Q3 2024 MP Materials Corp Earnings Call

or over 1,700 metric tons higher than our previous best quarter. Let me repeat that. We produced 15% more REO this quarter than our previous best quarter ever.

Michael will get into more details shortly, but we believe this signifies material progress towards the significant step function change in potential we have recently discussed for our upstream business.

Upstream 60, K optimizations drove improved recoveries and alongside those higher recoveries, we maintained solid productivity with consistency and reliability and uptime.

Upstream 60k optimizations drove improved recoveries, and alongside those higher recoveries, we maintained solid productivity with consistency and reliability and uptimes.

As we have previously stated our path towards upstream 60, K will be lumpy, but these results clearly underscore the world class technical capabilities of our team the vast potential of our upstream operations and our confidence in achieving upstream 60 Tac.

As we have previously stated, our path towards Upstream 60K will be lumpy, but these results clearly underscore the world-class technical capabilities of our team, the vast potential of our upstream operations, and our confidence in achieving Upstream 60K.

Needless to say record production this quarter translated into strong concentrate sales volumes, despite pushing much more volume through the midstream circuits.

Needless to say, record production this quarter translated into strong concentrate sales volumes, despite pushing much more volume through the midstream circuits.

Speaking of the midstream and as significantly we achieved record production of 478 metric tons of <unk> in the quarter.

Speaking of the midstream, and as significantly, we achieved record production of 478 metric tons of NDPR oxide in the quarter.

This represents a 76% increase from the second quarter, well above our guidance for 50% sequential growth.

This represents a 76% increase from the second quarter, well above our guidance for 50% sequential growth.

I would remind you all that we completed and an extended planned maintenance outage. In October. We are also beginning to commission additional upstream 60 K projects throughout the quarter.

I would remind you all that we completed an extended planned maintenance outage in October.

We are also beginning to commission additional upstream 60K projects throughout the quarter. Given these planned disruptions, we expect Q4 NDPR oxide production to be roughly flat with Q3's 478 tons.

Given these planned disruptions, we expect Q4 <unk> production to be roughly flat with Q3's 478 tonnes.

We then expect a more significant acceleration in midstream production in Q1 of next year.

We then expect a more significant acceleration in midstream production in Q1 of next year.

The strong Q4 production allowed us to nearly triple our sales volumes sequentially highlighting strong momentum in the sell through of our oxide and metal production.

The strong Q4 production allowed us to nearly triple our sales volume sequentially, highlighting strong momentum in the sell-through of our oxide and metal production.

I would like to point out that we have seen a recent notable uptick in customer inquiries for samples and potential orders.

Assuming we meet our production targets and and EPR pricing holds at current levels, we expect to generate positive midstream gross margins as we exit Q1 Nash.

Naturally this comes with all the usual caveats of a complex ramp up but we are very pleased to have line of sight to profitability and our refining operations complementing the continued strong profitability of our upstream.

We also received positive news in late October when the Treasury Department issued the final rules for the 45 X advanced manufacturing production tax credits, which grants a 10% credit on costs related to producing critical minerals, including <unk> oxide.

Initially the proposed rules excluded extraction costs and both direct and indirect material costs limitations that would have reduced the policies impact for companies like MP.

However, the final rules now allow vertically integrated U S minor refiners such as MB to include these extraction and material costs.

This change is particularly significant for railroad producers as chemical reagents make up a substantial portion of our overall cost structure.

Moving onto our downstream magnetics business, we have begun commissioning our electrolysis cells for metal production in Fort worth.

By the way, we refer to the Fort worth magnet facility internally as independence named for the road that it sits on and the mission that we strive to facilitate.

Our team there is now about 100 people and we are on track to deliver metal by year end.

We will start externally using the official name independence going forward.

In addition.

We also expect first production of on spec magnets and our integrated prototyping facility at independence by year end.

This will allow us to begin the customer qualification process. Another critical milestone on the path towards commercial magnet production by the end of next year.

So in summary, this was just a tremendous quarter of execution across our business. We have a lot of work to do but I am, particularly proud of our team's resilience. This year I am further encouraged by the significant momentum we are building as we head into 2025.

With that I'll turn it over to Ryan to review, our Kpis and financial performance Brian.

Ryan: Thanks, Jim moving to slide six on the far left of the slide you can see that Oreo production of 13742 metric tons increased 28% compared to last year and over 50% versus a more challenging Q2 as.

Ryan: As Jim mentioned this led to very strong sales volumes as we sold 9729 metric tons of Oreo, a 6% increase over last year and a 67% increase sequentially.

