Q4 2024 MP Materials Corp Earnings Call
Speaker Change: Adam400 Voice actor Jens Stoltenberg Project manager Tobias Schumann Producer and model Eva Senig CUHR
Speaker Change: Hello, and welcome to the MP materials fourth quarter 2024 earnings call. We ask that you. Please hold all questions until the completion of the formal remarks at which time, you'll be given instructions for the question and answer session.
Speaker Change: As a reminder, this conference is being recorded.
Martin Sheehan: If you have any objections. Please disconnect at this time with that I would like to turn the call over to Martin Sheen head of Investor Relations. Mr. Sheehan you may begin. Thank you operator, and good afternoon, everyone and welcome to the MP materials fourth quarter 2024 earnings Conference call with me today from MP materials are Jim Lipinski founder.
Michael Rosenthal: Chairman and Chief Executive Officer, Michael Rosenthal, founder and Chief operating Officer, and Brian Coleman, Chief Financial Officer.
Michael Rosenthal: As a reminder, today's discussion will contain forward looking statements relating to future events and expectations that are subject to various assumptions and caveats factors that may cause the company's actual results to differ materially from these statements are included in today's presentation earnings release and in our SEC filings. In addition, we have included some non-GAAP.
Michael Rosenthal: 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.
Michael Rosenthal: Any reference in our discussion to EBITDA means adjusted EBITDA and tons means metric tons. Finally, the earnings release and slide presentation are available on our website with that I'll turn the call over to Jim Jim.
Jim Lipinski: Thanks, Martin Hello, everyone, let's get started on slide four.
Jim Lipinski: <unk> had a terrific year of execution in 2024 across our materials and magnetics divisions, we set a new record by producing 45455 metric tons of Oreo during the year.
Jim Lipinski: 9% higher than in 2023.
Jim Lipinski: I want to remind you that production progress is rarely linear we are continuously implementing new equipment and processes as we advance upstream 60 K.
Jim Lipinski: This should lead to further improvements over the next year, but along the way there may be occasional instability and downtime as we implement these enhancements.
Jim Lipinski: That said, we are extremely pleased to maintain strong concentrate product profitability as we expand production and optimize them upstream business.
Jim Lipinski: Moving on to midstream operations we.
Jim Lipinski: We produced 294 metric tons of N DPR oxide in 2024, well above last year's total of 200 tons.
Jim Lipinski: In Q1, we are targeting over 20% sequential growth in production.
Jim Lipinski: Similar to our upstream business, we expect to make a lot of progress in the coming quarters. This means rapid but methodical growth and production. While we also make process improvements and capture efficiencies. We remain confident that we will reach gross margin profitability and our midstream operations in the very near term.
Jim Lipinski: As we scale, we continue to see growing ex China demand for our separated products in 2024, we signed new agreements with the department of defense for both and EPR and lanthanum.
Jim Lipinski: We also added a top five global automaker for a substantial direct volume commitment of MVP R.
Jim Lipinski: This means we now supply three of the five largest non China automakers in the world.
Jim Lipinski: Moving onto our magnetics dividend, we achieved two critical milestones in the fourth quarter.
Jim Lipinski: First we started producing and EPR metal at independents. The first time rare Earth metal has been commercially produced in the United States and at least a generation.
Jim Lipinski: This achievement resulted in a second $50 million customer prepayment in late December, bringing our total prepayments to $100 million for the year.
Jim Lipinski: We expect to attain an additional $50 million prepayment in the next few months along with additional tax credits, which Ryan will cover in a moment.
Jim Lipinski: The second significant milestone we achieved was initiating trial production of automotive grade magnets in the new product introduction facility at independents.
Jim Lipinski: This factory within a factory enables us to rapidly manufacturer and validate magnets on the same albeit smaller equipment, we will use to manufacture at scale beginning in late 2025. This represents a major step towards scaling production for GM by year end.
Jim Lipinski: Moreover, MP now makes magnets that independents that meet the rigorous performance requirements necessary for EV drive motor applications.
Jim Lipinski: Which are essentially the most demanding specs by far.
Jim Lipinski: Therefore successfully producing high quality magnets for that kind of application demonstrates that <unk> possesses the intellectual execution and production capabilities to be a solution provider for a wide range of critical applications.
Jim Lipinski: As the world races to secure the building blocks of physical AI, such as robots drones or even EV tall. The United States of America now has a champion and MP that can provide a domestic supply chain solution for rare Earth magnets lash.
Jim Lipinski: Lastly, during the year, we continued to judiciously manage our balance sheet pushing out the vast majority of our debt maturities to 2030, while retiring a little over 90% of our 2026 notes at a discount.
Jim Lipinski: These transactions allowed us to buy back eight 6% of our outstanding shares at an average price of $14 76.
Jim Lipinski: With that let me now turn it over to Ryan to go through our financials and Kpis Brian.
Ryan: Thanks, Jim and good afternoon, everyone.
Ryan: Diving into the details I wanted to note that with the company, making modest deliveries of magnet precursor products. In Q1, we are providing additional segment level financial disclosures with this earnings release, and our 10-K filing expected next week.
Ryan: Our two reportable segments, our materials and magnetics. The materials segment consists of our upstream and midstream businesses Mountain pass.
Ryan: And includes our concentrate and separated birth product sales. The magnetic segment encompasses our operations at independence and initially consists of magnetic precursor product sales with a commercial start of Magna production on track for year end, you will add revenue derived from those sales in 2026.
Ryan: Additionally, we report corporate expenses and other costs as a reconciling item to our consolidated adjusted EBITDA. These.
These costs, primarily consists of unallocated overhead legal and HR expenses and the other usual corporate support functions, including executive compensation.
Ryan: While not a reportable segment under GAAP. This category is the bridge between our segment adjusted EBITDA totals and our consolidated adjusted EBITDA.
Ryan: Lastly, I would point out that in 2020 for 100% of our revenues and cost of sales were generated in the materials segment.
Ryan: <unk> costs are primarily located in the SG&A and advanced projects portions of our consolidated P&L ahead of deliveries of salable product in 2025.
