Good day and thank you for standing by. Welcome to the MP Materials First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Martin Sheehan, Head of Investor Relations. Please go ahead.

Thank you, operator, and good day, everyone. Welcome to MP Materials' first quarter 2022 earnings call. With me today from MP Materials are Jim Litinsky, Chairman and Chief Executive Officer; Michael Rosenthal, Chief Operating Officer; and Ryan Corbett, Chief Financial Officer. Before we get to our opening remarks, 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 the appendix to today’s presentation and earnings release. Any reference to our discussion today to EBITDA means adjusted EBITDA. Finally, the earnings release and slide presentation are available on our website. With that, I’ll turn the call over to Jim. Jim?

Thanks Martin and thank you all for joining us this afternoon. We had a great first quarter. I'll get to the highlights in just a moment, followed by Ryan's review of the financial and KPI details. I'll come back to update you all on our progress on Stages 2 and 3, and then we'll open it up to Q&A. So, let's get started on slide four. In the quarter, we produced more than 10,800 metric tons and sold more than 11,700 metric tons of REO. That represents a year-over-year growth in production and sales volumes of 10% and 20%, respectively. Operational execution, cost management, and market pricing are what drive our financial performance. We executed well throughout the quarter, maintained cost discipline, and benefited from higher realized prices. This resulted in record financial performance. Revenue was up 177% year-over-year to $166.3 million. Adjusted EBITDA was up 301% to $132.3 million. Our adjusted EBITDA margin expanded 23 points to 80%, and we earned $0.50 per share in adjusted diluted EPS, an increase of 285%. These are exceptional results, particularly when we consider the global and industry backdrop. We have seen wide reporting in this earnings season of companies in our sector having challenges around production and costs. Our team continues to focus on consistency and continuous improvement in our flotation process, while keeping uptimes at world-class levels. We do not take logistics for granted. We continue to overcome challenges with suppliers, shipping, and labor. All these efforts, combined with strict cost discipline, means we are positioning MP to improve per ton economics over time. We also certainly benefited from strong market prices for NDPR in the quarter. In February, NDPR exceeded $170 a kilogram. With our rare earth distribution of nearly 16% NdPr, our realized pricing for concentrate is highly correlated…

Thanks, Jim. Turning to slide six. I'll provide some extra color on some of our key metrics. Starting with production volumes, which is on the bottom left of the chart, as you mentioned, this was another really strong result for the company. We've seen a general upward trend in the percentage of rare earths we are recovering through technology, reagent testing and plenty of trial and error. Importantly, we believe that there are additional process improvements and equipment upgrades we can make to continue to drive those recovery percentages higher over the long term, but these improvements are never in a straight line. And as we've discussed previously, the priority remains our preparation for Stage 2. Moving to shipments. The team did a great job getting some of the inventory from prior quarters to the port, in addition to the majority of what we produced in the quarter, driving a roughly 20% increase in both the year-over-year and quarter-over-quarter shipment volumes. With regards to realized pricing on the top right of the chart, Jim covered this well in his opening remarks, I would just point out that our realized pricing is generally closely correlated to the spot price of NdPr per metric ton in RMB, adjusted downwards for the 13% Chinese VAT impact. There is also roughly a one-month lag due to the timing of the contracts and actual shipments, but that lag can move around, based on both domestic logistics and the situation overseas. As Jim mentioned, NdPr pricing hit a recent high in late February, so we expect to see the impact of lower recent pricing flowing through to our Q2 realized price. And lastly, our production costs remained solid in the quarter. This graph is on the bottom right of the slide. These costs, associated with Stage…

Thanks, Ryan. Let's turn to slide 10 to discuss our parallel progress on downstream expansion in the quarter. Stage 2 work has reaccelerated on site. We have substantially completed engineering and procurement for the light rare separation portions. Our EPC entering the peak of construction with a ramp in craft labor on site, including iron workers, pipe fitters, mill rights and electricians. They've also recently implemented a night shift to further accelerate work. We are also making progress on heavy rare earth separations. These processes will leverage existing facilities and significant shared infrastructure with other parts of our operation. The existing light-heavy separation line will be expanded to include certain individual separations and the retired cracking building will be used for additional separation and product finishing. We have begun to demo the existing interior equipment, particularly in the legacy, leasing and cracking building in preparation for the installation of new separations and finishing equipment. Moving on to Stage 3. The picture on the right is a nice overhead of the grounds being prepared to build our initial magnetics facility in Fort Worth. Last month, we held a formal ceremony at the site to celebrate the beginning of construction with more than 100 government and civic leaders. We are grateful for the strong bipartisan showing of support from local, state and federal officials. General Motors also joined us at the ceremony, so we could share the great news that we had executed our definitive, long-term supply agreement, making them our foundational automotive customer. GM also brought a GMC Hummer EV, which looks awesome. We look forward to supplying magnets for it as well as many other GM models across the ultimate platform. We have commenced procurement for Stage 3 long lead equipment and are also accelerating hiring for the facility. We…

