Good afternoon, ladies and gentlemen. Thank you for attending today's MP Materials Fourth Quarter and Full Year 2022 Financial Results. My name is Tia, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to your host, Martin Sheehan, Head of Investor Relations with MP Mater ials. You may proceed.
Thank you, operator. Good day, everyone. Welcome to the MP Materials Fourth Quarter and Full Year 2022 Earnings Conference Call. With me today from MP Materials are Jim Litinsky, Founder, Chairman, and Chief Executive Officer, Michael Rosenthal, Founder and Chief Operating Officer, and Ryan Corbett, Chief Financial Officer. As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation, earnings release, and in our SEC filings. In addition, we have included some non-GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings release and the appendix to today's slide presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA.
Finally, the earnings release and slide presentation are available on our website. With that, I'll turn the call over to Jim. Jim?
Thanks, Martin, and thank you all for joining us today. Let me start with an overview of today's call. I will begin with the highlights of the year. Ryan will then review our financials and KPIs. Michael will then provide an update on our Stage Two optimization at Mountain Pass. I'll return with a brief update on our Stage Three magnetics business and some closing comments, and then we'll open it up for Q&A. Let's get started on slide 4. Since founding MP in 2017, and in our two-plus years as a public company, we have been unwavering in our mission to restore the full rare earth supply chain to the United States, and we made substantial progress on our mission in 2022 and so far in the early part of this year. Operationally, the team executed. We produced and shipped record volumes again in 20 22.
Mining and ore delivery outperformed our updated mine plan. Maintenance teams stayed focused and relentless, which was reflected in outstanding uptimes. The Stage One operations and engineering teams continued to drive improvements in mineral recoveries while also increasing our feed rate into the mill. Execution at this level requires lots of unsung heroes working in tandem, taking on challenges, anticipating future ones, and ultimately thinking like owners. To the entire MP team, we stayed safe, and we had another excellent year. Great job, and thank you. For 2022, the price of NdPr oxide, and therefore our concentrate product, improved nicely versus the prior year. The combination of better realized pricing and the record volumes produced by the team resulted in a 59% increase in revenue and a 77% increase in Adjust ed EBITDA.
The Stage One business generated $353 million in normalized Stage One free cash flow. That is a 67% cash flow margin just for the Stage One business. The Stage One business, therefore, generated more cash flow than our entire capital expenditures for the year, most of which consisted of our significant downstream investments towards Stage Two refining and Stage Three magnetics. We believe these transformational moves to achieve our downstream mission will improve our profitability, reduce the volatility of our business, and significantly expand our long-term enterprise value. Our ability to pursue such an important and exciting opportunity while self-generating the resources needed to do so is amazing. More importantly, it means we continue to maintain our fortress balance sheet with over $1.2 billion in gross cash and roughly $492 million of net cash at year-end.
In a rising cost of capital and bifurcating economic environment, platforms with a high return on capital opportunity set and a capital structure like MP's are scarce. As I always say, we must execute, and I am proud of what the team has achieved recently. We started commissioning our Stage Two assets late in the third quarter and began producing roasted concentrate in the fourth quarter. These were critical first steps in the complex Stage Two commissioning process. We also advanced the heavy rare earth separations project at Mountain Pass with continued progress on the front-end engineering design and long lead procurement. To remind you, the heavies project is the one where we were honored to receive a $35 million grant from the Department of Defense, which was announced live by the President of the United States himself last February. Next, our Stage Three magnetics efforts are accelerating.
Recall that at the end of 2021, we reached an agreement to supply General Motors with NdPr alloy and magnets to support their entire Ultium EV platform. We signed the GM definitive supply agreement and also broke ground on our initial magnetics facility in Fort Worth early in 2022. We have made rapid progress, and our goal remains to begin delivering alloy to GM late this year, followed by magnets in 2025. Finally, earlier this week, we announced a distribution agreement with Sumitomo Corporation. Japan is the largest producer of neo-magnets outside of China and thus the largest market for refined NdPr products outside of China. Sumitomo will serve as our exclusive distributor of NdPr oxide in Japan, and we will collaborate with them on the supply of rare earth metals and other products.
We believe this agreement is an important and beneficial development as we now position for Stage II sales. There were many other success stories of the company throughout 2022, including the extension of our positive environmental and safety record, the creation of over 120 new jobs in California, Nevada, and Texas in support of our mission, and the publishing of our inaugural ESG report. All in, we have been busy. I will have more on Stage III and market view shortly, but first, let me turn the call over to Ryan to run through our financials for the year and quarter. Ryan?
Thanks, Jim. We'll turn to slide 6, and as Jim highlighted, 2022 was another very strong year of operations for the company. Our production volumes increased for the 4th year in a row to a record 42,499 metric tons of REO and concentrate. The operations and maintenance teams continue to perform with our uptimes remaining at roughly 95% for the 2nd year in a row. In addition, we continue to improve our throughput while optimizing our mineral recoveries. We believe there is incremental room for improvement here, but in the near term, the majority of our focus is on commissioning our Stage II assets. We shipped a record 43,198 tons of REO and concentrate during the year, a 2% increase over 2021. The increase is generally due to the timing of shipments.
