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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 June 30, 20222023
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.)
6720 Via Austi Parkway,1700 S. Pavilion Center Drive, Suite 450800
Las Vegas, Nevada 8911989135
(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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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 August 1, 2022,July 31, 2023, the number of shares of the registrant’s common stock outstanding was 177,534,132.177,648,549.



MP MATERIALS CORP. AND SUBSIDIARIES
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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 June 30, 20222023 (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, 20212022 (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 products, NdFeB alloy and magnets into contracts;
uncertainties relating to the COVID-19 pandemic;
potential power shortages and interruptions at Mountain Pass;
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;
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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 obligationsobligation 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.

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PART I—FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
(in thousands, except share and per share data)(in thousands, except share and per share data)(in thousands, except share and per share data)
AssetsAssetsAssets
Current assetsCurrent assetsCurrent assets
Cash and cash equivalentsCash and cash equivalents$664,457 $1,179,297 Cash and cash equivalents$927,245 $136,627 
Short-term investmentsShort-term investments599,666 — Short-term investments200,828 1,045,718 
Total cash, cash equivalents and short-term investmentsTotal cash, cash equivalents and short-term investments1,264,123 1,179,297 Total cash, cash equivalents and short-term investments1,128,073 1,182,345 
Accounts receivable (including related party), net of allowance for credit losses of $0 and $0, respectivelyAccounts receivable (including related party), net of allowance for credit losses of $0 and $0, respectively32,748 51,009 Accounts receivable (including related party), net of allowance for credit losses of $0 and $0, respectively11,106 32,856 
InventoriesInventories42,244 38,692 Inventories67,783 57,554 
Income taxes receivableIncome taxes receivable4,271 — Income taxes receivable4,127 2,201 
Prepaid expenses and other current assetsPrepaid expenses and other current assets5,486 7,809 Prepaid expenses and other current assets12,788 18,872 
Total current assetsTotal current assets1,348,872 1,276,807 Total current assets1,223,877 1,293,828 
Non-current assetsNon-current assetsNon-current assets
Property, plant and equipment, netProperty, plant and equipment, net749,848 610,612 Property, plant and equipment, net1,044,839 935,743 
Operating lease right-of-use assetsOperating lease right-of-use assets10,133 99 
Non-current inventoriesNon-current inventories7,410 5,744 
Other non-current assetsOther non-current assets2,519 2,247 Other non-current assets3,186 2,373 
Total non-current assetsTotal non-current assets752,367 612,859 Total non-current assets1,065,568 943,959 
Total assetsTotal assets$2,101,239 $1,889,666 Total assets$2,289,445 $2,237,787 
Liabilities and stockholders’ equityLiabilities and stockholders’ equityLiabilities and stockholders’ equity
Current liabilitiesCurrent liabilitiesCurrent liabilities
Accounts payable and accrued liabilities$62,097 $35,734 
Accounts payable, construction payables and accrued liabilitiesAccounts payable, construction payables and accrued liabilities$71,661 $72,265 
Income taxes payableIncome taxes payable— 3,463 Income taxes payable— 21,163 
Current installments of long-term debt—related party— 16,082 
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities309 84 
Other current liabilitiesOther current liabilities4,050 4,264 Other current liabilities3,803 3,969 
Total current liabilitiesTotal current liabilities66,147 59,543 Total current liabilities75,773 97,481 
Non-current liabilitiesNon-current liabilitiesNon-current liabilities
Asset retirement obligationsAsset retirement obligations18,162 17,615 Asset retirement obligations5,406 5,295 
Environmental obligationsEnvironmental obligations16,589 16,598 Environmental obligations16,562 16,580 
Long-term debt, net of current portion676,683 674,927 
Long-term debt, netLong-term debt, net680,210 678,444 
Operating lease liabilities, net of current portionOperating lease liabilities, net of current portion7,050 15 
Deferred income taxesDeferred income taxes146,606 104,500 Deferred income taxes135,592 122,353 
Other non-current liabilitiesOther non-current liabilities6,315 7,751 Other non-current liabilities3,921 4,985 
Total non-current liabilitiesTotal non-current liabilities864,355 821,391 Total non-current liabilities848,741 827,672 
Total liabilitiesTotal liabilities930,502 880,934 Total liabilities924,514 925,153 
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 10)
00
Commitments and contingencies (Note 10)
Stockholders’ equity:Stockholders’ equity:Stockholders’ equity:
Preferred stock ($0.0001 par value, 50,000,000 shares authorized, none issued and outstanding in either period)Preferred stock ($0.0001 par value, 50,000,000 shares authorized, none issued and outstanding in either period)— — 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, 177,534,132 and 177,816,554 shares issued and outstanding, as of June 30, 2022, and December 31, 2021, respectively)18 18 
Common stock ($0.0001 par value, 450,000,000 shares authorized, 177,626,668 and 177,706,608 shares issued and outstanding, as of June 30, 2023, and December 31, 2022, respectively)Common stock ($0.0001 par value, 450,000,000 shares authorized, 177,626,668 and 177,706,608 shares issued and outstanding, as of June 30, 2023, and December 31, 2022, respectively)17 18 
Additional paid-in capitalAdditional paid-in capital939,900 936,299 Additional paid-in capital958,819 951,008 
Retained earningsRetained earnings231,235 72,415 Retained earnings406,261 361,419 
Accumulated other comprehensive loss(416)— 
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)(166)189 
Total stockholders’ equityTotal stockholders’ equity1,170,737 1,008,732 Total stockholders’ equity1,364,931 1,312,634 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$2,101,239 $1,889,666 Total liabilities and stockholders’ equity$2,289,445 $2,237,787 
See accompanying notes to the Condensed Consolidated Financial Statements.
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MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended June 30,For the six months ended June 30,For the three months ended June 30,For the six months ended June 30,
(in thousands, except share and per share data)(in thousands, except share and per share data)2022202120222021(in thousands, except share and per share data)2023202220232022
Revenue:Revenue:Revenue:
Product sales (including related party)Product sales (including related party)$139,183 $72,522 $300,938 $132,261 Product sales (including related party)$64,001 $139,183 $159,667 $300,938 
Other sales (including related party)Other sales (including related party)4,379 596 8,882 828 Other sales (including related party)23 4,379 57 8,882 
Total revenueTotal revenue143,562 73,118 309,820 133,089 Total revenue64,024 143,562 159,724 309,820 
Operating costs and expenses:Operating costs and expenses:Operating costs and expenses:
Cost of sales (including related party)(excluding depreciation, depletion and amortization)Cost of sales (including related party)(excluding depreciation, depletion and amortization)22,092 17,955 45,265 35,891 Cost of sales (including related party)(excluding depreciation, depletion and amortization)22,704 22,092 46,920 45,265 
Selling, general and administrativeSelling, general and administrative18,222 12,647 38,787 26,105 Selling, general and administrative18,865 18,120 38,268 38,428 
Advanced projects, development and other1,668 984 3,486 1,109 
Advanced projects, start-up, development and otherAdvanced projects, start-up, development and other7,222 1,769 15,502 3,587 
Depreciation, depletion and amortizationDepreciation, depletion and amortization5,407 6,666 10,667 12,816 Depreciation, depletion and amortization12,203 5,407 20,325 10,667 
Accretion of asset retirement and environmental obligationsAccretion of asset retirement and environmental obligations419 592 837 1,185 Accretion of asset retirement and environmental obligations227 419 454 837 
Write-down of inventories— 1,809 — 1,809 
Loss on sale or disposal of long-lived assets, netLoss on sale or disposal of long-lived assets, net2,320 4,810 258 
Total operating costs and expensesTotal operating costs and expenses47,808 40,653 99,042 78,915 Total operating costs and expenses63,541 47,808 126,279 99,042 
Operating incomeOperating income95,754 32,465 210,778 54,174 Operating income483 95,754 33,445 210,778 
Interest expense, netInterest expense, net(1,326)(2,639)(3,231)(3,793)Interest expense, net(1,392)(1,326)(2,751)(3,231)
Other income2,212 3,504 2,406 3,559 
Other income, netOther income, net13,821 2,212 27,514 2,406 
Income before income taxesIncome before income taxes96,640 33,330 209,953 53,940 Income before income taxes12,912 96,640 58,208 209,953 
Income tax expenseIncome tax expense(23,371)(6,164)(51,133)(10,655)Income tax expense(5,517)(23,371)(13,366)(51,133)
Net incomeNet income$73,269 $27,166 $158,820 $43,285 Net income$7,395 $73,269 $44,842 $158,820 
Earnings per share:Earnings per share:Earnings per share:
BasicBasic$0.42 $0.16 $0.90 $0.25 Basic$0.04 $0.42 $0.25 $0.90 
DilutedDiluted$0.38 $0.15 $0.83 $0.24 Diluted$0.04 $0.38 $0.24 $0.83 
Weighted-average shares outstanding:Weighted-average shares outstanding:Weighted-average shares outstanding:
BasicBasic176,527,570 172,677,923 176,442,043 170,810,353 Basic176,984,917 176,527,570 176,933,605 176,442,043 
DilutedDiluted193,414,563 193,145,644 193,452,921 186,282,857 Diluted177,859,118 193,414,563 193,528,819 193,452,921 
See accompanying notes to the Condensed Consolidated Financial Statements.
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MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
For the three months ended June 30,For the six months ended June 30,For the three months ended June 30,For the six months ended June 30,
(in thousands)(in thousands)2022202120222021(in thousands)2023202220232022
Net incomeNet income$73,269 $27,166 $158,820 $43,285 Net income$7,395 $73,269 $44,842 $158,820 
Other comprehensive loss, net of tax:Other comprehensive loss, net of tax:Other comprehensive loss, net of tax:
Net unrealized losses on available-for-sale securities(416)— (416)— 
Change in net unrealized losses on available-for-sale securitiesChange in net unrealized losses on available-for-sale securities(297)(416)(355)(416)
Total comprehensive incomeTotal comprehensive income$72,853 $27,166 $158,404 $43,285 Total comprehensive income$7,098 $72,853 $44,487 $158,404 
See accompanying notes to the Condensed Consolidated Financial Statements.