Thank you. And our first question is from Matt Summerville. Please ask your question. Your line is open.

Thanks. Good evening. Maybe a couple on production and production costs, so with production costs, Ryan, how should we be thinking about that $290 a ton number, is we're now sitting here in Q2? And then, how should we think about, how that ramps, in Q3 and Q4 if it is indeed going to ramp further from here? And then, I have a follow-up.

Hey Matt, Ryan, go ahead.

Hey Matt, on the $290 million, I think that at this point, what that represents, as I called out, is some of the incremental costs that we experienced for running the combined heat and power plant at its current level, which is in excess of the power requirements for Stage 1. So certainly, I would expect that portion to hang around at a relatively similar fashion throughout the rest of the year. And then, as we continue to build the team for Stage 2 ahead of commissioning, I would say that the levels that we're at will probably slightly increase throughout the year. These folks that we're talking about that are embedded in our P&L at this point are represent, for example, a much increased maintenance crew and all the things that you would expect us to be bringing on ahead of commissioning of these assets, there are specific members of the team that we'll be bringing on, for example, operators for certain circuits that won't fall into our COGS measure immediately if they're not actively participating in the shared infrastructure of the site. And so I'd expect you to see, an increase in those folks as well as a slight increase over the period of this year going into the start of production at the end of the year and early next year, both in the production number and outside of the production number?

Got it. And then as a follow-up, I think, Ryan, in your remarks, you mention you had mentioned that long-term production out of Stage 1 still has room for upside via upgrades, some of the investments you could be making. Maybe give a little bit more detail on, how we should be thinking about that timing and otherwise bearing in mind that you're laser-focused on Stage 2 now, and I certainly understand that. And then, I'd be curious, as to -- as we sit here today, where are the biggest Stage 1 bottlenecks that would keep you from really pushing that envelope further? Thank you.

Well, on that one…

Yeah, you want to have Michael hit Stage 1 and then, you can finish up.

Exactly, yeah Mike, you're probably best positioned to give some color there.

Sure, Matt. Thanks for the question. The law of diminishing marginal returns certainly applies to our concentrate operation as with anything else. But I think as we've said in the past, I said maybe I'm increasingly optimistic about the opportunity to apply the known technology and additional automation to improve our recovery, or grade and our throughput potential. Some of these more are game changer opportunities are not likely to be implemented this year. So this year, we'll be more focused on incremental improvements. In terms of where the bottlenecks are, mining is certainly not a bottleneck. So it is in the processing operation. So we continue to increase the throughput slightly in order to see if we can identify where those is, I would say, right now more in the grinding circuit is where we anticipate initial bottlenecks, although we haven't reached there yet. But we see opportunities to do things that will open that up. So long-term, I see a pretty tremendous opportunity to improve the quality and quantity of our concentrate production.

And then I would just add, Matt, you kind of said this in your question, but as you can imagine, as we gear up in preparation for the rest of the year for getting Stage 2 online, obviously, that's our primary focus. And there'll be a lot of activity on the site for that. And of course, getting that done properly and safely is our primary focus as the year unfolds.

Got it. And then I'm just going to sneak one more in real quick. Any change in timing for this year's Stage 1 maintenance outages, normal scheduled maintenance? Are we still looking at Q2 in Q4, or has that changed at all?

No change. But Ryan, if you want to cover anything on that from an operating standpoint or financial standpoint, but no change

Yes. No. That's right. And we actually just completed a very successful turnaround here last week and no change to the schedule versus last year. So the year-over-year compares will be lined up as opposed to how they looked in 2021.

Great. Understood. Thank you, guys.

Thank you.

Thank you. And our next question is from Carlos De Alba. Your line is open.

Good morning. Good afternoon.

Good afternoon.