Ryan: So let's start on page six with our full year consolidated financial results. The revenue trend over the last three years has been driven mainly by an EPR pricing. The average price of <unk> was about $120 per kilogram in 2022 75 per kilogram in 2023, and roughly <unk> 55 per kilogram last year currently the.
Ryan: Market prices approximately $60 per kilogram.
Ryan: The decline in realized pricing fall straight to the bottom line in a commodity business like our materials segment, which you can see in the consolidated EBITDA trend.
Ryan: Also impacting our 2024 results was the ramp in production of separated products, primarily and DPR oxide.
Ryan: As we have talked about throughout the last year, our production costs for separated products or temporarily elevated as we continue to optimize our processes and ramp production levels towards our targeted throughput.
Ryan: And as Andy PR oxide production volumes ramp we are consuming more oreo from the upstream circuits to produce separated products supplanting otherwise highly profitable concentrate sales.
Ryan: Lastly, you can see the flow through of the decline in adjusted EBITDA to adjusted diluted EPS on the right chart.
Ryan: <unk> was also impacted by higher depreciation from capital assets placed into service in the materials and magnetic segments over the last three years as well as higher interest expense from our new 2013 convertible notes, partially offset by a larger tax benefit in 2024.
Ryan: Turning to slide seven this is our usual slide showing the kpis for what is now our materials segment with the metrics on the last reflecting our upstream performance and on the right relating to the midstream.
As Jim mentioned on the far left you can see our record setting concentrate production of 45455 metric tons in 2024, which was our fourth consecutive year over 40000 tonnes.
Ryan: Our performance in the back half of 2024 gives us confidence and continued modest production growth in 2025.
Ryan: The decline in Oreo sales volume shown on the left hand side of the page is driven by our ramp in the production of <unk> oxide shown on the right our realized prices per metric ton of Oreo moved in tandem with MVP, our pricing as you would expect our sales of MVP R 1142 metric tons in <unk>.
Ryan: 24 moved to generally in line with <unk> production with a short lag, which will ebb and flow based upon shipping schedules and the mix of metal versus oxide sales.
Ryan: On the far right you can see our average price for <unk> sales for the year.
Ryan: On slide eight the financial results for the materials segment for the past three years are displayed on the left and the magnetic segment results shown on the right.
Ryan: With our updated segment disclosures investors can now get a better sense of mountain passes favorable cost position in the industry as well as our significant investments in the magnetic segment over the past few years.
Ryan: For materials the revenue trends are in line with my prior comments on our consolidated results.
Ryan: Regarding materials segment adjusted EBITDA, you can now see the earnings power of the mountain pass operation on a standalone basis.
Ryan: <unk> 2024 results reflect both our shift from selling concentrate to consuming it which would have a temporary negative impact in any pricing environment and the pronounced pullback end market pricing for our products. Additionally, the numbers account for the early production phases of MVP R cerium and lanthanum products.
Ryan: Operating below one third of our targeted throughput, while incurring costs associated with labor maintenance and infrastructure that is needed to run at full capacity.
Ryan: With our continued progress on ramping our midstream volumes as well as firmer pricing, we look forward to an improved 2025.
Ryan: The materials segment adjusted EBITDA loss of $14 $1 million was driven primarily by the items outlined in our consolidated discussion.
Ryan: These results also reflect a $21 $5 million write down of inventory during the year, partially offset by a $12 2 million credit related to the section 45 ex tax credit for Andy PR oxide production.
Ryan: You can also see on the right that the magnetic segment adjusted EBITDA loss has grown as we continue to invest in staff ahead of initial production.
Ryan: We now have north of 100 employees in this segment and we will likely double that number over the next two years as we ramp magnet production.
Ryan: As part of our segment results. We also now breakout capital expenditures between materials and magnetics.
Ryan: On the left you can see that the capital expenditures and materials have dropped meaningfully over the last two years as we wrapped up our midstream optimization and re commissioning efforts.
Ryan: And on the right you can see that fairly steady spend on independence beginning in April 2022, when we broke ground.
Ryan: In 2020 for capital expenditures for the consolidated company totaled $186 $4 million deal.
Decreasing over $75 million year over year I'll provide our 2025 capex expectations in just a moment.
Moving to slide 10, and our quarterly consolidated financial metrics revenue climbed to 48% year over year to $61 million driven by the ramp in sales of separated rare earth products, primarily and EPR.
Ryan: And in the middle of the Slide you can also see that the ramp and initial subscale production of separated products continued to impact EBITDA added the continued growth and magnetics.
Ryan: On the far right similar to the full year, we have the flow through of the change in EBITDA impacting adjusted diluted EPS as well as higher depreciation and interest expense on a year over year basis.
Ryan: Moving to slide 11 on the left Oreo production increased 24% year over year setting a record for a quarter with a planned maintenance outage.
Ryan: This also drove the 9% increase in REO sales volumes.
Ryan: Realized pricing strengthened slightly sequentially in line with our outlook, but was down 16% compared to last year and as we look at Q1, we expect sequential Oreo realized pricing to be roughly flat with Q4, assuming current market prices hold.
Ryan: On the right side of the slide you can see that and EPR production was solid at 413 metric tons.
Ryan: Sales volumes in the quarter were quite strong and roughly in line with the prior quarter's production.
Ryan: And lastly, NDP, our pricing improved sequentially in line with our expectations as we look at Q1 similar to Oreo realized pricing, we expect sequential pricing for <unk> to be relatively flat with Q4, assuming current market prices hold subject to the puts and takes of delivery timing and contract terms.
Ryan: Moving to slide 12, I discussed the revenue trends on the consolidated slide and as I mentioned earlier, despite our production costs for separated products being temporarily elevated we were able to offset that headwind as well as most of the segment's SG&A costs with continued profitable sales of Oreo as EBITDA for the quarter came.
Ryan: In at negative $1 $3 million.
Ryan: These results also reflect a $6 $4 million write down of inventory in the quarter, mostly related to landfill as.
Ryan: As well as an offsetting $8 $4 million section 45 ex credit in part due to the favorable final rulemaking by the IRS in October.
