MP Materials Corp. (MP) Earnings Call Transcript & Summary

Good afternoon, thank you for attending today's MP Materials First Quarter Earnings Call. [Operator Instructions] I would now like to pass the conference over to your host, Martin Sheehan, with MP Materials. You may proceed.

Thank you, operator, and good afternoon, everyone. Welcome to the MP Materials First Quarter 2023 Earnings Conference Call. With me today from MP Materials are Jim Litinsky, Founder, Chairman and Chief Executive Officer; Michael Rosenthal, Founder and Chief Operating Officer; and Ryan Corbett, Chief Financial Officer. As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation, earnings release and in our SEC filings. In addition, we have included some non-GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings release and the appendix to today's slide presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, the earnings release and slide presentation are available on our website. With that, I'll turn the call over to Jim. Jim?

Thanks, Martin, and thank you all for joining us today. Let me start with an overview of today's call. I will begin with the highlights of the quarter, including a Stage III update. Ryan will then review our financials and KPIs, Michael will then provide an update on our Stage II optimization at Mountain Pass. I will then return with closing comments and then open it up for Q&A. So let's get started on Slide 4. We continue to execute well in our Stage I upstream business. For the eighth consecutive quarter, we produced more than 10,000 metric tons of rare earths in concentrate. Sales volumes were similarly strong, allowing us to generate solid adjusted EBITDA and related margin despite challenging realized price comparisons. I know pricing is a topic on the minds of investors, and I will share some detailed perspective on that later in the call. Moving on to Stage II. Commissioning has been making steady progress, and we have begun to process a portion of our roasted concentrate through our leach circuits. This means we are closing in on the even bigger milestone of recommissioning our light rare earth separation circuits. To reiterate what we have said on prior calls, the commissioning process is painstaking, with stops and starts, but we remain on track towards soon producing separated rare earths and reaching run rate production by year-end. Michael will provide a more detailed update in a moment. Another important development in the quarter relative to our midstream business was the signing of an additional tolling agreement to convert a portion of our NdPr oxide into metal in Vietnam. For those of you unfamiliar with tolling agreements, tolling is a process whereby a third-party processes our materials for a fee, in our case, turning our oxide into a metal for us. Producing and selling NdPr metal, in addition to oxide, ultimately expands the market for our materials, supports our low-cost production profile and expands the direct customer base for our products. Notably, Japan is the largest manufacturer of neodymium magnets outside of China, but Japanese magnet makers have a limited oxide to metal conversion capacity and have historically depended on facilities in China or Southeast Asia. Combined with opportunities afforded by our Sumitomo relationship, this agreement will enable MP to maximize and extract more value from our sales of NdPr products to customers in Japan and other global markets. Moving on to Stage III downstream magnetics. Process engineering and long-lead procurement continues to rapidly advance. Our Fort Worth engineering and manufacturing team is gathering talent and getting stronger. The internal structure of the factory is taking shape. We are preparing for the arrival of the first phase of electrowinning and strip casting equipment, which will be needed to meet our goal of delivering alloy flake later this year. We are observing factory acceptance testing of this equipment at key vendors and are also planning the final connections between this equipment and the building infrastructure. Importantly, our business development pipeline remains robust. Therefore, to summarize for what was within our control, execution, Q1 was a quarter of great success across all streams of our business at MP. In addition, in April, we surpassed 3 years without a lost day due to injury. That's over 2 million work hours. I am very proud of the team for this important achievement that we must continue. I will come back for closing comments and address pricing in the marketplace. For now, let me turn it over to Ryan for the financial and operating metrics. Ryan?