As a reminder, concentrate shipments have generally tracked our production volumes over time. Moving forward, there will be some lumpiness as we transition to Stage II products, which I will discuss in a moment. On the top right chart, you'll see that our realized price per contained REO ton increased 55% to $11,974, driven primarily by the strong demand for NdPr feedstocks in the market. Despite Chinese macro volatility over the course of 2022, continued EV penetration supported rare earth pricing. Lastly, on the bottom right graph, our production costs, when excluding the ramp and expenses ahead of our Stage II commissioning, increased a little over 5%. Despite some fairly significant inflation in 2021 and 2022, we were able to increase production efficiencies enough to maintain a fairly flat cost per ton for our concentrate.
Note that this operational KPI, as reported, focuses purely on our concentrate business. We will evolve these KPIs over the course of 2023 as we ramp our downstream products. Moving to slide 7. On the top left, you will see revenues increased 59% to $527.5 million, driven by the P times Q effect of both higher realized prices and slightly higher shipment volumes. Given the significant operating leverage we get from higher pricing, you will see on the top right that our adjusted EBITDA increased 77% in the year. That impact is also shown on the bottom left graph, where our adjusted EBITDA margin increased 8 percentage points to 74% in 2022.
Finally, on the bottom right, the significant impact this leverage creates on adjusted diluted EPS, which increased over 102% to $1.68 per share. I will discuss some discrete tax items that impacted Q4, but for the full year, our strong earnings demonstrate both our enviable operating leverage and cost structure, but also our strong tax position as a domestic producer of critical materials, which will only get better as we transition to stage two and take advantage of some of the benefits of the IRA bill. Moving on to slide 8 and our fourth quarter operational KPIs, you will see in the bottom left that our production remained strong in the quarter, up 2% versus last year at 10,485 metric tons of REO.
Keep in mind that we have a regular one-week maintenance shutdown early in the fourth quarter, which was the driver of the 4% decline in sequential production. Sales volumes on the top left increased 12% versus last year's fourth quarter and 1% sequentially. Again, simply driven by the timing of shipments. We mentioned last quarter that we would ultimately be diverting about two weeks of inventory into the Stage II circuits or a little under 2,000 metric tons, which would occur over several quarters. While we began this process in the fourth quarter, the impact was not material to our sales in the quarter. As Michael will discuss in a moment, we will have some roasted concentrate available for sale in Q1, but we do expect to begin more significant charging of our circuits as Q1 progresses.
Moving on to the top right, you can see realized pricing, albeit very solid at $8,515, was down compared to both Q4 2021 and Q3 2022. About half of the year-over-year decline was due to unfavorable changes in foreign exchange as the yuan weakened versus the dollar. Chinese COVID lockdowns and the impact on the Chinese economy likely reduced demand for NdPr slightly. Looking at the volatility in the price of NdPr over the last year from a high of approximately $175 per kilogram and a low of $83 per kilogram, it's very important to note that fairly modest changes in supply and demand can move the market price fairly substantially.
This is one of the reasons we are so confident in the long-term growth trajectory of our business, given forecasts of NdPr demand over the next decade or so are three times today's output. The challenge of the world producing enough rare earths to keep up with this demand is clearly a favorable indicator for NdPr pricing over time. I note that some of the positive leverage we saw in concentrate realized prices as NdPr prices went higher in recent quarters ended up going in the opposite direction as prices declined. This is in part driven by the variability in the implied discount we have to take in selling an intermediate feedstock to refiners overseas.
While this effect will be moot once we are selling our own separated products, it's important to note that the realized price growth or decline in our concentrate sales over the course of this year, as always, will outperform as NdPr market prices rise and generally underperform as they decline. Of course, there is also the timing and volume of shipments which impact our average pricing in any given period. Moving to the bottom right graph, you will see that our production cost per metric ton increased 26% year-over-year and 17% sequentially, driven by the timing of maintenance costs during the quarter, as well as higher payroll expenses, including an increase in employee headcount to support the expansion of Stage II operations and the impact of cost of living adjustments, which we talked about last quarter.
The year-over-year comparison was also impacted by higher fuel costs as well as the recommissioning of our CHP plant at the beginning of the year, which is running suboptimally until we get to full Stage Two power demand. Excluding the Stage Two related costs, Stage One production costs were roughly $1,600 per ton in the quarter, impacted by the same factors just discussed, primarily driven by the timing of maintenance events across our mining fleet and our crushing facilities, which we view as discrete. Flipping to slide 9 on the top left, our revenue declined 6% compared to the fourth quarter of last year as the 12% increase in shipping volumes was more than offset by a 16% decline in the realized price shown on the previous slide. Similarly, our quarter-over-quarter revenues were impacted by a more significant decline in sequential realized pricing.
On the top right graph, while adjusted EBITDA declined 23% year-over-year, mainly due to lower realized pricing, we still produce a very solid $55 million of adjusted EBITDA in the quarter. Although not on the page, $32 million in Stage One normalized free cash flow. The lower realized pricing also flowed through to our margins, which were nonetheless a healthy 59%. Importantly, on the bottom right, you will see that our adjusted diluted EPS increased 40% over last year's fourth quarter and 17% sequentially. These changes were driven by two factors. The first was the impact of the higher interest rate environment on our strong cash and short-term investment balance. In the quarter, we generated nearly $11 million of interest income versus virtually zero a year ago.
These totals show up on the other income net line of our P&L, which you can find in the appendix of our slide deck or in our press release. The second factor was a large tax benefit in the quarter. The timing of new assets coming into service for GAAP purposes drove a change in the full year effective tax rate, which was recognized in the fourth quarter. We generally benefit from material tax deductions, including foreign-derived intangible income and depletion in excess of basis, which we had initially forecasted would not apply for this tax year, but indeed end up providing us permanent tax benefits recognized in 2022, in addition to the temporary benefit of bonus depreciation on the assets we did place in service.
