Hi everyone, thanks for joining us. Very, very happy to have MP Materials here. We have the CFO, Ryan Corbett. We also have the head of IR, Martin Sheehan. I'm Ben Kallo, cover sustainable energy mobility. I'm going to turn it over to you, Ryan. Ryan's going to run through a few slides, and then we'll save time for Q&A. You can email me at bkallo@rwbaird.com or click in the upper right-hand of the screen. I think you can send an email as well. So Ryan, take it away, please. And thanks, Ben.
All right. Thanks. Yeah, thank you, Ben, for having me. Appreciate it. We'll toss the slides up here. There we go. Thanks, Martin. So, good afternoon, everybody. I'll breeze through these pretty quickly. You know, as you'd expect, we'll say some non-GAAP financial measures and make forward-looking statements, so please look at our SEC filings for reconciliations and for relevant risk factors. So, an overview on MP Materials. We are America's only scaled producer of rare earth materials. We own and operate the Mountain Pass rare earth mine and processing facility in Mountain Pass, California, and we are investing in a three-stage strategy to restore the full rare earth supply chain to the United States and to support the development of a diverse ex-China supply chain for critical rare earth materials.
We are a very scaled producer in our stage one business, the rare earth concentrate business, where we're a low teens% of the total market. We are in the process of ramping our stage two, which is refined and separated rare earth oxides and metals. We've made a tremendous amount of progress, and we're very excited about our stage three business, which is North American production of NdPr metal as well as magnets. We have a foundational customer in General Motors, who is taking a significant portion of the production of our initial facility, and we continue to execute on that strategy to bring magnet making back to the U.S. I'm going to the next slide.
As some of you are aware, maybe some are not, rare earths are a critical piece of the industrial economy and really, in a lot of ways, represent a single point of failure in certain industries that really drive quite a bit of GDP and economic security. It's not just, you know, electric vehicles of all flavors-plug-ins, regular hybrids, as well as battery electrics-but also robotics. You know, we've seen a lot of growth in that space. Wind energy, general industrial transportation, aerospace, you name it. Rare earth magnets are what enable industrial motion and are critical pieces of technology where the ability for the U.S. and the Western world to rely on a single area, whether it's China or anywhere else, is untenable.
And so from a supply chain security perspective, what we're doing is incredibly important, particularly as the world continues to electrify. I'm going to the next slide. This just gives you a sense of exactly how acute the problem is in the Western world. MP Materials stands as really the only scaled player in the Western world, and I'm sure we'll get into, particularly in the Q&A, some discussion around the pricing environment. But in today's world, you know, the economic moat around our business, frankly, is growing by the day, given the difficulty of bringing new supply of our materials online. I'm going to the next slide. This just gives a further sense of what I mentioned a moment ago about some of the critical, you know, very rapidly growing, demand drivers for rare earths and rare earth magnets.
You know, electrified vehicles and wind energy in particular are really a small portion of total demand today, you know, something like 20%-25%, while the, you know, the rest is general industrial, consumer electronics, appliances, things like that. Even with the, you know, reset, certainly in sentiment recently, and even with a bit slower growth than maybe some had expected in the very short and medium term on electric vehicle growth and penetration, you know, you pick your penetration rate, over the next 10-15 years, and what we're facing is a pretty dire supply-demand imbalance, no matter how you cut it. So I'm going to the next slide, and this kind of gives you exactly that picture.
You know, certainly 2023, you know, we've seen what pricing has done in a variety of critical minerals, including our own, and NdPr oxide, where, you know, I think growth, particularly the broader industrial economy that's levered to, particularly the Chinese real estate market, underperformed versus expectations, while supply did continue to grow. You know, that caused sort of this imbalance here. But again, even with updated assumptions, as it relates to electric vehicle penetration, we continue to see over the medium to long term, a very bullish supply-demand outlook for our commodity. I'm going to the next slide. I mentioned a lot of this, and I'll breeze through this to leave time for Q&A. But, you know, we are operating and firing on all cylinders on all three stages of our strategy. Stage one is our primary revenue and earnings generator at this point.
You know, one major update to that business is what we call Upstream 60K. We've consistently produced about 40,000 tons of rare earth oxides and concentrate in our upstream business. We announced in Q3 of 2023 our strategy to grow that business by 50% over the next four years with a relatively modest capital investment. So we think that that's, you know, absolutely the highest return incremental supply that will come into this market. It's something that we're very excited about given where we sit on the cost curve in rare earth concentrate production. We're also making some very significant strides in our rare earth separations. We produced over 200 tons of separated NdPr oxide last year. That is the first time in over a decade that rare earths have been separated at any scale in the United States.