Thanks, Jim. Turning to Slide 6 and starting on the left-hand side of the page, you'll see the consistent level of production Jim mentioned, both in our year-over-year and sequential comparisons, with 10,671 metric tons of REO in concentrate produced in the quarter, plus or minus 1% or 2% of the comparable periods. In addition, we sold 10,215 metric tons of REO, which was 13% below last year and 6% lower than the fourth quarter. These variations are virtually all due to timing of deliveries. As of Q1, we had consumed only a small portion of the nearly 2,000 metric tons of work in process inventory that will be used in commissioning of our refining circuits. With continued progress, we are preparing to feed material into additional refining circuits, which we're very excited about. What that means is that starting in Q2, we would expect to process a significantly greater volume of our concentrate production through our refinery. Some of this inventory build will be an investment in permanent work in process, while some will become separated rare earth oxides available for sale. Meanwhile, as our commissioning teams work tirelessly, we are continuing to make progress improving the stability and performance of our drying and calcining circuits. As such, nearly 30% of our sales in the quarter were comprised of roasted concentrate. Moving on to realized pricing. NdPr recovered a bit from the fourth quarter, resulting in a 10% sequential increase to $9,365 per metric ton of REO. As you know, our realized pricing tends to follow the market price of NdPr oxide with an approximately 1 month lag. So we benefited from the recovery in prices from December to February. Still, compared to Q1 of last year, pricing was down 32%. Recall that NdPr prices hit recent highs in late February to early March of 2022, which boosted both Q1 and Q2 2022 realized pricing. Since this most recent February, however, prices have continued a rapid pullback. Jim will discuss our views on this in a moment, but expect at least a 35% sequential decline in realized pricing in Q2 given the recent softness, assuming current prices hold throughout the quarter. As always, we entered this period of greater pricing volatility with our fortress balance sheet, our low-cost and cash-generative upstream Stage I business and an unwavering conviction in our downstream integration strategy. We have been strategic in how and when we raise capital, and we have remained committed to preserving our conservative balance sheet, specifically because of the leverage inherent in the business from commodity pricing. With nearly $1.2 billion of gross cash and short-term investments and the major lift and cost risk of Stage II construction behind us, our position as a U.S. champion in this critical industry is even more evident. Finishing on the far right of the slide, year-over-year production costs totaled $1,978 per metric ton of REO in the quarter, up 24% from last year. The primary driver of the increase was the scale benefits of higher sales volumes in last year's first quarter as well as higher headcount related to the ramp of Stage II head count and, to a much smaller extent, the impact of cost of living adjustments made last year as well as higher materials and supplies costs. Sequentially, cost per metric ton increased 3%. As a reminder, as we move to the back half of the year and begin preparing to migrate to Stage II production, some of these Stage I KPIs will become much less relevant. And as such, we expect to evolve the KPIs we report to you as we transition to separated products and rare earth metal sales. Moving to Slide 7. Revenue of $95.7 million in the quarter decreased 42% year-over-year, driven by the 32% decline in realized pricing and the 13% decline in sales volumes discussed on the previous slide. Sequential revenue increased 3% as the 10% increase in quarter-over-quarter realized pricing was partially offset by the decline in sequential shipments. Continued solid cost control allowed us to generate $58.7 million of adjusted EBITDA and related margins of 61% in the quarter, both slightly up from Q4, but down year-over-year due to last year's strong pricing environment. You can also see the flow-through of last year's strong pricing in the adjusted diluted EPS comparison where in last year's first quarter, we earned $0.49 versus $0.27 in this year's first quarter. And as you will recall that in the fourth quarter, we had a large discrete tax benefit, which helps drive $0.42 of adjusted diluted EPS. Cash from operations in the quarter totaled about $55 million, and our CapEx spend was nearly $75 million. Removing roughly $71 million in growth CapEx, cash flow conversion remained very solid, at $51 million after maintenance CapEx. Similar to the Stage I operating KPIs that will be sunsetting, we expect Stage I free cash flow to be less of a relevant factor in assessing our performance as we turn our production focus to Stage II. To that end, I would add that we remain on track to spend roughly $300 million in CapEx this year with the very tailwind of Stage II spend and accelerating investments in our heavy separations and Stage III projects. I would add that in the last 2 quarters, we have put over $200 million of assets into service. And as such, we saw a $3 million increase in depreciation compared to a year ago. As the remaining Stage II assets ramp, you should see depreciation continue to increase as more capital assets are put into service throughout this year. Lastly, we continue to expect to generate NdPr sales in the back half of the year, with sales being quite backloaded given our expectation on the ramp in production. I would also remind you that we expect a lower margin profile on these initial sales, as you'd expect, until we can scale to full run rate production and smooth out our operations. Before handing the call over to Michael, I'd just like to add a couple of thoughts on our tolling arrangement. Under this tolling arrangement with a Vietnam rare earth company, MP will retain ownership of the product through the metallization process paying a conversion fee for each metric ton of metal produced. Therefore, as we ramp oxide production and utilize this channel, you can expect to see us report revenue generated from NdPr metal with the tolling fee included in our cost of goods sold for our metal products. Note that this sales channel will, in the early stages, come with a little longer working capital cycle as we invest in supply chain inventories in order to maintain stable metal reduction operations. While the oxide material is in transit and being converted, it will remain in our work in process inventory a bit longer through the end-to-end process. With that, I'll turn it over to Michael to give you an update on operations and Stage II commissioning. Michael?

