett: Well, it's interesting it's always given the concentration in China in our industry. It's always hard to read the tea leaves as you've heard me say a million times I know that.

Ryan S. Corbett: Albemarle came out this morning, and said that they were seeing very low levels of inventory, obviously sort of different different vertical but some of the same effects. So that's a data point out there.

James Henry Litinsky: We have seen sort of a very recent, you know, you can see in the last couple of weeks, a little price increase on green shoots. So it is, it is certainly possible that, you know, you'll start to see a pickup due to low inventory. Our belief is that inventories are very low and that, you know, demand is starting to pick up. But again, I always say that with it's just so hard.

James Henry Litinsky: We have seen sort of in very recent you can see in the last couple of weeks, a little pricing green shoots so.

James Henry Litinsky: It is it is certainly possible that.

James Henry Litinsky: Youll start to see pick up due to low inventory our belief is that inventories are very low in that.

James Henry Litinsky: Demand is starting to pick up but again I always say that with it's just so hard.

James Henry Litinsky: You know, we always caveat by saying that it's outside of our control. We don't know when the price sort of reverses, but, you know, we certainly believe that that will come. All right, thank you very much.

James Henry Litinsky: We always caveat by saying, we it's outside of our control we don't know.

James Henry Litinsky:

James Henry Litinsky: When when pricing sort of reverses, but we certainly believe that that will come.

James Henry Litinsky: Alright, Thank you very much.

Operator: Thank you for your questions. Our next question comes from the line of Carlos de Alba with Morgan Stanley. Your line is now open.

Speaker Change: Thank you for your question.

Speaker Change: Next question comes from the line of Carlos Carlos de Alba with Morgan Stanley.

Speaker Change: Your line is now open.

Operator: Yes.

Operator: Great. Thank you. Good afternoon, everyone.

Speaker Change: Great. Thank you and good afternoon, everyone. So Ryan.

Carlos De Alba: So, Ryan, with the guidance that you provided on volumes for NDPR doubling, I guess maybe a little bit of upside potentially on constant trade, if not flat, but substantial declines in prices. It's going to be tough for EBITDA not to be more negative, but important for us is the cash regeneration, excluding the item, the $228 million, I think you mentioned, in total, excluding those items. How do you see working capital fluctuating in the second quarter, and maybe if you can venture into the third quarter, just because Q1 was obviously a significant use of cash? Yeah, sure, Carlos.

Speaker Change: So with the guidance that you provided on.

Carlos De Alba: Volumes.

Speaker Change: For <unk> <unk>.

Carlos: I guess, maybe a little bit of upside potentially on concentrate.

Ryan: Flat, but substantial declines in prices.

Speaker Change: That would be tough for EBITDA not to be more negative but in.

Carlos: Fortunately for US is the cash flow generation, excluding the items of 228 million I think you mentioned.

Carlos: In total excluding those items, how do you see working capital.

Speaker Change: Fluctuating in the second quarter and maybe if you can venture into the third quarter does it cost you in Q1 was obviously a significant use of cash.

Ryan S. Corbett: I'll do my best. Obviously, we don't get into quarterly cash flow guidance for a variety of reasons, but, you know, I did lay out a couple of pretty discreet and obvious cash flow items, just in terms of, you know, pretty chunky sales on the NDPR metal side this quarter, which came at the very end. And so from a receivables perspective, you know, that had an impact on our conversation a moment ago about certain potential transactions that were evaluated.

Ryan: Yes, sure Carlos I'll do my Best obviously, we don't get into quarterly cash flow guidance for a variety of reasons, but I.

Ryan S. Corbett: I did lay out a couple of pretty discrete and obvious cash flow items, just in terms of pretty chunky.

Ryan S. Corbett: Sales on the NDP, our metal side this quarter, which came at the very end and so from a receivables perspective.

Ryan S. Corbett: That had an impact.

Ryan S. Corbett: Back on our conversation a moment ago about certain potential transactions were evaluated there was a pretty significant use of cash there that we don't expect to repeat.

Ryan S. Corbett: There was a pretty significant use of cash there that we don't expect to repeat, and then just the typical timing, you know, from other payments that tend to see lower cash flow conversion in the first quarter versus the rest of the year.

Ryan S. Corbett: And then just typical timing.

Ryan S. Corbett: From other payments that tend to see lower cash flow conversion in the first quarter versus the rest of the year. So a lot of that combined to drive the result in the quarter I would say certainly as we ramp the plant things will be lumpy. We are looking to drive incremental production, which of course, we then need to for <unk>.

Ryan S. Corbett: So, you know, a lot of that combined to drive the result in the quarter. I'd say, certainly as we ramp up the plant, things will be lumpy. We are looking, you know, to drive incremental production, which, of course, we then need to, you know, for a lot of it to get sent overseas and told, et cetera. And so, you know, we've always been very clear that this ramp into stage 2 is a major transition for the business.

Ryan S. Corbett: A lot of it get sent overseas and told et cetera, and so.

Ryan S. Corbett: We've always been very clear that this ramp.

Ryan S. Corbett: Into stage two.

Ryan S. Corbett: Is a major transition for the business and so that requires some investment in working capital. We think there were discrete items in Q1 that don't repeat but certainly.

Ryan S. Corbett: And so, you know, that that requires some investment and working capital. You know, we think there were discrete items in Q1 that don't repeat, but certainly, you know, the faster we go, that could have some impacts. And so hopefully, that can give you a little bit of color.

Ryan S. Corbett: The faster we go that could have some impacts and so hopefully that can give you a little bit of color.

