Hello, and welcome to the MP Materials third quarter 2026 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I would like to turn the call over to Martin Sheehan, Head of Investor Relations. Mr. Sheehan, you may begin.
Thank you, operator, and good afternoon, everyone. Welcome to the MP Materials third quarter 2026 earningsc 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 to EBITDA means adjusted EBITDA, and tons means metric tons.
Finally, the earnings release and slide presentation are available on our website. With that, I will turn the call over to Jim. Jim?
Thank you, Martin. Good afternoon, everyone. MP delivered another strong quarter across the business with continued growth in NdPr production and sales volumes and solid execution on several important strategic initiatives. In our materials segment, third quarter NdPr production increased 41% year-over-year to 1,018 metric tons, in line with the outlook we provided in August. Demand for our product remains very strong, with NdPr sales volumes reaching 1,020 metric tons, up 94% year-over-year. Michael and the team also made strong progress on our heavy rare earth separation circuit during the quarter. I am pleased to say that the commercial scale production of dysprosium and terbium will begin this quarter, Q4. This will support our heavy rare earth needs for EV traction motor magnets produced at Independence. We also benefited from the strategic value of the inventory we have built through our separation operations.
Since we began commercial scale light rare earth separation a couple years ago, we have stockpiled the heavy rare earth fraction of our production while developing our heavy rare earth separation capabilities. We often refer to this fraction as SEG+. Amid geopolitically driven supply constraints, particularly in heavy rare earths, we sold a modest portion of our SEG+ inventory to support an important strategic customer. The sale generated attractive economics, and we retained several hundred tons of feedstock to support our own future production. Altogether, we generated $141.6 million of revenue and PPA income and $47.8 million of adjusted EBITDA for the materials segment in the quarter. In our magnetics segment, we have completed qualification and will begin shipping saleable magnets to GM this quarter. Ryan will provide additional detail on what to expect over the next several quarters, but I want to recognize our incredible magnetics team.
We built this business from scratch, and I believe we are on our way to becoming the most advanced, most profitable, and best scaled magnetics platform in the world. 10X remains on schedule for commissioning in late 2028. As we work to ramp up magnet deliveries to GM and expand Independence to begin deliveries to Apple in 2027, we continue to improve our production processes from precursor products all the way through finished magnets. We are still in the early stages of our ramp and expansion, but we are already generating solid financial results. This quarter was another good one, with segment revenue of $18.6 million and adjusted EBITDA of $5.3 million. With that, I'll turn the call over to Ryan to walk through our financial results, and then Michael will provide additional details on our operations. Ryan?
Thank you, Jim. Consolidated revenue plus PPA income totaled $155.8 million in the quarter, an increase of 23.6% sequentially, reflecting strong operating performance across the business. The year-over-year improvement was broad-based, driven by a nearly doubling of NdPr sales volumes, higher realized market prices, a one-time SEG+ sale, and the addition of PPA income, which, as you'll recall, we began earning in the fourth quarter of 2025. The combination of higher revenue and PPA income drove a $53.7 million year-over-year improvement in adjusted EBITDA. Finally, our substantial improvement in adjusted EBITDA, both sequentially and year over year, flowed through to meaningful improvements in adjusted diluted EPS compares. Looking ahead to the fourth quarter, we expect the strong operating performance in our materials segment to continue.
NdPr oxide volumes and realized prices are expected to remain broadly consistent with Q3, at approximately 1,000 metric tons and $100 per kilogram, respectively. At that level of realized pricing and with our expected product mix, we expect to earn approximately $8 per kilogram of PPA income on sold NdPr. Similar to Q3, we do not expect to recognize any PPA income associated with NdPr contained in stockpiled concentrate. Looking forward to 2027, we expect to continue to see leverage in our cost structure as production volumes of NdPr increase and cost optimization projects bear fruit. We may see some lumpiness during the startup of Chlor-Alkali early in the year.
We ultimately remain very confident in our ability to see strong progress in reducing our cost per NdPr kilogram produced, particularly in the back half of the year, as operations across heavy rare earth separation and Chlor-Alkali stabilize. Switching to magnetics. At the end of the third quarter, we had approximately $28 million of deferred revenue remaining related to magnetic precursor products. We expect to recognize that revenue over the next several quarters at a declining rate as we work down the remaining balance and ramp up magnet production. I will also note the lumpiness in margins we flagged last quarter. This is driven primarily by the transition from precursor production to the initial ramp of magnet production, while we also invest significantly in our team, capabilities, R&D, and startup operations to position the business for strong future growth.
As part of that transition, a growing share of our manufacturing costs, particularly depreciation, is now allocated to magnet production rather than solely to precursor products. Because of how our precursor contracts are priced, this reduces precursor revenue in the near term. Ultimately, these costs will earn an attractive margin within our magnet products as magnet sales ramp. On that ramp, we remain in the very early stages of production scale-up, so magnet sales are likely to be lumpy quarter- to- quarter. In addition to a measured scale-up of production volumes, magnet revenues will ultimately be dictated by a deliberate phase-in by our foundational customer. As is typical in automotive supply transitions, they will work through existing supply and incorporate our magnets into specific programs and plants over time.
