0001801368-23-000036.txt : 20231103 0001801368-23-000036.hdr.sgml : 20231103 20231103121737 ACCESSION NUMBER: 0001801368-23-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 86 CONFORMED PERIOD OF REPORT: 20230930 FILED AS OF DATE: 20231103 DATE AS OF CHANGE: 20231103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MP Materials Corp. / DE CENTRAL INDEX KEY: 0001801368 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 844465489 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39277 FILM NUMBER: 231375204 BUSINESS ADDRESS: STREET 1: 1700 S. PAVILION CENTER DR. STREET 2: SUITE 800 CITY: LAS VEGAS STATE: NV ZIP: 89135 BUSINESS PHONE: (702) 844-6111 MAIL ADDRESS: STREET 1: 1700 S. PAVILION CENTER DR. STREET 2: SUITE 800 CITY: LAS VEGAS STATE: NV ZIP: 89135 FORMER COMPANY: FORMER CONFORMED NAME: Fortress Value Acquisition Corp. DATE OF NAME CHANGE: 20200128 10-Q 1 mp-20230930.htm 10-Q mp-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-39277
Image_2.jpg
MP MATERIALS CORP.
(Exact name of registrant as specified in its charter)
Delaware84-4465489
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1700 S. Pavilion Center Drive, Suite 800
Las VegasNevada 89135
(702) 844-6111
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value of $0.0001 per shareMPNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of October 31, 2023, the number of shares of the registrant’s common stock outstanding was 177,815,058.



MP MATERIALS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
i


References herein to the “Company,” “MP Materials,” “we,” “our,” and “us,” refer to MP Materials Corp. and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this Quarterly Report on Form 10-Q for the three months ended September 30, 2023 (this “Form 10-Q”), that are not historical facts are forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by the use of the words such as “estimate,” “plan,” “shall,” “may,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target,” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of other financial and performance metrics and projections of market opportunity. These statements are based on various assumptions, whether or not identified in this Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”), and on the current expectations of our management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond our control.
These forward-looking statements are subject to a number of risks and uncertainties, including:
fluctuations and uncertainties related to demand for and pricing of rare earth products;
uncertainties regarding the growth of existing and emerging uses for rare earth products and ability to compete with substitutions for rare earth minerals;
the intense competition within the rare earth mining and processing industry;
uncertainties relating to our commercial arrangements with Shenghe Resources (Singapore) International Trading Pte. Ltd., an affiliate of Shenghe Resources Holding Co., Ltd., a global rare earth company listed on the Shanghai Stock Exchange;
potential changes in China’s political environment and policies;
unanticipated costs or delays associated with our Stage II optimization project;
unanticipated costs or delays associated with our Stage III project;
risks associated with our intellectual property rights, including uncertainties related to the Company’s ability to obtain the intellectual property rights or licenses of intellectual property rights to produce NdFeB alloy and magnets;
uncertainties related to the Company’s ability to produce and supply NdFeB alloy and magnets;
the ability to convert current commercial discussions with customers for the sale of rare earth oxide and metal products, NdFeB alloy and magnets into contracts;
uncertainties relating to the COVID-19 pandemic;
potential power shortages and interruptions at the Mountain Pass Rare Earth Mine and Processing Facility;
increasing costs or limited access to raw materials that may adversely affect our profitability;
fluctuations in transportation costs or disruptions in transportation services;
inability to meet individual customer specifications;
diminished access to water;
uncertainty in our estimates of rare earth oxide reserves;
risks associated with work stoppages;
a shortage of skilled technicians and engineers;
loss of key personnel;
risks associated with the inherent dangers involved in mining activity and metal and alloy manufacturing;
risks associated with events outside of our control, such as natural disasters, climate change, wars or health epidemics or pandemics;
risks related to technology systems and security breaches;
ability to maintain satisfactory labor relations;
ii

ability to comply with various government regulations that are applicable to our business;
ability to maintain our governmental licenses, registrations, permits, and approvals with numerous governmental agencies necessary for us to operate our business;
risks relating to extensive and costly environmental regulatory requirements;
risks associated with the terms of our convertible notes; and
the other factors described elsewhere in this Form 10-Q, included under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A, “Risk Factors” or as described in our Form 10-K, or as described in the other documents and reports we file with the Securities and Exchange Commission (“SEC”).
If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements.
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Form 10-Q are more fully described within Part II, Item 1A, “Risk Factors” in this Form 10-Q and “Part I, Item 1A. Risk Factors” in our Form 10-K. Such risks are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, statements of belief and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us, as applicable, as of the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.
iii

PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, 2023December 31, 2022
(in thousands, except share and per share data)
Assets
Current assets
Cash and cash equivalents
$547,668 $136,627 
Short-term investments536,994 1,045,718 
Total cash, cash equivalents and short-term investments1,084,662 1,182,345 
Accounts receivable (including related party), net of allowance for credit losses of $0 and $0, respectively
13,180 32,856 
Inventories77,179 57,554 
Income taxes receivable4,128 2,201 
Prepaid expenses and other current assets9,162 18,872 
Total current assets1,188,311 1,293,828 
Non-current assets
Property, plant and equipment, net1,097,727 935,743 
Operating lease right-of-use assets10,346 99 
Inventories
12,589 5,744 
Intangible assets, net9,179 89 
Other non-current assets4,070 2,284 
Total non-current assets1,133,911 943,959 
Total assets$2,322,222 $2,237,787 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable, construction payables and accrued liabilities$92,096 $72,265 
Income taxes payable 21,163 
Operating lease liabilities
728 84 
Other current liabilities4,188 3,969 
Total current liabilities97,012 97,481 
Non-current liabilities
Asset retirement obligations5,462 5,295 
Environmental obligations16,554 16,580 
Long-term debt, net681,094 678,444 
Operating lease liabilities
7,014 15 
Deferred income taxes135,435 122,353 
Other non-current liabilities3,578 4,985 
Total non-current liabilities849,137 827,672 
Total liabilities946,149 925,153 
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock ($0.0001 par value, 50,000,000 shares authorized, none issued and outstanding in either period)
  
Common stock ($0.0001 par value, 450,000,000 shares authorized, 177,802,600 and 177,706,608 shares issued and outstanding, as of September 30, 2023, and December 31, 2022, respectively)
17 18 
Additional paid-in capital974,103 951,008 
Retained earnings401,985 361,419 
Accumulated other comprehensive income (loss)
(32)189 
Total stockholders’ equity1,376,073 1,312,634 
Total liabilities and stockholders’ equity$2,322,222 $2,237,787 
See accompanying notes to the Condensed Consolidated Financial Statements.
1

MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended September 30,For the nine months ended September 30,
(in thousands, except share and per share data)2023202220232022
Revenue:
Rare earth concentrate (including related party)
$52,472 $124,231 $212,139 $425,169 
Other rare earth products (including related party)
44 214 101 9,096 
Total revenue52,516 124,445 212,240 434,265 
Operating costs and expenses:
Cost of sales (including related party)(excluding depreciation, depletion and amortization)
22,217 22,417 69,137 67,682 
Selling, general and administrative19,561 17,722 57,829 56,150 
Advanced projects, start-up, development and other10,209 2,625 25,711 6,212 
Depreciation, depletion and amortization16,751 2,096 37,076 12,763 
Accretion of asset retirement and environmental obligations227 418 681 1,255 
Loss on disposals of long-lived assets, net
1,087  5,897 258 
Total operating costs and expenses70,052 45,278 196,331 144,320 
Operating income (loss)
(17,536)79,167 15,909 289,945 
Interest expense, net(1,396)(1,224)(4,147)(4,455)
Other income, net14,456 6,168 41,970 8,574 
Income (loss) before income taxes
(4,476)84,111 53,732 294,064 
Income tax benefit (expense)
200 (20,934)(13,166)(72,067)
Net income (loss)
$(4,276)$63,177 $40,566 $221,997 
Earnings (loss) per share:
Basic$(0.02)$0.36 $0.23 $1.26 
Diluted$(0.02)$0.33 $0.22 $1.16 
Weighted-average shares outstanding:
Basic177,231,717 176,543,624 177,034,068 176,476,276 
Diluted177,231,717 193,409,857 193,632,662 193,438,939 
See accompanying notes to the Condensed Consolidated Financial Statements.
2

MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the three months ended September 30,For the nine months ended September 30,
(in thousands)2023202220232022
Net income (loss)$(4,276)$63,177 $40,566 $221,997 
Other comprehensive income (loss), net of tax:
Change in net unrealized gains (losses) on available-for-sale securities
134 319 (221)(97)
Total comprehensive income (loss)
$(4,142)$63,496 $40,345 $221,900 
See accompanying notes to the Condensed Consolidated Financial Statements.
3

MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Three months ended September 30, 2023 and 2022
Preferred StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)
Total Stockholders’ Equity
(in thousands, except share data)SharesAmountSharesAmount
Balance as of July 1, 2023 $ 177,626,668 $17 $958,819 $406,261 $(166)$1,364,931 
Stock-based compensation— — 37,236 — 6,665 — — 6,665 
Shares used to settle payroll tax withholding— — (13,808)— (344)— — (344)
Common stock issued to acquire intangible asset
— — 152,504 — 8,963 — — 8,963 
Net loss
— — — — — (4,276)— (4,276)
Unrealized gains on available-for-sale securities
— — — — — — 134 134 
Balance as of September 30, 2023 $ 177,802,600 $17 $974,103 $401,985 $(32)$1,376,073 
Balance as of July 1, 2022 $ 177,534,132 $18 $939,900 $231,235 $(416)$1,170,737 
Stock-based compensation— — 506 — 8,073 — — 8,073 
Net income— — — — — 63,177 — 63,177 
Unrealized gains on available-for-sale securities— — — — — — 319 319 
Balance as of September 30, 2022 $ 177,534,638 $18 $947,973 $294,412 $(97)$1,242,306 
Nine months ended September 30, 2023 and 2022
Preferred StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)
Total Stockholders’ Equity
(in thousands, except share data)SharesAmountSharesAmount
Balance as of January 1, 2023 $ 177,706,608 $18 $951,008 $361,419 $189 $1,312,634 
Stock-based compensation— — 149,922 — 20,607 — — 20,607 
Shares used to settle payroll tax withholding— — (206,434)(1)(6,475)— — (6,476)
Common stock issued to acquire intangible asset
— — 152,504 — 8,963 — — 8,963 
Net income— — — — — 40,566 — 40,566 
Unrealized losses on available-for-sale securities— — — — — — (221)(221)
Balance as of September 30, 2023 $ 177,802,600 $17 $974,103 $401,985 $(32)$1,376,073 
Balance as of January 1, 2022 $ 177,816,554 $18 $936,299 $72,415 $ $1,008,732 
Stock-based compensation— — 60,691 — 25,970 — — 25,970 
Shares used to settle payroll tax withholding— — (342,607)— (14,296)— — (14,296)
Net income— — — — — 221,997 — 221,997 
Unrealized losses on available-for-sale securities— — — — — — (97)(97)
Balance as of September 30, 2022 $ 177,534,638 $18 $947,973 $294,412 $(97)$1,242,306 
See accompanying notes to the Condensed Consolidated Financial Statements.
4

MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended September 30,
(in thousands)20232022
Operating activities:
Net income$40,566 $221,997 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization37,076 12,763 
Accretion of asset retirement and environmental obligations681 1,255 
Accretion of discount on short-term investments(17,334)(3,921)
Loss on disposals of long-lived assets, net
410 258 
Stock-based compensation expense19,041 25,019 
Accretion of debt discount and amortization of debt issuance costs2,650 3,153 
Revenue recognized in exchange for debt principal reduction (13,566)
Deferred income taxes13,156 62,561 
Decrease (increase) in operating assets:
Accounts receivable (including related party)19,676 34,991 
Inventories(25,498)(22,386)
Income taxes receivable(1,927)(3,857)
Prepaid expenses, other current and non-current assets490 1,339 
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities8,601 (1,271)
Income taxes payable(21,163)(3,463)
Other current and non-current liabilities55 (453)
Net cash provided by operating activities76,480 314,419 
Investing activities:
Additions to property, plant and equipment(188,927)(214,332)
Purchases of short-term investments(705,241)(1,358,390)
Proceeds from sales of short-term investments461,042 313,865 
Proceeds from maturities of short-term investments769,907 212,000 
Proceeds from government awards used for construction1,050 5,130 
Net cash provided by (used in) investing activities337,831 (1,041,727)
Financing activities:
Principal payments on debt obligations and finance leases(2,101)(5,139)
Tax withholding on stock-based awards(6,476)(14,296)
Net cash used in financing activities(8,577)(19,435)
Net change in cash, cash equivalents and restricted cash405,734 (746,743)
Cash, cash equivalents and restricted cash beginning balance143,509 1,181,157 
Cash, cash equivalents and restricted cash ending balance$549,243 $434,414 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$547,668 $427,969 
Restricted cash, current1,228 5,915 
Restricted cash, non-current347 530 
Total cash, cash equivalents and restricted cash$549,243 $434,414 
See accompanying notes to the Condensed Consolidated Financial Statements.
5

MP MATERIALS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business: MP Materials Corp., including its subsidiaries (the “Company” or “MP Materials”), is the largest producer of rare earth materials in the Western Hemisphere. The Company, which is headquartered in Las Vegas, Nevada, owns and operates the Mountain Pass Rare Earth Mine and Processing Facility (“Mountain Pass”), the only rare earth mining and processing site of scale in North America, and is constructing a rare earth metal, alloy and magnet manufacturing facility in Fort Worth, Texas (the “Fort Worth Facility”), where the Company anticipates manufacturing, among other products, neodymium-iron-boron (“NdFeB”) permanent magnets.
Currently, the Company primarily produces a rare earth concentrate that is principally sold pursuant to the Offtake Agreement to Shenghe (as such terms are defined in Note 15, “Related-Party Transactions,”), a related party of the Company, that, in turn, typically sells that product to refiners in China. These refiners separate the constituent rare earth elements contained within the concentrate and sell the separated products to their customers. Upon completing initial commissioning of the remaining circuits of the Company’s Stage II optimization project (“Stage II”) in the third quarter of 2023, the Company began producing separated rare earth products, including neodymium-praseodymium (“NdPr”) oxide. The Company anticipates selling these new products to customers in the U.S. and around the globe beginning in the fourth quarter of 2023, including to Japanese customers pursuant to a distributorship agreement with Sumitomo Corporation of Americas (“Sumitomo”).
Additionally, in April 2022, the Company entered into a long-term supply agreement with General Motors Company (NYSE: GM) (“GM”) to supply U.S.-sourced and manufactured rare earth materials, alloy and finished magnets for the electric motors in more than a dozen models using GM’s Ultium Platform, with a gradual production ramp that is expected to begin in late 2023. These developments are part of the Company’s Stage III downstream expansion strategy (“Stage III”).
Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s CODM views the Company’s operations and manages the business as one reportable segment.
The cash flows and profitability of the Company’s operations are significantly affected by the market price of rare earth products. The prices of rare earth products are affected by numerous factors beyond the Company’s control. The products of the Company are sold globally, with a primary focus in the Asian market due to the refining capabilities of the region. Rare earth products are critical inputs in hundreds of existing and emerging clean-tech applications including electric vehicles and wind turbines as well as robotics, drones, and defense applications.
Basis of Presentation: The unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, since they are interim statements, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods. These unaudited Condensed Consolidated Financial Statements and notes thereto should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Form 10-K.
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The unaudited Condensed Consolidated Financial Statements include the accounts of MP Materials Corp. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of the unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the unaudited Condensed Consolidated Financial Statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
6