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MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Three months ended June 30, 2022 and 2021Three months ended June 30, 2023 and 2022
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive Loss
Total
Stockholders’
Equity
Preferred StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)
Total
Stockholders’
Equity
(in thousands, except share data)(in thousands, except share data)SharesAmountSharesAmountAccumulated Other Comprehensive LossSharesAmountSharesAmountAdditional Paid-in CapitalRetained Earnings
Balance as of April 1, 2022— $— 177,526,007 $18 $932,384 $157,966 $— $1,090,368 
Balance as of April 1, 2023Balance as of April 1, 2023— $— 177,619,805 $17 $952,791 $398,866 $131 $1,351,805 
Stock-based compensationStock-based compensation— — 13,303 — 7,718 — — 7,718 Stock-based compensation— — 14,268 — 6,184 — — 6,184 
Shares used to settle payroll tax withholdingShares used to settle payroll tax withholding— — (5,178)— (202)— — (202)Shares used to settle payroll tax withholding— — (7,405)— (156)— — (156)
Net incomeNet income— — — — — 73,269 — 73,269 Net income— — — — — 7,395 — 7,395 
Unrealized losses on available-for-sale securitiesUnrealized losses on available-for-sale securities— — — — — — (416)(416)Unrealized losses on available-for-sale securities— — — — — — (297)(297)
Balance as of June 30, 2022— $— 177,534,132 $18 $939,900 $231,235 $(416)$1,170,737 
Balance as of June 30, 2023Balance as of June 30, 2023— $— 177,626,668 $17 $958,819 $406,261 $(166)$1,364,931 
Balance as of April 1, 2021— $— 170,745,864 $17 $921,643 $(46,503)$— $875,157 
Redemption of Public Warrants— — 7,080,005 (2)— — (1)
Balance as of April 1, 2022Balance as of April 1, 2022— $— 177,526,007 $18 $932,384 $157,966 $— $1,090,368 
Stock-based compensationStock-based compensation— — 18,402 — 4,498 — — 4,498 Stock-based compensation— — 13,303 — 7,718 — — 7,718 
Forfeiture of restricted stock— — (90,000)— — — — — 
Shares used to settle payroll tax withholdingShares used to settle payroll tax withholding— — (5,784)— (193)— — (193)Shares used to settle payroll tax withholding— — (5,178)— (202)— — (202)
Net incomeNet income— — — — — 27,166 — 27,166 Net income— — — — — 73,269 — 73,269 
Other— — — — (2)— — (2)
Balance as of June 30, 2021— $— 177,748,487 $18 $925,944 $(19,337)$— $906,625 
Unrealized losses on available-for-sale securitiesUnrealized losses on available-for-sale securities— — — — — — (416)(416)
Balance as of June 30, 2022Balance as of June 30, 2022— $— 177,534,132 $18 $939,900 $231,235 $(416)$1,170,737 
Six months ended June 30, 2022 and 2021Six months ended June 30, 2023 and 2022
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive Loss
Total
Stockholders’
Equity
Preferred StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)
Total
Stockholders’
Equity
(in thousands, except share data)(in thousands, except share data)SharesAmountSharesAmountAccumulated Other Comprehensive LossSharesAmountSharesAmountAdditional Paid-in CapitalRetained Earnings
Balance as of January 1, 2023Balance as of January 1, 2023— $— 177,706,608 $18 $951,008 $361,419 $189 $1,312,634 
Stock-based compensationStock-based compensation— — 112,686 — 13,942 — — 13,942 
Shares used to settle payroll tax withholdingShares used to settle payroll tax withholding— — (192,626)(1)(6,131)— — (6,132)
Net incomeNet income— — — — — 44,842 — 44,842 
Unrealized losses on available-for-sale securitiesUnrealized losses on available-for-sale securities— — — — — — (355)(355)
Balance as of June 30, 2023Balance as of June 30, 2023— $— 177,626,668 $17 $958,819 $406,261 $(166)$1,364,931 
Balance as of January 1, 2022Balance as of January 1, 2022— $— 177,816,554 $18 $936,299 $72,415 $— $1,008,732 Balance as of January 1, 2022— $— 177,816,554 $18 $936,299 $72,415 $— $1,008,732 
Stock-based compensationStock-based compensation— — 60,185 — 17,897 — — 17,897 Stock-based compensation— — 60,185 — 17,897 — — 17,897 
Shares used to settle payroll tax withholdingShares used to settle payroll tax withholding— — (342,607)— (14,296)— — (14,296)Shares used to settle payroll tax withholding— — (342,607)— (14,296)— — (14,296)
Net incomeNet income— — — — — 158,820 — 158,820 Net income— — — — — 158,820 — 158,820 
Unrealized losses on available-for-sale securitiesUnrealized losses on available-for-sale securities— — — — — — (416)(416)Unrealized losses on available-for-sale securities— — — — — — (416)(416)
Balance as of June 30, 2022Balance as of June 30, 2022— $— 177,534,132 $18 $939,900 $231,235 $(416)$1,170,737 Balance as of June 30, 2022— $— 177,534,132 $18 $939,900 $231,235 $(416)$1,170,737 
Balance as of January 1, 2021— $— 170,719,979 $17 $916,482 $(62,622)$— $853,877 
Redemption of Public Warrants— — 7,080,005 (2)— — (1)
Stock-based compensation— — 54,722 — 10,171 — — 10,171 
Forfeiture of restricted stock— — (90,000)— — — — — 
Shares used to settle payroll tax withholding— — (16,219)— (527)— — (527)
Net income— — — — — 43,285 — 43,285 
Other— — — — (180)— — (180)
Balance as of June 30, 2021— $— 177,748,487 $18 $925,944 $(19,337)$— $906,625 
See accompanying notes to the Condensed Consolidated Financial Statements.
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MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended June 30,For the six months ended June 30,
(in thousands)(in thousands)20222021(in thousands)20232022
Operating activities:Operating activities:Operating activities:
Net incomeNet income$158,820 $43,285 Net income$44,842 $158,820 
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortizationDepreciation, depletion and amortization10,667 12,816 Depreciation, depletion and amortization20,325 10,667 
Accretion of asset retirement and environmental obligationsAccretion of asset retirement and environmental obligations837 1,185 Accretion of asset retirement and environmental obligations454 837 
Accretion of discount on short-term investmentsAccretion of discount on short-term investments(1,008)— Accretion of discount on short-term investments(13,933)(1,008)
Gain on forgiveness of Paycheck Protection Loan— (3,401)
Loss on sale or disposal of long-lived assets, netLoss on sale or disposal of long-lived assets, net258 37 Loss on sale or disposal of long-lived assets, net103 258 
Stock-based compensation expenseStock-based compensation expense17,213 10,171 Stock-based compensation expense12,743 17,213 
Accretion of debt discount and amortization of debt issuance costsAccretion of debt discount and amortization of debt issuance costs2,274 3,287 Accretion of debt discount and amortization of debt issuance costs1,766 2,274 
Write-down of inventories— 1,809 
Revenue recognized in exchange for debt principal reductionRevenue recognized in exchange for debt principal reduction(13,566)(22,901)Revenue recognized in exchange for debt principal reduction— (13,566)
Deferred income taxesDeferred income taxes42,106 8,105 Deferred income taxes13,356 42,106 
Decrease (increase) in operating assets:Decrease (increase) in operating assets:Decrease (increase) in operating assets:
Accounts receivable (including related party)Accounts receivable (including related party)18,261 (4,589)Accounts receivable (including related party)21,750 18,261 
InventoriesInventories(3,552)(5,038)Inventories(11,406)(3,552)
Income taxes receivableIncome taxes receivable(4,271)— Income taxes receivable(1,926)(4,271)
Prepaid expenses, other current and non-current assetsPrepaid expenses, other current and non-current assets1,437 (2,973)Prepaid expenses, other current and non-current assets(1,412)1,437 
Increase (decrease) in operating liabilities:Increase (decrease) in operating liabilities:Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilitiesAccounts payable and accrued liabilities(5,476)4,236 Accounts payable and accrued liabilities252 (5,476)
Income taxes payableIncome taxes payable(3,463)2,451 Income taxes payable(21,163)(3,463)
Other current and non-current liabilitiesOther current and non-current liabilities(675)(511)Other current and non-current liabilities(292)(675)
Net cash provided by operating activitiesNet cash provided by operating activities219,862 47,969 Net cash provided by operating activities65,459 219,862 
Investing activities:Investing activities:Investing activities:
Additions to property, plant and equipmentAdditions to property, plant and equipment(122,584)(44,691)Additions to property, plant and equipment(130,236)(122,584)
Purchases of short-term investmentsPurchases of short-term investments(599,195)— Purchases of short-term investments(320,884)(599,195)
Proceeds from sales of short-term investmentsProceeds from sales of short-term investments447,327 — 
Proceeds from maturities of short-term investmentsProceeds from maturities of short-term investments731,907 — 
Proceeds from sale of property, plant and equipment— 125 
Proceeds from government awards used for constructionProceeds from government awards used for construction5,130 — Proceeds from government awards used for construction— 5,130 
Net cash used in investing activities(716,649)(44,566)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities728,114 (716,649)
Financing activities:Financing activities:Financing activities:
Proceeds from issuance of long-term debt— 690,000 
Principal payments on debt obligations and finance leasesPrincipal payments on debt obligations and finance leases(4,488)(990)Principal payments on debt obligations and finance leases(1,467)(4,488)
Payment of debt issuance costs— (17,749)
Tax withholding on stock-based awardsTax withholding on stock-based awards(14,296)(527)Tax withholding on stock-based awards(6,132)(14,296)
Other— (244)
Net cash provided by (used in) financing activities(18,784)670,490 
Net cash used in financing activitiesNet cash used in financing activities(7,599)(18,784)
Net change in cash, cash equivalents and restricted cashNet change in cash, cash equivalents and restricted cash(515,571)673,893 Net change in cash, cash equivalents and restricted cash785,974 (515,571)
Cash, cash equivalents and restricted cash beginning balanceCash, cash equivalents and restricted cash beginning balance1,181,157 532,440 Cash, cash equivalents and restricted cash beginning balance143,509 1,181,157 
Cash, cash equivalents and restricted cash ending balanceCash, cash equivalents and restricted cash ending balance$665,586 $1,206,333 Cash, cash equivalents and restricted cash ending balance$929,483 $665,586 
Reconciliation of cash, cash equivalents and restricted cash:Reconciliation of cash, cash equivalents and restricted cash:Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalentsCash and cash equivalents$664,457 $1,196,875 Cash and cash equivalents$927,245 $664,457 
Restricted cash, currentRestricted cash, current600 340 Restricted cash, current1,888 600 
Restricted cash, non-currentRestricted cash, non-current529 9,118 Restricted cash, non-current350 529 
Total cash, cash equivalents and restricted cashTotal cash, cash equivalents and restricted cash$665,586 $1,206,333 Total cash, cash equivalents and restricted cash$929,483 $665,586 
See accompanying notes to the Condensed Consolidated Financial Statements.
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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. We ownThe Company, which is headquartered in Las Vegas, Nevada, owns and operateoperates the Mountain Pass Rare Earth Mine and Processing Facility (“Mountain Pass”), the only rare earth mining and processing site of scale in North America. The Company is headquartered in Las Vegas, Nevada. References herein to the “Company,” “we,” “our,” and “us,” refer to MP Materials Corp. and its subsidiaries.
We currently produceproduces a rare earth concentrate that we sellis principally sold pursuant to an offtake agreementthe Offtake Agreement to Shenghe Resources (Singapore) International Trading Pte. Ltd. (“Shenghe”(as such terms are defined in Note 14, “Related-Party Transactions,”), 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. We are currently recommissioning, upgrading and enhancing the processing facility at Mountain Pass to provide for the separationrelated party of the individualCompany, that, in turn, typically sells that product to refiners in China. These refiners separate the constituent rare earth elements contained in ourthe Company’s concentrate (referredand sell the separated products to astheir customers.
