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

Hi, everyone. As we continue with TD Cowen Second Annual Sustainability week, the next presenter is MP Materials and I'm privileged to be welcomed -- joined rather by Ryan Corbett, CFO. Ryan, thank you very much for joining us. Those on the line, you can access the dashboard and send questions over to myself. You can also reach me on Bloomberg or over e-mail at david.deckelbaumattdsecurities.com. In any event, why don't we kick it off. Ryan, thank you again for being here. Maybe we can just kind of start off just very high level. I'm sure most folks are familiar with MP, but just who you guys are and why you're so differentiated and why your stock has been ripping over the last month?

Long overdue. But yes, David, thanks for having us. Appreciate it. Happy to be here. So MP Materials is one of the world's largest producers of rare earth products. We are really the only scale producer of rare earth products in the Western Hemisphere. And our goal since inception has been to bring the full supply chain back to the United States. So today, we sit as roughly the second largest producer of rare earth content. And over the last several years, we've been producing that at scale as a high-quality concentrate product that is generally sent overseas for refining. We were in the process of ramping our separation facility to do our own midstream refining production of separated rare earth oxides at Mountain Pass. We've been through the commissioning process here for a couple of quarters now, have been producing on spec and selling on spec separated products for the last couple of quarters and really working through the kinks to eventually get us to our targeted throughput of about 6,000 tons of NdPr oxide annually. In addition to that, if that wasn't enough, we've embarked on a further downstream integration strategy to build out the magnetic supply chain in the Western world. And so we have completed construction of the facility and are currently in the process of equipping a fully integrated magnet manufacturing facility in Fort Worth, Texas. Our foundational customer for that facility is General Motors. We will begin delivering precursor -- magnetic precursor materials, primarily NdPr metal to GM late this summer, and our target is to be producing magnets in late 2025. And so that's kind of the overall story of MP Materials. I think to your question on sort of the stock over the last a little bit here, were certainly are I'll say, unique instead of rare, no plans here, but it's a unique -- occupies a unique place in the critical materials space as something that is very uniquely dominated by the Chinese. And obviously, there are the geopolitical issues with that vis-a-vis China, in particular. But I think, frankly, the reality is from a supply chain security perspective, the level of dominance that they have, it could be any country where I think the reality of the importance of what we produce for both economic and true national security perspectives is such that we really need diversity of supply. At this point, there are a few scale producers in the world outside of China. So we're one of few. And what we've seen is a renewed focus from the U.S. government, in particular, which I think has driven what you're referencing in the short term on where we sit and the level of importance of our mission.

Absolutely. Maybe we can talk a little bit about just the sustainability angle. I've been out to Mountain Pass and toured the mine with you all. I know that there's a lot of initiatives, particularly around recycled water obviously, managing air quality. I'd be interested just to get your perspective on managing this operation and your growth initiatives as sustainable endeavors and what that means and how you think that, that helps differentiate you in the market.

Yes, absolutely. We get asked quite a bit what is it like to run a mine in the state of California. And so I think that, frankly, it comes with its costs, but in a lot of ways, those costs are distinct advantages for us in a lot of ways for exactly what you laid out because we had to be thoughtful about the way this facility was designed from the get-go in order to meet the extremely rigid standards of the state -- of the United States broadly, of course. And so I think for us, in particular, our advantages start with a thoughtful design of the facility, to your point, to recycle as many things as possible not just water, chemical reagents, all sorts of things. And then on top of that, we have an added benefit of really an advantage from a mineralogical perspective with the bastnaesite ore that we have, what it allows us to do, what it allows us to avoid in order to produce the products that we produce, I think, is incredibly unique. And so I'll give a few examples. You take one of the major changes that we implemented since taking over Mountain Pass and implementing our strategy has been to implement and oxidize a roast to the mineral concentrate that we produce in order to drive efficiencies in the downstream, midstream production of separated oxides. Bastnaesite ore is uniquely suited to both a low cost and low environmental impact to roasting. So we have a rotary kiln that is electric powered. We produce all of our auto electricity. And it's an oxidizing roast. Generally, for a lot of mining and materials businesses, when you think about roasting, it's usually a sulfuric acid roast or something like that, that's got challenges from an emissions perspective. Again, this is purely luck from a mineralogical perspective that, that's what our ore needs in order to be extracted from a low-cost perspective. And so that's one example. You mentioned water recycling. We have a dry stack tailings process that is unique in the industry and, frankly, pretty unique across all of mining, where we recycle effectively almost all of our needs from a freshwater perspective, from dewatering of our tailings and then depositing the tailings and aligned impoundment by -- as a dry product. So it's sort of a long time ago, you heard Elon Musk say on one of his battery days about mining materials kind of taking the good stuff out of it and putting it back where you found it. It's effectively what we're doing for all intents and purposes with the way we manage our waste and tailings process. And then you've got, as I mentioned, other areas of recycling that we both are currently doing and are currently studying to be able to minimize the environmental impact from a per kilogram perspective on our production profile. And so we are early in our maturity from quantifying and measuring our production profile and emissions profile vis-a-vis some of the Chinese producers and other global producers. We have early LCA studies and we feel very confident once those are completed and once we're ramped and sort of that at full throughput, we will be able to communicate quantitatively and qualitatively the unique benefits of NdPr oxide, for example, for Mountain Pass.

