Good afternoon. My name is Shantel and I'll be your conference operator today. At this time, I'd like to welcome everyone to the MP Materials Fourth Quarter and Full Year 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. At this time, I would like to turn the call over to Martin Sheehan, Head of Investor Relations. Martin, please go ahead.

Thank you, operator, and good day, everyone. Welcome to MP Materials fourth quarter 2020 earnings call. With me today are James Litinsky, Chairman and Chief Executive Officer of MP Materials; Michael Rosenthal, Chief Operating Officer; Ryan Corbett, Chief Financial Officer; and Sheila Bangalore, Chief Strategy Officer and General Counsel.

Thanks, Martin. And thanks, everyone, for joining us today. Welcome to our fourth quarter and full year 2020 call. I'm going to cover a few things today. First, I'll recap our strong fourth quarter results capping a milestone year for MP. Second, I'll update you on our Stage II optimization plan at Mountain Pass. Then I will turn it over to Ryan for some color on our performance. And lastly, I'll share some perspective on the current market environment and how we're positioned for it. Starting with the financial highlights. In the fourth quarter, we generated strong production volumes as well as records for both shipments and revenues. These results show that we are clearly enjoying the benefit of strong pricing, which has continued to rise post year-end, but we are also demonstrating operating leverage on a unit production cost basis. You can see the combined effect of these trends and the significant margin expansion we've reported for the fourth quarter. We believe the growth and cost improvement illustrate that we continue to operate our facility at best-in-class levels with both uptime and yields remaining at or near the record levels we've established since restarting Mountain Pass. All told fourth quarter capped an awesome year from a performance standpoint and we are continuing to execute at a high level.

Thanks, Jim, and hello, everyone. Jim already covered a few of the financial headlines and we have all of the details in our press release. So I'll give an overview of how we think about our financial results and share some thoughts on how we're looking at 2021. We delivered impressive growth in Q4 and for the full fiscal year. Jim spoke about the strong demand and pricing environment, which drove the doubling of our revenues in the quarter and the 83% percent growth for the full year. The lifting of import duties in China has also contributed to higher realized prices, but the headline for us is the demand is strong and although we can't predict pricing or shipping schedules quarter to quarter, we expect to continue to sell through all of our production. In addition to the price and sales side of the equation, our adjusted EBITDA benefited from the continued excellent work Michael and his team are doing to improve our processes, reduce risk and ultimately increase the productivity of Stage I. Unit costs were down year-over-year mainly due to these process improvements, which drove a higher average concentrate grade and higher mineral recoveries compared to last year. Put it another way, our improvements are generating higher percentages of rare earth oxides and concentrate and we continue to achieve higher productivity per ton of ore. As we continue to effectively manage our per-unit production costs, you can see the leverage that exists in this model when demand and pricing are strong. This combination caused our margins to triple in Q4 compared to last year's fourth quarter and was the driver of our roughly 300% increase in EBITDA. Keep in mind that this EBITDA growth includes about six weeks of the impacts of public company costs following our listing. And while we will see the full quarter impact of these costs moving forward, we feel good about production costs and our market outlook.

