Good morning, and welcome to the first day of the Energy, Power, Renewables Conference. My name is Bill Peterson, U.S. Clean Tech, and Metals & Mining Analyst. Really pleased to have MP Materials here, kind of to kick us off this morning. Jim Litinsky is President and CEO of the company, and he's gonna walk us through... You know, we're gonna do a Q&A session, but I just would like, maybe, Jim, for those who are less familiar with the story, maybe you can just kind of start off and explain who you are and, and, you know, what you do at the firm and what MP Materials does. Yeah, thanks, and thanks for supporting the conference.
Sure. Thanks for having me. Thanks, Bill. Figured I'd stand up so you all can see me. It's early. MP, let me set the stage, because I know this is an energy, power, and renewables conference. We focus on the electrification revolution. As we think about any kind of electrified motion in the world, whether it's an EV, a wind turbine, drones, robotics, typically, you have energy gets to a motor that makes that motion happen. You know, there's a lot of discussion when you think about the mining space. There's sort of battery chemistry and what materials will go into the battery, and very often, the motor gets confused with the battery. We are in the motor.
Regardless of the energy source, you know, regardless of your battery chemistry, when that energy gets to a motor, the way that motion is typically via a rare earth magnet. The reason it's a rare earth magnet is because rare earth magnets have been proven to be much more efficient, high-powered, able to withstand higher temperatures. If you're thinking about any kind of electrified motion, the odds are very high. For example, in electric vehicles, it's a 90%-plus chance that you have a rare earth magnet in that. The primary ingredient in a rare earth magnet is neodymium-praseodymium, NdPr, and that is the primary revenue product, revenue driver out of our company. MP Materials, the company, I founded the company in '17.
We bought a set of assets that was mainly Mountain Pass, California, which is the, arguably, the premier rare earth mine and processing asset in the world. We currently represent 15% of global rare earth content. The rest of the industry, other than one player, is domiciled in China. What's important about this supply chain is that if you can mine the material and refine it, but we're still sending it all to China to be made into magnets. The material gets mined, refined, but then 90%+ of the magnetics are made in China. We produce that content today, and we send it to China, but we are in the process of moving downstream, what we call our stage three, where we're building a magnetics facility in Fort Worth, Texas.
We have a foundational deal with General Motors, where we will take our mine-refined material from Mountain Pass, and we will send it to Fort Worth and make it into a magnet for the GM Ultium Platform and then other industry use cases. The really important thing, and then I guess we'll get to Q&A, just by way of background, is, you know, you'll hear a lot about rare earths. They are not rare. What is really rare is having an economic enough concentration, to, you know, to process them efficiently. If you look at pictures of Mountain Pass, there's several billion dollars of capital assets on site. I mean, the best way to think about it is this is much closer to an oil refinery or a specialty chem.
You know, you'll hear of a rare earth discovery, but getting these things online is incredibly difficult and requires a lot of capital. You know, our site, to have an operating site with several billion of invested capital takes years. If you had a site that was economic, you know, forget the financial capital, the human capital, the time, the permitting, all of that, you have to start with an economic site, and that's extremely rare. We have the unique aspect of having the premier site in the world, and now we're moving downstream to get this supply chain to the USA. With that, I will flip it for the first question.
Oh, great. Thanks for the overview. I guess we'll just kind of get right into it, like with pricing. You know, the pricing has been quite volatile, so kind of $175 per kg a little over a year ago, falling down to more, you know, closer to $70 more recently. I mean, can you briefly discuss the overall market? I mean, how does the backdrop look for rare earths, currently?
Sure. Given the name of the conference, I'm sure we're all aware that over the last year, pretty much the entire commodities complex has gotten hit, you know, whether it's oil or lithium or anything. Rare earths in particular, I think, of any of those verticals, we have probably the most extraordinary growth outlook when you think about, again, EVs, wind turbines, drones, robotics. Electrified motion is growing very quickly, and it currently only represents about a little over 20% of the industry demand today. In the very short term, we are typically impacted by, you know, standard supply-demand inventory draw, as are commodities in particular, because as we know in the commodity space, you know, inventories really matter. Long-term supply and demand trends do not necessarily get reflected in the near term.
You know, it's really a spot market. We, you know, our commodity, like others, has gotten hit in the past year. Everything that we see in our space, you know, we're seeing enormous growth. Behind the scenes, we see you know, a remarkable amount of reach out from OEMs and other downstream producers looking to sign and procure materials for the long term. As we think about if you take just EVs, for example, and say that that's 20% of the current demand, and then compound that at some of the estimates, say, around 30%, if you do that math and you look out a decade, you know, that eats up more than the current supply of the world today, assuming the other 80% goes to zero.
