Thank you very much. Happy to be back here now with Jim Litinsky, Founder, CEO, major shareholder of MP Materials. Great to have you here again.
Thank you, Carlos. Good to be back. I think this is the 4th year in a row.
Yeah, exactly.
Yeah.
So looking better, the conference keeps on expanding, so really- Yeah really happy to have you here. So look, let's just set the stage. You guys, I don't know how many people are truly familiar with the operation. Maybe a little bit of an overview on your efforts to, you know, bring back the supply chain of rare earth and magnets in the U.S.
Sure. In really simple terms, we are a rare earth mining and materials company. There are three stages to our business. There's rare earth concentrate, we then refine those rare earths, and then we turn them into magnets. The magnets are for high power, high-powered magnets for EVs, hybrids, wind turbines, drones, robotics, any kind of electrified motion. So if you go back historically, you know, I founded the company. We bought the assets back in 2017. We took it public in 2020. And at the time, we were a Stage I business. We were mining and concentrating, and selling all that material to China. We've since moved downstream. We have two major steps that we have done.
Our Stage II business, which is refining, and we are now ramping up that refining at scale. And then we also have a very substantial contract with General Motors to be the key supplier of magnetics for their Ultium platform, and which is their electrification platform. And we built a magnetics facility in Fort Worth, which I'm sure we'll talk about, and that building is built, and we expect to be selling metal to them by year-end, and making magnets for them by next year-end.
Great. And so look, before we get into some of the details of the company's operations, let's talk about the market.
Yeah
NdPr prices, you know, 70% down year on year, significant headwinds for all in the industry, but recently, seems that,
Green shoots
Maybe we saw the bottom and things are moving in the right direction. What do you think that is? I mean, maybe a little bit of a recap, what brought the prices down, and what are you seeing now? What are the green shoots, and you know, do you expect that this is just the beginning of a-
Sure
rally?
Sure. And just to provide context to the NdPr, which is the key magnetic commodity that we make, the prices are down about 70% from the peak in 2022. And so, believe it or not, there was a time, two years ago, when electrification was what AI is now, sort of the excitement of the market. And so back then, obviously, there was. You know, the pendulum was totally the other side of where it is today, the belief that electrification was growing extraordinarily fast. There was a huge bid for all of the EV commodities, and prices had moved up with the expectation that a lot of supply needed to come online.
Fast-forward to today, we've seen significant economic challenges in China, which have brought the prices of commodities in general down, but specifically with you know, demand issues around EVs, has brought a lot of these commodities down. What separates our commodity is sort of unlike some of the other materials that feed into this sort of exciting growth supply chain. Historically, NdPr, or as it stands today, is about 28% of demand is e-mobility. So think of it as sort of, you know, any kind of EVs, hybrids, et cetera. The other 70%, though, is sort of think of it as levered to Chinese manufacturing. It might be HVAC, disk drives, consumer electronics.
And so over the last eighteen months, as we've seen a lot of that stuff really get hit, the impact on 70% vastly trumps the growth on the 28%. Unlike the others, though, where they might be, you know, all focused on EVs or significantly focused on EVs, we have a couple things that I think are causing demand green shoots. One, or a few things really is, one, the dramatic move down in China has at least stabilized because it's stabilized at a pretty terrible level, but it is. The derivative has stopped moving worse. Additionally, hybrids are good for us, and so what I mean by that is, we don't- we're agnostic.
If we were in a 100% ICE world today, and we went to a 100% EV world tomorrow, we've historically said that that 100% EV world tomorrow versus a 100% hybrid world, hybrids would utilize two-thirds of the incremental rare earth content, magnetic content that an ICE vehicle would. But what we're actually finding in some in a lot of the demand in China, is that the hybrids are bigger vehicles. They're SUVs that... So we're actually seeing that it's actually somewhat agnostic between sort of a hybrid car versus an EV as far as incremental demand of NdPr from our standpoint, coupled with the fact that we're seeing hybrids really grow.
