Thank you very much. I think it's time for us to start. It's great to have MP Materials and Ryan Corbett, the CFO, with us, today. The first time, I think, you're in the conference.
Yes.
The third time or fourth that the company has been with us, so welcome back.
Thank you.
Great to have you here. So why don't we just kick it off? I think most, at this point in time, most folks know the company quite well and the story. You do have a very straightforward mission, but maybe why don't we start quickly, very quickly, you know, recap over stage one.
Mm-hmm.
All the success that you have had there before we go to stage two.
Sure. Absolutely. Thanks for having me. Happy to be here. Good choice of a location for a conference. So, recapping stage one, MP Materials owns and operates the Mountain Pass mine and processing facility. We've relaunched that facility in multiple stages. Our stage one is production of a mineral concentrate. We have been focused over the last several years in optimizing the flotation and beneficiation process and tailings management processes at Mountain Pass, and we've been able to achieve, you know, really tremendous success. We are operating at north of 3.5 times the TREO volumes coming out of Mountain Pass versus the best quarter annualized ever of the prior operator. We've continued to find ways to optimize that process.
What I think is often underappreciated about our industry, given the level of focus further downstream, is how critical to unlocking both the right economics and a sustainable midstream and downstream business is a strong upstream. I sort of joke that the upstream is a little bit more of a dark art. It's not perfect chemistry. It's dealing with, you know, the various mineralogies and getting the recovery dialed in, throughput, uptime, recovery. We have an amazing team on site that's, you know, continued to find ways to optimize that. And so we're producing today, north of 42,000 tons of REO in concentrate, and the plan is to continue to execute on our downstream strategy of bringing that through our refinery at Mountain Pass and then moving further downstream.
So how is stage two going? I mean, you provide a good outlook, and you know, some guidance in your conference for the second quarter earnings. You know, what else can you tell us or maybe a recap of that guidance? Definitely a very big step for you guys.
Sure, yeah.
The market has been quite excited about it, and so, yeah, we're all interested in knowing how things are going.
Yeah, I think, you know, certainly given the scale of the investment and frankly, just the scale of the chemical plant that we're dealing with, there was a lot of focus on when are we going to execute, when are we making separated products? And, you know, the thing that we were really excited to announce on our Q2 call was we've made on spec separated products in Mountain Pass, first time in really over a decade, that's been done. You know, when we bought the site, there was already $1.7 billion of invested capital in that site, all 2010 and forward. So, you know, relatively recent capital invested.
We invested several hundred million more dollars to optimize the flow sheet, to really leverage the inherent benefits of the ore at Mountain Pass, and then also to build the capacity to do waste treatment and importantly, product finishing for the scale of volume that we've been able to achieve in stage one. Obviously, the goal is to be vertically, fully vertically integrated there and refine all of our upstream production. You know, Q2 on the call, we talked about, you know, the beginning of admittedly a long process, but you know, a major milestone for us in making separated products. What we mentioned as well on that call is that we anticipate shipping later this quarter our first separated NdPr oxide products.
You know, given the uniqueness of the transition we're going through, that has its puts and takes as you think about the financial model that we've talked about. But I think the major message is that, you know, we've begun production. We're really pleased with a lot of the results that we see. There's no doubt commissioning is, you know, it's a battle. It's two steps forward, one step back. But the way I think about it from my perspective is breaking up the commissioning process, sort of into what are you seeing on the chemistry side, and then what are you seeing on the mechanical side of the commissioning of the plant?
The chemistry side, you know, I think really speaks to, do we—will we be able to achieve the results we expected over time, once we're stabilized, once we're at, you know, run rate? And the early data that we see there is really positive. And so from that perspective, we get asked a lot about, what's the cost structure gonna look like, you know, when are you gonna be here and there? And, you know, really mineral recoveries, you know, how we're rejecting cerium, you know, how we're recovering NdPr through the process is the fundamental building block of the cost structure, you know, of the asset. And so the early data there has been very encouraging. Then you look at the mechanical side. We've made a lot of progress, but we have been commissioning the plant in process order.
And so, you know, you dial in one process and you go to the next and, you know, you get this one dialed in, and then lo and behold, you got to go back and, you know, fix something on the other one. So you know, that is a constant process that will keep us busy undoubtedly, you know, to the end of the year and beyond. Our target remains, you know, we are working as hard as we can to get to run rate by the end of this year. And so, you know, we're gonna keep executing to try and get as close as we can.
