Hello, everyone. Thank you for attending today's MP Materials Fourth Quarter 2023 Earnings Call. My name is, Sierra, and I'll be your moderator today. All lines will be muted during the prepared remarks from our management team, with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to your host, Martin Sheehan.

Thank you, operator, and good afternoon, everyone. Welcome to the MP Materials four 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'll turn the call over to Jim. Jim?

Thanks, Martin. Good afternoon, everyone. Let me begin with a brief overview of today's call. First, I will discuss the highlights from the fourth quarter and full year 2023, while adding some important context from the first two months of 2024. Ryan will then run through our financials and KPIs, followed by Michael, who will review our operational progress. I will then close with my macro commentary before turning the call over to Q&A. Moving on to Slide 4. Despite facing formidable market headwinds, MP executed diligently throughout 2023 across all three stages of our business. In our upstream concentrate business, we exceeded 40,000 metric tons of REO production for the third consecutive year. The MP team now has over six full years of production under our belt. We continue to learn, increase productivity, and identify new opportunities for value creation. To that end, in November, we announced Upstream 60K, our plan to increase REO production approximately 50% over the next four years with modest incremental spend. This announcement was the culmination of extensive research, development and piloting activity focused on sustainably unlocking even more value from the Mountain Pass resource. We have already begun some of the physical aspects of this expansion. As many of you have heard me say repeatedly, we believe expansion at Mountain Pass is the quickest, lowest risk and highest return on capital source of rare earth growth in the western world. Assuming we can achieve our goals, it means that we can generate multiples on our invested capital with this expansion. That is remarkable, especially in this pricing environment. So, for example, where you may see news stories of large rare earth deposits, those are often uneconomic at almost any price. New projects underway now and/or those that are seeking funding will likely end…

Thanks, Jim. Let's turn to Slide 6 and review our full-year operational KPIs. Starting on the far left. We produced more than 41,500 tons of REO in concentrate in 2023, exceeding 40,000 tons for the third consecutive year, despite a significant focus on Stage II commissioning and ramp throughout the year. Sales volumes were down around 6,000 tons year-over-year, primarily due to the initial charging of our Stage II circuits with REO, as well as the consumption of REO in concentrate in the downstream circuits to produce NdPr and other separated products in the third and fourth quarters. Lower production volumes in Q4 as well as the timing of sales in 2022, also modestly impacted the comparison. Moving to the middle of the slide, our realized price declined significantly alongside a pullback in the price of NdPr in the market. Moving to the right, production costs increased $330 per ton, driven primarily by Stage II ramp activities, including longer plant turnarounds and the impact of descaling standalone concentrate production. Given a fair amount of our Stage I concentrate production costs are fixed, spreading those costs, as well as plant turnaround and general sitewide costs over smaller sales volumes results in this lower fixed cost absorption. Lastly, on the far right, we produced 200 metric tons of NdPr oxide in 2023, closing our inaugural year of Stage II production with a nice sequential lift in the fourth quarter as we guided to on our last call. Moving to Slide 7 and our full-year financials. Revenue in 2023 was impacted primarily by the decline in realized prices as well as the change in volumes previously discussed, as we ramped Stage II. The flow-through of pricing was the primary driver of the decline in adjusted EBITDA, in addition to the fixed cost absorption…

Thanks, Ryan. The fourth quarter was an exciting but challenging quarter for the Mountain Pass operation. In our upstream business, concentrate production per operating hour was up year-over-year. However, several factors combined for lower operating hours and therefore concentrate production. As Ryan just discussed, in October, we had our first sitewide scheduled outage that included all of the Stage II operations. The outage was well executed and completed on schedule. Upon restart in early November, we returned to solid performance with less rework required than is often the case. However, several events in December collectively cost us approximately six days of production in the mill. Approximately four of these were the result of unexpected power plant outages. On two consecutive weekends, two ancillary instruments in our power plant failed approximately four months prior to their planned replacement. Instrument life was somewhat skewed from the several years of powered-up but nonoperating status of the plants. And while the cause was promptly identified and we had parts available, service was not immediately available locally. It was an important lesson learned and we are confident that our current preventative maintenance scheduling procedures will prevent an issue like this from ever reoccurring. Also in December, we pulled forward certain grinding circuit maintenance that we had expected to not need until our next outage. This cost us another day and a half of production, but it has released additional grinding circuit capacity and improved grind stability into 2024. In all, our upstream operations had another solid year with over 92% uptime. In addition, 2023 resulted in our highest level of REO production per hour of uptime, demonstrating our continued efforts to improve efficiency and productivity. We expect renewed growth in 2024. As previously mentioned, the Stage II midstream circuits had their inaugural scheduled outage, providing…