I think this past month, Ford said that their hybrids were up 50% year-over-year, and so we're actually, that EV piece is moving, is actually growing nicely. And so that's a good thing. I think unlike some of the others, we're agnostic to hybrid, which is good. And then lastly, and again, I think this is, and hopefully we'll get to talk more about this later, we are seeing sort of some of this excitement around AI is around physical AI, robotics.
I want to caveat all of this. This is sort of certainly a longer term thing, but whether it was Elon Musk yesterday at the All-In Conference or in some other events or some of these other exciting robotics companies that we're seeing, robotics is effectively sub 1% demand today in our space. But the magnetic content, if you think of a robot, it's really just the actuators are rare earth magnets. So a robot is a small battery and lots of magnets, versus an EV, which is a big battery and a small bit of magnets. So again, five, ten years out, the scale of demand in our space for robotics is going to vastly exceed what the size of the market is today.
And so that is actually considering the fact that it's a multi-year process, you know, five, ten years to bring a project online. That is another backdrop that is extraordinarily bullish for long-term demand. Again, that, you know, is not the next three or six months, but that's another thing. So add all that up, I think the demand feels good for the medium and long term, very good.
And then supply, the last thing I would say, is a few weeks ago, there was an announcement that the Chinese quota was sort of lower than people expected, and there's a perspective that you know, the Chinese are realizing they're losing money at current prices, and particularly given some of these demand items that I talked about, that maybe they want to get some more supply online over time, and so that prices have bottomed and have started moving higher, so we're excited about that. Again, I caveat it with commodities are commodities. We never know what's gonna happen next.
There is an old expression that, you know, prices in China are either going up or they're going down, and now they seem to be going up, and so hopefully this is the beginning of a long-term trend that's good for us.
Yes, I know there's a reason I'm losing all my hair, trying to forecast commodity prices. But, so all right, so now let's back-
Most of it. Doing okay.
I haven't seen it from here. If you would... Now let's bring it back to the company, right, so you mine, you produce concentrate. That has gone phenomenally well for the most part. You had a little bit of a hiccup last quarter. Then refining right now, and also magnetics, and, I don't know, metal magnetics, later on. Give us an update on Stage II.
Uh, sure.
Where are you at? When do you expect to hopefully get to the 6,000 tons per year run rate? I think you are forecasting around 400,000 for the third quarter in terms of production. So I don't know, just give us-
Yeah, sure
... an update on that second step of the supply chain for you.
Sure. So as a concentrate producer, we're really the low-cost producer of the world. We have an enormous amount of gross margin. You know, if we, if we just chose not to refine and do nothing, we can just mined and sold a concentrated product, we make a substantial gross margin. Then, as you move downstream, there is quite a large amount of potential dollars of incremental contribution, but it obviously depends on where rare earth prices are. And so what we've said is, as we begin this ramp, that given that prices of the commodity have collapsed, you know, 70% from where they were before, that the vast majority of our profits are earned in our Stage I, and we've got to get costs down in our Stage II to have that incremental profit.
And so if you look, what we said, if you go back a few quarters ago when we started commissioning, that because prices were so low, and obviously the vast majority of the margin is in the Stage I, we wanted to be really methodical about how we ramped, because it didn't make sense to just ramp maniacally for no reason and burn a bunch of cash. We wanted to. There were a number of things that we identified that we thought would sort of bring costs down, and so we took that cautiously.
If you go back to this last quarter, which you referenced, which I think it's fair to say, is probably the only, and we'll have them in the future, but it was really the only tough quarter we've had relative to the street since we've been a public company for four years. And hopefully, you can verify that, right? But it was a tough quarter. We had an extra couple weeks of shutdown because of a couple of rakes. It just unfortunately broke in a big thickener, and we had to clear it all out, and so it was sort of a tough operational quarter. Again, one in four years, maybe hopefully, if we do one in the next four years, that's great.
