Good afternoon. Thank you for attending today's MP Materials First Quarter Earnings Call. All lines will be muted during the presentation portion of the call with an opportunity for question-and-answer at the end. I would now like to pass the conference over to your host, Martin Sheehan with MP Materials. You may proceed.

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

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

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

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

Thanks Michael. Before we move to the Q&A, I want to discuss several topics that many investors are interested in, such as pricing trends, product substitution, and the possibility of Chinese export restrictions related to rare earth processing and magnet-making technologies. Regarding pricing, NdPr started the year around $102, down from its peak of $175 in 2022. Prices have continued to decline throughout the first quarter, now sitting in the low $60s. To be frank, I’m surprised—perhaps even very surprised, but not shocked. As I have often stated, commodities can behave unpredictably in the short term. We’ve seen oil prices go negative back in 2020. Some of the pricing decline can be linked to recent economic downturns in traditional sectors like hard disk drives and internal combustion engine vehicles. It's noteworthy that about 80% of the current rare earth market still stems from these products. Additionally, global electric vehicle sales in Q1 2023 were lower than expected because certain subsidies in China and Europe expired, coupled with higher interest rates affecting sales. However, sales in China seem to be recovering strongly since March. Despite this recent dip, global electric vehicle sales penetration is still only in the low teens percentage-wise, indicating a long-term demand trend that remains robust. We believe that the rapid growth in electrification will significantly outweigh any temporary weaknesses linked to traditional industries over even a moderate timeframe. Interestingly, and somewhat confusingly, we anticipate that the Chinese rare earth industry will struggle to remain profitable at current NdPr prices. Although Chinese data is somewhat murky, our assessments and discussions within the industry suggest this is a plausible scenario. Moreover, at these price points, it’s difficult to justify the economics of any new greenfield projects in the West, and existing projects may face considerable capital disruptions. I want to highlight two key considerations from MP's perspective. First, from the outset of our public existence, we have committed to maintaining an owner-operator culture, where we prioritize a strong capital structure over short-term opportunities. We prefer to have the leverage of commodity price movements rather than on our balance sheet. The capital structure of a company must reflect the volatility inherent in its industry. Second, we believe that MP is positioned to become the world’s most cost-effective producer of NdPr. Our balanced finances, operational effectiveness, and long-term vision provide us with the flexibility to withstand price fluctuations. I also want to emphasize the importance of capital formation. In my view, with NdPr priced below approximately $120 per kilogram, new projects based on realistic expectations are not economically viable. This is without factoring in the significant time, risks, and human capital required for success. Simply put, our industry has a high cost of capital for new entrants at this moment. Therefore, the long-term potential for MP to benefit from demand trends across various electrification sectors remains highly significant. This leads me to my next point about substitution. A quarter ago, I discussed the supply and demand imbalance for NdPr as global electrification progresses. I mentioned estimates that indicate a potential 200% increase in NdPr demand over the next decade, equivalent to three times today's current levels. Meeting that demand would require the equivalent of bringing 15 Mountain Passes online over that time, which we know is unlikely. For all the reasons previously outlined, we previously indicated that such an outcome is improbable with NdPr at nearly any price. After all, establishing even one new mine of substantial global relevance over ten years is an enormous challenge, considering the human, financial, environmental, permitting, and political hurdles involved, not to mention the need to discover an economically viable ore body. The notion of achieving 15 such projects in 10 years is unrealistic. Therefore, we were not taken aback when Tesla, during their Investor Day, expressed concerns about rare earth supply and the environmental challenges linked to widespread electric vehicle adoption. It’s no surprise they aim to create a vehicle that doesn’t require a rare earth magnet motor. The ongoing question is what the tradeoffs in size, performance, efficiency, and pricing would be for utilizing a rare earth magnet motor compared to alternative solutions. In cases where a mass-market EV under $30,000 is desired but doesn't yet have a factory, substitution must take place because the projected volumes suggest this might be the only feasible path. However, for most other EV applications—such as high-performance models, luxury vehicles, SUVs, full-size sedans, consumer trucks, and various electrified motion applications like robotics, offshore wind turbines, drones, or other military uses—material substitution is virtually impossible due to existing constraints. When considering everything, we believe, as noted by Tesla and many others, that the demand for rare earth magnets remains exceptionally strong. Additionally, my team invests considerable time engaging with multiple original equipment manufacturers and other producers of diverse products that incorporate rare earth magnets, and nearly all have these magnets on their production schedules for the foreseeable future, which are not easily altered. Lastly, I want to briefly mention the recent news regarding the Chinese Commerce and Technology Ministries drafting amendments potentially banning or restricting exports of specific magnet manufacturing technology. We will see whether these amendments come into effect, as they are currently reviewing feedback from the Chinese industry. Given China's dominance in the magnetics sector, they also control magnetics tooling and equipment production. However, we strategically avoided major purchases of equipment and technology from China for our Texas facility for this reason, so we do not foresee any problems arising from this development. Furthermore, NdFeB permanent magnets have been produced for around 40 years, and the manufacturing process is well established. Approximately 10% of the global supply comes from Japan, and this limited production is not due to an inability to access Chinese process technology or equipment but rather due to difficulties in obtaining separated rare earth oxides and metals. Therefore, with our upstream and midstream supply chain, MP is well-positioned regardless of the situation. Ultimately, the potential Chinese export ban on technology highlights the critical importance of the American magnetics champion we are developing in MP, as well as the significant long-term value of our asset portfolio irrespective of current spot prices. Now, let’s open the floor for questions. Operator?