Upon completing commissioning of the “StageStage II optimization project” or “Stageproject (“Stage II”), that will allow us to sellthe Company anticipates producing and selling separated rare earth oxides directlyproducts, including neodymium-praseodymium (“NdPr”) oxide, to end users. Additionally,customers globally. In February 2023, the Company entered into a distributorship agreement (“Distribution Agreement”) with Sumitomo Corporation of Americas (“Sumitomo”), under which Sumitomo would serve as the exclusive distributor of NdPr oxide produced by the Company to Japanese customers. Further, in connection with the first quarterDistribution Agreement, the Company and Sumitomo intend to collaborate on the supply of 2022, we began construction on ourrare earth metals and other products.
In addition, the Company is constructing its initial rare earth metal, alloy and magnet manufacturing facility in Fort Worth, Texas (the “Fort Worth Facility”) as a part of our Stage III downstream expansion strategy, where it anticipates manufacturing, among other products, neodymium-iron-boron (“Stage III”NdFeB”). For more information on our relationship and agreements with Shenghe, see Note 3, “Relationship and Agreements with Shenghe,” and Note 14, “Related-Party Transactions.”
In permanent magnets. Furthermore, in April 2022, the Company entered into a definitive 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, starting with alloy. The definitive long-term supply agreement solidifiesThese developments are a part of the terms of a binding agreement announced by the Company in December 2021.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 chief operating decision makerCODM views the Company’s operations and manages the business as 1one 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, 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 Annual Report on Form 10-K for the year ended December 31, 2021.2022.
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
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(iii) the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
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Concentration of Risk: Financial instruments that potentially subject the Company to credit risk consist principally of cash, and 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 withthat 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 June 30, 2022,2023, Shenghe a related party ofwas the Company and ourCompany’s principal customer and accounted for more than 90% of product sales. 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 United States, 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.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 United States that has previously resulted in tariffs and trade barriers that may negatively affect the Company’s business and results of operations. See Note 3, “Relationship and Agreements with Shenghe,14, “Related-Party Transactions, for additional information.
In December 2019, a novel strainThe impact of coronavirus (known as “COVID-19”) began to impact the population of China. In March 2020, the outbreak of COVID-19 was declared a global pandemic after growing both in the United States and globally. The responses by governments, societies, and private sector entities to the COVID-19 pandemic which include temporary closures of businesses, social distancing, travel restrictions, “shelter in place,” and other governmental regulations and various economic stimulus programs, have significantly impacted market volatility and general global economic conditions, including significant business and supply chain disruption as well as broad-based changes in supply and demand.
its effects continue to evolve. Since the onset of the COVID-19 pandemic, we havethe Company has 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. Congestion and slowdowns have affected and may continue to affect the capacity at ports to receive deliveries of products or the loading of shipments onto vessels. Despite these factors, we havethe Company has not experienced a reduction in production or sales due to the COVID-19 pandemic; however,pandemic. However, the COVID-19 pandemic has contributed to certain cost and schedule pressures onfor capital projects and may impact reliability of transportation, particularly as the Company expects a significant increase in inbound logistics of raw materials to be consumed in Stage II optimization project. operations.
The Company has worked proactively and diligently to adjust working schedules and hours to optimize logistics and shipping, which has thus far prevented a significant negative impact on our product sales and has mitigated certain impacts on Stage II construction and recommissioning progress. However, there can be no assurance that the ongoing COVID-19 pandemic will not have a negative impact on our production, sales, or growth projects in the future.
As the situation continues to evolve,monitor the global situation, including as a resultthe impacts of new and potential future variants of COVID-19, the possibility of federal or state mandates on vaccinations, or other factors that may affect international shipping, logistics, and logisticssupply chain, or involve responses to government actions such as strikes or other disruptions, itdisruptions. It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic on the Company’s business, and results of operations. The extentoperations, production and duration of any business disruptions, and related financial impact, cannot be estimated at this time.sales volumes, or growth projects.
Cash, Cash EquivalentsLeases: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 Short-term Investments: Cashnon-lease components. The Company has elected to use a practical expedient to account for each separate lease component and cash equivalents consistits 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 cash balances and highly liquid investments, including U.S. treasury and agency securities,leases with a maturitylease term greater than 12 months. The Company has elected to use a practical expedient to not recognize leases with a lease term of three12 months or less at the time of purchase.
The Company’s short-term investments consist of U.S. treasury and agency securities that have original maturities greater than three months at the time of purchase. These investments have been classified and accounted for as available-for-sale securities and the Company reevaluates the classification each reporting period. The Company classifies its available-for-sale securities as either current or non-current based on each instrument’s underlying contractual maturity date and the Company’s expectations of sales and redemptions within the next twelve months. See Note 4, “Cash, Cash Equivalents and Investments,” for additional information.
Available-for-sale securities are recorded at fair value each reporting period. For unrealized losses in securities that the Company intends to hold and will not more likely than not be required to sell before recovery, the Company further evaluates whether declines in fair value below amortized cost are due to credit or non-credit related factors. The Company considers credit related impairments to be changes in value that are driven by a change in the creditor’s ability to meet its payment obligations, and records an allowance and recognizes a corresponding loss when the impairment is incurred.
Unrealized non-credit related losses and unrealized gains are reported, net of income taxes, in accumulated other comprehensive income or loss, a component of stockholders’ equity within the unaudited Condensed Consolidated Balance Sheets until realized. Realized gainsfor 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 losseslease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are reported within our unaudited Condensed Consolidated Statementsrecognized at commencement date of Operations upon realization. Accruedthe 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 receivable isbased on the interest method using the discount rate determined at lease commencement. For operating and finance leases, variable lease payments not included in “Accounts receivable (including related party)” within the Company’s unaudited Condensed Consolidated Balance Sheets.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. See also Note 7, 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 11, “Stock-based
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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 11, “Stock-based Compensation.”
Recently Issued Accounting Pronouncements: There were no new accounting pronouncements recently issued or effective duringDuring the three and six months ended June 30, 2022,2023, there were no accounting pronouncements adopted by the Company that had or would bea material impact on the Company’s unaudited Condensed Consolidated Financial Statements. Additionally, as of June 30, 2023, there were no accounting pronouncements pending adoption that are expected to have a material impact on the Company’sCompany's unaudited Condensed Consolidated Financial Statements.
Reclassifications: Certain amounts in prior periods have been reclassified to conform to the current year presentation.
NOTE 3—RELATIONSHIP AND AGREEMENTS WITH SHENGHE
Offtake Agreement
In March 2022, the Company entered into an offtake agreement with Shenghe (the “Offtake Agreement”), which became effective upon the termination of the A&R Offtake Agreement (as discussed and defined below). 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 shall 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. Under the Offtake Agreement, Shenghe will be paid a variable commission on net proceeds to the Company.
Similar to the A&R Offtake Agreement, 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.
Original Commercial Agreements
In May 2017, the Company entered into a set of commercial arrangements with Shenghe, which included a technical services agreement (the “TSA”) and an offtake agreement (the “Original Offtake Agreement”). The Original Offtake Agreement required Shenghe to advance the Company an initial $50.0 million (the “Initial Prepayment Amount”) to fund the restart of operations at the mine and the TSA required Shenghe to fund any additional operating and capital expenditures required to bring Mountain Pass to full operability. Shenghe also agreed to provide additional funding of $30.0 million to the Company pursuant to a separate letter agreement dated June 20, 2017 (the “Letter Agreement”) (the “First Additional Advance”), in connection with our acquisition of Mountain Pass. In addition to the repayment of the First Additional Advance, pursuant to the Letter Agreement, the Initial Prepayment Amount increased by $30.0 million. We refer to the aggregate prepayments made by Shenghe pursuant to the Original Offtake Agreement and the Framework Agreement (defined below), as adjusted for Gross Profit Recoupment (defined below) amounts and any other qualifying repayments to Shenghe, inclusive of the $30.0 million increase to the Initial Prepayment Amount, as the “Prepaid Balance.”
Under the Original Offtake Agreement, we sold to Shenghe, and Shenghe purchased on a firm “take or pay” basis, all of the rare earth products produced at Mountain Pass. Shenghe marketed and sold these products to customers, and retained the gross profits earned on subsequent sales. The gross profits were credited against the Prepaid Balance, and provided the means by which we repaid, and Shenghe recovered, such amounts (the “Gross Profit Recoupment”).
Framework Agreement and Restructured Commercial Agreements
In May 2020, the Company entered into a framework agreement and amendment (the “Framework Agreement”) with Shenghe and Leshan Shenghe that restructured the commercial arrangements and provided for, among other things, a revised funding amount and schedule to settle Shenghe’s prepayment obligations to the Company, as well as an amendment to the Original Offtake Agreement, as discussed below.
Pursuant to the Framework Agreement, the Company entered into an amended and restated offtake agreement with Shenghe on May 19, 2020 (the “A&R Offtake Agreement”), which, upon effectiveness, superseded and replaced the Original Offtake Agreement. Pursuant to the Framework Agreement, Shenghe funded the remaining portion of the Initial Prepayment Amount and agreed to fund an additional $35.5 million advance (the “Second Additional Advance” and together with the Initial Prepayment Amount, inclusive of the $30.0 million increase pursuant to the Letter Agreement, the “Offtake Advances”), which amounts were fully funded in June 2020.
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The A&R Offtake Agreement maintained the key take-or-pay, amounts owed on actual and deemed advances from Shenghe, and other terms of the Original Offtake Agreement, with the following changes, among other items: (i) as to the offtake products subject to the A&R Offtake Agreement, provided that if we sold such offtake products to a third party, then, until the Prepaid Balance was reduced to zero, we would pay an agreed percentage of our revenue from such sales to Shenghe, to be credited against the amounts owed on Offtake Advances; (ii) provided that the sales price to be paid by Shenghe for our rare earth products (a portion of which reduces the Prepaid Balance rather than being paid in cash) would be based on market prices (net of taxes, tariffs and certain other agreed charges) less applicable discounts; and (iii) obliged us to pay Shenghe, on an annual basis, an amount equal to our annual net income, less any amounts recouped through the Gross Profit Recoupment mechanism over the course of the year, until the Prepaid Balance was reduced to zero.
The sales price and other terms applicable to a quantity of offtake products were set forth in monthly purchase agreements between the Company and Shenghe. In March 2022, the Company made a $2.9 million payment to Shenghe pursuant to item (iii) discussed above. Upon payment by the Company, the Prepaid Balance was repaid in full, and the A&R Offtake Agreement was terminated.