Good afternoon. All good. Thank you very much. Good quarter. I had a question -- or so questions, but the first one maybe is related to the inventory situation that you currently have, you shipped a little bit more than you for the years. You are going to have -- or you had the maintenance average already in the second quarter. How should we -- what should we look for in terms of production, maybe color you can give us production and shipments for the fourth quarter, given those two situations? And then coming back to your comments about the potential disruption on port and logistics and that is happening in China. What are the ports or the key ports to where you shipped your material? If you can share that there will be also.

Yes. Sure. Ryan, why don't you take the first part? And then, Michael, you take the second part about the ports and then I'll come back then.

Sure. Hey, Carlos, good to hear from you. On thinking about production, obviously, we don't give specific production guidance. I think what Matt just asked applies here in terms of the timing of the maintenance outages and then comparing year-over-year. Q2 last year had a similar maintenance outage. And so I would look to sort of the cadence of production from last year as indicative in terms of the impact from a maintenance turnaround? And then from an inventory perspective, obviously, we were able to get some of the slight inventory that had built up in transit to the port over the course of the quarter in addition to the preponderance of our production. The shipping situation as you can imagine continues to evolve. I think we were pleased with our ability to get material to court this quarter but it is always in fits and starts. And so I don't think there's anything really specific at this point that I would call out just sort of the typical trends that we've seen -- so nothing really there to call out in particular. Mike, do you want to take the rest of it?

Sure. Yes, in terms of ports that we ship to, the primary ones are in Tianjin, Qingdao Liaodong. Occasionally, Luzhu . Those are the biggest ones

Got it. Thank you, guys. And maybe Michael, since we have you there. More or less, roughly, could you comment as to when do you expect to start trials in the concentrate of the dry and the consignor of Stage 2 and -- can you give us a rough idea of the physical progression of completion of the Stage 2 project?

Ryan on dates or Ryan or Jim on dates. I can touch on the physical progress, though, in generalities. But the progress is moving along nicely. Jim said, the number of craft on site has increased, and we're starting to add a nice shift to the schedule. A lot of the civil work is complete and steel erection structural steel is wrapping up in the next couple of months, we hope. That leaves piping and electrical, which are always sort of at the latter end of the project, along with the ancillary equipment, a lot of the primary equipment is installed already. And then in broad strokes, we do hope that the call center and dryer will begin trial operations ahead of the commissioning of the rest of the facility. It's also sequentially in the process that comes first. So we're hoping to have that prior to commissioning the rest of the circuit, but that doesn't assume we'll run it continuously at that point.

Yes. Carlos, it's Jim. I believe we said on the last call that we expect to be mechanically complete by year-end and hit run rate normalized production sometime in 2023, and that remains on track. So we've made a lot of progress in the quarter.

Sounds great. And maybe one last for Ryan. Now that you have paid down the prepayment with Shanghai that you have with Shanghai, the offtake agreement that you had were Shanghai. But you renew the agreement, is there anything -- how do your cash flow operations in particular is going to change and now that you paid down the offtake?

Sure. Yes, that's one of the key benefits of transitioning into this new agreement is we do not have that balance that would result in sort of the non-cash revenue portion that you had seen sort of the roughly $0.15 of every dollar that was effectively a debt paydown, but from our GAAP treatment came through operating cash flow as an offtake paydown. So that portion will go away, the broad economics of the agreement are not dissimilar and sort of whatever commission fees that are built into it are shown, primarily on a net basis. So that's already accounted for in our realized price. And so from that perspective, the entirety of that portion of the cash flow that we had that negative impact from will go away. So all else equal, a real benefit to operating cash flow.

Sounds good. Excellent, thank you very much guys.

Thanks, Carlos. Next question?

Thank you. Our next question is from David Deckelbaum. Your line is open.

Hey guys. How are you guys. Thank you for taking my question. I just wanted to confirm, Jim and Ryan. With the addition of the night shift on the construction crew, I guess is this -- was this part of the original plan, does this result in any incremental cost, or is this -- is this one part of the steel structural installations, or is there assumption that you'd be having 2 crews running through the remainder of the year?

