MP Materials Corp. (MP) Q3 2025 Earnings Report, Transcript and Summary

Hello, and welcome to the MP Materials Q3 Earnings Call. [Operator Instructions] Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I would like to turn the call over to Martin Sheehan, Head of Investor Relations. Mr. Sheehan, you may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the MP Materials Third Quarter 2025 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 and tons means metric tons. Finally, the earnings release and slide presentation are available on our website. With that, I'll turn the call over to Jim. Jim?

Thank you, Martin, and good afternoon, everyone. As most of you know, our third quarter was a game changer, a total acceleration of MP as a vertically integrated national champion with a transformed economic platform for long-term leadership. If you are new to our story, I would encourage you to go to our investor site and listen to our July 10 webcast and announcing the DoW deal as well as our last earnings call, where we went through our DoW and Apple agreements in detail. It has been an exciting and interesting time to say the least in the rare earths industry. I have a lot of thoughts to share. Let me first cover our execution for the quarter. Ryan and Michael will then cover the financials and operations, respectively; and I will wrap up with my big picture thoughts on recent events and the outlook. So with that, let's go to Slide 5. In our Materials segment, we delivered another outstanding quarter. NdPr oxide production reached 721 metric tons, a 21% sequential increase and a 51% increase year-over-year. The 721 metric tons of production exceeded the high side of our outlook for the quarter and marks a record. Corresponding sales volumes also set records, showing strong growth in the quarter, both year-over-year and sequentially. In addition, REO and concentrate production was the second highest in our history. This marks the third quarter in the last 5 that Michael and the team have produced more than 13,000 metric tons of REO. While biannual maintenance outages can create some variability when comparing results sequentially, it is clear that we have made significant progress toward our Upstream 60K target or 60,000 metric tons of annual output. We are also ramping up the installation of the dozens of mixer-settlers required for heavy separations. Our new heavy circuit will process approximately 3,000 metric tons feedstock and produce more than 200 metric tons of dysprosium and terbium annually. We expect this capability to fully enable our planned production of 10,000 metric tons of high-performance NdFeB magnets each year. And we are on track to start commissioning this circuit in mid-2026, a major milestone in our vertical integration and a historic step toward restoring America's ability to produce magnet grade heavies at scale for the first time in decades. Our long-term purchase price agreement, or PPA, with the Department of War commenced on October 1. The agreement provides both earnings visibility and a clear and transformed economic foundation to accelerate our build-out of magnetics production. Importantly, we expect to return to profitability in Q4 of this year and beyond. Ryan will provide additional PPA accounting and economic details shortly. Moving to the Magnetics segment. Pursuant to the terms of our Apple agreement, we received the first $40 million prepayment for the production of magnets from recycled materials. Engineering and equipment purchases for the recycling circuit at Mountain Pass and the expansion of magnetics production at independents are underway. We will receive additional prepayments, $200 million in total, as we make further progress on this build-out for Apple. The Apple partnership, combined with our steady progress at Independence, reflects the acceleration of our U.S. magnetics platform. Commissioning at Independence continue to advance at a rapid pace throughout the quarter. As with Mountain Pass, starting up new equipment, integrating complex systems and optimizing material handling is a substantial undertaking. Ensuring we bring everything online safely remains our top priority. Meanwhile, production and sales of magnet precursor products continued throughout the third quarter. Michael will share more detail on that. The pace of commissioning in Independence, combined with steady improvements in metal production, gives us confidence that we remain on track to begin commercial scale magnet production by year-end. With that, let me hand it over to Ryan to discuss the quarter's financials. Ryan?