Despite that tough quarter, we went from what was essentially a very low amount of refined NdPr produced to 272 tons. So to put that in context, that 272 tons, and then we also said on the call that when you look at this quarter, so the quarter that we're in now, that we expected 50% sequential growth quarter over quarter. Do that math, 272 times 1.5, that puts us over 400 tons. That puts us close to a 2,000 tons run rate, which is on the way to 6,000 normalized. Going from sort of effectively 0- 2,000 tons run rate in a few quarters is an extraordinary feat. I mean, that is a...
In our space, you can speak to this certainly because you know how the scale of these assets. And so we feel really good about that ramp. I mean, execution-wise, it's going really well. And you know, we're each day, our confidence grows. It's a knife fight, I always say. There's two steps forward, one step back. We said on the last call that you know, we were coming out of last quarter at record levels of production. Nothing has changed on that front. And so we feel really good about that execution. And obviously, you know, our cost structure for the Stage II piece of the business is materially higher than where we believe it will end up, and that's because we're scaling that business up. In the meantime, though, may...
You know, this might not help those that are kind of thinking about doing the math this quarter or next quarter, but the really big inputs when you think about kind of what is the long-term enterprise value, profitability, et cetera, are, you know, that upstream REO is how much REO are you feeding into that, and then how quickly are we getting that cost structure down? And so, you know, what our cost structure was on 270 tons versus what should be, you know, 1,500 tons is not that's just noise, right? What's really important is, you know, are we getting that REO production? And we can kind of talk about our Upstream 60K, where we believe we're growing our REO production upstream, and so that is trending very well.
Again, the cost structure is coming down, and so we feel really good about that.
Great. Well, maybe, why don't you talk a little bit about this great brownfield expansion to 60,000? You know, it is obviously very potentially attractive in terms of returns. Before we talk about Stage III, why don't you,
Sure, yeah.
Talk a little bit about that.
So just to provide context for those who don't know, when we went public back in 2020, we said, you know, our expectation is we can be doing north of 40,000 tons of REO, you know, over time, annually. That was sort of, you know, where we were kind of run rating hoping to get to. We've sort of since blown past that, but we came out and said what we said back then was, "When you look around the world, we expect a lot of demand growth. We want to create value, obviously." The nearest term, lowest risk, highest return on capital source of incremental supply would be brownfield expansion in Mountain Pass, and there were a number of projects that we're working on.
Upstream 60K is really a name that is applied to a number of projects at Mountain Pass. It's not just, like, one thing where we're building this one thing, and then it's a number of things. And we did quite a bit of work on that prior to sort of announcing this Upstream 60K concept last year. And what it was, is that we would be able to grow REO, Upstream REO, from 40,000 - 60,000 over the next 3-4 years, with $200 million of capital spent back, you know, sort of backloaded towards the latter part of that. And so we've seen real progress on that front. We feel really good about that.
If you think about that math, even at today's very depressed prices and even you know where we're just running. We have our enterprise value's called a little over $2 billion, and so if we can grow that by $1 billion at troughs, and you know our enterprise value a couple of years ago was $10 billion. So if you say the range of a 50% increase is $1-$5 billion of enterprise value creation, and you can do that with a couple hundred million bucks, you don't need a spreadsheet for that kind of math. And so that's great, and you know that is trending really well. And you know hopefully we'll continue to talk about that in the coming quarters.
All right, and so Stage III, you have been hiring a lot of people in that for that facility, you're getting some prepayments from the government and customers. So everything seems to be moving along quite well. But you know, any other details.
Yeah
that you want to share with us?
I'm glad 'cause I'd really like to talk about this, because I think there's a bit of a misunderstanding on our Stage III business. When you think about magnetics, you know, we take our refined rare earth, and then we send it downstream to... It has to be metallized and then turned into a magnet. And we think about our Stage III business totally separately from a business return on capital standpoint. And before we did anything, before we even hired an employee into that business in early 2021, we said: We're not going to rob Peter to pay Paul, that this business, if we're going to go into this business, it needs to have attractive returns on capital. And so fast-forward to today, we hired our first person in early 2021. We now have 90 people in that business.