Thanks, Michael. As you just heard from Michael, the team at Mountain Pass is doing an excellent job. We are executing on a lot of levels, whether it be on production efficiencies, the refining ramp, or the upstream expansion. The same can be said for the magnetics team. A lot of progress has been made and they are working maniacally towards first revenue while being mindful capital spent. Unfortunately, the market has not been kind to say the least. The price of NdPr has collapsed nearly 70% from its peak in 2022. The decline has been particularly steep over the past year, beginning essentially just as we were about to commission Stage II. I know we have discussed on recent calls the demand impacts from the macro factors in basic industries in China, but I think it is obvious to state that something bigger and more dramatic has happened in recent months. The pendulum has officially swung. Wall Street has decided it is Armageddon for the electric vehicle right now. We have all seen the press reports around the disappointing EV sales versus expectations and the rising inventories. This was followed by announcements from a number of major OEMs around increased capital discipline and slowing down electrification timelines. One bright spot has been the dramatic acceleration in hybrid sales, which is bullish for NdPr demand relative to existing ICE penetration levels. In any case, for a variety of reasons, the timeline to electrification has been extended, and therefore the near-term prospects for critical materials are now worse versus recent prior expectations. The cost of capital is now higher. We are seeing some stress, and my guess is we will see some distress out there. Some materials projects have been canceled and I assume more will be. That said, it is…

[Operator Instructions] Our first question today comes from David Deckelbaum with TD Cowen. Please proceed.

Thanks, Jim, Ryan and Michael, and I appreciate you taking my questions today. I guess I just wanted to understand -- hey guys, just between Ryan and Michael, and Ryan, you kind of like laid out that obviously with NdPr pricing now at like $55 a kilo, the efficiency that you give up just versus selling concentrate. And I guess I kind of just wanted to square that with Michael's comments around just making some operational enhancements around the separation facility this year. If I take all of that together, has the organization changed how they think about what the max rate or the target is for NdPr production? Is it still in that sort of 500 ton a month range? Or looking at things more fulsome now, is there a more balanced approach that we should expect over the long term, irrespective of where price is assuming that we get back to a $70 to $90 incentive level?

Sure. Hey, David, it's Ryan. I'll start. I might push back on the $70 to $90 incentive level, but that's another question that we can address separately. I think to answer your core question, there is no change in our view of our long-term target production and our view, frankly, of where we think we will get from a cost structure perspective. We are very confident from the early results that we've seen in being a low-cost producer to the world, and we continue to build significant confidence in reaching our target production. I think what we're really trying to say is in these early stages of production, there are inherent early inefficiencies that again at a $70 to $90 price point, that incremental variable cost for those inefficiencies might not matter so much when you look at the incremental profit pool available, going from concentrate to oxide. When you're at a $50 price point, that profit pool -- the incremental profit pool is a lot smaller. And so all we're really saying is we're thinking very, very closely about that incremental profit pool versus inefficiencies and the opportunity cost of selling some of that upstream product as con in the interim. And so I think the big message here is we want to be scaled and ready for the upcycle, but we are not going to push volume for volume's sake. How we get to our target is really what matters in this pricing environment. That's the message. I don't know, Michael, if you have anything else you'd add from an operational perspective.

Not too much to add there. I think we're very comfortable with the ability to meet those production volumes that we had targeted. And as Ryan said, we're going to work through that in the most efficient way as possible.

