We are very happy to have Jim Litinsky, who is the co-founder, CEO, and Chairman of MP Materials. Jim, thank you for joining us at the conference.
Thank you, Ben. Always good to see you. It is good to be here at the big event. Yeah.
Since you guys have come to the market public, a lot has changed, obviously.
Yes.
I just want to start there. Maybe if you could just kind of give us the latest rundown of MP and where you are on your journey, that you started out many, many years ago, but where you are today.
Sure. Well, we could spend the whole time talking about it. I'll do the quick version for the morning. But when we went public, many of you know I'm a former hedge fund manager myself. I bought the assets of Mountain Pass at a bankruptcy. When we took it public, we had turned around the initial stage of Mountain Pass, and so this would have been 2020. We said, "We're going to bring online the refining, and one day, maybe 2025 plus, we'll move into the magnetics business." I think people thought we were a little crazy then and didn't believe it. But here we are, fast-forward, and as of this quarter, we've qualified magnets with GM, and we're ramping up. Over the last year since we've been public, we built out the refining business, we built out the magnetics business.
We have a team of over 300 people in magnetics. I'm sure we'll get into it, but we have partnerships with the Department of War, GM, and Apple. So we've got GM online now. We'll be bringing Apple online next year. And so we've really restored the supply chain. We've brought it back to the U.S.A., and the years have gone fast, but I think we've certainly accomplished a lot as a company, and frankly, I think a lot more than we conveyed to the street quicker than expectations were, for sure.
Maybe if you could start with a two-part question, just the importance of both rare earths as well as magnets from a domestic security standpoint. Then, a lot of times, like when the upcoming meeting with the President and Xi is coming up, people start thinking that tensions will ease and then this will all go away. So, love to get your perspective on, first, an overview of why it's important, and second, can we go back to normal?
Yeah. Well, the good news is I think almost everybody has heard of rare earths. When we started this in the early years, there was a lot of education of, what are rare earths? Why are they important? Rare earths are special materials that ultimately make ultra-efficient, high-powered magnets that you need for pretty much any kind of motion use case. So obviously, historically, electric vehicles were the big ones, but think of consumer electronics, data center, disk drives in data centers, and then obviously the biggie would be robotics, drones, essentially the future of physical AI and ultimately national security and warfare. Obviously, a lot of national security use cases. But anytime you see motion in modern-day life, you need rare earth magnets if there's a sort of a high-power use case. Obviously, with the trade war early last year, this industry is predominantly in China, historically.
We shut off access to GPUs. The Chinese shut off access to rare earth magnets. We were weeks away from what I believe would have been a full-on depression of our economy. You had seen headlines last summer. Ford had shut down plants. There were a number of defense and aerospace manufacturers in process of shutting down. Then ultimately, there was a deal across London, Geneva, and Busan that ultimately led to where we are today, which is, I would call an uneasy détente. The Chinese are allowing rare earth magnets to come out, but shipments to specifically U.S. and Japan, but really the world, are down. You need a license.
For any use case, if you are making an EV or a smartphone in general, they are coming out sporadically and okay, enough to feed your supply chain, not enough to stockpile, but licenses are generally available. If you are doing any kind of national security use case, anything in robotics of scale or military, what they call dual-use technologies, you are not getting a license. To get the license, you have to give up your IP. There is a detailed submission that is required by the Chinese government, and essentially, the Chinese are using this as a wedge issue from a supply chain standpoint to drive negotiations. As we look at APEC and G7 coming up, and very recently, they kicked the can in the most recent meeting between President Trump and Xi.
They kicked the can to January, so we are at a critical point where the question is, will they continue to extend this, again, what I call uneasy détente, or not? I would say, I think I strongly suspect they will extend it, and it will be the uneasy détente will continue. Although if you asked me maybe 72 hours ago, I would have said that is a 98% chance. Given everything that is happening with NVIDIA, and what you are seeing remarkably is this is actually a bipartisan thing. There is anger in Congress about what has happened. I am not expressing a view. I have no clue what happened there, but there is anger. We do not know how far this thing goes. Were there billions of GPUs illegally sold or what? It has the potential of blowing up this issue as we head into the summits.
It is not crazy to think that there will be some kind of GPU rare earth freak-out again, or there will be some deal. Even if in the best-case scenario, so let us say that there is a deal and it is a continuation of the uneasy détente, we are talking about a continuation of the existing licensing regime. As an aside, certain other heavies that are critical, not for magnets, but for other uses we can talk about, those are not coming out of China. So in the supply chain, it is not a good situation writ large, even in the best-case scenario, and the importance of what we are doing, and obviously that is reflected in the deals that you have seen us do last year and this year.