We signed, you know, an excellent contract with GM, and we have a contract, we have contracted cash flows, and so we've invested, and you can deduce this from what our historical capital spend is and what we've said, but I'll summarize. You know, we have hundreds of millions of dollars invested in that business that will be coming back to us, plus a return on capital, if we do nothing, if we get no more customers, if we don't grow that business. And so, what I think the market is misunderstanding is that we're not going to incrementally, we're not going to continue to allocate new capital and do new things in that business if we're getting extremely negative value for it.
So today, if we wanted to, and we do nothing, we have, on an undiscounted basis, hundreds of millions of dollars. We've got to execute, right? We can't just-
Yeah.
We've got to execute for it to come to us, but these are, you know, contracted cash flows that return our capital with a return on it. And so if you look at our enterprise value today and think, "Wow, on an undiscounted basis, there are, you know, hundreds of millions of dollars coming to us," and then you look at our balance sheet, it doesn't fit. And so I think we're. You know, obviously the market, you guys, are telling us that there's significant negative value to that business, and I'm sitting here looking at it, and you know, given what I see, I think you're wrong.
When do you expect... Any comments you can make on when you expect to get to a run rate, steady state?
Yeah
... in Stage III?
Yeah, and so, and I didn't answer the other part of your question, and which is about milestone payments. We've already collected $50 million, and so we've been really thoughtful about sources and uses in that business. We said on the last call, we expect to collect another $100 million of milestone payments, call it. We said we have $190 million of sources of those payments plus some tax credits by year-end next year. So call it in the coming, you know, couple of quarters or so, we expect to collect $100 million into that business for milestones, and we've said, you know, we expect to be selling metal by year-end and making magnets by next year-end. And so we feel really good about that business.
Obviously, once we're selling metal, we expect to be EBITDA positive in that facility, you know, quite soon. When you think about that, it is a really extraordinary achievement. This was a business that didn't exist. We didn't have a single employee in it a few years ago. It was a. The site was an empty field two years ago. Now we have a, you know, a very attractive contract and foundational customer and, you know, one of the best possible customers you could have. We've got a built facility, and we are bringing it online. Despite you know, all the chaos of the pendulum that has swung in the market, the execution there by our team in that business has been just extraordinary.
And given the timetable that you described and the confidence with which you're talking, is it fair to say that the concerns that have been out there on the IP and the technology, you know, those should-
Yeah
should be put to rest, and you have what you need, you're ready to go?
Sure, so to be clear on the confidence, you know, I want to caveat everything we must execute. We approach this in a very humble manner. We need to execute, so, you know, hopefully, you can. Hopefully, what you're seeing is passion, not necessarily extreme confidence. A lot of passion because we feel like what we've been building out there is really incredible, but the IP issue, we've been focused on this from the beginning, from the first hire, and when you think about the IP in the magnetic space, whether it's patents that have expired, patents that are soon expiring, white space, this has been a focus for three years, and that is an area where I will say we feel very confident.
We have everything we need from an IP standpoint to produce magnets for obviously our big foundational customer, GM, and to achieve everything that I've just said with, you know, what we have today.
All right, and then to get talking about the OEMs and your customers from that metallic, you know, metals, magnets, magnetic business. What can you tell us in terms of the conversations that you may be having with other OEMs? Clearly, there is a geopolitical aspect also to it, and supply chain security that is quite relevant. We haven't seen any other projects or contracts, let's say. So any conversations, anything that you can share with us as to, like, how successful or have you been to-
Yeah
in attracting other potential customers?
Sure. So a really important point that maybe wasn't highlighted enough in the last quarter. I mean, I think you made this point, but that upstream from the magnetics business first, feeding into that, is that we said on the last call, and by the way, I think we even tweeted this, so you should all follow us on X, 'cause we do tweet fun things, so we wanna, you know, continue to send stuff on that, so you should look out for that 'cause we do make some interesting points on there, but we said we now today have three of the five largest OEM automakers in the world as customers.