Ryan: On the Middle left you can see realized pricing remains pressured as average realized price for Oreo and concentrate was $4425 per metric ton in the quarter at 23% decline from last year, but a 6% increase sequentially we.

Ryan: We saw some positive movement in market prices in September, which had a slight positive impact on our upstream realized pricing versus our guidance from last quarter.

Moving to the midstream Kpis on the right side of the page as Jim also mentioned, we produced 478 metric tons of NDP, our oxide a 76% increase over Q2, and nearly 10 times last year's initial production levels.

Ryan: <unk> sales volumes totaled 404 metric tons, nearly triple Q2's volumes I would point out that most of the higher sales than originally expected is simply due to timing.

Ryan: Given the still relatively low production volumes timing of shipping schedules and deliveries will potentially have a large impact on our relative sales forces, particularly as we continue to ramp up our metal totaling channels.

Ryan: Looking year over year production of refined products had just begun and last year's Q3 with our first sales not until Q4.

Ryan: Pricing this quarter came roughly in line with our expectations down about $1 per kilogram compared to last quarter.

Ryan: Moving to slide seven.

Ryan: The impact of N DPR oxide and metal sales as well as strong concentrate sales volumes generated a 20% year over year increase in revenues despite negative year over year compares and realized pricing.

Ryan: In addition, strong gross profit contribution from our concentrate sales as well as continued cost reductions and NDP our oxide production led to a $15 $9 million sequential improvement in EBITDA results in Q3.

Ryan: Our improving cost profile as we benefit from fixed cost leverage, resulting in us, reducing our inventory reserve by $2 $7 million in the quarter.

Ryan: The cumulative lower of cost or market inventory reserve at the end of Q3 now stands at $15 1 million.

Ryan: On the far right of the slide the improving sequential EBITDA flowed through to adjusted diluted EPS, where we saw a 5% improvement versus Q2.

Ryan: As we have discussed over the last few quarters, our midstream operation continues to be subscale as we ramp production of any PR and other separated products.

Ryan: That said and as Jim highlighted we have a line of sight to generating positive gross margin on our end EPR oxide sales as we exit Q1 of next year driven in large part by the continued ramp in production volumes and as we made further headway in fine tuning and lowering the cost of our processes.

Ryan: I would note however that as we look forward to Q4 sequential concentrate production volumes will be down and NDP. Our production will be roughly flat. This is due to an extended planned outage. We held in early October and the introduction of some upstream 60, K initiatives and equipment, which in the very short term will likely result in additional downtime and.

Ryan: Non stable performance.

Ryan: This would also result in lower concentrate and NDP, our sales volumes next quarter.

Ryan: And as for realized pricing, assuming current market prices hold for the remainder of Q4, we would expect concentrate prices to grow just under 10% sequentially, while <unk> pricing should increase approximately 5% given the longer lag versus market pricing on an EPR.

Ryan: Moving to Capex and the balance sheet, we have reduced our expectations for 2020 for capex to be approximately $200 million.

Ryan: Primarily due to the timing of cash costs, we are starting to do a deeper dive on our 2025 capex expectations and will provide a more precise outlook on our 2020 for Q4 call, but overall I would expect much of the $50 million of lower 2024 spend to rollover into 2025.

Ryan: With this quarter at a Prime example, we continue to find high return projects across our portfolio of assets, but remain steadfastly committed to maximizing long term free cash flow, while maintaining a fortress balance sheet importantly.

Ryan: Importantly, we ended Q3 with approximately $866 million of cash and equivalents and approximately $94 million of net debt.

Ryan: This was after opportunistically repurchasing $24 $3 million of MP shares in the quarter at an average price of $10 86.

Ryan: This brings our year to date repurchases to $225 1 million or approximately eight 6% of the company.

Ryan: Moreover, along with buying back eight 6% of the company. So far this year, we also enhanced our capital structure by extending the vast majority of our debt maturities to 2030.

Ryan: I would also remind investors that last quarter, we shared that we expect to earn approximately $190 million in customer prepayments and tax credits by the end of 2025 in.

Ryan: In Q3, we received the first tranche of $20 million of tax credits and we expect to receive most if not all over the remaining $170 million over the coming five quarters.

Ryan: With that let me turn it over to Michael to give you updates on the operations Michael.

Michael: Thanks, Robert turning.

Michael: Turning to slide eight you can see an overhead shot of our midstream assets and site utilities.

Michael: We made tremendous progress throughout the operation in Q3, delivering all time production records in both our upstream and midstream circuits and continuing to advance our downstream development.

Michael: We are very pleased with the upstream performance, where our recent optimization initiatives achieved better than expected results.

