Hi, everyone. As we continue with TD Cowen second annual Sustainability Week, the next presenter is MP Materials, and I'm privileged to be welcomed, or joined rather, by Ryan Corbett, the CFO. Ryan, thank you very much for joining us. Those on the line, you can access the dashboard and send questions over to myself. You can also reach me on Bloomberg or over email at David.Deckelbaum@tdsecurities.com. In any event, why don't we kick it off, Ryan? Thank you again for being here.
Sure.
Maybe we can just kind of start off just very high level. I'm sure most folks are familiar with MP, but just who you guys are and why you're so differentiated and why your stock's been ripping over the last month? Yeah.
Long overdue, but
Yeah
... yes, David, thanks for having us. Appreciate it. Happy to be here. So MP Materials is one of the world's largest producers of rare earth products. We are really the only scaled producer of rare earth products in the Western Hemisphere. And our goal since inception has been to bring the full rare earth supply chain back to the United States. So today we sit as roughly the second-largest producer of rare earth content. And over the last several years, we've been producing that at scale as a high-quality concentrate product that is generally sent overseas for refining. We are in the process of ramping our separation facility to do our own midstream refining production of separated rare earth oxides at Mountain Pass.
You know, we've been through the commissioning process here for a couple of quarters now. Have been producing on spec and selling on spec separated products for the last couple of quarters, and really working through the kinks to eventually get us to our targeted throughput of about 6,000 tons of NdPr oxide annually. In addition to that, if that wasn't enough, we've embarked on a further downstream integration strategy to build out the magnetic supply chain in the Western world. And so we have completed construction of the facility and are currently in the process of equipping a fully integrated magnet manufacturing facility in Fort Worth, Texas. Our foundational customer for that facility is General Motors.
We will begin delivering precursor, magnetic precursor materials, primarily NdPr metal, to GM late this summer, and our target is to be producing magnets in late 2025. So that's kind of the overall story of MP Materials. I think to your question on sort of, you know, the stock over the last little bit here, you know, rare earths certainly are, you know, I'll say unique instead of rare. You know, no puns here, but it's a unique occupies a unique place in the critical materials space as something that is very uniquely dominated by the Chinese. And obviously, there are the geopolitical, you know, issues with that, you know, vis-a-vis China in particular.
But I think frankly, the reality is, from a supply chain security perspective, the level of dominance that they have, it could be any country. You know, where I think the reality of the importance of what we produce for both economic and true national security perspectives is such that we really need diversity of supply. At this point, there are a few scaled producers in the world outside of China, so we're one of few. And, you know, what we've seen is a renewed focus from the U.S. government in particular, which I think has driven, you know, what you're referencing in the short term, on, you know, where we sit and the level of importance of our mission.
Absolutely. You know, maybe we can talk a little bit about just the sustainability angle. You know, I, I've been out to Mountain Pass, and toured the mine with you all. You know, I know that there's a lot of initiatives, particularly around recycled water, obviously managing air quality. Yeah, I'd be interested to get your perspective on, you know, managing this operation and your growth initiatives as sustainable endeavors, and what that means, and how you think that helps differentiate you in the market.
Yeah, absolutely. You know, we get asked quite a bit, "What is it like to run a mine in the state of California?" And so, you know, I think that frankly, it comes with its costs, but in a lot of ways, those costs are distinct advantages for us in a lot of ways, for exactly what you laid out. Because we had to be thoughtful about the way this facility was designed from the get-go in order to meet, you know, the extremely rigid standards of the state and of the United States broadly, of course.
And so I think for us in particular, you know, our advantages start with a thoughtful design of the facility, to your point, to recycle as many things as possible, not just water, chemical reagents, you know, all sorts of things. And then on top of that, we have an added benefit of, you know, really an advantage from a mineralogical perspective. With the bastnaesite ore that we have, what it allows us to do, what it allows us to avoid in order to produce the products that we produce, I think is incredibly unique. And so I'll give a few examples.