Ryan: Importantly, looking ahead to 2025 as we further ramp production. We continue to have clear line of sight to gross profit and sales of <unk>, which as you can see from Q4's results should return our materials segment to profitability.
Ryan: On the right you can see the modest investment and operating costs and our magnetic segment.
Ryan: Again importantly, we will begin booking modest revenue in Q1 and expect to turn EBITDA positive in this segment in the first half of the year.
Ryan: As for Capex, we expect to spend roughly $150 million to $175 million in 2025 net of government grants.
Ryan: Recall that much of this spend is the spillover from our 2024 capital plan, mainly due to timing had we not under spent in 2024. This outlook would have been closer to $100 million.
Ryan: This year's spend will be split roughly evenly between the materials segment and the magnetic segment.
Ryan: Magnetics Capex will be focused on completing the acquisition and installation of the latter portions of the manufacturing equipment to reach our goal of producing magnets by year end.
Ryan: And in the materials segment, our spend will primarily be focused on high return growth investments like upstream 60, K certain initial work on the re commissioning of our Chlor alkali facility.
Ryan: Heavy rare Earth separations, along with Debottlenecking projects, and the usual infrastructure and maintenance Capex.
Ryan: Turning to the balance sheet as we continue to make solid progress at independents, we reached an operational milestone that unlocked an additional $50 million customer prepayment in the fourth quarter, bringing the total prepayments received to $100 million for the year.
Ryan: We expect to receive the final $50 million prepayment in the next few months.
Ryan: We also expect to receive an additional roughly $50 million in proceeds from our 45 X and 40 <unk> tax credits within the year further supporting our strong cash position.
The fourth quarter results are always a bit more to take in as we recap both our recent performance and reflect back on the full year.
Ryan: Given the pivotal moment, we are at in our country, our economy and our company.
Ryan: I want to recap what these financial results and Kpis really tell you about where <unk> sits today.
Ryan: With regards to the materials segment in 2024, we undertook a tremendously disruptive transition at our business from producing and selling a highly profitable concentrate product to consuming it to produce separated products and as I mentioned earlier, we are currently operating.
Ryan: Roughly one third of our targeted throughput for MVP, our oxide production, resulting in temporarily higher cost per unit of production.
Ryan: Despite this transition we have a line of sight to turning and EPR production and therefore this segment back to profitability, even if pricing, which certainly on an inflation adjusted basis is a decade or longer lowes. These.
Ryan: These facts and our recent performance give us tremendous confidence that we will be a low cost producer of endy PR as we reach targeted throughput.
Ryan: While we continue to invest in Debottlenecking and other high return projects, we have completed the major optimization capital spend at mountain pass.
Ryan: Boosting our go forward cash generation profile for the segment.
Ryan: And in Magnetics as we began sharing last month, what we have built at independence is world class, particularly with regards to the team we have assembled.
Ryan: In addition, the lion's share of our investment in the facility is complete we will begin generating revenue in EBITDA here in the first half of 2025.
Ryan: We still have roughly $100 million of capital spend to go with most planned for 2025, but the nature of our contract will allow us to earn a strong fair return on this investment while also recapturing the full investment over the coming years.
Ryan: This will not be like the commodity materials business with initial losses as production ramps in.
Ryan: Importantly, we believe independence can more than double our initial target capacity with significantly lower incremental capital given the infrastructure laboratories, and NPI facility do not have to be duplicated.
Ryan: And operationally as Jim mentioned.
Ryan: Our early success in making automotive grade magnets some of the more challenging magnets to make provides us a strong base from which to grow as our opportunity set explodes with the advent of physical AI and other critical use cases.
Michael Rosenthal: With that let me turn the call over to Michael Michael.
Michael Rosenthal: Thanks Ryan.
Speaker Change: I'll now walk through the three parts of our operation upstream midstream and downstream.
Speaker Change: Before I go through the details I would like to acknowledge the hard work of our team for executing a record year at three locations.
Speaker Change: We did so again without experiencing any lost time injuries and with a very strong regulatory and environmental performance.
Speaker Change: Thank you all for your commitment and unwavering determination in the face of countless challenges.
Speaker Change: Turning to slide 13 here.
Speaker Change: <unk> recent photos of two of our U S made products.
Speaker Change: On the left and DPR oxide produced in mountain pass and underwrite and DPR metal produced independence.
Speaker Change: We're very proud of our progress in reestablishing. This U S supply chain, but we still have a lot left to accomplish.
Until the operations.
Speaker Change: In our upstream business, we continued to deliver strong results in Oreo production per operating hour capping a very productive year.
Speaker Change: The October scheduled outage was executed smoothly and with minimal rework.
Speaker Change: As I mentioned last quarter, we commissioned the first significant project in our upstream 60 K initiative.
Speaker Change: And enhancement to our grinding circuit, including new cycles and screening equipment.
Speaker Change: Overtime, we expect this investment to help us Titan grinds distribution to incrementally improve rare earth recovery.
Speaker Change: Initial operations, we are primarily focused on achieving mechanical stability and operability and I'm pleased that this has been largely achieved.
Speaker Change: In Q4, the new assets had a slight negative impact on uptime and results, though and operational they showed strong promise.
Speaker Change: We are working with the vendor to identifying materials of construction for the screens that will better withstand the abrasive newness of ore and our other operating conditions in.
Speaker Change: In addition, we see the need to upgrade certain flotation and tailings plant pumps and line sizes to deal with higher recycled water usage necessitated by lower pulp densities preferred by the screens.
Speaker Change: We expect that Q1 will benefit from these new assets, although there will be some ups and downs, while we optimize the operation in.
Speaker Change: In Q4, the combination of some ultimate flows from the new circuit strong production growth from previous initiatives and normal or variability at tons put pressure on our concentrate dewatering and tailings processes.
Speaker Change: <unk> and slightly lower than normal uptime for an outage quarter.
Speaker Change: The midstream operations continues to ramp and DPR oxide production in a non linear fashion, but with continuous improvement.
Speaker Change: Similar to the upstream assets the semiannual outage was executed on time and with less unplanned equipment maintenance than during prior outages.
