Hello all, and a warm welcome to the MP Materials Third Quarter 2021 Earnings Call. My name is Lydia, and I'm your operator today. It's my pleasure to now hand you over to our host, Martin Sheehan, Head of Investor Relations. Please go ahead when you're ready.

Thank you, operator, and good day, everyone. Welcome to MP Materials Third Quarter 2021 Earnings Call. With me today are Jim Litinsky, Chairman and Chief Executive Officer of MP Materials; Michael Rosenthal, Chief Operating Officer; and Ryan Corbett, Chief Financial Officer. Before we get to Jim's and Ryan's opening remarks, I'd like to remind you that during today's call, we will make certain forward-looking statements that do not constitute historical facts under the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this communication. For more information about factors that may cause actual results to materially differ from forward-looking statements, please refer to the cautionary language in the earnings release and in our filings with the SEC, including the Risk Factors section in our recent SEC filings. During the call, management will also discuss certain non-GAAP financial measures, which we believe to be useful in evaluating MP Materials operating performance. These measures should not be considered in isolation or as a substitute for MP Materials financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our current report on Form 8-K filed today and can be found on our website, investors.materials.com. And please check our investor website regularly and follow us on Twitter, Instagram and LinkedIn, where we often provide news and information on the company. With that, I'll turn the call over to Jim. Jim?

Thanks, Martin, and thank you to everyone joining us on the call this afternoon. Let me run down what we will cover on the call today. First, I will recap the highlights of another outstanding quarter. Second, Ryan will provide color on our operational results and financial performance. Third, I will provide an update on our Stage 2 and Stage 3 progress. Finally, I will share my views on recent market trends and some other thoughts. After wrapping up the prepared remarks, we will open it up for Q&A. But let's start with the third quarter highlights on Slide 4. The MP team continues to perform above and beyond even our own high expectations, again, setting new records for production and sales volumes. Across the board, every department continues to improve processes and overall execution, which, when combined with select equipment upgrades, is driving higher utilization of our assets and higher production volumes. These factors have produced a meaningful increase in our total output for the quarter. I would also add that we produced more REO in just this quarter than our predecessor produced in its best year ever. Let me repeat that. MP Materials produced more REO in just this quarter than the predecessor entity did in their best year ever. This stat is incredible, and it is also particularly remarkable when we think about all the operational, logistical, and labor challenges going on related to COVID. I am so proud of our team. I would also like to give a special thanks to our logistics team. Despite significant shipping and trucking challenges throughout the economy, we shipped over 12,000 metric tons of REO in the quarter. This represents a 30% increase over Q2. The ingenuity and dedication of the MP team is just awesome. And we've said this before, we are selling everything we can produce. Strong global demand for Rare Earth materials resulted in a 127% year-over-year increase in realized prices. This is being driven primarily by NDPR as well as other magnetic rares contained in our concentrate. The combination of higher volumes and higher pricing led to revenues more than doubling year-over-year to $99.8 million. The strong pricing, combined with continued diligent cost management helped to demonstrate the leverage in our operating model, with adjusted EBITDA increasing nearly 6x year-over-year to $68.3 million. And along with this performance, we delivered operational efficiency improvements as our unit production costs declined nearly 6% from the second quarter of 2021. The improved financial performance is also naturally increasing our cash generated from operations. We generate a significant amount of cash from our operations, and we have a fortress balance sheet. This positions MP to continue to invest in our Stage 2 and Stage 3 opportunities while maintaining substantial firepower to pursue high ROIC opportunities within our mission and over time, reward shareholders. The Stage 2 optimization project continues to progress at a healthy pace. We continue to manage through many of the challenges we face. MP has an execution-focused owner-operator culture. We understand the importance of Stage 2 to our overall mission, and we remain focused. And again, our strong Stage 1 production achievements further support our Stage 2 volume outlook for 2023 of 6,075 metric tons of NDPR production. Lastly, just quickly on Stage 3. We look forward to sharing more on the vision for our first rare earth metal and magnet facility and the progress we are making towards the end of the year. More on Stage 2 and Stage 3 in a bit. But for now, let me turn it over to Ryan for more details on our quarter.