Concentration of Risk: Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents and short-term investments, and trade accounts receivable. The Company believes that its credit risk is limited because the Company’s current contracts are with companies that have a reliable payment history. The Company does not believe that it is exposed to any significant risks related to its cash accounts, money market funds, or short-term investments.
As of September 30, 2023, Shenghe was the Company’s principal customer and accounted for more than 90% of revenue. Rare earth concentrate is not quoted on any major commodities market or exchange and demand for rare earth concentrate is currently constrained to a relatively limited number of refiners, a significant majority of which are based in China. Uncertainty exists as to the market price of rare earth oxide (“REO”), as evidenced by the volatility experienced in 2022 and continued into 2023 due to concerns over the global economic conditions and actual or perceived concerns over increases in the supply of rare earth products. Furthermore, while revenue is generated in the U.S., Shenghe conducts its primary operations in China and may transport and sell products in the Chinese market. Therefore, the Company’s revenue is affected by Shenghe’s ultimate realized prices in China, including the impact of changes in the exchange rate between the Chinese Yuan and the U.S. dollar. In addition, there is an ongoing economic conflict between China and the U.S. that has previously resulted in tariffs and trade barriers that may negatively affect the Company’s business and results of operations. See Note 15, “Related-Party Transactions,” for additional information.
At the onset of the COVID-19 pandemic and through 2022, the Company experienced, at times, significant shipping delays due to congestion and slowdowns at U.S. and international ports caused by shortages in vessels, containers, and truckers, also disrupting the global supply chain. Despite these factors, the Company did not experience a reduction in production or sales due to the COVID-19 pandemic. However, the COVID-19 pandemic contributed to certain cost and schedule pressures for capital projects. The Company continues to monitor the global situation, including the impacts of new and potential future variants of COVID-19, or other factors that may affect international shipping, logistics, and supply chain, or involve responses to government actions such as strikes or other disruptions.
Intangible Assets: Indefinite-lived intangible assets are tested annually for impairment, or more frequently if events or changes in circumstances indicate that it is more likely than not that the assets are impaired. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, the excess amount is recognized as an impairment. Intangible assets that have a definite life are amortized on a straight-line basis over their estimated useful lives to reflect the expected pattern of economic benefits consumed. The Company reviews the carrying amount of its amortizing intangible assets for possible impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the carrying amounts of the amortizing intangible assets exceed their fair value, the excess amount is recognized as an impairment. Once an impairment of an intangible asset has been recorded, it cannot be reversed. No impairment charges were recorded during the three and nine months ended September 30, 2023 and 2022. See also Note 6, “Intangible Assets.”
Leases: The Company determines if an arrangement is, or contains, a lease at contract inception. In some cases, the Company has determined that its lease arrangements include both lease and non-lease components. The Company has elected to use a practical expedient to account for each separate lease component and its associated non-lease components as a single lease component for the majority of its asset classes. The Company recognizes right-of-use (“ROU”) assets and lease liabilities upon commencement for all leases with a lease term greater than 12 months. The Company has elected to use a practical expedient to not recognize leases with a lease term of 12 months or less in the unaudited Condensed Consolidated Balance Sheets for the majority of its asset classes. These short-term leases are expensed on a straight-line basis over the lease term.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. When the rate implicit in the lease cannot be readily determined, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. Lease liabilities are accreted each period and reduced for payments. The ROU asset also includes other adjustments, such as for the effects of lease prepayments, initial lease costs, or lease incentives received. The lease term may include periods covered by options to extend or terminate the lease when it is either reasonably certain that the Company will exercise a renewal option, or reasonably certain it will not exercise an early termination option. For operating leases, lease expense is recognized on a straight-line basis over the lease term. For finance leases, the ROU asset amortizes on a straight-line basis over the shorter of the lease term or the useful life of the underlying asset (or the useful life of the underlying asset if title transfers at the end of the lease term or there is a purchase option the Company is reasonably certain to exercise) and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement. For operating and finance leases, variable lease payments not included in the lease liability are expensed as incurred unless such costs are capitalized as part of another asset (e.g., inventory). Additionally, ROU assets are subject to impairment testing whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the carrying amounts of ROU
7

assets exceed their fair value, the excess amount is recognized as an impairment. No impairment charges were recorded during the three and nine months ended September 30, 2023 and 2022. See also Note 9, “Leases.”
Stock-Based Compensation: The cost of employee services received in exchange for an award of equity instruments is based on the grant-date fair value of the award. The fair value of Stock Awards (as defined in Note 12, “Stock-based Compensation,”) is equal to the fair value of the Company’s stock on the grant date. The fair value of performance awards that include performance and/or market conditions is determined using a Monte Carlo simulation technique. The Monte Carlo simulation requires the use of inputs and assumptions such as the grant-date closing stock price, expected volatility, correlation coefficient to relevant peer groups or indices, risk-free interest rate and dividend yield.
Compensation cost for Stock Awards with graded vesting schedules is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards, which results in accelerated recognition of compensation cost. Compensation cost for performance awards with cliff vesting schedules is recognized on a straight-line basis over the requisite service period. Compensation cost is not adjusted based on the actual achievement of the market-based performance goals. The Company accounts for forfeitures in the period in which they occur based on actual forfeitures. See also Note 12, “Stock-based Compensation.”
Recently Issued Accounting Pronouncements: During the three and nine months ended September 30, 2023, there were no accounting pronouncements adopted by the Company that had a material impact on the Company’s unaudited Condensed Consolidated Financial Statements. Additionally, as of September 30, 2023, there were no accounting pronouncements pending adoption that are expected to have a material impact on the Company's unaudited Condensed Consolidated Financial Statements.
Reclassifications: Certain amounts in prior periods have been reclassified to conform to the current year presentation.
NOTE 3—CASH, CASH EQUIVALENTS AND INVESTMENTS
The following table presents the Company’s cash, cash equivalents and short-term investments:
September 30, 2023December 31, 2022
(in thousands)Amortized Cost BasisUnrealized GainsUnrealized LossesEstimated Fair ValueAmortized Cost BasisUnrealized GainsUnrealized LossesEstimated Fair Value
Cash:
Demand deposits$1,580 $ $ $1,580 $7,373 $ $ $7,373 
Cash equivalents:
Money market funds134,038   134,038 64,855   64,855 
U.S. agency securities    63,605 1 (2)63,604 
U.S. Treasury securities327,224 48 (4)327,268 795   795 
Commercial paper
49,662 7  49,669     
Certificates of deposit
35,110 3  35,113     
Total cash equivalents546,034 58 (4)546,088 129,255 1 (2)129,254 
Total cash and equivalents547,614 58 (4)547,668 136,628 1 (2)136,627 
Short-term investments:
U.S. agency securities141,873 1 (155)141,719 979,878 361 (17)980,222 
U.S. Treasury securities395,217 61 (3)395,275 65,586 1 (91)65,496 
Total short-term investments537,090 62 (158)536,994 1,045,464 362 (108)1,045,718 
Total cash, cash equivalents and short-term investments$1,084,704 $120 $(162)$1,084,662 $1,182,092 $363 $(110)$1,182,345 
The Company does not intend to sell, nor is it more likely than not that the Company will be required to sell, any investments in unrealized loss positions before recovery of their amortized cost basis. The Company did not recognize any credit losses related to its available-for-sale investments during the three and nine months ended September 30, 2023 and 2022. The unrealized losses on the Company’s available-for-sale investments were primarily due to unfavorable changes in interest rates subsequent to initial purchase. None of the available-for-sale investments held as of September 30, 2023, were in a continuous unrealized loss position for greater than 12 months and the unrealized losses and the related risk of expected credit losses were not material.
8