Carlos De Alba: All right, thanks. And then, you're no longer going to disclose unitary cost, I assume. Is there any, are you thinking about another metric that can help us follow how on a, on a, on a per unit basis, your cost is evolving, maybe breaking out by Stage 2 and Stage 3. Yeah, I would expect over time, Carlos, there will likely be a need as we start to recognize revenue in the downstream business to split that out for you.

Speaker Change: Alright. Thanks.

Speaker Change: Thanks, and then.

Carlos De Alba: You're no longer going to disclose our unitary costs.

Carlos De Alba: Assume is there any are you thinking about another metric.

Carlos De Alba: The calculus.

Carlos De Alba: Hello.

Carlos De Alba: And I went out on a per unit basis <unk> cost is evolving maybe break it out by.

Carlos De Alba: No.

Carlos De Alba: To that end.

Carlos De Alba: Three.

Carlos: Yes, I would expect overtime carloads, there likely will be a need as we start to recognize revenue in the downstream business to split that out for you. So that is something that's on our agenda. Once we have material revenue in that business as I talked about we already have started to see pretty material cash flow and.

Carlos De Alba: So that is something that's on our agenda once we have material revenue in that business. As I talked about, you know, we already have started to see pretty material cash flow in this quarter, with the $50 million prepayment and with more to come. But yes, I think you'll start to see some split out of that. As it relates to cost KPIs on the upstream and midstream part of the business, I think, you know, you guys have seen us perform now. I think this is our 14th quarter of reporting. You know, we've had a very consistent cost structure on the upstream side, and so I think it's quite easy to sort of, you know, triangulate around that.

Carlos De Alba: This quarter.

Carlos De Alba: The $50 million prepayment and with more to come.

Carlos De Alba: But yes, I think youll start to see some split out of that as it relates to cost kpis.

Carlos De Alba: On the upstream and midstream part of the business I think you guys had seen US perform now I think this is our 14th quarter of reporting.

Carlos De Alba: We've had a very consistent cost structure on the upstream side and so I think it's quite easy to sort of.

Carlos De Alba: Triangulate around that and then.

Ryan S. Corbett: And then, you know, when you think about our plant, which is very, very integrated, and so it gets a little bit harder and less meaningful. And I think we've previewed this now for many, many quarters to try to report standalone metrics that try to pull apart, you know, think about a labor force that's working in, you know, the mill pad area, which we call the mill pad.

Carlos De Alba: When you think about our plant, which.

Ryan S. Corbett: It's very very integrated and so.

Ryan S. Corbett: It gets a little bit harder and less meaningful and I think we've we've previewed. This now for many many quarters to try to report Standalone metrics.

Ryan S. Corbett: That try to pull apart I think about our labor force that's working in the.

Ryan S. Corbett: There's actually a lot of separation activities going on up there. And so, you know, it really is quite integrated. And so we don't think that standalone KPIs are particularly meaningful at this point.

Ryan S. Corbett: The mill pad area, we call the mill Pat area. There is actually a lot of separations activities going on up there and so it really is quite integrated and so we don't think that Standalone kpis are particularly meaningful at this point and so we point you to we have no reason to believe that.

Ryan S. Corbett: And so we point you to we have no reason to believe that, you know, the cost structure will change meaningfully for the upstream business. In fact, as upstream 60K comes into play, it is expected to improve. And then with that, you can sort of see the sales that come through on the separated product side, and you'll easily be able to back into these metrics yourself.

Ryan S. Corbett: The cost structure will change meaningfully for the upstream business and in fact as upstream 60 K comes into play.

Ryan S. Corbett: We expect it to improve.

Ryan S. Corbett: And then with that you can sort of see the sales that come through on the separated product side.

Ryan S. Corbett: And you'll easily be able to back into these metrics yourself.

Ryan S. Corbett: And so that's sort of how we think about the progression of KPIs on that. All right, great. And my last question is: Yep, did we lose you? I think we lost Carlos.

Ryan S. Corbett: So that's sort of how we think about the progression of kpis on that front.

Speaker Change: Alright, great.

Speaker Change: My last question please.

Ryan S. Corbett: On.

Speaker Change: Did we lose you.

Speaker Change: I think we welcome Carlos I guess, we can come back.

Operator: I guess he can come back, right? Oh, there he is. Oh, there. Yeah, sorry guys. My last question would be on, you know, just regarding the, and I love my thought on the question. I'll come back later.

Speaker Change: We got you now.

Operator: [laughter].

Speaker Change: Yes, sorry, yes.

Operator: My.

Speaker Change: Last question on that would be on.

Speaker Change: Just regarding the.

Speaker Change: And I Love My Mic.

Speaker Change: My my.

Speaker Change: My thoughts on the question I'll come back later okay.

Carlos De Alba: Okay. Okay. All right. Thanks, Carlos.

Speaker Change: Okay Alright, Thanks, Carlos next question please.

Operator: Next question, please. Thank you for your question. Our next question comes from a line from David Deckelbaum with T.D. Cowan.

Carlos De Alba: Thank you for your question. Our next question comes from the line of David <unk> with TD Cowen. Your line is now open.

Operator: Your line is now open. Hey, guys, and domo arigato for getting me on. Thank you, David. We appreciate that you appreciate that. I'll write back to you.

David Adam Deckelbaum: Hey, guys in Delaware, you got so forget Neal.

Operator: Thank you David we appreciate that you appreciate that.

David Adam Deckelbaum: I appreciate it. But I wanted to ask just on hitting what, you know, stage 2 in the context of what you need to achieve to receive the remaining prepayment of $100 million, and is there some circularity around your motivations to ramp up stage 2 to hit some of those milestones, either Ryan or Michael or Jim, just to try to understand what needs to be achieved in order to get that, and then I guess how many tons that's actually prepaying for, is it a Sure, David. It's Ryan D'Amaro Gatto for the question.