You know, you take one of the major changes that we implemented since taking over Mountain Pass and implementing our strategy, has been to implement an oxidizing roast to the mineral concentrate that we produce in order to drive efficiencies in the downstream midstream production of separated oxides. bastnaesite ore is uniquely suited to both a low cost and low environmental impact roasting. So we have a rotary kiln that is electric-powered. We produce all of our own electricity. And it's an oxidizing roast. Generally, for a lot of mining and materials businesses, when you think about roasting, it's usually a sulfuric acid roast or something like that that's got, you know, challenges from an emissions perspective. Again, this is-...
purely luck from a mineralogical perspective, that that's what, you know, what our ore needs in order to, you know, be extracted from a low-cost perspective. And so that, that's one example. You mentioned water recycling. You know, we have a dry stack tailings process that is unique in the industry, and frankly, you know, pretty unique across all of mining, where we recycle effectively almost all of our needs from a freshwater perspective, from dewatering of our tailings and then depositing the tailings in a lined impoundment, but, you know, as a dry product. So it's sort of, you know, a long time ago, you heard Elon Musk say on one of his battery days about mining materials, kinda taking the good stuff out of it and putting it back where you found it.
That's effectively what we're doing, for all intents and purposes, with, you know, the way we manage our, our, our waste and tailings process. And then you've got, as I mentioned, other areas of, of recycling that, you know, we both are currently doing and are currently studying to be able to minimize the environmental impact from a per kilogram perspective on our, you know, for, on, on our, production profile. And so, you know, we are early in our maturity from, you know, quantifying and measuring our production profile and emissions profile vis-à-vis some of the Chinese producers and other global producers. We, you know, we have early LCA studies.
You know, we feel very confident once those are complete and once we're ramped and sort of at full throughput. You know, we will be able to communicate quantitatively and qualitatively the unique benefits of NdPr oxide, for example, from Mountain Pass.
Yep. We talk about NdPr oxide at Mountain Pass. You know, I thought it was pretty notable in your last quarter's conference call. It seemed like you guys were pretty confident in getting towards, you know, kind of that 500-ton-a-month run rate sometime towards the end of this year. I guess, for reference, you did about 150 tons in the quarter this year and last, you know, give or take. You know, I guess, has that confidence changed in, you know, sort of the ability to execute profitably? Or, you know, was it more of a coincidence over really, like, the last year as you were commissioning, that the price of NdPr has been depressed to the extent that you really weren't incentivized to push that timeline at all?
I guess I'm just kinda like wondering how that confidence has changed.
Sure
... 'cause it does feel like you're sort of operationally ready to go at run rate into 2025.
So I'd say, you know, the way you laid it out, sort of both are true, from a, you know, has price impacted the way we've ramped the facility? And then, have we seen things that have given us incremental confidence of sort of reaching, you know, our targets? I'd say absolutely. I think we're very clear, you know, starting a couple quarters ago, that pushing volume for volume's sake is not, frankly, what anyone should want us to do, unless we were trying to put up headlines for headlines.
Yep.
You know, if you think about the incremental variable costs that can be experienced by us in, you know, a sub-optimized process where, you know, we don't have the uptimes that we want, we don't have everything dialed in, and you think about where the price of the commodity has been over the last several months. You know, one of the benefits, frankly, of our platform is we can realize a very significant proportion of the profit dollars embedded in our concentrate product. There are absolutely incremental profit dollars to capture in separating that product, but that pie gets smaller as the NdPr oxide price gets lower. It gets a lot higher when NdPr oxide prices are higher. So if they were $80, $100, $150, you know, that calculus is different.
We wanted to be clear that we are going to be focused consistently on maximizing cash flow and being thoughtful. I think to your point, you know, I think we, we've gotten this feedback a lot, that it sort of felt like there was a shift in tone about our level of confidence. I think, really, the level of confidence has always been there. I think the thing that we've been waiting on, really, and I think, you know, Michael, on our last call, did a great job of explaining this, is the supply chain.
Getting everything lined up to fix the things that need to get fixed, because we're sitting there, you know, looking at each individual circuit, knowing what's, you know, what's keeping us from being optimized, waiting on pumps, waiting on parts, you know, waiting on, frankly, bandwidth, given the, you know, the scale of what we've undertaken here, and we see the clear steps to get there. Are we gonna continue to follow the approach of not pushing volume unless it absolutely results in incremental profit dollars? For sure. You know, that has not changed.
But I think kind of what you heard from us last quarter is, from a midstream perspective and what we see in these circuits and what we've seen in our results so far, is that we've got our arms around what needs to be done, and we see a clearer timeline to getting them done. And so, you know, that I think for sure is true.