Note that the timing of certain assets entering service may continue to drive some volatility in book and cash tax rates as we complete our investment program. Absent this impact, I'd expect our tax rate to remain in the high teens until our geographic mix materially shifts. Turning to slide 10, we generated $353 million of normalized Stage One free cash flow in 2022. As Jim mentioned earlier, that more than covered the $308 million of growth CapEx during the year, which covered the significant completion of Stage Two, as well as material investments in the Stage Three building shell, engineering, and early equipment costs. Very little spend remains in 2023 for Stage Two, with the overflow as discussed in prior calls relating mostly to timing of payments.
Importantly, our strong cash flow this year has allowed us to keep all of our powder dry, even as we've made tremendous progress on our mission. We expect CapEx this year to be roughly in line with 2022, with about $300 million in expected growth capital primarily supporting Stage Three in addition to our other growth projects. From an earnings perspective, as we have talked about for some time, 2023 will be a transition year. As we work to ramp the separations facilities, we will continue to sell concentrate into the market with the revenue and cost profile you are used to seeing. Michael will discuss our commissioning progress in more detail in a moment.
As it relates to our annual results, I continue to expect Stage Two separated product sales to begin in the second half of the year and be backloaded, in part because there will be added time to recognize revenue as we build out our sales channel and qualify product with customers. These sales would also initially come with a lower margin profile ahead of us scaling to run rate volumes and profitability. Of course, some of our initial production will be shipped to Texas to begin the metal making process, delaying the actual recognition of sales until we deliver the end product to General Motors. Importantly, we will continue to prioritize the long term and make the right investments in our Mountain Pass people and processes in 2023 to support separated product production for decades to come.
In addition, we expect to grow our headcount and spending for stage three with revenue from magnetic products not far away. Regarding cash flow, we discussed our spending plans a moment ago and have already flagged the working capital investments we expect to make as stage two ramps. On that note, we are thrilled about the distribution agreement we announced Tuesday with Sumitomo to facilitate oxide sales into Japan, and we'll continue to invest in broadening our geographic reach as our markets grow. With that, I'll turn the call over to Michael for a more detailed update on our stage two progress. Michael?
Thanks, Ryan. It has been a productive and fulfilling few months of operation and commissioning, though, of course, not without its challenges. On the stage one operational front, during the quarter, we experienced considerable external headwinds from construction, commissioning, and weather. Our teams have done an excellent job remaining focused, and we were able to achieve continued improvement in mineral recovery at the mill. Circuit uptime was slightly below the prior year but exceeded our conservative estimates. We made good progress in pre-commissioning and initial commissioning activities of stage two. This also included completing the remaining upgrades and pre-commissioning work of legacy circuits that are now all ready for use. We completed our first quarter operating the new concentrate filter, dryer, and roaster, a great picture of which is shown on slide 11.
Broadly speaking, this process is playing out as previewed last quarter, with certain expected challenges proving easily resolved, a large number of instrumentation nuisance issues that are also easily resolved, a certain proportion of known unknowns that have readily identifiable resolution timetables, a few reliability issues that will be worked out over time, and then a small number of unexpected issues that generated the greatest headache. Through it all, we made great progress. The primary process equipment is running quite well, and many of the initial bugs are in the rearview mirror. Even as we experiment with and tune the equipment, we are able to consistently produce roasted concentrate that meets our desired specifications. The initial testing of the roasted con suggests that it should achieve the leach yield and cerium rejection that we are targeting. This is critical to our cost competitiveness and production throughput.
Initially, the vast majority of this product will be sold. As the subsequent circuits in the flow sheet are brought online, more will be directed or invested towards making oxide. There are a handful of remaining issues that we are addressing before we are able to run at our full desired run rates through the calciner, but we will continue to attack these over the coming months as we head full steam into commissioning the balance of the Stage II assets. As we approach the end of the first quarter, we have commenced commissioning all the remaining Stage II assets, though, of course, some are farther along than others. The most critical next step is putting into operation our leach circuit. This includes legacy equipment that will be operated under new process conditions alongside newly installed equipment and processes.
Continuing the process flow, the impregnated leach solution will then pass through legacy purification and separation circuits. The legacy equipment have already completed their recommissioning activities, while new additions are currently being commissioned. As with leach, we expect a period of troubleshooting and rebalancing when the new feed begins to flow. The last circuits in the process will be NdPr finishing, a portion of which can be seen on slide 12. I will reiterate that commissioning is and will be a nonlinear process. It is a series of two steps forward and one step back. As it pertains to our production ramp target, we would not expect commercial scale production of NdPr oxide yet in the first quarter, but we look forward to providing additional updates on our ramp on the Q1 earnings call.
It is important to remember that the start of any one circuit does not determine the timing and ramp towards the final run rate of production. Certain circuits will be commissioned and troubleshot quickly and reach our desired run rates of production. Certain others will overcome problems but take longer to ramp up throughput. Others will achieve run rate production easily but struggle with reliability and uptime. All in all, however, we remain confident in our targets. We are more excited than ever to be putting 4 years of planning of Stage II into operation. While we expect 2023 to challenge us to a greater extent than any time since 2018, I remain extremely confident and proud of our team and look forward to progressing and communicating our production ramp in subsequent calls. With that, I'll turn it back to Jim.