Thanks, Jim. Turning to Slide 6 and our consolidated results for the quarter. On the left of the slide, you can see the impact to revenue from the accelerated transition to separated product sales, with concentrate no longer sold externally. The absence of concentrate revenue in the quarter was mostly offset by the continued ramp in separated product sales, primarily NdPr as well as the ramp of magnetic precursor product sales, which began in Q1 of this year. Adjusted EBITDA was generally unchanged both year-over-year and sequentially. On a sequential basis, the decline in profitable concentrate sales was mostly offset by improving per unit cost of production for NdPr. On a year-over-year basis, the loss of concentrate sales was offset by the ramp in magnetic precursor sales at Independence as well as the per unit cost improvements I just mentioned. Our adjusted diluted EPS generally followed the trend of our adjusted EBITDA results, with further benefits from higher interest income in the quarter primarily from our materially higher cash balance as well as a greater income tax benefit. Moving to Slide 7 and our operational metrics in the Materials segment. Production of REO remained very strong at 13,254 metric tons, albeit down very slightly from our record-setting quarter in Q3 of last year. In the midstream business, as Jim mentioned, production volumes continued to ramp nicely, achieving approximately 50% of our targeted output. Michael will provide more details on the ramp-up shortly, but assuming our debottlenecking continues at the same pace we have seen over the last several quarters, we would expect to hit our targeted throughput towards the end of 2026. We expect our per unit production cost profile to decline in line with this ramp with the impacts on the P&L likely visible approximately 1 quarter in arrears as we work through averaging costs and inventory. Separated product sales volumes followed production closely with nearly 20% sequential growth and 30% year-over-year growth. With much of our separated product sales toll processed into metal across various partners in Southeast Asia, there continues to be a lag between production volume growth and sales as we fill the tolling channel. We expect to continue to scale up metallization to match our growing output with various partners in Southeast Asia and beyond. And with that, we expect to build a bit more inventory at these various facilities. This modest working capital build is a natural function of the growth in our oxide production, which we expect to lap once we are at our targeted output levels. Looking forward, we will begin to recognize intercompany sales from our Materials segment to the Magnetics segment in the fourth quarter, as we continue to produce precursor products for GM and get ready for commercial scale magnet production at year-end. Note that these intercompany sales, along with the related cost of goods sold, will be recorded at the Materials segment but will be eliminated at the corporate consolidated level. The value of that sale and intersegment profit will remain on the balance sheet at the Magnetics segment until it is sold, at which time it will be reflected within Magnetics segment revenue and cost of goods sold. As we ramp magnet production and then sales later in the year, there will be some lag between the intercompany sale and the eventual realization of value on a consolidated basis via a magnet sale. Lastly, on this slide, on the far right, you can see that improved market pricing over the last year flowed through to our realized pricing in the quarter. As a reminder, given the dynamics of the tolling channel I just mentioned, combined with the nature of our sales contracts, some of which use moving averages of market prices, the change in our realized pricing generally lags the trend spot prices seen in the market by a quarter or more. Based on our current view of shipment timing and contract mix, we expect next quarter's realized price, excluding the impact of the PPA, to approximate $61 per kilogram. Moving to Slide 8 and our segment financials. On the left side of the page, you can see the initial impact of eliminating concentrate sales in the quarter on both revenue and adjusted EBITDA. While we had always planned to ramp down sales of concentrate as production and sales of refined products increased, the DoW partnership has accelerated that strategy. While refining operations continue to scale, we expect to collect payments under the PPA for placing concentrate into our strategic stockpile, which I will discuss more in a moment. Moving to the Magnetics segment. The primary driver is the ramp-up of production and sales of magnet precursor products, which began in Q1 of this year, positively impacting both revenue and adjusted EBITDA. Before I discuss a handful of housekeeping items for you, I wanted to wrap up with an important reminder on Slide 9. This was the slide we pulled together post our DoW announcement, giving an illustrative example of the minimum annual EBITDA we expect to generate as we execute on our growth plan. Importantly, and I can't stress this enough, this earnings profile is underpinned by firm in-place contracts with much of the cash flow driven by our agreements with the Department of War. As long as we execute across our Materials and Magnetics businesses, we expect to generate very attractive long-term returns. And while the contracted nature of our future cash flows gives us tremendous confidence to continue investing in growing our business, we also expect material upside potential derived through upcoming initiatives, including recycling, appreciating NdPr prices, magnet syndication or other growth opportunities. As Jim mentioned, the price protection agreement with the Department of War went into effect as of October 1. I'd like to spend some time walking through the GAAP accounting for this contract given the material earnings we expect from this feature of our DoW partnership starting in Q4 with the cash impact following soon thereafter in Q1. First, from an accounting perspective, we have concluded that the top-up PPA payments will not technically be revenue per U.S. GAAP, as the payments are not directly related to the underlying sales contracts we have with our customers. The cash flow comes from a third party, in this case, the Pentagon, that is not, at least as it relates to the PPA, technically our customer. Given that, in the revenue guidelines under ASC 606, we will be recording the PPA as an operating income line item or expense in the case that market pricing exceeds $110 per kilogram. Starting in Q4, you will see PPA income or expense as the first line item below revenue in the P&L., with PPA income, therefore, forming a core part of our earnings metrics on a go-forward basis. As it relates to 2026, we expect the PPA payments to be made up of 2 primary levers: first, we expect top-up payments for NdPr oxide produced from the Materials segment and sold either to third parties or internally to our Magnetics segment; and second, we expect payments from the contained NdPr value within the concentrate we are stockpiling as we continue to ramp up our refining operations. The top-up payments related to NdPr oxide can be approximated as the difference between our average realized sales price and $110 per kilogram with a few gives and takes multiplied by the quantity of NdPr oxides sold in the period. So for example, in a quarter where realized prices are $70 per kilogram, our sold volumes multiplied by 70 would be recognized as revenue, in line with how we report today. And the $40 per kilo top-up payment up to the $110 floor price would be recognized in the PPA income line, with the full impact of both flowing through EBITDA and earnings. Regarding how to model the PPA payments for stockpiles, particularly concentrate, the per unit payment will approximate the difference between market prices for NdPr in the quarter and the $110 per kilo floor. But in the case of concentrate, the quantities are tethered to the recoverable NdPr within any concentrate we nominate to the stockpile. For each quarter in 2026, I would expect the difference between our actual NdPr production volume and our quarterly target of 1,500 tons of NdPr to be nominated into the paid stockpile and drive further PPA income. Eventually, this concentrate will be processed and sold at market NdPr prices. Realizing this is complex, we're happy to take further clarifying questions on the PPA and its impact to our financial statements offline following the call. Moving to the balance sheet. I did want to point out that several of the pieces of the DoW agreement, consisting of the PPA, the samarium loan, the preferred stock and the warrant required us to undertake an analysis of relative fair value in cash versus noncash consideration received in order to properly account for these financial instruments on the balance sheet under GAAP. Note that several of the items are therefore recorded at a value that does not match the cash or other consideration received specifically for that feature. There is significant discussion of our methodologies contained in our Form 10-Q that we intend to file with the SEC tomorrow, but the 2 most notable outcomes of this are: first, the recording of a $221 million asset called the PPA upfront asset that will be amortized on an accelerated basis over the 10-year term of the PPA; and second, the recognition of noncash interest expense in excess of our coupon rate on our samarium loan from the Department of War, given the relative fair value of that portion of the agreement resulted in a deemed debt discount. The PPA amortization will be presented in our depreciation, depletion and amortization line in the P&L. Lastly, before turning it over to Michael, I wanted to address our year-to-date CapEx and remaining 2025 expectations. Through the end of Q3, capital spending has totaled approximately $110 million on a gross basis and $86 million on a net basis Due to $24 million of progress payments received from the Department of War under our prior HREE investment agreement. As such, we expect gross CapEx for the full year to be closer to the low end of our initial $150 million to $175 million range and to perform better than the range on a net basis. We will discuss 2026 capital forecasts and projects on our Q4 call in early February. With that, I will now turn it over to Michael. Michael?