Perfect. So something that is gonna change and is making our lives difficult in terms of modeling is the revenue recognition as you produce more oxide and then you ship it out for processing in Southeast Asia. Can you maybe talk a little bit in summary as to what, how do you see that? How should investors in the market expect the impact in your numbers.
Sure.
There is going to be some volatility. This is a new phase of the company.
Absolutely, yeah. And there's two major impacts to think about to the financial model as we go through this transition. The first is obviously in our stage one business, all of our revenue is generated from our concentrate product that is, you know, delivered with revenue recognized at the Port of Long Beach, not particularly far from the plant. So our sales cycle, from a concentrate perspective, is quite short. Then when you transition into stage two, what we're used to seeing in stage one is we produce REO, we sell the same amount of REO effectively. Here, what's going to happen is we're going to produce the REO, and a significant portion of that REO will not be sold and will be consumed downstream.
That will get consumed first, and we talked about the fact that we think the number is approximately 2,000 tons of REO to charge the circuits, you know, all the way through the process for stage two. We had reported as of Q2, we had put about a third of that into the circuits already, and so you can expect that the remainder of that two-thirds will come, you know, predominantly in this upcoming quarter and maybe a little bit of a tail into the next. And that effectively becomes WIP. And so from a rev rec perspective, you got to take that out of the revenue equation, you know, for these upcoming quarters. Then there's, okay, the circuit's charged. Now we're actually refining the product and selling the product.
Obviously, we're not going to have the same sales cycle there. We'll pull that product through, where we will refine it. And what I talked about on the last call was that for a significant proportion of the revenue that we'd be attached to the shipments of products coming at the end of this quarter, we likely won't see the revenue until Q1. That's for a couple of reasons. First off, what we need to do is get that product, and a significant portion of it will end up getting tolled into metal. The ability to toll into metal, I think, is a great, you know, a great thing for us, a great advantage, where it opens up incremental geographies and markets that otherwise are more difficult to tap into purely with an oxide product.
And so what we need to do is get the product made, get it shipped overseas, to Vietnam, which is our primary tolling area, and have that converted to metal there. As we first begin production, we also need to build a little bit of inventory in that channel at our tolling partner in order for them to have a consistent supply of product to run the electrowinning process. So there are a lot of one-timers in there that are part of this transition. And, you know, once we get through this ramp-up and have filled that channel, you know, this, this will no longer be an issue that we have to talk about, but it's, it's inevitable as we transition the business.
You know, we do have these impacts that everyone should be well aware of and be thinking about over the next couple of quarters. If you step back, though, and think about what that means, it means that we are ramping production of separated products. It means that we've established a real, you know, base in Southeast Asia to be able to broaden our market opportunity to sell both oxide and metal overseas to, you know, predominantly and significantly some non-Chinese customers. And so I think that is the major, you know, success and accomplishment that we're working towards.
So you have an agreement to address and supply the Japanese market.
Mm-hmm.
What other geographies, what other markets would you be able to tap now that you're doing this tolling for metal?
Sure. You know, we've actually been pleasantly surprised at the scale of demand that we're seeing outside of the primary market. I mean, it's unavoidable. 90% of magnets are made in China, right? And so that is a market that we sell into. It is a market that we're going to need to sell into for a significant period of time. But what we've seen is a real demand for our product in Japan, and as you talked about, you know, we do have a relationship with Sumitomo to help sell our products into that geography. But we see it broadly in Asia. You know, there are a lot of opportunities other than the tolling arrangements and things like that that we've talked about in Southeast Asia.
You know, you see some real interest from the Koreans. And so I think that, you know, the recognition of the importance of permanent magnets to the electric vehicle supply chain, it's becoming very, very front and center for a lot of OEMs. And so, you know, using Korea as an example, you know, you see market share from an EV perspective for, you know, Hyundai, Kia, and the like, growing really significantly. And so I think they see the same thing that the, you know, US automotive OEMs like GMC, and that, you know, the Japanese see as well, that, you know, this is going to be a critical differentiator for them, is access to critical materials to grow that business. So I think really anywhere there's auto production, you're going to see demand.
All right. And now, you, I think you just came back from Dallas, right?
Yes.
Where the stage three plant is being built.
Yes.
What can you share with the audience on that next step, which is also ramping up later this year?