As with any complex manufacturing ramp, progress is unlikely to be perfectly linear as we increase throughput, extend production runs, and optimize the process. We therefore expect magnet volumes to build gradually, starting quite modestly over the next couple of quarters before increasing in the back half of 2027, when we also expect production for Apple to begin contributing. Putting this together, while we expect magnet sales to generate positive adjusted EBITDA from the outset, we expect the overall adjusted EBITDA contribution from magnetics to continue to be modest in 2027, particularly in the first half, as declining precursor revenue offsets the early ramp in magnet sales. We expect the full earnings power of the segment to become visible in 2028. Moving on to the balance sheet and cash flow. Year-to-date capital expenditures totaled $413.8 million across the business.
Approximately 60% of that spend was related to magnetics, primarily for construction of 10X and the associated land purchase. We continue to expect full-year capital expenditures of $500 million-$600 million. In addition, during the quarter, we earned another $8 million of prepayments from Apple as we continue to progress towards start of production for them next year. We expect to earn an additional $120 million in prepayments over the next one to two years as we achieve various magnet and recycling-related milestones. Finally, we ended the quarter with a strong liquidity position of $1.34 billion in cash equivalents, and short-term investments on the balance sheet. With that, let me turn it over to Michael. Michael?
Thanks, Ryan. Operationally, it was another solid quarter for both the materials and magnetics divisions as we increased production while advancing a number of initiatives designed to improve efficiency, expand capabilities, and support future growth. At Mountain Pass, results were generally in line with our expectations. In our upstream operations, concentrate production remained strong despite ongoing pilot testing, investments in future growth and optimization, and efforts to better utilize the reserve base. Encouragingly, these initiatives are demonstrating the potential to unlock further improvements in operational efficiency and flexibility while sustaining strong production performance. In our midstream operations, performance continued to improve. We delivered our highest quarterly NdPr oxide production to date, in line with our outlook. For portions of the third quarter, we operated at a production rate of over 450 tons per month, providing further confidence in our long-term production objectives.
Most circuits are performing quite well, and we are seeing the benefits of the equipment upgrades and process enhancements discussed last quarter. During the period, a small number of circuits experienced unplanned maintenance activities and equipment-related interruptions associated with the introduction of new capabilities. As previously indicated, addressing the remaining reliability constraints will be an iterative process over the next several quarters as we add redundancy and implement targeted debottlenecking efforts. Despite these occasional disruptions, overall throughput, reliability, and operating consistency continue to trend in the right direction. Our midstream expansion initiatives also made important progress during the quarter. Most notably, we began operations in our first heavy rare earth separation circuits designed to separate terbium and dysprosium from the broader medium and heavy rare earth stream. We are pleased with the startup to date, with both process and equipment performance meeting expectations.
Commissioning has progressed largely as planned, benefiting from the experience the team has accumulated through years of operating and optimizing our light rare earth separation facilities. Since separation circuits are susceptible to unexpected operating challenges and minor upsets can have multi-week impacts, the team has approached the startup deliberately and methodically. But we have navigated these risks very well and remain on track to begin on-spec production of finished terbium and dysprosium in short order. As a reminder, this circuit is primarily intended to support our downstream magnetics division and its strategic customers. As we progress towards full production, our focus remains on establishing sustainable production and ensuring product quality. The commissioning of terbium and dysprosium separation capability is also producing two high-purity intermediate streams that we have the option and ability to precipitate and finish.
These are SEG, samarium, europium, and gadolinium, as well as a mixture of yttrium and holmium to lutetium. Given the supply chain challenges currently impacting the marketplace, both products are attracting significant customer interest. We are eager to capitalize on these opportunities, particularly because doing so allows us to support the near-term requirements of our strategic long-term customers while benefiting from a uniquely favorable market environment for these materials. To support the startup and accelerate near-term production of our medium and heavy earths, we also began a process to prudently reintroduce our SEG+ inventory back into the system. Our broader heavy rare earth expansion strategy continues to advance as well. Samarium and gadolinium projects remain on track for first production in the first half of 2028, processing feed from the SEG intermediate stream referenced above.
While current market conditions for a number of medium and heavy rare earth products are unusually strong, we do not believe today's elevated prices will persist indefinitely. Many of these remain relatively small markets that have been significantly affected by export restrictions and artificial supply constraints. Nevertheless, we see compelling opportunities to create value through targeted investments, commercial partnerships, and long-term offtake arrangements that support the development of a broader market. The gadolinium agreement we announced last quarter is an example of the type of opportunity we are pursuing. Attractive project economics, combined with the ability to bring additional supply to market in relatively short order. Importantly, we believe these added capabilities will improve our ability to secure and process third-party feedstocks and increase production volumes over time. The successful startup of our terbium and dysprosium circuits further strengthens our confidence in pursuing those opportunities.