And if you go back to a couple of years ago, at the peak of the boom, there was this belief that maybe the downstream OEMs would sort of look up the supply chain and sort of there was a question like: Will they care? What will they do? Blah, blah, blah. Because they didn't even know where their material came from, right? They were all buying magnets in China. And now what we're, you know, fast-forward, now that we're refining, we're making metal in Vietnam. We haven't talked about that, but we have three of the five largest automakers in the world. So actually, we've shown that the OEMs downstream are actually very concerned. They're looking upstream and securing supply.
And so I think that that is actually a really interesting thing that has happened, that has shown that some of the psychology, you know, it's there, right? They are very focused on this, and I think that's a really interesting thing, that maybe went a little unnoticed. But then, as we move downstream, you know what I would say? And I do think this is going to change, so I want to caveat that this will change.
But right now, the market is telling me I have significant negative value for this business, even though the, you know, the president put a 25% tariff on Chinese magnets. Even though there's clearly a supply chain issue with this stuff. Even though demand for electrification is still, and hybrid's still going great, and robotics is, you know, out there as a potential game changer. Despite all of those things, the market is saying, "You guys have significant negative value for this business, for your contracted cash flows." So my immediate response is, "Well, I'm not investing incremental capital in that business." That's what the market's telling me.
And so right now, despite a lot of customer interest downstream, unless we're doing it in a capital light, no capital way, which you could certainly see happen, you know, we're not going to make incremental investment in that business. I'd rather just buy back my stock, right? Because if my assets are trading at pennies on the dollar, and I've got contracted cash flows here on the one hand, and I look at the replacement cost of Mountain Pass, even though this business is extraordinarily bright, you know, the markets are telling me, "Don't invest in this business." So we won't. Now, that all said, I think that that's going to change in a dramatic fashion.
I don't know when, where, or how, and it's certainly possible that conversations that we have could result in something that is so financially attractive to us that it's no brainer of any of this, and so we'll do those kinds of things. But as it stands today, you know, we just won't invest incremental capital. We'd rather just buy back what we have.
I wanna come back later to the capital allocation theme. But before we go there, you touched upon the robotics.
Yeah
-angle. Can you maybe share a little bit more details as to, like, the magnitude of the potential opportunity there, the market, and how does it compare to the current existing EVs?
Yeah
-opportunity?
So, if we look around the world today, obviously, the game-changing technology is AI. That's the excitement in the markets, and I think everyone here is obviously fully aware of that. Like the internet boom twenty-five years ago, when you have these excitement phases, there's, you know, all these possibilities, there's an enormous amount of capital that goes, and then it takes somewhere in the order of three, five, ten years for the game-changing use cases that come out of it. And in that process, there's great fortunes made, there's great fortunes lost, and et cetera. And, you know, we're somewhere along that you know, trajectory with respect to AI, and certainly other people can speak to a lot of areas of that better than me.
But one of the game-changing aspects that we've seen, and this is a function of investment that's occurring from NVIDIA or OpenAI or Tesla, or Jeff Bezos, et cetera, is physical AI. That is one of the key disruptive cases that we're seeing, and specifically around robotics. And we're seeing just incredible stuff. And by the way, we're seeing really incredible stuff from China as well. And so when we think about it, it is one thing for the Chinese to completely win the EV market. It is another thing when we think about robotics pervasive around our homes, our factories, our economy. You got to think that there's gonna be American champions that wanna control that supply chain all the way through, particularly given the military aspects of it.
And so what I would say is, and sorry, Carlos, I'm gonna plug a competitor - but I think you referenced is Adamas, which is, you know, one of the focus parties in the rare earth space, does a really good supply/demand report. They just put out their report last week and showed, you know, supply/demand going out to 2040 in all of these verticals. And there was some discussion in the beginning of that report about the perspective in China is that robotics is such a game changer for demand, that maybe that's a driver of them wanting to start taking up prices.