Thank you, Jim, and welcome, everyone. I'll be beginning on Slide 6 and starting in the bottom left-hand corner. As Jim mentioned, production volumes hit record highs in the quarter as we produced just under 12,000 metric tons of contained rare earth oxides. This was an 18% increase over last year's production and a 16% increase off of Q2's production, a meaningful increase, particularly since you will recall that Q2 was the previous record for the company. As Jim also mentioned, every department is making improvements in their processes and procedures, which are adding up to improved production results. Our mining team is ensuring consistent ore availability in feed grade to the mill while supporting higher feed rates. Our maintenance staff is ensuring record uptimes by staying ahead of wear trends and implementing strategic equipment upgrades. In the face of an extremely challenging supply chain environment, our procurement and logistics teams are ensuring we have the necessary consumables and repair parts in a timely manner as well as supporting the outbound logistics needs of record production volumes. Our operations and engineering teams continue to improve our processes and their execution, leading to steady and sustainable increases in production. And our safety and training teams are ensuring improved employee safety, environmental compliance, and employee productivity, and that lessons are passed from crew to crew and shift to shift. These individual modest improvements are compounding into meaningful results. As we look at the improvements at a more macro level, we believe we are seeing steady and sustainable improvements in our flotation process with modestly improved recoveries as well as higher feed rates. Notably, our uptimes in the quarter were 98%, a new all-time quarterly high for the plant. This resulted in a 6.5% increase in hours of production versus last year and a nearly 8% increase versus the second quarter. I'd note that the comparisons are partially flattered by our planned semiannual plant turnaround falling in Q2 and Q4 of this year versus falling in last year's third quarter. However, we were also pleased to have less unplanned downtime versus prior quarters. To control for the comparability between the quarters, we measure our efficiency in terms of rare earth oxide produced per uptime hour. And in the third quarter, we maintained the material improvement achieved last quarter and, in fact, continue to build on it with a nearly 10% year-over-year increase in production per uptime hour. As we look ahead to the fourth quarter, I want to reflag the timing of the plant turnaround I mentioned earlier, which impacts Q4's available production hours. And in addition, we generally lose a little bit of efficiency in those turnaround quarters. But reflecting on the Q3 performance, I would note that we've always expected to make improvements in our production efficiency, but the team has executed well and ahead of plan. Moving clockwise on the page to our sales volumes, you can see the timing of shipments resulted in us selling through all of our production and then some. This resulted in a 36% increase in metric tons of REO shipped to over 12,800 metric tons, a 30% increase over the second quarter. As you can imagine, given the stress on the logistics supply chain, this was a particularly heroic accomplishment. And as we often point out, shipping volumes and production volumes usually don't line up quarter-to-quarter, but over time, they even out. This quarter, the team was able to tackle the modest inventory that had built up over the last few quarters, but in the current environment, it's even harder to predict the exact timing of shipments. Moving on, as you can see in the top right, as Jim mentioned, our realized pricing remains very strong and grew 5% sequentially, driven by continued strength in NDPR prices. Finally, the very high uptimes combined with effective cost controls resulted in a 6% decline in our production costs versus the second quarter and a 4% increase year-over-year, which, as a reminder, includes significant incremental costs from hiring ahead of Stage 2 recommissioning, where certain costs cannot be capitalized and are therefore included in our production cost metrics. This impact is highlighted in the yellow bar in the graph to give a more apples-to-apples comparison, which would have resulted in a decline of about 3% year-over-year when excluding the approximately $100 per metric ton of REO of pre-commissioning expense. Looking forward to Q4, I would also remind everyone that my comments regarding the turnaround also manifest in unit production costs given the lower uptime and efficiency as well as the additional costs associated with the maintenance effort. Let's move to Slide 7. I spent a lot of time on that last slide to highlight