Elsewhere at Mountain Pass, progress continued across several initiatives. Early in Q4, we successfully and safely completed our scheduled maintenance outage, largely on schedule. As always, the approximately 10 to 14 days required for de-inventorying, maintenance activities, and re-inventorying will impact sequential comparisons. However, we expect improvements in sustained production rates and relatively stable year-over-year growth in total NdPr oxide production during Q4. Turning to our magnetics division, teams at Independence made substantial progress technically, operationally, and commercially, culminating in what I believe was a transformative quarter for the business. Attention during the period was focused on increasing strip-cast alloy production, expanding throughput across powder processing operations, significantly increasing machining, bonding, and finishing capabilities and capacity, and achieving higher magnetic performance from existing chemistries. As expected, our focus is increasingly shifting from demonstrating production capability and advancing through the qualification process to ramping volumes and improving efficiency.
Now that we have established the ability to produce qualified saleable magnets at scale, we are accelerating efforts around material handling, process optimization, and automation. Over time, these initiatives will drive increased throughput, improved operating leverage, and the extraction of additional value from the manufacturing platform. We also continue to invest heavily in expanding our technical capabilities. In support of our Apple partnership, 10X, and broader market opportunities, our engineering teams are expanding the portfolio of magnet grades and specifications on our product roadmap. Consistent with what we have discussed in prior quarters, reducing heavy rare earth utilization remains a central focus. Through further advancements in our approach to grain boundary diffusion, improved process control, and ongoing materials innovation, we expect to further reduce heavy rare earth intensity across our product portfolio while maintaining performance requirements. We remain encouraged by the progress. Finally, development of 10X remains on schedule.
Learnings from both Independence and Mountain Pass, together with the hard-earned experience gained executing large-scale projects across the company for much of our history, are being incorporated into detailed engineering and commissioning plans. Stepping back, this was another solid quarter across the business. From continued progress in our materials division to important milestones in magnetics, we are seeing the benefit of years of investment, operational learning, and technical development increasingly compounding across the platform. That gives me confidence not only in our ability to finish 2026 strongly, but also in the opportunities ahead as we expand our capabilities, grow production, and execute against our long-term objectives. With that, I'll hand it back to Jim.
Thanks, Michael. This was another outstanding quarter of execution. I am very proud of the MP team. The progress you hear about each quarter reflects years of difficult work. On our August call, before the recent market stress, I questioned whether the enormous sums flowing into computing infrastructure would earn attractive returns. At the same time, I emphasized that the transformational economic opportunity would emerge as intelligence moved into the physical economy. I believe we are living through a second Gilded Age. Like the first, it combines extraordinary technological progress with enormous capital formation, considerable financial speculation, and anxiety about the distribution of wealth and the future of work. The railroads transformed America even as many of the companies behind them went bankrupt. Being right about the future then did not guarantee a return. The financing stress emerging in computing infrastructure is a reminder of that distinction.
Demand can grow spectacularly while the economics disappoint. Capital still has a cost, and investors need both a return on it and a return of it. But even as capital markets grow more volatile, the building blocks of the next industrial era are coming into view. Superintelligence is moving into the physical economy. Robots need motors, these motors need high-performance magnets, and those magnets require an industrial supply chain that takes years to build. President Trump's recent proclamation on robotics and industrial machinery, together with the FCC's restrictions on foreign-produced advanced robotics devices, underscores the national security importance of these supply chains. In the competition with China, American leadership will require American production, from the robots themselves to the magnets that make them move. For context, the global NdFeB magnet market is roughly 250,000 metric tons a year, with well over 90% of production concentrated in China.
Precise requirements depend on final design, but at three to five kilograms of magnets per humanoid, annual production of 50 million robots would create additional demand equivalent to most or all of today's global market. That demand would come on top of cars, electronics, factory automation, drones, data centers, and defense systems that are already depending on these magnets. A single manufacturer hoping to produce just 1 million humanoids per year without relying on China would need magnet volume equivalent to roughly 40%-70% of 10X's planned annual capacity. And those existing markets will continue to grow. China is competing to win across all of them, and especially in robotics, where its own downstream manufacturers have global ambitions. Consider the capital being committed to this opportunity. Venture investors, major technology companies, and Chinese competitors are investing billions. Private robotics valuations already reach into the tens of billions of dollars.
Those valuations reflect bets on which companies will capture a share of a potentially multi-trillion dollar market. The timing and the ultimate winners remain uncertain, and near-term expectations may very well disappoint. But put that capital alongside the supply-demand math and the competition with China, and one takeaway becomes clear. If you believe physical intelligence will transform the world, access to the MP platform could determine which companies get to compete in this multi-trillion dollar opportunity. I am not exactly sure what that is worth, but I believe our current valuation materially understates it. That does not mean that every rare earth or magnetics business will succeed. To the contrary, I expect a very difficult year ahead for parts of the industry. Some projects will stall, some businesses will fail because of capital constraints, inadequate feedstock, flawed M&A, or some combination of the three.