Michael: Remarkably our 28% year over year growth was achieved almost entirely from improved recovery with no change in feed rate, while uptime increased slightly year over year and was just above normal for a non outage quarter.

Michael: I'd like to recognize our Metallurgist metallurgy technicians and mill operations teams, whose work and creativity led to this incredible performance.

Michael: We believe that the results are generally sustainable, though I would advise against immediately annualizing. This.

Michael: In particular, the more rapid improvement put some pressure on other parts of the operation that may create intermittent uptime challenges.

Michael: We will certainly overcome these.

Michael: We continue to experiment with additional optimizations that May also result in temporary setbacks.

Michael: But I believe we have achieved a step change improvement in our baseline upstream performance, which reinforces our confidence in our ability to sustainably unlock incremental value from the mountain pass ore body and assets.

Michael: In the third quarter, we commissioned the first modest capital investment project of the upstream 60 K initiative.

Michael: This flotation equipment enhancements had a slight positive impact on production in Q3.

Michael: However, it is not yet operating stably full time or at full scale.

Michael: To prepare for continuous operation, we will implement improvements to the unit in Q4 that will over time enhance its availability and its benefit.

In Q3, we also began pre commissioning a significant improvement to our grinding circuit.

Michael: As of today. Some of this equipment has been placed into service and trial production has begun for additional components.

Michael: As I mentioned last quarter, while we have very high expectations for this investment. It may initially cause instability and negatively impact the operation before driving incremental recovery in 2025.

Michael: Our midstream business accelerated performance in the quarter as well.

Michael: Improved availability again accounted for most of the improvement and nearly all of the outperformance versus our prior directional guidance.

Particularly in those circuits, where mechanical or operational reliability had lagged we saw meaningful improvement in uptime.

Michael: We remain pleased with our <unk> oxide quality as well as that of our <unk> metal, which saw a large increase in customer deliveries in the quarter.

Michael: With uptime and product quality as a foundation, we feel increasingly optimistic about our ability to further increase throughput and efficiency.

Every day as one would expect we encounter our share of operational challenges and setbacks.

Michael: While these can be frustrating at times overcoming them showcases the significant potential of our team and operation.

Michael: As we address these issues one by one we have more time to optimize reagent use and labor innate.

Michael: Enabling us to drive production costs downward towards world class levels.

Speaker Change: As Ryan discussed in the first half of October we executed our semiannual maintenance outage tip.

Speaker Change: Typically we experience an uneven path to stability coming out of an outage and this quarter was no different.

Speaker Change: But this is well behind us now.

Speaker Change: We do not expect to match Q3 concentrate production in Q4 due to lower uptime and the investments for future growth discussed earlier.

Speaker Change: But behind the headline figures, we do expect that the strong fundamentals will continue.

In the midstream operation, we expect Q4, and DPR production to be roughly flat sequentially with much stronger performance in the first quarter of 2025.

Speaker Change: Our magnetics team continues to make incredible strides too.

Speaker Change: The expanded capital projects group is doing an excellent job driving design and execution on schedule and budget.

Speaker Change: There is enormous excitement and stress in the air as we transitioned from a design and construction project into the construction and operations phase.

Speaker Change: We are currently commissioning our first full scale metal reduction furnaces and look forward to delivering quality metal by the end of the year.

Speaker Change: While not at full commercial scale, our prototype facilities operate at representative scale and possess capability to process metal ingots into alloy flake magnet powder centered block and grain boundary diffusion or GBT machined and magnetized finished magnets.

Speaker Change: On slide nine you can see examples of unfinished centered and F&B magnet block produced in independents as prototype facility.

Speaker Change: The quality of these magnets, while not yet perfect is already well on the way to satisfying the current EV traction motor.

Speaker Change: And other target application standards.

Speaker Change: Importantly, this facility gives us the opportunity to experiment iterate learn from mistakes and ultimately succeed at a manageable scale and with rapid turnaround and feedback.

Jim: With that I will turn it back to Jim.

Jim: Thanks, Michael.

Jim: Turning to slide 10. This is a nice shot outside our corporate offices in Las Vegas.

Speaker Change: In summary.

Speaker Change: I am proud to say that the MP team delivered an outstanding quarter across all aspects of our business.

Speaker Change: Today's results highlight our expanding upstream profit potential the rapid scaling of our midstream operations with an anticipated shift to positive gross margin contribution.

Speaker Change: And our downstream operations at independence, which are poised for near term transformative milestones. Additionally.

Speaker Change: Additionally, we have significant near term sources of cash outside our day to day operations. So we will remain well positioned for opportunities even amid a challenging pricing environment.