The importance of what we're doing continues to grow by the day, particularly with sort of the future of warfare and all the use cases. It will be interesting to see in the next few weeks how bad this scandal around NVIDIA gets. Does that derail relations? I think for our purposes, however this shakes out, we feel like what we're doing is really critical, and we're hearing that in the supply chain.
I want to go to the, you mentioned bipartisan and with the election, I know on the conference call there were some questions around your, I would call it landmark deal with the Department of War. First, could you just talk to us about why the Department of War selected MP Materials for that deal? Then second, do you expect any changes or can there be any changes, I think was the question on the conference call, because of a Democratic-controlled House and Senate?
Our deal was start to finish through the Pentagon. It was not really driven by any of the other departments. It was sort of start to finish a national security deal. The reason we were selected is because, and this was true then, it is true now, we are the only company in the world, the only single entity in the world, and that includes China, that can actually satisfy what the Pentagon wanted.
Obviously, they would not have gone to China, but the point is, having the capability of mining, refining, metal making, magnet making, obviously we have recycling as well, but having all aspects vertically integrated of this supply chain in-house and having the ability to do all of it in the U.S.A., we had already done it, and the Pentagon said to us, "We want to 10X what you're doing as quickly as we possibly can." We were the only entity that could satisfy that. If they had opened up our deal to the entire world and said, "Anyone can have this deal," we would have been the only company in the world that could have achieved it or actually qualified to do it. We have zero concern. I mean, obviously, should never say zero, but we have almost no concern. We have a binding contract.
We had bipartisan support. When our deal was done, we had statements of support from the China Committee, from a number of Democrats on the Hill. We have worked through a number of administrations. We are a non-partisan national security company. Frankly, one thing I think that is missed, I get this question obviously post the election a lot, but I think one thing that, again, irrespective of your politics, I think the Democrats are as strong, if not stronger than the Republicans on the critical minerals issue. This is an issue that matters greatly for manufacturing and jobs. There is clearly bipartisan concern about Chinese competition, China from a national security standpoint. It would not surprise me if we actually see a dramatic heightening of spend and focus on our space in a good way. If anything, it will be the opposite.
Now, the one thing I would say is I do think that there are going to be some investigations, some concern around a couple entities that were funded that maybe were questionable. I will leave that to others to look into. You will see some headlines, you will see some hearings and investigations. I think it is wholly unrelated to us. Our deal was fully driven out of the Pentagon. It is a binding contract, and we think this is a really good opportunity for us.
Great. If you guys have questions, you could email session3@rwbaird.com or just raise your hand. Now, I want to dive into the business, and I am going to try to go from mine to separation to magnets. Just starting with the mine, maybe you could just give us an update, where you guys are. I know you guys have operated it better than the previous owners, since you guys have owned it.
By a landslide.
By a landslide.
By many miles.
Well, we don't want to call it a landslide in the mine.
Right. I guess that's a tough word to use.
But just w e think of you, I think for people that follow you, we often think of NDPR, primary product. So maybe talk to us about where you guys are on that. And I have heard you make comments at industry, the Toronto Industry Conference, just about how overlooked NDPR is as focus on heavies. Maybe you could touch on that a little bit.
Sure. As far as our operation, I think we used to say this stat, but now that we've been public for over six years, it's maybe less relevant, but we'll bring back some memories here. I think if you look at our run rate REO production, at this point, it's probably, if you took the best quarter annualized of the predecessor, I think we're over five times the amount of production than they ever did in their best quarter annualized, which of course they didn't sustain. We've brought online the refining capability. We said at this quarter, we're run rating basically there as a fully normalized refining. We're going to be bringing online a number of things next year. We've got a lot of exciting projects, chlor-alkali, recycling for Apple. We can talk about those.
From a mining and refining standpoint, it's been remarkable. I think the market hopefully has been very pleased with how Michael, my co-founder, and his team, how we've executed out there is extraordinary. I think back when I bought this asset at a bankruptcy, I think they were talking about. One day they wanted to get to 20,000 tons of REO, and they were fantasizing that, they were saying to the market, "If you give us a bunch of capital and blah, blah, we'll get to 40,000 tons of REO." We're doing north of 50, and we're on our way to 60, so it's just been a remarkable story from that standpoint. To your question on NDPR, it's fascinating.