Yep. Yeah, so I, I think we kinda answered a lot around Stage 2 . One of the other things that I'm, I'm curious about, and I think, honestly, sometimes I forget, is, like, this was not a greenfield facility, right? Like, you... It was mass balanced. You know, you, you acquired this asset. A lot of the infrastructure was already built out. You put in some modifications, like the, you know, the roasting circuit. You know, I guess just given your learnings, I mean, it seems like practically it's still taken, you know, about three years of modification and commissioning to get towards nameplate. So it seems like if you kind of decompose this, for, for someone that's a relatively new entrant-...
The timeline to getting towards separation seems like it would just be at least double that of what you experienced.
It's a great point. I think that, you know, certainly our progress over the last several years, we've been focused on implementing a strategy, you know, for Stage 2 . You know, it's the roasting circuit, it's brine purification, and, you know, our salt crystallizer to deal with, you know, the waste that comes off the process. It was a significant investment in finishing capacity, and so that's one thing that I think a lot of folks sort of ignore, particularly when you hear about, "Oh, we're gonna do this, you know, newfangled approach to separation and not just solvent extraction." It's like, well, great, your finishing assets that you now need are 10 times the size of what you'd need if you had just done solvent extraction.
There are a whole host of things where, you know, we see a lot of headlines out there, we see a lot of hopeful new entrants that don't really appreciate what it actually takes to get this done. And so I think we haven't needed to rush, right? I think that's why we laid out the business plan so clearly from the beginning, and focused on Stage 1 first. And I think the thing that also is not super well appreciated is the Stage 1 operation, producing a high-quality and low-cost mineral concentrate, a high-quality feedstock, is a huge proportion of the problem, right, for a lot of these players.
And, you know, we start with such a distinct advantage, having optimized that part of the process first, and having, you know, launched a business there that brings in significant profit and cash flow to fund, you know, the investment that we made in Stage 2 . I think thinking about, you know, your comment on greenfield versus brownfield, you know, absolutely, I think our improvements and frankly positioning the plant for the higher volumes than what I think were, you know, really contemplated by our predecessor from a finishing perspective, for example. You know, solvent extraction, a lot of those assets are... you know, have significant, you know, capacities to them. But, you know, they never really got to the very high volume finished product production, and so there was a lot of investment there.
And so I would say there are parts of it that are brownfield, and parts of it that are, you know, a little bit more immature. I think the parts that are clearly brownfield and just have upgrades to them are the parts that if we were starting from scratch, no matter what you do, take six, nine, 12 months to get stabilized. So to your point on mass balance, the solvent extraction, you know, circuit, that is a tremendous advantage that we started with, without a doubt. And so I think your overall conclusion is absolutely right, and it's not just timeline, it's cost.
Yeah.
We've seen, you know, quite a few projects out there, you know, talk about a targeted, you know, capital cost and, you know, see that go up 50%, and, you know, I don't think they're done there. That is fundamentally, I think, the uniqueness of the rare earth space is... You know, we get asked a lot about, you know, "You guys ever think about lithium or some of the other sort of, you know, minerals that are levered to the electrification and EVs and things like that?" I think that what is required to be a scaled, high-quality, low-cost producer of rare earth products is incredibly difficult to execute. And, you know, the ability to find the right ore body to support it is very, very difficult and unique.
And so, you know, I think we've strung all those things together and, you know, are continuing and taking those advantages through all the way downstream.
So the next kind of series of questions is gonna talk a little bit about Stage 3, but also in the context of what your impression was around the increased tariffs around permanent magnets.
Sure.
You know, obviously, MP is sort of at the tip of the spear for anything that happens with disruption to the rare earth supply chain, particularly for the points that you obviously, like, already elaborated on, just being the only real scaled Western supplier. What did you make of just the tariffs, and how do you expect this to kind of play out? And how does it change your strategy at all?
You know, I don't... I would say to answer the last part of the question first, it really doesn't change our strategy in the sense that, you know, we've been very clear about the strategy in the downstream business of not trying to compete with the Chinese on price day one, right?
Mm.
Think about the permanent magnet business as a 200,000-ton, roughly, business.
Yeah.
We're talking about, you know, initial design capacity of our Dallas-Fort Worth facility of 1,000 tons. We're a minnow, you know, vis-à-vis the broader industry. And so, you know, from that perspective, we've been very clear with our customers that the value proposition that we offer is security of supply from a fully integrated basis, and a partnership perspective. You know, magnets are, like I mentioned, a very customized engineered product, and oftentimes what automotive customers are looking for, for example, is particular attributes of the magnet at particular temperatures and particular operating parameters, and oftentimes there are different ways of getting there. And I think the unique thing that we offer is we've got no innovator's dilemma, right?