Speaker Change: Lastly.

Speaker Change: I anticipate some questions about the transformative political shift we witnessed in America. This week and I look forward to sharing my perspective.

Speaker Change: But here's the quick preview.

Speaker Change: Tuesday's results should translate into continued strong support for M. P. R.

Speaker Change: Our mission to onshore one of America's critical supply chains aligns with the clear mandate from the American people.

Speaker Change: Companies like MP are crucial to our nation's future and now at this pivotal moment, our work really matters.

Speaker Change: With that we're ready for Q&A operator.

Speaker Change: At this time, if you would like to ask a question. Please click on the raise hand button, which can be found on the black bar at the bottom of your screen.

Speaker Change: One <unk> you will receive a message on your screen from the house, allowing you to talk and then you will hear your name called please accept and you get your audio and ask a question.

Speaker Change: One moment to allow for Q1.

Speaker Change: Our first question will come from Laurence Alexander with Jefferies. You May know, Amit your audio and ask your question.

Speaker Change: Good evening. This is Kevin Estok on for Laurence are you able to hear me okay.

Speaker Change: Yes, Hey, Kevin.

Speaker Change: Great.

Kevin Estok: I just wanted to know a little bit about what youre seeing or hearing in terms of demand for new robotics applications and maybe the level of interest from downstream customers in any magnetic off take agreements.

Kevin Estok: And maybe whether there is any price points that would really you would need to really sparked discussions. Thanks.

Kevin Estok: Sure.

Kevin Estok: This is Jim so on robotics, what I would say is we are seeing a ton of action in company formation in venture capital and.

Kevin Estok: What I would say, it's prototyping initial design as far as mass production, it's still it's still a bit early.

Kevin Estok: You've heard me kind of a last couple of quarters. We've been talking about this is really heating up and I really view this as sort of a few years out kind of thing, where it's really going to create a step function change, but what I would say is that.

Kevin Estok: What we see is really accelerating I think if you had asked US two years ago about robotics, we would've said.

Kevin Estok: This is a huge piece of demand that is coming in our space, but it's it's sort of out there we don't know when.

Kevin Estok: Post sort of the AI Revolution.

Kevin Estok: Some of the advancements that we're that we're seeing and obviously you see it all out there yourself Im sure are pretty incredible.

Kevin Estok: And it seems to be accelerating there was actually it was the other day, which we did a really good if you get a chance.

Kevin Estok: Youtube video with Marc Andreessen and talking about the robot robotics in the robotics supply chain and how much. This is.

Kevin Estok: Accelerating and so anyway, that's a long winded way of saying, we see it developing a lot as far as when it will start to have a material impact on demand that's still a little bit unknown, but what I would say is I do think that youll start to see real change in the supply chain.

Kevin Estok: Probably 18 months to two years before that inflection point, because people will need to get get their supply chain is ready.

Kevin Estok: And the scale of demand for robotics, you May have heard me talk about this before but.

Kevin Estok: If you look at the.

Kevin Estok: The actuators in humanoid robotics in particular.

Kevin Estok: Our estimation is to anywhere from two to five times the amount of magnetic content versus an EV and so if you do believe sort of the mask et cetera review of billions of robots. What you realize is that this market is substantially larger than the EV market and the content per unit is substantially larger so we think it's a huge.

Kevin Estok: <unk> for US and then the last thing I would just say.

Kevin Estok: Particularly given the fact that robots are in our homes and our factories the national security element to this is pretty huge and so and in fact that that.

Kevin Estok: Video that webcast that we treated a few days ago from injuries and talks a lot about this but when we think about evs and how much of that supply chain we lost.

Kevin Estok: In robotics, I think that there's a big push from people in the know to make sure that we have this supply chain here because of the national security importance and so I think it will as this heats up over the next year I think it's going to really highlight.

Kevin Estok: The importance of what we're doing.

Speaker Change: Okay understood. Thank you.

Speaker Change: And this is Ryan one thing I would add on that.

Speaker Change: That I think is interesting is.

Speaker Change: When we think about robotics, obviously, there is commercial applications, but as we think about national security implications as well and applications.

Speaker Change: An important element to the development of the domestic market in the U S is.

Speaker Change: D var is compliance so a necessity for those that are in the defense supply chain to be purchasing magnets all the way back basically to the mine site that have been manufactured in the United States and so there are very few companies that are positioned to execute on that the way that we are and and on top of that I think the thing that we have.

Speaker Change: Seen develop across robotics and National Defense applications is one of the benefits of our structures, we don't have sort of innovators dilemma, where we've got.