Thanks, Ryan. Operationally, we had a strong third quarter with production that came in just above our expectations. In the upstream circuits, we achieved our second highest quarterly result for concentrate production just 4% shy of the all-time record we achieved in last year's third quarter. The gap is largely attributable to several reagents and pre-floatation trials the team executed that had a minor negative impact on stability and production. It was nonetheless one of our best quarters with very good uptime and highest ever concentrate grade exceeding 63%. Midstream production continues to increase, which led to another sequential quarter of record NdPr oxide production in line with our expectations. We are now processing more and more of our concentrate on-site while simultaneously building up a healthy concentrate stockpile. The majority of our circuits are performing well, demonstrating higher uptime and throughput capability while sustaining good product quality. As in prior quarters, a few areas experienced temporary disruptions that modestly held back NdPr production. As we address these short-term challenges, we are adding resiliency and stability to our operation that we expect to result in sustainable production increases over time. In the first half of October, we successfully completed our semi-annual maintenance turnaround, which included several minor debottlenecking efforts and tie-ins for future projects. The outage along with associated de- and re-inventorying, repairs and start-up affected production for approximately 2 weeks depending on the area. We had one area require rework in late October, and that somewhat impacted October production. As a result, we anticipate fourth quarter concentrate production to be roughly flat relative to Q4 2024 and NdPr oxide production to be flat to slightly up sequentially with strong growth resuming in Q1 2026. At Mountain Pass, we are accelerating the pace of project execution, particularly on the heavy rare earths circuit. In the third quarter, we completed most engineering and primary equipment procurement for our terbium and dysprosium production capability, which will be the first heavy rare earth products to come online. Construction and installation of equipment began towards the end of the quarter and has accelerated in October. On Slide 10, we have a picture of some of the work underway. We are pleased with this progress. Importantly, we are targeting the start of commissioning of this circuit in the middle of 2026. Regarding supply sources, we are actively engaged with a number of different and different types of potential feedstock providers to supplement our own contained HREE content. I am optimistic about having several long-term supply options. We are also advancing towards completing the restoration of the first train of the chlor-alkali plant and enhanced brine purification capability. The recommissioning of our chlor-alkali plant will add resiliency to the entire Mountain Pass operation by enabling on-site production of key chemical reagents. Pre-commissioning will begin early next year. The plant has 2 additional trains with the first one likely to be ready for service by mid-2026. We then have the flexibility to achieve our full capability in phases over a multiyear period at a pace we determine. At Independence, we continue to make meaningful progress in expanding our metal production capabilities. We are actively exploring multiple strategies to optimize costs and scale metal production to support future growth, including our 10X expansion. In August, we began an accelerated trajectory of alloy flake casts at Independence. Meanwhile, installation and pre-commissioning of powder production, pressing, sintering, passivation, machining and grain boundary diffusion, GBD, are all advancing well. In our new product introduction area, we continue to refine magnet chemistries and production processes to produce higher and higher quality magnets in an expanding range of magnet grades. Engagement with GM for commercial scale production qualification is underway, and we are encouraged by the continued collaboration between our respective teams. We remain on track to meet our goal of producing finished magnets by year-end 2025. This will kick off an accelerated qualification process with GM with magnet revenue expected to begin in the second half of 2026. In addition to supporting GM, our teams at Mountain Pass and Independence have initiated engineering and procurement to support the Apple recycling partnership and magnet production expansion. This work includes magnet chemistry development at Independence and pilot testing, design development and circuit engineering to support the addition of recycling capabilities at Mountain Pass. Overall, it was a very busy quarter, and we expect the pace of activity to continue accelerating. Through it all, our team has remained focused, executing safely, efficiently and with a strong sense of mission and urgency. I cannot say enough about the quality of the team and capabilities we have built and are building and the opportunities that lie ahead. With that, I will turn it back to Jim.