Thanks, Michael. Turning to slide 13, this is a recent aerial picture of our Texas magnet manufacturing facility. You can see a lot of construction activity, and most of that action is now taking place inside the building, given that the shell is complete. Since we last talked in November, most of the key public utility infrastructure has been installed: gas, water, and with electrical finishing up shortly. We are also beginning to see some of the long lead equipment arrive, including the HVAC systems, which are now being installed. The procurement of other long lead production equipment continues. We also now have a fully functioning magnet research lab in place, enhanced by a number of key recent hires and with more to come as we continue to expand the team. Our magnetics team should all be able to move into the new Fort Worth facility by late summer.
If you look closely in the picture at the top right of the facility, you will see where sizable office and lab space connects into the factory. Our goal is to make this site the center of the most cutting-edge magnetics efforts in the world. To update you on the market and conclude the prepared remarks, I would like to reiterate that I remain bullish on the outlook for our business. In 2022, despite an overall market contraction, global sales of passenger EVs climbed more than 50% to approximately 10.3 million units. There has been a profound global surge in EV adoption and action in the United States, which has trailed China and Europe, is accelerating rapidly on the back of policies like the Inflation Reduction Act and a dramatic increase in new models available to consumers.
Bear in mind that EVs are just one of several downstream applications driving growth. We also see growth and opportunity in wind turbines, robotics, consumer electronics, and even power tools. When you put this all together, looking out to 2035, with analysts predicting a threefold increase in demand for neodymium magnets and strong corresponding growth for NdPr. A threefold increase in NdPr demand would mean the world likely needs the equivalent of more than 15 Mountain Passes coming online over the next 12 years. Keep in mind that Mountain Pass is one of the largest producers of rare earths in the world today. Assuming such economically viable ore bodies were identified and cleared multi-year permitting processes, it would still take years and multiple billions of dollars to bring that supply to market.
Therefore, even though the macroeconomy will usually drive short-term volatility in pricing, we remain convinced that there are huge tailwinds for our sector. MP's in-place assets are therefore extremely valuable, and our vertical integration strategy, coupled with our fortress balance sheet, will enable us to leverage all aspects of our platform to create additional value. With that, let's open it up for Q&A. Operator?
We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your touch tone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate in queue. The first question comes from the line of Matt Summerville with D.A. Davidson. Please proceed.
Thanks. A couple questions. I guess I wasn't aware that between stage one output and actual oxides, that there would be an intermediary product in the form of roasted concentrate available for sale. Can you talk about, you know, what sort of quantity we might be looking at over what kind of timeframe, and how much value does that particular process step add to stage one output? I.e., how is that priced in the market? Then I have a follow-up.
Sure. Hey, hey Matt, it's Ryan. I can take that, and then we'll have Mike talk a little bit about roasted con and what it means for us and our progress. As it relates to the roasted concentrate, there's not a material difference in economics in terms of selling price vis-à-vis the incremental cost of getting through the roasting step. In fact, you know, the way I would think about the available volumes is it's not going to be a material departure from what you've seen in terms of regular concentrate sales over the next quarter or so. As we mentioned, you know, we should be and we are all preparing for incremental volumes to begin charging the downstream circuits over time.
This is a relatively short stop on the way to production of finished oxide products. Mike, do you want to talk a little bit about roasted con and what that means for the process?
Sure. Thanks, Ryan. Producing high-quality roasted con may be the most important single step in ensuring the cost competitiveness of our separation and finishing assets. The production of roasted con is an important and a very critical transition point for stage two, but it itself as a product itself is not, you know, the aim. As I mentioned in the, in the prepared remarks, the initial testing on that roasted con give us really high confidence that the yields that we'll get out of that when we proceed into leach, meaning yields of getting NdPr recovery and rejecting the cerium, which is a critical part of our process, are going to be in the ranges that we're targeting.
This is really important for reducing reagent expense and improving the quality of the feed that goes to the purification and separation stages. There are also minor energy savings and maintenance savings from that as well. It's an important product, but not a, not necessarily an important long-term sales product.
Understood. Then, just as a follow-up, one of you guys mentioned in your prepared remarks that you're feeling more and more confident about incremental mineral recovery coming out of stage one, but, you know, maybe taking a pause on that for obvious reasons as you're ramping stage two. You know, timing-wise, how should we be thinking about when you can go attack that opportunity? I guess how much upside relative to, you know, the output you generated in 22 could we be looking at based on, your domain knowledge at this point around that?
This is Michael. I'll take that as well. I think I've mentioned this in the past before, that we do have a lot of optimism that there's significant opportunity to improve the way we do things in our flotation process or beneficiation process and the results of that. You know, we have a growing team dedicated to that effort. You know, we've continued to work towards that, you know, irrespective of the progress of Stage II. That's not hindered by the progress. Maybe some of the implementation could be impacted, you know, just by overall distraction, but we're pressing ahead with that. I think there'll be incremental step, incremental progress.
We hope at some point there's a greater progress, but we can't exactly predict the timing as some of it is just incremental process improvement, and some is more, you know, small investments that we believe could have a significant improvement. Hopefully that addresses your question mostly.
Yes. Thank you, guys.
Thank you. The next question comes from the line of David Deckelbaum with Cowen. Please proceed.
Congrats, Jim, Ryan, and Michael. I appreciate you guys taking my questions this afternoon.
Thank you.
Happy to do it.
I, um-
How you doing, David?