all the amazing things the team is doing. So I'll cut to the chase here. Revenues of nearly $100 million were up 143% year-over-year and 36% sequentially, driven by the simple product of increased pricing and volume I highlighted on the prior slide. The revenue growth and solid cost containment resulted in EBITDA growing nearly sixfold to $68.3 million, which was 47% higher than the second quarter. Adjusted EBITDA margins improved from 36% last year to 68% in the current quarter and improved over the 64% margin in Q2. You can also see the leverage in our model when you look at the incremental margin between Q2 and Q3. Specifically, adjusted EBITDA increased $21.9 million from Q2 to Q3, while revenue increased $26.7 million. That's an incremental margin of 82%, an awesome result, given much of the growth was through volume, not price. As we typically see, that EBITDA improvement flowed nicely to the bottom line as our adjusted net income grew over 7x versus last year to $52 million, which was also a 55% improvement over the second quarter. Before I move off of this slide, I want to point out a couple of housekeeping items. You'll notice on our P&L in the press release and in the appendix of this deck that we've added a new operating cost line item, advanced projects, development, and other. These costs are incurred in connection with certain government contracts, the research and development of new processes, or to significantly enhance our existing processes, as well as costs incurred to support growth and development initiatives. These dollars are relatively small now, but given our accelerating work with regard to metal alloy and magnet manufacturing, we thought it important to start breaking these costs out from G&A. And lastly, also on the P&L, as a reminder from last quarter, our diluted share count includes the full dilution impact of the roughly 15.6 million shares related to our green convertible bond as if the bond were converted into shares. This results in a GAAP weighted average share count of 193.2 million, which we used to calculate diluted EPS, again for the recent ASU requiring full if-converted treatment for convertible notes, regardless of whether they are in the money. As a reminder, the conversion price for the notes is a little over $44 a share. So excluding this impact, our adjusted fully diluted share count was 178.2 million shares as of September 30. I'll now move to Slide 8. Our normalized Stage 1 free cash flow remains extremely strong, driven by the financial results we just discussed. This chart is on a year-to-date basis. So starting with our reported free cash flow of negative $13.3 million and adjusting for our offtake paydown of $38.9 million, $80 million of growth CapEx and another $2.3 million of transaction and onetime items, results in a normalized Stage 1 free cash flow of over $107 million or a 46% margin on year-to-date revenues. Keep in mind, the reason we adjust out our offtake paydown is that the offtake balance is essentially debt, but the impact of the paydown of that agreement runs through our operating cash flow instead of financing, as we've discussed in prior quarters. I would also point out that in the appendix, we have a detailed walk of how we get from our adjusted EBITDA to our reported operating cash flow and then our reported free cash flow. On that slide, you will see some growth in working capital this quarter as a result of the large number of shipments taking place in late September due to the port congestion. We have since received the entirety of the cash from these lumpier receivables, which will show up in our fourth quarter free cash flow numbers. Lastly, in the quarter, we paid down our offtake agreement with Shenghe Resources by an additional $16 million, leaving roughly $33 million remaining. At this pace, which would assume continued strong concentrate pricing as well as consistent production and shipping at Mountain Pass, we would expect to pay off the remaining amount in early 2022. As a reminder, we are entitled to pay off the balance in full at any time with cash on hand, particularly as it is nearly a rounding error in the context of our $1.2 billion cash balance. We have not elected to do this as we continue to pay down the balance quite rapidly via the traditional offtake mechanism, and we also believe that maintaining a balance aligns the incentives of our distributor to maximize the company's profitability. I would also remind everyone that we have the flexibility to sell our product where we choose. And as you can imagine, given the rising demand for rare earth materials globally, customers and distributors regularly express interest in the company's current and future production of both concentrated oxides. With that, I'll turn it back to Jim to give you more details on Stage 2 and Stage 3.