Thank you, Michael. Moving on to Slide 11. You can see the unmatched array of capabilities we have built entirely within MP. This is what true vertical integration looks like, something no other company in the world has achieved in rare earths and magnetics. This quarter was another solid one for MP, and that same execution discipline is now driving progress across our GM, Apple and DoW partnerships, each deepening our integration, broadening our reach and advancing our trajectory for long-term growth. Since we last spoke, we have witnessed a frenzy of attention and volatility around rare earths in recognition of the necessity that we, like most nations, must move at a warp speed to derisk from reliance on China for the supply chain. The President Trump-Xi Jinping summit in Korea has resulted in a 1-year postponement of China's October 9 rare earth export controls. But the reality is that this pause has only underscored the inextricable link between the world's most advanced semiconductors that America produces in the rare earth supply chain that China dominates, 2 sides of the same coin at the forefront of the strategic contest between our nations that will shape the global economy for decades to come. We are now locked in a new kind of cold war, a race of mutually assured economic destruction, fought not with weapons but with supply chains. Self-sufficiency, allied resilience and national industrial champions are no longer optional. They are the front lines of security. In the last cohort, America prevailed through military strength powered by economic might. In Cold War 2.0, the equation has reversed. Economic might itself expressed through control of critical materials, advanced technologies and the supply chains that sustain them has become the decisive measure of national power. Against that backdrop, it is important for investors and policymakers alike to consider with clear eyes the complexity and scale required for success in this supply chain. It is very often said that rare earths are not rare. That is true. They are literally everywhere. One could take a sizable piece of land, multiply by some amount of rare earth content percentage within, multiply that times a price basket, and then lo and behold, claim a rare earth orebody of some major value. Unfortunately, it is not that simple. What is underappreciated but far more important is that economic orebodies are extremely rare. The vast majority of projects being promoted today simply will not work at virtually any price. Even deposits labeled heavy rich still contain a vast majority of light rare earths and yttrium. And when grades sit in the hundreds of parts per million, the cost to concentrate, separate and refine becomes uneconomic. MP's overburden and tailings are quite literally more valuable by many multiples than many of those so-called projects. The structure of the existing industry tells the story. China accounts for roughly 90% of global NdPr production, yet even there, most of that output comes from just 2 hard rock mines and refineries now controlled by 2 entities. Think about that. A country with the world's largest reserves, a national industrial policy dedicated to dominance, generous subsidies and accommodative regulatory practices and still only 2 highly productive, low-cost integrated operations represent the vast majority of their industry. It is not a coincidence that outside of China, the only scaled light rare earth production also comes from 2 mines, Mountain Pass and Mount Weld and their respective refiners, MP Materials and Lynas. The lesson is clear. Great orebodies and scaled refining capability are the indispensable foundation of this industry. Everything else depends on them. In addition, certain types of mineralization such as allanite, eudialyte and even coal-based deposits have never successfully yielded refined rare earths at scale. The reason is straightforward. Their mineralogy is complex, and the concentrations are extremely low. Now perhaps there will be breakthrough someday, and based on our own experience, we would never underestimate the power of human ingenuity. But the reality is that even China does not attempt to produce rare earths from those types of deposits today. Michael has my favorite analogy on this. Controlling a eudialyte rare earth orebody today is like having billions in Bitcoin but without the private key. In theory, you can see it on the screen, but you can't unlock it. And that raises the question what is it really worth. Even with one of the very few economic rare earth feedstocks, building and operating a refinery is capital-intensive and painstaking work. Despite what some promoters might suggest, even the best producers take years to ramp and stabilize output, and economics. Lynas took roughly a decade. MP is on track to reach normalized production in about 3 years from the start of commissioning. That speed, scale and discipline speak to the strength of our people, our orebody, our access to decades of operational history and our platform. The heavy rare earth market has a somewhat different profile. Heavy elements are largely sourced from numerous small clay mines, but once again, separation is aggregated at a smaller number of scale refineries in China. We do see opportunities for deposits with a much higher proportion of heavy rare earths to support profitable upstream concentrate business. However, the shortened mine lives and complex mineralogy or environmental considerations of many of those deposits make it uneconomic to build full refining capability around them. That's what makes our scaled heavy rare earth separation circuit truly distinctive. It allows us to leverage our broader infrastructure to produce heavies on a low-cost basis feeding directly into our integrated Magnetics business. Moving downstream. Even with mined and refined feedstock in hand, the path to a finished magnet is anything but simple. To make a magnet, you must first convert NdPr oxide into metal, then alloy it with iron and boron through strip casting. Each step is technically demanding and essential to performance. Perfecting the precise recipe for automotive-grade EV magnets can take a year or more. And even with an all-out effort, like our partnership with the Department of War, building a scaled facility demands years of work and significant capital. Tonnage, while often cited as a proxy for scale, says little about capability. The true test lies in mastering the complexity of magnet grades, sizes and chemistries. In today's rush to localize supply chains, we have seen projects promoted that cannot yet perform grain boundary diffusion, the critical process that enables efficient use of heavy rare earths. Others proclaim full vertical integration while depending on phantom feedstocks or technologies that remain unproven at scale. A business plan that starts with magnets and works backward to mining may sound compelling on paper, but it defies both economic and supply chain reality for the foreseeable future. Scaled recycling is another underappreciated pillar. In magnet manufacturing, typically 20% to 50% of material ends up as swarf or kerf, magnet scrap. Capturing and reusing those elements, both light and heavy, is essential to a resilient and economic supply chain. All of this reinforces one conclusion. MP Materials with its vertically integrated assets, partnerships and execution track record is uniquely positioned to lead as the western rare earth supply chain takes shape. Finally, as the global economic realignment continues, I would encourage investors and policymakers to approach the sector's capital allocation with clear eyes. With that, let's open it up for questions. Operator?