Well, I'll chime in with some thoughts and then Ryan, feel free to finish. As you can imagine, this has been a -- this is a huge project. And if we kind of think back over the last few quarters, as we sort of said, we've been handling all sorts of issues in the supply chain in the world as pretty much everyone has. And so we've been kind of managing day-to-day. And certainly, as you can imagine, with so many moving parts with construction schedules. If one thing gets out of whack, you can that can have repercussions on the rest of the job. And we sort of made clear that we're going to manage this in real time and make sure that we get this job done effectively on time that economically and -- and so we've been doing that. So it's hard to say how much of a night shift was in the original plan because it's sort of like all battle plans got into the first shot fired, I would say that the original plan, there was -- it moves over time. But obviously, the lion's share of what you're doing is the same. And so we've been -- working out that. So I couldn't tell you exactly if we kind of think back how much of a night shift we might have anticipated. But certainly, the night shift is helpful -- and so we're trying to get this work done as quickly as possible. I think we also mentioned on prior calls, we've utilized DCAS because we're a DCAS related project. And so we're trying to utilize all the levers. And then as far as budget, we remain on track with -- in the last call, we kind ondof gave an outline of what our expectations where you can kind of see our CapEx in the quarter, and so we feel good about where we are with respect to the project financially.

Appreciate that, Jim. And yes, maybe just the renewed agreement with Shanghai for concentrate sales. I guess does it cover just concentrate sales going forward, or would you be using Shanghai for any residual last month sales. Certainly, I understand you're going to be stockpiling the heavies once the NDPR separation circuits up and running. But for, I guess, the remaining lights, would those be marketed by Shanghai?

Yes. So you're right on the heavies. Ryan, why don't you address the agreement, and then I'll finish.

Sure. So the agreement is time-based, so it's an initial term with a renewal option at the company's option. And with that, the focus, obviously, primarily and the take-or-pay obligation on the part of Shanghai is for the concentrate sales. As I mentioned in my remarks, we continue to distribute directly to certain customers of ours, and we'll continue to focus on building up our direct sales relationships particularly in Japan and Southeast Asian markets as well as, of course, in the U.S. and obviously continue to focus on ultimate sell-through via our downstream strategy. This particular agreement does give us the flexibility, again, at our option of distributing separated products through Shanghai into the Chinese market should we so desire.

Appreciate it. That's -- maybe if I could another one also around just contracts, but this time with GM around magnetic products and magnetic flake and Stage 3, is there any – there is a timing target around first production or for sales there. But is there a timing element to your contractual relationship with GM as an anchor customer?

So great question, David. I can't get into the specifics of the contract relative to what we've disclosed, but I'll rehash that and maybe give you some expanded color and go from there. But we stated that there's sort of two main product components. We expect late 2023 to be selling alloy to GM, and so that will come online late next year. And then 2025 is when we'll start delivering magnets to them. You can imagine that as we -- I'll sort of step back in general terms, so I don't get very specific on single customer details, if you will, but we made very clear that we viewed the Stages 2 and 3 businesses as separated businesses. We’ve Peter and Paul so to speak. We need to make the downstream investments. So we need to have step that an attractive return on capital for what we are undertaking and the strategic nature of the supply. So you can imagine that any agreement that we would do that fits – what I sort of very clearly said it we would do would be long-term in nature. And so I’ll sort of leave you with that, but we haven't disclosed sort of specific time lines. But of course, as GM has publicly stated and as said in the press release, this is covering across the LTM platform. And so you can look at all the cool models that they have coming out and the scale of what's to come. And so there's quite a bit of demand to come as they grow their business. So I don't know, Ryan, do you want to add anything on that?

No, I completely agree with all your comments, Jim. I think you hit it. Certainly, we continue to see a lot of strong demand across the Board from a variety of industries. And so I think that, to Jim's point of having the separate businesses and being sure that we are setting up contracts that certainly are meeting our customers' needs, but protecting us given the significant capital that we're putting into the ground, that's obviously something that we focus very closely on balancing.

Thanks, Jim and Ryan for the time. I'll get in the queue.

Thanks David.

And thanks for the entertaining whole music as always. Take care.

And David, I’m glad you enjoyed that.

Yes.

Thanks. Our next question, operator.

Thank you. And our next question – yes is from Sathish Kasinathan. Your line is open.

Yes. Hi. Thanks for taking my questions. My first question is actually on Stage 3 again. So clearly, Stage 3 has significant expansion potential up to 10 times the current plan. So I was wondering if you could provide more color on your growth strategy. Is the priority here to first commission the Texas plant with 1,000 tons capacity, meaning any growth is more 2026 and beyond story, or would you simultaneously consider expanding and the capacity is more of a moving target?