Absolutely. We will now begin the Q&A session. The first question is from the line of Corinne Blanchard with Deutsche Bank. You may proceed.

Hey. Good afternoon. Thanks for taking my question. The first one would be maybe more on the financial share side. There were a few adjustments to the EBITDA this quarter. Is that a trend that we can expect in the coming quarter? And then on that thematic as well, could you comment a little bit about the cost, like, dollar test that we can expect on the next quarter?

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

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

I believe one of the points we mentioned earlier is our tolling arrangement for some metal capacity. There are several potential options for metallization in Southeast Asia, possibly six or seven across different facilities. We are very pleased with our ability to secure dedicated capacity. With the growth expected in the Japanese magnet industry, they are looking to acquire both metal and oxide. The ability to toll oxide into metal expands our market opportunities. I anticipate that the announcement we made this quarter is just the beginning, as we continue to explore other metal tolling facilities through our relationship with Sumitomo and beyond. Additionally, this aligns with our downstream strategy in the United States. Overall, we are excited about the possibility of a significant amount of our oxide flowing through this sales channel, which is an excellent way for us to enhance our market presence.

All right, thank you, Ryan. I will jump back in the queue.

Thanks, Corinne.

Thank you, Ms. Blanchard. The next question is from the line of Carlos De Alba with Morgan Stanley. You may proceed.

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

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

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

All right. Excellent. Thank you, Michael and Ryan.

Thanks, Carlos.

Thank you. The next question is from the line of Matt Somerville with D.A. Davidson. You may proceed.

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

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

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

Sure. I anticipated that question. To keep it brief, I am the largest shareholder of the company, and we have cultivated an owner-operator culture focused on creating value for shareholders, which is fundamental to our operations. I spend virtually all my time thinking about capital and capital allocation, as it drives everything we do. If we decide to take action, we will do so without announcing it in advance. To expand further, I view the business in terms of probabilities. Considering the enterprise value and our expectations for the next decade, it’s reasonable to believe that our business could surpass its current enterprise value in just a few years. There is significant potential here. However, we must also acknowledge the variability within the business and recognize that we are still in the early growth phase. We have communicated clearly to our long-term shareholders that we prioritize a "country-first" approach, as we possess a unique set of assets with substantial opportunities. It's critical to ensure that we approach our plans conservatively and thoughtfully, allowing us the flexibility to execute various strategies over time. Ultimately, our aim is to avoid taking minor actions that yield limited value. We are focused on long-term strategies, and when we choose to act, we want to be deliberate about it. As I’ve mentioned in previous calls, we aspire to have a Henry Singleton-like approach in our decisions, and I hope this provides some insight into my perspective.

No, that's certainly very helpful. Thank you.

Sure.

Thank you. The next question is from the line of George Gianarikas with Canaccord Genuity. You may proceed.

Hey, good afternoon everyone and thank you for taking my questions. I'd like to start off maybe just focusing on Fort Worth and just trying to understand any update there. You're due to start production there by the end of the year. Wondering how the hiring is going, how the early indications on production are going, and any kinks you need to continue to work out of the system to get to production by the end of 2023?