Thank you. First, I just wanted to start off on the Sumitomo agreement. you know, obviously a landmark agreement. Trying to understand, I know it's early, but if you could give any sort of guidance around the potential volumes that could be sold here. Should we think about this as sort of consuming all of the available NdPr oxide that you would have for sale, not consumed in the stage three operations for now? Would there be an inherent premium that you would expect in terms of pricing relative to what you would sell into China?
Sure, David. It's Ryan. I'll take that. Obviously we're pretty excited about our deal with Sumitomo. An important step, as you mentioned, to our sales market in Japan, which as you know, is the largest magnetics center outside of China. You know, the way I think about this agreement is it's a distribution agreement. You know, this is a relatively proven and efficient way to get to market in Japan. I think it's pretty clear that there's a growing need for diversity in Japan sourcing. You know, what we see is with their desire to grow production, and our view of an expected demand supply imbalance coming in the market, we and clearly Sumitomo are confident there's gonna be a fair amount of demand for our oxide there.
Overall, it's an exciting first step for us with a major player in the market, as we talked about. You know, certainly an opportunity hopefully to expand the relationship over time. I think the other thing I'd say on the economics part of your question, you know, as you've heard from us, you know, just a minute ago, we certainly believe in the demand picture in our market. You know, we do expect to transact on market-based prices. Importantly, you know, I'd say the terms that are offered to the end customers in Japan remain in our control. We haven't locked ourselves into any particular model. From that perspective, we'll continue to do what's best for the business.
Thanks, Ryan. I have a maybe kind of a follow-up for you. you talk in your prepared remarks about the IRA benefits. I know perhaps 10 days ago, the treasury kind of defined what would be eligible under 48C. Can you give us a sense on the line of what you think is eligible at this point in terms of your capital being spent on expansion projects for 48C and what you would certainly see on the production tax credit side, and when you might think that the timing of those benefits would be realized?
Hey, David, it's Jim. You know, so we're watching all of the 48C stuff like you are as well. It's still preliminary. You know, they're, the kind of government's coming out with stuff, and then there's gonna be a period of submitting. It's still early to make sort of any kind of specific predictions or, you know, thoughts or, you know, guide you as to how we're thinking about that. Obviously, we're watching it very closely.
The only thing I'd add on.
Yeah. Just real quick on the 45X.
Yeah. Go ahead. Yeah. The 45X, Ryan. You wanna do that? Yeah.
Yeah. The difference there being, you know, obviously different being a production tax credit versus, you know, based on capital. From everything we see, I think the guidance there is a bit more clear and straightforward. You know, we will be producing a product that we believe clearly qualifies into the 45X framework. As we ramp our oxide production, we expect to start benefiting from that, you know, by default as we produce those products.
Sounds good, guys. Thank you.
Thank you. The next question comes from the line of Corinne Blanchard with Deutsche Bank. Please proceed.
Hey. Good afternoon. Thank you for taking my question. Just to ensure and understand better maybe what could be one Q and maybe, you know, the cadence of production sales and EBITDA for the year. I know you don't give defined guidance, but maybe if we go from consensus, how comfortable do you feel with a straight assuming almost flat price? I think you mentioned obviously going through a transition and having maybe lower margin towards the end of the year. Just trying to frame like, you know, a cadence for the year.
Sure. Hey, Corinne. This is Ryan. I'll take that. You know, what I would say is our expectation, obviously, that we laid out in our prepared remarks was that you should expect us to begin the transition to oxide sales in the back half of the year. Obviously, there'll be a little bit of a gap between as we bring production online versus when we're recognizing those sales into the P&L. We wanted to importantly make that distinction.
I think to your point, you know, as we look out at the way several folks have modeled the business, one of the reasons we flagged to you all, you know, the margin profile is, you know, certainly we feel as Michael laid out, you know, after the results that we've seen from our roasted concentrate, you know, we're more confident than ever in what our eventual yields and results will look like as we get to run rate. The important thing to keep in mind is just, you know, we've said this over and over again, 2023 is a transition year, so you can't expect our first kilogram of oxide to come out at the same cost profile as, you know, the kilogram that's coming out once we hit run rate.
You know, from that perspective, hopefully that gives you a little bit of color. You know, I'd say that while we make the transition, certainly we've got our concentrate business and the roasted concentrate business in the background, but we'll continue to build the team and get operators online ready for production and commercial production of stage two as we get further into the year. Those are sort of the puts and takes from a production and sales perspective.
Great. Thank you. Sorry if I missed it also, but, did you provide any commentary on the market itself, like in terms of like China, pricing and kind of maybe where you think it could go over the next six to twelve months?
Sure. I'll take that. Hey Corinne. we don't typically provide any commentary on pricing just because, you know, it's ultimately it's a commodity and it is volatile. I think China has been... it's been really tough as it always is to read the tea leaves in China, you know, because it's China. In particular, given the opening post-COVID as well as, you know, Chinese New Year and all the moving parts. I think if we look at the markets over recent months, there was sort of some excitement just in advance of the Chinese opening, with the expectation that there would be sort of an explosion of growth out of that, and then sort of a pullback around New Year.
And sort of maybe a settling in, as far as sort of the world figures out what it means. My guess is that, you know, some of the things driving pricing in the very short term are probably the non-critical areas for the long term. What I mean by that is, and I just think you might find this helpful, Corinne, if you listen to, if you remember my prepared remarks, I referenced analyst research that, you know, kind of talked about the market for NdPr, in magnetics being 3 x the size it is today, by 2035. That's actually I can, you know, for people who are interested, it's, you know, that's not my data.