Thanks, Ryan. Before I start on Slide 10, I wanted to point out that we added a section of cool photos towards the back of the deck, which shows some of the ongoing progress at Mountain Pass. So please take some time to have a look. As I mentioned in my opening, Stage 2 and related work continued to make nice progress. Although not specifically related to Stage 2, we had a very successful first firing of both of our combined heat and power or CHP turbines in the quarter and have now begun continuous performance testing. These turbines each generate north of 12 megawatts of power and recommissioning this facility is important for a couple of reasons. Stage 2 will require significantly more power than Stage 1. So having a dedicated power source fed by a pipeline lateral should further improve the reliability of our processes. Second, we believe the CHP could cut our energy cost significantly and will provide us excess steam for our processes, which we would otherwise have to consume energy to generate. Importantly, we expect the plant to come online on a full-time basis by early next year. Also in the quarter, we recommissioned our water treatment plant, and for the last 2 months have been producing on spec reverse osmosis or ROR. This is also critical for Stage 2. As you can imagine, to attain the purity levels needed to produce on spec NDPR and other separated rare earths, we need to use highly purified water. So this is another important milestone to achieve ahead of Stage 2 commissioning. We will also use this water in the CHP plant as well as to assist on a limited basis with our Stage 1 processes. Specifically related to Stage 2. We have finalized most of the remaining process design decisions and have ordered most of the ancillary processing equipment with all deliveries currently expected within our needed time frames despite the supply chain challenges. We have now extended construction to 8 work sites, including new concentrate drying and calcining circuits, leach circuit optimizations and NDPR finishing upgrades. Also, we have enhanced our efforts in coordination with the County Permit authority to accelerate construction permit reviews to help us with schedule. We continue to invest in developing heavy rare earth separation capability, which we believe is an exciting commercial opportunity. This capability is consistent with our mission to restore the full supply chain and move downstream into magnetics. Process development and pilot activities are proceeding, and certain early site work is being evaluated. I look forward to providing more detail on our heavy rare earth separation activity in the near future. Similar to heavy rare earth separation, we believe magnet recycling will be an on-mission accretive opportunity for the business. A recycling capability should be a nice complement to the economics of Stage 3 magnet production. To that end, we are dedicating resources to advancing this capability, including ongoing joint development projects with significant industry and governmental entities. We believe MP is naturally positioned to be a global leader in rare earth magnet recycling in time and look forward to providing more detail in the future. Before moving on to our Stage 3 update, I wanted to remind everyone of the discussion we had last quarter. As you know, a day doesn't seem to go by without a new story discussing the various supply chain, labor, logistics and/or materials challenges happening throughout the global economy. Like others, we are managing in real-time the cost, schedule and other inflationary impacts that are out there. We wish we could be precise around known unknowns and unknown unknowns, but that is not possible. What we can tell you, though, is what matters to us all as shareholders, and that is the great news. We believe any incremental costs pale in comparison to the operating cash flow we are generating. Moreover, we continue to see what feels like a dramatic acceleration of the long-term asset value of what we already have in place as well as that of what we are continuing to create at MP. Moving on to Stage 3. We continue to build out our team, develop our production and market strategy, and engage with a wide array of customers. We remain on track and are incredibly excited to share the vision of our first U.S. metal and magnetics facility towards year-end. With that, I'd like to shift gears before Q&A to share some market updates and other thoughts. So I know I covered the general global impacts around non-transitory supply chain issues already, but it is especially worth highlighting that these concepts of resiliency and reshoring have an added urgency when it comes to electrification. For the month of September, battery EV sales penetration in the U.S. exploded to 5.2% versus 2.5% a year ago. It was 15.1% and 17.4% in Europe and China, respectively, versus 7.4% and 5.3%, respectively, a year ago. Rather than list them, I would just say, pick your favorite U.S., European and/or Asian OEM or industrial supplier, and it was likely they were part of some kind of announcement around investment or planning for electrification in recent months. Trillions of GDP are in play just in electrification. The supply chain is existential. As I have said before, the semiconductor issue was the ghost of Christmas future. With respect to the rare earth magnet supply chain specifically, there were also 2 major developments worth noting. China initiated a process to consolidate their 6 super major rare earth producers into just 2 companies. We believe this is very bullish for rare earth prices and, of course, highlights the increasing importance of MP's mission. The U.S. Department of Commerce also initiated a Section 232 investigation into the imports of permanent magnets, nearly all of which currently come from China. Lastly, I would like to take a moment to reflect on MP, how we began, what we've been through and where we believe we are going. I hope it will help you better understand our business, our culture, the risks we have taken on, the opportunity for shareholders, and most importantly, why we must succeed. We founded this company in 2017. At the time, Mountain Pass was sitting in bankruptcy in care and maintenance with 8 employees. The predecessor failure to achieve operational stability led many to conclude incorrectly that Mountain Pass was a busted site. We, however, had conviction in where Mountain Pass should sit on the cost curve and had to fight for the opportunity to prove it. We contributed capital just to keep the process going before closing on the acquisition as the key bankruptcy parties pushed furiously to push Mountain Pass into reclamation. This meant that an invaluable American industrial site would have been destroyed and the permits lost. With limited resources amidst a bankruptcy battle where we were outgunned, we went to the United States government and shared our detailed plan to rescue, restore and ultimately return Mountain Pass to its rightful place of leadership in the global rare earth industry. We believed we could make Mountain Pass the foundation of a true western champion of the rare earth supply chain. We knew it would be hard, complex, and nuanced, but we believed our success was critical for economic and national security. We could also see the world changing in a way that meant this was an opportunity of enormous long-term scale. The government seemed skeptical at first but grateful we were willing to try. We did not view ourselves as any kind of heroes. We were just the only ones willing to take a chance. We were the only ones willing to take the great financial and personal risk and to put in the sweat that would be required to see this through. And we were the only ones who fundamentally saw what we saw in Mountain Pass, an irreplaceable strategic asset of enormous and growing consequence, not only to America, but to the entire Western hemisphere. And so there we went, hire by hire, rock by rock, and most certainly, setback by setback, we began a great American comeback story. MP is now 365 and growing diverse Americans getting the job done. If you annualize today's reported quarter, we're doing north of $270 million per year of run rate adjusted EBITDA. We also have $1.2 billion in cash, and our mission continues. Yet no matter how big our team gets, fighting long odds against conventional wisdom is our corporate DNA. Every step of the way we have had naysayers, detractors, and worse. Our critics do have one thing right, though. What MP is trying to accomplish is complex, challenging, and painstaking. We have been crystal clear since day one that moving a multibillion-dollar supply chain will not happen overnight. We must be pragmatic, we must be methodical, and we must continuously learn from our inevitable mistakes and be relentless. Many of you have heard me say this, but I must say it again. We believe MP's success is critical, and we are proud to represent a symbol of America's renewed, reinvigorated manufacturing spirit as electrification transforms the global economy. We will be unwavering until it is done. With that, let's open it up for questions.