Appreciate it. And I was hoping that you could give a little bit of color on just the 45X. I think you mentioned it as a source of funds this year. Could you just refresh us on the timing? And is that something that you've already applied for? And I guess just what's the expectation when we might have some more visibility around that?

Sure. So, David, the 45X is the production tax credit on the critical mineral side for NdPr oxide. You'll actually see on the balance sheet in the press release that we have nearly a $20 million government grant receivable. There is a lot of nuance to this calculation, and you're probably aware that there is quite a bit of ongoing dialogue with treasury as we speak about exactly the various definition of costs that make it into this calculation. What we've put into our existing receivable and to my point earlier about this being a source of funds on the order of magnitude of $19 million in 2024, is based off a conservative approach to the proposed regulations. One of the nuances of our unique facts and circumstances here is the fact that we put hundreds of millions of dollars of Stage II related assets into service this year in order to meet our NdPr production and made certain sales in the year. And so those nuances allow us to take an initial credit in 2024. And then, of course, there would be ongoing production tax credits going forward. That's targeted at 10% of production cost. I think the overall debate right now with treasury is what exactly is the definition of production cost. And so we'll get back to you on that one. But again, we feel confident in the numbers that we put forward here are the -- they're very conservative interpretation of that.

Thanks, Ryan. Thanks, guys.

Thanks, David.

Our next question today comes from George Gianarikas with Canaccord. Please proceed.

Hey, everyone, good afternoon. Thanks for taking my questions. I'd like to ask Jim about your assessments on the pricing environment. We've had this discussion on conference calls past, and we've broken through that $60 level at which you thought that China Inc. was relatively unprofitable. I'm curious as to whether that's still your current thinking, and if that's so, how long do you expect us to be at this level given that it's hard to make money at $50? Thank you.

Sure, George. So with the caveat that always when it comes to pricing, things are pretty predictable, and I'm certainly not one who is going to be able to perfectly pick the direction of commodities prices. But I'll give some puts and takes here. I mean, I think as we look around the EV landscape, there's a lot of talk -- there's a lot of moving parts with respect to interest rates and models,, and being a disappointment, range anxiety, different moving parts. But remember that 75% of demand is still basic industries in China, and those macro impacts are still kind of flowing through. So it's really hard to distill sort of what are the moving parts in this quarter. But again, long term, I just go back to at these levels -- pretty much, as I said in the earlier comments, at these levels, new projects don't make any sense. We actually saw -- we saw some headlines this past week of a big project in Australia with government funding that is having huge cost overruns and is potentially uneconomic. Even up to -- there were some of the analyst reports were talking about $90 NdPr is NPV negative. And so I think in this environment, what we've seen is that there's been a lot of supply destruction as well as there has been demand destruction. And so there's just so many moving parts. But again, I keep going back to at these levels, at some point, the macro headwinds around 75% associated with sort of basic industries like HVAC or consumer electronics and some of the pullbacks that we've had in China, coupled with the 25% maybe disappointing in EVs relative to what prior expectations were, is sort of some of the demand destruction. But then sort…

I really appreciate the color. Thank you for that. Maybe just as a follow-up. I know you said your piece on the rumored Lynas merger or takeover. I'm just curious if you can entertain us. What would be the industrial logic of something like that in Europe business? Thank you.

So I was wondering how many different ways I would get asked this question and what fun jokes I could have. And I guess that's a good way to ask it. I mean, I guess I'll just refer you back to the script. I don't want to comment on any M&A speculation. I appreciate the way you're asking. I mean, I guess, what I would say is that objectively, when you look at any company in a generic sense, there are always things that companies can learn from each other and cut costs around and all of that. So your guess around all those kinds of things, if you're looking at a specific situation, there certainly are those things. But again, I'm not going to comment other than just refer you back to what I said in the script.

I appreciate that. Thank you.

Sure.

Our next question today comes from Carlos De Alba with Morgan Stanley. Please proceed.