That's an Adamas Intelligence research report kind of looking at the rare earth magnet market outlook. What's really interesting about that, the reason I mention it, is that if you look at the market today for NdPr demand, in the growth, what are the current high growth areas, which of course there will be some others, but in EVs and wind turbines. That today is only, you know, a little under 20% of the overall demand, the rest is kind of, you know, standard things in general auto or consumer electronics or some of the others. That other 80% might be, you know, some of it will be much more volatile impacted by the economy in the short term.
If you think about the 20% and I think many have heard me say this before, if you think about that 20%, that is the ultra-high growth, growing, you know, compounding at say 30% a year or whatever. As you look out a decade from now, you know, just those areas get you to maybe 3 x the market, you know, in 15 years from now or so. That today, you know, let alone the fact that that other 80%, that's kind of like a GDP influence area also may have some other areas that are high growth like robotics or power tools or...
Again, my, you know, my guess is that the very short term is that we've sort of seen a very, you know, a weird Chinese opening and sort of general malaise in the economy. The areas of growth that we think are critical for long-term pricing, and even by long term, I mean just, you know, a couple of years out are, you know, through all this are growing extraordinary. We feel really confident that that's a great trend for us.
Great. Thank you for the color.
Thank you. The next question comes from the line of Carlos de Alba with Morgan Stanley. Please proceed.
Yeah, thank you very much, gentlemen. Congrats on all the progress. A couple of questions. Just coming back to the Sumitomo agreement. Is there any color you can give regarding is this agreement either take or pay? Are there any specific volumes attached to the deal? You know, any color that you can provide there would be useful. My second question, it is around CapEx. $300 million guidance for this year similar to 2022. I think I remember you mentioning that $700 million was the comprehensive CapEx that you saw for Stage II and Stage III. How do you see, you know, the-
The overall $700 million balance, it still remains in place or has there been any shift on that number?
Hey, Carlos, it's Ryan. I will, I can probably hit both of those quickly. In terms of the Sumitomo agreement, this is, you know, a pretty standard type of distribution agreement. You know, volumes and pricing is gonna be, you know, market based in consultation with our end customers. You know, as I talked about, clearly there's a desire and need for incremental volumes and diversity in Japanese sourcing. We are confident there's a fair amount of demand for our oxides there. Ultimately, you know, as I think you're probably referencing some of our existing distribution agreements, you know, ultimately over time, we're gonna have different contract terms and contract types.
You know, ultimately that's the most efficient way for us to sell into the Japanese market at this point. As it relates to your CapEx question, what I would say there is in terms of the overall $700 million guide, which you are right, that was an all-in number thinking about the completion of Stage II, bringing online the Fort Worth facility, as well as the heavy rare separation facility at Mountain Pass.
If you take that $700 that we guided you to almost exactly a year ago, I would say in terms of what we see in those projects, other than sort of the normal inflation that I think everybody has seen from materials and things like that, there are no material departures from that guidance. We still feel good about that number. You saw that of the CapEx we reported this year, about $308 million was growth capital for this year. We're talking about another $300 million in 2023. We continue to expect to be on track with the investment program that we communicated to you guys.
All right, great. Thank you very much, Ryan.
Thank you. The next question comes from the line of George Gianarikas with Canaccord. Please proceed.
Hey, good afternoon, everyone. Thank you for taking my questions. So recently, China, according to certain press reports, has begun restricting the export of several technologies related to NdFeB magnet production and rare earth refining. I'm curious as to whether you think that'll impact your ability to make magnets here in the United States.
Sure. Hey, hey, George. No, we don't think that will impact our ability at all. We've been focused on this mission for quite some time. You certainly see the pictures, of where we're at, and we have a long way to go, but, we've got a really incredible team. You know, I think, I think if anything, it just speaks to the importance of what we're up to, and how important it is to have diversity in the supply chain for no other reason than that single point of failure risk. But to directly answer your question, there's no specific magnetic technology that we're counting on out of China or anything like that. It, it should have no impact on us.
Thanks. As a follow-up here, I'm sure you've noticed that there have been... It seems like every day there's an announcement of some OEM or some larger company taking a stake in, you know, outright buying mines related to lithium or other metals. I'm curious as to why you think we haven't seen that flurry yet when it comes to rare earth material. Whether you think that that's possibly on the come, I will give you some credit here that this is something that you talked about, you know, over the last couple of years is happening and it's finally here, but we haven't really quite seen an impact of your center yet. Any thoughts? Appreciate it. Thanks.
Sure. Well, Yeah, sure. Great question. I mean, as you know, I've kind of been talking about this for a while, what I call the AOL Time Warner moment of the auto supply chain, where people realize that, you know, that these worlds need to collide. I think it's still early innings, so when you say it's here, I mean, I think that this is sort of a just beginning process. I would argue as far as rare earths, I mean, the practical reality is that, you know, there aren't that many parties out there. You know, lithium is pretty widespread, around the globe, so, you know, so are copper, nickel, some of the, you know, the other commodities that you might think about.
With rare earth, you know, you know who the key players are. I think, you know, we executed our definitive agreement with GM about a year ago. So certainly, you know, GM is now has recognized the space and is very early. You know, as I've said repeatedly, we've had conversations with lots of OEMs. Our deal is not exclusive. You know, we expect to build a bigger, broader magnetics business. So I think the answer to your question is it has touched the rare earth space. I think what's a little bit unique about us is that, you know, we have a remarkable asset that we are cash flowing today.