Of course, the other 80% is, you know, stable and growing itself. The demand backdrop is extraordinary. You know, we think certainly that this is, it's temporary, but of course, in a commodity, you never know. The other thing I should say, you know, we have set up the company this way. When we went public in 2020, I made very clear... I'm the largest shareholder, we have an owner-operator culture, and I made clear that the, you know, I'm a big fan of the milk in school capital structure really matters. When you're in a commodity business, you need a capital structure that reflects the business that you're in. As I like to say, we like the leverage in our commodity price, not on the balance sheet.
We have, you know, a huge net cash position. We have a profitable business, you know, we're, I wouldn't say comfortable, but we are, you know, capable of, you know, making it through pretty much any kind of volatility in our underlying price.
Great. Yeah, you kind of allude to it earlier, 90%, I guess you said, in EVs, so that means 10% are not using NdPr. I guess, what is the substitution risk? I mean, where would NdPr, you know, NdPr not be used?
Sure.
How could that look like, in a, if it is substituted?
Sure. One thing that was sort of topical in our sector is Tesla recently came out and said that for their new factory in Mexico, for their, I guess, what people are calling the Model 2, their intention is not to use rare earth magnetics, that they're going to use another kind of magnet. This was not a shock to the people in the industry, but it sort of generated a headline. The background there is, you know, rare earth magnets are not required, they're just much better.
If you have a rare earth magnet in a EV today, in a Model S or a, you know, a LYRIQ, there's $thousands of savings on your battery materials because you have much higher efficiency, it's smaller size, you know, it can withstand a lot of other things better. But the original Roadster, the Chevy Bolt, did not have rare earth magnets. There's always the capability to go to a non-rare earth magnet. The challenge is you lose a lot of money doing so. If you look at the math, if you want to produce 20 million electric vehicles by 2030, there aren't enough rare earths to do so. It's not necessarily a credible statement to say we're going to utilize rare earth magnets, if we have this long-dated target.
We were not surprised that that is an aspiration. As part of that, though, they didn't say that they're changing any of their existing platforms because we know that, you know, it's highly unlikely because of the trade-offs. Something will give, and my guess is that over time, the share of rare earths in, you know, in electrified motion will go down in a number of use cases because it must, because getting the supply online is extraordinarily difficult. It takes a decade, if you even have the site, for all the reasons I discussed earlier.
By the way, on that same thing, you know, that same investor call, you know, they went on to talk about humanoid robotics, and you know, Musk stated that they expected the, over time, the humanoid robot to human ratio to exceed one, meaning 10 billion robots in the world. Actually, just as a fun fact, as we think about demand, and again, this is very long-dated and speculative, and I wouldn't underwrite this in the near term at all. You know, an EV is a robot on wheels. It has a huge battery and a small magnet, essentially, in the motor on a relative basis.
Robotics, whether we think of a humanoid robot or a number of the other use cases that are currently in existence in, you know, the industrial landscape, are typically very small batteries and lots of magnets. Actually, the need for rare earth magnetics in robotics is even more acute. When you think of that math relative to the supply of our industry, it gets, you know, even crazier. We do not lose any sleep thinking about the demand outlook at all. You know, it's... The bigger question will be, you know, what will be some of the trade-offs that people have to make?
Anything, and particularly in robotics, anything where there's, you know, real force required, because you have such a small size, you know, you need to have that rare earth magnet. It's really required in that case, unlike, you know, in sort of a very low-performance vehicle. You know, I would've also, as a last thought on that, just thinking about demand, you know, since we're all in a tizzy, if you think about, you know, the value of Tesla and NVIDIA is greater than this, than this entire conference, right? If we look at the enterprise values of every company in this conference, and the AI revolution.
The LLMs are now being applied to robotics, and so, you know, you can see these videos on YouTube where people will tell a robot, "You know, hey, pick up that box and bring it to me," or whatever, and that's happening. I actually do think that this is a more near-term thing than I might have thought if you asked me six months ago. Anyway, that's a long-winded way of saying that we expect over time, if you look at each of these electrified motion cases, there's going to be trade-offs, but all of the trends are for sort of a parabolic growth in demand in our space.
Great. We'll kind of move on to the different stages of the business. Before that, just as you think about maybe a floor of pricing, do you have a view. I know it's kind of a black box. What are the view of marginal costs in China?
Yeah.
Like, how low can this get? I mean...