[Operator Instructions] Our first question will come from Bill Peterson with JPMorgan.

Yes. I'm wondering, I guess, with your current stockpile, SEG+ stockpile, how long could that support your heavy production once fully ramped? And I guess you talked about engaging with other heavy feedstock suppliers. Are these foreign suppliers, domestic suppliers? I guess in the context of -- you're mentioning that there's not a lot of viable options out there in terms of orebodies. I wanted to get some more context on what type of feedstocks you may have or maybe if M&A may come into consideration.

Yes, Bill, it's Ryan. I'll start and let Michael take some of that. In terms of the SEG+ stockpile, we have several hundred tons on an REO basis of SEG stockpiled. Obviously, we are producing SEG every single day, and so from that perspective, we feel good about our inventory at this time to be available for us to commission that circuit and charge that circuit. And certainly, as we've discussed, we believe, with our own internal feedstock, we will be able to satisfy the demands of the Independence facility with that. I'll turn it over to Michael for the rest of the question.

In terms of feedstocks, I think one thing we're very excited about is how our fully integrated site with both ore-based processing as well as light and heavy separation gives us -- and recycling gives us like very unique capability in terms of processing different types of feedstocks. So we are in touch with both domestic suppliers, suppliers of recycling material, recycled material, along with some foreign suppliers. Obviously, you see, as much as we do, all of the announcements from various players around the world where we have our opinion on some and are in discussions with many. But I guess we're confident that we will find several different options.

Great. And then on the magnet business, I guess, how is the customer engagement going beyond Apple and GM? I guess what -- I guess there are people trying to test some of your samples. What's going on with the business for the further offtakes in Independence and then ultimately 10X?

Sure. It's Ryan again. I think, certainly, since Liberation Day the supply chain mindset across the space has changed very meaningfully. There's a tremendous amount of engagement across really every vertical that consumes magnets, automotive, aerospace and defense, consumer electronics, robotics, you name it. I think, fundamentally, we are focused on executing first for our foundational customers. And from a 10X perspective, we have the luxury of continuing to operate in the same fashion that we have for the last several years given the fact that we have 100% offtake secured for 10X. As we've talked about, our Apple agreement anchors the vast majority of the expansion that we've planned for Independence, and so it puts us in a position where we can continue to be very selective with our customers. But the engagement is quite significant and broadly very exciting.