Our first question today comes from Carlos De Alba of Morgan Stanley.

Sorry, I was on mute. A very good quarter. So if I may, first question would be on fourth quarter output. Is there anything that you can comment, given the planned maintenance that you will have or you had already? How much of a reduction maybe we should expect in the quarter?

Thanks, Carlos. Ryan, why don't you take that one?

Sure. Happy to. Carlos, this is Ryan. We tend not to give specific quarterly guidance, but what I would say is Q2 was another quarter with a plant turnaround. And so that's probably closer to what we would be aiming for, for Q4.

All right. That makes sense, Ryan. Then the impact of the Stage 2 hiring ahead on your cost. Is this something that should continue to expand as you get ready to launch that project? Or do you think it's going to be more stable at current levels?

Yes. I'm happy to start and then Jim, if you have anything to add. What we've seen over the last couple of quarters, and you can see this in the presentation in our materials is it's been relatively steady. And I would expect that likely to be the case over the next quarter or two. But we've been pretty clear that 2022 is a transition year. And so as we get closer to first oxide, I would expect certainly hiring as well as several other costs to start to pick up ahead of revenue from oxide sales. So that is something to think about as you guys work on your quarterly models for 2022. I don't know, Jim, if you have anything else to add on that?

Yes, Carlos, I think you can see that we're making excellent progress on Stage 2, and you likely have an idea of what these projects entail. For those who may not be familiar, we've made significant strides, though we still have more work ahead of us. Our focus remains on completing this stage, and we feel optimistic about our normalized NDPR target for 2023. Ryan, if you want to share anything from a modeling viewpoint, feel free, but that covers the main points.

When do you expect to provide a more precise timeline for the commissioning or hot commissioning of Stage 2?

I want to clarify that we expect next year to be a transition year. We will incur some initial costs as we prepare for commissioning, which will require some advanced work. It's understood that it takes time to start things up. We feel positive about our normalized expectations for 2023. Ryan, if you could provide some insight for modeling purposes, that would be helpful.

Yes, Carlos, the reality is that based on our current situation, it's reasonable to expect that we will have our first oxide production in the second half of the year. For now, we aren't providing more specific details, but we will keep you informed as the project progresses. As Jim mentioned, we hope that the results from this quarter demonstrate our ability to enhance our Stage 1 processes, which gives us considerable confidence in what we can achieve in Stage 2, especially considering the REO being produced in Stage 1. As we prepare to restart the refining facility next year, our priority will be to properly integrate those assets. If it means taking an additional day of downtime in any quarter to complete the initial tie-ins for Stage 2, we will prioritize making the best long-term decisions for the business. We will keep you updated as we move forward, and I hope this provides some additional clarity.

Our next question comes from David Deckelbaum of Cowen.

Thank you for the insights today. It was a great overview of the quarter. I wanted to revisit some points from last quarter. You mentioned that you remain confident in the NDPR separated run rate for 2023 and talked about commissioning in the second half of '22. I believe you hinted at some decision-making regarding time or cost. How does that situation look this quarter? What are your thoughts on the balance between cost and timing right now?

Sure, that's a great question. We tried to provide as much clarity as possible in our update regarding supply chain issues that you see in the news daily. While we've made significant progress, there are still uncertainties ahead, so we want to remain cautious until everything is completed. The current project is progressing well, although we acknowledge the inflationary pressures in the economy that we've publicly addressed. We're managing those challenges as they arise. In the last quarter, we mentioned how we engaged with the Department of Defense and power purchase agreements to mitigate risks to our schedule, and we are continuing to address such issues to ensure successful execution. I understand that there is heightened concern regarding this situation due to past experiences with similar projects, especially at new sites coming online, but it's important to remember that we are generating substantial cash flow as we await completion. After this quarter, I believe we are executing effectively, generating significant cash. When we consider all aspects, the current financial amounts we're dealing with are minimal compared to our existing operating cash flow. Also, the value of our existing assets is considerable; creating a similar site from the ground up would require around $2 billion in invested capital and take years to establish. Compared to the replacement cost, everything we are observing is manageable. I hope this addresses your question. While I understand you're trying to model these figures, we are optimistic about the project's progression, and we will continue to be careful each day until it is finished.

I understand that it's likely challenging to provide a definite answer regarding time or cost at this moment, but I hope the presentation has been helpful.

I believe we have been clear in stating that we view 2023 as a transition year. As we prepare for commissioning, we recognize that unexpected challenges can arise, although we are not currently facing any. We want to ensure everyone is aware of this perspective. We encourage you to assess us based on our performance in 2023. In the meantime, we continue to generate significant free cash flow, which is a positive aspect during this period.

Absolutely. Perhaps for my follow-up, I'm intrigued by the commentary around recycling because I think that this sort of underscores all of the sort of accretive opportunities that are out there as sort of a rare earth hub in the United States. When you think about undertaking these, I know with Stage 3, the downstream magnet production, this is going to be perhaps a small step, not necessarily a pilot, but it would be consuming the minority of your NDPR. As you think about some of these other opportunities, do you foresee sort of taking on a large splash, halting a Stage 2 sort of project within the next 3 to 5 years? Or do you think that this is going to be more of a testing the waters, setting up pilots, small iterative process?