NOTE 4—CASH, CASH EQUIVALENTS AND INVESTMENTS
The following table presents the Company’s cash, cash equivalents and short-term investments:
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
(in thousands)(in thousands)Amortized Cost BasisUnrealized GainsUnrealized LossesEstimated Fair ValueAmortized Cost BasisUnrealized GainsUnrealized LossesEstimated Fair Value(in thousands)Amortized Cost BasisUnrealized GainsUnrealized LossesEstimated Fair ValueAmortized Cost BasisUnrealized GainsUnrealized LossesEstimated Fair Value
Cash:Cash:Cash:
Demand depositsDemand deposits$29,668 $— $— $29,668 $26,536 $— $— $26,536 Demand deposits$5,129 $— $— $5,129 $7,373 $— $— $7,373 
Cash equivalents:Cash equivalents:Cash equivalents:
Money market fundsMoney market funds439,933 — — 439,933 1,152,761 — — 1,152,761 Money market funds922,116 — — 922,116 64,855 — — 64,855 
U.S. agency securitiesU.S. agency securities194,875 — (19)194,856 — — — — U.S. agency securities— — — — 63,605 (2)63,604 
U.S. Treasury securitiesU.S. Treasury securities— — — — 795 — — 795 
Total cash equivalentsTotal cash equivalents634,808 — (19)634,789 1,152,761 — — 1,152,761 Total cash equivalents922,116 — — 922,116 129,255 (2)129,254 
Total cash and equivalentsTotal cash and equivalents664,476 — (19)664,457 1,179,297 — — 1,179,297 Total cash and equivalents927,245 — — 927,245 136,628 (2)136,627 
Short-term investments:Short-term investments:Short-term investments:
U.S. agency securitiesU.S. agency securities207,764 — (141)207,623 — — — — U.S. agency securities165,265 (253)165,019 979,878 361 (17)980,222 
U.S. Treasury securitiesU.S. Treasury securities392,439 — (396)392,043 — — — — U.S. Treasury securities35,783 26 — 35,809 65,586 (91)65,496 
Total short-term investmentsTotal short-term investments600,203 — (537)599,666 — — — — Total short-term investments201,048 33 (253)200,828 1,045,464 362 (108)1,045,718 
Total cash, cash equivalents and short-term investmentsTotal cash, cash equivalents and short-term investments$1,264,679 $— $(556)$1,264,123 $1,179,297 $— $— $1,179,297 Total cash, cash equivalents and short-term investments$1,128,293 $33 $(253)$1,128,073 $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. WeThe Company did not recognize any credit losses related to ourits available-for-sale investments during the three and six months ended June 30, 2023 and 2022. The unrealized losses on ourthe 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 June 30, 2022,2023, 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.
The Company recognized $0.5 million of gross realized gains and $0.1 million of gross realized losses during the six months ended June 30, 2023. There were 0no realized gains or losses recognized for the three months ended June 30, 2023 and for the three and six months ended June 30, 2022.
As of June 30, 2022, all outstanding available-for-sale securities were due within one year.
NOTE 5—INVENTORIES
The Company’s inventories consisted of the following:
June 30, 2022December 31, 2021
(in thousands)
Materials and supplies$12,186 $10,711 
In-process28,455 25,574 
Finished goods1,603 2,407 
Total inventory$42,244 $38,692 
During the second quarter of 2021, Additionally, the Company recognized a non-cash write-down$13.8 million and $27.1 million of a portioninterest and investment income on its available-for-sale securities and other money market funds for the three and six months ended June 30, 2023, respectively, as compared to $1.7 million for the three and six months ended June 30, 2022. These amounts are included in “Other income, net” within the Company’s unaudited Condensed Consolidated Statements of its legacy low-grade stockpile inventory of $1.8 million, after determining that it contained a significant amount of alluvial material that did not meetOperations.
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the Company’s requirement for mill feed and, as a result, was deemed unusable. The write-down is included in the unaudited Condensed Consolidated StatementsAs of Operations for the three and six months ended June 30, 2021,2023, the fair values of available-for-sale investments, by remaining contractual maturity, were as “Write-down of inventories.” No write-down of inventories was recorded for the three and six months ended June 30, 2022.follows:
(in thousands)
Due within one year$178,001 
Due after one year through two years22,827 
Total$200,828 
NOTE 6—4—INVENTORIES
The Company’s inventories consisted of the following:
June 30, 2023December 31, 2022
(in thousands)
Materials and supplies(1)
$33,729 $28,590 
In-process31,683 27,212 
Finished goods2,371 1,752 
Total current inventories67,783 57,554 
Add: Non-current portion(2)
7,410 5,744 
Total inventories$75,193 $63,298 
(1)Includes materials to support activities pertaining to the Company’s rare earth metal, alloy and magnet manufacturing facility as a part of Stage III.
(2)Represents stockpiled ore that is not expected to be processed within the next 12 months.
NOTE 5—PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment consisted of the following:
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
(in thousands)(in thousands)(in thousands)
Land and land improvementsLand and land improvements$15,765 $7,925 Land and land improvements$16,211 $16,102 
Buildings and building improvementsBuildings and building improvements8,950 8,791 Buildings and building improvements25,625 15,111 
Machinery and equipmentMachinery and equipment64,148 61,822 Machinery and equipment436,439 186,388 
Assets under constructionAssets under construction271,054 134,327 Assets under construction207,393 338,482 
Mineral rightsMineral rights438,719 437,376 Mineral rights438,395 438,395 
Property, plant and equipment, grossProperty, plant and equipment, gross798,636 650,241 Property, plant and equipment, gross1,124,063 994,478 
Less: Accumulated depreciation and depletionLess: Accumulated depreciation and depletion(48,788)(39,629)Less: Accumulated depreciation and depletion(79,224)(58,735)
Property, plant and equipment, netProperty, plant and equipment, net$749,848 $610,612 Property, plant and equipment, net$1,044,839 $935,743 
Additions to Property, Plant and Equipment: The Company capitalized expenditures related to property, plant and equipment of $154.4$128.6 million and $62.1$154.4 million for the six months ended June 30, 20222023 and 2021,2022, respectively, including amounts not yet paid (see Note 15, “Supplemental Cash Flow Information”). The capitalized expenditures for the six months ended June 30, 2022, related to machinery, equipment, and assets under construction to support the Company’s Stage II optimization project, and assets under construction for its rare earth metal, alloy and magnet manufacturing facility as a part of Stage III, includingIII. Additionally, the capitalized expenditures for the six months ended June 30, 2022, included the purchase of approximately 18 acres of land in Fort Worth, Texas in February 2022. The capitalized expenditures for
Placement of Certain Stage II Assets into Service: During the six months ended June 30, 2021, mostly related2023, the Company transferred certain of its assets totaling $219.9 million and pertaining to vehicles, machinery, equipment, andits Stage II optimization project from assets under construction to support the Stage II optimization projectbuildings, machinery and other capital projects at Mountain Pass.equipment, with $211.3 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 six months ended June 30, 2023 and 2022, pursuant to the TIA, the Company hashad received zero and $5.1 million, respectively, in reimbursements from the DOD. The funds received reduced the carrying amount of certain fixed assets associated with the Company’s Stage II optimization project, which are currently included in “Assets under construction.” As of June 30, 2022,2023, 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 Programprogram to design and build a facility to process heavy rare earth elements (“HREE”) at Mountain Pass (the “HREE
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“HREE Production Project Agreement”). TheAs of June 30, 2023, the Company must utilize thehas not yet received any funds to acquire property and equipment that will contribute to commercial-scale production of separated HREE at Mountain Pass. The Company will be paid fixed amounts upon the completion of certain project milestones. In exchange for these funds,from the DOD will have certain rights to technical data following the completion of the project. The funds received pursuant tounder the HREE Production Project Agreement will reduce the carrying amount of the fixed assets associated with the Company’s HREE separations facility, which will tie into the Company’s other Stage II facilities.Agreement.
The Company’s depreciation and depletion expense were as follows:
For the three months ended June 30,For the six months ended June 30,For the three months ended June 30,For the six months ended June 30,
(in thousands)(in thousands)2022202120222021(in thousands)2023202220232022
Depreciation expenseDepreciation expense$2,257 $1,890 $4,358 $3,419 Depreciation expense$9,189 $2,257 $14,434 $4,358 
Depletion expenseDepletion expense$3,075 $4,686 $6,144 $9,217 Depletion expense$2,963 $3,075 $5,763 $6,144 
The Company recognized $2.2 million and $4.7 million of demolition costs for the three and six months ended June 30, 2023, which are included in “Loss on sale or disposal 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 six months ended June 30, 20222023 and 2021.2022.
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NOTE 7—6—DEBT OBLIGATIONS
The Company’s current and non-current portions of long-term debt werewas as follows:
June 30, 2022December 31, 2021
(in thousands)
Long-term debt
Convertible Notes due 2026$690,000 $690,000 
Less: Unamortized debt issuance costs(13,317)(15,073)
Net carrying amount676,683 674,927 
Less: Current installments of long-term debt— — 
Long-term debt, net of current portion$676,683 $674,927 
Long-term debt to related party
Offtake Advances$— $16,599 
Less: Unamortized debt discount— (517)
Net carrying amount— 16,082 
Less: Current installments of long-term debt to related party— (16,082)
Long-term debt to related party, net of current portion$— $— 
June 30, 2023December 31, 2022
(in thousands)
Long-term debt
Convertible Notes due 2026$690,000 $690,000 
Less: Unamortized debt issuance costs(9,790)(11,556)
Long-term debt, net$680,210 $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.
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 notes.the Convertible Notes. As of June 30, 2022,2023, 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 June 30, 2022.2023.
Interest expense related to the Convertible Notes was as follows:
For the three months ended June 30,For the six months ended June 30,For the three months ended June 30,For the six months ended June 30,
(in thousands)(in thousands)2022202120222021(in thousands)2023202220232022
Coupon interestCoupon interest$431 $431 $862 $455 Coupon interest$431 $431 $862 $862 
Amortization of debt issuance costsAmortization of debt issuance costs879 875 1,756 923 Amortization of debt issuance costs884 879 1,766 1,756 
Convertible Notes interest expenseConvertible Notes interest expense$1,310 $1,306 $2,618 $1,378 Convertible Notes interest expense$1,315 $1,310 $2,628 $2,618 
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 3.82.8 years as of June 30, 2022.
Offtake Advances
Under the A&R Offtake Agreement, a portion of the sales prices of products sold to Shenghe was paid in the form of debt reduction, rather than cash. In addition, the Company had to pay the following amounts to Shenghe in cash to reduce the debt obligation until repaid in full: (i) an agreed-upon percentage of sales of products to parties other than Shenghe under the A&R Offtake Agreement; (ii) 100% of net profits from asset sales; and (iii) 100% of net income determined under GAAP, less the tax-effected amount of total non-cash recoupment from sales of products to Shenghe. For the three and six months ended June 30, 2022, zero and $14.2 million, respectively, of the sales prices of products sold to Shenghe was paid in the form of debt2023.