Your next question will come from Lawson Winder with Bank of America.

Nice quarter and once again, a very interesting and fascinating update. May I ask about the -- a couple of things? So just on the heavy rare earths, there's the dysprosium and terbium, 200 kilotons annually. How is that roughly split? And then secondly, on the heavies, there's the samarium loan. As the name implies, there are other rare earths that the DOE would like to access. What's the time line to producing some of those other rare earth metals that are particularly of interest in the DoD. And has the DoD set any deadlines?

This is Michael. Thanks for the question. In our orebody, the general ratio of dysprosium to terbium is about 3:1, so that would be kind of the approximate mix. Some of the other third-party feedstocks and recycled material may have slightly different mix, so ultimate production may differ from that to some extent. In terms of other heavy rare earth production, we have made a commitment to produce samarium in 2028, so samarium oxide, and we feel very comfortable with that type of time frame. We have made no sort of public commitments to produce any other heavy rare earth, although gadolinium would be a logical next one to produce probably around the same time frame. As for the others, I think we are eager and in discussions with various other parties domestically and in allied countries about offtake of our other materials for them to process into other rare earths. But to the extent there's strong demand or need, we're capable of doing further separations.

Okay. That's very fascinating. And then can I ask about the Apple $200 million prepayment? I had not expected $40 million to be paid in Q3 so quickly. Can you help us understand a time line under which the remaining $160 million would be prepaid?

Sure. It's Ryan. We are thrilled to surprise you to the upside. We can't get into contract specifics, but certainly, the way this was designed was to continue to provide capital for this build-out as we hit certain operational milestones. We actually expect a next payment of relative scale coming up in Q4. And I think that, over time, as we execute on this plan, we've laid out initial magnet volumes targeting mid-'27 and recycling close behind, you'll continue to see those prepayments on that schedule.

Your next question will come from Matt Summerville with D.A. Davidson. Matt, I can see I've unmuted, please go ahead. Unfortunately, we're not able to hear you, Matt. I'll just go to our next analyst, and we'll come back around to you. Our next question will come from David Deckelbaum with TD Cowen.

Jim, Ryan, and Michael, appreciate the time. Ryan, I think you probably astutely pointed out that the key risk here for MP with incentive prices now is execution. And if I heard right, it looks like -- it sounds like you're targeting the end of '26 for operating NdPr separation nameplate. Michael, I guess you alluded to some things around just NdPr separation, I guess, kinks that you're ironing out now. So I guess is it fair to say as the contract becomes live now with the Department of War at $110 a kilo, should we think about you guys ramping as quickly as possible in the '26 calendar year? Or can you provide any color around what we should expect in any ensuing quarters from incremental throughput tonnage?

David, I'll start. It's Ryan. I think the important thing to keep in mind from an economic perspective here is we've talked about our concentrate stockpile, and frankly, for a variety of reasons and now economic reasons, that actually has a lot of value to us. And so certainly, we are focused on ramping as quickly and as smartly as possible to serve the market and to prove out this capability, but it's important to remember that under the PPA, we still are paid for the NdPr content within the concentrate that we stockpile. Of course, we don't get paid twice. We get paid when we put it into the stockpile, and then once we refine that material, we'll sell it at market prices. But it's a very important value driver for us, and we can continue to look at our view of the market and nominate volumes into that stockpile as we produce them and as we see fit. So that gives us a lot of operational and economic flexibility in 2026 and beyond.

Appreciate that. And then just as a follow-up, I think, Jim, you talked about really the availability of swarfs, end-of-life magnetic products. You guys talked about third-party feed, and I know others have asked you about those questions. But I guess as you think about really addressing the supply chain going forward for your own needs and really internally in this country and for allied nations, where do you prioritize looking at your own capabilities around recycling with obviously the start-up of the Apple facility over the next few years? How do you think about focusing on swarfs and the ability to source that versus looking at third-party feed from orebodies?

I mean I think it's an all-of-the-above approach. Obviously, over the next couple of years, we're maniacally -- we have a number of projects, right? We are scaling Independence. We are getting 10X underway and quickly and then doing the multiple pieces of recycling in Mountain Pass. As you know, David, this management team is pretty opportunistic, so we will try to take advantage of opportunities out there. I would say that, again, over the next couple of years, it's just executing all of this, and I'd remind you that we have the feedstock to serve our entire 10,000 tons of magnet capacity currently with -- certainly with the Apple piece being part of the deal that they're helping provide feedstock. So we have the, I guess, to use Ryan's words from earlier, the luxury of being methodical about how we think about incremental feedstocks.