Speaker Change: Off the shelf product.

Mixes that we need to sell into we can work with the actuator and motor designers to maximize manufacturer ability and minimize cost of the magnets and those are conversations that we have ongoing as we speak that I think position us very well to execute on us.

Speaker Change: Okay, great. Thank you and just my second question I, just wanted to get a sense of your teams maybe read on the political landscape. Just after this week's election any any change in the mix of Senators and Congress people that.

Speaker Change: Or more likely or less likely to engage and maybe critical materials and potentially a magnet bill after the after after the.

Speaker Change: Okay.

Jim: Sure This is Jim.

Jim: What I would say is I think this week's election, it's a really overwhelming mandate I mean, I think the key takeaway from the election is that.

Jim: Obviously the America first agenda is very focused on the American worker on bringing on helping support the people who really built the stuff in this country.

Jim: And so I think it was not only a sort of a very broad spectrum of people who have come together to really form what is now this America first approach and I think it's really historically both sides of the aisle are focused on jobs.

Jim: <unk> and onshoring, but I think now we have sort of the next piece of this which is an overwhelming mandate.

Jim: From the American people and so I think in particularly given that.

Jim: It was a red wave and so it is sort of a.

Jim: The house, the Senate and President Trump will be able to really drive an agenda and I think it's hard to know.

Jim: What shape it is going to come in because particularly with president Trump he is very effective at.

Jim: At that negotiating these things and getting to an outcome, but you never know sort of.

Jim: Where that's going to go and so we don't know if its going to be via tariffs. We don't know if it's going to be via tax policy.

Jim: But there is absolutely no doubt that.

Jim: At the industry champions like ours, which are in the critical materials national security supply chain bring.

Jim: Bringing jobs back to America.

Jim: We are sort of in the in the center of exactly the type of companies that.

Jim: That people want to support in what I would say it's also we operate in.

Jim: Three main sites of operation, we operate in a blue state we operate in a red state and in a purple state.

Jim: So our people are operators electricians maintenance workers engineers I mean, it really is sort of the center of.

Jim: What we're trying to get help and then the last point I'll make on this is we sort of said.

Jim: Peter Lee over the last few years.

Jim: We really we we like to compete against China. We think there are an incredibly tough competitor, we want to compete against them.

Jim: But we want a level playing field and I think the thing that has been missed.

Jim: In certain industries like ours, specifically is that we don't have that so this is not an academic argument about whether it's tariffs or good or not or this is we don't currently compete in a level playing field and so to the extent that policy.

Jim: Is driven to leveling the playing field for companies like us.

Jim: I think it's going to be.

Jim: Particularly awesome for our opportunity set in the coming three years.

Speaker Change: Thank you.

Speaker Change: Our next question will come from Matt Summerville with D. A Davidson. Please go ahead.

Speaker Change: Can you hear me okay guys.

Speaker Change: Yes, we hear you Okay cool sorry, this first time I'll turn the call format otherwise.

Speaker Change: You mentioned, some gross margin positivity I believe.

Speaker Change: The refinement that isn't in the piling business in Q1, any sort of prognostication on when that business can become EBITDA positive, assuming a sort of similar pricing environment today.

Yes, Matt it's a great question.

Speaker Change: I think the thing to think about is when you are comparing our results on a consolidated basis for the mountain pass assets, obviously the faster we go on the midstream the more were pulling away high gross margin concentrate.

Speaker Change: Sales right and obviously significant gross profit that we generate from those sales and so there is sort of the push pull right and the faster. You go you are sacrificing those margins I think the important thing that we saw this quarter.

Speaker Change: With the growth in production and continued progress on cost structure is this line of sight that we guided to certainly if we're if we're sort of messaging confidence in.

Speaker Change: Positive gross profit in exiting Q1, I would expect that.

Speaker Change: Positive EBITDA for that business is not too far behind it but it just depends on all of the different factors that go into driving production growth and driving cost out of the system.

Speaker Change: If you look at our EBITDA in totality.

Speaker Change: Looking out for 2025, certainly if we're hitting our targets here for gross margin positive on the separation side.

Speaker Change: We obviously will continue to have some amount of concentrate sales that continue to be very profitable and then we will move into profitability on magnetics and so you put all of that together and you look at our full year period, and we're pretty excited about the compares that we'll have in 25 versus 2004.

Speaker Change: Got it and then as a follow up I want to make sure I understand.

Sequential basis, it sounds like theres going to be a pause or a flattish sort of quarter on quarter level.