That's a great question. Thank you for asking, David. I believe that many people may not fully understand our recycling capabilities, especially regarding rare earth magnets. Our approach involves solvent extraction, which is a core part of what we do at Mountain Pass. We are preparing to enhance this capability, and we aim to become the global leader in rare earth magnet recycling. While this currently isn't a large market, I anticipate that in a decade, it could grow significantly. To excel in this area, having strong solvent extraction capabilities is crucial, and this aligns well with our core competencies. It's likely that we will undertake a large project if it makes strategic sense. When considering recycling, we are still on the brink of understanding battery material recycling as the electric vehicle supply chain evolves. Sales are starting to increase, but we are years away from achieving the necessary high volumes for economic viability. There is a lot of enthusiasm around this area, and we are collaborating with major industry players and government entities, exploring various initiatives. We intend to play a significant role in this sector, although the timing is not quite right yet. Additionally, we will be prepared when the market is ready, as I believe this presents a substantial opportunity for our business transformation. Regarding magnetics, it’s worth noting that some recycling practices, particularly in China, involve recycling surplus magnets from manufacturing. We aim to optimize this process to enhance manufacturing efficiency and minimize material waste. As we look towards rolling out magnetics in the near term, especially from June until the end of the year, we will ensure that we maintain competitive efficiency. In the long run, there will be a growing number of spent rare earth magnets from electric vehicles, wind turbines, and other sources that we will be positioned to recycle. Even as other recyclers handle materials like lithium, we hope to lead the effort in recycling rare earth magnets. We are committed to focusing on this opportunity.

Our next question comes from Sathish Kasinathan of Deutsche Bank.

My first question is on the Stage 2. Last quarter, you highlighted the potential to improve the scope of the project to include heavy rare earth separation? Any update you could provide on that front, including any details on incremental CapEx required?

Thank you for the question, Steve. We have been actively exploring our options regarding heavy rare earths and assessing how we can do this cost-effectively at Mountain Pass. We believe this could develop into a commercially viable and attractive business, although we don't have any announcements to share at this moment. Rest assured, it remains a priority for us. We are making progress, but I don’t have specific details to provide right now. Perhaps Michael can share more insights on our thought process regarding heavy rare earths.

Sure. Thanks, Jim. Yes. So obviously, many magnets, including higher performance magnets have some percentage dysprosium and terbium. And therefore, to support our own magnetic capability, we would like to be able to have that ability. Our process development team continues to pilot work and optimization work to improve upon what we've done so far in heavy rare earth separation, including looking at alternative separation techniques and extractants. And we continue to move along in terms of preconstruction site work and other evaluations of site infrastructure, so continue to move along and evaluate the opportunity.

I appreciate the color. So my next question is on the production volumes. So you indicated some downtime, some lower production volumes for fourth quarter. But given the operational improvements you have seen in the past quarters in terms of higher feed rates, higher recoveries, how should we think about the sustainable run rate on an annualized basis?

Satish, I want to take a moment to emphasize something that's truly impressive. The entire team at MP should be very proud. This quarter, we produced more REO than the predecessor did in their best year, which is an extraordinary achievement. It reflects the execution culture we have here. I'm genuinely proud of the whole team for this accomplishment. It’s important to highlight that this is a remarkable statistic. Ryan has mentioned some points regarding next quarter, but we're also looking at longer-term improvements. Michael or Ryan, would you like to add anything to this?

Yes, I can begin, and Mike, please jump in if you’d like. However, I believe we are optimistic about the sustainability of the improvements. We focus on REO per uptime hour because it's a crucial factor. Our ability to increase feed rates while also enhancing mineral recovery has been an impressive achievement by Michael and his team. While we are not providing specific guidance, you can gauge our potential outcomes based on our recent results. We discuss downtime because any variance in our results compared to this quarter would likely stem from plant turnarounds or other reasons. I mentioned this briefly in response to Carlos' question. Our main goal for 2022 is to make long-term decisions that benefit the business while integrating Stage 2 assets throughout the year, regardless of when first oxide is expected. Therefore, we prefer not to be overly specific about volumes. That said, we are confident in the sustainability of the improvements we've achieved. Our focus will be on executing long-term strategies and ensuring we handle Stage 2 asset integration thoughtfully in 2022.

The next question comes from Tyler Langton of JPMorgan.

Could you just provide a little bit of color on sort of how much CapEx is left for Stage 2? And then sort of how much is kind of fixed and how much could be sort of exposed to cost inflation?

That’s a great question and a more detailed way to ask it. We haven’t shared those numbers yet. If we were to do so, we would be delving into specifics that we're not ready to address at this moment. I'm not certain how much we can share right now, but perhaps Ryan would like to take a shot at answering that question as well.