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

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

Sure. Well, first and foremost, we wake up and pray for higher prices every morning. I'm kidding, but it's a challenge. As we sort of the theme of this call, and we believe in both fronts of our business, well, in Stage I, certainly in all Stages II and III, we're executing really well. Those are the things that we can control. It's tough being in a commodity business, unlike some other businesses where you can make a lot of great progress and maybe 80% of that converts into the financial result. Whereas in a commodity business, you can do an incredible job and maybe 20% converts, and the rest is sort of the inherent volatility of prices that maybe make you look not so smart in down price times and probably much smarter than you deserve in up price times. But the reality is that we, there really is not much change in the sense that we're always focused on capital allocation. I mean, we're thinking about these things every step of the way. And when prices are high or higher than here, not necessarily as high as we think they're going, we're always aware that prices could be much lower. That's why we set up the capital structure the way we did. And when prices are very low, if you look back to some of the comments that I made, I mean, that of course plants to some of the comments that I made, that of course plants the seeds for the next huge price spike. And so we try not to be too impacted by that volatility and just focus on the things that we can control. But Michael, if you want to touch on any aspects of what you see out at Mountain Pass and kind of how you're thinking about commissioning, if you want to chime in here right away.

Thanks, Jim. Thanks for the question. Yeah, I think we're very prudent in how we're going about commissioning and we always have been thinking of this as a, you know, maximizing value to shareholders as well as our long-term success of our operation and our ore body. Particularly in this period of time with lower prices, we want to be especially careful to avoid any major mistakes, obviously any safety issues, but also think about how and when we optimize the ramp for maximizing efficiency of circuits as we commission them versus the speed of commissioning. And so we'll probably be a little bit more, even more thoughtful about that as we proceed. So obviously our Stage I business still is a very low-cost producer, and we'll look to keep that stable and profitable and see where we can eke out additional profitability from that.

Thank you. The next question is from the line of David Deckelbaum with Cowen. You may proceed.

Hey, Jim, Michael, and Ryan, thanks for the questions this evening.

Hey, David.

I have a question regarding the tolling arrangement with the Vietnamese radar toller. I believe Sumitomo was involved in some of the negotiations. When it comes to qualifying your NdPr oxide, should we assume that converting the oxide to metal would be a relatively straightforward process?

Yes, David, it's Ryan. Just to clarify, this opportunity with Vietnam rare earth company is separate from our Sumitomo relationship. But we certainly view Sumitomo as an incremental outlet where we expect to do very similar things. So this is just a further broadening of our market opportunity. In terms of qualification, I think certainly, we feel very confident in what our specifications of our product will be in order to properly convert them in an efficient way in electro winning for metal making. I think importantly, in this tolling arrangement, we will maintain title to the product throughout the process. And so through that, we will maintain responsibility, frankly, for the quality of the end product as we interface directly with our end customers. And so we're deeply involved in the requisite conversations to ensure that we're making a quality product at this tolling facility. So we feel good about that.

Appreciate that. Jim, I go back to one of the conversations earlier about substitute products, you raised, obviously, the conversation around Tesla's aspirations for building a non-rare earth magnet. In your conversations with other OEMs, we read it too as a sort of bringing the alarm for a constrained supply chain. Are you seeing the same sort of concerns from some of the other domestic OEMs, obviously, of a partnership or arrangement or customer arrangement already? But is there a palpable concern around the supply chain for installing rare earth magnets and EV deliveries in the future?

Yes, David. You made an important point about raising awareness. It effectively highlighted the magnitude of the issues we are facing and the significant demand that lies ahead. Regarding the urgency, we've definitely noticed a heightened sense of it among the OEMs for at least the past couple of years. If we think back to the period before COVID, there was less urgency, and the situation seemed more theoretical. However, the challenges in healthcare and semiconductors served as a major wake-up call, shifting perspectives from a distant issue to an immediate existential one. This sense of urgency has mostly persisted. Although we occasionally hear about supply chain concerns, like the recent issue Ford encountered, it’s not limited to the automotive sector; other industries are also feeling the pressure. Overall, I wouldn’t say there’s been a significant change in the last couple of months. The intensity has been consistent for nearly three years now. Looking ahead, in the next year or two, many more electric vehicle models will hit the market. While planning has progressed, the actual production hasn’t fully materialized yet. As more of these models come into production, we may see an increase in urgency. I’ve mentioned before that I believe we will see at least one, if not several, well-known global OEMs struggling or requiring bailouts due to supply chain challenges related to essential materials. This remains likely in the future. However, it's worth noting that recently, China’s economic performance has been weaker than anticipated, which will impact the overall system. Nonetheless, the overarching trends remain strongly in place.