Thanks, Ryan. I would like to take a moment to remind everyone of the extraordinary opportunity unfolding for MP. When we founded the Company in 2017, we saw tremendous potential in Mountain Pass given the incredibly unique nature of the asset and its importance to electrification and supply chain reliability. We were fortunate to have a few tough years to help us build confidence in our mission and to put in place an owner-operator culture focused on execution. We are now in the early innings of a multi-trillion dollar industrial transformation of the global economy and MP will be a part of shaping the future. Just since our listing on the NYSE in November, it feels like the theme of electrification and de-carbonization is accelerating even faster than most people expected. We see global OEMs including Ford and GM along with their Chinese, Japanese and German counterparts announcing plans to accelerate the transition away from combustion engines. It can be best summed up by a comment from Herbert Diess, the CEO of Volkswagen, who said, 'Our transformation will be fast. It will be unprecedented. E-mobility has become core business for us.' Here at home, more and more states have adopted California's aggressive clean vehicle standards with several more expected to follow. But of course, I could remind you about what's happening in the capital markets from cars and trucks to planes and air taxis or from multiple battery technology players; massive amounts of capital are going into SPACs and IPOs to fund electrification. The enterprise value of companies focused around auto electrification now exceeds $1 trillion. And that doesn't even include the other trillion plus from the legacy OEMs. We see a pathway of literally hundreds of billions invested globally over the next five or so years and then likely into the trillions beyond that. Like any great boom, whether it was the railroads, the automobile, or the Internet, useful industrial excitement and unending possibility eventually seasons into maturity, competition, consolidation and failure for some, but every great American Gold Rush era needs its pick and shovel players and this one is no different. We believe MP serves that kind of role. Speaking about bipartisan consensus in America right now, supporting resilient domestic supply chains is certainly one of them. Our mission is to restore the full rare earth supply chain for the United States and to do so sustainably. We believe Washington DC is getting focused on stimulating much more success for companies like ours. But we won't hold our breath. Right now, we are focused on the relentless execution that I've outlined. We are moving forward, improving our Stage I operations and implementing our Stage II optimization. In fact, a key third-party industry research firm recently published that MP is expected to be the world's lowest cost rare earth producer when we complete Stage II. We tweeted their chart last month, so please check that out. While we do all this, we are working in parallel on our longer-term approach for Stage III. Ultimately, the main use case for rare earths is for magnets and the size of that opportunity is enormous. So we are profitable with a strong balance sheet. We are the most environmentally responsible company in the rare earth industry evidenced by our modern facility and location in California. We believe we are on track to being the world's lowest cost producer and we are the only scaled Western supplier of a precious commodity that is critical to electrification, de-carbonization, and national security. Thank you all for joining today. Let's now have the operator begin the Q&A session.

Thank you. Good afternoon, everyone. I have a couple of questions. First, do you expect modest volume growth this year with stable unit costs? Do you anticipate any special seasonality throughout the quarters? Perhaps as you increase production in the second half of the fourth quarter, the unit costs will be lower than in the first half. That’s my first question. For the second, could you please comment on the rebate related to the tariff change and when you expect that to finalize? Additionally, regarding stockpile sales, how do you envision that progressing throughout 2021? Thank you very much.

Sure. Hey, Carlos. Hey, Ryan, why don't you take both those.

Sure. Hey, Carlos. So I'd start on your first one in terms of seasonality. I wouldn't expect there to be significant seasonality from a production basis. I think your view is probably correct in terms of the modest volume growth really taking place in the back half of the year. From a shipment standpoint, as I mentioned, that can be lumpy quarter to quarter and so it's tough to give any great color there. I think over the course of the year, we certainly intend to be selling through 100% of our production, but the individual shipments over the course of each quarter can move around a bit. On the tariff question, the tariff rebate in 2020 was really a one-time item. This reflected a rebate from the tariffs that were in place, the Chinese import duties on our product, up until March of 2020 and related to sales in the first quarter and in prior years. There may be some small amount of remaining rebate left, but not material and not anything that we could predict with certainty coming into 2021. The last piece on stockpile sales, you'll see those are incredibly small, a couple hundred thousand dollars a year and relate to legacy stockpiles, as you mentioned. I think we'll probably continue to sell out that inventory over time, but not a material driver for us.

Perfect. Thank you very much, Jim and Ryan. Just maybe if I could add one more on the royalty expense to SNR. So, if I understood correctly from what I read in the release, the amount of around 450,000, 440,000 tons that we saw in the fourth quarter that was the last sort of payment before the transaction was completed and a business combination was concluded and therefore we should not be seeing these anymore in the results, right, from the first quarter on?

Yes, Carlos. That's correct. There was no payment from the company to SNR at the closing of the combination, which not only reflects the addition of the SNR mineral royalty interest onto the balance sheet of the combined company but also means that since both SNR and MP mine operations are wholly owned subsidiaries of MP Materials Corp, there will be no royalty expense for the company moving forward.

All right. Excellent. Thank you very much, guys.

Thank you.

Thanks.

Next question?

Good Afternoon, Jim and Ryan. Thanks for the time today.

Of course, afternoon.

I was hoping you could share your expectations for the targeted production cost on a per kilo basis once you reach run rate in 2023, considering that the third-party research firm has identified MP and Mountain Pass as the lowest cost producer of NdPr in the world.