Operator: Right back at you I appreciate it.

Speaker Change: I wanted to ask just hitting.

David Adam Deckelbaum: No.

Speaker Change: Stage two in the context of what do you need to achieve to.

Speaker Change: To receive the remaining prepayment of $100 million and there is there is some circularity around your motivations to ramp stage two to hit some of those milestones.

Speaker Change: Ryan and Michael or Jim just just to try to understand what needs to be achieved.

Speaker Change: In order to get that and then I guess, how many tonnes. That's actually prepaying for is it a year's worth of output excuse me a year's worth of output or is it longer than that.

Speaker Change: Sure David It's Ryan Tomorrow Gateau for the question.

Ryan S. Corbett: I think there's probably some confusion on stage two or stage three on this front. So the prepayment is for magnetic precursor materials in stage 3.

Speaker Change: I think there's probably some confusion on on stage two stage three on this front. So the prepayment is for magnetic precursor materials.

Ryan S. Corbett: And from that perspective, you know, we don't need to sort of work down the prepayment to receive the next prepayment. These are operational milestones in the Stage 3 business that, you know, we have line of sight to over the next 12 months that really have nothing to do with the ramp on the Stage 2 side. So, you know, those ramps are completely discreet and sort of run their own trajectory.

Speaker Change: And from that perspective, we don't need to sort of work down the prepayment to received an X prepayment. These are operational milestones in the stage three business that we have line of sight to over the next 12 months that really have nothing to do with the ramp on the stage two side. So those.

Ryan S. Corbett: And so sort of, regardless of how things go on on the Stage 2 side, you know, we see line of sight on. Okay, yeah. Sorry to confuse you. I just thought of it as I know that you guys will consume maybe 600 tons a year of NDPR at stage three to make 1000 tons of magnets. But I didn't know if you really need to be able to show that you can separate 600 tons a year in order to inherently hit the targets that you would show at stage. Yeah, no; it's a fair question.

Ryan S. Corbett: Those ramps are completely discrete and sort of ran their own trajectory and so sort of regardless of how things go on on the stage two side, we see line of sight on stage three.

Ryan S. Corbett: We'll be able to show that you can separate 600 tonnes a year in order to inherently hit the targets that you would show that stage III.

Ryan S. Corbett: I see where you're going with that, though. But in terms of the operational milestones that we need to show, look, you know, as you've heard from us, we remain incredibly confident and have a clear line of sight on ramping up stage 2. And so it's not really a matter of if we're able to, it's a matter of when we decide to, and Michael talked about all the items that are ahead of us. And so I think clearly our main customer probably shares that view, given the focus here on operational milestones is exclusively as they relate to stage 3 operational milestones.

Ryan S. Corbett: Yes.

Speaker Change: It's a fair question, I see where you're going with that though but in terms of the operational milestones that we need to show.

Ryan S. Corbett: As.

Ryan S. Corbett: As you've heard from US we remain incredibly confident and have clear line of sight on ramping stage two and so it's not really a matter of if we're able to it's a matter of when we decide to and Michael talked about all the items that are ahead of us.

Ryan S. Corbett: And so I think clearly our main customer probably shares that view.

Ryan S. Corbett: Our exclusively as they relate to stage three operational milestones and so.

Ryan S. Corbett: And so we're excited certainly that we've got this initial prepayment based on a major operational achievement that Jim laid out some of the exciting things that happened over the last quarter. And we do have line of sight to the rest of them.

Ryan S. Corbett: We're excited certainly that we've got this initial prepayment based on a major operational achievement that Jim laid out some of the exciting things that happened over the last quarter and we do have line of sight to the rest of them.

Ryan S. Corbett: No.

Ryan S. Corbett: [inaudible] Hopefully, that helps. Yeah, and to be crystal clear for those who are listening, Stage 3 is Fort Worth, right? Go ahead. Go ahead, David.

Ryan S. Corbett: Okay.

Speaker Change: Got it.

David: Go ahead David.

David Adam Deckelbaum: Thanks, Paul. Yeah, Jim, I just this question is mostly for you. But, you know, I know you like to put on your strategy hat.

David: Thanks, Paul Yes, Jim. This question is mostly for you but.

David: I know youll have to put on your strategy. So I'm curious, what's your outlook on potential market tightening and.

David: The majority of the Mercury operating sort of below cost.

James Henry Litinsky: So I'm curious, you know, with your outlook on potential market tightening and the majority of the market operating, you know, sort of below cost. Are you seeing increased interest? MP has done a lot of organic growth, albeit vertically integrated, and you have your Upstream 60 project. Are you seeing more emphasis on sort of inorganic opportunities and seeing any softness in the market that you would otherwise want to take advantage of here to perhaps expand resources, perhaps expand things like heavy speed?

David: Are you seeing an increased interest MP has done a lot of organic growth, albeit vertically integrated in your upstream.

James Henry Litinsky: 60 projects are you seeing more emphasis on sort of inorganic opportunities and seeing any softness in the market that you would otherwise wanted to take advantage of here, perhaps expand resource, perhaps expand things like heavy speed.

James Henry Litinsky: Is that an area where we might expect MP, especially, to get more comfortable with ramping up other parts of your supply chain to start looking towards? Yeah, I mean, you know, I would say that we get, you know, you can imagine that we get reach outs; we're considering things at all times, particularly given our seat and our expertise. Given where pricing is, it's just so tough.

James Henry Litinsky: Is that an area, where we might expect MP, especially as you get more comfortable on ramping other parts of your supply chain to start looking towards.