Let me talk about NdPr oxide at Mountain Pass. I thought it was pretty notable in your last quarter's conference call. It seemed like you guys were pretty confident in getting towards kind of the 500-ton a month run rate sometime towards the end of this year. I guess for reference you did about 150 tons in the quarter this year and last, give or take, I guess, has that confidence changed in sort of the ability to execute profitably or was it more of a coincidence of really like the last year as you were commissioning that the price of NdPr has been depressed to the extent that you really weren't incentivized to push that time line at all. I guess I'm just kind of like wondering how that confidence has changed because it does feel like you're sort of operationally ready to go at run rate into '25.

So I'd say the way you laid it out sort of both are true from a -- has price impacted the way we've ramped the facility and have we seen things that have given us incremental confidence of sort of reaching our targets. I'd say, absolutely, I think we were very clear starting a couple of quarters ago, that pushing volume for volume's sake is not frankly, what anyone should want us to do, unless we were trying to put up headlines for headlines. If you think about the incremental variable costs that can be experienced by us in a suboptimized process where we don't have the uptimes that we want. We don't have everything dialed in. And you think about where the price of the commodity has been over the last several months. One of the benefits, frankly, of our platform is we can realize a very significant proportion of the profit dollars embedded in our concentrate product. There are absolutely incremental profit dollars to capture and separating that product, but that pie gets smaller as the NdPr oxide price gets lower. Gets a lot higher when NdPr oxide prices are higher. So if they were $80, $100, $150, that calculus is different. And so we wanted to be clear that we are going to be focused consistently on maximizing cash flow and being thoughtful. I think to your point, I think we've gotten this feedback a lot that it sort of felt like there was a shift in tone about our level of confidence. And I think really, the level of confidence has always been there. I think the thing that we've been waiting on really, and I think Michael on our last call did a great job of explaining this is the supply chain, getting everything lined up to fix the things that need to get fixed because we're sitting there looking at each individual circuit knowing what's keeping us from being optimized, waiting on pumps, waiting on parts, waiting on, frankly, bandwidth given the scale of what we've undertaken here. And we see the clear steps to get there. Are we going to continue to follow the approach of not pushing volume unless it absolutely results in incremental profit dollars? For sure. That has not changed. But I think kind of what you heard from us last quarter is from a midstream perspective and what we see in these circuits and what we've seen in our results so far, is that -- we've got our arms around what needs to be done, and we see a clearer time line to getting them done. And so that, I think, for sure is true.

Yes. So I think we kind of answered a lot around Stage 2. One of the other things that I'm curious about, and I think honestly, sometimes I forget is like this was not a greenfield facility, right? Like it was mass balanced. You acquired this asset. A lot of your infrastructure is already built out. You put in some modifications like the roasting circuit, I guess just given your learnings, I mean, it seems like practically, it's still taken about 3 years of modification and commissioning to get towards nameplate. So it seems like if we kind of decompose this for someone that's a relatively new entrant, the time line to getting towards separation seems like it would just be at least double that of what you experienced.