So we continue to make great progress on commissioning the refining facility. And then finally, in stage three, over the course of this year, we expect to continue to execute on some important milestones in building out the magnetics and precursor product business, in Dallas-Fort Worth, where you can see, you know, we've completed construction of our initial facility, you know, from a building shell and infrastructure perspective, and are working furiously to get all of the equipment installed, optimized, and ready for production. I'm going to the next slide. Oh, that's the end. Perfect. I kept my promise, I think, Ben, hopefully.
Perfect.
Awesome.
Thank you. Ryan, maybe, you know, you guys held your call last week. Anything you want to highlight from the call? I have some questions that, you know, came out of that.
Sure. You know, I think that, you know, we certainly talked quite a bit about the market, and I made reference to that. You know, there's been a lot of focus on the pricing environment, which I think has been in focus for a lot of critical minerals. You know, we talked about, you know, the fact that despite all of this, I think very importantly, given some of the, you know, very exciting milestones we plan and hope to be executing on in our stage three business, you know, despite the pricing environment, we expect to have, you know, and maintain a very, very strong balance sheet and capital position, even in the down cycle.
You know, we've been consistently focused on being as thoughtful on that part of it as possible, obviously. In my seat, very near and dear to my, you know, core responsibilities. So that's something that I think we want to continue to emphasize, you know, and that will be opportunistic, and thoughtful there. You know, look, there are things in our business that we can control, and there are things that we can't control. So we absolutely are doing our best on the things that we can control.
You know, you talked about, you know, the where prices are right now and likely that, you know, capacity, like new capacity, can't come on because of that. Maybe could you expound on that and then also maybe, you know, tie in your capacity addition, and how that works with, you know, pricing right now?
Sure. No, it's a great question. You know, look, I think a lot of observers of the industry try to come up with an incentive price, and it's this was actually one thing, if you want to recap the earnings call, that I think a lot of people got confused on. I think they thought we were talking about our incentive price to continue to produce oxide. When I think of incentive price, I think it's generally cited as where is the price where, you know, the swing producer is incentivized to go and invest in capacity to bring new supply online? There are a lot of numbers thrown out there: $70, $90, $100, $110. What I will tell you is it's nowhere near $50, which is where we are right now.
You know, I think that the vast majority of even the lowest cost producers, you know, including in, you know, China, are not making money at these prices. You know, that can only go on for so long. And so, you know, I think that, what we see is, you know, for example, there's really only one potential scaled project of note that had been discussed, you know, of coming online in the next, let's call it, you know, three to five years.
and, you know, that had, you know, $1 billion of government support, and it still is not coming online, you know, given the changes in the pricing dynamic and the fact that the view on the cost to actually bring a real scaled refining facility online, let alone find the raw material and the feedstock to feed that, generally is wildly underestimated, including, you know, in a very, you know, widely followed project like that one. And so that is a trend that we don't expect will go away. And so that speaks to, I think, exactly what you're getting at, Ben, which is where we sit on the cost curve and how economically efficient it is for us to add incremental brownfield supply given the invested capital that's in the ground.
You know, you think about the amount that's been invested at Mountain Pass over time, and you try to inflation adjust it, you know, many $ billions. And so you look at the value of our enterprise right now, and we're trading at a discount, you know, to replacement cost, you know, in an environment where, you know, clearly, you know, sentiment and pricing is down. Clearly, the medium- to long-term demand profile remains extremely exciting, and the ability to add supply, you know, this is not like drilling an oil well. This takes 10 years oftentimes to develop a mine and get something online. And so, you know, when you see reactions like this in our sort of markets, you know, you often expect an equal and opposite, if not greater reaction to the flip side.
That's the nature of our business. So we've tried to always, you know, keep a cool head and plan for, you know, both the up cycle and the down cycle.
You mentioned, you know, being the first, you know, the separate doing the first separation in 20 years, I think you said, in the U.S. Could you just talk about that stage two where, you know, where it is, you know, versus where you guys thought it would be? And I guess really from a cost perspective too, because, you know, as you move forward, just like if you're on target for, you know, getting to the volume, but with the cost profile that you originally thought.
Sure. Yeah, I think the good thing about where we sit with stage two at this point is we have run every circuit at commercial scale and have been able to observe exactly how the chemistry is working. And, you know, we absolutely having produced 200 tons of NdPr oxide, you know, over the course of the last two quarters of last year, you know, and that's on spec material that's been qualified into, you know, the broader magnetic supply chain, we have a great sense of what our run rate cost structure should look like. You know, you can see it. The proof's in the pudding.