Yes. Hey, Satish. So, well, I just want to correct one thing, which is, I do not believe that just 10 times of what we stated as sort of the initial Fort Worth facility is the kind of capacity of where we can go. I think it's actually quite a bit larger than that. Certainly, our output from Mountain Pass would -- goes 10 times. But I think that this industry is so dynamic. We are working in parallel. We made clear from the very beginning that we'll buy build and/or JV to continue to grow this business. I mean, we think we're in such an attractive area. And I would say, I mean, kind of to restate the obvious, but just given what's going on in the world, I think that the importance, the strategic nature of what we're doing is just continues to strengthen by the day. So you could imagine that, we're having lots of conversations. And I think the main thing here is that, I want to make sure that we do this in a thoughtful way. We don't want to just sign deals, we want to execute and get this done right for our customers. So I would just say that, I believe that the -- if you look out longer term, that the magnetics business, as we kind of see the scale of the growth opportunity, exceeds the sort of the 10x, which would be the next step for our existing ore body. And so, we are years and billions ahead of anybody in the West. And as I said in the prepared remarks, we believe if we look around at our team, we believe we are creating western national champion, a fully integrated national champion in magnetics, and it's a huge growth opportunity. There's a lot to execute, but we are focused on that so --

Yes. Thanks for the color. And actually, it ties down to my next question. So, you said that the expansion potential is even more than 10x. So it all depends on probably the third-party feedstock and recycling opportunities.

Yes.

So any color you can provide in terms of what -- or quantify the opportunity from third-party feed stock and recycling, or is it too early?

Yes. Well, you're right. And so, when we think about the recycling and third-party capability, the whole goal was that, and that's why we have a variety of work that we've taken on in parallel. And the reason is, because we believe that, that positions us both, obviously, to internally consume magnetics work waste from the production process, if you will, so that we can kind of have a loop for our -- closed loop for our process, as well as third-party feed. And what I would tell you is, I think as we look around, there's just so much more capital that needs to come into this space. And I think having been at this for a while, that these are hard things to bring online. And I think that there's going to be attractive opportunities for us to, frankly, provide other parties. We want to see the supply chain grow. And so, I think that we can provide other parties a solution to sell an intermediate product to us. Right now, obviously, the only real alternative is into China. And so, to the extent that people want to build out of Western supply chain, our ability to take third-party feed as a source of competitive advantage. And then frankly, to the extent that there are people who have put together a project and have underestimated the cost and the timing, we'll be there to lend to helping a hand, of course. But obviously, our shareholders will demand to benefit as we should. And so we just think it positions us really well. And when I say the opportunity is bigger than 10x, I just mean that just the magnetics business is growing. Of course, there'll be competition out there. There needs to be a lot more. And we just think that there's a lot of opportunity. And so I just wouldn't cap the growth at what is our existing output today is the concept.

Okay. Thanks for the color and congrats on a great quarter.

Yeah. Thank you.

Thank you. And our next question is from George Gianarikas. Your line is open.

Hey, good afternoon guys. Thanks for taking my question.

Hey, Geroge. Yeah. Of course, hello.

So maybe to start, just when you think about the landscape, and you've discussed lots of opportunities that you're working through with various third parties. Is it possible for you to have a direct deal, given your Stage 3 ambitions for just MDPR. Is that something you'd sign a deal for, or are you more leaning like the firm towards becoming a full magnet maker and therefore, only looking for deals with third parties that want to buy your magnet metal over the long term?

Sure, George. I would say that we were opportunistic, right? We come at this originally as investors, and we think about what is sort of the most thoughtful return. What I would say though is that -- and I kind of just again rehashing what I said earlier, but as we think about the world today, the strategic nature of what we have is so critical that we want to grow our downstream business, right? That's just more total dollars of profit. It transforms the business. And so over a very long period of time, we want to just maximize the opportunity set for ourselves. But we certainly will do and EPR we will do anything that make sense and you could certainly feel something like that from us.

And then moving on to the recent comments from the industries in China. The fall of the price of NdPr from about 170 to I don't know where along 130, I seem to have been time being correlated perfectly with those comments. So I'm curious as to what do you think the mechanism was through which that happened? And second, a question we get a lot is about supply and particularly from China that is somewhat opaque in terms of its capacity. How quickly can supply turn on -- how quickly it can turn off? I'm just curious as to whether you can share -- first like I said about the dynamics that lifted that price decline? And second, what your assessment is of the landscape in China and how quickly supply could come on the market?