Yeah. Thank you. Hello guys. So a question is -- I think Ryan mentioned about a prepayment that you will get on some of your downstream, I didn't understand if it was downstream or oxide sales. Can you comment a little bit more as to the level of this prepayment? And when do you expect to get it so we can properly model that?

Hey, Carlos, it's Ryan. You were right. What we were talking about was related to the Fort Worth magnetics business and an expectation of prepayments over the course of the year that likely would help cover a very significant portion of the CapEx that's remaining for that facility. We're not going to go specific details on timing or quantum. Obviously, as I mentioned in my prepared remarks, customer conversations are ongoing. I think the major message though is that with operational success that we expect and that we're pushing towards as rapidly as possible, I tried to give you guys the building blocks to understand where we expect to end the year from a balance sheet and capital perspective. And so I think you can take those remarks and kind of do with them what you will to backsolve into the quantum here. But lot of puts and takes, but I think it's something that obviously is a very positive measure of success of ours as we go through the course of the year.

All right. Okay. Thanks. And you also mentioned that the investment that you did, I think in the [indiscernible] company of the Vietnam, tolling company that you're working with. I think you own 49% now. Is there an expectation that you set at that level. Or would you potentially like to integrate a little bit more and maybe fully control that operation. So you have maybe -- I mean, you control a little bit more of your destiny on that tooling process.

Yeah, it's a great question. The 49% stake that we have in the business was really a factor of the amount of growth capital that we put in, in order to support the growth in potential output at that facility. I don't think we have any particular prescriptive view on how things may look over time other than to say, I think the structure that we have in place right now is working very well for us. In addition to the investment, we obviously have the tolling arrangement, which provides us with a lot of certainty as to the amount of volumes that we'll be able to drive through that facility over time. And so as it stands right now, I think that we've accomplished quite a bit with the combination of the tolling framework and investment in VRX.

All right. Thank you very much.

Thanks, Carlos.

Next question comes from Corinne Blanchard with Deutsche Bank. Please proceed.

Hey, good afternoon. Maybe could you talk about the Phase III. So you said you completed the construction of the Texas facility. Can you walk us through again the timing expected there? Is there any remaining CapEx and how much.

Hey, Corrine, it's Ryan. I'll take that. Sort of following on my answer to Carlos. As it relates to Stage III in the Fort Worth facility, the building itself and a lot of the support infrastructure that has been completed and is in service, but we continue to bring significant capital equipment into that building. and continue to fit out the factory to meet both our magnet production target date at the end of 2025. And as well as the in-service of precursor products, metal and alloy ahead of that. And so some of my commentary earlier was in regard to our expectation for producing metal at the DFW facility later this year, and that would drive certain customer prepayments based on our success in those initiatives. So certainly, there is still more capital to go on that -- on the plant. But as it relates to 2024, from a cash flow perspective, assuming I think a really important thing here is sort of the balanced cash flow impact of the investment in Stage III versus the prepayment for products in Stage III.

Okay. So maybe it's a difficult question, and obviously, I was trying to kind of get that answer. You already started to talk a little bit about it. But do you have like a critical pricing level where you have to reconsider Phase III, where you have to reconsider some of the cadence in the volume for Phase II. I think six months ago, nine months ago, we would have thought it would be like around that 50 to 60, where we are now. It seems like, obviously, it's a challenge, but maybe it's a fact -- a critical price level. So I'm just trying to better -- which -- at which price levels do you already get into changing the strategy there?

Sure. Well, Corinne, let me -- there's multiple parts to that. Let me take them all. With respect to Stage III, I think we were very careful in how we set up that business going way back to the beginning and making sure I think if you -- on some of our earlier calls, we said repeatedly that we weren't going to rob Peter to pay Paul. In other words, we were viewing that business as a standalone business where we have to earn an attractive return on capital to make that investment. And so as we proceeded with that, we structured initial contracts to make sure that we felt like that was an attractive business. There's no doubt that the playbook around the world has changed with respect to the cost of capital, the overall perception of electrification and the pace of penetration. But what I would tell you on that is that we're talking about a Western world supply chain that basically doesn't exist. And so going from zero to something is still a very attractive opportunity. To the extent that something changes, we're always flexible and opportunistic and are willing to throw out any playbook at any time if that makes sense. But from everything we see on the ground today, even though the environment is tough, from what we're hearing from customers, there's still a desire for this supply chain to exist. Admittedly, there's just a lot of pain and challenge with -- from a capital and execution standpoint to make all of that happen kind of writ large. With respect to overall other prices, I just want to take you back to -- because I think it's really important, and forgive me, if I say this repeatedly, I know I kind of addressed this earlier,…

Great. Thank you very much. Good luck.