James Henry Litinsky: I mean, when I look at allocating an incremental dollar of capital, and particularly given Upstream 60K and all the great progress that's happening in Fort Worth, you know, the idea of investing in, you know, in sort of some new greenfield project versus the attractiveness of what we have at MP, you know, that's really tough. And frankly, that is the environment, I think, given what is happening to prices, I think it's fair to say that there's been just an overall enormous chill on, you know, private sector investment across the board.

James Henry Litinsky: I would say that we get you can imagine that we get reach outs were considering things at all times, particularly given our seat and our expertise.

James Henry Litinsky: Given where pricing is it's just so tough I mean, when I look at allocating an incremental dollar of capital and particularly given upstream 60, K and all of the great progress Thats happening in four words.

James Henry Litinsky: The idea of investing.

James Henry Litinsky: In sort of some new Greenfield project versus sort of.

James Henry Litinsky: The attractiveness of what we have in MP.

James Henry Litinsky: That's really tough and frankly.

James Henry Litinsky: That is the environment I think.

James Henry Litinsky: Given what is happening to pricing I think it's fair to say that there's been just an overall.

James Henry Litinsky: Enormous shell on the private sector investment across the board.

James Henry Litinsky: And so if the question is, are there projects that will come to us? Yeah, we'll, we look at everything, and there's nothing that is imminent that I think would make a ton of sense. Given the state of the world, I think that, you know, the economics are just so tough.

James Henry Litinsky: So if the question is are there projects that will come to US yes will we look at everything and there is nothing that is imminent that I think would make a ton of sense.

James Henry Litinsky: The economics are just so tough and that obviously makes us.

James Henry Litinsky: And that obviously makes us that much more bullish about our in-place assets because I think getting more supply online is just that much harder. Certainly, there's a lot of confidence lost for the private sector, given how quickly prices sort of came off over the past year. But of course, that's what creates cycles, right?

James Henry Litinsky: Certainly there is a lot of for the private sector a lot of confidence that's been lost.

James Henry Litinsky: Given how quickly prices sort of came off over the past year, but of course, that's what create cycles right. That's what's going to make for such a violent upcycle again, just like we saw a few years ago and then.

James Henry Litinsky: That's what's gonna make for such a violent upcycle, again, just like we saw a few years ago, and then, probably, if you wanna, strategic thought, we can go into sort of the longer-term aspects of as electrified penetration really starts to hit over the next few years. And then when we think about robotics on top of that, there's gonna be an enormous violent upcycle and sustainable, but again, when and how it starts, we don't know. And so we'll probably make other investments. Interesting.

James Henry Litinsky: Strategic thought we can go into sort of the longer term aspects of electrified penetration really starts to hit over the next few years and then when.

James Henry Litinsky: Theres going to be an enormous violent upcycle.

James Henry Litinsky: And and sustainable, but again when and how it starts we don't know and so it will probably make other investments.

James Henry Litinsky: But again, it's always hard to think about the timing and the cost of capital. And right now, you know, I'm really pleased with what we were able to accomplish on the capital structure front this quarter. And I think that's going to be, you know, a great value creator for us. And then, you know, we'll just take it as it comes day by day. Thanks, guys.

James Henry Litinsky: Interesting.

James Henry Litinsky: But again, it's always hard to think about the timing and the cost of capital in right now.

James Henry Litinsky: I'm really pleased with what we were able to accomplish on the capital structure front.

James Henry Litinsky: This quarter and I think that's going to be.

James Henry Litinsky: Great value creator for Us and then we will.

James Henry Litinsky: Just take it as it comes day by day.

James Henry Litinsky: Sure.

Speaker Change: Thank you for your question.

Operator: Sure. Thank you for your question. Our next question comes from the line of Lawson Winder with Bank of America. Your line is now open.

James Henry Litinsky: Our next question comes from the line of Lawson Winder with Bank of America. Your line is now open.

Operator: Sure. Thanks, operator. And good evening, gentlemen. Michael, you mentioned some mechanical reliability issues that are kind of dogging the ramp, but you mentioned they certainly weren't related to design or material quality.

Lawson Winder: Or kind of dogging the ramp up.

Lawson Winder: <unk> certainly wasn't related to design or material quality and you elaborated a little on what you thought was driving it could you maybe provide just a little more detail and discussion on what you think is driving that.

Operator: Yes.

Operator: Okay.

Lawson Winder: And you elaborated a little on what you thought was driving it. Could you maybe provide just a little more detail and discussion on what you think is driving that? Thanks.

Operator: So I think some of it relates to.

Michael Stuart Rosenthal: Um, sure. Thanks, I guess. So I think some of it relates to initial startup and commissioning and some operational challenges during commissioning where we had unusual equipment failures. An example of this would be in one of our filtration circuits where we had an unusual number of pump failures. Um, and then in terms of how that impacts the operation. So in order to continue to operate, we were forced to use sort of temporary measures that were inefficient from a process yield, operating and maintenance cost, and labor productivity perspective.

Michael Stuart Rosenthal: Some operational challenges during commissioning.

Michael Stuart Rosenthal: Equipment failures.

Michael Stuart Rosenthal: Yeah.

Michael Stuart Rosenthal: An example of which would be in one of our filtration circuits, where we had an unusual number of pump failures.

Michael Stuart Rosenthal: And then in terms of how that impact.

Michael Stuart Rosenthal: The operation in order to continue to operate we were forced to use sort of temporary measures that were inefficient from a process yield operating and maintenance cost labor productivity perspective.

Michael Stuart Rosenthal: And so as we are able to bring on board the appropriate equipment, the appropriate permanent equipment, that then works quite well, we can see a dramatic impact on the operability, the yield, the reduction in loss, and then much lower labor costs and a much lower amount of Labor Allocation to that area and rework. So we've got a number of issues like that, and that sort of underlies the confidence in how.

Michael Stuart Rosenthal: So as we are able to bring on.