Speaker Change: The midstream assets or a series of interconnected continuous operations with inline storage to smooth short term production interruptions in the various circuits.
Speaker Change: However, a significant part of our ramp involves aligning the uptime and throughput of each process to optimize resources.
Speaker Change: As previously discussed we have been focused on uptime and stability before maximizing throughput.
Speaker Change: In much of the operation, we are starting to see more satisfactory uptime and good process stability.
Speaker Change: While we still have a few assets that are not meeting our expectations. We are steadily addressing these.
Speaker Change: Some of the key circuits can now further increase uptime only if other areas increase their throughput.
Speaker Change: This is a pleasing development in.
Speaker Change: In Q4 in early January we had a couple of mechanical and process upsets that held back production <unk> required unexpected rework of the product's, finishing steps consuming extra resources and limiting throughput.
Based upon what we have seen since we are expecting stronger run rate production for the balance of Q1, we.
Speaker Change: We also expect that this momentum will improve further after our Q2 maintenance outage.
Speaker Change: We also believe that some of our maintenance cost labor hours and reagent consumption per ton of production will be leveraged to a greater extent going forward.
Speaker Change: In short I feel good about recent trends in production volumes and cost structure, though we still have significant room for improvement in all areas.
Speaker Change: The downstream metal alloy and magnetics business achieved MP materials as biggest milestones in Q4.
Speaker Change: The highlight was commercialized in continuous and DPI metal production at independence.
Speaker Change: While still early in that relatively limited scale. We are pleased with our team's progress on the learning curve and our ability to consistently produce on steak metal.
Speaker Change: Overtime, we expect to improve yield and first pass on steak metal percentage and reduce energy and raw material consumption per unit produced.
Speaker Change: In addition to preparing metal for commercial scale alloy and magnet production later this year.
Speaker Change: We are now able to use our own medal for prototype strip cost mills.
Speaker Change: Our new product introduction facility continues to increase its scope of activities from alloy production powder production sintering machining TBD and magnetic characterization.
Speaker Change: From expanding prototype operations, we are now able to produce magnets for customer qualification and also evaluate the impact of varying process conditions and magnet attributes.
Speaker Change: Experience that will help us accelerate the operation of full scale equipment as more is commissioned later this year and into next year.
Speaker Change: 2025 promises to be another year of tremendous progress at independents.
Jim Lipinski: With that I will turn it back to Jim.
Jim Lipinski: Thanks, Michael turning to slide 14.
Jim Lipinski: Here's a picture of one of our automotive grade magnets produced on our NPI line at independence.
Speaker Change: As our commentary and this picture highlights 2024 was a terrific year of execution.
Speaker Change: In 2025 is already off to a strong start.
Speaker Change: As most of you know the.
Speaker Change: The rare Earths industry has long been subject to extreme market distortions driven by China's command over global supply and its ability to dictate pricing through subsidies export controls and other non market mechanisms.
Speaker Change: However that playing field is beginning to shift.
Speaker Change: According to <unk> research global demand for MDF magnets is expected to triple by 2040 fueled by electrification and physical AI, where intelligent automation meets real world applications, and robotics defense and industrial systems. This trajectory underscores the escalating financial commitment.
Speaker Change: And risk tied to China's dominance over rare Earths.
Speaker Change: Meanwhile, the Trump administration is poised to take decisive action to level, the playing field for American workers.
Speaker Change: As President Trump recently stated the U S is now committed to true reciprocity in trade, whether through tariffs subsidy adjustments or other mechanisms that level, the playing field for American businesses.
Speaker Change: This shift combined with a long term supply and demand realities of railroads reinforces our conviction that MP materials will play a pivotal role in securing a competitive and resilient supply chain for industries of the future.
Speaker Change: Moreover, as.
Speaker Change: As the era of physical AI accelerates national security considerations will only grow in importance, perhaps even more so in rare earth magnetics than in other electrification applications.
Speaker Change: Today's battlefields from Ukraine to the Middle East already proved that warfare is no longer about dogfights between jets, but about networks of drones sensors and AI driven robotics.
Speaker Change: On Wall Street and in capital markets today, we see immense enthusiasm for defense Tech robotics and physical AI.
Speaker Change: But I want to remind everyone gray.
Speaker Change: Great power competition is not just about the next breakthrough in hardware or software. It is also about securing the critical supply chains that make those breakthroughs possible.
Speaker Change: Can the next hot drone robotics, or <unk> company really tell investors with a straight face that the rare earth magnets or other a central components come solely from China.
Speaker Change: At <unk>, we remain relentlessly focused on scaling our fully integrated where the supply chain advancing our magnetics business and delivering long term value to our shareholders. The momentum is building. The fundamentals are on our side and MP is positioned to lead for years to come.
Speaker Change: With that let's open it up for questions operator.
Speaker Change: Thank you at this time, if you would like to ask a question. Please click on the right hand button, which can be found on the black bar at the bottom. If you will screen. When it is your turn you will receive a message on your screen from the host, allowing you to talk and then we hear your name code. Please accept our mutual ODI and ask a question we will wait one moment to allow the cute.
Speaker Change: <unk>.
Speaker Change: Our first question comes from Matt Summerville with D. A Davidson. Please on mute your line and ask your question.
Speaker Change: Thanks.
Speaker Change: Just curious.
Speaker Change: Okay.
Speaker Change: Q1, and realizing this is non linear in nature.
Speaker Change: How should we think about the cadence in MD PR volume ramping throughout this year, and then kind of maybe the exit rate into 2026.
Into yes calendar 'twenty, six and how the current pricing environment informs the way youre going to ramp from here and then I have a poll.
Michael Rosenthal: Thanks, Michael.
Speaker Change: As I mentioned earlier.
Speaker Change: In terms of our production ramp we've been focused on.
Speaker Change: Balancing cost efficiency and the long term success of the business.
Speaker Change: In 2024, we were primarily focused on stability and uptime.
Speaker Change: And in 2025 that will focus more on uptime and throughput.
