Okay, we're gonna go ahead and continue. My name is Michael Glick. I am JP Morgan's North American Metals and Mining analyst. Up next, we have MP Materials, which is the largest producer of rare earth materials in the Western Hemisphere through its key asset in Mountain Pass, California, and is working on providing a fully integrated Western supply chain, including some very interesting stuff downstream with magnets. Presenting for the company is Ryan Corbett, CFO of MP. With that, I'll turn it over to Ryan.
Thanks very much. Appreciate you guys having me. Good to be here. I'll run through a presentation pretty quickly, and then leave plenty of time for Q&A at the end. Obviously, we may make some forward-looking statements, so I'd direct you to our SEC filings for the proper caveats to those statements. Of course, we will also be referring to non-GAAP financial measures, the reconciliations to those as well in our SEC filings. I'll start overall with the market. Lately I've been calling this the Captain Obvious slide, which is that, the world is obviously rapidly electrifying. This is a snapshot of the IEA forecasts for how quickly we may get to higher share of electric vehicle penetration.
I think the important thing that I would add on to this, other than sort of the obvious story you can see from the slide, is you can take your pick on how quickly you think we'll get there. The thing that we find interesting is with the transition we've seen, and this is just EVs obviously, but in that industry, if you look at the scale of capital that's been raised and that's being deployed, as well as, you know, the announcements that you see incrementally every day on, government policies pushing forward on electric vehicles, this is happening. Supply chains are changing rapidly to be able to accommodate this really meaningful change in our industrial economy. Why does this matter for MP Materials?
We are building a U.S. rare earth supply chain to support the growth that's required in rare earth permanent magnets to drive this electrification in the electric vehicle space, wind turbine space, and really anything that requires industrial motion often has a magnet. What you see over on the right-hand side is if we were to take a snapshot of the North American automotive business and look at what it would take from a magnetics perspective to fully electrify the North American fleet, we would need 34 times more demand of magnetic materials in order to achieve that. The nice thing about where we sit in this supply chain is, from our perspective, the battery chemistries, the way that energy is stored, that technology in a lot of ways is not fully settled.
What is very well settled is how that energy is converted into motion. North of 90% of electric vehicles today have a permanent magnet motor in them. The way we think about it is really anything you can do without a permanent magnet, in a lot of ways you can do more efficiently with one. It's a nice position to be in more of a technology agnostic piece of the supply chain to power this coming growth. With the demand growth that we see on the horizon, it puts us in a position where, you know, we are in a very attractive market environment for the materials that we produce.
What's becoming clearer, and you can see it from this slide and sort of the supply-demand imbalance, if you just look at the current supply situation and how difficult it is to add incremental supply, and then importantly, looking at the slide where the supply exists, it puts us in a very interesting position where the focus of the market has quickly become security of supply. OEMs care about a lot of things, but what they are really focused on at this point is how are we certain that we have the security of supply all the way upstream to the ultimate mined material?
What I'll talk about in a moment in terms of what MP is building is we are focused on achieving a fully integrated supply chain for the Western world that really has not existed in a meaningful way for many, many decades. As you can see, we're a little bit lonely on the left side of the map here. The rare earth mining, refining, and magnetics industry has really moved completely into the Eastern world, and we are busy at work building a Western champion for magnetics. A quick overview on exactly what we do. MP Materials owns and operates the Mountain Pass rare earth mining and refining facility with a 70-year history at this site. We have, in our opinion, one of the world's preeminent rare earth ore bodies.
While there's a 70-year history, we've got a 35-year-plus mine life. We have north of a 6% ore grade. We've approached building this company in three stages. The first stage is producing what's called a mixed rare earth concentrate, which is a semi-refined product that is sent over to be further refined in Asia, primarily China. Our stage two, as we call it, is restarting assets that primarily are already built on site at Mountain Pass, which we are retrofitting to go further downstream into separated rare earth oxides. We are aiming to have that complete by the end of this year and ramp our refining facility over the course of 2023. Then we're moving further downstream into metal alloy and magnet production.