So Matt, we had spoken about the Stage 2 project overall being about a $220 million project. And obviously, that's sort of the number from several quarters ago. We don't provide a specific breakout on CapEx spend to date on what goes where. I would say, of the approximately $80 million of growth CapEx that we've spent so far this year, a significant majority of it is Stage 2 related, but there are pretty significant sums of capital in there for the combined heat and power plant and water treatment plant recommissioning. So I would not assume that all of the capital that we've spent this year is Stage 2 related. I think the thing that becomes a bit difficult to triangulate into for everybody, obviously, as Michael talked about some of the preconstruction site investigations and things like that for heavy rare earths. There are a lot of things that sort of tie into the rest of the plant. So putting a pin in it is a bit difficult. I think the reality is we'll continue to update you as we go along on our progress on the capital spending for Stage 2, but that's about as far as we've disclosed to date.

And then maybe just for Stage 3, I mean, is that something where you consider taking on a partner? Or is it something where more of the focus is to sort of build and operate it yourself?

I won't reveal too much about our upcoming announcement before the year-end regarding our first step. Historically, our strategy has been to buy, build, and/or form joint ventures, and that approach remains unchanged. During the last call, I believe someone inquired about this, and the fact that we're making an announcement before year-end indicates that we are developing something. This suggests that we are indeed building something significant. In the long term, it's crucial to understand our perspective. We have our target for NDPR, but we see the opportunity in magnetics as being larger than our current production capacity. The electrification of vehicles, particularly electric vehicles, presents a vast opportunity. It is challenging to accomplish in the west unless a company, like ours, has a solid footing in the supply chain. For instance, the CFO of Ford mentioned on CNBC this morning the need for companies to move upstream. This trend is common among all major manufacturers, as they recognize the potential market in EVs – when adding up major players like Tesla, GM, Ford, Volkswagen, and others, the market capital reaches trillions. If you consider the projected numbers for 2030 and even halve them, the demand for rare earth materials becomes apparent. An analyst pointed out that the west needs three more Mountain Passes, emphasizing the urgency of building the necessary infrastructure. As we take our first step, it's important to note that we will proceed thoughtfully and focus on high-return opportunities without compromising our existing operations. Our goal is to ensure we execute efficiently and excel at what we do to create a larger business in the long run. Additionally, regarding the concerns with OEMs, the semiconductor shortage serves as a lesson for the future, and this has not escaped the attention of global manufacturers. Companies are now considering their magnetic supply options, and if they are looking for a non-Chinese supply chain, we stand out as a viable choice. We believe our strategic position is immensely valuable, and we are not hasty to make deals merely for the sake of it. We aim to establish the right partnerships, agreements, and customer relations to build a larger and more robust enterprise. While this may lack specific details, this is our strategic thinking moving forward. You can expect that buy, build, or joint venture strategies might play a role in our long-term solutions, and we hope to provide more specific information about our initial steps soon.

I appreciate the color. That's helpful. And then just a final question. Are you hearing anything just in China, obviously, you've heard about sort of the impact of sort of power restrictions on lots of different industries. Are you hearing anything about, I guess, restrictions or the power restrictions impacting rare earth production over there?

NDPR prices have been rising, likely due to significant demand. We've noticed an increase in inquiries from various parties compared to last quarter, which I believe is driven by growing concerns over potential material shortages. Regarding outages, I'm not aware of any specific issues. What you’re asking seems similar to the situation with aluminum, where shortages are affecting prices. This comparison is valid since those in the supply chain are now considering these challenges across various materials. It's clear that multiple players recognize the risks of relying on a single source for most raw materials. I previously mentioned a significant development where China is consolidating from six major players to two. This is crucial since, looking back decades, electrification was minimal, and China aimed to gain dominance in this industry. Today, with major manufacturers like Neo, Chao pang, BYD, and Li Auto in the public markets, there’s a growing awareness of sourcing challenges for local manufacturers, alongside questions about supporting Western companies at the expense of our environment. This shift reflects a fundamental change in strategic thinking, as they are now aligning their upstream production with downstream needs. This consolidation into two main entities will likely allow them to meet demand more effectively, using a centralized approach to manage supply for their industrial leaders.

Our final question comes from Matt Summerville of D.A. Davidson.

So just two quick questions. First, with the production number. I mean, I want to underscore that a little bit as well, being 20%, 25% higher in this quarter than any other quarter that at least I've looked at going back historically. I mean, that's a huge step function up. Why could we not just apply simple algebra to that and say, okay, if 10 a quarter became 12, then why doesn't 6,000-plus tons of NDPR, purified NDPR, why is that not 6,500, 6,600?

Michael, since you live at Mountain Pass, you want to take that one?