Michael Stuart Rosenthal: The appropriate equipment and the appropriate permanent equipment.

Michael Stuart Rosenthal: That doesn't work quite well, we can see a dramatic impact on.

Michael Stuart Rosenthal: And loss.

Michael Stuart Rosenthal: Lower amount of.

Michael Stuart Rosenthal: Labor allocation to that area.

Michael Stuart Rosenthal: Underlies the covenants and how.

Michael Stuart Rosenthal: The trajectory will improve as the supply chain delivers. And then would it be fair to say that you've kind of identified the majority of these issues? Are they recurring? And less easy to identify? Are there some that you're still trying to figure out?

Michael Stuart Rosenthal: The trajectory will improve as the supply chain delivers.

Michael Stuart Rosenthal: The majority of these issues are they recurring and less easy to identify are there. Some that you are still trying to figure out.

Michael Stuart Rosenthal: I would say optimization is a permanent, continuous process, so we'll always have these kinds of things. Certainly, we've identified all the ones that we see in front of us now. As I've said in the past, we're able to run a lot of the circuits at pretty significant throughput rates. It's just a matter of pulling them all together and sustaining that and having them all run together at the same time. We can see how the bottlenecks will progress as we ramp up, and we're obviously addressing those in advance of being there, but it's really not so much throughput as uptime and reliability. Okay, great.

Michael Stuart Rosenthal: I would say optimization as a permanent.

Michael Stuart Rosenthal: Continuous process. So we will always have these kind of things suddenly.

Michael Stuart Rosenthal: We've identified.

Michael Stuart Rosenthal: Yes, all of the ones that we see in front of us now.

Michael Stuart Rosenthal: As I've said in the past, we were able to run a lot of the circuits at pretty significant throughput rates.

Michael Stuart Rosenthal: In advance of being there, but it's really not.

Michael Stuart Rosenthal: Not so much throughput as.

Michael Stuart Rosenthal: As uptime and reliability.

Lawson Winder: And then just one follow up, if I could, on the plant shutdown. You mentioned that in April, it was a little while, there was one in April. Just any color on future shutdowns for 2024 would be really helpful. Thanks, and that's it.

Speaker Change: Okay, Great and then just one follow up if I could on the.

Speaker Change: Plant shutdown you mentioned.

Lawson Winder: There was one in April just any color on on future.

Michael Stuart Rosenthal: So each year we schedule two longer maintenance outages, one in the spring and one in the fall. So we continue to target that given we have the upstream and midstream. Assets Now versus in the past, just upstream, you know, there's a little bit of a lag. We first focus on the upstream assets and then some of the midstream assets, follow, and then the upstream fills the midstream. We would expect that that pattern to continue. Because the midstream is younger, the duration of the downtime in those areas is shorter than in the upstream, but because of the lag and feed and de-inventory and re-inventory, there may be...

Michael Stuart Rosenthal: So we continue to target that.

Michael Stuart Rosenthal: Assets now versus in the past is upstream.

Michael Stuart Rosenthal: There is a little bit of a lag we first focus on the upstream assets and then some of the midstream assets.

Michael Stuart Rosenthal: Yes.

Michael Stuart Rosenthal: Follow and then the upstream refilled the midstream.

Michael Stuart Rosenthal: That pattern to continue.

Michael Stuart Rosenthal: Shorter than in upstream.

Michael Stuart Rosenthal: The actual adage drags on a little bit longer. Thanks. Next question. Our next question comes from the line of Bill Pearson with J.P. Morgan. Your line is now open.

William Chapman Peterson: Thanks next question.

William Chapman Peterson: Our next question comes from the line of Bill Peterson with Jpmorgan.

William Chapman Peterson: Your line is now open.

Operator: Yeah, hi, good afternoon. And thanks for taking the questions. One of the questions to expand on earlier questions around the demand environment, I guess, in the context, and what you're calling it, I guess, some kind of imminent, violent improvement in fundamentals. You know, if we think about this year's demand environment, EVs are down, but in the U.S., they are replaced by hybrid electric. You have wind, then you have a lot of the standard, you know, HVAC, consumer electronics. Can you walk through the different end markets and what you're seeing? Tough year for Wnt.

William Chapman Peterson: Yes, hi, good afternoon. Thanks for taking the questions wanted to expand on your question around the demand environment I guess in the context of you know.

Operator: What you are calling it I guess, some kind of imminent violent improvement in fundamentals.

Operator: 2023 had lower growth in EVs. I think a lot of people say there was no growth, but growth was very robust. It wasn't as robust as expected.

Operator: Tough year for winter 2023 had lower growth in Evs I think a lot of people say no growth, but growth growth was very robust it wasn't as robust as expected.

Operator: And then you also had some of the cycles I talked about on the electronics side couple that with.

Speaker Change: Bunkers, yes. Thank you.

Operator: The things that drove sort of negative revisions last year, hopefully or maybe talking to and just adding on to that that's great, but bill in really simple terms and we've talked about this before but I think it's definitely worth repeating because it's it's kind of it's a simple framework to think about this.

William Chapman Peterson: And then you also had some of the cycles I talked about on the electronic side. Couple that with, and just adding on to that, that's great. But Bill, in really simple terms, and we've talked about this before, but I think it's definitely worth repeating, because it's kind of a simple framework to think about this. Roughly 75% of demand is sort of your think of them as your legacy historical use cases, GDP, or plus or minus oriented, electronics, HVAC, etc.

William Chapman Peterson: But then when you go to the other 25%, or sort of the electrification use cases, and those are, you know, even in despite sort of short-term Wall Street Armageddon, in a sense, those are growing very quickly. And so what you have is a base effect, right?