Speaker Change: The level of of MVP, our production I want to make sure I understand what's driving that and then similarly, what's going to drive what Michael described as kind of a nice jump in Q1. Thank you.

Speaker Change: Sure, Matt I'll I'll do the finance side of it and I'll, let Michael explained the operations, but the simple answer is it's really about uptime.

Speaker Change: One of our longer shutdowns in October as Michael referenced it. So as you can as we continue to hit our strides throughout the quarter in Q3.

Speaker Change: Necessitated a pause as we do our maintenance shutdown in October and then of course, when you come out of that and in that shutdown process. We introduced optimizations, new pieces of equipment et cetera, et cetera into the operation as we ramp back up we introduced.

Speaker Change: <unk> instability. It so it's one of those issues were again, taking a snapshot in time of just a quarter always is difficult in a ramp like this but I think behind those headline numbers are going to be.

Speaker Change: We've got proof points of progress.

Speaker Change: And that will show itself through much better in Q1, obviously, but Mike any other specifics you would add onto that.

Speaker Change: One other thing to add is just as part of some of the shutdowns we have to be inventory part of it. So we have to rebuild that.

Speaker Change: With that.

Speaker Change: To some extent when we restart.

Speaker Change: Overall, we are seeing better uptime as I mentioned in the in the prepared remarks.

Speaker Change: We expect that to continue and as we sort of stabilize that we'll look to increase the throughput.

Speaker Change: Like that to take more effect in the first quarter.

Speaker Change: As we.

Speaker Change: Address one issue previously under appreciated.

Speaker Change: There are no challenges.

Speaker Change: <unk> is emerging we address those but we're very very confident that as we enter into the new year will we will see a new new highs.

Speaker Change: Understood. Thank you guys.

Speaker Change: Thanks, Matt.

Speaker Change: Our next question will come from Greg Jones with BMO. Please go ahead.

Speaker Change: Hi, Good afternoon, everyone can you hear me, yes Hello.

Speaker Change: So I had two questions. The first is regarding the 45 X production tax credit.

Speaker Change: Obviously understanding the finalized rules were just recently announced but do you have a view on what the potential annual dollar amount of the credit could be as you move into next year and beyond.

Speaker Change: Sure Greg I'll take that the short answer is significant.

Speaker Change: But the details are important obviously of the new final rags and most importantly, one of the critical elements of <unk>. It is a bit unique is we need to utilize our tax cost of goods sold in the calculation not our book cost of goods sold and there are a tremendous number of nuances that often.

Speaker Change: Not always calculated until a certain period of time et cetera, et cetera, I think the high level is as follows you've sort of seen the impact over the last couple of quarters and in our filings on what.

Speaker Change: What the benefit has been at.

Speaker Change: At a high level, we were estimating that the impact with the preliminary regs would effectively cut the impact in half versus what the ultimate sort of 10% of production cost should look like and so since we're not providing a cogs estimate our outlook right now I think the simple.

Speaker Change: Answer is we expect it to be just about 10% of our cost of goods sold for the fully integrated operations are products that are qualifying and ETR oxide.

Speaker Change: So.

Speaker Change: A really important and beneficial change our view has always been on this type of production tax credit.

Speaker Change: It is something that I think works to really incentivize a lot of the things that Jim spoke about a few moments ago and Joe as as we move into New Congress. We're hopeful that as these things get looked at frankly, we think there should be more the best way to incentivize new production is to continue to drive these sorts of <unk>.

Speaker Change: Things that reward scaled producers.

Speaker Change: US and incentivize continued growth in the business.

Speaker Change: That's great. Thank you and if.

Speaker Change: Second question more of a macro one.

Speaker Change: There's been some media reports around events that are happening in Myanmar, and and some of the issues that are going on in the country there.

Speaker Change: Seem to be impacting supply chains and exports from the country.

Speaker Change: Do you see or experience any impact on your business or the potential for higher prices or increased demand for MTS products as a result.

Speaker Change: Sure Greg So just to level set so everyone knows Myanmar. It does represent a significant amount of supply that goes from the border region of Myanmar into China.

Speaker Change: There have been reports that some of the mining there has been shut down there is an opposition group to the military junta that now controls that territory.

Speaker Change: There's obviously a lot of noise around that.

Speaker Change: Any.

Speaker Change: Supply impacts can certainly create volatility I think something that is sort of.

Speaker Change: More medium and longer term associated with that because of course when it comes to kind of near term prices I'm always going to give you my answer of its commodities prices who knows.

Speaker Change: But I do think that given that the that area of the country is more in the control of people from that area of the country.

Speaker Change: There is going to be a greater push for more environmental production because you can certainly Google this the.