A compelling demand forecast cannot rescue poor assets or substitute for sound execution and strategy. Our growth is supported by contracted cash flows, committed customers, and long-term partnerships across industry and government. That foundation allows us to pursue the robotics opportunity patiently. We do not need the most aggressive forecast to materialize to build an exceptional business. As we deliver on the commitments we have already made, we are building the best and most vertically integrated magnetics company in the world. With that, let's open it up for questions. Operator?
Thank you. At this time, if you'd like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you'll hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question comes from the line of Brian Lee with Goldman Sachs & Co. You may unmute your audio and ask your question.
Hey, guys. Good afternoon. Thanks for taking the questions. Appreciate all the overview on some of the medium to longer term opportunities, Jim. Curious on the maybe near to medium-term opportunity as it stands for you guys on NdPr magnets for the automotive market, particularly GM, your anchor customer. Can you just give us a sense of the general demand backdrop for NdPr magnets in the U.S.? I know GM has had sort of this very publicized dispute with another supplier that you might consider a peer of yours. Is that a reflection of the demand for EV applications in the U.S.? Or is there maybe a chance that demand comes to you and you can actually upsize your commitments to GM? Just curious, maybe broader backdrop of EV demand for magnets in North America.
Yeah. Hey, Brian. It's Ryan. Thanks for the question. I won't comment specifically on your specific question there, but I think broadly what we see from a foundational customer and broadly across the automotive space is continued very strong demand for our products. We remain very enthusiastic and pleased with what we see as the demand backdrop from our foundational customer. Importantly, what we continue to see is, with GM being very early in their strategy of localizing, there are many, many more OEMs behind them that are really starting to catch up. From the perspective of automotive as a percentage of the market, obviously it's very, very significant. The demand that we see both directly from OEMs and in addition from tier ones and tier twos that supply them remains incredibly strong.
So, I think automotive for us, to the extent we want to continue to invest in that area, is absolutely still a big upside opportunity for us.
Okay, great. That's helpful. Then maybe just one more bigger picture question. I'll pass it on. I know it's early days, but any initial thoughts on kind of critical minerals and the policy response, if any, that the recent midterm elections results from this week could impact for the U.S. rare earth sector as well as MP specifically?
Hey, Brian. So sure, it's Jim. I'll take that. Basically, we really see no change. I mean, we're a non-partisan national security company. Our deal was really driven out of the Pentagon. We operate in red states, blue states, purple states, and we've really had strong bipartisan support since the beginning, and we've obviously been operating in quite a few different government regimes. So, we feel very good that there's no change on our front. As far as some of the others, obviously I wouldn't begin to speculate what might be happening there, but my guess is there'll certainly be a lot of media and action on that front.
Our next question comes from Lawson Winder with Bank of America Securities. Please go ahead with your question.
Thanks very much, operator, and good evening, gentlemen. Nice quarter, and once again, thank you for the update. Ryan, thank you for the guidance that you've provided looking into 2027, 2028 on the magnet ramp-up. Hear you loud and clear. When you describe 2028 as a year in which the earnings potential of Independence will become clear, would that suggest that Independence will be operating at the design rate of around 3,000 tons per annum?
Yeah, Lawson, we're not going to give specific volume guidance at this point, particularly given the nature of our customer contracts. I think there are two that are very high profile and others potentially behind it, and so we won't get into the specifics there. But, I think given what we see with our expected ramp-up in production as well as sort of the feathering in of our products into our customers' supply chains, that's when I do think you'll sort of start to see the positive flywheel become very clear from a financial perspective.
Okay. Looking at it from another angle, and that would be just of commercial production. So, 2026 year to date has had some material startup costs. You'll start recognizing those in COGS once you hit commercial production. Considering the ramp-up in 2027 that you've described for Independence, what would you expect commercial production to look like in terms of when it will be achieved, and then how will you actually define what commercial production looks like?
Yeah, Lawson, it's a great question. As we mentioned, we will begin shipments of saleable products this quarter in Q4. That will involve a continued ramp-up to what we view as sort of a more normalized volume level. Some of that will depend, as I mentioned, on how our parts find their way into the specific programs and specific plants of our foundational customer. Then, of course, very quickly behind that, in 2027, we have the startup of production of Apple. Taking that all into account, I would expect us to continue to see from a startup cost perspective, continued costs in that category for at least the first half of next year, and then that will start to taper off as we get into higher volume production.
Okay. Thank you very much.
Our next question comes from Neal Dingmann with William Blair. Please go ahead with your question.
Thanks for the time, Jim. My question is a bit on what you just touched on, and that is really around your numerous offtake agreements and price floors. Specifically, Jim, are there any part I assume not, but I figured I would ask, are there any parts of your contracts or floors able to be reexamined or restructured potentially by the new representatives?
No, we have a binding contract.
That's what I thought. All right. That's simple enough.