William Chapman Peterson: Roughly 75% of demand or sort of your think of them as your legacy historical use cases, GDP or plus or minus oriented Bakken electronics, HVAC et cetera, but then when you go in the other 25% or the or sort of the electrification use cases.

William Chapman Peterson: And those are even even despite sort of short term wall Street.

William Chapman Peterson: Armageddon in a sense those are growing very quickly and so what you have is a base effect right you have 75% that can take a macro head.

Ryan S. Corbett: You have 75% that can take a macro hit, particularly given that it is mainly centered around China, where if that's a 5% or 10% hit, that can really trump 20%, 30%, 40% growth of these bigger use cases, right? Is that as that 25% is growing at 30% a year, you look out a few years out, and it becomes so much more material relative to overall demand that the short-term cyclical macro items have much less of an impact.

Ryan S. Corbett: Particularly given that it is mainly centered around China.

Ryan S. Corbett: Where if that's a fiber 10% hit back and really Trump 2030, 40% growth of these bigger use cases.

Ryan S. Corbett: But there's a compounding effect there right is that as that 25% is growing at 30% a year you look out a few years out and it becomes so much more material relative to overall demand that.

Ryan S. Corbett: And then the reality of electrification, which has never happened before in our supply chain, really starts to impact demand. And by the fact that these projects are so long-term, that's where you sort of get violent pricing effects when those realizations hit people in real time. Commodities are a spot market. They're not really a long-term pricing market.

Ryan S. Corbett: Electrification, which has never happened before and our supply chain really starts to impact demand and by by the fact that these projects are so long term, that's where you sort of get violent pricing effects when sort of those realizations hit people in real time, you know commodities are a spot market.

James Henry Litinsky: So even though you can see this coming in the short term, if there's, you know, a supply-demand imbalance, you know, the pricing adjusts. And so, and then lastly, and again, this is longer term, but when we think about all of these electrified use cases, particularly, I'm a big believer that, aside from, you know, chips and data centers built out, one of the real world use cases we're really going to see a lot quicker than people think is going to be around robotics.

James Henry Litinsky: They're not really a a long term pricing market. So even though you can see this coming in the short term if there's a supply demand imbalance the pricing adjust and so and then lastly, and again this is longer term, but when we when we think about all of these electrified use cases, particularly I'm a big believer that the.

James Henry Litinsky: You know for all a lot of the hype around AI aside from chips in data center build out one of the real world use cases, we're really going to see a lot quicker than people think is going to be around robotics and theres much much smarter people than me, saying this in and making investments and showing you real products and so I think in the next few years.

James Henry Litinsky: And, you know, there are much, much smarter people than me saying this and making investments and showing you real products. And so I think in the next few years we're going to see humanoid-like robotic products. You can certainly do plenty of your own research around that, but just as an example, and again, I think it's so important and you've heard other people talk about this, an EV is a robot on wheels.

James Henry Litinsky: A robot is obviously a robot with legs, and an EV will have, you know, one to four motors. Whereas a robot will have dozens of actuators, right? Those are the things that are, think of them as joints in the human body that will move.

James Henry Litinsky: One to four motors, whereas a robot will have dozens of actuators right. Those are the those are the things that are think of them as joints in the human body that will move.

James Henry Litinsky: And so if you are somebody who does believe, and again, you'll, you'll start to see this building out. It's not, you know, it's not a 24, 24 event. But if we think about the sort of global units of vehicles as being one and a half billion and, you know, maybe 90 or a hundred million a year of new production, and then we're talking about billions of robots. You know, we'll have double or triple the magnetic content of an EV. But it doesn't actually take that full bill out.

James Henry Litinsky: And so if you are somebody who does believe and again, you'll you'll start to see this building out its not its not 20th worth 24 event.

James Henry Litinsky: But if we think about the sort of global units of of vehicles as being $1 5 billion, and maybe 90 or $100 million a year of new production and then we're talking about billions of robots that.

James Henry Litinsky: We will have double or triple the magnetic content of an EV.

James Henry Litinsky: It doesn't it doesn't actually take therefore build out it starts to get sort of really ridiculous in the potential demand and so I think that that is something that could create a another step function change expectation vertical in our space and you know.

James Henry Litinsky: It starts to get sort of really ridiculous with the potential demand. And so I think that that is something that could create another step function change expectation vertical in our space. And, you know, look for the statements that Xi in China has made around building out this industry in 2025. And so this is stuff that actually was kind of a couple years ago, pie in the sky kind of stuff.

James Henry Litinsky: Look for the statements that that she in China has made around building out this industry in 2025 and so this is this is stuff that actually was kind of a couple of years ago pie in the sky kind of stuff and now it's stuff that you'll start to see it in the next couple of years actually become a real material demand vertical and so we're really optimistic about it that means nothing though.

James Henry Litinsky: And now, it's stuff that, you know, you'll start to see it in the next couple years actually become a real material demand vertical. And so we're really optimistic about it. But that means nothing, though, for 2024.

James Henry Litinsky: But it does mean a lot for the value that we're creating here and how we think about the business over the next three to five years. No, that's a lot of stuff between the legacy versus and growth drivers. So just think about capital allocation, I guess, in the context of your bullish, you know, outlook two, three, four, five years out. Do we think about buybacks being actionable given where you think your share price is today? How should we think about the use of cash from here or for the debt pay down? Would you rather kind of keep a dry powder for M&A or otherwise?

James Henry Litinsky: For 2024.

James Henry Litinsky: But but it does mean a lot for the value that we're creating here and how we think about the business over the next three to five years.

James Henry Litinsky: Well, that's that's waterson between the short legacy versus growth drivers.

James Henry Litinsky: So just thinking about capital allocation I guess in the context of your bullish outlook looking 2345 years out can.