Yes. One important point also, David, to think about -- this is Ryan -- is as we look at sourcing third-party feedstocks, so we look at sourcing magnet material and end-of-life material, I think despite all the focus on price floors, at the end of the day, the economics of this business depend on your cost structure. And so as you see some of these other things announced out there, what you should keep in mind is we will be one of the lowest cost producers of these products, whether refined or from mined material, and that also gives us the opportunity to be thoughtful in the acquisition of third-party feedstock. And so with the platform that we've built, we think we are in pole position to be able to acquire most thoughtfully the best potential feedstocks for the business given the fact that our cost structure will be best in class.

For our next question, we'll return to Matt Summerville with D.A. Davidson. Matt, I can see that you've unmuted. We're not able to hear you. You may need to select a different microphone input next to your audio button. Okay. We'll move to our next -- for our next question, we'll hear from Carlos De Alba with Morgan Stanley.

Can you hear me?

Yes.

Great. Congrats on the strong performance this quarter. Just maybe on the prior response, Jim, can you clarify -- maybe I misunderstood. But are you going to be able to supply recycled material or have capacity in the recycle line above and beyond the 2,000 tons that you have under contract with Apple?

Are you referring to -- actually, Michael, why don't you take that and comment?

Carlos, if I understand the question, we are building a dedicated line for Apple to manage material and feedback that they are responsible for providing to us. We also will have the capability to process our own swarf, and we'll build that modularly to process as that market grows, which we're very optimistic about additional feedstocks as well over time.

All right. Good. Yes. Okay. And it will be a separated line from the one that you were working watching or building on for Apple, right?

So the Apple line will be largely separate from our existing line, but the other feedstocks we will -- we are evaluating and will leverage our existing infrastructure and capability in light and heavy rare earth separation in the most thoughtful way possible depending on the nature of the feedstock and customer requirements.

All right. Okay. And then, Michael, maybe you can help us understand what is the thoughts about the ramp-up of the Dy and Tb output post-commissioning?

Our focus initially is obviously on meeting the needs of our customers and Independence for GM. And because we have this stockpile, we'll be able to produce amounts greater than our initial ore-based material we'd supply on a yearly basis. And then we'll look at what third-party feedstocks we have and what preprocessing is required. But the volumes are obviously relatively modest, so I think the ability to ramp will depend on how quickly we feel comfortable pushing those volumes. Obviously, we have very high quality requirements and need to make sure we perform.

Our next question will come from Ben Kallo with Baird.

I was wondering how you think about the price floors for heavies as you advise the administration and if you've given any weight to that. I have a follow-up too.

Ben, you mean what do we think of them intellectually or -- I would just -- I guess when it comes to heavies, I would -- the one thing -- I think this kind of comes at your question another way. But if we reference back to kind of the overall point that I was trying to make in the prepared remarks, is that when you look at the supply chain in our space and the various areas of it, the heavies area is one where, typically, you have deposits where it makes sense that there are economics where that could be a concentrate or a -- make a concentrate or make a feedstock that can go to a refinery like ours, like we've built. But typically, at least we haven't seen those sites, the various ones around the world of varying degrees of value where it would make sense economically to build refining capability around that, and so we are really well positioned to accept those feedstocks. And so that's obviously the work that we are doing with DoW to make sure that we have the material for our business through 10X. And so obviously, there are a variety of ways that you can incentivize that upstream production and get economics to those parties to encourage that production. But I do think it is important to think of those as sort of part of a broader supply chain, and there are not necessarily independent, stand-alone economics for sites like that to be a full vertically integrated participant.

So just a follow-on because you guys have, I guess, everyone's ear, so what is the advice to get the heavies to the admin?

Well, I'd like to -- obviously, the detailed advice that we would give to the government, I think we would try to keep that in confidence, and -- but I think I can speak in general terms, which is what I was hinting at, Ben, in my remarks is that when you -- if you look at the structure of this industry and just look at how China has formed, now obviously, a lot of that is state-driven, but a lot of it is sort of structural, is you should think of this industry as closer to a global structural oligopoly rather than just, oh, if we throw a bunch of money at dozens of sites and businesses, we can form a supply chain. Because the reality is that to have the geology -- we talk through the geology and the differences between lights and heavies and then the complexity of the magnet business. And when you add all of that up, I mean, the best analogies are if you were going into the aircraft production industry or the smartphone industry, would -- think of our great companies like Apple and Boeing right? You wouldn't necessarily say -- if, let's say, it was reversed and you were trying to create those and the Chinese have the competitor, you wouldn't necessarily say let's spread money around to 30 different things. So I think the way to think about it, though, is we view MP as America's national champion. We have structural advantage because we're fully vertically integrated. We're years and billions ahead of others. And what I would say is if you -- there's various projects out there, both public and private. If you took anything that I'm aware of -- now there may be a bunch of stuff I'm not aware of, but anything I'm aware of, if you gave whatever that was, the deal that MP had, I don't see anywhere where there is any equity value for any of them, public or private. Now that -- so I think that's a very interesting thing. Now that doesn't mean that the government shouldn't catalyze a lot because I think the government is doing an outstanding job catalyzing private capital to come in. And so to the extent that the government can make investments, whether it's loans or other forms of support and grants, if X dollars of capital can stimulate 2x or 3x in private capital, they should be doing that as much as possible. So I think we've seen some really great action out of the administration, and so my advice would be to keep going. Keep doing what you're doing. I think they're really thinking about it a thoughtful way. I would just also say that the message of today is for private investors because, obviously, we don't want people to get burned. We want people to think that this is a good space, is to just be very clear eyed about what the actual structural economics are in -- amidst all the excitement.