For sure.
Secondly, can you remind me, maybe the 10X you keep advancing, love to hear the progress of that. Can you talk a bit about how conversations around this, maybe, such as price structure has changed in recent months? Which to me, given seems to be a very strong pricing sort of environment despite the volatility seen in the group. Just wondering, your contracts continue to advance as you expect them to?
Sure. I mean, I think it's a great question. What's really interesting on this front is I think if we look back historically, over the last year or so, you may have heard me say that our expectation is multiples of demand for 10X, just given the growth and all of the growth vehicles and the onshoring. Interestingly, what I would say is, in recent months, really in this quarter, I think it started to accelerate. We have seen actually specific, what I would call RFQs or specific customer sizings that well exceed the 10X capacity that we are bringing online now. I think what was sort of theoretical has become specific. What I would remind you is that our 10X, as we know, is 100% contracted.
We can bring that online in 2028, and we can be thoughtful about how we ramp, how we contract. We don't have any sort of financial gun to our head, so to speak. What that really enables us to do is focus on what we believe are going to be materially higher margin opportunities. As I referenced in the script, and I try to be thoughtful about the words that I put out there, Neal, but we do believe that we will be somewhat of a kingmaker in some of these new multi-trillion dollar opportunities. If you look at our platform, we're going to be able to enable a company or companies to be a number of years ahead of competitors. It's a very unique position that we're in, and obviously, we're going to make sure that our shareholders are rewarded for that strategic value.
Fantastic. Thanks, Jim.
Our next question comes from Max Yerrill with BMO Capital Markets. Please go ahead with your question.
Hey, guys. Thanks for taking my question. I'm sure to this date you've tested many different magnet formulations to finish the qualification process with GM. I was just wondering if during this process, how your views have changed on the market or supply and demand balance for NdPr or some of the other rare earth elements?
Well, I mean, kind of referencing back to my prior answer, what I would say, and we have said this for a couple quarters now, but we have dramatically lowered the heavy needs to hit grade on automotive magnets. We really believe that we have created a lot of IP value on that front. Then when you move to some of the other categories, which we believe are going to be materially higher margin, higher growth, our expectation is that when 10X comes online, that we are going to need likely no. I mean, maybe we will have certain verticals where we will have a little bit, but we believe that we could, from what we are seeing today, we believe we could fit more than the supply of 10X with zero heavy formulations.
And so, again, I go back to what you have heard me say for a quarter or two now, which is NdPr is the binding constraint. We do not believe that for the major growth and margin opportunity that you are going to see ahead, that heavies are going to be a factor. And frankly, we are creating that reality with the extraordinary IP advancements that our team are making at Independence today.
Thanks, Jim. Then maybe a follow-up on that. Do you see the GBD and the advancements in thrifting of some of the heavies, could that get to a point where you could start to see more of heavy rare earth sales to third parties like we saw in this quarter?
Yeah, I can take that. I think at this point, Max, it is Ryan. Our focus is ensuring that we have security of supply for our existing customers in the magnetics business. But there is absolutely a world where you take what Jim said, and we look at some of the performance applications that we have right now that do demand heavy rare earths through GBD, where we may not need them. And that is actually much closer to reality today than I even thought three months ago. And so, there is a world where that becomes a reality from a dysprosium and terbium perspective. Certainly, what you have seen us do is be thoughtful on the other heavy rare earth markets where there are a wide variety of needs, particularly the gadolinium announcement that we made last quarter.
I think that the sale that you saw this quarter, in a lot of ways, is emblematic of the embedded value that we have on our balance sheet right now that I do not think is being properly understood. It is not just heavy rare earth concentrate, and it is not, frankly, including light rare earth concentrate that we have on the balance sheet that is worth hundreds of millions of dollars of potential value. Same with the heavy rare earth concentrate.
I think that the results that you saw this quarter, while the sale of SEG+ in particular is a bit of a one-off to support a strategic customer, if you think about the margin potential of the products that we are going to bring to market shortly, I think it speaks to the value, the incremental value we will be able to create out of Mountain Pass and why we have been investing so thoughtfully in this heavy rare earth capability.
That is very helpful color. Thank you, Ryan, Jim. I will turn it back over.
Our next question-
Thanks
comes from Carlos de Alba with Morgan Stanley. Please go ahead with your question.
Hey, Carlos. You there?
Yeah, sorry. Can you hear me?
Yes, go ahead.
Yeah. Great. Yeah, thanks. Good afternoon, gentlemen. The question is on, given how the share has performed recently, are you considering maybe some share buybacks? You did a great program in 2024. Look, I know that you're growing, you're investing, but also, there might be value, there is value at these levels in your share price. Wanted to get your thoughts there.