But also with a, you know, facility like this that is starting effectively from a standstill, you know, a lot of brand new equipment that's got its benefits and drawbacks, brand new equipment, a lot of existing equipment absolutely has its benefits and drawbacks as well. So you've got a mix of it, and you need to integrate all of them. And I think our team on the ground has done an absolutely phenomenal job getting that done. The reality of scaling that up is such that right now we are incurring incremental variable costs to go from mixed rare earth products to separated rare earth products that we do not expect to see as we continue to optimize the facility. Certainly, obviously, with volumes, there's a fixed cost absorption, and that pushes you to want to push volumes.
But when you see what we're seeing where, you know, a lot of a lot of folks say, "Okay, you did 150 tons last quarter. You know, that's 50 tons a month, so you're at 10% of your throughput." Well, maybe we're at, you know, 70% of our throughput, but, you know, you know, 15% of the time. There are many different pieces that go into the equation of getting this thing ramped. And the reality is that with the flexibility we have in our business model of having a very profitable stage one, mixed rare earth concentrate business, in addition to the ability to separate that into refined products, we can make the choice where we can sit here and say, "I've got an REO ton.
I know for sure what it's going to cost me to turn it into a mixed rare earth concentrate and sell that into the refining complex. You know, while we're still optimizing our circuits, I can't tell you that I'm going to be exactly on target for my cost structure for separations at this moment. We continue to have a very significant amount of confidence that we will get to our targeted cost structure. You know, we've seen the data. It just behooves us at this point with pricing as low as it is, the incremental profit tool that's available in separations is much, much, much, much smaller than it is when prices are higher. I mean, it's a, you know, it's a perfect curve.
What we're really focused on is ensuring that we are being smart, maximizing cash flow and profitability in the immediate term and not hitting production milestones for headline's sake. That doesn't do anybody any favors.
If we just thank you for that explanation. If we just take it a step to step three, how does that change what you do there? In kind of the same way. And then maybe you could just if you could, like, remind us all about, you know, when the factory comes online, you have alloys first, what that means. So there's a lot in there. So thank you.
A lot of moving parts, undoubtedly. Yeah. Look, I think from a pricing perspective, you know, there's really no change to our plans. You know, the interesting thing, obviously, about the stage three business is it's very unique. We're going from producing, you know, commodity products in our upstream and midstream business to, you know, highly engineered finished product, in our stage three business. And so, you know, the way, you know, the levers for profit and return are different, certainly in that business. What we've talked about in terms of milestones there is originally we were targeting producing, an alloy flake product ahead of being in service with finished magnets at the end of 2025, which has been our target for some time now. We continue to execute towards that.
Just given the state of the remainder of the magnetic supply chain in the United States, what is most prudent for us at this point and for our customers is to focus on production of domestic metal as opposed to the customized alloy product. NdPr metal, obviously, you know, we make NdPr metal out of our oxide at our toll processors in Southeast Asia. Being able to make that in the United States is a huge part of the value add of what we are doing in stage three. I can't tell you how many times I've talked to, you know, OEMs that are just getting smart about this, and they're thinking about magnetics, and, you know, there's just an incomplete picture of, you know, where the bottlenecks are to get domestic production.
And a lot of times there's, you know, not an understanding that you can make all the oxide you want. You got to turn it into a metal before you can turn it into a precursor product and into a finished magnet. And so our target here is to, you know, be in service with metal production in stage three, later in the year, which for us will unlock certain milestones that will support, you know, from a progress payment perspective, the continued investment in that facility, and will get us to continue, you know, on our way towards the ultimate goal there of being in service with commercial scale magnet production at the end of 2025. So that remains the primary focus there. And, you know, we are well on our way. A lot of execution ahead of us, undoubtedly.
but, you know, we feel good about the progress we've made so far.
What are the customers, how do the customers change from, you know, selling, you know, separated NdPr, to, you know, to metals at the Texas facility? Is it a different customer base?
Sure. In some instances, yes, and in some instances, no. I mean, the interesting thing is the reason we're in the magnetics business today is because of the customer conversations we were having with automotive OEMs about NdPr oxide, you know, to begin with in our, you know, in our initial stage two business. That was really the impetus for, you know, the push to really complete the supply chain in the Western world because, you know, you have companies that, you know, even with, again, sort of the pendulum swinging on sentiment in electric vehicles, this is a major retooling of the supply chain that is going to happen and is continuing to happen.