Sure. Great question, George. So -- what I would say is this, and I touched on the kind of typically what happens -- and I think this is probably an imperfect analogy, but I think we saw it about six months earlier in iron ore. There was a lot of speculation and the government talked it down. And then what happens is, obviously, in China, when the government says 2x there's -- we'll put it this way, there's a much higher adoption of X than there might be in the West. And so you typically will have a reaction where people will want to show that they're following that policy. And so you'll see some transactions happen at lower prices, but they'll typically be small amounts, and it will sort of freeze up the system, if you will, a little bit. And then a little time, we'll go by and supply and demand will kind of come back into play. And so -- because ultimately, that's what has to happen. And so I think that this is similar in the sense that prices had moved quite a bit. There's concerns over there about inflation as there is here. And so I think that there was an attempt by some people to just demonstrate tighter pricing. What I would say -- and again, this is our -- this is the MP house perspective on this, but I said in the remarks, the four of the top 10 global market share battery electric vehicle producers, OEMs are Chinese OEMs. And ultimately, the Chinese need to have the material. And so there needs to be a lot more supply. We need a lot more supply, right? Just if you look at the US auto market alone, for example, we need -- and forget…

One more, if I may, that's okay?

Of course, yeah.

Just on talent, you said a plenty of time that you're trying to build magnetic chain in the US, that hasn't really been done. And so, how do you feel about the talent pool? I mean you have a lot of reps you mentioned that at the end of your talk. So are there people that you think could fill the roles that you need to operate both Stage 2 and particularly Stage 3?

Yes. There's no -- first, there's no question that there are -- there's a struggle for talent all over the place, right? We're seeing that -- I mean, pretty much every company is talking about that. But what I would say is the advantage we have is our mission really motivates people, right? And that is that, frankly, is a differentiating factor. And it's frankly, it's nonpolitical, right? I was at -- a thing you may have seen, the President announced our DoD contract for heavies, and we said we're going to hire in both at Mountain Pass and in Fort Worth. And so we've got a lot of hiring to do. But what we see is as what we're doing, gain speed, we have a lot of talent that wants to join us because, again, whether you are on the left side of the political spectrum or the right side of the political spectrum, everybody wants more American jobs. Everybody wants to get some diversity in the supply chain. Everybody is in support of a producer that is doing things sustainably. Clearly, we don't need to rehash all of the environmental attributes of what we're doing relative to other production. And so we continue to find that there are a lot of people attracted to our mission. And so in that struggle for talent out there, I think it's a source of advantage. And we just, obviously, want to spread the word and get as much talent as we can. But we think we'll be able to get the people that we need. We have incredible people been joining us all the time.

Thanks guys.

Yeah, of course. Next question.

Thank you. Our next question is from Subash Chandra. Your line is open.

Thank you. This question might have been asked -- might have been answered if it wasn't, it went over my head. Just curious, is the structure pretty well settled now to get to Stage 3 with the existing GM contract, or are you still open for additional joint ventures or partnerships to get to that point?

Well, I'm not sure I -- do you want to say that one more time?

Yeah, sure. So I think you've talked about you can build by a joint venture your way to growth. I was just curious if the GM deal right now, the $700 million Stage 3, the way you have it structured right now where you're bringing that pretty much on a sole basis to first production, if that is settled at this point, or are you still open for additional joint venture?

Yeah, sure. So, well, a few things on that. They are the foundational automotive customer of the Fort Worth facility, but they're not the only customer and it’s not exclusive. And so you should expect us to want to grow, we're here to build a magnetics business. And frankly, for them, for us, it's -- they want us to be successful. So we expect to have additional customers in that facility. And then as you can imagine, we're thinking about over time, 10x and beyond, right? And so the answer is all of the above. There's nothing exclusive about that, and I think you could see additional customers, you will see additional customers in automotive as well as other verticals and in that facility and in future facilities.

So the magnetics business will be a 100% organic business for you, not interested in joint venturing in the magnetics business?