Yep. So for context on stage three, we have talked about a 1,000 metric ton magnet ton facility in DFW that, you know, we've made tremendous progress on building and beginning to equip. We've built a tremendous team down there, almost 40 people, and obviously, that's before we're staffing up, you know, operators in the plant. So a lot of folks focused on, you know, building out our technical capabilities to execute on this. And what we expect to be able to do there is, you know, we've talked about when we announced our agreement with General Motors, that in the interim, before we're building magnets, which is targeted for 2025, that we'll have an interim product, which is an alloy flake.
And so our target remains to produce an alloy flake product, at admittedly small scale, at the end of this year. You know, that the real, you know, prize is being able to make finished magnets, and that will scale over time, beginning in 2025. You know, that facility, as, as, you know, we were talking about earlier, you know, the initial target is 1,000 metric tons. There is room to expand. But to, to put it in the context of the broader magnet market, you know, the magnet market is nearly 200,000 tons. So, you know, we're a minnow, but it's. You sometimes lose how important this is when you put it in that context.
This hasn't been done in the Western world, in you know, certainly in the United States, for many, many decades. And so, you know, the thing that encourages us is that a lot of the processes are processes that are done, you know, with other minerals and other raw materials. And so we can take learnings, you know, from that for things that are done at scale in the United States, you know, still making aluminum, et cetera. And then there are other pieces that have been done, more of the downstream piece, the you know, coding, slicing, grinding, those sorts of things are done at scale here already.
And so, you know, we've assembled a team of experts in the various, you know, different disciplines to get from an oxide to a magnet, and are really building that capability and are very excited about what that'll look like.
When are you going to start bringing people, like workers, engineers, inside the plant?
Soon. Very soon. We actually, you know, we have limited occupancy of the facility already, and we've begun installation of a certain amount of the equipment. We are hiring. You know, actually, that was one of the major topics we were talking about when I was down there. You know, we're hiring our first operating shift for electrowinning and strip casting as we speak. So, you know, we are moving quickly, you know, to get that equipped. Our, you know, we have. We've envisioned this facility as very much the magnetics headquarters, and so, you know, we have a significant, you know, office presence there as well. And so our folks are moving in there pretty soon, and so everyone's getting very, very excited.
What can you tell us in terms of the technology, and the patents, licenses that you may need to require in order to actually make magnets?
Sure. We get asked about this a lot. You know, our view is that we absolutely have a path of... You know, we talk about our strategy being buy, build, and/or JV. Clearly, by doing this facility, we're telling you we have a path to build. And so, you know, we absolutely believe that and are executing on that. That doesn't foreclose any other opportunities, of course. We're always, you know, looking to be, you know, thoughtful and, you know, best approach, time to market, you know, and be really focused on execution. But absolutely, we see, you know, a real path forward in building this capability, and I've been tremendously impressed at our team's ability to really move the ball forward in a variety of disciplines.
You know, you hear, "Oh, you go from an oxide and into metal and into magnet." There are a lot of steps between, you know, between here and there, but I think we're moving the ball forward on all of them.
On the commercial aspect, once you become a magnet producer, you know, the Texas plant would only take a small fraction of your upstream production.
Yep.
I think GM doesn't have 100% of the 1,000 metric ton.
Right.
Are you negotiating actively with other OEMs? What is your plan on the commercial front?
Yes, for sure. For context, you know, 1,000 tons of magnets would be high single-digit percentages of our NdPr oxide from upstream and Mountain Pass. So, you know, unless and until we're, you know, significantly expanding downstream, you know, there will be a very, very large business upstream of us selling into the market, you know, not to ourselves. We've been very clear in our commercial approach for stage three, that this is a 1,000-ton facility competing against a, you know, 200,000-ton behemoth in China. And so to think that, you know, we will, out of the gates, be competitive with them is crazy. And so we've been very thoughtful and methodical in bringing customers into the fold that understand what this takes and are on the mission with us.
Because the reality is that given what I just explained about the difference in size between our upstream and downstream business, inevitably, we'll be building more downstream to the extent, you know, we're proving the returns to our shareholders. And with that, I think you know, the smarter OEMs who get their foot in the door first are going to be the ones that are first in line. And so that's how we've approached this. And so we've been very, very focused on risk-adjusted returns on capital in this downstream strategy, where, you know, we have confidence that we'll earn a return, even with the amount of uncertainty that comes with building, you know, a new process that hasn't been done in the Western world in many decades. And so we're continuing to build, you know, confidence there.