We recently announced our initial magnetics facility in Fort Worth, Texas, with General Motors as our foundational customer. Our view on this market has always been that multi-billion dollar supply chains are not going to move overnight. We have been methodical in our approach to this in being sure that we walk before we run. I think we've done that very well at the Mountain Pass asset by driving incremental productivity to the point where today we are 15% of global rare earth content produced. You know, we obviously are very focused on getting our refining facility complete and commissioned and ramped over the course of 2023.
With that, we'll bring that same mindset to our stage three business in starting with an initial magnetics facility at about 1,000 metric tons and hopefully growing that business over time. Here's a snapshot of the Mountain Pass facility. You can see, obviously, the scale that's required in order to, you know, be a large player in this industry. I think the thing that's very unique about our asset versus certainly some of the Chinese assets, you know, the market tends to be dominated in China. There are some other players ex-China, but the thing that is unique about our asset is the fact that it is completely co-located and self-contained with mining, milling, separations, finishing, all the way to finished rare earth oxides all on one site.
The other very unique thing about Mountain Pass is, you know, we start with a tremendous advantage because of our ore body. We have what's called a bastnaesite ore and a very high-grade ore, and with that, we have very low levels of naturally occurring thorium and uranium that is typically associated with rare earth mining. With that, we also have great assets that have been built on site, including a dry stack tailings facility that allows us to eliminate high-risk wet tailings ponds. We are obviously incredibly focused on how we mine and refine these materials given, you know, we're in the state of California, obviously not the easiest place to do business from that perspective.
We wear that with a badge of honor given we think that it's incredibly important to be able to grow this industry in the right way. Certainly, what we are seeing from customers and potential customers is, of course, a very significant focus all the way upstream across their value chain and understanding what are the impacts of the products that they're producing. We think we offer a very unique advantage in our ability to produce rare earth materials and create the supply chain in an environmentally friendly way. I talked a little bit a moment ago about our downstream strategy and bringing a refining facility on and moving downstream into rare earth magnets. This is just a quick summary on our latest plans here.
I won't reiterate those other than to say, one element that we haven't talked about yet is the addition to our plans of a heavy rare earth separation facility. For those of you that are newer to the magnetics business, heavy rare earths are generally lower quantity rare earth materials that are added to magnetics manufacturing generally at the tail end that support thermal resistance. This is something that we are adding into our flow sheet to be able to fully separate the heavy rare earths that are contained in our ore at Mountain Pass, as well as be able to take third-party feedstock into Mountain Pass and produce incremental heavy rare earths.
The thing that we're clearly seeing with the development of this industry is that in the same way that it's taken us time to build out our refining capability, you know, as we want to see incremental supply come online, the unique thing about being able to take third-party feedstocks in, which we will do as we add our heavy rare earth separation capability, is we can play a real role in enabling other potentially subscale projects that don't support the billions of dollars that are required in capital to build out their own separation facility. We'll be able to take intermediate feedstock similar to what we're producing today into our own facility and support growth in the industry, from that perspective, which we're pretty excited about.
Just quickly on the initial magnetics facility that we talked about, we've broken ground and are making great progress on that. The initial design capacity is 1,000 metric tons of NdFeB magnets. What that means from the perspective of vertical integration at that production rate, that would consume less than 10% of our upstream NdPr oxide capacity from Mountain Pass. That gives you a sense of our ability to grow very significantly downstream over time, you know, as we sort of dial in our processes. Again, as I mentioned, we've approached this pretty methodically in a walk before we run mentality, similar to what we did with the Mountain Pass asset, and that's obviously what we're doing here.
We're very excited about our long-term agreement with General Motors as our foundational automotive customer. Our target is to be supplying them with alloy flake in late 2023 and finished magnets in 2025. I won't go through these. These are just a few snippets from our most recent earnings deck. I think the punchline here on these slides is obviously in a challenging economic environment, we've been able to continue to execute, but from a production and cost perspective and maintaining cost control, and driving incremental productivity from our existing assets, it's certainly something that you know, we are very focused on. Our primary focus at this point for the remainder of the year certainly is getting our stage two assets ready to come into service. That is the priority.
Certainly, we've been able to demonstrate over time our ability to grow production from our current assets and maintain cost control in our business. That obviously translates into you know, exciting growth that we've seen from a revenue and adjusted EBITDA perspective. The pricing environment in our core commodity certainly has been very strong given the supply-demand dynamics that everyone sees in the market. And so that has translated to very strong financial results. The other thing that's unique about, I think, the way we've approached building this business, as I mentioned, sort of you know, with the staged approach, is our current business is generating significant free cash flow that we are reinvesting into the business to move downstream.
