MP Materials Corp. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Partnerships:
  • DoD partnership: $400 million in convertible preferred equity, $150 million low interest loan, $110 per kilogram price floor for NdPr products, and accelerating build-out of facilities with DoD committing to purchase 100% of output from new facility.
  • Apple agreement: Long-term contract for over $500 million in contracted magnet purchases starting in 2027, $200 million milestone-based prepayments, and leveraging Apple's global supply chain for feedstock.
• Operational highlights:
  • Materials segment: 6% sequential growth in NdPr oxide production despite April shutdown, second highest quarterly REO production at Mountain Pass with record recoveries.
  • Magnetic segment: Expanded NdPr metal production and sales volumes, Independence consistently producing magnets meeting EV traction motor specs, commissioning at factory accelerating towards commercial production by year-end.
  • Heavy rare earth separation: Preconstruction work accelerated, key equipment on site, major equipment installation expected by fourth quarter.

Segment Performance

• Materials segment: Achieved 6% sequential growth in NdPr oxide production despite a planned biannual plant shutdown in April. Upstream operations delivered the second highest quarterly REO production in the history of Mountain Pass with record recoveries. Revenues increased nearly 20% year-over-year due to strong NdPr sales volume growth and improved pricing environment. Segment adjusted EBITDA improved due to improving per unit costs of NdPr production and lower inventory reserves.
• Magnetic segment: Expanded both NdPr metal production and sales volumes, leading to significant revenue growth and EBITDA generation. At Independence, consistently producing magnets meeting customers' demanding specifications for EV traction motors, with commissioning at the factory accelerating towards commercial magnet production later this year. Revenues and adjusted EBITDA showed strong sequential increases due to production growth.

Guidance

• Production outlook: Expect to achieve a 10% to 20% sequential increase in NdPr oxide production and stronger product sell-through in the third quarter despite upgrades to product finishing.
• DoD agreement: Begin benefiting from the DoD price floor agreement in the fourth quarter, with first cash payments likely in Q1.
• Capital expenditure: Expect to spend between $150 million and $175 million in 2025, unchanged from the beginning of the year. Apple's prepayments to cover vast majority of capital investments for expanding Independence and building recycling capabilities.
• Production target: Aim for a 6,000 ton per annum NdPr oxide run rate.

Risks

• Execution challenges in large-scale projects such as the build-out of heavy rare earth separation circuits, expansion of Independence, and construction of dedicated recycling capabilities. Uncertainties in equipment installation, production ramp, and meeting tight timelines for commercial production.

Question and Answer

Q: George Gianarikas from Canaccord Genuity asked about magnetics margins and building out the ecosystem.

A: Ryan Corbett said magnetics margins at current stage not perfect proxy for full production of finished magnets but current earnings likely expected for next several quarters, and Jim Litinsky and Michael Rosenthal mentioned hiring, experience, and vendor relationships for execution.

Q: Benjamin Kallo from Baird asked about separation facilities capacity and magnet agreements cadence.

A: Michael Rosenthal said flexibility with vertically integrated site for processing feedstocks, and Jim Litinsky said 10X facility is 100% sold out with ongoing conversations and patient, methodical approach to customer deals.

Q: Lawson Winder from Bank of America asked about assumptions in guidance and HCL facility.

A: Ryan Corbett said guidance assumptions don't include oxide sales to China, HCL facility is part of chlor-alkali facility for redundancy and resiliency, not a change in cost structure target.

Q: David Deckelbaum from TD Cowen asked about Upstream 60K and NdPr oxide production ramp.

A: Michael Rosenthal said current concentrate grade improvements are part of Upstream 60K, and Ryan Corbett said continuing to ramp production with robust order backlog and sales pipeline for third-party customers.

Q: Laurence Alexander from Jefferies asked about selling into other countries and Saudi Arabia MOU.

A: Jim Litinsky said no restrictions on selling into Europe, focus on domestic investments for GM, Apple, and DoD, and potential for capital-light opportunities globally.

Q: Carlos De Alba from Morgan Stanley asked about Apple milestones and 10X Facility financing.

A: Ryan Corbett said Apple disbursements on milestone basis ahead of mid-2027 production, and Jim Litinsky said over $2 billion cash on balance sheet with fortress balance sheet.

Q: William Chapman Peterson from JPMorgan asked about recycling and magnet readiness.

A: Michael Rosenthal said working with Apple on recycling for over 5 years, and Ryan Corbett said technical progress with consistent production of on-spec products for EV traction motors, transferring trial to commercial production.

Q: Matt Summerville from D.A. Davidson asked about concentrate grade improvement and Stage 2 output.

A: Michael Rosenthal said trade-off between grade and recovery, current optimizations enabling higher grade without sacrificing recovery, and not needing immediate concentrate improvement for Stage 2 nameplate.