Thanks, Ryan. It was a busy quarter for commissioning and things have picked up steam into 2Q. Our commissioning, operations and process engineering teams have taken an increasingly active role in checkouts and start-up activities. In the first quarter, much of the focus was on completing the pre-commissioning of the remaining legacy and new circuits. Including equipment checkouts, water runs, instrumentation calibration, tuning loops and trial operations with critical equipment vendors and addressing the findings from these exercises. At the same time, we continue to make progress on improving the consistency and throughput of the drying and roasting assets. During the quarter, we turned these assets over from the commissioning team to our operations team, freeing the former to focus their attention on the next circuits and the flow sheet. The remaining assets of our brine treatment and recycling circuits are in the final stage of commissioning before full commercial operations of the entire system begins. Importantly, we are moving closer to producing finished NdPr oxides. As we enter 2Q, safely advancing through the start-up of leaching and impurity removal and ensuring high purity rare earth solutions to feed separation circuits are our highest commissioning priorities. After that, product finishing encompasses precipitation of purified rare earth from solution filtration and conversion to oxide. It's still difficult to predict the trajectory of our ramp, but there is no doubt we are now on it. I'd like to reiterate that startup will not be a linear process. We expect a lot of ups and downs literally and figuratively. The trajectory of the curve will be determined at the equipment level by reliability and throughput. We expect certain operations to ramp throughput slowly but steadily; others to meet run rate quickly but struggle with reliability; others to operate reliably but struggle with throughput. And occasionally, we will get lucky with a piece of equipment that operates to design on startup with no problems at all. But we expect this to be the exception. I continue to be extremely impressed with the quality and dedication of our team. Experience in new operators and maintenance staff, engineers and trainers are collaborating to speed or mastery of the new and legacy circuits. So as long as we remain focused on the safety of our employees and on making decisions that are in the best long-term interest of our operation, we are confident that we can achieve our planned run rate production by year-end, while maintaining our low-cost position and industry-leading environmental sustainability. Not to be overlooked and a key part of maintaining our low-cost position, our Stage I operation continues to operate stably. Behind the scenes, we are increasing our R&D to address low-hanging fruits and longer-term growth opportunities. In the first quarter, we began an in-plant pilot of alternative flotation equipment. At the same time, we completed long lead procurement and began construction on a long-awaited project to improve our grinding circuit. We expect this to increase throughput potential and mineral recovery. As I've mentioned previously, we are extremely optimistic about the opportunity to improve the quality, quantity and cost structure of our concentrate production. In addition to the tremendous job that the team is doing in terms of both Stage I production and Stage II commissioning, our focus on safety remains front and center for us. As Jim mentioned, but I think it's important to reiterate, in April, we surpassed 3 years or over 2 million work hours without a lost time injury. I think this is a testament to our safety-first, owner-operator culture. So I just want to thank the team for all their hard work and their focus on doing it safely. With that, I'll turn it back to Jim. Jim?