We can approach this with a clean sheet and say, "All right, if these are the operating parameters that you need and the design that you need, we think you should do it this way, you know, and, you know, we can do it with this many segments or in this shape or with this coating. and, you know, get you what you need at a lower cost or whatever it may be, or easier, you know, lower impact." So I think that that is what customers have been focused on and, and what customers have responded to. I mean, we talked about on our last call, you know, that first 1,000 tons is fully spoken for at this point, and so clearly, you know, it's resonating with customers.
I think the tariffs speak to a recognition from the U.S. government and writ large, that there's an expectation of an equal playing field. You know, regardless of sort of how we price our products versus how they price their products, undoubtedly, you know, the Chinese have had, for them, very thoughtful industrial acts and other policies over the last many, many decades to incentivize growth of the business in country. And, you know, that absolutely favors their domestic producers. And so I think there's a realization that, there's a necessity to incentivize scaled producers like MP to be able to continue to grow their business, and support a real scaled, diverse supply chain that is not concentrated in one single country. Again, I think I mentioned at the beginning, it could be any country.
That level of concentration for the criticality of what we make is just not sustainable. And I think that what we've started to see... And, you know, Wall Street is very fickle. You know, there was a, you know, a lot of focus on the electric vehicle supply chain and excitement there. Electric vehicles became a bad word, and probably still are at this point. I think that luckily, government and, you know, parties like us are taking a much longer-term view on, you know, the criticality of what we make. And, I mean, think about the next leg of demand growth. And, you know, I'm not saying this is next year, I'm not saying-
Yeah
... it's in two years. I don't know what it is. But robotics, for example, I think the U.S. government sees this from a defense perspective. You know, humanoid robotics, whatever type of robotics it is, requires a really significant amount of magnetic content.
Mm.
And so, you know, those are the sorts of things where we must have a capability here, and we must have commercially viable scaled producers driving that forward. And I think that's sort of what we've seen support from in the last, you know, last week from this announcement.
Do you have any thoughts as to why those tariffs were implemented this time around versus... I believe a couple of years ago they were being considered, and it seemed like they were advised against pursuing that path. Do you think it's merely political, and that, like, relations have incrementally cooled, or do you think that there are observations that have changed around the supply chain here and operator capabilities that perhaps were not heeded a couple of years ago?
Well, it's a great question. You know, I think-
Or, do you think it's they see that you guys are succeeding, and they're like, "Well, they're fine, so let's do it now?" Yeah.
Well, look, I would say this. To your point, there was a Section 232 investigation on permanent magnets. It was determined that, you know, it is a major national security risk, but the recommendation at that point, a couple of years ago, was not to implement tariffs, 'cause the view was that it wouldn't be an effective policy to sort of change the paradigm. Here, this is a Section 301 set of tariffs, a little bit of a different framework, but, you know, I don't think it's any coincidence that these are being implemented in 2026. My view is, putting a tariff on a product where there is no domestic supply is just a tax.
Mm.
You know, the goal is not to make, you know, electrified products more expensive. The goal is to ensure that there's a level playing field for domestic production of electrified products. I think what you're seeing is the government recognizing that there is a path here now to a domestic supply chain for electrified products, and there are a lot of players that are a lot further along, namely MP.
How do you make money in the Stage 3 business for MP? Obviously, there are benefits of vertical integration, and you have a unique resource base, you know, your own separation capabilities. What color can you give us around what commercial agreements look like?
Yeah
... for even the beginning precursor magnet, I mean, you talked about making a precursor material at the end of this year. How do you make money off of that?
You know, it's a great question. I think the most important sort of maxim for this is we've been very clear, and this is important for a variety of reasons. One, we have a very attractive upstream and midstream business. We have, you know, shareholders that expect to earn an attractive return on those businesses. We didn't have to go into the downstream business in order to sort of drive the economics of the upstream and midstream business. We're entering that business because the returns stand on their own two feet, so we're not subsidizing the downstream business with our upstream and midstream products. I think that's important because if we were doing that, we shouldn't be investing those dollars. And in addition, we are a much larger scale upstream and midstream producer than we are a downstream producer.