Yeah, it's a great question. On our last earnings call, prices have come down 50% over the past year on, you know, along with the commodity landscape. What I noted was, and, you know, China's always very opaque, and again, this entire supply chain, until we onshore, is in China, so that really drives our industry. What I noted was, from our discussions and analysis, we believe the Chinese industry is losing money at these prices. It's always difficult in China because different buckets of the supply chain can be moved around, and numbers are not necessarily opaque. You know, we have, you know, pretty strong suspicion that that's the case. You know, ordinarily, in a commodity business, that's a very bullish indicator.
You know, for the medium and long term, that's a very bullish indicator. Obviously, in the short term, you know, it's a wild beast. Who knows?
Yeah, who knows? Okay. Again, I'm going to move to different stages, but if anyone has any questions, we can certainly incorporate them into the talk. Is there a certain microphone? Okay, I think this gentleman here has a question.
Two parts. The first one is, can you talk a little bit about the time frame for the startup of the factory in the U.S., number one?
Yeah.
Number two, can you speak a little bit about the nature of your relationship with your Chinese suppliers? I remember that at one point, one of the Chinese entities was an investor in your company. I'm not quite sure if it's or at least I think it was, and I'm wondering if they still are, number one. Number two, what kind of protection, if any, you have in terms of supply, from the people who are processing your rare earths now? Thank you.
Sure. Just stepping back the stages of our business. When we think about the entire supply chain, you typically mine and concentrate the material, so you get the, what is approximately 6.5%, 7% rare earth out of the ground. We concentrate it up to 60% to 65%. Just doing that is a very complex, meticulous industrial process, requires lots of capital. That is our stage one business, rare earth concentrate. We currently sell that to China. If you look at our business last year, we generated a little under $400 million of Adjusted EBITDA. That was all from selling a concentrated product to China. As we move downstream, we have the capital assets now site.
Our stage two was adding some incremental assets, although most of those assets were on site, adding some incremental assets to refine all of that in the USA, so we don't need to send it in concentrated form to China. All those assets are built. We're commissioning that now. We've stated that we expect run rate of our full production by year-end. We've been going through that process, now. That is mechanically all there, and that's happening so that we will be selling a refined product. Then the stage three is Fort Worth, which if you look, you can actually follow us on Twitter, and we, you know, have a tweet where a few months back, where...
Actually, by the way, we recently also posted a video that's, like, four minutes that kind of talks about this entire process. Pretty entertaining four minute animated video. You can watch that to see all these steps. We broke ground on our Fort Worth facility, which again, has GM as a, you know, scaled foundational customer. Literally was bare land in April of last year. That facility is now topped off and done. It'll take us a year and change to get the inside, all the equipment and get that process going, but we, you know, we expect to be making magnets at scale in 2025 for GM, for the Ultium Platform. Then that will complete the full onshoring of the supply chain.
Until then, even with refined products, you still have to send it to Asia, because that's where magnets are made today. As far as shareholders, we trade on the New York Stock Exchange, you can look up our holders, and I'm the largest shareholder of the company. Our original distribution partner, you know, we have to have access to the, to the Chinese market. Our original distribution partner still is a shareholder. You can see that on Bloomberg or wherever you look.
Great. Okay, you kind of spoke to stage two, but maybe, some other agreements. You also mentioned Asia. You signed deals with Sumitomo in Japan and also a metal maker in Vietnam. What's the importance of these agreements?
Sure. Sumitomo, Japanese industry there are some Japanese magnetics makers. Unfortunately, a lot of their business is domiciled in China because they need to get the feedstock. We should be able to enable them getting feedstock to, you know, some of their Japanese assets and other assets in Asia. Sumitomo will be a great partner on that front. We announced on our last call that we also secured some metalmaking capacity. As I again, if you want more detail on this, I recommend you look at that video that we made, 'cause it'll show you to the steps. When you take the refined rare earths to make it into a magnet, there's actually, you know, there's more steps.
You actually have to turn it into a metal, then you alloy it, then you make it into a magnet. Those steps will all be done in our Fort Worth facility. We also will be making metal in Vietnam. We've secured capacity, quite a bit of capacity there to turn our refined rare earths into metal. That will open up more markets in Asia, where we can sell rare earth metal as opposed to just refined rare earths. It's just a further step down the value stream. That was a, you know, an exciting announcement for us last quarter as well.
Great. Just more on stage three. You have a profitable stage one business, and obviously hoping to add to that with stage two. You know, why vertically integrate? Why is it important to vertically integrate? What are the advantages? I guess on the other side, what are the risks?