I'll briefly address that question by noting that we currently sell a Stage I product and do not produce NdPr at this time. The research indicates that once we complete Stage II, we will be selling NdPr. Ryan, would you like to add anything regarding the model or that aspect?

I believe the best way to approach this is by focusing on the design improvements we outlined. We maintain our stance on the EBITDA guidance for 2023. If you calculate based on the information provided during our public transaction and divide that cost structure by the total NdPr we anticipate producing, it works out to be in the very high 20s per kilogram. This represents the appropriate perspective on the matter.

I appreciate that. And then, maybe if you could just clarify that you talked about getting to that run rate of just over 6,000 tons per annum once Stage II is up and running and that would be full run rate achieved in 2023. How long do you expect to take to ramp up the capacity from sort of first separation in terms of months or quarters?

Yes, so we haven't said anything specifically about what that ramp is going to look like. What we've said is that assume that 2022 will be a year that consists of that completion, the ramp, et cetera. And then really the best way to view it is normalized 2023. So I'd love to help you but we just really haven't said anything about how that ramp will go other than obviously we will try to get it done as quickly as we possibly can.

One other thing I'd add there David is, obviously we'll continue to sell our concentrate product that is not being consumed by the Stage II ramp up process. So obviously, you see the results this quarter and our expectation for the year from a revenue and cash generation standpoint for the Stage I business, so that will continue as we ramp Stage II.

Appreciate that. The last one from me is just you highlighted the Chlor-Alkali sort of capital opportunity, why do you think that you'll have a decision around whether you want to pursue that facility or not in terms of a business opportunity?

We do not have a specific timetable for that. However, it's important to acknowledge the significant progress we've made in our design improvements, which we believe will allow us to deliver on the enhanced 2023 operating model while maintaining a consistent comparison to previous standards. We consider this a notable achievement. As we move forward, we are in a position to increase our Chlor-Alkali production, but since we are just making this announcement today, we haven't disclosed any public timelines or methods for how we plan to proceed. It's essential to view this as a distinct potential high return on capital opportunity that we will evaluate like any other investment opportunity.

Absolutely. I appreciate your time guys. I will get back in the queue. Thank you.

Yes, of course.

And our next question comes from the line of Chris Terry with Deutsche Bank. Your line is open.

Thank you. Hi, Jim, Ryan, Michael. I hope you're well. I had a few questions. I'll just maybe do it one at a time. First one, just on the reagents, it sounds like an exciting opportunity you have there, just wondering if you could talk a little bit to how you are doing that? Is that the process itself the same as it was and you just save on the reagents or have you slightly modified the way that you do the separation and that's where the actual savings in the reagents come about?

Yes. Chris, thank you. Let me give Michael a chance to respond to that question. Michael, go ahead.

Thank you, Chris. It's a good question. I think we mentioned in previous presentations that we saw that there are areas for continued improvement and how we operate it with some of the existing assets that are to be re-commissioned and optimization of the new assets that we plan to acquire. These opportunities grow in our deep understanding of the previous generations of Mountain Pass operations as well as certain industry best practices, particularly in China. So earlier last year, we decided to extend the front-end engineering schedule in order to spend more time on R&D and pilot work before finalizing our process flow and equipment list. So ultimately we developed confidence in some of these developments to incorporate that into some design changes in our final process of equipment list. Some examples of that are on the roasting and leaching processes, we worked to optimize the roasting and leaching conditions to improve the NdPr recovery, maximize removal and minimize reagent usage. On the leach side itself, we made adjustments to the leach processes to minimize NdPr that remove leach solids to minimize the amount of RO water that we used and minimize the amount of reagents used through improved recycling. On the extraction side, we made certain improvements to the processes to reduce reagent use and maximize the production of salable products including non-NdPr products. And then on the finishing, the improvement in reagent handling to reduce excess reagent usage relative to our previous model and improve the recycling of materials to improve the yields. We also made improvements to the finishing process to increase first pass production rates on-spec production rates. This includes enhanced blending capability to blend various stages of production as well as increased storage to enable greater resiliency and flexibility of production. So all these things contributed to reducing reagent usage, which also reduces the amount of spent brine that is produced, some of which we have to otherwise be neutralized which then further reduces the amount of reagents consumed. So those are the types of things that we engage in and then we try to generate very high return and make us very confident in this long-term savings.