Speaker Change: This underlines our plans for significant volume growth in 2025, along with the return to profitability.
Speaker Change: As you mentioned.
Speaker Change: In the first quarter.
Speaker Change: We'll show improvement, but we're feeling even more confident about that growth path. After the early Q2 outage.
Speaker Change: And then as a follow up.
Speaker Change: I'm sure you guys saw this the other day maintenance, even yesterday, the China plans to prohibit nonstate companies for mining rare Earths, which would effectively you are theoretically further tightened their control.
Speaker Change: I guess, what's your view on how that ultimately plays out in the commodity itself should that come to fruition.
Speaker Change: And good question.
Speaker Change: Obviously, it's difficult for us to speculate on what will happen with the Chinese regulatory environment, but this does seem consistent with the policy announcements from last year.
Speaker Change: Along with.
Speaker Change: The general trend over the last decade, plus of consolidation of the of the market.
Speaker Change: Chinese market into the two Supermajors and.
Speaker Change: <unk>.
Speaker Change: The emphasis on purely private owned market participants.
Speaker Change: This obviously means more of the quota allocation and enforcement is in the hands of those two players as well.
Speaker Change: Certainly the initial response from the market seems to take this as maybe more supply discipline and higher pricing.
Speaker Change: Over the last couple of years at the prevailing prices than.
Speaker Change: Most of the Chinese market has also been unprofitable.
Speaker Change:
Speaker Change: So perhaps this is a move towards.
Speaker Change: Addressing that.
Speaker Change: Either way, we think it validates our business model.
Speaker Change: Our mission.
Speaker Change: The importance of having a diverse supply chain.
Speaker Change: Not dominated by a single party.
Michael Rosenthal: Thanks, Michael.
Speaker Change: Our next question comes from Cory and Bloodshot with Deutsche Bank. Please on mute your line and ask a question.
Hey, guys can you hear me.
Speaker Change: Yes, yes, hey, thank you.
Speaker Change: The first one Mike you mentioned that there are two areas that you would like to see improving at Montana pass.
Speaker Change: Most of US went down a few weeks ago and so could you just like talk about the few area that you would like that to get better and then what can be done in <unk>.
Speaker Change: And so and then the Saigon is also related to mountain pass.
Speaker Change: I think on the site visit you mentioned you know trying to focus more and more on exploration for <unk> next year. So if you could just share some huntingtown data that would be excellent.
Greg: Okay. Thanks, Greg.
Greg: I mentioned in the remarks.
Greg: The midstream assets are.
Greg: Series of interconnected circuits.
Greg: And well as part of our stage two optimization project. We added additional interest circuit storage. There is limits on how much we can smooth uptime between the different stages.
Greg: So the different areas need to run each with sufficiently high uptime and throughput to achieve production.
Greg: <unk>.
Greg: In general, we're very happy with the process itself, but theres still room to improve the mechanicals and the mechanical reliability of certain parts of the assets.
Greg: One kind of category.
Greg: <unk>.
Greg: We see significant room for improvement is in.
Greg: Solids handling and convenience, we see intermediate products are not in some cases, moving as reliably as we need them to.
Greg: Sure.
Greg: Some of these issues resolve themselves.
Greg: The processes on either side of that material handling improves.
Greg: But some requires specific troubleshooting.
Greg: And as we address one issue it may expose another area, where it didn't appear to be a bottleneck. So we're sort of addressing these as we go hopefully as many months as we can.
Greg: So well.
Greg: Progress may not be as apparent in the production figures as we.
Greg: We made like we're really optimistic that behind the scenes here, we are making day to day progress and that will become a lot more apparent in the coming quarters.
Speaker Change: Thank you and if you can just talk a little bit about the exploration plan.
Greg: That you may add for DVR nature.
Greg: Sure.
Greg: Since 2010, there has really been minimal exploratory drilling.
Greg: Of the mountain pass deposit.
Greg: Done a small amount a couple of years ago.
<unk>.
Greg: But I think as we've improved.
Greg: Process recovery in the in the.
Greg: Later.
Greg: We're looking to.
Greg: Filling gaps in the in the mine, where we do not necessarily have sufficient definition to include certain.
Greg: Areas in the resource.
Greg: Or.
Greg: Not enough definition to.
Greg: To really categorize what the grade is and what the mineralogy is so that will be the focus for this year more within pit.
Greg: Or near pit.
Greg: I think in the coming years, we may look at expanding that.
Greg: Area within are primarily in.
Greg: In the 2000 acres that we have not pass.
Greg: Patented claims.
Greg: Alright, thank you.
Greg: Thank you.
Speaker Change: Our next question comes from Greg <unk> with BMO. Please on mute your line and ask a question.
Greg: Good afternoon with all the discussions of tariffs over the past few weeks or months are there any aspects of MPS business are sourced external to the U S, which could potentially be exposed to price increases.
Speaker Change: Maybe things like consumables chemicals to reagents.
Ryan: Hey, Greg, It's Ryan I'll take that.
Speaker Change: Certainly.
Speaker Change: Every global business is concerned about tariffs I think we've been very forward thinking here and given the required logistics of the major input costs for mountain pass and its very favorable position.
Speaker Change: We have very little exposure to imported materials, whether Chinese or otherwise so we don't expect.
Speaker Change: The increased tariffs for global imports into the United States to have a meaningful impact on our cost structure.
Speaker Change: Great Thanks, and one.
Speaker Change: <unk> question.
Speaker Change: Been some reports that the Trump administration may pause grant payments under the IRI is there any potential risk that grants and he expects to receive could could be at risk.
Speaker Change: No Hey, Hey, Greg. This is Jim I don't think so I think there is one area that there is sort of wide appreciation.
Speaker Change: Depreciation isn't critical minerals and so.
Speaker Change: There's.
Speaker Change: Broad support for that in fact that on Valentine's day, They just put out an executive order, establishing the national energy dominance Council.
Speaker Change: One of the Big things is focused on more critical minerals production. So our.
Speaker Change: Our expectation is that anything that is done is going to be extremely beneficial to works supporting our efforts.
Speaker Change: <unk>.