And so my expectation is, and again, this is not gonna move the stock in the next, you know, six months or something like that, but I do think that we will inevitably see a, you know, a reappreciation for what we're doing at MP, the assets that we've built and what we're doing in our business, as it becomes more apparent that this is one of those game changer things that's happening around us, robotics. And just in case I didn't make this clear, like, you know, a robot, again, it's lots of magnets. Every time you hear the word actuator, that's a rare earth magnet. And if you think we're gonna have more robots than humans, you know, there are only 1.5 billion cars on the road. There, you know, there's 90 million made a year.
Think about billions of robots and then multiples per unit of content, and what you find is that's a bigger opportunity than EVs. EVs alone, when that gets back on track, is a huge game changer for us. So, you know, I'm really excited about it, and we're, you know, having conversations and seeing some of these companies. It's still so early. But, you know, I do think that that is gonna create... That will be the driver of the next big upcycle in our space. And, you know, obviously, Tesla talks a lot about this.
But if you think about, you know, public companies very focused in this space that are very levered to how AI is gonna impact the physical world, I mean, I think we're right there. And so it doesn't take a lot to move commodities prices, and so hopefully we see that sooner than later. But again, it's, you know, longer dated.
You know, definitely fascinating topic. But let's close out the conversation maybe talking about capital allocation.
Mm-hmm.
Your balance sheet is in good shape. You are gonna have $190 million in payments coming in the next several quarters. Your CapEx is coming down, or will coming down in also, like, say, middle of next year or end of next year. How are you gonna deploy the cash that you have right now?
Yeah
and the cash that is coming in?
Yeah. And this is, I think this is hopefully a really unique thing about us versus your, you know, a typical commodity company in, certainly in the commodity space. But if you think about the last few years, typically, you have companies in the boom cycle. They're making lots of cash. They buy back stock, they do M&A, and then in the down cycle, they're scrambling, selling off assets, raising capital, looking to do, et cetera. You know, we came to market with a fortress balance sheet. We've been consistent that we must have a fortress balance sheet in a very cyclical business. And that allows us to take advantage of when the pendulum has swung strongly the other way. And so year to date, I just think this is... I don't think I've ever seen this before.
I'm sure there's cases out there, but we have two enormous value creation projects underway. Projects, right? Spends, gotta get through the J curve, ramp up, et cetera, but create value your business, and the price of our commodities collapsed 70%, and year to date, we've bought back 8.4% of our company. 8.4%. That is really remarkable, and obviously now, you know, we still have, as of the last quarter, north of $900 million of cash on our balance sheet, and so we have positioned the company to be opportunistic on the offense, you know, at all times. Obviously, given where the commodity is, we wanna be thoughtful about, you know, what we do, how we spend.
But when you think about the verticals of our business, again, with our magnetics business, assuming we execute, there's an enormous amount of capital coming to us on an undiscounted basis over the coming years. And so certainly with where we're trading today, we're not gonna make incremental investments. We're gonna look to you know, either buy back stock, distribute that you know, distribute in dividends, or do something thoughtful with that cash. And again, as a reminder, I'm the you know, I'm the founder and largest shareholder of the company, and so we have an owner-operator culture. We try to make sure that you know, everybody is a shareholder, and so we have that mindset, and so we are maniacally focused. And again, we'll adapt.
I mean, if you asked me two years ago, I thought that we would be building a lot more because the world was changing so much, and then, you know, but you look at the world today and obviously the playbook is totally different, and so we'll be flexible and opportunistic, but one thing that won't change is that we're gonna make sure that, first and foremost, we have the balance sheet to be able to take advantage of opportunities. We don't wanna be scrambling in the down cycle.
Yeah. On that great note, thank you very much, Jim.
Thank you.
It's always good having you here.
Appreciate it. Yeah.
Love, man.