Yeah. Sure, it's a great question. Obviously, we're very surprised. There's a lot of, as I referenced in the opening remarks, there's a lot of currents going on in this market, I think, that are in general unrelated to us. I think you're seeing, if I had to guess, a lot of pods and tax arbitrage strategies pressuring certain sectors, ours being one of them. You really have sort of these macro-level quantitative things that are hitting our sector, connected to some others. What I would say is I think what differentiates us is that we have contracted cash flows, and then obviously we have this material upside strategic value, given the niche that we're in.
I think we sort of seem to be correlated with some peers that need to raise enormous amounts of capital, that don't have balance sheets that are commensurate with survival, that don't necessarily have assets that even if they had the time, that represent sort of the value. I think there's sort of this overall macro downdraft on the sector. Obviously, then there's some political considerations that may be happening with some of the others. I don't think that that reflects on us. I think if you look, all we have to do, and we don't take this lightly, but all we have to do is execute, and our cash flows, you can do the math on that and the upside. We do believe that there's, as I said, there's material upside.
But I think what's really important is that we have to make sure that we maintain our fortress balance sheet to continue, so that we have the runway to be opportunistic through. Although I feel really great about our strategic positioning, our business, our ability to execute the niche that we're in, I will say, and I think probably, again, my remarks probably reference this, but I do expect the sort of the months and year ahead are going to be significantly challenging financially. There's a lot of disarray in the market right now. It would not surprise me if we see some of the credit issues to continue to play out across private credit and maybe the insurance industry that's loaded up with a lot of that. I think there's an entire rethinking around the returns on capital happening.
And I think there's, for those of us who've been in the markets a long time, these things are never sort of up and to the right. It would not surprise me to see a real sort of global macro financial setback. I would say for most of this quarter or two, internally at MP, we've been very focused on that as a possibility. We've said it on the calls, we've been kind of batten down the hatches, making sure that we're being really thoughtful about every dollar that we spend. Also, as we look at opportunities out there, not being wasteful with capital, because I think there's going to be some excellent opportunities for us to, for lack of a better analogy, kind of clean up the garbage, so to speak, in the time ahead.
That's a long-winded way of kind of laying out my perspective on the environment right now. Then obviously, lastly, with respect to specific capital actions, as you know, we never telegraph these things. We will obviously do things and then tell you, but hopefully you can expect us to continue to be opportunistic as we have been.
Thank you, Jim. I appreciate that. Then, just exploring a little bit more on the SEG+ sale that you had. What was the cost associated with that revenue, if you can share that? Also, maybe more importantly, did you deliver those tons, or perhaps you sold them, you monetized them, or you will monetize them, but you are going to use them to produce magnet for that customer down the road?
Yeah. Hey, Carlos, it's Ryan. We're not going to get into the contract specifics. I think you'll probably be able to deduce from our filings that this was a sale to an existing strategic customer of ours. I would note that this product has been sold. We have no intention of or ability to reuse it. This is a use case that is not focused on magnets. I think, again, it sort of speaks to the broader opportunity set of the heavy rare earth business that we're building. Obviously, at this point, as we're entering production of the initial set of separated heavy rare earths that the team is working on, then expanding into gadolinium and samarium, I think we've made clear that there are probably some further opportunities of other separated heavies for us to look at.
This is sort of an early sign of the potential of that business.
Fair enough. Thank you, Ryan.
Thanks.
As a reminder, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. Our next question comes from Corinne Blanchard with Deutsche Bank. Please go ahead with your question.
Hey, good evening, everyone. I think actually most of my questions have been asked and answered, but maybe we can touch on a little bit of recycling, any update, and you can share here. Then maybe the second question would be on the Project Swarm that you announced a few months ago. Is there any update there that we could be expecting maybe for next year, like in the coming months? Thank you.
Hi, Corinne. It's Michael. Related to recycling, good progress at both of our sites. Engineering is moving along at Mountain Pass, and construction is underway. All long-lead equipment has been procured. On the actual magnet production side from recycled materials, equipment is starting to be delivered and installed. Our teams are working closely with our customer on developing the magnet grades and prototypes and specifications to start deliveries next year. It's been a great collaboration so far, and we're very excited about it.
Then, Corinne, on Project Swarm, given that that's defense supply chain, we'll try to be delicate and thoughtful here, but what I would say is the reception has been overwhelming. It's great to see. I think that just to give some background, the purpose of Project Swarm is when we looked across, obviously drones being the future of warfare, when we looked across the American defense supply chain, what we were finding is that many of the producers would have magnet specs where they didn't even really know why they had those specs. They were buying motors out of China, whether it was through another location or not.
What we viewed our role here is to help standardize the domestic industry on specific grades and work with some of the downstream producers to help them do what they do best and make sure that they had the supply chain available to them so that they don't need to think about procuring or spending capital on getting capacity that they may or may not need. I think we're serving a really important role in the defense supply chain for the country on this front, and the reception has been outstanding, and we're happy to do it. I doubt we'll give you many updates beyond that, but that's the general gist of it.