Thanks, Michael. Appreciate your extra color. A couple of those I just wanted to ask, do you think maybe by the middle of the year or some point early in the second half of the year, you'll be in a position to maybe give more specific timing about the startup of Stage II in 2022? Or how are you thinking about when you provide that update?

That's a great question. We understand that everyone wants to stay updated as much as possible. Throughout this year, we will do our best to be transparent and keep everyone informed. We hope to have some business developments later in the year so that people can see for themselves. However, regarding a specific timeline, it's difficult to provide one beyond acknowledging that we know this is important to investors who want to track our progress. As a team focused on execution, we recognize that our stakeholders want to evaluate us based on what we communicate, and we aim to meet those expectations. While this response may not fully satisfy your inquiry, we will strive to share as much information as we can throughout the year to keep you informed.

Okay. And then, just moving down a stage to Stage III. Just wondering if you can give an update on how you're thinking about that. It's obviously an exciting opportunity if you can do that. But are you thinking about that still to chip away on it while Stage II is going through or you get Stage II up and running and then look at it, just trying to look at the sequence of events and how Stage III might ultimately fit in.

So Chris, I'm going to give you a really unsatisfying answer unfortunately, which is we don't have any Stage III updates today. You can expect us to be very opportunistic. So I will leave it at that. And we publicly stated, obviously we have a team working on Stage III. So we have a number of people and we will be opportunistic.

Okay. And the last one from me just relates to the market. I guess just getting the views on recent price moves in NdPr that we've seen since the start of the year, the updates from the China production quarter, just any color you can provide in general, particularly on the NdPr?

Everyone can share their thoughts on commodity prices since it's uncertain. We believe the current trends are driven by demand, especially with the growth in the electric vehicle market. There have been statements from senior Chinese officials suggesting that current prices are too low considering the environmental costs of processing. They mentioned that prices should reflect the real value of resources. Looking ahead, it’s hard to predict the short-term market changes, but globally, only 3% of vehicles are electric now, and we anticipate reaching over 90% in the coming decades, potentially quickly due to significant capital influx. Moreover, it’s crucial to recognize the actual replacement cost for bringing new assets online. To compete effectively in this market requires a multi-billion dollar investment. Our ore body is over 7%, which is substantially more robust than most junior mining projects sitting around 1% or 2%. If one had unlimited capital, permits, and a viable ore body—things that are scarce in the Western world—they would still need to construct a separation facility, representing a significant investment. Ultimately, the ability to introduce new supply will likely prove to be more difficult and costly than many realize. This will unfold over the coming years, though it won't affect our plans in the immediate future. That's our perspective, and I invite Ryan or Michael to add their insights if they wish.

Thank you. That is helpful. I think that's it from me. Thanks, guys. All the best.

Thank you, Chris.

We will take one more set of questions from Ben Kallo with Baird. Your line is open.

Hey, James. Hey, Ryan, Mark. Thanks for taking my questions. Maybe when Stage II gets reversed. I'm just joking.

I was going to make some joke like.

Yes, but you talk about the downstream, I think because I think that maybe it would be helpful to figure out how fragmented the margin is and what that really means and then how close to the customer that is and then how you think that that could help maybe mitigate the price fluctuations in reverse as you move downstream?

When you say downstream, you're referring to separate it with Stage II, right?

No, Stage III.

Yes. Oh, Stage III. Well, I'm going to give you the same unsatisfying answer that I again press, maybe I'll say with a little humor. But we don't have any Stage III updates at this time, but you can expect us to be extremely opportunistic. So I'll leave that on Stage III, but it might be helpful…

The market reacts positively to it, or at least in general terms. What does that look like?