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reduction (see Note 15, “Supplemental Cash Flow Information”), as compared to $11.7 million and $20.9 million, for the three and six months ended June 30, 2021, respectively. During the three and six months ended June 30, 2022, the Company made payments to Shenghe of zero and $0.2 million, respectively, based on sales to other parties, as compared to $0.1 million for the three and six months ended June 30, 2021. No amounts were required to be paid based on asset sales.
The A&R Offtake Agreement did not have a stated rate (and was non-interest-bearing), and repayment was contingent on a number of factors, including market prices realized by Shenghe, the Company’s sales to other parties, asset sales, and the Company’s annual net income. The imputed interest rate was a function of this discount taken together with our expectations about the timing of the anticipated reductions of the principal balance. The Company had determined that it would recognize adjustments from these estimates following a prospective method where the Company updated its estimate of the effective interest rate in future periods based on revised estimates of the timing of remaining principal reductions at that time. The effective rate applicable from the June 5, 2020, inception to full repayment, was between 4.41% and 24.75%.
As discussed in Note 3, “Relationship and Agreements with Shenghe,” the Company made a $2.9 million payment to Shenghe in March 2022. Upon payment by the Company, the Prepaid Balance was repaid in full, and the A&R Offtake Agreement was terminated.
Paycheck Protection Loan
In April 2020, the Company obtained a loan of $3.4 million pursuant to the Paycheck Protection Program under the CARES Act, (the “Paycheck Protection Loan”). In June 2021, the Company received notification from the Small Business Administration that the Paycheck Protection Loan and related accrued interest was forgiven. Consequently, during the three and six months ended June 30, 2021, the Company recorded a gain on forgiveness of the Paycheck Protection Loan in the amount of $3.4 million, which is included in “Other income” within our unaudited Condensed Consolidated Statements of Operations.
Tariff-Related Rebates
In May 2020, the government of the People’s Republic of China suspended certain tariffs that had been charged to consignees of our product on imports, and provided such relief retroactive to March 2020. In addition, Shenghe began negotiating for tariff rebates from sales prior to March 2020, which affected Shenghe’s realized prices, and thus the Prepaid Balance. These, in turn, affected the Company’s realized prices on prior sales. While additional tariff rebates were possible, the Company did not have insight into Shenghe’s negotiations or their probability of success, and such negotiations were outside of the Company’s control. Thus, the Company fully constrained estimates of any future tariff rebates that may have been realized at that time.
In January 2021, the Company received information from Shenghe regarding its successful negotiation of additional tariff rebates. Consequently, the Company revised its estimates of variable consideration and recognized $2.0 million of revenue for the six months ended June 30, 2021. Additionally, for the six months ended June 30, 2021, the Company recorded a reduction in the principal balance of the debt obligation and the corresponding debt discount of $2.2 million and $0.2 million, respectively.
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:
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
(in thousands)(in thousands)(in thousands)
Equipment notesEquipment notesEquipment notes
CurrentCurrent$2,439 $2,566 Current$2,279 $2,392 
Non-currentNon-current5,930 7,095 Non-current3,651 4,743 
$8,369 $9,661 $5,930 $7,135 
As of June 30, 2022,2023, none of the agreements or indentures governing ourthe Company’s indebtedness contain financial covenants.
NOTE 7—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 June 30, 2023, the Company was not reasonably certain of exercising any material purchase, renewal, or termination options contained within its lease agreements.
As of June 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$154 $94 
20241,284 186 
20251,304 137 
20261,337 17 
20271,370 12 
Thereafter4,066 48 
Total lease payments9,515 494 
Less: Imputed interest(2,156)(51)
Total$7,359 $443 
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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 SheetsJune 30, 2023December 31, 2022
(in thousands)
Operating Leases:
Right-of-use assetsOperating lease right-of-use assets$10,133 $99 
Operating lease liability, currentCurrent portion of operating lease liabilities$309 $84 
Operating lease liability, non-currentOperating lease liabilities, net of current portion7,050 15 
Total operating lease liabilities$7,359 $99 
Finance Leases:
Right-of-use assetsOther non-current assets$472 $451 
Finance lease liability, currentOther current liabilities$173 $354 
Finance lease liability, non-currentOther non-current liabilities270 242 
Total finance lease liabilities$443 $596 
NOTE 8—ASSET RETIREMENT AND ENVIRONMENTAL OBLIGATIONS
Asset Retirement Obligations
The Company estimates asset retirement obligations based on the requirements to reclaim its mine pitcertain land areas associated with mineral extraction activities and certain related processing and separations facilities at Mountain Pass. Minor reclamation activities related to discrete portions of the Company’s operations are ongoing. As of June 30, 2022,2023, the Company estimated a significant portion of the cash outflows for the major reclamation andactivities including the retirement of Mountain Pass will be incurred beginning in 2057.
In June 2021, San Bernardino County approved the Company’s re-zoning request for certain of its properties such that certain of the Company’s processing facilities would be zoned for industrial end uses as opposed to the prior “resource conservation” designation, which may obviate the Company’s current requirement to demolish2056 and reclaim the impacted areas. In March 2022, based on the Company’s preliminary evaluation of the impact of the re-zoning, the Company submitted a revised reclamation plan to San Bernardino County for review. After acceptance of the reclamation plan by San Bernardino County and final approval by the State of California, which have not yet occurred as of June 30, 2022, the Company will update the estimated cash flows underlying its asset retirement obligations, as the Company’s existing reclamation obligations will not be legally reduced until such approval is obtained.2057.
As of June 30, 2022,2023, the credit-adjusted risk-free rate ranged between 6.5% and 8.2%12.0% depending on the timing of expected settlement and when the layer or increment was recognized. There were no significant increments or decrements for the three and six months ended June 30, 20222023 and 2021.2022.
The balance as of both June 30, 2022,2023, and December 31, 2021,2022, included current portions of $0.1$0.2 million. The total estimated future undiscounted cash flows required to satisfy the Company’s asset retirement obligations were $167.2$50.3 million and $167.3$50.4 million as of June 30, 2022,2023, and December 31, 2021,2022, respectively.
The Company is required to provide the applicable government agencies with financial assurances relating to the closure and reclamation obligations. As of June 30, 2022, and December 31, 2021, the Company had financial assurance requirements of $42.3 million and $39.0 million, respectively, which were satisfied with surety bonds placed with the California state and regional agencies.
Environmental Obligations
The Company assumedhas 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, managementthe Company developed an estimate of future cash payments for the remediation plan.
As of June 30, 2022, management2023, the Company estimated the cash outflows related to these environmental activities will be incurred annually over the next 2625 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 six months ended June 30, 20222023 and 2021.2022.
The total estimated aggregate undiscounted cost of $27.4$26.9 million and $27.7$27.2 million as of June 30, 2022,2023, and December 31, 2021,2022, respectively, was principally related to water monitoring and treatment activities required by state and local agencies. Based on management’s bestthe 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 June 30, 2022,2023, and December 31, 2021,2022, included current portions of $0.5 million.
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Financial Assurances
The Company is required to provide the applicable government agencies with financial assurances relating to the closure and reclamation obligations. As of June 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 9—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 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 taxestax expense as a percentage of income or loss before income taxes) including discrete items was 42.7% and 23.0% for the three and six months ended June 30, 2023, respectively, as compared to 24.2% and 24.4% for the three and six months ended June 30, 2022, respectively, as compared to 18.5% and 19.8% for the three and six months ended June 30, 2021, respectively. OurThe Company’s effective income tax rate can vary from period to period depending on, among other factors, percentage depletion, executive compensation deduction limitations, other permanent book/tax items,the Section 45X Advanced Manufacturing Production Credit, and changes to ourits valuation
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allowance if any.against deferred tax assets. Certain of these and other factors, including ourthe Company’s history and projections of pretax earnings, are considered in assessing ourits ability to realize ourits 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 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 of certain critical minerals, including NdPr oxide.
NOTE 10—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.
In January 2019, The Company is not aware of any pending or threatened litigation that it believes would have a former employee filed a complaint with the California Labor & Workforce Development Agency alleging numerous violations of California labor law, and subsequently filed a representative action against the Company. In October 2021, we entered into a memorandum of understanding to settle the lawsuit in the amount of $1.0 million, including legal fees, subject to the court’s approval of the class settlement.material adverse effect on its unaudited Condensed Consolidated Financial Statements.
NOTE 11—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;rights (“SARs”); restricted stock, restricted stock units (“RSUs”) and other stock awards;awards (collectively, the “Stock Awards”); and performance awards.awards, which vest contingent upon the attainment of either or a combination of market- or performance-based goals. As of June 30, 2022,2023, the Company has not issued any stock options or SARs and there were 6,578,2906,244,076 shares available for future grants under the 2020 Incentive Plan.
Stock-Based Compensation: Market-Based PSUs:During In February 2023, pursuant to the three and2020 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 six months ended June 30, 2022,2023, the Company recognized $7.4 milliongranted 62,709 of market-based performance stock units (“PSUs”) at target, all of which cliff vest after a requisite performance and $17.2 million, respectively,service period of stock-based compensation expense,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 $4.5 millionthe TSR of the S&P 400 Index and $10.2 million for the three and six months ended June 30, 2021, respectively, which is principally included inS&P 400 Materials Group over the unaudited Condensed Consolidated Statementsperformance period. The fair value of Operations in “Selling, general and administrative.” Additionally, during the three and six months ended June 30, 2022, the Company capitalized $0.3 million and $0.7 million, respectively,market-based PSUs was determined using a Monte Carlo simulation technique.
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Stock-Based Compensation: The Company’s stock-based compensation was capitalized to “Property, plant and equipment, net” during the three and six months ended June 30, 2021.recorded as follows:
For the three months ended June 30,For the six months ended June 30,
(in thousands)2023202220232022
Cost of sales$795 $506 $1,917 $1,221 
Selling, general and administrative4,636 6,837 10,410 15,805 
Advanced projects, start-up, development and other299 97 416 187 
Total stock-based compensation expense$5,730 $7,440 $12,743 $17,213 
Stock-based compensation capitalized to property, plant and equipment, net$454 $278 $1,199 $684 
NOTE 12—FAIR VALUE MEASUREMENTS
ASCAccounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“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 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 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2Quoted 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 3Prices 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.
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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.
Offtake Advances
The Company’s Offtake Advances were classified within Level 3 of the fair value hierarchy as of December 31, 2021, because there were unobservable inputs that followed an imputed interest rate model to calculate the amortization of the embedded debt discount, which was recognized as non-cash interest expense, by estimating the timing of anticipated payments and reductions of the debt principal balance. This model-based valuation technique, for which there were unobservable inputs, was used to estimate the fair value of the liability classified within Level 3 of the fair value hierarchy as of December 31, 2021.