Great. Thank you. Maybe if I can squeeze actually one more. I think you spent a few minutes, actually probably a little bit more time than you usually do on robotics and how much you could really tilt the demand balance there. I'm actually wondering if some of your customer conversations are already going to that direction. Do you already have some customers approaching you for your magnets for robotics purposes? Maybe just more strategic view here, do you have a preference on, do you see a difference in terms of strategy for maybe in terms of pricing, defense versus robotics, or are you pretty much agnostic?
Yeah. So it is a great question, and that was what was in my head when I earlier in the call when I referenced sort of the theoretical becoming the real, Corinne. We are having conversations with the names you would think and know, and there is obviously a lot of those names, and then there is sort of some world-class global big tech and other types of companies that are getting into this space. And what we are seeing across the board is an enormous amount of investment and focus and recognition that this is sort of the cutting-edge landscape of economic opportunity as super intelligence moves into the physical world. So we are having those conversations. And in fact, if you look last night, the Chinese government blocked SoftBank's acquisition of ABB, that robotics business.
So, I know obviously we are all in this country distracted with a lot of politics this week, but we cannot forget that there is global competition going on out there, and this supply chain is absolutely critical. So we are seeing it is getting more specific. And to your question on the business, that is why I referenced, I do believe that because we have a very unique platform, that this is going to be very high-margin business for us, and we have the balance sheet, the structural contracted structural benefit for 10X to be thoughtful about how we think about bringing online that factory for this sector and others. So we do expect it to be really economically attractive, and we will be patient and thoughtful about it, but we are really encouraged by what we are seeing.
Great. Thank you so much.
Our next question comes from Bill Peterson with JPMorgan. Please go ahead with your question.
Hey, Bill. You there?
Yeah, I'm sorry. Can you hear me now?
Yes.
Great. Sorry about that. I want to actually ask about NdPr production, and basically how we should think about the ramp into next year, taking into consideration if there's any downtime that you typically have. Effectively, when should we reach nameplate capacity? Also thinking about what can drive it beyond nameplate, whether it be further efficiency or incremental investments. Then maybe speak to how, on the cost side, when you might reach normalized costs and how the Chlor-Alkali facility could impact that.
Great. Thanks, Bill. This is Michael. I'll start and turn to Ryan. As I mentioned in my remarks, for a portion of the third quarter, we were able to run at over 450 ton per month run rate. I think that sort of cements in my mind our ability to hit that kind of targeted run rate with our existing assets. We still have some optimization and debottlenecking to do in order to sustain that for a full month or quarter. It's clear that we can, and I would expect over the next several quarters, we will get to that point where we're able to do so. In terms of 2027, we have a number of projects commissioning next year, in particular the Chlor-Alkali facility, where we'll start the first phase of that in the first quarter or so.
This is a really important project for us that increases resilience, hopefully lowers cost structure, improves our environmental footprint, reduces reliance on third parties and some kind of tight chemical reagents that represent a very significant portion of our cost structure. Bringing that online will be a significant endeavor and have significant implications for overall site infrastructure. We would expect from that, as well as recycling some of the additional heavy rare earth investments, to have some additional downtime next year, and that is incorporated into our expectations already. But we would expect to operate at sort of over 5,000 ton per annum production rate for the year.
Great. Thanks for that, Michael.
Yeah, just to hit your question on cost structure, I think all the things that Michael just laid out, he kind of answered my portion of the question too. The reality is that once we are through some of these de-bottlenecking initiatives, keep in mind that de-bottlenecking isn't free, and neither is the startup of Chlor-Alkali and heavies. I think 2027, particularly as we get to the back half of the year when we've got our initial train of Chlor-Alkali online, we've made progress on heavies, and we're consistently producing on a normalized basis at that 500 tons a month production level. That is when you will really start to see the leverage and the cost structure. I think that in some ways, we're starting to see it now as well.
If you think about the scale of Mountain Pass and the fact that NdPr has been really the only revenue product absorbing the vast, vast majority of all shared infrastructure, and we'll be at the point where we have dysprosium and terbium, we have other heavy rare earth products that will share in some of that shared infrastructure cost. You really look at the full, true NdPr production cost with all of these optimizations and growth and throughput that we expect, I'm extremely confident in our ability to continue to drive down the cost structure.
Yeah. Thanks for those comments. I wanted to ask a question on the magnet ramp a little bit differently than some of the prior questions. First of all, congrats on the qualification. I guess when we think about the path to the sort of nameplate 1,000 tons for your lead customer, then layer on top of that the next tranche for the second customer, I guess my question is this gated by your own output or ability or yield, or the demand cadence from these customers? If it's the former, I guess what areas are you looking to de-bottleneck or work to improve yields? If it's the latter and you have the capacity, are there ways to ship these magnets to other Is there demand basically from other players that can absorb the capacity?
Yeah, sure. I can start on that. I think the way to think about this is that magnets are highly customized engineered products, and our focus is ensuring that we are ready to meet the demand of our foundational customers as we continue to get placed into the specific programs and plants that we are targeted to be, which is not an overnight process. We are focused on ensuring that each of the areas of the plant are reaching sort of the throughputs that are necessary to meet a forecast that we are planning to. We have visibility, of course, into these various programs and various additions to the plants. It's not one or the other. It's really feathering into the automotive supply chain is a relatively complex process.