The Company recognized the following income and expense amounts, all of which are included in “Other income, net” within the Company’s unaudited Condensed Consolidated Statements of Operations:
For the three months ended September 30,For the nine months ended September 30,
(in thousands)2023202220232022
Gross realized gains$1 $71 $506 $71 
Gross realized losses$ $199 $139 $199 
Interest and investment income(1)
$14,455 $6,274 $41,607 $8,529 
(1)Includes interest and investment income on the Company’s available-for-sale securities and other money market funds.
As of September 30, 2023, the fair values of available-for-sale investments, by remaining contractual maturity, were as follows:
(in thousands)
Due within one year$926,223 
Due after one year through two years22,821 
Total$949,044 
NOTE 4—INVENTORIES
The Company’s inventories consisted of the following:
September 30, 2023December 31, 2022
(in thousands)
Raw materials and supplies, including spare parts(1)
$34,680 $28,590 
Work in process(2)
41,367 27,212 
Finished goods
1,132 1,752 
Total current inventories77,179 57,554 
Add: Non-current portion(3)
12,589 5,744 
Total inventories$89,768 $63,298 
(1)Includes raw materials to support activities pertaining to the Company’s rare earth metal, alloy and magnet manufacturing capabilities.
(2)Includes packaged and finished NdPr oxide shipped to the Company’s toller for processing into NdPr metal.
(3)Represents stockpiled ore that is not expected to be processed within the next 12 months as well as certain raw materials that are not expected to be consumed within the next 12 months.
NOTE 5—PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment consisted of the following:
September 30, 2023December 31, 2022
(in thousands)
Land and land improvements$16,425 $16,102 
Buildings and building improvements25,427 15,111 
Machinery and equipment473,578 186,388 
Assets under construction240,219 338,482 
Mineral rights438,395 438,395 
Property, plant and equipment, gross1,194,044 994,478 
Less: Accumulated depreciation and depletion(96,317)(58,735)
Property, plant and equipment, net$1,097,727 $935,743 
Additions to Property, Plant and Equipment: The Company capitalized expenditures related to property, plant and equipment of $199.9 million and $250.1 million for the nine months ended September 30, 2023 and 2022, respectively,
9

including amounts not yet paid (see Note 16, “Supplemental Cash Flow Information”). The capitalized expenditures related to machinery, equipment, and assets under construction to support the Company’s Stage II optimization project, its Fort Worth Facility, and its HREE Facility (as defined below). Additionally, the capitalized expenditures for the nine months ended September 30, 2022, included the purchase of approximately 18 acres of land in Fort Worth, Texas.
Placement of Certain Stage II Assets into Service: During the nine months ended September 30, 2023, the Company transferred certain of its assets totaling $248.4 million and pertaining to its Stage II optimization project from assets under construction to buildings, machinery and equipment, with $239.8 million relating to machinery and equipment.
Government Awards: In November 2020, the Company was awarded a Defense Production Act Title III technology investment agreement (“TIA”) from the Department of Defense (“DOD”) to establish domestic processing for separated light rare earth elements in the amount of $9.6 million. During the nine months ended September 30, 2023 and 2022, pursuant to the TIA, the Company had received zero and $5.1 million, respectively, in reimbursements from the DOD. As of September 30, 2023, the Company is entitled to receive an additional $0.1 million from the DOD under the TIA.
In February 2022, the Company was awarded a $35.0 million contract by the DOD’s Office of Industrial Base Analysis and Sustainment program to design and build a facility to process heavy rare earth elements (“HREE”) at Mountain Pass (the “HREE Facility”) (the “HREE Production Project Agreement”). As of September 30, 2023, the Company had received $1.1 million from the DOD under the HREE Production Project Agreement.
Change in Estimates of Asset Retirement Costs: As a result of a decrement to the Company’s asset retirement obligations during the third quarter of 2022, the carrying amount of the Company’s total property, plant and equipment was reduced by $10.4 million, the majority of which pertained to buildings, machinery and equipment, and assets under construction, in the amounts of $0.6 million, $2.7 million and $6.7 million, respectively. Additionally, the Company’s depreciation expense for the three and nine months ended September 30, 2022, was reduced by $2.7 million, reflecting the excess of the decrement over the carrying amount of the related property, plant and equipment. See Note 7, “Asset Retirement and Environmental Obligations,” for further information on the decrement.
The Company’s depreciation and depletion expense were as follows:
For the three months ended September 30,For the nine months ended September 30,
(in thousands)2023202220232022
Depreciation expense(1)
$13,951 $(656)$28,385 $3,702 
Depletion expense$2,664 $2,664 $8,407 $8,808 
(1)As noted above, during the three months ended September 30, 2022, the Company recorded a reduction to depreciation expense, reflecting the excess of the asset retirement obligation decrement over the carrying amount of the related property, plant and equipment, as a result of changes in the Company’s estimates of cash flows underlying its asset retirement obligations.
The Company recognized $0.8 million and $5.5 million of demolition costs for the three and nine months ended September 30, 2023, which are included in “Loss on disposals of long-lived assets, net” within the Company’s unaudited Condensed Consolidated Statements of Operations, incurred in connection with demolishing and removing certain old facilities from the Mountain Pass site that have not been used in the Company’s operations. There were no impairments recognized for the three and nine months ended September 30, 2023 and 2022.
NOTE 6—INTANGIBLE ASSETS
In August 2023, the Company acquired a license to use patented technology, technical know-how, and other intellectual property pertaining to the development and manufacturing of magnetics products in exchange for 435,729 shares of the Company’s common stock. Pursuant to the terms of the agreement to acquire the license, 152,504 shares were issued immediately and the remaining shares will be issued as follows: 43,573 on each of the first, second, and third anniversaries of the acquisition date and an additional 152,506 shares on the fourth anniversary of the acquisition date.
Upon obtaining the license, the Company recorded a definite-lived intangible asset in the amount of $9.0 million, based on the closing price of the Company’s common stock on the acquisition date. The intangible asset will be amortized on a straight-line basis, with no estimated residual value, over the estimated useful life of 7.5 years, which the Company based on the life of the patents associated with the licensed technology.
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Contemporaneous with the acquisition of the license, the Company entered into a consulting agreement in support of integrating the licensed technology and know-how into its existing processes aimed at the development of magnetics products. Unless earlier terminated, under the consulting agreement, the Company will pay a total of approximately $15 million over the next four years, of which, the first payment will be in cash on the first anniversary of the consulting agreement and the payments pertaining to the second, third, and fourth anniversaries of the consulting agreement may be settled in cash or shares of the Company’s common stock at the Company’s election. The Company will ratably record an expense over the four-year period unless the costs qualify for capitalization.
The Company’s intangible assets were as follows:
September 30, 2023December 31, 2022
(in thousands)
Intangible assets with indefinite lives:
Emissions allowances
$316 $89 
Intangible assets with definite lives:
Patent and intellectual property license8,963  
Less: Accumulated amortization (100) 
Patent and intellectual property license, net
8,863  
Intangible assets, net
$9,179 $89 
Amortization expense related to amortizing intangible assets was $0.1 million for the three and nine months ended September 30, 2023. There was no amortization expense related to amortizing intangible assets recognized for the three and nine months ended September 30, 2022. The following table presents the estimated amortization expense based on amortizing intangible assets as of September 30, 2023:
(in thousands)
Period:
Remainder of 2023
$299 
20241,195 
20251,195 
20261,195 
20271,195 
Thereafter3,784 
Total$8,863 
NOTE 7—ASSET RETIREMENT AND ENVIRONMENTAL OBLIGATIONS
Asset Retirement Obligations
The Company estimates asset retirement obligations based on the requirements to reclaim certain land areas associated with mineral extraction activities and certain related facilities at Mountain Pass. Minor reclamation activities related to discrete portions of the Company’s operations are ongoing. As of September 30, 2023, the Company estimated a significant portion of the cash outflows for major reclamation activities including the retirement of Mountain Pass will be incurred beginning in 2056 and 2057.
In June 2021, San Bernardino County approved a re-zoning request for certain of the Company’s properties such that certain of the Company’s processing and separations facilities would be zoned for industrial end uses as opposed to the prior “resource conservation” designation. In September 2022, and as a result of the re-zoning of this land, the Company received final approval from San Bernardino County and the Division of Mine Reclamation (California) on a revised reclamation plan. The revision removed from the regulatory oversight under The Surface Mining and Reclamation Act of 1975 the majority of the buildings and equipment used in the processing and separations facilities, including the land underlying such buildings and equipment.
As a result of the final approval of the reclamation plan, in the third quarter of 2022, the Company revised its estimated cash flows pertaining to the settlement of the reclamation and removal activities associated with Mountain Pass, including removing the previous estimates of the cash flows associated with the processing and separations facilities that no longer
11