I think if you go back over the last couple years, there was a narrative that bringing online magnets, that the bottleneck in the supply chain was around heavy rare earths. I think you had, there's a couple companies out there that are trying to raise capital and finance themselves, and the criticism would always be, "We need more heavies, and MP's not satisfying that," and so there was a narrative. What's interesting, if you look at what we've done in our magnetics business, we're now obviously qualified with GM. We have saleable magnets to GM. We have reduced the heavy content to hit the spec. This is really important. A customer doesn't come to you and say, "I want a magnet.
It needs to have 1% heavies, or it needs to have 3% heavies. They just say, "I need this spec." It needs to be N45SH, or it needs to be whatever the spec is, and you got to hit that spec. The key to the business is to be on the cutting edge, is to make sure that you have the IP to hit that spec with the lowest cost you possibly can. That's something that we've been at since my first hire in the magnetics business in February of 2021. We have been focused on the IP landscape, on pushing the boundaries of IP, of making progress to hit specs at the lowest cost possible. What we said is that over the last couple years, we've been able to hit the specs that we need for auto.
EV traction motor magnets are kind of the hardest to do because when you look at the curve, to get the strength and the thermal resistance that you need, if you can do an EV traction motor magnet, you can pretty much do anything. We've reduced the heavy content by about 50%-60% at this point versus where we were two years ago.
What's really interesting further is actually given the advancements that we've made, we've said very clearly that when 10X comes online, we will be able to satisfy most use cases, as we move further into robotics and drones and a lot of these sort of defense use cases, disk drives, all these things that my expectation is, and we're seeing this today, and I'm sure we'll talk more about this, that it has gone from the theoretical but to the actual, where we're seeing RFQs where we could fill 10X beyond our production capability with, given where our IP is at, with no heavies. We really don't see heavies as a constraint. Further, what's so fascinating is that if you look at the general landscape, you look at the non-Chinese supply.
I think it's fair to say if you're a magnet manufacturer that doesn't have feedstock, it's kind of like a silly business. If you sit in front of an investor and say, "I'm going to make magnets in America, and I'm going to get my feedstock from China," people are just going to look at you like you're insane. What's your purpose of existence? You really have to have a solution, because that's the point of developing this supply chain. If you look at the NDPR production outside of China, there's two places. There's business plans, there's PowerPoint decks, but there's two places. There's Lynas in Australia, which refines in Malaysia, and then there's MP, which mines and refines in California. Lynas, effectively all of their offtake is taken by Japan.
Japan has contracted the country of Japan, which will feed their main, the handful of magnet producers that feed all the Japanese companies in auto and robotics and industrial use cases. That feed is spoken for. There may be a little bit at the edges, but tiny stuff, nothing to feed a factory. Then there is us. Right now, we are feeding and we expect to continue to feed some of the Japanese producers. But we have made clear as we move downstream that we can provide customers with a true vertically integrated solution, because when we go to respond to an RFQ, we can say, "From the dirt in California, every aspect of what we are going to send to you comes from the U.S.A." Anybody now who is building a magnet factory or even building out a business cannot say that.
Yet, as we look, and so rough rule, we should put out, we have put out slides on this, but if you look at sort of the roughly 14,000 tons of NDPR in non-China, that can satisfy somewhere around 28,000-30,000 tons of magnet. Well, you have got that already with us and the Japanese, and then you have got somewhere in the order of 50,000-60,000 tons coming online. There are some companies in the U.S. Well, their NDPR by definition must come from China. So I do not understand how that is a business.
Then, we talked about this, and we can kind of talk about the demand that is coming online for humanoid robotics. So what you find is that before you even start thinking about heavies, and again, we will be producing magnets for robotics without heavies, all of this magnet growth needs the NDPR. So that is the true binding constraint in the industry. So if you are bullish heavies prices, the price of NDPR has to go up by multiples relative to heavies, for there to be an industry.
Just while you mentioned the robotics, I think you have a pretty good way of laying it out. Could you just maybe lay out just like how the demand, you know—
Sure.
I think, I don't know if you use a million humanoids or 10 million.