Speaker Change: We don't we don't really see much risk on that front in totality.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from Carlos de Alba with Morgan Stanley. Please on mute your line and ask your question. Yes. Thank you very much. Good afternoon, everyone. Just you clearly have.
Speaker Change: Surprised people over the years.
Speaker Change: You have executed, particularly obviously.
Speaker Change: The.
Speaker Change: Materials segment, so what.
Speaker Change: What can you tell us is that your way of saying you didn't believe in us.
Speaker Change: No.
Speaker Change: I was saying the market okay.
Speaker Change: Yes, Sir.
Speaker Change: If you have seen.
Speaker Change: We have an a rated to Stoke but anyway.
Speaker Change: Yes.
Speaker Change: The.
Speaker Change: Yes.
Speaker Change: The midstream.
What's that he's only a third of the production right now so how do we how do you see the progression of production and costs should we expect sort of a linear relationship between the two accustomed with issue between the two or do you think that you can deliver will deliver production.
Speaker Change: Our capacity.
Speaker Change: <unk> run rate before then costs start to really come down just to make sure that we don't Miss that as we've tried to model that for the improvement.
Michael Rosenthal: Thanks, Hello, This is Michael I'll start with <unk>.
Brian: Brian will add on.
Speaker Change: And very much as we saw with the.
Brian: The upstream business.
Brian: <unk>.
Brian: We saw a period of challenging reliability.
Brian: With relatively low.
Brian: Throughput followed by significant breakthroughs, where we had some.
Brian: The step change functions.
In production.
Brian: And I think.
Brian: Seeing sort of similar.
Brian: Trends here, where the progress is not as apparent and then but we know it's happening and.
Brian: And we expect that to come through.
Brian: We have been.
Brian: Clear and.
Brian: We are focused on ensuring we're not pushing volume for volume sake, and constant that don't that don't work and so I'm hopeful that.
Brian: So as we get.
Brian: To certain levels of volume that the cost structure will improve materially.
Ryan: Ryan followup on it yes, I think you hit it well Michael all I'd say is obviously with the data we see in each circuit when <unk>.
Ryan: Each individual processes running as intended which we get very good line of sight into that over the course of <unk>.
Ryan: Our production quarter. The model is working as we expected effectively and so we're at this point were to Michael's point stringing it altogether to maintain.
Ryan: <unk>.
Ryan: Reliability with the increase in throughput.
Ryan: Is really going to be what we need to unlock the cost structure that we've always targeted we feel very good that we will get there and so that's a lot of words to say, we're at the point, where a lot of this is a fixed cost absorption.
Ryan: Issue, where as we get throughput the way, we should be getting throughput so being thoughtful about it we do expect our costs to come down on top of that I talked a little bit about.
Some of the projects that we are investing in that I think give us even further excitement about our ability to continue to bring cost down and be.
Ryan: Low cost producer globally of <unk> side, another separated products, namely.
Ryan: What I mentioned on Chlor alkali over time and some other investments that we're working on and so this will be.
Ryan: Long term plan to continue to pull costs out even as we just get to our targeted cost structure from throughput over time.
Speaker Change: It makes sense and maybe a related question, but more on the upstream as Julie.
Speaker Change: Executing and delivering on the <unk> project and that incremental.
Speaker Change: Throughput up production output.
Speaker Change: Of concentrate how much of a cost benefit cost reduction benefit would that generate do you think.
Speaker Change: Well this is Ryan I'll start and Mike jump in if you've got other thoughts.
Speaker Change: I think as you've seen with our <unk>.
Speaker Change: Cadence of production cost improvements on the upstream side in periods of higher upstream production certainly depending on how you get to those higher throughput will inform how much of a cost benefit.
Speaker Change: It will flow through the model.
Speaker Change: What we have seen recently is a lot of the production growth coming via improved recovery and improved recovery has nearly a full drop through to the bottom line and so those are those are the types of opportunities that we are focused on in the short and medium term as we want and look to grow.
Speaker Change: Even further there is a limit to the amount of <unk>.
Speaker Change: Improvement of recovery that we can achieve and so that will have a slightly different cost profile, but putting that all together certainly there is a significant amount of fixed infrastructure and shared costs that will start to get leverage on as well as we drive production growth and so different shades of a positive but generally all quite positive.
Speaker Change: Alright, Thank you very much.
Speaker Change: Our next question comes from Bill Peterson with Jpmorgan. Please on mute your line and ask your question.
Speaker Change: Yes, sorry about that.
Speaker Change: You hear me Okay now.
Speaker Change: Yes, Hey, Bill great.
Speaker Change: Good afternoon, everyone nice to visit both mountain pass as well as independents. Thanks for all the insights you shared there.
Speaker Change: On the midstream costs down I, just wanted to come back to that to make sure I understand I think the prior quarter you had thought you could achieve gross margin.
Speaker Change: Positive exiting the quarter, but now Youre seeing I guess you saw some throughput issues some reliability issues I guess at some of the improvements you have made since then.
Speaker Change: And the expected improvements yet to come if assuming pricing.
Speaker Change: Yes, no change in pricing, which frankly, we haven't really seen much over the past quarter. What is your latest expectations on turning gross margin positive.
Speaker Change: Yes, sure pellets Ryan.
Speaker Change: I don't think we've really changed our view at all on timing of exiting Q1 for hitting gross profit.
Speaker Change: In the <unk> production.
Speaker Change: We continue to think we're we're tracking towards that obviously there are puts and takes Michael talked about the rework in January but we still think that.
Speaker Change: We have good line of sight to achieving that so no change in our commentary on that.
Speaker Change: Okay, great thanks for that confirmation.
Speaker Change: And also I guess in the third OEM congrats on that.
Speaker Change: I guess are you do you have the bandwidth or the capability to support additional OEM agreements at this stage is there interest from your side or interest from other Oems and I guess beyond the automakers can you shed light on any discussions you are having with companies that are in the robotic space or EV toll or some of these emerging markets that.
Speaker Change: Kind of alluded to earlier.
Speaker Change: Frankly need to sort of western sources of supply.