require reclamation. The changes in estimates resulted in an asset retirement obligation decrement of $13.1 million, of which $10.4 million reduced the carrying amounts of the associated property, plant and equipment, and $2.7 million, reflecting the excess of the decrement over the carrying amount of the related property, plant and equipment, was recorded as a reduction to depreciation expense for the three and nine months ended September 30, 2022.
As of September 30, 2023, the credit-adjusted risk-free rate ranged between 6.5% and 12.0% depending on the timing of expected settlement and when the increment was recognized. There were no significant increments or decrements for the three and nine months ended September 30, 2023, and there were no significant increments for the three and nine months ended September 30, 2022.
The balance as of both September 30, 2023, and December 31, 2022, included current portions of $0.2 million, which are included in “Other current liabilities” within the Company’s unaudited Condensed Consolidated Balance Sheets. The total estimated future undiscounted cash flows required to satisfy the Company’s asset retirement obligations were $50.3 million and $50.4 million as of September 30, 2023, and December 31, 2022, respectively.
Environmental Obligations
The Company has certain environmental remediation liabilities related to the monitoring of groundwater contamination. The Company engaged an environmental consultant to develop a remediation plan and remediation cost projections based upon that plan. Utilizing the remediation plan developed by the environmental consultant, the Company developed an estimate of future cash payments for the remediation plan.
As of September 30, 2023, the Company estimated the cash outflows related to these environmental activities will be incurred annually over the next 24 years. The Company’s environmental remediation liabilities are measured at the expected value of future cash outflows discounted to their present value using a discount rate of 2.93%. There were no significant changes in the estimated remaining remediation costs for the three and nine months ended September 30, 2023 and 2022.
The total estimated aggregate undiscounted cost of $26.8 million and $27.2 million as of September 30, 2023, and December 31, 2022, respectively, principally related to water monitoring activities required by state and local agencies. Based on the Company’s estimate of the cost and timing and the assumption that payments are considered to be fixed and reliably determinable, the Company has discounted the liability. The balance as of both September 30, 2023, and December 31, 2022, included current portions of $0.5 million, which are included in “Other current liabilities” within the Company’s unaudited Condensed Consolidated Balance Sheets.
Financial Assurances
The Company is required to provide the applicable government agencies with financial assurances relating to the closure and reclamation obligations. As of September 30, 2023, and December 31, 2022, the Company had financial assurance requirements of $45.4 million and $43.5 million, respectively, which were satisfied with surety bonds placed with California state and regional agencies.
NOTE 8—DEBT OBLIGATIONS
The Company’s long-term debt was as follows:
September 30, 2023December 31, 2022
(in thousands)
Convertible Notes due 2026$690,000 $690,000 
Less: Unamortized debt issuance costs(8,906)(11,556)
Long-term debt, net$681,094 $678,444 
Convertible Notes
In March 2021, the Company issued $690.0 million aggregate principal amount of 0.25% unsecured green convertible senior notes that mature, unless earlier converted, redeemed or repurchased, on April 1, 2026 (the “Convertible Notes”), at a price of par. Interest on the Convertible Notes is payable on April 1st and October 1st of each year, beginning on October 1, 2021. The Convertible Notes may, at the Company’s election, be settled in cash, shares of common stock of the Company, or a combination thereof. The Company has the option to redeem the Convertible Notes, in whole or in part, beginning on April 5, 2024.
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The Convertible Notes are convertible into shares of the Company’s common stock at an initial conversion price of $44.28 per share, or 22.5861 shares, per $1,000 principal amount of notes, subject to adjustment upon the occurrence of certain corporate events. However, in no event will the conversion price exceed 28.5714 shares of common stock per $1,000 principal amount of the Convertible Notes. As of September 30, 2023, based on the conversion price, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes was 19,714,266. The Convertible Notes’ if-converted value did not exceed its principal amount as of September 30, 2023.
Interest expense related to the Convertible Notes was as follows:
For the three months ended September 30,For the nine months ended September 30,
(in thousands)2023202220232022
Coupon interest$431 $431 $1,293 $1,293 
Amortization of debt issuance costs884 881 2,650 2,637 
Convertible Notes interest expense
$1,315 $1,312 $3,943 $3,930 
The debt issuance costs are being amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 0.51%. The remaining term of the Convertible Notes was 2.5 years as of September 30, 2023.
Equipment Notes
The Company has entered into several financing agreements for the purchase of equipment, including trucks, tractors, loaders, graders, and various other machinery. The Company’s equipment notes, which are secured by the purchased equipment, have terms of between 4 to 5 years and interest rates of between 0.0% and 6.5% per annum.
The current and non-current portions of the equipment notes, which are included within the unaudited Condensed Consolidated Balance Sheets in “Other current liabilities” and “Other non-current liabilities,” respectively, were as follows:
September 30, 2023December 31, 2022
(in thousands)
Equipment notes
Current$2,193 $2,392 
Non-current3,147 4,743 
$5,340 $7,135 
As of September 30, 2023, none of the agreements or indentures governing the Company’s indebtedness contain financial covenants.
NOTE 9—LEASES
The Company has operating and finance leases for certain office space, warehouses, vehicles and equipment used in its operations. In November 2021, the Company entered into a lease agreement for corporate office space. The lease commenced during the second quarter of 2023, and at lease commencement, the Company recorded an operating lease liability of $7.3 million and an ROU asset of $10.3 million, primarily comprised of the lease liability as well as $2.9 million of payments for lessor-owned tenant improvements. The lease has an initial term of 91 months expiring in October 2030, with an option to renew for one five-year period at the election of the Company. Excluding rent abatement in the first year of the lease, the initial annual base rent payment is $1.2 million, subject to an annual escalator.
The Company’s lease agreements do not contain material residual value guarantees or restrictive covenants. As of September 30, 2023, the Company was not reasonably certain of exercising any material purchase, renewal, or termination options contained within its lease agreements.
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As of September 30, 2023, the maturities of the Company’s operating and finance lease liabilities were as follows:
(in thousands)Operating LeasesFinance Leases
Period:
Remainder of 2023
$162 $56 
20241,422 228 
20251,441 179 
20261,337 59 
20271,370 54 
Thereafter4,066 160 
Total lease payments9,798 736 
Less: Imputed interest(2,056)(108)
Total$7,742 $628 
Supplemental disclosure for the unaudited Condensed Consolidated Balance Sheets related to the Company’s operating and finance leases is as follows:
Location on Unaudited Condensed Consolidated Balance SheetsSeptember 30, 2023December 31, 2022
(in thousands)