James Henry Litinsky: Should we think about buybacks being.

James Henry Litinsky: Actionable, given where you think your share prices today.

James Henry Litinsky: How should we think about use of cashmere or further debt Paydown would you rather kind of keep dry powder for buildings M&A or otherwise.

James Henry Litinsky: Bill, we just bought back 7.3% of the company last month. You know, I think after the bell, Apple announced $110 billion buyback. And there's lots of excitement about the news about how huge that is. That's 4% of their company, right? So we, you know, look at all the press tonight and in the morning about the scale of that buyback. And, you know, we did nearly double that last quarter.

Speaker Change: Bill we just bought back seven 3% of the company last month I think after the Bell Apple announced a $110 billion buyback in.

James Henry Litinsky: There's lots of excitement on the news how how huge that is that's 4% of their company right. So we look.

James Henry Litinsky: Look at all the depressed Tonight and in the morning about the scale of that buyback.

Speaker Change: We did.

James Henry Litinsky: So I mean, we certainly have, and we and, you know, for a number of quarters when prices were much higher, people asked us, and we've said repeatedly, you know, we'll act when we can act in a substantial way with material impact, and we're not going to telegraph these kinds of things. And that will, you know, that remains the case. And so certainly are, you know, we think that there's a lot of value here, and we've sort of made that clear.

James Henry Litinsky: Nearly double that last quarter, so I mean, we've certainly.

James Henry Litinsky: And we and you know for a number of quarters.

James Henry Litinsky: When prices were much higher people asked us and we've said repeatedly.

James Henry Litinsky: We will act when.

James Henry Litinsky: When we can act in a substantial way with material impact and we're not going to telegraph these kinds of things.

James Henry Litinsky: And but I think we've also sort of, you know, voted with our purse, so to speak. Next question. And this will be the last one, I think. Yes, we have time for one last question, and that question is going to be from the line of Benjamin Kallo. Your line is now open. Hey guys, tomorrow...

James Henry Litinsky: And that will that remains the case and so certainly are.

Benjamin Joseph Kallo: We think that there's a lot of value here and we've sort of made that clear and in it but I think we've also sort of voted with our per sort of speak.

Benjamin Joseph Kallo: Next question. Thank you.

Benjamin Joseph Kallo: And then and this will be the last one I think we're good.

Benjamin Joseph Kallo: Yes, we have time for one last question and that question is going to be from the line of bitumen Keller with Baird. Your line is now open.

James Henry Litinsky: Okay.

Benjamin Joseph Kallo: Hey, guys.

Operator: I'll make it quick. You're very passionate about demand. I'm a believer in that, too. I just want to understand the other part of the... That's the investment case for all your work.

Benjamin Joseph Kallo: And I'll make it quick.

Operator: Yes.

Operator: Sure.

Benjamin Joseph Kallo: So you are very passionate about.

Operator: Yes.

Benjamin Joseph Kallo: All right.

Operator: Understood.

Benjamin Joseph Kallo: Other quarters.

Operator: Jason.

Benjamin Joseph Kallo: If you see any signs of like the bifurcation of prices... Made in America. [inaudible] all done, but just wondering if you have those conversations about change, it's like, She said commodity, and do you think it's not no longer a commodity at some point because you're made in America and you get a premium for that? Sure. So, Ben, I think I heard most of it. It sounded like you were at a car wash or something.

Operator: Sure.

Operator: Yes.

Benjamin Joseph Kallo: Sorry.

Benjamin Joseph Kallo: Great.

Benjamin Joseph Kallo: Thanks.

Benjamin Joseph Kallo: Okay.

Benjamin Joseph Kallo: Eric.

Benjamin Joseph Kallo: Alright.

Speaker Change: Thanks, Chris.

Speaker Change: Because currently Barbara.

Benjamin Joseph Kallo: Sure.

Speaker Change: Really cares.

Speaker Change: Might that be a fair question.

Ben: Sure Todd.

Benjamin Joseph Kallo: Just wondering.

Speaker Change: Thanks, Mike.

Speaker Change: Two quick tomorrow.

Benjamin Joseph Kallo: Yes.

Benjamin Joseph Kallo: Yes.

Benjamin Joseph Kallo: Scott.

Benjamin Joseph Kallo: Yeah.

Benjamin Joseph Kallo: Because.

Benjamin Joseph Kallo: Stuart.

Benjamin Joseph Kallo: Sure.

Speaker Change: So Ben I think I heard most of it sounded like you had a car wash or something I hope you're somewhere fun.

James Henry Litinsky: I hope you're somewhere for some fun. But I think, actually, and I hinted at this a little bit in the comments, and I think..., you know, certainly, as we look at our market today, there's no question that it is, you know, effectively, pricing is just effectively controlled in China, right? They're the vast majority of production and downstream usage. And with the vast majority of their industry operating at a loss, I think it's fair to say that one could conclude that, you know, there are other than free market things going on there and that there may be, you know, sort of strategic things happening to the pricing in our industry.

James Henry Litinsky: But.

James Henry Litinsky: I think actually and so I hinted at this a little bit in the in the comments.

James Henry Litinsky: And I think.

James Henry Litinsky: Certainly as we look at our market today.

James Henry Litinsky: There is no question that it is effectively.

James Henry Litinsky: Effectively pricing is just effectively controlled and China right there, they're the vast majority of production and down in downstream usage.

James Henry Litinsky: And with the vast majority of their industry operating at a loss I think it's fair to say that one could conclude that there are other than free market things going on there and that there may be sort of strategic things happening to the the pricing in our industry.