Yeah. Well, for starters, as, you know, as an American, I think it's important that we have supply chain security. I mean, when we set out to build this company, you know, one of the important things is that this is a key national security asset. It's a key capability, and our, you know, our downstream can't rely forever on a 100% supply chain for this stuff in China. We wanna be a Western champion. We wanna be an alternative. I happen to think that the magnetic space, the downstream, you know, this industry is growing enormously. The analogy I would give, and again, it's, you know, it's certainly not of the scale, and I'm not trying to be grandiose, but the way to think about it is like semiconductors in 1970.
You know, in 1970, you didn't know we would all have a computer in our house or an iPhone, or maybe you did, but you could see that the semiconductor revolution and computers was changing the world, and we see electrification everywhere, right? We know it's obvious now. You know, it was less obvious five, six years ago, but it's obvious now. It's gonna, you know, it's gonna be everywhere, and I don't know what sort of the killer use cases will be beyond EVs and, you know, could be more EVTOL, more robotics, all these things. Being a picks and shovels provider, a feedstock to this space, particularly if we are the Western champion, you know, is a very exciting opportunity.
You know, we wanna be able to move the business downstream, have more total dollars of profit, more higher value add opportunity to grow the company. Now, with that, though, you know, we're an owner-operator culture. Again, I'm the largest shareholder, we are maniacal about how we make incremental investment. You know, we made very clear that when we think about the stages of our business, that we will not rob Peter to pay Paul. If our stage two business is selling a commodity, as we move downstream, we assume the contribution of that commodity is at market price. We're not gonna make incremental investment in downstream in growing the business if we're subsidizing that via lost capital in our other business. That's also what's extraordinary about our business. If you think about...
There's been no magnetics manufacturing of scale in the West, ever. It is such an important function that we were able to get, you know, what is an incredible partnership with GM that will effectively put us in this space at scale in a de-risk way, where we can invest the capital and know we're gonna get. You know, assuming we execute, and we must execute, we will earn an attractive return on our capital. You know, those are once-in-a-lifetime kinds of opportunities. We have the opportunity to build this champion. As I like to say, you know, talent begets talent, scale begets scale. As we move downstream and build this business, in the same way that semiconductors, you know, or at least in the old days, you can't just have two people in a garage.
It requires a lot of scale, a lot of capital to make product. Magnetics is similar. You need to have a huge factor. You need to have the upstream commodity. You know, we'll make those investments as well, and we're years and billions ahead of anybody else in the space.
Maybe speaking of funding and, maybe even tying in policy support, there has been a lot of government support in the last few years, and most recently in the form of the IRA. It's pretty topical for a number of companies here at this conference. What are the potential benefits for you from that bill? I guess maybe similar to, like, your funding, your question on scale, like, are there other sources of funding that could be available?
Sure. Certainly the IRA has accelerated onshoring, and I think we all see the, you know, the headlines and the many billions of investment in particular, subsidies for EVs. Obviously anything that drives electrification adoption is, you know, a net positive for us as a business because it just means more demand. Specifically, within that bill, there are two provisions. There was 45x, which is essentially a tax credit for operating costs in the critical materials space. When we think about our Mountain Pass operations, we will benefit from that, and that actually will be, you know, take whatever our operating costs are and multiply it by 10%, and that's a tax credit, not a deduction.
That is, you know, quite a bit, you know, of reward for us, if you will. Then lastly, there's 48C, which is an investment tax credit for incremental investment in production, and certainly the rare earth magnetic supply chain qualifies for that. We expect to, as we look at, you know, any kind of investment, and that is a 30% tax credit for investment in that supply chain. That is an opportunity for us to the extent that we do something further of scale, whether it's in our existing facility or another facility. You know, that will be an opportunity that's open to us as well. There's a lot of...
I think one thing about our space, I didn't really mention this earlier, but for those that are interested, when we think about rare earths, historically, there's been a tough environmental track record, particularly in China, around the production of rare earths. China has cleaned up a lot of that. There's still quite a bit in Myanmar, where people will, you know, take acid next to a mountain and pour it on rock, they get the rare earths, and the acid just goes into a river. It's pretty terrible. There's a tough track record here. We operate proudly in the state of California. You can imagine the amount of, you know, regulatory oversight that we have.
We have something very unique in the mining material space, which is a dry tailings process, which means we, the materials, we take them out of the ground, we get the rare earths out, and then they go back into the ground and in a dry form, in a lined impoundment. Which means there's, you know, essentially no risk to the water supply. We were able to take the materials out and put it back into the ground again, as it came out. That is, you know, a very attractive thing from, you know, an environmental standpoint. The fact that we are, you know, feedstock to the electrification revolution, and we're doing so in an environmentally friendly way.