Operating Leases:
Right-of-use assetsOperating lease right-of-use assets$10,346 $99 
Operating lease liability, current
Operating lease liabilities
(included in current liabilities)
$728 $84 
Operating lease liability, non-current
Operating lease liabilities
(included in non-current liabilities)
7,014 15 
Total operating lease liabilities$7,742 $99 
Finance Leases:
Right-of-use assetsOther non-current assets$650 $451 
Finance lease liability, currentOther current liabilities$197 $354 
Finance lease liability, non-currentOther non-current liabilities431 242 
Total finance lease liabilities$628 $596 
NOTE 10—INCOME TAXES
The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate to its year-to-date pretax book income or loss. The tax effects of discrete items, including but not limited to, excess tax benefits or deficiencies associated with stock-based compensation, valuation allowance adjustments based on new evidence, and enactment of tax laws, are reported in the interim period in which they occur. The effective tax rate (income tax expense or benefit as a percentage of income or loss before income taxes) including discrete items was 4.5% and 24.5% for the three and nine months ended September 30, 2023, respectively, as compared to 24.9% and 24.5% for the three and nine months ended September 30, 2022, respectively. The Company’s effective income tax rate can vary from period to period depending on, among other factors, percentage depletion, executive compensation deduction limitations, the Section 45X Advanced Manufacturing Production Credit, and changes to its valuation allowance against deferred tax assets. Certain of these and other factors, including the Company’s history and projections of pretax earnings, are considered in assessing its ability to realize its net deferred tax assets.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases, and provides several tax incentives to promote clean energy for tax years beginning after December 31, 2022. The Company does not expect the minimum tax or excise tax to have a material impact on the unaudited Condensed Consolidated Financial
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Statements. The Company expects to benefit from the Section 45X Advanced Manufacturing Production Credit, which provides a credit equal to 10% of the costs incurred with respect to the production and sale of certain critical minerals, including NdPr oxide.
NOTE 11—COMMITMENTS AND CONTINGENCIES
Litigation: The Company may become party to lawsuits, administrative proceedings, and government investigations, including environmental, regulatory, construction, and other matters, in the ordinary course of business. Large, and sometimes unspecified, damages or penalties may be sought in some matters, and certain matters may require years to resolve. The Company is not aware of any pending or threatened litigation that it believes would have a material adverse effect on its unaudited Condensed Consolidated Financial Statements.
NOTE 12—STOCK-BASED COMPENSATION
2020 Incentive Plan: In November 2020, the Company’s stockholders approved the MP Materials Corp. 2020 Stock Incentive Plan (the “2020 Incentive Plan”), which permits the Company to issue stock options (incentive and/or non-qualified); stock appreciation rights (“SARs”); restricted stock, restricted stock units (“RSUs”) and other stock awards (collectively, the “Stock Awards”); and performance awards, which vest contingent upon the attainment of either or a combination of market- or performance-based goals. As of September 30, 2023, the Company has not issued any stock options or SARs and there were 6,101,859 shares available for future grants under the 2020 Incentive Plan.
Market-Based PSUs: In February 2023, pursuant to the 2020 Incentive Plan, the Company’s Compensation Committee of the Board of Directors adopted a performance share plan (the “2023 Performance Share Plan”). Pursuant to the 2023 Performance Share Plan, for the nine months ended September 30, 2023, the Company granted 62,709 of market-based performance stock units (“PSUs”) at target, all of which cliff vest after a requisite performance and service period of three years. The PSUs have the potential to be earned at between 0% and 200% of the number of awards granted depending on the level of growth of the Company’s total shareholder return (“TSR”) as compared to the TSR of the S&P 400 Index and the S&P 400 Materials Group over the performance period. The fair value of the market-based PSUs was determined using a Monte Carlo simulation technique.
Stock-Based Compensation: The Company’s stock-based compensation was recorded as follows:
For the three months ended September 30,For the nine months ended September 30,
(in thousands)2023202220232022
Cost of sales$842 $889 $2,759 $2,110 
Selling, general and administrative5,193 6,912 15,603 22,717 
Advanced projects, start-up, development and other263 5 679 192 
Total stock-based compensation expense$6,298 $7,806 $19,041 $25,019 
Stock-based compensation capitalized to property, plant and equipment, net$367 $267 $1,566 $951 
NOTE 13—FAIR VALUE MEASUREMENTS
Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurement” (“ASC 820”), establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority
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to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1:Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2:Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, quoted prices or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability and model-based valuation techniques (e.g., the Black-Scholes model) for which all significant inputs are observable in active markets.
Level 3:Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy. The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate. The fair value of the Company’s accounts receivable, accounts payable, short-term debt and accrued liabilities approximates the carrying amounts because of the immediate or short-term maturity of these financial instruments.
Cash, Cash Equivalents and Restricted Cash
The Company’s cash, cash equivalents and restricted cash are classified within Level 1 of the fair value hierarchy. The carrying amounts reported in the unaudited Condensed Consolidated Balance Sheets approximate the fair value of cash, cash equivalents and restricted cash due to the short-term nature of these assets.
Short-term Investments
The fair value of the Company’s short-term investments, which are classified as available-for-sale securities, is estimated based on quoted prices in active markets and is classified as a Level 1 measurement.
Convertible Notes
The fair value of the Company’s Convertible Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement.
Equipment Notes
The Company’s equipment notes are classified within Level 2 of the fair value hierarchy because there are inputs that are directly observable for substantially the full term of the liability. Model-based valuation techniques for which all significant inputs are observable in active markets were used to calculate the fair values of liabilities classified within Level 2 of the fair value hierarchy.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying amounts and estimated fair values by input level of the Company’s financial instruments were as follows:
September 30, 2023
(in thousands)
Carrying
Amount
Fair ValueLevel 1Level 2Level 3
Financial assets:
Cash and cash equivalents$547,668 $547,668 $547,668 $ $ 
Short-term investments$536,994 $536,994 $536,994 $ $ 
Restricted cash$1,575 $1,575 $1,575 $ $ 
Financial liabilities:
Convertible Notes$681,094 $591,923 $591,923 $ $ 
Equipment notes$5,340 $5,142 $ $5,142 $ 
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December 31, 2022
(in thousands)
Carrying
Amount
Fair Value
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$136,627 $136,627 $136,627 $ $ 
Short-term investments$1,045,718 $1,045,718 $1,045,718 $ $ 