You know, we're selling to other magnet producers, and so I think it's important that they understand that we are not here to compete with them on unfair terms. We are here to compete with them on completely even playing field. So I think that's an important thing to think about. There's, you know, you're not gonna see upstream dollars being recognized in the downstream. So in terms of the way we've situated the downstream, you know, we embarked on this strategy and started deploying capital here a couple of years ago, you know, and have been aggressively investing in, you know, the engineering, the labor, et cetera, that's required to get this done.
And so I think what we have fundamentally communicated to our customers, which, you know, they've responded to, is we need to be able to deploy capital and earn an attractive return on that capital. And that needs to be on a standalone basis. Certainly, if you think about our, you know, existing footprint, and we made reference to this a couple of quarters ago, that we see some pretty interesting and attractive higher return opportunities to expand capacity. What we invested in is a magnetics headquarters with a full suite of, you know, laboratory capability, new product introduction capability, testing capability, piloting across the entire suite of products, fully integrated electrowinning, all of those things all in one facility. And so we've got, in this investment, this initial 1,000 tons, you know, that under us.
If you think about sort of what comes next, if we were to expand capacity, the incremental capital dollars per unit of magnet production essentially should be lower, of course. And so, you know, returns can look, you know, better and different under that framework. And so that's how we've set this up, is, you know, finding those customers that understand that and are really, frankly, very aligned with us to see us grow, to see them grow, and to see sort of the real payoff here, which is a scaled response, a scaled capability that compete on an even playing field over time.
You know, you obviously have a background as, you know, maybe a pseudo active investor. When you look down the line, if you're able to scale all of these businesses the way that you want to, does it always make sense to have them vertically integrated, or is the long-term intention, you know, to split these up? Because, you do kind of present the reality that there is going to be a capital allocation, you know, almost conflict in the future, you know?
It's a great question. It's something we think about all the time. I mean, what I would say is, if we could look at, you know, our business right now and the way that we're trading in the public markets, I think that if you just look at our upstream and midstream business, we are significantly undervalued. I think that we're trading at a real and unsustainable discount to replacement cost of our upstream and midstream assets only. And, you know, that sort of begs exactly your question, which is, okay, where's the value for the downstream business? And I don't think we're getting any right now. I think in fact, you know, it's an asset of ours that we think is very, very valuable, where we have a major head start that is not being reflected in our share price.
We're constantly thinking about how do we make that right? A lot of times the answer is just execution, and so we are early in, you know, the magnetics trajectory here. Absolutely we intend to sort of prove the value of that business through cash flow, right? That, you know, cash flow sort of is the answer always. You know, that is, that is absolutely one way to do it, but it's a great question. It's something that we always have on our mind.
I guess, in the last few minutes, you know, I know Jim and you talk a lot about sort of the future of cycles in NdPr, you know, and sort of the imminent cyclicality that will happen. You know, if there were a price spike, you know, back to, say, $100 a kilo, does that change anything that MP is doing?
We are trying to always run the business and, in particular, position the balance sheet to be sustainable and to grow through cycle. So, you know, fundamentally, what you saw us do in March, for example, in terms of our convert refinancing and significant buyback, I think was a reflection of our confidence in our execution, but still a real eye towards conservatism on our balance sheet, right? You know, we are, at this point, effectively net debt neutral. I think we, you know, fundamentally believe that for a business like ours, where even with growth and profitability in the magnetics business, you know, fundamentally, the operating leverage is in the commodity price. And so adding incremental significant leverage on the balance sheet with the earnings mix as it is, often does not make sense.
So I think we've always tried to have an eye towards a, you know, a full cycle approach, answers that make sense in all market environments. Because, you know, I believe our shareholders should feel that confidence that when prices go up, they will reap those benefits. And so from that perspective, the answer is no, it wouldn't change anything. I would point back to, you know, my comment a minute ago in terms of pace and, you know, daily decision-making from a separations ramp perspective. We've been very clear, price is a factor. And so, you know, if we wanted to push, push, push, you know, that would be an element of our decision-making on a daily basis. But these things also... You know, it takes time. You know, we've talked about supply chain.
There are some limitations that have nothing to do with price. And so that, that's generally how we think about it.
I know we're a bit over time here. I do wanna extend my thanks to you, Ryan, to you and the team. Thanks for joining me this morning. Thanks for everyone on the line.
Thanks, David. I appreciate the time.
Best of luck out there. Thanks, Ryan.
Appreciate it. See you guys.