Our next question comes from Bill Peterson with JPMorgan. Please proceed.

Yeah. Hi, good afternoon and thanks for taking the question. I'd like to ask kind of prior question or similar lines of questions in a different way. Is there kind of a right level of pricing where you would cycle more through Stage II? And maybe I guess is there a minimum level you would need to run to -- I guess, maybe continue to try to improve sort of debottlenecking yield, overall cost improvements across separation, finishing? Is there like a minimum level? In other words, can you make cost improvements by running a lower rated Stage II, such that if it was a higher price environment, you could really take advantage of that from that leverage.

Michael, do you want to go ahead?

Yeah. Hi, this is Michael. Sorry about that. I think just to start off with the last part of that question, we are currently running all circuits at commercial and significant throughput volumes. So we are able at those levels to demonstrate chemistry to demonstrate throughput capability and demonstrate the effectiveness of our processes. So that's not a question. We do run at lower uptime in parts of the Stage II business or all of the Stage II business than we do in the upstream business. As we continue to make improvements in each area of the operation, we will see that cost structure come down and the trade-off that Ryan talked about running through Stage II versus running at more modest volumes and producing more concentrate for sale. We'll see that pendulum also swing. And so we expect -- and I mentioned, starting 2Q, we expect that to become more noticeable. But as we get leach yields in an area or in a position where we're maximizing recovery of NdPr and at the most reagent effective method, we will run more material free leach once it gets that far. We will have to produce it as a finished product. But we want to make sure that also when we're at that point, we're not losing material through inefficient operations in, for example, purification processes or losing material in product finishing. So all of those things, we want to make sure that we have the process, the integrated process running efficiently before we push through volume and end up losing hard-won gain in one part of the process. So we're very confident that we'll do that because we see every day, we see the progress every single day. And we see that the process works. We just also see opportunity to do it better. And in the current pricing environment, the necessity of pushing volume just for volume's sake to repeat what we've already said, that economic trade-off is not at a start.

And then on the pricing, like what kind of -- I mean, there was some number of 70 to 90 that may not be attractive, maybe 150. What is the right work -- how do you guys see what the framework where that would make more sense?

Yeah, Bill, this is Ryan. I think my -- maybe I'll start. Mike, feel free to jump in. But my offhand comment on 70 to 90 was not that it was unattractive. It was that I do not think for many greenfield projects that, that is actually the incentive price. I think there are a lot of hopeful projects out there that think they will be economic at 70 to 90 and likely will not be, which is referring back to Jim's comment. That's exactly what we've seen and probably one of the largest potential additions to supply in the Western world. So that was my comment. I think 70 to 90, again, you can do the math on the incremental profit potential of going from selling concentrate to separating the product and selling it as oxide. There is significant incremental profit at 70 and at 90. There's incremental profit at 55. But if we know that the parts of the process that are suboptimized, I think what Michael was walking you through is we make the decision every single day, whether to run or not based on the trade-off of the potential profit we get in our upstream product versus pushing suboptimized product and maybe losing yield or adding an incremental dollar to a variable cost that makes that trade-off not worth at these prices just to push volume for volume sake.