Restricted cash$6,882 $6,882 $6,882 $ $ 
Financial liabilities:
Convertible Notes$678,444 $610,650 $610,650 $ $ 
Equipment notes$7,135 $6,807 $ $6,807 $ 
NOTE 14—EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method or the if-converted method, as applicable.
The following table reconciles the weighted-average common shares outstanding used in the calculation of basic earnings (loss) per share to the weighted-average common shares outstanding used in the calculation of diluted earnings (loss) per share:
For the three months ended September 30,For the nine months ended September 30,
2023202220232022
Weighted-average shares outstanding, basic177,231,717176,543,624177,034,068176,476,276
Assumed conversion of Convertible Notes15,584,40915,584,40915,584,409
Assumed conversion of restricted stock840,786620,190944,925
Assumed conversion of RSUs441,038393,995433,329
Weighted-average shares outstanding, diluted177,231,717193,409,857193,632,662193,438,939
The following table presents unweighted potentially dilutive shares that were not included in the computation of diluted earnings (loss) per share because to do so would have been antidilutive:
For the three months ended September 30,For the nine months ended September 30,
2023202220232022
Convertible Notes15,584,409
Restricted Stock
685,202
RSUs1,629,9386,0133,1846,013
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The following table presents the calculation of basic and diluted earnings (loss) per share for the Company’s common stock:
For the three months ended September 30,For the nine months ended September 30,
(in thousands, except share and per share data)2023202220232022
Calculation of basic earnings (loss) per share:
Net income (loss)$(4,276)$63,177 $40,566 $221,997 
Weighted-average shares outstanding, basic 177,231,717 176,543,624 177,034,068 176,476,276 
Basic earnings (loss) per share
$(0.02)$0.36 $0.23 $1.26 
Calculation of diluted earnings (loss) per share:
Net income (loss)$(4,276)$63,177 $40,566 $221,997 
Interest expense, net of tax(1):
Convertible Notes
 985 2,977 2,967 
Diluted income (loss)
$(4,276)$64,162 $43,543 $224,964 
Weighted-average shares outstanding, diluted177,231,717 193,409,857 193,632,662 193,438,939 
Diluted earnings (loss) per share
$(0.02)$0.33 $0.22 $1.16 
(1)The nine months ended September 30, 2023, was tax-effected at a rate of 24.5%, and the three and nine months ended September 30, 2022, were tax-effected at a rate of 24.9% and 24.5%, respectively.
Basic and diluted earnings (loss) per share were the same for the three months ended September 30, 2023, as all potential common shares outstanding would have been anti-dilutive due to the presentation of net loss during the period.
NOTE 15—RELATED-PARTY TRANSACTIONS
Offtake Agreement: In March 2022, the Company entered into an offtake agreement (the “Offtake Agreement”) with Shenghe Resources (Singapore) International Trading Pte. Ltd. (“Shenghe”), a majority-owned subsidiary of Leshan Shenghe Rare Earth Co., Ltd. (“Leshan Shenghe”) whose ultimate parent is Shenghe Resources Holding Co., Ltd., a leading global rare earth company listed on the Shanghai Stock Exchange. The Offtake Agreement became effective upon the termination of the amended and restated offtake agreement with Shenghe. The initial term of the Offtake Agreement is two years, with the option to extend the term at the Company’s discretion for an additional one-year period.
Pursuant to the Offtake Agreement, and subject to certain exclusions, Shenghe is obligated to purchase on a “take or pay” basis the rare earth concentrate produced by the Company as the exclusive distributor in China, with certain exceptions for the Company’s direct sales globally. In addition, at the discretion of the Company, Shenghe may be required to purchase on a “take or pay” basis certain non-concentrate rare earth products, although the Company may sell all non-concentrate rare earth products in its sole discretion to customers or end users in any jurisdiction.
The sales price of rare earth concentrate sold to Shenghe is based on an agreed-upon price per metric ton, subject to certain quality adjustments depending on the measured characteristics of the product, with an adjustment for the ultimate market price of the product realized by Shenghe upon sales to their customers. The sales price and other terms applicable to a quantity of offtake products are set forth in monthly purchase agreements between the Company and Shenghe. Under the Offtake Agreement, Shenghe is paid a variable commission on net proceeds to the Company.
Tolling Agreement with VREX Holdco: In October 2023, the Company entered into a tolling agreement with VREX Holdco Ltd. Pte. (“VREX Holdco”) (the “Tolling Agreement”), a wholly-owned subsidiary of Shenghe. VREX Holdco owns Vietnam Rare Earth Company Limited (“VREX”), which owns and operates a metal processing plant and related facilities in Vietnam. This Tolling Agreement replaced the previous tolling agreement signed in March 2023 directly with VREX. Pursuant to the Tolling Agreement, the Company will deliver NdPr oxide to VREX Holdco, which VREX Holdco will then provide to VREX to process into NdPr metal for delivery to the Company’s customers globally. As several of the Company’s potential customers that manufacture magnets outside of China prefer to purchase NdPr metal in addition to NdPr oxide, this Tolling Agreement will enable the Company to distribute NdPr products more widely to customers in Japan and other global markets. During the term of the Tolling Agreement, the Company will pay VREX Holdco a processing fee per unit of rare earth metal produced. The Company will maintain title to the products and directly enter into sales agreements for the produced NdPr metal. The initial term of the Tolling Agreement is three years and may be renewed for additional three-year terms. As of
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September 30, 2023, there have not been any transactions as contemplated under the previous tolling agreement signed in March 2023.
Revenue and Cost of Sales: The Company’s related-party revenue and cost of sales were as follows:
For the three months ended September 30,For the nine months ended September 30,
(in thousands)2023202220232022
Revenue:
Rare earth concentrate$51,502 $114,894 $203,186 $401,496 
Other rare earth products(1)
$ $172 $ $8,646 
Cost of sales(2)
$21,829 $21,842 $66,817 $65,368 
(1)Represents sales agreements with Shenghe for non-concentrate products, including certain stockpiles of rare earth fluoride.
(2)Excludes depreciation, depletion and amortization and includes shipping and freight.
Purchases of Materials and Supplies: The Company purchases certain reagent products (generally produced by an unrelated third-party manufacturer) used in the flotation process as well as other materials from Shenghe in the ordinary course of business. Total purchases were $5.8 million and $7.6 million for the three and nine months ended September 30, 2023, respectively, as compared to $15.3 million and $18.5 million for the three and nine months ended September 30, 2022, respectively.
Accounts Receivable: As of September 30, 2023, and December 31, 2022, $11.9 million and $29.8 million, respectively, of the accounts receivable as stated in the unaudited Condensed Consolidated Balance Sheets, were receivable from and pertained to sales made to Shenghe in the ordinary course of business.
NOTE 16—SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and non-cash investing and financing activities were as follows:
For the nine months ended September 30,
(in thousands)20232022
Supplemental cash flow information:
Cash paid for interest$1,116 $1,140 
Cash payments related to income taxes$23,101 $16,827 
Change in construction payables$10,952 $35,779 
Supplemental non-cash investing and financing activities:
Common stock issued to acquire intangible asset
$8,963 $ 