Thanks, Michael. Before Q&A, I would like to cover a few topics that are on the minds of many investors, including pricing trends, product substitution and the potential for Chinese export restrictions around rare earth processing and magnet-making technologies. On pricing, NdPr began the year around $102, which was down from a 2022 peak of $175. The declines continued throughout the first quarter, with pricing now in the low 60s. To put it bluntly, I'm surprised. I would say I'm actually very surprised but not shocked. As you all have heard me say many times before, commodities do almost anything in the short run. After all, oil even traded to a negative price in 2020. Some of the price action may be explained by recent economic lows for what I would call legacy sectors like hard disk drives or ICE autos. Recall that nearly 80% of the market for rare earths today still comes from uses within these kinds of products. Moreover, global EV sales for Q1 2023 were weaker than expected due to the expiration of certain subsidies in China and Europe and combined with higher interest rates, likely had a significant impact. Sales in China appear to be rebounding strongly since March, however. Despite this recent blip, global EV sales penetration is still only in the low teens percentage. So the long-term demand trend remains explosive. We believe the compounding effect of high growth in electrification will far outweigh any legacy or other short-term weakness and then some over even a moderate amount of time. What is interesting, perplexing and quite likely bullish for the medium- to long-term outlook is that with NdPr where it is now, we believe that the Chinese rare earth industry will be unprofitable at current prices. Chinese data is admittedly quite opaque, but our analysis as well as industry discussions suggest this to be the case. Moreover, at these price levels, it is hard to see positive economics for any greenfield project in the West, and it is very likely that anything in progress now can expect significant capital destruction. I would remind you of 2 important things to consider from MP's perspective. First, from the beginning of our public life, we made clear that MP would have an owner-operator culture where we would sacrifice near-term opportunism to maintain a capital structure with a fortress balance sheet. As I like to say, we want the leverage in the commodity price, not on our balance sheet. A company's capital structure must reflect the underlying volatility of its industry. Second, we believe that MP is on track to being the world's low-cost producer of NdPr oxide. Our balance sheet, operational execution and long-term focus give us the runway to ride through pricing cycles. I also want to reiterate the point about capital formation. In my estimation, with NdPr anywhere lower than around $120 per kilogram, new projects with realistic assumptions are simply uneconomic. And that is before one considers the significant time, risk and human capital it requires to be successful. Put simply, our industry has a very high cost of capital for new entrants right now. This means the long-term upside volatility for MP to benefit from demand trends across the various electrification categories remains very significant. This leads me to my next topic, substitution. If you listen to our call a quarter ago, you heard me talk about NdPr supply-demand imbalance as the world electrifies. I cited estimates suggesting that the demand for NdPr potentially seeing a 200% increase over the next decade or so or 3x today's current demand. To meet that demand, I highlighted how that was the equivalent of needing 15 Mountain Passes to come online over that same time period. We know this is not going to happen. For all the reasons we previously outlined, we made clear, it likely would not happen with NdPr at virtually any price. After all, even getting one new mine of globally relevant scale over a decade is no small task. Consider all the human, financial, environmental, permitting and political challenges to do so. And that, of course, assumes as project table stakes, the discovery of an economic ore body that would make all that worthwhile. The idea of that happening with 15 projects within 10 years is not realistic. So we were not surprised when Tesla at their Investor Day highlighted their concern over rare earth supply and environmental challenges around mass market adoption of electric vehicles. It should not shock anyone that they aspire to produce a vehicle without a rare of magnet motor. The issue has been and remains what are the size, performance, efficiency and pricing trade-offs of utilizing a rare earth magnet motor versus another solution. For some applications, like an aspirational mass-market EV priced under $30,000 that does not yet have a factory, substitution must occur because the math, particularly the supposed volumes, suggests it is likely not realistic otherwise. For most other EV applications, like those involving performance, luxury, SUVs, full-size sedans or consumer trucks and certainly with other electrified motion applications like robotics, offshore wind turbines, drones or other military uses, there is virtually no way material substitution will occur at any price, given the constraints. When you add all that up, we believe, as even Tesla and many others have pointed out, that the demand picture for rare earth magnets remains exceptional. I would also add that my team spent significant time with a number of OEMs as well as other producers of a variety of products that utilize rare earth magnets, and virtually all have rare earth magnets on their production road maps for the foreseeable future. And production road maps are not easily changed overnight. With that, let me briefly touch on the recent news that the Chinese commerce and technology ministries have drafted a list of amendments, which would either ban or restrict exports of certain magnet manufacturing technology. We will see if these ultimately go into effect as they are evaluating comments from Chinese industry. Needless to say, we get questions about this potential change. As you can imagine, given that the Chinese dominate the magnetics industry, they similarly dominate magnetics tooling and equipment production. But we have purposely avoided major buys of equipment and technology from China for our Texas facility for this express reason. So we do not expect any issues from this. Additionally, NdFeB permanent magnets have been manufactured for roughly 40 years. The process itself is well understood and approximately 10% of world supply is made in Japan. Such limited Japanese share is not due to access to Chinese process technology or equipment. It is primarily due to challenged access to separated rare earth oxides and metals. Therefore, MP, with our upstream and midstream supply chain, is in a good position regardless. The real bottom line of the potential Chinese ban on technology exports is that it further highlights the critical importance of the American magnetics champion we are building in MP as well as the significant overall long-term value of our asset portfolio irrespective of spot prices. With that, let's open it up for questions. Operator?