Your next question will come from Max Yerrill with BMO Capital Markets.

My question is around the ramp-up of the heavy rare earth separation facility. And I was just wondering if the ramp-up time there affects your ability to deliver certain higher-grade magnets to General Motors. And then I guess the second part is when we look at the universe of potential feedstocks for that heavy rare earth separation, are there types of concentrates that you cannot process? And which ones are the most ideal to the circuit that you envision?

Yes. Sure, Max. It's Ryan. I'll start. In terms of how we're positioned from a supply chain and inventory perspective to support our ramp-up of magnetics, I think we've discussed over the last several quarters that we had anticipated some of the restrictions that had been put in place and have built a stockpile of products to allow us to commission and ramp Independence facility. We've timed the construction and commissioning of the heavy rare earth separation circuit to come online to support further growth as we work that inventory position down. I'll let Michael take the second part.

Just to be clear, the question was on whether types of feedstocks for the heavy rare earth circuit are preferred?

Exactly.

Certainly, to the extent we got an SEG+, that would be easier than processing a full mixed rare earth carbonate with lights and heavies. But our circuit can handle because we have all of the capabilities of either one of those. So we will look at the economics and the distribution and compare those to other alternatives.

Our final question will come from Laurence Alexander with Jefferies.

I appreciate kind of the analogies you've tossed out, and I guess what I want to tease out as you talk about your opportunistic approach to creating value, is the cold war would have gone very differently if the nuclear missiles had a 10-year expiry date? And so when you think about the incentives that a 10-year support program from the DoD -- DoW gives you and also the way the capital markets might perceive that as setting you up for some severe kind of cyclical risk if there's a recession or otherwise, a glut at the end of the 10-year period and what that does to your cost of capital and how you think about your balance sheet, is the strategy here to double down on the Fortress balance sheet, vertical integration and just ride through that transition? Or do you feel either the government needs to make a decision soon about extending the support or you need to make a decision arguably sooner rather than later about adding a second plank to sort of smooth out volatility once you make the transition back into a fully unsupported entity?

So Laurence, I think it's actually the opposite. There's probably -- I don't know how many listeners we have today because there's another exciting call happening where there's a $1 trillion pay plan being proved because we're going to have humanoid robots whether it's Musk or Jensen talking about that. I mean if we look out, and I don't know if it's 5, 10 years, whatever it is, but there's no question that physical AI is going to just create explosive growth in rare earth magnetics. The issue is that, in the very short term, we can't be leveraged by the Chinese from a supply chain standpoint, we've got to have an industry that is here and thriving. And actually, if you take my remarks, I want to be clear that when I talk about the structural realities, it's not because that is a forever condition. I do think that there's room for a lot of other players and a lot of other supply, but I think that the point is that to get to that 5 or 10 years, you're going to need materially higher prices. So the sort of the MP deal, if you will, I just don't think that's enough. And so I think that what you're really going to see is that, in the very short term, the administration has made sure that we have a successful national champion in MP. We've got to execute, but we are going to sort of open the -- pave the path, if you will, to then figure out how there's much broader supply coming online. So obviously, 10 years is a long enough time to, not in the short term, think about kind of what that role looks like. We'll think about the next couple of years of getting things online. But I think if we don't have some development in physical AI by then, these -- the markets -- I would be least worried about MP relative to pretty much many other places in the market. So I don't lose any sleep over what demand is going to look like in 10 years and what NdPr prices and magnetics prices are going to be. I think it's going to be amazing for us. My bigger guess is that we'll have grown our business and move downstream. Just as if you think about us 5 years ago versus where we are today, I think on that roll date, it will not be as material portion of our business remotely compared to what it is today.

That concludes the question-and-answer portion of today's call. I'll now hand the back -- call back for closing remarks.

All right. Well, thank you, everyone. We think it was a great quarter of execution. We are going to get back to work, and I look forward to talking to you all next quarter.