Yeah. The global NdFeB, that's neo magnet market today, if you add all of Chinese supply, there's roughly 250,000 tons of magnets. The estimates are that a humanoid robot, and obviously it's still total open landscape. But the Chinese have made a lot of progress. They're ahead, and obviously you all read headlines about whether it's Jensen or Elon or whomever talking about it will be the biggest industry in the history of the world. The rough estimate, and there's a number of sources, and we obviously see this in our conversations, is roughly three to five kilos of magnet per humanoid. And sometimes you may see two, you may see six or seven, but just rough rule of thumb.
If you do that math, what you find is somewhere in the order of 40 or 50 million robots a year would eat up 100% of global production, including China. And we know that there are all these other use cases growing, whether it's auto or consumer electronics, disk drives, other forms of autonomy like drones. What you realize is actually magnetic production needs to grow dramatically. And obviously, China's going to feed its own industry, and China's made clear today, even in this détente period, that humanoid robotics are dual-use items, right? It's pretty hard to argue that a humanoid robot is not an item of war. I mean, we're seeing this play out in real time in Ukraine, in the Middle East.
There's no question that if the U.S. is going to have a humanoid robotics industry, it's going to need a domestic supply chain. We can't expect the Chinese to feed that industry, even if they're willing to do it in the short term. As that scales into the millions, there's no way. And that's obvious. What we said on the call, which I just think is a fascinating stat, is if a manufacturer, and I want to say this carefully, if a manufacturer wanted to make a million humanoid robots a year, that alone would take up somewhere in the order of 40%-70% of our 10X capacity online.
What you realize, and we see multiple parties out there, and some names you would think and some names that are enormous sort of tech-oriented companies that you might not necessarily be a first guess focused on this. I think what we find is MP has this unique position where we have the ability, whoever does a deal with us will be years ahead of others from a production standpoint, because good luck getting the magnets to make a million robots from China. I think we can be a kingmaker from that standpoint. I think that from a strategic standpoint, I do not think the market gets that yet. Again, that has gone from theoretical to actual. We are seeing it in real time. RFQs around robotics writ large that exceed what we can produce at 10x.
We have said also that 10X is contracted, right? We have 100% of the production off-take with the Pentagon. We have the ability to then syndicate that at our choice, as long as we are feeding American industry. We have the ability to be patient, to take our time, to make sure that we are focused on moving to very attractive, I would say extraordinarily attractive margin business in that facility. We will be very patient about that. Obviously, this is also an industry that is new. My guess is it is going to take longer. This is not a 2026 or 2027 event.
But over the next three to five years, I believe that that is going to be I think the best analogy, Ben, is kind of we had the dot-com boom, we had the internet, and then we had the crash, and then kind of coming out of that, the mobile revolution is really what enabled big tech today that we think of, right? The really big tech, the big tech landscape came out of all of that, but was really accelerated by the mobile boom. That played out over, call it, 10 years. Kind of boom, bust, boom over 10 years. Things happen much faster today. So I think those timetables are just shrunk. I think that as we see, we are sort of at this cost of capital concern now. We are sort of a little past the peak of the boom.
I think in AI, we are probably headed for a total revisit around what is ROI. If you kind of and obviously, these things are never perfect, but if you apply that analogy, I do think that physical AI will be like the mobile analogy, where I think that as AI comes into the physical world, that is going to be the game-changing use case. My guess is the models will get commoditized. It is going to change all our lives. The consumer benefit from AI is going to be extraordinary. We all use this stuff today. Whether those business models make money or generate a return on the compute is still an open question.
But there's no question as that technology moves into the physical world, in the humanoid robotics and all these things that are going to dramatically change our lives, that is going to be where the really high ROI, game-changing companies, names you might not even know exist yet, are going to be. And so we're at the forefront of that. I mean, we're seeing that unfold, and we're going to be a part of that. And so again, I don't know how long that takes, but that's the position we have, given the platform that we've created.
Thank you. We have one from the audience, which it's, what if Tesla decided not to use permanent magnets? I think maybe like they did in its Cybercab. Do you think this avoidance of rare earth magnets carries over to Optimus? So maybe just like a broad substitution-
Sure. Yeah.
like a risk.
Yeah. Historically, you have always been able to substitute a different magnet in an EV. That has always been the case. The challenge with the substitution is that typically, it's much more expensive in terms of other materials. You lose efficiency. There was always an economic level. If a magnet got to X, you could change the supply chain. You have a bigger motor, you have much more expense in copper and all these other things, but that was sort of simple math you could always do. That, to some extent, put a little bit of a governor. Although, permanent magnets have always had north of 90% share in EVs, and that has held consistent given the benefits, because you historically have always seen announcements of moving over. I think there's been a couple, like BMW did it twice and all these others. They always move back.