James Henry Litinsky: But if we look around the world, and, you know, we've been talking about this for a few years, but I think this year, in particular, it has exploded. There was actually an article on Bloomberg today about Geely being going to be introducing a product this summer. I guess that was announced at the Beijing Auto Show. There were, you know, 100 plus new models there of exciting products that the Chinese industry, Chinese OEMs have created at very low cost, but there's a Geely car that's going to be the very equivalent of a Model Y that's going to be coming to market substantially cheaper And, you know, given the sort of Volvo aspect of it, it will not be subject to tariff.

James Henry Litinsky: But if we look around the world and we've been talking about this for a few years, but I think this year in particular it has exploded.

James Henry Litinsky: There was actually an article on Bloomberg today about.

James Henry Litinsky: Julia is going to be introducing a product. This summer I guess that was announced that the Beijing Auto show there were a 100 plus new models there.

James Henry Litinsky: Exciting products.

James Henry Litinsky: You know that Chinese industry Chinese Oems have created at.

James Henry Litinsky: At very low costs, but there's a but julie car that's going to be a very much equivalent of a of a model why that's going to be coming to market substantially cheaper thousands of dollars cheaper.

James Henry Litinsky: And I think what you're going to find, and then there were also other stories of BYD building a plant in Mexico and, and certainly excess capacity in China that will now make its way around the world. And you see that, you really see that, and I think you're going to see it in a huge way this summer. And I think it will probably hit fever pitch as we approach the election, and it'll continue to be an issue because there's no question that there will be stress and distress across some of the Western OEMs as the competitive landscape completely changes.

James Henry Litinsky: And given.

James Henry Litinsky: Given given sort of the Volvo aspect of it will not be subject to tariff and I think what youre going to find.

James Henry Litinsky: There were also other stories of BYD building, a plant in Mexico and.

James Henry Litinsky: Certainly excess capacity in China that will now make its way around the world I think the big picture thing here that is so important is that when we thought about EV penetration globally. It used to be a situation, where evs, we're much more expensive than ice and so you know kind of a bunch of rich people could get them, but then when would it really sort of be mainstream in how much subsidy would have.

James Henry Litinsky: To happen, but actually what's happened now is that the Chinese have put so much capacity on the table that they have now moved downstream to the point, where they're Oems will be displacing western Oems in the west and you see that you see that really and I think youre going to see it in a huge way this summer and I think it will probably hit <unk>.

James Henry Litinsky: <unk> as we approach the election and it will continue to be an issue because there is no question that there's going to be stress induced and distress.

James Henry Litinsky: Across some of the western Oems as the competitive landscape completely changes.

James Henry Litinsky: It's a great thing for consumers in the sense that there are great products that are cheaper than ICE vehicles. And so this whole issue of demand, and, you know, is this, you know, it's really just a pendulum of, you know, EV, whether, you know, regardless of what people think, the electrified penetration is greater than 50% in China. So it is fait accompli.

James Henry Litinsky: It's a great thing for consumers in the sense that there are great products that are cheaper than ice vehicles and so this whole issue of demand and is this you know it's really just a pendulum of EV weather.

James Henry Litinsky: Regardless of what people think the electrified penetration is greater than 50% in China. So it is fey completely it is happening around the world and so our expectation is that.

James Henry Litinsky: It is happening around the world. And so our expectation is that, and frankly, you know, I think it's a pretty good bet that, for political, but also economic reasons, as you see this unfold, market pricing or close to market pricing will eventually take hold. It's going to be very hard for Chinese OEMs to sell a lot of products in the U.S. while losing money upstream in some of these critical commodities, but they have a strategic advantage, you know, relative to other OEMs.

James Henry Litinsky: And frankly.

James Henry Litinsky: I think it's a pretty good bad debt for four political but also economic reasons that as you see this unfold market pricing or close to market pricing will eventually take hold it is going to be very hard for.

James Henry Litinsky: Chinese Oems to sell a lot of products in the U S well, losing money upstream in some of these critical commodities, having a strategic advantage.

James Henry Litinsky: And so I think that what we have, and certainly there needs to be more of this supply chain, and we're not the only vertical that this pertains to, but I think as we see this dynamic unfold, the battleground will move from the upstream to the downstream. And of course, I haven't even begun; we haven't, you know, talked about robotics and, you know, drones and other things that are electrified that have even broader national security applications in the world as we see it.

James Henry Litinsky: Relative to other Oems and so I think that what we have and certainly they're there need to be more of the supply chain and we're not the only vertical that this pertains to but I think as we see this dynamic unfold the battleground will move from the upstream to the downstream.

James Henry Litinsky: And and of course, I haven't even begun we haven't talked about robotics and.

James Henry Litinsky:

James Henry Litinsky: Drones and other things that are electrified that have you been broader national security applications in the world as we see it and so again that is all speculative on our part, but I think that we've sort of been on top of this issue for fears and I think that will start to see that change I don't expect it to be in the next couple of months, but certainly next.

James Henry Litinsky: And so, again, that is all speculative on our part, but I think that, you know, we've sort of been on top of this issue for a few years, and I think that, you know, we'll start to see that change. I don't expect it to be in the next couple of months, but, you know, certainly in the next couple of years.

James Henry Litinsky: In the next couple of years.

James Henry Litinsky: Thanks, Jim. Sure. All right. Thank you. Go ahead. I'm so sorry. Okay. Yeah, I was just going to conclude and say domo arigato to everybody. Thank you, and we'll see you next quarter. That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

Speaker Change: Thanks, Joe.

James Henry Litinsky: Sure.

James Henry Litinsky: Alright, thank you well.

James Henry Litinsky: Go ahead, I'm sorry, okay.

James Henry Litinsky: Yeah, I was just going to conclude and say domo arigato to everybody. Thank you and we'll see you next quarter.

James Henry Litinsky: That concludes today's call. Thank you for your participation and enjoy the rest of your day.