[Operator Instructions] The first question is from the line of Corinne Blanchard with Deutsche Bank.

The first one would be maybe more on the financial side. There was few adjustment to the EBITDA this quarter. Is that a trend that we can expect in the coming quarter? And then on that thematic as well, could you comment a little bit about the cost, like [indiscernible] that we can expect in the next quarter?

Yes. Corinne, it's Ryan. I can take that. In terms of the EBITDA adjustments, I assume primarily what you're looking at would be start-up costs, which is a category that we've had for the last couple of quarters as we've gotten into the depths of commissioning of Stage II. I would say as we get further, and Michael gave some color on how that activity is picking up pretty rapidly in this quarter, I would expect to see those costs pick up a little bit, certainly in Q2. And I'd expect them likely to start to come down over the course of the year as we move into what we call more run rate or commercial production of separated products. In terms of your question on the cost per metric ton, as I talked about in my prepared remarks, the primary driver there is the continued growth in head count as we get ready for these circuits to be in service. As you can imagine, we're going from operating effectively a milling and flotation facility and ancillary support facilities to adding multiple more facilities into service. So the burden from maintenance facilities, utilities, things like that, have started to pick up ahead of entering into commercial production of these products. And so that's primarily the items that you're seeing. And so those items that are not specifically related to commissioning activities tend to flow through the cost of goods sold of our existing product. Those items that are specifically related to commissioning and not related to a salable product find their way into the start-up cost category. As we look out over the course of this year, I'd expect a similar trend in cost per metric ton, as I mentioned, on the start-up costs. As we bring these things online, certainly, there'll be an initial margin profile that will certainly look a lot different than when we hit escape velocity and hit run rate production. So hopefully, that gives you a sense.

Yes. That's very good. And maybe as a follow-up and shifting gears a little bit here more to like the broader market. But any view on the current NdPr metal processing capacity that is in Southeast Asia, maybe outside of China and Japan, that would be helpful to get a view there.

Sure, yes. I think one of the items that we talked a bit about in the prepared remarks is our tolling arrangement for some metal capacity. There's a variety of potential options for metallization in Southeast Asia, maybe 6 or 7 in different facilities out there. We're obviously very pleased with our ability to get dedicated capacity. As you can imagine, with the Japanese magnet industry and the growth that they expect, they are seeking the ability to purchase both metal and oxide. So with the ability to do tolling of oxide into metal that just broadens our market opportunity for our products. And so I would expect that this announcement we had this quarter is hopefully the beginning of many. We continue to evaluate other metal tolling facilities through our Sumitomo relationship and otherwise. And of course, this is in addition to our downstream strategy in the United States. And so putting all of that together, we're excited about the potential for a significant amount of our oxide to make its way through that sales channel, which, again, is just a great way for us to continue to broaden our market opportunity.

The next question is from the line of Carlos De Alba with Morgan Stanley.