The way I'd characterize, you know, discussions with customers for the remainder of the facility is absolutely, we are supply constrained, not demand constrained. So it's a matter of picking the right partners. You know, we talk about this a lot. If we wanted to go out and, you know, pepper everybody with press releases, which, you know, unfortunately, is sometimes the norm in this industry, you know, we can do it, but that's not the right answer for our shareholders, for our team. It's picking the right customers that share the vision that I just laid out... And, you know, we have a lot of confidence that there's a lot of demand like that out there.
All right. So let me explore something on the magnet side. A few months ago, one of the big EV producers put out a comment saying that they may have a non-rare earth magnet. And obviously, that was a big concern.
Yeah.
So what, what's your take there? What has been the developments lately?
I didn't hear about this. Yeah, look, we get asked often. I think the reality of motor design is that there are always trade-offs. There has and have always been decisions that OEMs need to make on what path to go down. What we heard from, you know, that one particular large EV OEM was a real concern about security of supply. If you're going to go make 20 million EVs, you better have another solution in addition to rare earth permanent magnets to be able to hit those volumes. And importantly, this was discussed in the context of the very low end of their product portfolio. You know, our view remains, whatever you can do without a rare earth permanent magnet, you can do more efficiently and better with a rare earth permanent magnet.
I think they would admit that despite being an incredibly talented engineering organization, they have not bent the laws of physics, and so, you know, that remains true. So I think really what that is about is the fact that there will be a diversity of motor technologies, and that is healthy. Right now, rare earth permanent magnet motors represent 94% of EV motor power deployed into the market. Does that go to 85, 80, you know, you name it? It's anyone's guess, but I think that that transition where you have a bifurcation in the market to the low end, to the, you know, medium and high end, is absolutely rational, and I think necessary.
You look at the go-forward supply and demand estimates out there from third parties, and you'll see something like, okay, you know, demand is going to triple and supply is going to double. Okay, that doesn't work, and I'd probably take the under on supply doubling. So, you know, that's generally how we think about it, but we certainly, we answer that question quite often.
Then another aspect is, clearly, Mountain Pass is a great mine, but it's geared towards light rare earth. In order to make alloys, to make magnets in big scale, certainly, you need to increase your endowment of your supply, your resources of heavy rare earth.
Mm-hmm.
What is the strategy there?
Sure. Yeah, I think that certainly Mountain Pass is a predominantly light rare earth ore body. The great thing about the scale of the operation of Mountain Pass is even with, you know, the 1.7% of heavy distribution that we have, you know, a small percent of a large number could be a large number. So, you know, we do, we will make a, you know, fairly significant amount of dysprosium and terbium to be able to satisfy some of our internal demand for, for magnet making. And we've laid out that, you know, that is our expectation for our initial, Fort Worth plant. In order to continue to scale, undoubtedly, you know, there, there is a lot of focus on, on finding incremental sources of heavies.
Our plan for the heavy rare earth separation facility that we have laid out is that it would be designed to take third-party feedstock. And so, you know, when you think about the, the industry, and we talked a minute ago about how, you know, I'd take the under on supply doubling, often what you see out there is smaller scale types of potential projects, anything that, you know, realistically may get off the ground. We're not talking about 35-year mine life, things that can support a $2 billion plant that's required to go all the way to oxide.
So, you know, I think we will play an interesting role in the development of the market, where there are certain, you know, upstream projects that maybe only can get, from an economics perspective, to a mixed carbonate or a concentrate or something like that, which is a product that we could then take and separate into heavies. So, you know, I think you've actually seen that on some of, you know, some of the projects that have been out there, a real admission that, you know, hey, the economics aren't there, particularly at today's prices, to get all the way to justifying the capital investment required in, you know, a solvent extraction or other separation facility. So that puts us in a good position to play a real role in, you know, broader development of the market.
Great. I have a few more, but, let me see if there is anyone in the audience that wants to ask a question to, to Ryan directly.
Thanks for being here. Quick question, just on nearshoring, right? You heard a lot from these companies here, and obviously, you're well positioned. You've got the GM partnership. Can you just unpack that a little bit more, the impact that has on your business and how you're well positioned to capture those trends?
Sure. You know, undoubtedly, that trend plays a big role in why we've approached the magnet opportunity as quickly as we have. When we went public in 2020, and we probably talked about this at the time, you know, we said magnetics is a 2025+ event. We've got a lot on our plate to execute on, and, you know, it's an exciting opportunity, but it's a longer-term opportunity. The reason we're sitting here now, you know, about to move into this facility, was real demand pull from customers, you know, like GM and others, where there's a real acknowledgment post-COVID, the vulnerability of supply chains. And so, you know, it's interesting being a lot of times in the, you know, critical material space, there's a lot of confusion of are we in the battery?