And I just want to add because I referenced it but expand upon it because I know I've probably -- again, like a broken record, have talked about this on a lot of calls, where when we think about global supply and how hard it is to get this stuff online. From a financial analysis perspective, it's sort of very easy to pick an incentive price and then sort of assign that number and expect that people will come online and they can earn an attractive return at that number. The practical reality is, and again, as Ryan just referenced, look at the sort of the biggest source of potential incremental supply that was expected to come online out of Australia has just come out and said massive cost overruns does not necessarily have the capital to complete sort of meeting support because there's -- the reality is that these are really hard things to get online. And again, that's why I go back to the value of what we have. Again, if you take any amount of medium or long-term view, the ability to get this supply online, it's really challenging. That's also why, Upstream 60K was a relevant thing that people should appreciate about what we believe is our ability to bring on incremental supply. But also to be clear, the comment when Ryan was giving those numbers, that was not to suggest that there's not a lot of incremental profit at 70 or 90. That was not the point there is. At these prices here, we are being extra thoughtful because we just want to maximize our cash flow. But we are still working very maniacally to get our cost structure down because we know that the pendulum will ultimately swing. And typically, the cycle seems to be moving faster these days. And so that pendulum may swing back much more quickly than people think.

Yes, that's all well understood. I'd like to ask M&A in a different way, but actually kind of maybe similar to what you're kind of getting at. You mentioned earlier about the stressed assets. Are there actually -- I'm not talking about the rumored M&A, I'm talking about are there other assets out there that may make sense for you to take on as you think about a long-term potential market or even areas like heavy rare earths as opposed to light as part of your magnetization efforts, things like that. I just wondered if that's of interest as maybe assets are lower valuation these days.

Yeah, absolutely, Bill. I mean that's why we -- it is very important for us to have positioned the company to be able to be offensive at times like now. And we've talked about how our expectation is over a long period of time, we'll be able to pick up a lot of invested dollars at $0.10, if you will. I do think there is typically, when you think about a project, there's typically a disconnect where you have someone who's started it or promoted or whatever, and they think it's going to cost x and they want to get wide discount rate. And then what inevitably happens is it turns out it cost 3x and the discount rate is why plus something. And so there needs to be typically catalysts that cause those two perspectives to converge to something that is sort of doable for all sides. And times like now are the kinds of times that cause that weather that caused that to happen. And so that's a long-winded way of saying that we're always looking opportunistically and expect that there will be some opportunities out of this. But again, whatever the investment is, I think the -- I go back to Upstream 60K, which is from an opportunity standpoint is an enormous home run relative to anything we see out there right now.

Yeah. Makes sense.

Next question. Thanks, Bill.

Our Final question comes from [Davis Sunderland with Baird] (ph). Please proceed.

Hey, guys, thanks for the update. Appreciate the time. I was just wondering if you could talk a little bit more about the physical expansion that's already been completed for Upstream 60K? Maybe any incremental capital that will be spent on that this year and just how we think about volumes ramping up from that over the next four years.

Mike, you want to kick us off?

That's right. The total amount of capital spend this year will be relatively modest. We have small equipment expansion to our grinding circuit, which we think will help release some additional capacity there and also result in more efficient grinding, which we think will be a key contributor to better flotation recovery. That's the one kind of capital activity that we have ongoing. We have significant other piloting activity, and we're working to execute all of these plans as capital efficiently as possible. As I've said in the past, there's sort of three ways of looking at it. One is sort of optimizations, which are effectively low capital. Others are sort of modest capital investments that we hope have sort of step change improvement and then there's the possibility of some larger investments, which lead to a much bigger potential the throughput increases over -- for production. So the one project ongoing now that I think we talked about is in the second category with modest capital that we hope would be to some degree of step change in that recovery, but we don't have that built into our plans for this year. So we hope to bring it online sometime in the second half of the year.

Awesome. Thanks guys.

Thank you all for your questions. That will conclude the Q&A session. I will now turn the conference over to Jim Litinsky for further remarks.

Well, thank you, everyone. And I just wanted to reiterate that despite what is clearly a tough pricing environment, I think the execution across the board across all stages of our business has been really remarkable. And I have no doubt that we are positioned very well for the coming months and years ahead. So we wish prices were higher, but we won't focus on it. We'll just keep working on the things that we can control and continuing to execute for you all. So we look forward to seeing you next quarter. Thanks, everyone.

That concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.