At the same time, there is significant expansion ongoing at Independence to support our next major customer there. The focus really is on executing for the two of them first and foremost, getting those programs well ramped and well optimized, then taking further opportunities as they come.
Yeah, I would just reiterate, as we bring online our foundational customer and then Apple next year, from a risk management standpoint, we are fully focused on those two customers. They are critical, and we want to get that right for them. I think we have been methodical about how we've built this business. If we wanted to sign a bunch of business and just sort of take a lot of stuff that comes, we could certainly do that. That has not been our philosophy. It is fully about executing properly, thoughtfully, then obviously as 10X comes online, we'll do the same thing.
Our next question comes from Ben Kallo with Baird. Please go ahead with your question.
Hey. Good evening, guys. Thanks for all the detail. Maybe just on heavy, and I know you guys talked about this a bit. You talked, Jim, about having heavies on site, and I also understand that you are going to use less heavies, but I am just wondering how much of Independence you are covered for with what is in inventory. Then just on your own production, if you could just talk about how we can think about that in terms of ramp and potential revenue contribution going forward.
Yeah. Hey, Ben. It is Ryan. On that front, what we have consistently said is for Independence, where obviously we are starting out production with EV traction motor magnets and then expanding into other products with our next customer set, we believe that we are fully covered for everything that we need at Independence from just the production from our own ore body. Obviously, we have also talked about the fact that the heavy rare earth separation facility is designed to take in third-party feedstocks where we are actively in the market sourcing those as we speak. From that perspective, we remain very, very confident. As it relates to 10X, I think we have talked about in the past as well that we have a partnership with Department of War on that front that protects us there, and that has made excellent progress.
Just following up on the heavy production at Mountain Pass, how we think about that just in terms of any kind of revenue contribution?
I think, Ben, what you will see is given the fact that for the foreseeable future, we will be using those products internally is, in the early days, it will be intercompany revenue that gets eliminated in consolidation. Then ultimately, we will recognize the revenue for the heavies that make their way into magnets through the magnetics business over time. There also is a consideration of, in early production at Mountain Pass, I think we've been very thoughtful in positioning our inventory of heavy rare earths for magnets. So there may be a period of time where we are producing for our own inventory before that finds its way into a magnet and gets sold. So we aren't really guiding to specific dysprosium, terbium revenue numbers at this point. As we have more to update you on, we will.
I think what you will start to see is, I think Michael made mention in his prepared remarks of the fact that we will make some interesting intermediate product streams that will come off of the heavy separation process ahead of us going into finished samarium oxide and gadolinium oxide production. Those are potential very significant margin opportunities for us. Again, we're not giving a ton of specifics there at the moment, but it is, I think, a very significant opportunity for the material segment. Then, of course, we've talked about 2028 being the timeframe where our gadolinium contract comes online, and we're looking at other opportunities as well.
Thank you, Ryan.
Our last question comes from Richard Garchitorena of Barclays. Please go ahead with your question.
Hey, Richard, make sure you unmute. We can't hear you. You there?
Sorry, can you hear me now?
Yes.
Yes.
Oh, I lost you again.
I'm sorry, Richard. You're breaking up. Try again.
Can you hear me now? Hello?
Yes.
Okay.
Yes.
Okay, let's try this last time. Just curious, as you went through the qualification process, was there anything that surprised you? Were there any best practices, I think, that you may have taken away that can help improve the process, whether it's procurement, whether it's how do you basically set up the lines, where we could see incremental improvements in margin and optimization as you move ramping up in 2027?
Yeah, Richard, it's Ryan. It's a great question, and the answer is absolutely yes, and I think that this is one of the great facets of the partnership that we have with General Motors. We decided to enter the magnet business and start with automotive for multiple reasons. Obviously, it's a significant portion of the market, but it happens to be one of the toughest from a technical perspective, and absolutely the hardest from a quality perspective. When we talk about qualification, it is not about, do you make a product to our spec? Does it just meet performance specifications? It is down to every piece of equipment. How do you run it? What are the standard work instructions that are present? What are the safety attributes of it? How does material flow on the floor? It is incredibly thorough.
I would probably give another plug to our magnetics team for how hard they have worked in pushing this process forward, and frankly, to the General Motors team for how thorough and helpful they've been. Having started this business from scratch in 2021 to get to this point, it is something that I think this entire team is incredibly proud of. It has absolutely made us better, and we have a lot more to do.
Great.
Yeah, Richard, yep.
That concludes the question and answer portion of today's call. I will now hand the call back to Mr. Litinsky for closing remarks.
All right. Well, thank you, everyone. It was an outstanding quarter, and obviously, there is a lot of interesting currents and chaos out there, and so we wish everyone well and look forward to seeing you again next quarter.