You know, as you look across the political spectrum, whether you're, you know, on the ultra left and you're only focused on the environment and you don't like any kind of mining, or you're an ultra right national security hawk, and you're only focused on sort of the China supply chain issue, everywhere on the spectrum, you know, we are serving an important need. We're bringing this supply chain home, we're creating American jobs. We're doing so in an environmentally friendly way. There's, you know, there's hopefully pretty universal, and I experience it when I go there's pretty universal support for what we're doing. So that obviously feels good.
I just want to check and see before moving on, to see if there's any... gentleman here.
Maybe just a quick one. Being new to the story, you talked about 20% of the market being the EV. Can you talk about the other 80? Is it permanent magnet motors and all kinds of versions? Is it just the motors, is there other markets for it?
Sure. Well, the other-
Maybe I can add, just if you can talk about the growth of those, these different segments, too.
Yeah. I mean, the other 80 are what I would call, think of them as GDP-oriented, old school. I mean, everything from disk drives to HVAC, to, you know, window control in an ICE vehicle. I would think of them as industrial robotics. There's sort of a hodgepodge of what are kind of what I would consider lower growth, GDP-oriented type areas. Certainly, though, there are some of those where their electrification is taking greater hold. HVAC would be an example. You can look at each of these verticals, and some, like disk drives, are obviously declining significantly. You know, HVAC's growing. When I think about that 80%, I think it's fair to assume that over time it's somewhat stable.
Maybe it grows a little bit, maybe it goes down a little bit, but it's probably, you know, GDP-esque. The 20 or 25% is what is very high growth today, which is, you know, taking over the needs, not to mention some of the other use cases which aren't even in those numbers. The other thing I would say is, I think for people who aren't in the mining materials space, when we think about growth, it's very different than like a software company. If you think of a software company, you think, "Oh, it should grow at 20 or 30%." You know, SaaS, multiple, all that kind of stuff. In a commodity, obviously, just supply growing 1 or 2% a year is enormously challenging, right?
In the copper space, if you could grow supply 1% a year, that's enormous. If the demand for rare earths is going to be 2x in five or seven years, what it is today, I mean, that is like off the charts, a big time problem, because we won't have the supply of it, because it takes a decade to bring this stuff online, at least in the West.
Okay.
Can you talk about a little bit how you're trying to de-risk this plant that you built, This plant that you're building, it seems like there's not a whole lot of plants in the Western Hemisphere that you can use as a template. It must be complex?
You're talking about Fort Worth, the magnetics facility? It's a great question. When we went public, I think it's important, when we went public in 2020, you know, we talked about the magnetics business being a 2025 plus event. We didn't even have a single employee in our magnetics business. Our first hire was in January of 2021. As we think about, you know, it's now 2023, we've got a facility built, a deal with GM. I think we've been very measured in, you know, recognizing the scale and the timing of this challenge, and have tried to be thoughtful about, you know, what and how we convey and what we need to execute. We've been.
If you think in about two and a half years, we've gone from having not a single person on our team to a, you know, nearly built facility. We have our magnetics team is about 35 people of extraordinarily talented metallurgists and material scientists and, you know, magnetics experts. What I would say is magnetics are not, you know, these are not landing rockets on platforms in the middle of the ocean. This is a pretty standard industrial process, mechanically, so it's very well understood. So we have a, you know, very, I would say, humble but confident perspective on, you know, what we need to build and do. It's really about cost, right?
It's really about, you know, turning a rare earth into a metal, and then the metal into an alloy, and that alloy into a magnet. These are not this is stuff that's been around for decades. It's really just doing it at scale and making sure that we get the cost structure low, because there will be a J-curve vis-à-vis China. Frankly, I think one way we've managed for that is if we look at Fort Worth, you know, it's a 250,000 sq ft facility that represents a, you know, a little under 10% of our current expected output of Mountain Pass, that we've, you know, stated that we would process there. If we had wanted to sign a deal and go out and do 10x out of the gate, we could have done it.
We have wanted to execute by, you know, sort of hitting singles, so to speak, right? Making sure that... 'Cause we will mess some things up in this process, vis-à-vis costs. We will figure out ways to dramatically lower the cost structure as we think about, you know, a few years from now. We wanna make our mistakes on a 1x rather than a 10x, and so we'll make those. But that'll position us to get the next piece of the business, done, you know, better. From an execution standpoint, it's really, you know, the blocking and tackling of bringing a plant online as opposed to, oh, we need a technological breakthrough of X to even do this.
Well, great. Unfortunately, we're out of time, but I appreciate the presentation.
Thanks.
It was terrific. Thanks.
Great. Thanks, everyone.