I understand your question. The key point is that we are undergoing a total transformation of the supply chain, particularly with the electrification of the OEM market and the global economy. Currently, the magnet industry is primarily dominated by China. However, as we witness global investment and trends, it is unlikely that there will be a single point of failure in the supply chain where alternatives exist. We believe we are well-positioned to contribute to this evolution. While the magnet business is concentrated in China and to some extent in Japan, we see ourselves playing a crucial role in shaping this market as it develops. There’s a significant opportunity as electric vehicle penetration of the magnet business increases from 3% to 30%. We aim to be a part of that growth. In terms of the industry landscape, various players such as OEMs, motor makers, and magnet producers are involved in the downstream supply chain. We are familiar with the key players and feel confident communicating with them without needing a large sales force. As the market evolves, we anticipate winners and losers, and we believe we can navigate this without assuming excessive risk. Our focus will be on making wise investments and executing effectively, as we see a remarkable business opportunity ahead. While it may not be the most satisfying response, the truth is we are in the process of building a supply chain that is still in its infancy, and we expect to be integral to its creation.

This is Ryan. I'll just add a real quick on that, a couple of thoughts. Adding to what Jim was saying in terms of we don't need to take a ton of share, I mean we get asked a lot about the demand and intensity per electric vehicle and all those things. Certainly you see in our materials, we think the EV piece of the market is growing incredibly fast. But take the entire magnet market; leaving capacity between now and 2030 has been double in this industry. And so I think the other thing that's really playing into our favor in a market that already we think needs to double, is I think what a key differentiator will be is access to raw materials. Since we've been active and had conversations with customers, the thing that has surprised me is the amount of time that we have very, very downstream customers all the way down to the OEMs of various types, not just electric vehicles, now coming hand in hand with magnet makers to us, trying to understand, hey, if I sign this contract for magnets, is there going to be NdPr there to back it up. I think it's a really critical differentiator being vertically integrated and something that really no one else can do. So I think that will be the secret sauce, if you will. And to your point on volatility in rare earth prices, I think you've seen if you sort of model over time what margins in the magnet business have done versus rare earth prices. Magnet makers are pretty consistently able to pass through with some lag, for sure, but I think our fundamental view as well though is, we certainly are not going to subsidize one piece of our business for the benefit of the other. I think, we feel very strongly that they need to stand alone and have their own economic returns and we'll proceed with that view. The reason we feel good and are interested in this Stage II opportunity is the staying power of those margins and given our view of the scarcity, if rare earth prices continue to go up, our Stage II business will continue to benefit and we do not think that will come at the expense of a potential Stage III.

Thank you. That's very good. Maybe two questions and one for you, Ryan, first. Just the leverage ratio that you're comfortable with going forward and the structure. And then, James, for you, what are the benefits? Do you have many employees that have been working at the mine for a long time that are there and making sure that you guys are very successful? Then I think it's a huge benefit. And how do you make them feel comfortable, because the mines have been in the hands of few different people over the years? And now, I’ll stop there. Thanks guys.

Sure, I can probably take both of those or Ryan, you can chime in after. On leverage, I feel very strongly that the capital structure of the company needs to be appropriate for the business at the year-end. We are very mindful of that. We obviously are mindful of the history. And as you've probably heard me say ad nauseam, we want the leverage to be in the price, not on the balance sheet. That said, remember that we are, our Stage 1 business is generating cash. We obviously believe that our Stage II business will then be a significant uplift and so there is no doubt that we have made a lot of progress in the business over the last few years. The power of an owner-operator culture is that we are large shareholders ourselves, we care and we want to make sure that we create long-term value. We're not looking to do anything shortsighted. The capital structure needs to be appropriate for the business and hopefully that helps you on the leverage front. Regarding our employees, it's an important topic that ties into our owner-operator culture. As part of our public transaction in November, we provided every non-executive employee with a $3,000 bonus and granted each employee 100 shares, regardless of their role. Our goal as a company and a culture is to encourage an owner-operator mentality. We've upheld our commitment to sharing in the good fortune that comes our way after some tough years. We'll continue to work diligently to create value, expecting our employees to engage in this process, ideally more over time. It's crucial to treat them like owners since our industrial enterprise relies heavily on our human capital. This approach benefits shareholders, fostering a unified focus on value creation without an "us versus them" mindset. We believe everyone is pleased with our success, and we see a promising pathway ahead for continued success and participation in that growth.

Good stuff. Thank you very much.

Of course.

This concludes this conference call. Thanks for attending. You may now disconnect.

Thank you, everyone.