In some of these other deals, you have, you know, essentially greenfield sites that need a lot of financing. They need to get potentially government capital, other equity capital. Some of the deals that you may see are, you know, offtake/financing type deals, and every deal is gonna look different. You know, so for ours, you know, we're obviously very proud and excited of the deal we have with GM. I think you'll see a big variety of deals in this space. Yeah, certainly you're seeing some of the same rumors that we're seeing. I think all roads lead to it speaks to the value of the franchise that we're building. We're, you know, obviously excited to see all that.
Obviously, it feels really good to, you know, have predicted something happening and seeing it come true. I'll, you know, continue by saying that I think that, you know, you're gonna see a lot more of that.
Thanks, guys.
Thank you.
Next question. Yeah.
The next question comes from Ben Kallo with Baird. Please proceed.
Hey, guys. Along the same lines, just Jim, I guess, for you, how do you think about offtake agreements? I know that you guys want to, you know, maximize the value before signing offtake agreements. Just with the volatility you saw this year and, you know, all the OEMs coming in, you know, locking up lithium or other materials, has anything changed in your view on the long-term agreements?
Sure, Ben. I think it connects into. I think I can expand on what I was saying a little earlier. You know, offtake, there's a variety of offtake agreements. I think some of the recent deals you might be seeing, it's always hard to tell what component of that offtake is a financing versus what component of that offtake is just offtake, right? I think the good thing about the strong position that we're in with the Fortress balance sheet that we have is that we don't need to view offtakes as any form of financing, right? We can be totally agnostic as far as that goes. We can look at an offtake, or any kind of structure as what is the highest return maximizing value option for shareholders.
You know, as I've said from the very beginning, we'll continue to do that. You know, we're in a really good position. I think particularly in our space, and maybe I should have touched on this earlier, but because of the platform that we have, I do think, and maybe it's, you know, a little early, but maybe not, we're gonna have some exciting opportunities given our platform, you know, to be in situations where maybe, you know, sort of earlier expectations of things didn't work out so much, and we can kinda come in and provide solutions. I think that's sort of an exciting opportunity for us.
we're so in such an early stage of growth in the space that, you know, who knows? I would also just say, obviously, you know, I kind of say this repeatedly, and I appreciate the ask, we're not gonna, you know, we're not gonna telegraph those before they happen. If we do something, you'll see it announced. we're not gonna, you know, sort of say, "Hey, we're pursuing this offtake or that offtake," or whatever. We'll, you know, we're gonna you can imagine behind the scenes, we're having conversations and trying to do the best that we can do to create value. you know, it's exciting.
Thank you. And Michael?
Yeah.
You mentioned the leaching a couple times. If we think about the flowchart from the dry roasting to separation and leaching between, I think, is there one more difficult step than another? I think you said this in your opening statement there. I think separation gets people tripped up. Is that wrong? Or what do you worry about most, I guess?
I think it's important that we do the leaching right if we want the other parts to be stable. I don't think I would say one part is easier or harder than another. Obviously, they all ultimately have to work the way we need them to. We're optimistic about all of them. We're very excited to be receiving the leach the way we think it should be.
All right. Thanks, guys.
Thank you.
Thank you. The next question comes from the line of Lawson Winder with Bank of America. Please proceed.
Thank you, operator. Good evening, gentlemen. Nice quarter. Maybe just one question from me. The research center. I mean, developing a cutting-edge magnets research center in Fort Worth in a matter of years sounds very, very exciting and also potentially very expensive. Maybe you could give us an idea of what, like, the annual run rate cost of running a cutting-edge research center would be. Are there challenges in staffing that? Thanks.
Sure. Well, the good news is there's nobody positioned really in the Western world, really outside of China to lead in this effort. You know, unlike a lot of areas that might be sort of more competitive out there in the world, given our set of assets, we have that unique position where we can, you know, we can, as I like to say, talent begets talent, scale begets scale. We're sort of in the early days of this, it's an extraordinary opportunity. You know, as far as getting the talent, I mean, the good news is if you're, you know, if you're in metallurgy or magnetics, MP is the place to be, right? We had a lot of talent and that's reached out to us.
We've brought some incredible talent on board. We will continue to do that. Lastly, what I would say is, I mean, with this cost, it is nothing compared to the opportunity. I hope that we've at least earned the right to, you know, have you believe us when we say that we are ex-maniacally focused on shareholder value. We, you know, we're not looking for a research project. We're looking to create a magnetics champion. Everything that we do is geared towards that. When we think about research, these are not, this is not like a, you know, a think tank. This is research oriented towards creating a franchise that's gonna be enormously valuable in the, in the decades to come.
It's a great question because we do ask ourselves that question every person that we hire, every penny that we spend. It is a commercially focused research organization. I'm, you know, very confident that over time, we'll yield extraordinary returns from that investment. It may take some time, right? This is very long lead stuff. You'll... You know, those impacts are in the company today. They'll be in the company in the near term. You know, I'm very comfortable that they're gonna, you know, pay off in many, many multiples and be... You know, we'll be glad we did it.
Okay, fantastic. Thanks, Jim.
Sure.
Thank you. The next question comes from the line of Abhishek Sinha with Northland Capital Markets. Please proceed.