Where, you know, are you lithium? What do you mine? You know, there's a lot of confusion. We really like our position because a magnet is an enabler for reducing, you know, the size of the battery, for reducing other components. Yes, is a North American produced magnet in the early days when we're talking about 1,000 tons of North American capacity, is it going to be more expensive than a Chinese magnet day one? Sure. And we've been very upfront about that with our customers. But, you know, I, I do think that the recognition from—and it's not just automotive OEMs, the recognition of the importance of having some level of domestic supply of these materials is what's going to allow us to scale and come down the cost curve and become really globally competitive. That'll take time, but that's absolutely the goal.
You know, we're not going into this business to be the high cost producer, obviously. You know, I think the other exciting thing that we see, and we referred to it a little bit, a little bit jokingly in the last call, but it's you know, it's real and it's coming pretty quickly, is you know, the advent of robotics. You know, with all we see with LLMs and the progress that's being made there, and you know, we talked a minute ago about motor design and the inherent trade-offs one way or another. When you look at certain robotics applications, and you know, you call it industrial automation if you want it to be less sexy, but in a lot of those applications, there is no alternative.
If you need the actuator to lift a certain amount of weight, you need a rare permanent magnet, period, full stop. And so when that, you know, set of applications really starts to grow, and again, you know, maybe that's 2050 instead of 2030, who knows? I think regardless, we get a lot of focus on the automotive supply chain, which makes sense given that is, you know, the, one of the major secular, secular growers in our space. But it's not like it's, okay, let's get to whatever the penetration is, and, and then what? I think there's, there's a lot of, of room behind that for really, really critical applications. And think about, you know, the kind of de-globalization theme, as it relates to EVs and securing supply chains. When it's robotics, I mean, that's got military applications and things like that.
So you bet that the focus, you know, on, you know, the issues between the Western world and China and things like that, when you have 90% of your magnets being made in China, that can, that, that gets even scarier.
Another question? Well, if not, let me, let me ask, how should we think about the returns and maybe the margins as you guys integrate into stage two oxides and then eventually, alloys magnets in stage three?
Sure. You know, obviously, going from an intermediate product to a separated product, you know, allows us to unlock a lot of margin embedded in the product that we sell today. Having a refinery that is tailored to our elemental distribution, our mineralogy, obviously allows us to extract, you know, likely the best recovery of the things that we want and the rejection of the things that we don't want, you know, within our own concentrate. And so when you sell that into the broad market, you have to give that up. And so, you know, that is part of the major uplift in earnings that we'll see.
When you go from, you know, our upstream business, and you see this across the board, you know, high quality, low point on the cost curve upstream businesses can earn, you know, 70% EBITDA margins-80% EBITDA margins, and when prices were high, you know, last year, you saw us earning 70% EBITDA margins-80% EBITDA margins. When you move forward into, you know, refining into the midstream, the margin percentage points will decline, but the dollars expand significantly. And so, you know, to the point of getting that uplift and being able to recognize the full value of, you know, the embedded NdPr or, you know, as much as possible, that obviously has a pretty significant earnings uplift for us.
Given the fact that, you know, we started life with very significant capital already invested and the scale of capital that was required to get stage two into service, you know, the return on capital, you pick your NdPr price, is great. When you move into the downstream, and this gets back to kind of what I was talking about in terms of how we approach,
Commercial.
Yeah, the commercial structure is for this first facility, you know, you can make anything look great on a spreadsheet, but we have to go execute on it. And, you know, as we've talked about before, we are extremely execution focused. This management team are large shareholders of the business. Our Chairman and CEO is our largest individual shareholder. He is focused on return on capital and risk-adjusted return on capital in every decision we make every single day.
And so when we approached, you know, taking capital that otherwise could be invested upstream at very high returns or return to shareholders or whatever it may be, when we evaluated the strategic nature of what stage three gives us and then evaluated, you know, our ability to execute on an attractive risk-adjusted return in this facility, you know, that is what led us to make this investment. And we've been clear also. Our mission, you know, we started talking about is to complete the full rare earth supply chain. We think it's important for the development of all stages of our business for the marketplace to see that this can be done, and this could be done at scale, and this can be done well, and it could be done here.
All right. Well, so thank you very much.
Thank you.
Great to have you again, here with us. Good luck as you continue to ramp up stage two.
Thanks.
See you next year.
Appreciate it. Thanks, Carlos.