So just in terms of the headcount ramp up, as you expand the operations in Stage II and Stage III, where are you on that process? You're maybe trying to calibrate from the prior question also what the cost will look like in the coming quarters. That will be my first question. And then my second question is just coming back a little bit to the prepared remarks on inventory, I just wanted to make sure that I understood. Two-thirds of your sales will comprise of roasted concentrate in the second quarter already or more like in the second half of the year? And then the level of inventories that you currently have, is it around 2,000 tons of inventories that will be consumed in the coming quarters in the separation circuit?

All right. Carlos, it's Ryan. Let me take the second part of that first, and then I'll flip it to Michael to talk about staffing. What we mentioned on the inventory and thinking about how we consume our current product into the downstream circuits, I'd note that the point we're trying to make is, this quarter, you did not see a significant departure of production versus sales. As we move into Q2 and into Q3, we'll see an increasing amount of our production of REO being consumed into the downstream circuit. I think the other question that you asked is that -- is about the amount of roasted concentrate that's going to get sold or was sold. And just to clarify, I think you might have had the numbers backwards, it was about 30% of our sales this quarter was of roasted concentrate. The rest was our standard concentrate product. As you know, what we plan to feed the downstream circuits with is the roasted concentrate. And so I think the 2 things to keep in mind that we wanted everyone to be sure to understand as they model the business over the rest of this year is you will start to see that detachment of REOs sold versus REO produced as we consume that over the next couple of quarters, and we flagged up to about 2,000 metric tons of REO that will find its way into the downstream circuits. And certainly, that 2,000 tons will be made up of roasted concentrate. Hopefully, that answers your question. Mike, do you want to jump in on staffing?

Thanks, Ryan. We've had a significant number of the Stage II staff on our payroll already for several months, or for more than several months, in training, in cross-training, in cleaning up, working on commissioning activities, recommissioning activities. So we've gotten probably through at least three-quarters of the total hiring, perhaps even a little bit more. We will see a slight increase in some of the staff over the next quarter or 2, that may be offset by some third-party contractors, which will be -- not including the construction but third-party contractors, which will come off. So I think overall, the cost structure already includes a significant portion of that burden.

The next question is from the line of Matt Summerville with D.A. Davidson.

This is Will Jellison on for Matt Summerville. I wanted to start out by asking you about Stage III. Looking a bit further into the future, do you expect to use a building block approach to further capacitization beyond Texas? Or will the success build-out potentially be considerably larger than what you're starting out with in Fort Worth today?

Sure, I'll take that. So as you know, with Fort Worth, Fort Worth really represents below 10% of our current expected output out of Mountain Pass. And so we really view that as the initial magnetics facility. We're obviously working, we've made clear from the beginning that we're -- we're really taking a buy-build and/or JV approach here. We're maniacally thinking about return on capital in the most creative, thoughtful, lowest-risk ways we can build out that business. And so that's a long-winded way of saying that anything and everything is on the table as we build out that business. But the -- you can certainly expect that, that business should grow substantially because the current forward facility will really only represent a small percentage of our upstream output. And we obviously want to make sure that we focus in the near term on executing that well. And we do expect to have some good lessons from that experience that will help dictate how we pursue the continued downstream build-out.

Understood. And then as a follow-up, I wanted to ask about capital deployment. To the extent that there is capital available to do so, and I certainly understood if there isn't, but given the stock where it is today, I'm wondering how you think about potential for share buybacks as being an opportunity to deploy capital for shareholders. Just curious about that given where the stock is today.