Well, I wouldn't say that, I mean, I would say that -- I mean, certainly, as it stands today, we have an outstanding team. We're growing that team. We're building that facility. As we said on the call, we're already building that facility. But to the extent that there are interesting partnerships and other things, again, as we go back to our original mission, we'll buy build and/or JV to create value. I mean, ultimately, if we think we can execute well for our customers and create value for shareholders, we'll consider it for sure.

Okay. Got it. And then just an update, so the $700 million, you talked quite a bit about inflation, and it certainly seems like a game of inches every quarter. But how does the $700 million feel right now to you?

Yeah. Well, what I would say is, if you go back, I think I – I think I said, this some time last year, I'm forgetting. I believe it was in August, kind of after our Q2 call, but it was some time about a year ago. Our expectation was that the – I used the 1973 oil crisis analogy. And when you have a supply chain disruption at the time people were kind of talking about transitory. And I can tell you that internally at MP, we were very focused as we've been about making sure that we're positioning as best we can for all the disruption because our house view. My view has been that that, we are in for a number of years of reverberating supply chain shocks and other. And obviously, sort of the world continues to play out that way. What I would say is we will not be immune to inflation, right? Our employees need to have and I would demand it. We have an incredible team. We've tried to build an owner-operator culture. I want to make sure that people's real incomes grow, right, because it doesn't help if your nominal income is growing a little, but you're getting to share by inflation. So when people join MP, we want them to grow and do well, all of them, every single employee. And so we won't be immune to inflation. But what I would tell you is that, it just actually grows our competitive advantage because our in-place assets, the scale of capital and time – again, if you even had all of the stuff that we had it just gets that much harder and not much more expensive. So I believe that that, if we continue in this inflationary environment, right now,…

Right. Okay. Got it. Thanks. Good to hear

Sure. Yeah.

Thank you. And our next question is from Matt Summerville. Your line is open.

I just have a really quick follow-up. I know the call is running over a little bit. With respect to…

No problem.

Stage 2 as a what point do you think you'll start looking at transacting with third-parties for your outbound Stage 2 material. Is that something you start to do immediately after startup? Is that something you start to do a year after being up and running? How should we be thinking about the cadence of that cutover to non-Chinese customers is basically what I'm asking, Jim?

Oh, Well, we no yeah, sure, Matt. I mean we've been looking at that since day one. If we go back to 2017, all of a sudden, we had this site and we had eight people and it was a turnaround we're thinking about on day having a magnetic business, right? So I mean, we're thinking about Stage 2 sales always. And so we've been thinking about that for a while. And you can imagine that we've had plenty of inbounds from a variety of parties at various points downstream in the supply chain. And so frankly, the challenge will just be to -- I believe the challenge will be to just maximize the kind of the broader downstream benefits of that. But I don't know if, Ryan or Michael, you want to chime in on this and share a thought, but that's something that we're -- we have no shortage of people who would like to get our Stage 2 product.

Got it, understood. Thank you for that.

Yeah. Sure.

And our last question …

I think we will take last one now.

Carlos. Yes last question from Carlos De Alba. Your line is open.

Hi. This is going to be quite brief. It's just on the effective tax rate, went up to around 25% in Q1. I think quite a large number we saw in the last few quarters, even greater than what we saw in Q1 last year of 2022. So I wonder, if you Jim or Ryan can give us a little bit of color going forward?

Yeah. Of course, Ryan, why don't you take that?

Sure, Hey Carlos. On that, what I would say is, obviously, as we've is on that, what I would say is, obviously, as we've discussed our plans from a Stage 2 perspective of completing construction and bringing those assets on line to see if that does have an impacts on our effective tax rate given the potential bonus depreciation we can take on what is the pretty significant scale of assets. And so, we are in the account limited and so what you bring in a significant amount of bonus depreciation some of those deductions effectively get stop down when you got lower net taxable income and so we're in the beneficial position of likely being able to have a very attractive cash tax rate this year, but that does actually find its way into the effective tax rate from a GAAP perspective over the course of the year. So I would say likely what you see here around this area is reasonable for the next couple of quarters, and we'll continue to reevaluate that as we get closer to in service of Stage 2.

Great. Thank you very much.

Thank you.

Thank you. And there are no further questions at this time. I would like to turn the call over to back to Mr. Litinsky for closing comments.

Sure. Well, I just want to thank everyone. It was a great quarter for us. And so just we'll get back to work now. Stay everyone safe. And we'll talk to you soon. Good night.

And this concludes today's conference call. Thank you for participating. You may now disconnect.