This is not a, you know, big bang. We don't have a cash flowing asset, you know, and we're putting, you know, hundreds of millions of dollars on the ground. We have a very strong, highly cash generative business in the background, if you will, as we deploy all this capital. You know, certainly all of the learnings that we've been able to bring to bear from building out this stage one business have made us stronger, both financially and operationally, as we embark on our downstream expansion strategy. With that, I will take a seat, and you can fire away at me.
Yeah, sure. You know, how should we think about progress on stage two? You know, what are the key gating items left to accomplish before you're online?
Sure. The good thing about stage two, certainly, I think we get a lot of questions about permitting and those sorts of things. Because we are recommissioning a facility that was built in the 2010 timeframe, you know, the predecessor who operated the facility spent $1.7 billion on these assets. We inherited all of the operating permits and are leveraging the vast majority of that invested capital. What the stage two plan really is building in some changes to the flow sheet that we sort of think about as almost a back to the future, if you will. The concept of roasting bastnaesite ore, rare earth bastnaesite ore, was pioneered at Mountain Pass many decades ago.
That's the critical change that we're making in stage two, is bringing back the roasting stage that was not built out under the prior operator. We're building out that capability at scale, and then we're also bringing two other critical elements to bear. One is product finishing capacity for the scale that we are at. You know, we're producing north of 40,000 metric tons of rare earth oxide and concentrate. The predecessor, when they went public, had targeted 20,000 as their stretch goal and never got close to that. We're producing far, far more material than they had planned for, and that they had built finishing capacity for. We're building out that incremental finishing capacity.
Then finally adding redundancy all the way at the tail end of the process to deal with waste brine. We're building a salt crystallizer and brine purification equipment in order to properly deal with the waste discharge at the tail end. All that's to say that those are sort of the three critical vectors. We've made really good progress in getting that done. We've talked on our earnings calls about you know obviously everyone hopes that things would go faster. COVID you know has done what it's done to supply chains and to labor.
We still, from everything we see right now, we still think we will complete the facility at the end of this year, and the changes to the facility, and then begin ramping over the course of 2023. Our goal is to hit our full run rate capacity in 2023, which would be just north of 6,000 metric tons of NdPr on a run rate basis. You know, from our perspective, we've been at this for a long time. You know, we feel good from a procurement perspective. You know, all the long lead equipment is on site, all that sort of good stuff. Really what it's about at this point is getting it, you know, getting it built. Pipe fitters, ironworkers, those sorts of things.
We've had a really significant ramp in craft on site, and I think we'll continue to see that. What it's really about for the rest of the year is just getting construction complete and, you know, then we'll turn our focus to commissioning.
You know, once it is commissioned, I mean, how do we think about the ramp up next year? Is it fairly linear or, you know?
You know, what I'd say is the nice thing about the fact that we are retrofitting existing assets is if you kind of look at the history of other rare earth plants, you know, certainly greenfield plants, not that there's that rich of a history, but if you know, if you look at those, obviously those have taken many many many many months to get up and running. The nice thing is, with Mountain Pass, we shut down our solvent extraction facilities mass balanced. That oftentimes is one of the issues that adds many months to a ramp process.
While we certainly have new circuits that are going to need to get charged, and are going to need to, you know, balance themselves out and feed their way through the rest of the cycle, you know, I think that gives us a head start. That's not to say that it's not gonna take, you know. It certainly will take time to get things ramped and dialed in. It's something that certainly as we get closer to commissioning, we'll continue to keep folks updated on, but it will be a process to get it up and running over the course of the year.
How do we think about the timing of the heavy rare earth separation in stage two?
Sure. You know, we recently made that announcement, you know, that we had partnered with the Department of Defense to bring the heavy rare earth separation capability at Mountain Pass. You know, that, from our perspective, is a critical element of the downstream expansion strategy. The way we think about that is, you know, as we look at bringing stage two, you know, ramping that through 2023 and then delivering our initial alloy out of stage three at the end of 2023, you know, we've given ourselves some time before we're producing finished magnets out of Fort Worth. What we've said is that we expect to be able to be delivering heavies into our magnetics facility to support that ramp of magnetics in 2025.