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
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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:
June 30, 2022June 30, 2023
(in thousands)(in thousands)
Carrying
Amount
Fair ValueLevel 1Level 2Level 3(in thousands)
Carrying
Amount
Fair ValueLevel 1Level 2Level 3
Financial assets:Financial assets:Financial assets:
Cash and cash equivalentsCash and cash equivalents$664,457 $664,457 $664,457 $— $— Cash and cash equivalents$927,245 $927,245 $927,245 $— $— 
Short-term investmentsShort-term investments$599,666 $599,666 $599,666 $— $— Short-term investments$200,828 $200,828 $200,828 $— $— 
Restricted cashRestricted cash$1,129 $1,129 $1,129 $— $— Restricted cash$2,238 $2,238 $2,238 $— $— 
Financial liabilities:Financial liabilities:Financial liabilities:
Convertible NotesConvertible Notes$676,683 $681,120 $681,120 $— $— Convertible Notes$680,210 $612,789 $612,789 $— $— 
Equipment notesEquipment notes$8,369 $7,871 $— $7,871 $— Equipment notes$5,930 $5,764 $— $5,764 $— 
December 31, 2021December 31, 2022
(in thousands)(in thousands)
Carrying
Amount
Fair ValueLevel 1Level 2Level 3(in thousands)
Carrying
Amount
Fair ValueLevel 1Level 2Level 3
Financial assets:Financial assets:Financial assets:
Cash and cash equivalentsCash and cash equivalents$1,179,297 $1,179,297 $1,179,297 $— $— Cash and cash equivalents$136,627 $136,627 $136,627 $— $— 
Short-term investmentsShort-term investments$1,045,718 $1,045,718 $1,045,718 $— $— 
Restricted cashRestricted cash$1,860 $1,860 $1,860 $— $— Restricted cash$6,882 $6,882 $6,882 $— $— 
Financial liabilities:Financial liabilities:Financial liabilities:
Convertible NotesConvertible Notes$674,927 $880,026 $880,026 $— $— Convertible Notes$678,444 $610,650 $610,650 $— $— 
Offtake Advances$16,082 $16,501 $— $— $16,501 
Equipment notesEquipment notes$9,661 $9,737 $— $9,737 $— Equipment notes$7,135 $6,807 $— $6,807 $— 
NOTE 13—EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted-average number of common
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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 EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS:
For the three months ended June 30,For the six months ended June 30,For the three months ended June 30,For the six months ended June 30,
20222021202220212023202220232022
Weighted-average shares outstanding, basicWeighted-average shares outstanding, basic176,527,570172,677,923176,442,043170,810,353Weighted-average shares outstanding, basic176,984,917176,527,570176,933,605176,442,043
Assumed conversion of public warrants(1)
3,440,1385,681,248
Assumed conversion of Convertible NotesAssumed conversion of Convertible Notes15,584,40915,584,40915,584,4098,351,866Assumed conversion of Convertible Notes15,584,40915,584,40915,584,409
Assumed conversion of restricted stockAssumed conversion of restricted stock845,4501,183,720996,9941,179,927Assumed conversion of restricted stock555,282845,450639,214996,994
Assumed conversion of restricted stock units457,134259,454429,475259,463
Assumed conversion of RSUsAssumed conversion of RSUs318,919457,134371,591429,475
Weighted-average shares outstanding, dilutedWeighted-average shares outstanding, diluted193,414,563193,145,644193,452,921186,282,857Weighted-average shares outstanding, diluted177,859,118193,414,563193,528,819193,452,921
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(1)Table of ContentsWarrants to purchase 11,499,968
The following table presents unweighted potentially dilutive shares of the Company’s common stock at $11.50 per sharethat were issued in connection with Fortress Value Acquisition Corp.’s initial public offering pursuant to a warrant agreement, dated April 29, 2020, by and between the Company and Continental Stock Transfer & Trust Company, as warrant agent. The warrants were redeemed through a cashless exercisenot included in the second quartercomputation of 2021.diluted EPS because to do so would have been antidilutive:
For the three months ended June 30,For the six months ended June 30,
2023202220232022
Convertible Notes15,584,409
RSUs399,8176,0133,1846,013
The following table presents the calculation of basic and diluted EPS for the Company’s common stock:
For the three months ended June 30,For the six months ended June 30,For the three months ended June 30,For the six months ended June 30,
(in thousands, except share and per share data)(in thousands, except share and per share data)2022202120222021(in thousands, except share and per share data)2023202220232022
Calculation of basic EPS:Calculation of basic EPS:Calculation of basic EPS:
Net incomeNet income$73,269 $27,166 $158,820 $43,285 Net income$7,395 $73,269 $44,842 $158,820 
Weighted-average shares outstanding, basicWeighted-average shares outstanding, basic176,527,570 172,677,923 176,442,043 170,810,353 Weighted-average shares outstanding, basic176,984,917 176,527,570 176,933,605 176,442,043 
Basic EPSBasic EPS$0.42 $0.16 $0.90 $0.25 Basic EPS$0.04 $0.42 $0.25 $0.90 
Calculation of diluted EPS:Calculation of diluted EPS:Calculation of diluted EPS:
Net incomeNet income$73,269 $27,166 $158,820 $43,285 Net income$7,395 $73,269 $44,842 $158,820 
Interest expense, net of tax(1):
Interest expense, net of tax(1):
Interest expense, net of tax(1):
Convertible Notes(2)Convertible Notes(2)993 1,064 1,981 1,106 Convertible Notes(2)— 993 2,025 1,981 
Diluted incomeDiluted income$74,262 $28,230 $160,801 $44,391 Diluted income$7,395 $74,262 $46,867 $160,801 
Weighted-average shares outstanding, dilutedWeighted-average shares outstanding, diluted193,414,563 193,145,644 193,452,921 186,282,857 Weighted-average shares outstanding, diluted177,859,118 193,414,563 193,528,819 193,452,921 
Diluted EPSDiluted EPS$0.38 $0.15 $0.83 $0.24 Diluted EPS$0.04 $0.38 $0.24 $0.83 
(1)The six months ended June 30, 2023, was tax-effected at a rate of 23.0%, and the three and six months ended June 30, 2022, and 2021, were tax-effected at a rate of 24.2%, and 24.4%, 18.5% and 19.8%, respectively.
(2)The Convertible Notes were antidilutive for the three months ended June 30, 2023. Convertible debt becomes antidilutive whenever its interest expense (net of tax) per common share obtainable upon conversion exceeds basic EPS.
NOTE 14—RELATED-PARTY TRANSACTIONS
Product SalesOfftake 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 A&R Offtake Agreement (as discussed and Costdefined below). The initial term of Sales: the Offtake Agreement is two years, with the option to extend the term at the Company’s discretion for an additional one-year period.The
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 andas the exclusive distributor in China, with certain exceptions for the Company’s direct sales globally. In addition, at the discretion of the Company, Shenghe enter into sales agreements in which Shenghe purchases the Company’smay be required to purchase on a “take or pay” basis certain non-concentrate rare earth products, at sale pricesalthough the Company may sell all non-concentrate rare earth products in its sole discretion to customers or end users in any jurisdiction. Under the Offtake Agreement, Shenghe will be paid a variable commission on net proceeds to the Company.
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.
Tolling Agreement with VREX: In March 2023, the Company entered into a tolling agreement with Vietnam Rare Earth Company Limited (“VREX”), a majority-owned subsidiary of Shenghe, which owns and operates a metal processing plant and related facilities in Vietnam (the “Tolling Agreement”). Pursuant to the Tolling Agreement, the Company will deliver NdPr oxide to VREX which VREX will then process into NdPr metal for delivery to the Company’s customers globally. During the
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term of the Tolling Agreement, the Company will pay VREX 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 June 30, 2023, there have not yet been any transactions as contemplated under the Tolling Agreement.
Product Sales and Cost of Sales: Product sales from thesesales agreements with Shenghe for rare earth products were $62.6 million and $151.7 million for the three and six months ended June 30, 2023, respectively, as compared to $131.6 million and $286.6 million for the three and six months ended June 30, 2022, respectively, as compared to $72.2 million and $131.9 million forrespectively. During the three and six months ended June 30, 2021, respectively. Additionally, in March 2022, the Company also entered into a sales agreementagreements with Shenghe for non-concentrate products, including certain stockpiles of rare earth fluoride (“REF”). Sales of REF,fluoride. These sales, which are included in the unaudited Condensed Consolidated Statements of Operations in “Other sales (including related party),” were $4.4 million and $8.5 million for the three and six months ended June 30, 2022, respectively.
Cost of sales, which includes shipping and freight, related to these agreements with Shenghe was $22.3 million and $45.0 million for the three and six months ended June 30, 2023, respectively, as compared to $21.0 million and $43.6 million for the three and six months ended June 30, 2022, respectively,respectively.
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 compared to $17.9well as other materials from Shenghe in the ordinary course of business. Total purchases were $0.9 million and $35.7$1.8 million for the three and six months ended June 30, 2021, respectively.
Purchases: The Company purchases certain reagent products (produced by an unrelated third-party manufacturer) used in the flotation process from Shenghe. Total purchases were2023, respectively, as compared to $1.4 million and $2.6 million for the three and six months ended June 30, 2022, respectively, as compared to $1.4 million and $2.1 million for the three and six months ended June 30, 2021, respectively.
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Accounts Receivable: As of June 30, 2022,2023, and December 31, 2021, $29.62022, $10.1 million and $49.9$29.8 million, respectively, of the accounts receivable respectively, and as stated onin the unaudited Condensed Consolidated Balance Sheets, were receivable from and pertained to sales made to Shenghe in the ordinary course of business.
Indebtedness: The Company’s related-party debt is described in Note 7, “Debt Obligations.”
NOTE 15—SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and non-cash investing and financing activities were as follows:
For the six months ended June 30,
(in thousands)20222021
Supplemental cash flow information:
Cash paid for interest$1,040 $134 
Cash payments related to income taxes$16,621 $
Supplemental non-cash investing and financing activities:
Property, plant and equipment acquired with seller-financed equipment notes$— $9,407 
Property, plant and equipment purchased but not yet paid$31,839 $17,372 
Revenue recognized in exchange for debt principal reduction$13,566 $22,901 
Paycheck Protection Loan forgiveness(1)
$— $3,401 
(1)As discussed in Note 7, “Debt Obligations.”
For the six months ended June 30,
(in thousands)20232022
Supplemental cash flow information:
Cash paid for interest$1,045 $1,040 
Cash payments related to income taxes$23,101 $16,621 
Change in construction payables$(1,600)$31,839 
Supplemental non-cash investing and financing activities:
Revenue recognized in exchange for debt principal reduction$— $13,566 
Operating right-of-use assets obtained in exchange for lease liabilities$7,304 $168 
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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 (“Form 10-K”) for the year ended December 31, 2021.2022. 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. In addition, seeSee also “Cautionary Note Regarding Forward-Looking Statements.”
Business Overview
References herein to the “Company,” “we,MP Materials Corp., including its subsidiaries (“we,” “our,” and “us,” refer to MP Materials Corp. and its subsidiaries.