You have leaders in the space like GM that recognized, "Great, we can you know, we can have a huge producer of rare earth products in the Western world, but if we have to send that product overseas to get our magnets, what good is it for us?" And so, you know, partnering with those that are forward thinking on, you know, our particular supply chain is something that we had had in the back of our mind for many, many years. And, you know, given how quickly, you know, the market has started to pivot towards electrified transportation and, you know, now robotics and some of these other things that are real consumers of magnets made our mission much more time sensitive and critical. And so that's sort of what, you know, brought us to this point.
And so to answer your question more directly, we have automotive OEMs buying from us in both businesses. However, you know, where an automotive OEM may take separated rare earth oxide, you know, they need to get it to a magnet maker in order to get a product that they need, you know, and then, you know, think about the full suite of supply chain. Maybe it goes to a Tier 1, maybe not. So there are a lot of steps between where we are and getting into a car, unless, you know, of course, we're providing them a magnet, in which case, you know, we've got a full suite of solutions.
You know, we sell to a pretty wide range of customers from, you know, all the way downstream into the, you know, the automobile or the tier one or, you know, upstream in the magnet making and, you know, distributors and everything in between.
Have you never explicitly said that you'd have multiple magnet facilities, but does the current sentiment or, you know, OEM kind of pullback or some OEMs pullback in, you know, their EV timelines change your thought process around, you know, investment in magnets, additional investment in magnet facilities, timing of that facility, or does it not change at all?
Well, you know, in a lot of ways, we've always been of the opinion that we need to walk before we run, particularly in magnetics. You know, when we approached the stage one and two businesses, we had, you know, teams in place with many decades of operating experience at Mountain Pass on our ore body with our equipment, et cetera. Stage three, we're starting this from scratch. There is no, you know, Western champion, you know, in magnetics yet until we're in service. And so we've always thought that we would focus on optimizing our existing, you know, our initial facility before we went out and blew a bunch of capital, you know, on doing something bigger.
And so, you know, we it's funny, obviously, when sentiment was very different, we would get pushed all the time about, "Why haven't we seen more OEM deals?" And our answer is always, "We are not demand constrained. We are supply constrained." And that's on purpose because we are being really thoughtful about how we allocate our precious capital, you know, that our shareholders entrust us with. And we don't intend to go too far out on the risk curve, just to hit a headline. The same way, you know, we're thinking about things in the stage two business. And so, you know, I think long story short, I don't think it's meaningfully changed anything because I think we'd be focused on execution and DFW in our initial facility anyway.
You know, with, of course, a couple of years of progress under our belt and still a couple of years left to go till we're actually in commercial scale production of magnets, do we know a whole lot more now than we did two years ago? Absolutely. Does it give us more confidence that there's ways to, you know, very efficiently expand capacity at our initial facility or otherwise? Certainly. But we're going to be, you know, again, thoughtful and opportunistic and sort of follow the market there, and not be in any rush.
You know, in the past, you talked about kind of reducing volatility by vertically integrating or just increasing margin dollars. What have you seen in the magnet? Because we don't have as good of a look as you guys do, I'm sure, on the magnet pricing, as, you know, NdPr has gone down.
Sure. Well, I mean, if you just think about the bill of materials for, you know, for a magnet, a very significant portion is the rare earth raw materials. But you've got, you know, a big slug of conversion costs and other raw materials that are not moving with the same level of volatility, certainly, that the rare earth raw materials have. And so with that, you know, our view is if you're in, you know, a discrete manufacturing business like that, you should be earning a return on your entire cost base. And so, you know, generally in the magnetic space, you know, you're seeing less volatility overall than you are in the commodity space.
But certainly, since it's such a big portion of the bill of materials, you know, you do see certainly it goes in the same direction without a doubt.
We have time for one more question. Again, thank you, guys. Thank you, Ryan. Thank you, Martin. It gets left out a lot, but the heavies and D.O.D., could you just talk about that? I know it's not a big part of the story, but I think it's probably important.
Sure. Yeah, you know, from our perspective, you know, we continue to move that project forward. You know, certainly, if you think about magnetics, you know, that's a part of the capability set that, you know, is attractive for our customers: the ability to produce all the raw materials for them. And so we continue to look at ways, you know, it's frankly the perfect example of the type of project in this pricing environment where we are looking at the best possible technology to be as capital efficient and cost efficient as we absolutely can. And so that's, you know, that's our focus at the moment.
Great. Thank you for taking time with us. If any of the audience members want to be connected with MP, just reach out to me, bkallo@baird.com. Again, Ryan, Martin, thank you guys so much.
Thanks, guys. Again, thanks, Martin. Thanks, guys.