Mm-hmm.
That's sort of what we're aiming for from a timing perspective to be able to support our magnetics capability.
Was that Department of Defense funding through the Defense Production Act that President Biden had invoked, or are there other opportunities for government funding for some of these projects?
Yeah. I think you've seen a very significant focus from sort of, you know, whole of government on this supply chain. Certainly, you know, we appreciate the support and engagement from DoD. You did see the presidential directive from Biden. You saw multiple presidential directives from Trump as well.
Mm-hmm.
You know, I think it's one of those unique things that is, you know, very much bipartisan. You can think about it from, you know, the pure national security standpoint, where obviously these materials are found in, you know, a whole host of things that are critical for our national defense. You know, it's also really a commercial national security thing. It's about, you know.
jobs and American manufacturing as well. There is a real bipartisan focus on supporting this industry. Our support to date, you know, directly with the government, you know, in terms of monetary support has been with the Department of Defense first through Title III and then through the IBAS program through DoD. There was support for our light rare earth for what we call stage two, and there was support as well for the heavy rare earth facility. I think it's really just important. You know, I think it's great in the sense that it certainly not only improves returns for us, but it sends a critical message about, you know, how serious our government is taking this.
You know, certainly we hope to continue to engage with DoD and others, particularly as we move downstream, given how critical building out capacity for magnetics is going to be. You know, I also think that there's been a renewed focus on this, not just from the executive side, but from the legislative side.
Mm-hmm.
You know, that's an area that we think could be very interesting. I think that lawmakers are really starting to understand the industry quite a bit better, and that's helpful. You know, given our growth over time, and our, you know, our anticipated future growth, I think that the focus on the industry is going to increase and the sort of, you know, former defeatist attitude of, "We can't do this here," is certainly going away. I think that the focus has been how do we ensure that we do this here and we do it in the right way, and we incentivize supply to come online. We've seen some, you know, interesting things come out of various parts of D.C. on that, and hopefully that'll continue.
Could you kind of speak to your ultimate downstream ambitions? I mean, using less than 10% of your volumes initially, how much do you wanna grow that? You know, what gives you a competitive advantage in moving downstream?
Sure. Like I've said, we'll walk before we run, but we've also said that we would not be completely surprised if at some point you wake up and our downstream business is bigger than our upstream business. I think that if you think about the way OEMs go about, you know, not just automotive OEMs, wind, you know, you name it, have purchased these materials. They're used to buying magnets, right? They're not used to buying oxides.
They're not used to buying metal. They're not used to buying alloy. They're also not used to worrying about if I go and contract for magnets, do I know that the magnet manufacturer is going to have access to raw materials?
You know, what we've seen from, you know, the craziness in supply chains over the last couple of years has completely changed the game in terms of the way, the ultimate consumers consume this product. I think that from a competitive advantage standpoint, access to raw material is critical.
Mm-hmm.
I think that is one of the absolute top priorities for any customer when they're looking at, "How do I acquire magnetics?" I think that that's really, you know, really important. I think the thing that I'd say on that though as well is we do not intend to look at our upstream business in any way subsidizing our downstream business. We've been very clear that the returns of our upstream business are very attractive. We intend to maintain those returns. We think that our push into the downstream has very attractive standalone economics that do not rely on the fact that, you know, we would subsidize in any way, our downstream business with our upstream material. Not dissimilar to the upstream business, the downstream business ultimately is going to be a game of scale.
Given the tremendous scale that we bring to bear upstream, you know, that is certainly our goal downstream, is to continue to build on our capability, and as we do that, hopefully come down the cost curve really rapidly. But I think that what we've seen from customers is an acknowledgement that this function, this piece of the supply chain is absolutely critical to have in the Western world. You know, the processes for doing it, you know, electrowinning and making alloys and sintering and making finished magnets, it's, you know.