Overview
MP Materials Corp.“us”), is the largest producer of rare earth materials in the Western Hemisphere. The Company ownsWe own and operatesoperate the Mountain Pass Rare Earth Mine and Processing Facility (“Mountain Pass”), the only rare earth mining and processing site of scale in North America. We estimate the rare earth concentrate we produced and sold in 2021 represented approximately 15% of the rare earth content consumed in the global market.
Rare earth elements (“REE”) are fundamental building blocks of the modern economy, impacting trillions of dollars in global economic activity through the enablement of end products across industries including transportation, clean energy, robotics, national defense and consumer electronics, among others. Neodymium (“Nd”) and praseodymium (“Pr”) are rare earth elements which in combination form neodymium-praseodymium (“NdPr”), which represents a majority of the value contained in our rare earth concentrate. NdPr is most often utilized in NdPr magnets, which are also commonly referred to as “neo,” “NdFeB,” “NIB,” or permanent magnets and are made predominantly from an alloy of NdPr, iron and boron. NdPr magnets are the most widely used type of rare earth magnets and are critical for many advanced technologies that are experiencing strong secular growth, including electric vehicles (“EV”), drones, defense systems, wind turbines, robotics and many others. The rapid growth of these and other advanced motion technologies is expected to drive substantial demand growth for NdPr.
We produce our materials at Mountain Pass, one of the world’s richest rare earth deposits, co-located with integrated state-of-the-art processing and separation facilities. We acquired the Mountain Pass assets in 2017, restarted operations from cold-idle status and embarked on a deliberate, two-stage plan to optimize the facility and position the Company for growth and profitability. We commenced mining, comminution, beneficiation, and tailings management operations, which we designated Stage I of our multi-stage optimization plan, between December 2017 and February 2018.
We currently produce a rare earth concentrate that we sellis principally sold pursuant to the Offtake Agreement to Shenghe Resources (Singapore) International Trading Pte. Ltd. (“Shenghe”)(as such terms are defined in Note 14, “Related-Party Transactions,” in the notes to the unaudited Condensed Consolidated Financial Statements), an affiliate of Shenghe Resources Holding Co., Ltd., which,that, in turn, typically sells that product to refiners in China. These refiners separate the constituent REErare earth elements (“REE”) contained in our concentrate and sell the separated products to their customers.
Upon completioncompleting commissioning of ourthe Stage II optimization project (“Stage II”), we anticipate producing and selling separated rare earth oxidesproducts, including neodymium-praseodymium (“REO”NdPr”), including NdPr oxide, and selling these products directly to end users, at which time oxide. In addition, we may no longer sell our concentrate.
In February 2022, we commenced construction ofare constructing our initial 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. Furthermore, in April 2022, we entered into a definitive 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, starting with alloy. The definitive long-term supply agreement solidifies the terms of a binding agreement announced by the Company in December 2021. 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 Corporation of Americas (“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.
Tolling Agreement with VREX
In March 2023, we entered into a tolling agreement with Vietnam Rare Earth Company Limited (“VREX”), a majority-owned subsidiary of Shenghe, which owns and operates a metal processing plant and related facilities in Vietnam (the “Tolling Agreement”). Pursuant to the Tolling Agreement, we will deliver NdPr oxide to VREX which VREX will then 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 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.
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COVID-19 Pandemic
The impact of the COVID-19 pandemic and its effects continue to evolve. Since the onset of the pandemic, we have 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 have not experienced a reduction in production or sales due to the COVID-19 pandemic. However, the COVID-19 pandemic has contributed to certain cost and schedule pressures for capital projects, and may impact reliability of transportation, particularly as we expect a significant increase in inbound logistics of raw materials to be consumed in our Stage II operations.
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. It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic on our business, results of operations, production and sales volumes, or growth projects.
Key Performance Indicators
We have historically used and currently use the following key performance indicators to evaluate the performance of our business. However, as we evolve as a business and transition from a producer of rare earth concentrate to a producer of separated rare earth products upon completing the commissioning of our Stage II project, the metrics that management anticipates using to evaluate the business may 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. Our calculations of these performance indicators may differ from similar measures published by other companies in our industry or in other industries. The following table presents our key performance indicators:
For the three months ended June 30,ChangeFor the six months ended June 30,ChangeFor the three months ended June 30,ChangeFor the six months ended June 30,Change
(in whole units or dollars, except percentages)(in whole units or dollars, except percentages)20222021$%20222021$%(in whole units or dollars, except percentages)20232022Amount%20232022Amount%
REO production volume (MTs)REO production volume (MTs)10,300 10,305 (5)— %21,128 20,154 974 %REO production volume (MTs)10,863 10,300 563 %21,534 21,128 406 %
REO sales volume (MTs)REO sales volume (MTs)10,000 9,877 123 %21,706 19,670 2,036 10 %REO sales volume (MTs)10,271 10,000 271 %20,486 21,706 (1,220)(6)%
Realized price per REO MTRealized price per REO MT$13,918 $7,343 $6,575 90 %$13,864 $6,620 $7,244 109 %Realized price per REO MT$6,231 $13,918 $(7,687)(55)%$7,794 $13,864 $(6,070)(44)%
Production cost per REO MTProduction cost per REO MT$1,750 $1,538 $212 14 %$1,666 $1,507 $159 11 %Production cost per REO MT$1,938 $1,750 $188 11 %$1,958 $1,666 $292 18 %
REO Production Volume
We measure our REO-equivalent production volume for a given period in metric tons (“MTs”),MTs, our principal unit of sale. This measure refers to the REO content contained in the rare earth concentrate we produce. Our REO production volume is a key indicator of our mining and processing capacity and efficiency. Our REO production volume for the three and six months ended June 30, 2023, included certain concentrate that was stored in bulk silos as mechanically dried and/or roasted concentrate or was fed into downstream circuits as Stage II commissioning activities advanced.
The rare earth concentrate we currently produce is a processed, concentrated form of our mined rare earth-bearing ores. While our unit of production and sale is a MT of embedded REO, the actual weight of our rare earth concentrate is significantly greater, as the concentrate also contains non-REO minerals, loss-on-ignition, and residual moisture from the production process. We target REO content of greater than 60% per dry MT of concentrate (referred to as “REO grade”). The elemental distribution of REO in our concentrate is relatively consistent over time and production lot. We consider this the natural distribution, as it reflects the distribution of elements contained, on average, in our ore. As noted above, upon completion of Stage II, we expect to refine our rare earth concentrate to produce separated rare earths, including NdPr oxide.
REO Sales Volume
Our REO sales volume for a given period is calculated in MTs. A unit, or MT, is considered sold for purposes of this key performance indicator once we recognize revenue on its sale.sale as determined in accordance with generally accepted accounting principles in the United States (“GAAP”). Our REO sales volume is a key measure of our ability to convert our production into revenue. Our REO sales volume for the three and six months ended June 30, 2023, included both traditional concentrate as well as certain roasted concentrate.
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Realized Price per REO MT
We calculate the realized price per REO MT for a given period as the quotient of: (i) our Total Value Realized (see below)product sales, which is determined in accordance with GAAP, for a given period and (ii) our REO sales volume for the same period. We defineRealized price per REO MT is an important measure of the market price of our concentrate product. Historically, we used Total Value Realized, which iswas a non-GAAP financial measure defined as our product sales adjusted for the revenue impact of tariff rebates related to prior period sales.
Realized price per REO MT is an important measure ofsales, as the market price of our product. Accordingly, we calculate realized price per REO MT to reflect a consistent basis between periods by eliminating the revenue impact of tariff-related rebates. See the “Non-GAAP Financial Measures” section below for a reconciliation of our Total Value Realized, which is a non-GAAP financial measure, to our product sales, which is determinednumerator in accordance with generally accepted accounting principles in the United States (“GAAP”), as well as the calculation of realized price per REO MT. As we no longer expect to receive any additional tariff rebates, we no longer utilize Total Value Realized in the calculation of realized price per REO MT.
Production Cost per REO MT
We calculate the production cost per REO MT for a given period as the quotient of: (i) our Production Costs (see below) for a given period and (ii) our REO sales volume for the same period. We define Production Costs, which is a non-GAAP financial measure, as our cost of sales (excluding depletion, depreciation and amortization) less stock-based compensation expense included in cost of sales, shipping and freight costs, and costs attributable to certain other sales, for a given period.sales.
Production cost per REO MT is a key indicator of our concentrate production efficiency. As a significant portion of our cash costs of Stage I production are fixed, our production cost per REO MT is influenced by mineral recovery, REO grade, plant feed rate and production uptime. See the “Non-GAAP Financial Measures” section below for a reconciliation of our Production Costs, which is a non-GAAP financial measure, to our cost of sales (excluding depletion, depreciation and amortization), which is determined in accordance with GAAP, as well as the calculation of production cost per REO MT.
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Key Factors Affecting Our Performance
We believe we are uniquely positioned to capitalize on the key trends of electrification and supply chain security, particularly as domestic EV production grows. Our continued success depends to a significant extent on our ability to take advantage of the following opportunities and meet the challenges associated with them.
Demand for REE
The key demand driverdrivers for REE is their use inare a diverse array of growing end markets, including:including clean-energy and transportation technologies, (e.g., traction motors in EVsconsumer and generators in wind power turbines); high-technologymedical applications, (e.g., miniaturization of smart phones and other mobile devices, fiber optics, lasers, robotics, medical devices, etc.); critical defense applications (e.g., guidance and control systems, global positioning systems, radar and sonar, drones, etc.); and essential industrial infrastructure (e.g., advanced catalyst applications in oil refining and pollution-control systems in traditional internal-combustion automobiles, etc.).infrastructure. We believe these drivers will fuelwe benefit from the continued growth of the rare earth market, particularly the market for NdPr and permanent magnets.
We believe we benefitmagnets, and from several demand tailwinds for REE, and particularly for NdPr.REE. These include the trend toward electrification; geographic supply chain diversification, particularly in relation to China,China; the U.S. government strategyinitiatives to restore domestic supply of key minerals,minerals; and the increasing acceptance of environmental, social and governance mandates.
However, changes in technology maycould also drive down the use of REE, including NdPr, in the components in which they are now used, or lead to a decline in reliance on such components altogether. Such actual, or perceived, decreases in demand for REE, could result in a decline in the market price of REE, including NdPr, and/or result in pricing volatility. We also operate in a competitive industry, and many of our key competitors are based in China, where competitors may not be subject to the same rigorous environmental standards and production costs are typically lower than in the United States.
Maximizing Production Efficiency
In 2021, REO production was approximately 3.5x greater thanSince the highest ever production in a twelve-month period by the prior operatorimplementation of Mountain Pass using principally the same capital equipment. We achieved these results through an optimized reagent scheme, lower process temperatures, better management of the tailings facility, and a commitment to operational excellence, driving approximately 95% uptime. We also believe that our Stage I optimization initiativesplan and the achievement of commercial production on July 1, 2019, our quarterly REO production has exceeded 8,500 MTs, and we have produced at least 10,000 MTs of REO production every quarter since the second quarter of 2021. These results were achieved by optimizing the reagent scheme, reducing process temperatures, improving tailings facility management, and committing to operational excellence, which has allowed us to sustain approximately 95% uptime. Our Stage I optimization plan enabled us to achieve what we believe to be world-class production cost levels for rare earth concentrate.