Speaker Change: Yeah sure Bill it's Ryan again.
In terms of the automotive OEM. This was something we announced I think a couple of quarters ago and the way. We think about it is obviously serving those Oems across a variety of products both on on the oxide metal and magnetic side. So from from the Magnetics perspective.
We have no new news to break at the moment.
Speaker Change: And certainly we remain focused on the magnetic side at the moment on executing for general Motors given the.
Speaker Change: The significant commitment we have to them in that facility that said both on the.
Speaker Change: The materials segment and the magnetic segment conversations have picked up I would say meaningfully over the last three months or so.
Speaker Change: In terms of interest in securing supply from a trustworthy.
Speaker Change: Western supplier of these critical products and so whether it's the tariff discussion.
Potential reciprocity, there or just the concerns where we've seen in several other critical minerals.
Speaker Change: And in the ability for certain large Oems to source.
Speaker Change: That is really the crux of our mission from the beginning and so everything that we're seeing geopolitically I think plays exactly into the reason, we're doing everything that we're doing and so conversations continue.
Speaker Change: Across both sides of the business specifically to your question on Robotics, you VTOL et cetera.
Speaker Change: We are having a lot of conversations I think the great thing about the way we set that business up is focusing on our customer like general motors and the automotive supply chain to begin with.
Speaker Change: Lower SKU count.
Speaker Change: An extreme amount of focus on quality and some of the hardest magnets to make and so hitting that first sets us up for great opportunities to come that we can fit into independence, where we've already got the team in place. We've got most of the assets in place and so I would say.
Speaker Change: We're having a lot of conversations and obviously you know our ammo, we will announce something when we have something to announce but we have no shortage of opportunities.
Speaker Change: Thanks for that right.
Speaker Change: Okay.
Speaker Change: Our next question comes from Ben <unk> from Baird. Please on mute your line and ask your question.
Ben: Hey, guys.
Speaker Change: Thanks for taking my question and thanks for all the detail.
Speaker Change: Just could you just update us on your approach as it relates to.
Speaker Change: Both.
Speaker Change: The upstream side of the business as far as sourcing for the magnetic side of the business and then my second question, maybe for Jim just on the policy front.
Speaker Change: Mentioned the council that was formed but is there anything you can point to that.
Speaker Change: Yes.
Speaker Change: Actual chief to any kind of pricing support or any cargo.
Speaker Change: Efforts on policy fronts to Coke.
Speaker Change: Reward domestic production.
Speaker Change: Guys.
Michael Rosenthal: Sure Michael One thing you go first and then I'll get the second part.
Speaker Change: Okay. Thanks.
Michael Rosenthal: Thanks Ben.
Michael Rosenthal: And certainly we've been primarily focused on our separation project.
Michael Rosenthal: As a primary strategy for disciplining.
Michael Rosenthal: <unk>.
Turbine dysprosium to our magnetics business.
Michael Rosenthal: Our main.
Michael Rosenthal: Interest in the separation have you a separation is to support the magnetics business.
Michael Rosenthal: At the same time, we've been focused on the most efficient way to apply shareholder capital to that project.
Michael Rosenthal: We feel very good about where we are in terms of.
Michael Rosenthal: Securing enough material to support the startup.
Michael Rosenthal: <unk> initial 1000 ton capacity of the.
Michael Rosenthal: <unk>.
Michael Rosenthal: Of the facility.
Michael Rosenthal: As a backup to that.
Michael Rosenthal: Our our own efforts, we do have the ability to source materials in the market.
Michael Rosenthal: Our heavy word project does allow for.
Michael Rosenthal: And is designed for the ability to process third.
Michael Rosenthal: Materials.
Michael Rosenthal: And we have a team of people who've been focused on trying to source those.
Michael Rosenthal: Materials of course as the market has evolved some projects that we had hoped for.
Michael Rosenthal: The delayed or.
Michael Rosenthal: Where it's been delayed.
Michael Rosenthal: But we're excited about what we're doing in the heaviest project.
Michael Rosenthal: As youre able to see.
Michael Rosenthal:
Michael Rosenthal: We're able to coordinate efforts between our midstream team and mountain pass and our downstream team and independents in order to develop a really thoughtful.
Michael Rosenthal: Integrated.
Michael Rosenthal:
Heavier business that incorporates recycling and avoids unnecessary process steps and costs and hopefully.
Michael Rosenthal: And is certainly probably uniquely aligned in terms of desire to minimize have you ever at the usage.
Michael Rosenthal: And maximize.
Michael Rosenthal: The amount of heavier as that are that are produced.
Speaker Change: And Hey, Hey, Ben on your second part, but just finishing what Michael said one important thing we may have covered this before but on the heavy side. The the really exciting growth use cases that we're now seeing in the marketplace around physical AI a lot of those use cases have very limited or even no heavies. So.
Speaker Change: I think that's a really important thing to think about as far as the growth prospects for the business.
Speaker Change: But moving on to the policy.
Speaker Change: You've heard me say this repeatedly but.
Speaker Change: I think it's worth repeating again and again and again.
Speaker Change: We we want a level playing field and then we will do the rest and that's the message that we've given.
Speaker Change: To.
Speaker Change: The government repeatedly over time, which is we don't have a level playing field give us that level, playing field and we will do the rest.
Speaker Change: And obviously this new administration is focused on.
Speaker Change: Companies like ours that are bringing jobs back we have operators electricians maintenance workers engineers, all all the things that the Golden age of American manufacturing is supposed to be focused on.
Speaker Change: And so I would say actually one pronouncement that was really amazing I think it was a week ago is within the past week you can find a posting from president Trump on truth and X, where he actually he had a very long detailed paragraph about reciprocity and he went into detail about how he considered.
Speaker Change: Reciprocity to be and when specifically into various aspects beyond just other countries tariffs with respect.
Speaker Change: To vats, and other subsidies and whatnot and so I think that there is.
Speaker Change: I think if you take them out as word and I, certainly do and I think we've seen.
Speaker Change: Just tremendous movement in this first month writ large it's pretty astonishing and amazing.
Speaker Change: That they're going to be true to the word to level the playing field.