It's certainly different than, you know, rare earth beneficiation and solvent extraction and all those sorts of things, but these are processes that are done discreetly either in other industries or in other ways, you know, in the Western world, but not all together under one roof. I think the thing that is going to be really interesting and that is going to give us a tremendous competitive advantage in the magnetic space, and it speaks to one of the reasons that China is so dominant right now in the magnetic space, is having all of the pieces of the supply chain in one place, and then being able to leverage the enhanced economics of recycling waste material from production into the right spot in the flow sheet to come down the cost curve as rapidly as possible.
To give a more specific example, while China has you know significant access to upstream raw materials, and they've got you know a dominant downstream business, what they've developed is a healthy market for what's called swarf, which is really just waste that comes off of the magnets manufacturing process, to be able to monetize that waste to lower the cost of production of you know each individual magnet. Usually, those businesses are not necessarily under one roof, but there has been you know there is a real sort of liquid market there for that swarf that gets recycled back into you know NdFeB oxide and metal and alloy back into the process. We will have it all under one roof.
What we'll be able to do is take the waste off of the manufacturing process in Fort Worth, and if it makes sense to recycle it back into the melt or, you know, at Fort Worth in the metal process, or if it makes sense to send it all the way back to Mountain Pass. Part of the capability that we've talked about that we're bringing to bear with the heavy rare earth separation assets is recycling. We'll be able to take that magnetic swarf and recycle it back into NdFeB oxide and send it back through the process. Having that capability is a tremendous competitive advantage that you would not get as a standalone magnetics manufacturer without the upstream capabilities that we bring to bear.
You know, more on the downstream side, I mean, you know, GM is a kind of anchor customer. I mean, are you seeing interest from other potential joint venture partners or customers?
Yeah, we're seeing a lot of interest. You know, you can imagine we're having a ton of conversations. With the scale of our initial facility, we're obviously being pretty selective. But we see really good engagement across the board, you know, not just with the types of customers that would be obvious EV manufacturers and wind manufacturers. Magnets are found in a whole host of things. I think that there are a lot of industries out there that are looking at this and having sort of the same realizations that I talked about a moment ago about needing to be sure if they're going to be there for their customers, that they know that they have access to magnetic materials. It's not about, you know, anti-China or anything like that.
It's if it were concentrated in any one country, you know, the desire to have some level of redundancy, and a more vibrant supply chain, you know, makes a ton of sense in the world that we're in. We're seeing a whole host of demand for that. It's been pretty exciting.
You know, could you just maybe speak to your position financially for your growth projects? I mean, do you see any need to bring in outside capital?
We have been pretty methodical about being sure that we are capitalized to execute on this growth plan. I think also, you know, what I talked about is one of the unique things here is while we are in growth mode and we're deploying a significant amount of capital, we're also generating a significant amount of free cash flow or operating cash flow that we're reinvesting into the business. From what we see right now, you know, we don't see any need to raise outside capital. We've got $1.2 billion of gross cash on the balance sheet. You know, we raised a convertible in March of last year. You know, excuse me.
With that, with you know, the cash flow of the business and the capital plan that we laid out, which, you know, we talked about a couple earnings calls ago of investing $700 million over the next several years into completing stage two, bringing stage three online, and bringing the heavy rare earth capability online. You know, certainly you can do the math on what our cash flow is and sort of how we're capitalized, and you can see that, you know, we'll come out the other side of that with a tremendously strong balance sheet intact.
Just on your upstream assets, I mean, is there the ability to continue to grow volumes there?
You know, what we've said so far on that is that we don't believe. I mean, obviously, we're gonna get stage two commission and, you know, we'll see. You know, proof will be in the pudding. You know, we don't believe at this point that the bottleneck to adding incremental supply or incremental volumes is going to be the refining assets. You know, what that means is that, you know, we could certainly and always are consistently thinking about thoughtful ways to bring incremental volumes online.
You know, we've also said that as we look at that, you know, looming supply-demand imbalance, it's certainly a good market opportunity and speaks to, you know, the strength in pricing that we've seen and the strength that, you know, we, you know, I'd certainly anticipate to continue given the supply-demand imbalance. It's no doubt there is an opportunity for us to look at, you know, high return projects to drive incremental volumes from Mountain Pass. That's something we think about a lot.
Okay, great. I think we're out of time, but on behalf of JP Morgan, thank you all for coming, and appreciated the presentation.
Thanks.
Thank you.
Appreciate it.
Let us start that.