Speaker Change: The production in that area is particularly bad.

His caused particularly.

Speaker Change: Big health problems and Theres not much oversight, there and so to the extent that people have that area are getting more control of that I do think that that will be a natural restriction on on supply, particularly just illegal bad for the world kind of supply that's hurts people and so I think it is a certainly without a clue of kind of how that impact.

Speaker Change: Markets in the short term and the medium and long term I do think.

Speaker Change: It will create some upward pressure on pricing to be more normalized for what is the cost of real production.

Speaker Change: And the last thing I would say is pricing in these markets does tend to it's not like oil where there's a.

Speaker Change: Essentially a 24 seven market. This is somewhat of an esoteric market and so sometimes you will see things like that and actually the price reaction.

Speaker Change: Can occur in a month or two or three or whatever but but the point is as I think actually that my guess is that if there is sort of a material impact it's not certainly not in the price yet and so that could be something in the near term that creates a lot of upward volatility.

Speaker Change: Or it may be it may not I have no clue, but I think in the medium term.

Speaker Change: A bullish development for the space and lastly, obviously it highlights the importance of supply chain security once again.

Speaker Change: Great. Thank you.

Speaker Change: Our next question will come from Bill Peterson with Jpmorgan. Please go ahead.

Speaker Change: Yes, hi, good afternoon, and thanks for taking my questions maybe on the flip side of the supply.

Speaker Change: Wondering if you can walk us through some of what you're seeing on the end markets in terms of demand I.

Speaker Change: I guess, the backdrop that pricing on <unk> kind of been flat for about two months now.

Speaker Change: We've heard of some green shoots and then.

Speaker Change: Restocking destocking trying to get a sense of where youre seeing in terms of <unk>.

Speaker Change: The end market demands.

Speaker Change: Yes, just as a reminder, when we think about demand in this space remember that roughly 30% of demand is sort of high growth electrification evs hybrids.

Speaker Change: And then the other 70% is our sort of standard old line.

Speaker Change: Correlated with Chinese manufacturing industries power tools, HVAC et cetera.

Speaker Change: What I would say is certainly over the last 18 months the Chinese macro situation has been very tough.

Speaker Change: We've mentioned in very recent months.

Speaker Change: Certainly.

Speaker Change: It is stable I mean, if you look at prices have been stable for for a while I think in our.

Speaker Change: Heartlands, it's been kind of bouncing around the bottom for a number of months now.

Speaker Change: I think the big wildcard will be in recent weeks, there's an enormous amount of stimulus.

Speaker Change: That has been announced in China, obviously, it's too soon to tell what the real impact of that will be but again I guess.

Speaker Change: Not seeing it in the price yet I don't think its determinant of whether or not it's a material.

Speaker Change: Impact because I think that these things do tend to happen on a lag and you may have heard us say this before but.

Speaker Change: With respect to rare earth prices the joke in the industry as they're either going up or going down of course, we've been stable for about a year.

Speaker Change: My guess is that if there is some Chinese stimulus that works its way through the system over the coming months, there will be a moment.

Speaker Change: Where.

Speaker Change: Where there is just sort of a volatile upward reaction, but but who knows and then lastly, I would say and I referenced. This if you caught this remark.

Speaker Change: In the prepared remarks, but we have seen.

Speaker Change: It's tough for me I can't.

Speaker Change: I can't be too specific but I would say there's been a few.

Sort of recent reach outs etcetera that lead us to believe that there is kind of an uptick coming but again, it's anecdotal and we weight and I guess.

Speaker Change: Lack of a better way to say it pray for higher prices of course, but.

Speaker Change: That's pretty much the background.

Speaker Change: Yes, thanks for that.

Speaker Change: Wanted to kind of double click on a common you were talking about earlier about the.

Speaker Change: A number of.

Speaker Change: Customers requesting products from your midstream side is there any way to kind of quantify where these customers are requesting samples what geographies are coming from what market today represented and I guess.

Speaker Change: Importantly, our most of these engagements are customers outside of China.

Speaker Change: So great question you may have heard US mentioned this but it's worth repeating for sure.

Speaker Change: We now sell effectively directly to three of the five largest Oems in the world non non Chinese so think of household names that you know Oems and that was a really interesting development for us in sort of in the recent past six months or a year.

Speaker Change: If you recall kind of a few years ago back when we went public we there was a lot of talk of GE will.

Speaker Change: When we were sort of in the height of the.

Speaker Change: Covid supply chain issues are.

Speaker Change: Are the Oems can occur are they going to reach out the supply chain and we're seeing that that is that is a real thing that.