Operating ROU assets obtained in exchange for lease liabilities
$7,608 $168 
Revenue recognized in exchange for debt principal reduction$ $13,566 
Decrease in estimates of asset retirement costs$ $10,395 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q (“Form 10-Q”), and the Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”). This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Part II. Item 1A. Risk Factors” and elsewhere in this Form 10-Q and “Part I. Item 1A. Risk Factors” and elsewhere in our Form 10-K. See also “Cautionary Note Regarding Forward-Looking Statements.”
Business Overview
MP Materials Corp., including its subsidiaries (“we,” “our,” and “us”), is the largest producer of rare earth materials in the Western Hemisphere. We own and operate the Mountain Pass Rare Earth Mine and Processing Facility (“Mountain Pass”), the only rare earth mining and processing site of scale in North America, and are also constructing a rare earth metal, alloy and magnet manufacturing facility in Fort Worth, Texas (the “Fort Worth Facility”), where we anticipate manufacturing, among other products, neodymium-iron-boron (“NdFeB”) permanent magnets.
Currently, we primarily produce a rare earth concentrate that is principally sold pursuant to the Offtake Agreement to Shenghe (as such terms are defined in Note 15, “Related-Party Transactions,” in the notes to the unaudited Condensed Consolidated Financial Statements), that, in turn, typically sells that product to refiners in China. These refiners separate the constituent rare earth elements (“REE”) contained in our concentrate and sell the separated products to their customers. Upon completing initial commissioning of the remaining circuits of our Stage II optimization project (“Stage II”) in the third quarter of 2023, we began producing separated rare earth products, including neodymium-praseodymium (“NdPr”) oxide. We anticipate selling these new products to customers in the U.S. and around the globe beginning in the fourth quarter of 2023, including to Japanese customers pursuant to a distributorship agreement with Sumitomo Corporation of Americas (“Sumitomo”).
Additionally, in April 2022, we entered into a long-term supply agreement with General Motors Company (NYSE: GM) (“GM”) to supply U.S.-sourced and manufactured rare earth materials, alloy and finished magnets for the electric motors in more than a dozen models using GM’s Ultium Platform, with a gradual production ramp that is expected to begin in late 2023. These developments are a part of our Stage III downstream expansion strategy (“Stage III”).
Certain REE serve as critical inputs for the rare earth magnets inside the electric motors and generators powering carbon-reducing technologies such as electric vehicles (“EVs”) and wind turbines, as well as drones, defense systems, robotics and many other high-growth, advanced technologies. Our integrated operations at Mountain Pass combine low production costs with high environmental standards, thereby restoring American leadership to a critical industry with a strong commitment to sustainability.
Recent Developments and Other Information
Distribution Agreement with Sumitomo
In February 2023, we entered into a distributorship agreement (“Distribution Agreement”) with Sumitomo, under which Sumitomo would serve as the exclusive distributor of NdPr oxide, produced by us, to Japanese customers. Further, in connection with the Distribution Agreement, we intend to collaborate with Sumitomo on the supply of rare earth metals and other products. Under the terms of the Distribution Agreement, Sumitomo will be paid a variable commission. The initial term of the Distribution Agreement is through the end of 2025 with options to renew annually.
Patent and Intellectual Property License
In August 2023, we acquired a license to use patented technology, technical know-how, and other intellectual property pertaining to the development and manufacturing of magnetics products in exchange for 435,729 shares of our common stock. Contemporaneous with the acquisition of the license, we entered into a consulting agreement in support of integrating the licensed technology and know-how into its existing processes aimed at the development of magnetics products.
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Tolling Agreement with VREX Holdco
In October 2023, we entered into a tolling agreement with VREX Holdco Pte. Ltd. (“VREX Holdco”) (the “Tolling Agreement”), a wholly-owned subsidiary of Shenghe. VREX Holdco owns Vietnam Rare Earth Company Limited (“VREX”), which owns and operates a metal processing plant and related facilities in Vietnam. This Tolling Agreement replaced the previous tolling agreement signed in March 2023 directly with VREX. Pursuant to the Tolling Agreement, we will deliver NdPr oxide to VREX Holdco, which VREX Holdco will then provide to VREX to process into NdPr metal for delivery to our customers globally. As several of our potential customers that manufacture magnets outside of China prefer to purchase NdPr metal in addition to NdPr oxide, this Tolling Agreement will enable us to distribute NdPr products more widely to customers in Japan and other global markets. During the term of the Tolling Agreement, we will pay VREX Holdco a processing fee per unit of rare earth metal produced. We will maintain title to the products and directly enter into sales agreements for the produced NdPr metal. The initial term of the Tolling Agreement is three years and may be renewed for additional three-year terms.
COVID-19 Pandemic
At the onset of the COVID-19 pandemic and through 2022, we experienced, at times, significant shipping delays due to congestion and slowdowns at U.S. and international ports caused by shortages in vessels, containers, and truckers, also disrupting the global supply chain. Despite these factors, we did not experience a reduction in production or sales due to the COVID-19 pandemic. However, the COVID-19 pandemic contributed to certain cost and schedule pressures for capital projects. We continue to monitor the global situation, including the impacts of new and potential future variants of COVID-19, or other factors that may affect international shipping, logistics, and supply chain, or involve responses to government actions such as strikes or other disruptions.
Key Performance Indicators
We have historically used and/or currently use the following key performance indicators (“KPIs”) to evaluate the performance of our business. However, as our business continues to evolve and transitions from a producer of rare earth concentrate to a producer of separated rare earth products, the metrics that management uses to evaluate the business may continue to change or be revised. For example, in completing the transition to separated rare earth products, we may determine that production cost per rare earth oxide (“REO”) equivalent metric ton (“MT”), which is a metric focused solely on Stage I concentrate operations, is no longer meaningful in evaluating and understanding our business or operating results. In addition, during the third quarter of 2023, upon the production of separated products, we identified two new KPIs of our business: NdPr Production Volume and NdPr Sales Volume. Our calculations of these KPIs may differ from similar measures published by other companies in our industry or in other industries. The following table presents our KPIs:
For the three months ended September 30,ChangeFor the nine months ended September 30,Change
(in whole units or dollars, except percentages)20232022Amount%20232022Amount%
Rare earth concentrate
REO Production Volume (MTs)10,766 10,886 (120)(1)%32,300 32,014 286 %
REO Sales Volume (MTs)9,177 10,676 (1,499)(14)%29,663 32,382 (2,719)(8)%
Realized Price per REO MT$5,718 $11,636 $(5,918)(51)%$7,152 $13,130 $(5,978)(46)%
Production Cost per REO MT
$2,020 $1,653 $367 22 %$1,977 $1,661 $316 19 %
Separated NdPr products