Speaker Change: So I think it's still unknown as to exactly how thats going to take shape.
Speaker Change: But but I think if we can get that.
Speaker Change: It's going to be really extraordinary for our business.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Laurence Alexander from Jefferies. Please on mute your line and ask a question.
Laurence Alexander: Good afternoon. So first of all have you now already.
Laurence Alexander: Produced and qualified all of the targets Skus.
Speaker Change: You need to.
Speaker Change: For the GM contract or do you still needs or are there still some technical hurdles left to hit.
On that front and then secondly, just a question about tradeoffs.
Speaker Change: You're in a different place than when you signed the first contract so what counts.
Speaker Change: As a comparable or better quality contracts now you don't need you don't need the upfront payments and so forth. So can you just give your philosophy around that and then also can you give I realize we've all been badgering you to get magnetics to profitability.
Speaker Change: But once you cross the line how important is it to build and expand the engineering talent to be able to generate more handle more skus.
Speaker Change: And go after adjacent markets, what's your philosophy on the timeline for that.
Ryan: Sure Laurent it's Ryan I'll start.
Speaker Change: In terms of your question on qualification I think we are extremely pleased with the progress that we've made in producing the quality of magnets that we have in the NPI facility.
Speaker Change: I would say the qualification and <unk> process with an automotive customer is very long and involved in.
Speaker Change: <unk> quite a bit of production runs at full scale equipment and so that will come later in the year, we have a great working relationship with the engineering and qualification team at our foundational customer and continue to have great dialogue there. So.
Jim Lipinski: We remain excited about I don't know Jim if you want to cover your thoughts on on contracting yet.
Laurence Alexander: Laurence you're asking specifically around what makes a good contract or not I think.
Laurence Alexander: We've been very methodical about how we're building this business I think.
Laurence Alexander: Hopefully you see that now and.
Laurence Alexander: The answer is that there's so many puts and takes that it's hard to give it to you in one summary other than.
Laurence Alexander: We're going to be thoughtful stewards of shareholder capital, we're not going to go on back to take a bunch of risk and so as we add new well first and foremost we need to execute well and so our primary focus in the magnetics business added independents is making sure we do an incredible job for GM.
Laurence Alexander: Who is our foundational customer.
Laurence Alexander: And.
Laurence Alexander: Delivering beyond that growing the business I think it's fair to say you can probably see from our commentary in our view about how the world is moving and the types of customers that would make incremental sense that over time, you'll you should expect to see.
Laurence Alexander: Something on the physical AI front.
Laurence Alexander: It's still obviously very early in that but it is just really extraordinary the pace of capital formation, that's happening there and frankly the scientific breakthroughs.
Laurence Alexander: That are really happening in those businesses I think maybe.
Speaker Change: Certainly not you Laurence but maybe some people thought I was a little nutty a year ago talking about how our belief.
Laurence Alexander: Belief is that.
Laurence Alexander: Physical AI would be sort of the first business use case out of the AI boom that we were seeing sort of hundreds of billions of dollars of capital spend but it's not necessarily certain whereas the GDP growth, whereas the true revenue coming from that and my view has been that physical AI is where we're going to start to see that it's still obviously very early.
Laurence Alexander: And so that is going to be one of the big transformational things that we see and obviously, we're just in a great position. We've shown that we can make auto grade magnets and so making magnets for those use cases actually material easily easier.
Laurence Alexander: Not to not to.
Laurence Alexander: Be complacent about it and so I think the question is just how do we want to grow the business, but we will we'll do it thoughtfully.
Laurence Alexander: We're we're certainly not going to rush, because first and foremost you have to execute well for people or you don't get.
Laurence Alexander: To grow the business and so it's not a question of lack of growth again I go back to the comment Laurence that I made on the call and I kind of say this jokingly ingest, but then I actually really say it seriously which is.
Can you be a.
Laurence Alexander: Sort of one of these exciting defense Tac robotics drone <unk> companies.
Laurence Alexander: Raising capital at enormous valuations and not have a very specific answer of where your supply chain is coming from because youre defense Tech, so, saying, saying my supply chain comes from China will solely is not an answer that someone can really fund over the long term and so obviously I think that that positions us very well in.
Laurence Alexander: We'll be.
Laurence Alexander: Thoughtful about about.
Laurence Alexander: How we grow that business.
Laurence Alexander: Thank you.
Laurence Alexander: Thanks.
Speaker Change: Our last question comes from Liana <unk> with Canaccord. Please on mute your line and ask your question.
Speaker Change: Good afternoon, everyone. Thanks, so much for taking my question you mentioned stronger midstream run rate production going forward. When do you expect to reach run rate production of 6000 tonnes of any PR and Additionally, where do you expect the steady state cost of an EPR production per kilogram until an.
Speaker Change: We will try to get there to the run rate as fast this weekend.
Speaker Change: Within the confines of what I said earlier in terms of balancing cost efficiency long term stability.
Speaker Change: But certainly we expect significant improvement in progress this year towards that.
And the NOI on the cost side I think we've given you guys quite a few building blocks overtime to triangulate, where we think our run rate cost structure will be.
Speaker Change: There are obviously puts and takes since we provided initial guidance in 2020 or 2021 on rough order of magnitude of cost but.
Speaker Change: Our conviction in being a low cost producer globally remains and remains extremely strong given all the progress that we've seen obviously Michael spoke at length now on this call about the various.
Speaker Change: Ah.
Speaker Change: Hurdles ahead of us that we intend to knock down and as we do that.
Speaker Change: Certainly.
Speaker Change: I think the math will prove itself out that.
Speaker Change: Mountain pass and its position on the cost curve is about our strongest gaps.
Speaker Change: Yes.
Speaker Change: Got it thank you very much.
Lesinski: That concludes the question and answer portion of today's call I will now hand, the call back to Mr. Lesinski for closing remarks.
Lesinski: Thanks, as I said earlier I think it was a really remarkable 2020 for 2025 is off to a terrific start.
Speaker Change: So we will get back to work like usual and we look forward to speaking to you all next quarter. Thanks.