Speaker Change: It's not just a real thing it has happened right and so now we have.

Speaker Change: Direct relationships with.

Speaker Change: The largest Oems that you would know and what I would say is those are material.

Speaker Change: And so I think that particularly given that we're sort of bouncing around.

Speaker Change: A down cycle in our space the fact that those.

Speaker Change: Relationships have commenced.

Speaker Change: Is.

Speaker Change: Good thing if we expect demand in electrification hybrids and ultimately robotics to pick up eventually or just basic Chinese macro power.

Speaker Change: Power tools are nice too.

Speaker Change: So.

Speaker Change:

Speaker Change: Hi.

Speaker Change: It's a good development and Thats already occurred.

Speaker Change: Our next question will come from that and Palo with Baird. Please go ahead.

Speaker Change: Congratulations on all the progress of Jim.

Speaker Change: When you talk about.

Speaker Change: Initial production of the Magnum facility and there'll be able to provide samples.

Speaker Change: I might be confused I thought everything was sold to GM go into others are just samples several different types of Magnus going to GM or are you looking for other customers as well.

Speaker Change: Hey, Ben it's Ryan I'll take that.

Ryan: We've been clear the preponderance of our volumes are spoken for at this point and so our main focus of courses is executing for our foundational customer which is general motors.

What I think is important though is some of the conversations that I mentioned earlier.

Ryan: In various industries not just automotive.

Ryan: Continue to go on I.

Ryan: I think Jim said it many times before we are not demand constrained we are supply constrained and so.

Ryan: From that perspective.

Ryan: We continue to have I think very very healthy dialogue across industries in terms of qualification and metal deliveries et cetera. Our focus is certainly on general motors for the moment, but we continue to engage with a lot of potential other customers and then just Jim just adding onto that.

Speaker Change: I mean, if you look given that we get essentially no credit for the business.

Speaker Change: Currently obviously, our first and foremost focus is on.

Speaker Change: Executing for GM as it would be regardless, but.

Speaker Change: Longer term some of these trends that we talked about.

Speaker Change: Specifically around robotics, and national security items, which I think are going to head into a fever pitch next year, particularly given the new mandate in.

Speaker Change: In government.

Speaker Change: I think what Youll see is that our facility is well positioned to kind of.

Speaker Change: And hopefully you'll come see it sometime soon.

Speaker Change: But.

Speaker Change: We'll be we're well positioned there to to be able to.

Speaker Change: Produce.

Speaker Change: For a variety of customers overtime to the extent that we want to grow the business.

Speaker Change: Thank you.

Speaker Change: Jim on the policy front.

Speaker Change: You mentioned not being on a level playing field.

Speaker Change: As you talk to our representatives.

Speaker Change: The administration.

Speaker Change: What is your.

Speaker Change: Wish list or how do you want to.

Speaker Change: <unk> tried to do on a level playing field. If you if you had your wish.

Speaker Change: Thank you sure yes, sure I mean.

Speaker Change: That's a tough question because.

Speaker Change: Regardless of the wish I think that this there'll be a lot of iterations to how this plays out with respect to tariff and tax credits and however, however, it shakes out obviously, but to.

Speaker Change: To more directly answer your question.

Speaker Change: For example.

Speaker Change: If we're competing against.

Speaker Change: A competitor.

Speaker Change: On the other side of the world that doesn't have a cost of capital right. That's the challenge if we're if it's in <unk> separation, we're competing as a competitor that doesn't have a cost of reagents. That's a challenge.

Speaker Change: <unk> on sort of where in the stream that you are.

Speaker Change: To specifically target, but I think that.

Speaker Change: Whether it's an enhancement of tax credits or tariff related policy or simply with <unk>.

Speaker Change: Ryan mentioned earlier with some with defense policy, starting Jan one of 27.

Speaker Change: We're going to be we're effectively.

Speaker Change: <unk>.

Speaker Change: Probably the only or if not the only one of the only sources for a lot of the defense supply chain.

Speaker Change: Under under the new requirements and so theres a variety of things that I think are going to accelerate our business. My guess is though that.

There's going to be some grand bargain of some kind that will drive something that will help our business and I just don't know what it is so I don't even know I don't even know what specifically to wish for.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Yep.

Speaker Change: This concludes the question and answer question of today's call I will now hand, the call back to Mr. <unk> for closing remarks.

Speaker Change: Thank you well. Thank you everyone. Obviously as the execution results show. This was just an outstanding quarter across the business I'm really proud of the team and.

Speaker Change: So we will get back to work and look forward to seeing you all next quarter.

Speaker Change: Okay.