I'm not going to discuss a specific manufacturer, but my guess is if you looked at any manufacturer that has moved away from permanent magnets or said that they have a product that's moving away, their rare earth magnet usage is actually way up versus when those statements were made. So I would look closely at actions versus pronouncements on that front. That said, of course, there's always going to be and that must happen in auto. My guess is market share could go down a little bit over the next decade when you have more simple use cases and technology advancements. What I would say in robotics, that is very difficult, and I don't think that that's going to be. Impossible is the wrong word, but I think it's going to be very challenging because when it comes to robotics, torque density is what matters.
You've got really small spaces. In an EV, you can put a magnet triple the size of another magnet, and you don't even see it. It's inside a car. But if you have a robot that needs an elbow that's the size of that screen, that's a problem. I'm being a little dramatic, but you get the point. When you think about dozens of actuators throughout the robot, maybe there's a couple spots in the hip that you can do it, but the idea that you're going to have hands doing ultra-complex things and all aspects of the. There's really been no discussion of that.
I think that, frankly, the supply chain probably needs a little subbing elsewhere, and I think that will happen because my expectation is that what will happen is some of these use cases, the pricing is going to go materially higher to feed the robotic supply chain. So you may see some substitution in auto and some of these other areas because they just literally won't be able to afford it. But I think we're way off from that kind of consideration. I would highly recommend that people look at actions rather than words in that case, because I think there's sort of a lot of pronouncements and niche products, but then in reality, it's been a pretty consistent thing of north of 90% share in rare earth magnetics in auto.
This is an unfair question because you have your hands full and you have a lot of execution ahead of you. Do you think that 10,000 metric tons is the right number for you guys? If it is, then from an outsider's perspective, you are ever happy sitting still and you want to keep doing things. What else are you thinking about as it pertains to MP?
Well, we're an ambitious company. I think if you look at where we said we'd be five years ago, today, we're way beyond. As I said earlier, it's extraordinary to see what we've done. We pinch ourselves all the time. I think in magnetics, obviously, if you think of anything I've said earlier, our business will ultimately be multiples the size. We believe we're going to be one of the handful of champions and the leader in the world in rare earth magnetics, period, full stop. That said, given the history of, frankly, any industrial build-out, given my high focus on risk management, and given how we've built the business and what's core to our culture, we have always managed risk as we've grown. If you look at from history, we've been able to do this with contracted cash flows.
We've been able to basically cap our downside or really have no downside, have profit as our downside, and have enormous upside as a business. We did that when we built out our magnetics business originally with a contract from GM that you can effectively think of as functionally cost plus. As we look at our Apple deal, as what's publicly stated, is that we were working with them for five years as the foundational customer of our recycling business, and they've agreed to not only be the foundational customer of that, but purchase a minimum of $500 million of magnets out of our Independence facility. Obviously, you look at our Department of War deal as we're building out 10X. The MO of our business is we don't need to speculate.
We can do this methodically. We can hit base hits. Base hits compound. That's how we've built the business. I think we're headed into this landscape where I think if we were more speculative, we'd be like, "Let's go out and build 50X." We don't need to do that. We need to execute in the short term, which we're doing. Frankly, I think given what you've heard me say about all the other things we see in the industry, NDPR is a binding constraint. I do think we're headed into a period now, especially with concerns around cost of capital, where we're going to get to clean up some of the rest of this mess. I do think that there's going to be an opportunity to buy some other assets at $0.10 On the dollar. We like that.
That's always fun for us to get to have better capital allocation opportunities. So we'll do that thoughtfully. There's no question, I think if we look out five years from now, will the magnetics piece of our business be materially larger? Yes. Is it possible we'll have moved downstream into something? That's certainly possible. Again, I think in the short term, it feels two steps forward, one step back, then you look back at what can happen over five years, and it's extraordinary.
But that's how we think about it, and I think that just given everything that I've laid out, the opportunity for us is exciting, and we just have to not look too far ahead. I think the mistake would be to look so far ahead that we take our eye off the ball of what we need to execute in the short term. In the short term, we need to continue ramping Independence, get 10X done right with the Pentagon, then see kind of where the cards fall.
Great. Thank you, Jim.
Thanks. Appreciate it. Great. Yeah.
Thank you.