I appreciate the color on that, Jim. Just the last one. That was helpful. Maybe on…

Yes, go ahead, David.

I'm curious if you have tested the functionality of every part of the separation circuit or Stage II circuits at this point. I understand that as you described the commissioning process, we are transitioning from one part of the flow sheet to the next. Are there still elements that have not been tested to date?

The vast majority have been tested in one way or another. Certainly, they've all been touched in some sort of pre-commissioning. Not all of them have flown a material through them. But that answer will change quite quickly.

Thanks for the response guys.

Thanks.

Sure. Thanks, David. Next question.

The next question is from the line of Lawson Winder with Bank of America. You may proceed.

Good evening, gentlemen. Thank you for accommodating me. I have a couple of questions regarding costs. You addressed costs in your prepared remarks, and I would like to know your perspective on how the global cost curve compares to the current pricing in the low $60 range, specifically what percentage of NdPr oxide production is operating at a loss.

The data in China is quite challenging. The industry isn't necessarily consolidated, as it includes miners and refiners, many of which are affiliated. Depending on the month, funds can shift between different areas. However, as I mentioned earlier, every indication suggests that at these prices, the Chinese industry is not profitable. This is something we see as a positive development at current prices.

Yes. And so my question gets to the fact, do you mean like the entire industry?

The industry is somewhat unclear, and our understanding is based on interpreting available data, which is often not transparent. I want to emphasize this point as much as I can. Ultimately, this situation is consolidated into a few key players. Therefore, funds can shift between different sectors, affecting profitability or losses. That's the general belief we hold.

Okay. Well, that's a big statement. And very helpful color. I wanted to ask about.

We're surprised we're here.

Yes. Yes. Thanks a lot for that color. It's very helpful. And I wanted to ask about one cost item of yours, and that would be nat gas. And to start off with, could you remind us just what percentage of your overall cost is nat gas? And then have your nat gas costs fallen in line with Henry Hub? Or is there still a pretty significant premium for West Coast nat gas? And then thinking about the hedges that you guys put on, how effective have those been? And then for how long are those going to be in place before they roll off? Thanks very much.

Certainly, the share of our cost structure that comes from natural gas will change as we bring additional circuits online and increase our power usage. While we haven't specified exact percentages, it's safe to say it's in the single digits. Our hedges have performed well this quarter, and you can see that reflected in our costs associated with incremental Stage II expenditures. Those costs have decreased sequentially, primarily due to effective hedging. We have hedges that will begin to expire in the next 12 months, with more following in 24 months, and we continue to seek opportunities to lock in favorable rates. In California, our pricing doesn’t closely follow Henry Hub due to specific transportation dynamics. Thus, using NYMEX or Henry Hub as a benchmark may not be appropriate. Observing the California delivery point is more relevant, especially since volatility can increase during certain storms or when transportation infrastructure is compromised. Overall, our approach aims to systematically reduce volatility in our cost structure, although there will be quarters where our strategies may not seem as successful.

That is fantastic. Thank you very much.

Thank you. The final question is from the line of Abhishek Sinha with Northland Capital Markets. You may proceed.

This is Kailash filling in for Abhi. I was wondering about your outlook for permanent magnet generators and wind turbines, especially in light of Tesla's recent announcement that their EVs will not require rare earth metals. Where do you see that market heading?

We discussed a lot of that during the call. Regarding the first part of your question, we are very confident in the demand outlook for our industry and our products. Rare earth magnet motors will continue to be the most powerful and efficient option. Specifically concerning offshore wind turbines, everything we see remains exceptionally stable, with no significant changes. An important consideration with offshore turbines is that opting for an alternative option could lead to a significant shift in maintenance requirements, possibly requiring earlier replacements. This results in a considerable difference in the total cost of ownership compared to using a permanent magnet. While I don't have the exact figure on hand, similar to electric vehicles, it's over 90% for offshore. We've seen no indications that this stability will change, and these are long lead production items. Therefore, even if there were to be a change, it likely wouldn't impact demand for several years, but we have only seen increased demand in that area.

Sure. Sure. Thank you.

Sure.

Thank you. That concludes our Q&A session. I'd like to turn the call back over to Jim Litinsky, CEO, for concluding remarks.

Well, thank you, everyone, for the call today, and we will get back to work and look forward to seeing you next quarter. Have a good night.

This concludes today's MP Materials' first quarter earnings call. Thank you for your participation. You may now disconnect your lines.