Sure. I thought I might get that question. Well, I'll give you the really short version, but then I'll give you a longer extended version. I'm the largest shareholder of the company. We have set up an owner-operator culture. We're very focused on creating value for shareholders. It's in our DNA. We think about return on capital and capital allocation. I mean that really drives everything that we do in the business. So you can imagine that I'm spending pretty much every waking hour thinking about that. So when and if we do something, we'll certainly do it. We wouldn't telegraph it. But let me give you sort of a longer view into my psychology, which is we really believe that -- I really think of the world in probabilistic terms. I think it's pretty clear if you look at the enterprise value of our business and what we expect to be doing over the next decade that it wouldn't shock me if our business is earning more than our enterprise value today and a handful of years out there. So certainly, there's an enormous amount of value. That said, it's also a probabilistic world. I've made clear that the capital structure really has to reflect the underlying volatility of the business as well as the stage of the business. We are in the early growth stage. And lastly, we really -- and I think we've made this clear, so I don't think this will surprise any shareholders. And certainly, for our long-term shareholders, they should think of it this way or we're not the right company for you. But we're really country-first capitalist. This is a very unique set of assets. We think there's an enormous opportunity. There's -- this is also something important that has to happen. And so we really want to make sure that we take a conservative and thoughtful approach to make sure that this platform has the firepower to do the variety of things that we want to do over time. And so when you add all of that up, that's kind of what's going on in our heads as we think about these things. It doesn't necessarily serve us to do something small that create some single value, we're long-term focused folks around here. And so when we do something, we're going to -- we want to think about it. As you've heard me say on these calls before, we really want to take a Henry Singleton-type approach here. And so hopefully, that gives you kind of some window into how I'm thinking about it.

The next question is from the line of George Gianarikas with Canaccord Genuity.

I'd like to start, maybe just focusing on -- I guess focusing on Fort Worth and just trying to understand any update there. You do, do start production there by the end of the year. Wondering how the hiring is going, how the early indications on production are going, and any kinks you need to continue to work out of the system to get to production by the end of 2023.

Sure. Well, I think, George, probably you saw the -- we recently twitted a picture of the facility, the sort of the April 2022 versus April 2023 where we essentially broke ground there. I mean this was a bare piece of land a little over a year ago and now the shell of the factory is done, and we're already at work on the inside. I would say that in this past quarter, there's been a lot of work, not just in the facility, but also with the team. I mean we have a really impressive team, and that team continues to grow by the day. We've made a lot of progress on that front. And -- and so I would say that it continues to go really well. This is not easy stuff. I mean we are building a magnet-making business from scratch. So I certainly don't want to downplay the scale of the challenge that we've taken on. But certainly, we have an incredible foundational customer in GM, and we continue to have a lot of great customer conversations, and we're hopefully taking a methodical, risk-managed approach to this process. And I guess that's a lot of qualitative ways of telling you that we continue to work really well on that front, and we're -- we think we're on track and just continuing to execute.

And as a follow-up, you're going through this transition this year moving to Stage II. And just as luck would have it, we've seen a massive reduction in the spot price. And you talked about allocating some of your production to inventory to Stage II. But how do you manage profitability in that scenario? I guess my question also is we're getting close to a point, I think, where you might be hitting the edge of being -- dipping into EBITDA negativity as opposed to profitability. So how do you manage that scenario? Do you -- is it your goal to stay EBITDA positive even if the spot price reduces further? And you maybe don't allocate some of that -- some of your volume to inventory. Or do you just kind of focus on the task at hand and continue to move to Stage II throughout the year despite what's going on at spot?

Well, first and foremost, we wake up and pray for higher prices every morning. No, I'm kidding. But it's a challenge. We're -- we are -- as we sort of the theme of this call, as you know, we believe in both fronts of our business on -- well, in Stage I, certainly, and all Stages II and III. We're executing really well. Those are the things that we can control. It's tough being in a commodity business, unlike some other businesses where you can make a lot of great progress and maybe 80% of that converts into the financial result, whereas in the commodity business, you can do an incredible job and maybe 20% converts and the rest is sort of the inherent volatility of prices that maybe make you look not so smart in down price times and probably much smaller than you deserve in up price times. But the reality is that we -- there really is not much change in the sense that we're always focused on capital allocation. I mean we're thinking about these things every step of the way. And when prices are high or higher than here, not necessarily as high as we think they're going, we're always aware that prices could be much lower, right? That's why we set up the capital structure the way we did. And when prices are very low, we're -- if you look back to some of the comments that I made, I mean, we -- that, of course, plants the seeds for the next huge price spike. And so we try not to be too impacted by that volatility and just focus on the things that we can control. But Michael, if you want to touch on any aspects of what you see at Mountain Pass and kind of how you're thinking about commissioning. If you want to chime in here, fire away.