Hi. Thanks for taking my question. I think Ryan touched upon this, and I apologize if I missed it. I just wanted to get the production cost in terms of $ per ton, the $1,928 figure. How should we think about, like, how does it shape up in as we move on to 2023 as you get better efficient CHP or, you know, how should that flow, and what should we be looking at the run rate for the production cost as we move forward?
Yeah, sure, Abhi. What I would say, we don't provide specific forward-looking guidance, but just to give you some color on what's in that number. Looking at the reported metric, that you mentioned a moment ago, the largest drivers there, as you'd expect, are costs related to stage two that find their way into COGS even at this point before we're producing. For example, certain personnel expenses as we build the team, you mentioned it, the combined heat and power plant, that is running, you know, suboptimally until we've got the full stage two power draw. One of the things we talked a little bit about, last quarter was our gas hedge position, and a significant portion of that did not come into effect until January first.
We were exposed on some gas prices and California gas prices with all the weather there, for a good portion of our burn in Q4. That had an impact that we don't expect to repeat. I guess pulling the onion back a little bit more and just trying to pull out the costs that I just mentioned that are, you know, not related to stage one. The stage one stand-alone costs were closer to $1,600 in the quarter, a little bit higher than what we normally see in the $1,400-$1,500 range. That was predominantly due to two items that showed up in the quarter. Firstly, an impact from just really timing of maintenance.
As we've talked about, we take our biannual plant shutdown in the fourth quarter. In addition, in this fourth quarter, we incurred some costs in relation to maintenance activities on our crushing facilities as well as our mining fleet. Those just kinda happened to hit all at once, with enough scale to kinda be noticeable in the quarter. When you look at the frequency and scale of these events over time, the cost burden of those are generally captured in what is kind of our more normal run rate cost. If you look at the adjusted stage one only cost growth year-over-year over the course of the whole year, which is in that mid-single digit range, I think that is much more representative of the stage one business.
As I mentioned, of course, the costs related to Stage II, as we get closer to Stage II ramping, will continue to tick up a bit as we bring new heads on board, new maintenance team members and things like that. Hopefully, that gives you some color on the moving parts and what to expect.
Sure. Thank you. Then just one more, if I could. You talked about in terms of production volumes, that was, like, being adversely impacted by some lower feed grade and mineral recoveries. I just want to get some color on that, if you could elaborate, like, what, you know, where are you getting lower feed grade and mineral recoveries? What's about that?
Yeah. I mean, I, I think maybe you might have misheard part of that. What, what we saw in the quarter actually was slightly lower feed grades, but improvements in mineral recoveries. I would say when you put all of the moving pieces together, obviously looking at the results, there, there was not really a meaningful or material change from our overall sort of production cadence. You know, we don't expect anything particularly material to change here over the next year or so. Michael gave a nice idea of the various items we have in the hopper to hopefully tackle mineral recovery and improve what we believe is certainly world-class levels over time. You know, nothing really material to report there.
Got it. Sure. Thank you very much. That's all I have.
Thank you. The last question is from the line of Laurence Alexander with Jefferies. Please proceed.
Good afternoon. Just a couple. One is, can you talk a little bit about how you expect staffing to evolve over, you know, over the course of this year and then over the next few years, and where that would take your SG&A to once you have the magnet production up and running, you know, once you finish the vertical integration? Secondly, as you've been discussing with various customers about the move into magnet production, is the expectation or the baseline for discussion about any potential agreements that you would have a return on capital at current magnet prices? Or is it that you would need to pre-pay to the current market to get adequate return on the capital you will be investing?
Sure. I can take that. So in terms of the growth in staffing, you know, I wouldn't attribute, you know, all the growth in staffing certainly to SG&A. What I would say is that, you know, a significant portion of the staffing that we expect to bring online for stage three as we get closer to production will eventually find their way in production costs. In the early days, they'll be, you know, they won't find their way into COGS. To give rough numbers, you know, in hiring plans at stage two, so at Mountain Pass, we'll probably bring another 60 to 75 people on board, you know, over the next year. For stage three, it will probably be shy of 100 incremental folks.
Hopefully that gives you, just a rough sense. I would just caution on sort of attributing all of that to one particular line item in the P&L. On your second question, Jim, do you wanna start off on that one?
Yeah, sure. Yeah. I mean, I'll just... Hey Laurence, I point blank and very clearly we have said consistently over time that we look at the stage two and three businesses as separate businesses that certainly benefit that we're on the same platform, but that we have to make sure that incremental investment has a very attractive risk-adjusted return on capital. We, you know, we have no interest in, you know, shifting money from the stage two business to the stage three business and lose capital. You know, as I like to say, we're not gonna rob Peter to pay Paul.
What is great about our platform, though, is that it does allow us to think holistically about the verticals and ultimately, you know, where and how we choose to structure whatever deals may be, we're gonna think about the fact, the baseline of, okay, well, we have a commodity in stage two that we can sell at a market price, how should we think about this incremental opportunity? If that incremental opportunity is attractive, that is how we're gonna think about it. You know, I wanna reiterate that that is of the utmost importance to us, because we, you know, as Steve heard me say, we think like owners. We're large shareholders, so we wanna make sure that any growth in the business is driving value.
We're not in, you know, we're not in it for charity.
Okay. Thank you.
Okay.
Thank you.
Uh.
I will now hand it back to the management team for closing remarks.
Yeah. All right. Well, thank you everyone. Congrats to the team. It was a great quarter and a great start to the year and, we will get back to work. Have a great night everyone.
That concludes today's conference call. Thank you. You may now disconnect your lines.