Thank you. This one sounds a little bit like last quarter. We continue to make improvements in our process. And I'm really proud of our team, and they're working very hard from operations, engineering, maintenance, et cetera. And I do believe we've made sustainable improvements. But with those improvements, we continue to do trials and try to improve that further, and sometimes they work and sometimes they work less well. So sometimes it's 2 steps forward, 1 step back. But we're constantly moving forward. And I think the biggest opportunity for improvement and leverage to the financial model is improvement in recovery. And so we continue to focus on that. But you're correct, if the contained REO goes up in our concentrate, yes, you can do the math and it would result in more NDPR becoming available for separation.

I understand. It's easy to see from the news how congested the ports in Los Angeles and Long Beach have been. Since you're located close to those ports, I'm sure you rely on them quite a bit. Can you share how you are handling the situation on a day-to-day basis? It's clear that everyone is managing well, but what specific strategies are you using? Additionally, did you experience any noticeable impact on your profit and loss statement, even if it's not immediately visible because of the leverage in your business model? Was there a measurable effect on the P&L from expedited freight this quarter?

It's Ryan. Yes, I'm happy to take it. It's a great question, and we've said it a couple of times, but I'll say it again, we are tremendously proud of the team and what they were able to accomplish, not only getting out record production. But obviously, as we've talked about, ad nauseam, the timing is not always perfect, and so they were able to get out the small amount of inventory that has sort of backed up into the system over the last couple of quarters. The reality of the port is that even with the incremental hours that the longshoremen are now working, the pinch point, as you would expect, as soon as you address one piece, moved somewhere else. So originally, over the course of the entire year, it's been a sprint to get shipping capacity, outbound shipping capacity. We are lucky in that we are an exporter. And so in being an exporter, the sea freight pricing has not remotely had the step function that the sea freight and imports have suffered. But what happened is now that we've been able to secure capacity on an outbound basis on sea freight, trucking has become the pinch point. And I'm sure you've heard this in many other conference calls. And so it's sort of a bit of a whack-a-mole. As soon as one piece is fixed, another crops up, but I think that we are addressing it the best that we can. You can actually see in our P&L, we disclose in our reconciliation of our production cost KPI, exactly what the shipping and freight costs are for the business. And so you'll notice on a profound basis, it has not moved meaningfully. And again, that's I think from a lot of hard work from the team. But it has seen some inflation, which is not unexpected. But just given the sheer amount of improvements that the rest of the operational folks have been able to achieve, that's a bit drowned out in the overall numbers, but it's something that we'll continue to execute on and hopefully be able to continue to overcome over the next couple of quarters. But everyone can see the numbers on the amount of ships out there and it continues to go up. So it's a full-time job for a lot of folks here.

Our final question comes from George Gianarikas of Baird.

Quick question on GM and the recent announcement with GE. I mean, it fits into this narrative of the U.S. and Western auto OEMs trying to procure materials. But I'm curious if you had any more detailed thoughts on that particular announcement.

Let me see what I want to say on that. It was obviously a beautiful announcement, and we noticed, and we applaud it. And I think that that announcement is indicative of a lot of the conversations that you can imagine are happening writ large. And I think it highlights the importance of exactly what we're doing in our mission, and it was pretty cool.

Details will follow later on that topic. I would like you to expand on your thoughts regarding the Chinese restructuring and why you believe it is as positive for NDPR as you suggest. I think I grasp the general idea, but if you could share more details, I would appreciate it.

Yes. Looking back, it's clear that over the last decade or two, the industry has transformed significantly. There used to be many players, including numerous illegal ones, with little concern for environmental issues, especially in southern China, where there were serious pollution problems. Over time, this situation improved due to a consolidation into six major companies, alongside ongoing efforts to crack down on illegal mining. The introduction of the quota system aimed to integrate illegal mining into the legal production framework. What we're seeing now is a continuation of this trend. Initially, there was an uncontrolled production of materials aimed at becoming low-cost producers without considering profitability or environmental impact. However, the long-term goal appears to be focused on GDP and job growth, which are crucial for maintaining political power in China. As major companies have established operations downstream and created jobs, the Chinese industry has responded by moving downstream as well and aiming to compete. This strategic shift demonstrates their brilliance in leveraging the industry to expand downstream. They also recognized the significant environmental issues involved, and the previous subsidies that were beneficial no longer make sense in the current landscape, where they have domestic competitors demanding products. This situation is likely leading to two major entities being positioned to meet the demands of their industrial leaders, with a more centralized control over upstream activities to effectively manage the supply to the downstream sector.

That's the end of the Q&A session. I'll hand the call back to Mr. James Litinsky for closing remarks.

Okay. Well, thank you, everyone. I obviously want to say again, thanks to the MP team, really outstanding quarter end execution, and we look forward to talking to you all soon. Have a great day. Night. Bye.

This concludes today's call. Thank you for joining. You may now disconnect your line.