It's a great point. I think that certainly, our progress over the last several years, we've been focused on implementing a strategy for Stage 2, it's the roasting circuit, it's brine purification and our salt crystallizer to deal with the waste that comes off the process. It was a significant investment in finishing capacity. And so that's one thing that I think a lot of folks sort of ignore particularly when you hear about, "Oh, we're going to do this new fangled approach to separation and not just solvent extraction." It's like, well, great, you're finishing assets that you now need or 10x the size of what you'd need if you would just do a solvent extraction. There are all host of things where we see a lot of headlines out there. We see a lot of hopeful new entrants that don't really appreciate what it actually takes to get this done. And so I think we haven't needed to rush, right? I think that's why we laid out the business plan. So clearly from the beginning and focused on Stage 1 first. And I think the thing that also is not super well appreciated is the Stage 1 operation producing a high-quality and low-cost mineral concentrate and high-quality feedstock is a huge proportion of the problem, right, for a lot of these players. And we start with such a distinct advantage, having optimized that part of the process first. And having launched a business there that brings in significant profit and cash flow to fund the investment that we made in Stage 2. And I think thinking about your comment on greenfield versus brownfield, absolutely. I think our improvements and, frankly, positioning the plant for the higher volumes than what I think were really contemplated by our predecessor from a finishing perspective, for example, solvent extraction, a lot of those assets are -- have significant capacities to them. But they never really got to the very high-volume finished product production. So there's a lot of investment there. And so I would say there are parts of it that are brownfield and parts of it that are a little bit more immature. I think the parts that are clearly brownfield and just have upgrades to them are the parts that if we were starting from scratch, no matter what you do, take 6, 9, 12 months to get stabilized. So to your point on mass balance, the solvent extraction circuit that is a tremendous advantage that we started with without a doubt. And so I think your overall conclusion is absolutely right. And it's not just time line, it's cost. We've seen quite a few projects out there, talk about a targeted capital cost and see that go up 50%, and I don't think they're done there. That is fundamentally, I think, the uniqueness of the rare earth space is. We get asked a lot about you guys ever think about lithium or some of the other sort of minerals that are levered to the electrification and EVs and things like that. I think that what is required to be a scaled high-quality, low-cost producer of rare earth products is incredibly difficult to execute and the ability to find the right ore body to support it is very, very difficult and unique. And so I think we've strong all those things together and are continuing and taking those advantages through all the way downstream.

So the next kind of series of questions is going to talk a little bit about Stage 3, but also in the context of what your impression was around the increased tariffs around permanent magnets. Obviously, MP is sort of at the tip of the spear for anything that happens with disruption to the rare earth supply chain, particularly for the points that you obviously like already elaborated on just being the only real scaled Western supplier. What did you make of just the tariffs? And how do you expect this to kind of play out and how are you -- does it change your strategy at all?

I don't -- I would say, to answer the last part of the question first. It really doesn't change our strategy in the sense that -- we've been very clear about the strategy in the downstream business of not trying to compete with the Chinese on price day 1, right? Think about the permanent magnet business is a 200,000 ton roughly business. We're talking about initial design capacity of our Dallas-Fort Worth facility of 1,000 tons. We're in vis-a-vis the broader industry. And so from that perspective, we've been very clear with our customers that the value proposition that we offer is security of supply from a fully integrated basis and a partnership perspective. Magnets are, like I mentioned, a very customized engineered product and oftentimes, what automotive customers are looking for, for example, is particular attributes of the magnet at particular temperatures and particular operating parameters. And oftentimes, there are different ways of getting there. And I think the unique thing that we offer is we've got no innovators dilemma, right? We can approach this with a clean sheet and say, these are the operating parameters that you need and the design that you need, we think you should do it this way. And we can do it with this many segments or initiate or with this coating and get you what you need at a lower cost or whatever it may be or easier or lower impact. So I think that, that is what customers have been focused on and what customers have responded to. I mean we talked about on our last call that first 1,000 tons is fully spoken for at this point. And so clearly, it's resonating with customers. I think the tariffs speak to a recognition from the U.S. government and at large there's an expectation of an equal playing field. Regardless of sort of how we price our products versus how they price their products. Undoubtedly, the Chinese have had for them very thoughtful industrial packs and other policies over the last many, many decades to incentivize growth of the business in country. And that absolutely favors their domestic producers. And so I think there's a realization that there is a necessity to incentivize scale producers like MP to be able to continue to grow their business and support a real scale diverse supply chain that is not concentrated in one single country. Again, I think I mentioned at the beginning, it could be any country. That level of concentration for the criticality of what we make is just not sustainable. And I think that what we started to see, and Wall Street is very fickle. There was a lot of focus on the electric vehicle supply chain and excitement there. Electric vehicles became a bad word and probably still are at this point. I think that luckily government and parties like us are taking a much longer-term view on the criticality of what we make. And I mean, think about the next leg of demand growth. And I'm not saying this is next year, I'm not saying it's in 2 years, I don't know what it is. But robotics, for example, I think the U.S. government sees this from a defense perspective, humanoid robotics, whatever type of robotics it is, requires a really significant amount of magnetic content. And so those are the sorts of things where we must have a capability here and we must have commercially viable scale producers driving that forward. And I think that's sort of what we've seen support from -- in the last week from this announcement.

Can you share any thoughts as to why those tariffs were implemented this time around versus, I believe, a couple of years ago, they were being considered, and it seemed like they were advised against pursuing that path. Do you think it's merely political and that like relations have incrementally cooled? Or do you think that there are observations that have changed around the supply chain here and operator capabilities that perhaps were not heated a couple of years ago.

Well, it's a great question.