The success of our business reflects our ability to continue to manage our costs. Our production achievements in Stage I have provided economies of scale to lower production costs per unitMT of REO produced in concentrate. Furthermore, we designed our Stage II is designed to enable us to continue to manage our cost structure for separating REE through an optimized facility process flow. The reintroduction of the oxidizing roasting step will allow usflow to capitalize on the inherent advantages of the bastnaesite ore at Mountain Pass, whichthat is uniquely suitablewell-suited to low-cost refining by selectively eliminating the need to carry cerium, a lower-value ceriummineral, through the separations process. The recommissioning of our natural gas-powered combined heat and power (“CHP”) plant, which was completed in December 2021, removed our reliance on the regional electric power grid. Further,Additionally, our location offers significant transportation advantages that create meaningful cost efficiencies in securing incoming supplies and shipping of our final products.
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We currently operate a single site in a single location, and any stoppage in activity, including for reasons outside of our control, could adversely impact our production, results of operations and cash flows. In addition, several of our current and potential competitors are government supported and may have access to substantially greatermore capital, which may allow them to make similar or greater efficiency improvements or undercut market prices for our product.
Development of Our REE Refining, CapabilitiesMetal Alloy, and Other OpportunitiesMagnet-Making Capabilities
Stage II is focused on advancingadvances our operations from the production of rare earth concentrate to the separation of individual REE. Engineering and procurement are largely complete, while construction and other recommissioning activities are underway. The project incorporatesincorporated upgrades and enhancements to the existingprior facility process flow to reliably produce separated REE at a lowerlow cost and with an expected smaller environmental footprint per unitthe intent of REO produced than previously achieved. As part of Stage II,minimizing our impact on the environment. More specifically, we are reintroducinghave reintroduced an oxidizing roasting circuit, reorientingreoriented portions of the plant process flow, increasingincreased product finishing capacity, improvingimproved wastewater management, and makingmade other improvements to materials handling and storage. Significant commissioning activities commenced in the fourth quarter of 2022 beginning with the concentrate drying and roasting circuits, and continued through the second quarter of 2023, expanding to most of the remaining circuits. Upon completionreaching run-rate production of REE in Stage II, we expect to be a global low-cost, high-volume producer of NdPr oxide, which represents a majority of the value contained in our concentrate.
Further,Partially supported by a $35.0 million award from the Department of Defense’s Office of Industrial Base Policy, Industrial Base Analysis and Sustainment program, we are pursuing vertical integration opportunitiescurrently advancing the facilitating works, engineering and procurement on a processing and separations facility for heavy rare earth elements (“HREE”) (the “HREE Facility”), which will be built at Mountain Pass and will be integrated into the rest of our Stage I and Stage II facilities. The HREE Facility is expected to support the separating of HREE contained in the Mountain Pass ore as well as from third-party feedstocks.
In addition, we are currently constructing the Fort Worth Facility, and developing engineering and manufacturing technology to process NdPr oxide into metal alloys and magnets, andwhile incorporating magnet recycling capability. Ourcapabilities. These initiatives support our long-term plans to expand our presence asbecome a leading global source for rare earth magnetics began with our recent announcement to build the Fort Worth Facility.magnets. We believe integration into magnet production
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will provide some protection from commodity pricing volatility, while also enhancing our business profile as the producer of a critical industrial output in addition to a producer of resources. We expect our Stage III efforts to continue to benefit from geopolitical developments, including initiatives to repatriate critical materials supply chains.
In February 2022, we were awarded a $35.0 million contract by the Department of Defense’s Office of Industrial Base Analysis and Sustainment Program to design and build a facility to process heavy rare earth elements (“HREE”). Successful completion of this project will establish the first processing and separation facility of its kind for HREEs in support of commercial and defense applications in the United States. The HREE processing and separations facility will be built at Mountain Pass and tie into our other Stage II facilities.
Our Mineral Reserves
Our ore body has proven over more than 60 years of operations to be one of the world’s largest and highest-grade rare earth resources. As of September 30, 2021,December 31, 2022, SRK Consulting (U.S.), Inc., an independent consulting firm that we retained to assess our reserves, estimatesestimated total proven and probable reserves of 2.11.96 million short tons of REO contained in 30.429.30 million short tons of ore at Mountain Pass, with an average ore grade of 6.36%6.32%. These estimates use an estimated economical cut-off of 2.49% total rare earth oxide. Based on these estimated reserves and our expected annual production rate of REO upon completioncompleting the commissioning of Stage II, as of September 30, 2021, our expected mine life was approximately 35 years. We34 years as of December 31, 2022. Over time, we expect to be able to continue to grow our expected mine life through additional exploratory drilling programs over time.and improved processing capabilities, which may result in changes to various assumptions underlying our mineral reserve estimate.
Mining activities in the United States are heavily regulated, particularly in California. Regulatory changes may make it more challenging for us to access our reserves. In addition, new mineral deposits may be discovered elsewhere, which could make our operations less competitive.
Recent Developments
Offtake Agreement with Shenghe
In March 2022, the Company entered into an offtake agreement with Shenghe (the “Offtake Agreement”), which became effective upon the termination of the A&R Offtake Agreement (as discussed and defined in Note 3, “Relationship and Agreements with Shenghe,” in the notes to the unaudited Condensed Consolidated Financial Statements). 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. See the “Liquidity and Capital Resources” section below for additional information on the termination of the A&R Offtake Agreement.
Pursuant to the Offtake Agreement, and subject to certain exclusions, Shenghe shall 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. Under the Offtake Agreement, Shenghe will be paid a variable commission on net proceeds to the Company.
The sales price of rare earth concentrate sold to Shenghe is based on an agreed-upon price per MT, 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.
Impact of the COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (known as “COVID-19”) began to impact the population of China. In March 2020, the outbreak of COVID-19 was declared a global pandemic after growing both in the United States and globally. The responses by governments, societies, and private sector entities to the COVID-19 pandemic, which include temporary closures of businesses, social distancing, travel restrictions, “shelter in place,” and other governmental regulations and various economic stimulus programs, have significantly impacted market volatility and general global economic conditions, including significant business and supply chain disruption as well as broad-based changes in supply and demand.
Since the onset of the COVID-19 pandemic in the first quarter of 2020, we have 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. Congestion and slowdowns have affected and may continue to affect the capacity at ports to receive deliveries of products or the loading of shipments onto vessels. Despite these factors, we have not experienced a
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reduction in production or sales due to the COVID-19 pandemic; however, the COVID-19 pandemic has contributed to certain cost and schedule pressures on the Stage II optimization project. The Company has worked proactively and diligently to adjust working schedules and hours to optimize logistics and shipping, which has thus far prevented a significant negative impact on our product sales and has mitigated certain impacts on Stage II construction and recommissioning progress. However, there can be no assurance that the ongoing COVID-19 pandemic will not have a negative impact on our production, sales, or growth projects in the future.
Furthermore, as the situation continues to evolve, including as a result of new and potential future variants of COVID-19, the possibility of federal or state mandates on vaccinations, or other factors that may affect international shipping and logistics or involve responses to government actions such as strikes or other disruptions, it is impossible to predict the effect and ultimate impact of the COVID-19 pandemic on the Company’s business and results of operations. The extent and duration of any business disruptions, and related financial impact, cannot be estimated at this time.
Results of Operations
Comparison of the Three and Six Months Ended June 30, 20222023 and 20212022
The following table summarizes our results of operations:
For the three months ended June 30,ChangeFor the six months ended June 30,ChangeFor the three months ended June 30,ChangeFor the six months ended June 30,Change
(in thousands, except percentages)(in thousands, except percentages)20222021$%20222021$%(in thousands, except percentages)20232022$%20232022$%
Revenue:Revenue:Revenue:
Product salesProduct sales$139,183 $72,522 $66,661 92 %$300,938 $132,261 $168,677 128 %Product sales$64,001 $139,183 $(75,182)(54)%$159,667 $300,938 $(141,271)(47)%
Other salesOther sales4,379 596 3,783 635 %8,882 828 8,054 973 %Other sales23 4,379 (4,356)(99)%57 8,882 (8,825)(99)%
Total revenueTotal revenue143,562 73,118 70,444 96 %309,820 133,089 176,731 133 %Total revenue64,024 143,562 (79,538)(55)%159,724 309,820 (150,096)(48)%
Operating costs and expenses:Operating costs and expenses:Operating costs and expenses:
Cost of sales(1)
Cost of sales(1)
22,092 17,955 4,137 23 %45,265 35,891 9,374 26 %
Cost of sales(1)
22,704 22,092 612 %46,920 45,265 1,655 %
Selling, general and administrativeSelling, general and administrative18,222 12,647 5,575 44 %38,787 26,105 12,682 49 %Selling, general and administrative18,865 18,120 745 %38,268 38,428 (160)— %
Advanced projects, development and other1,668 984 684 70 %3,486 1,109 2,377 214 %
Advanced projects, start-up, development and otherAdvanced projects, start-up, development and other7,222 1,769 5,453 308 %15,502 3,587 11,915 332 %
Depreciation, depletion and amortizationDepreciation, depletion and amortization5,407 6,666 (1,259)(19)%10,667 12,816 (2,149)(17)%Depreciation, depletion and amortization12,203 5,407 6,796 126 %20,325 10,667 9,658 91 %
Accretion of asset retirement and environmental obligationsAccretion of asset retirement and environmental obligations419 592 (173)(29)%837 1,185 (348)(29)%Accretion of asset retirement and environmental obligations227 419 (192)(46)%454 837 (383)(46)%
Write-down of inventories— 1,809 (1,809)(100)%— 1,809 (1,809)(100)%
Loss on sale or disposal of long-lived assets, netLoss on sale or disposal of long-lived assets, net2,320 2,319 n.m.4,810 258 4,552 n.m.
Total operating costs and expensesTotal operating costs and expenses47,808 40,653 7,155 18 %99,042 78,915 20,127 26 %Total operating costs and expenses63,541 47,808 15,733 33 %126,279 99,042 27,237 28 %
Operating incomeOperating income95,754 32,465 63,289 195 %210,778 54,174 156,604 289 %Operating income483 95,754 (95,271)(99)%33,445 210,778 (177,333)(84)%
Interest expense, netInterest expense, net(1,326)(2,639)1,313 (50)%(3,231)(3,793)562 (15)%Interest expense, net(1,392)(1,326)(66)%(2,751)(3,231)480 (15)%
Other income2,212 3,504 (1,292)(37)%2,406 3,559 (1,153)(32)%
Other income, netOther income, net13,821 2,212 11,609 525 %27,514 2,406 25,108 n.m.
Income before income taxesIncome before income taxes96,640 33,330 63,310 190 %209,953 53,940 156,013 289 %Income before income taxes12,912 96,640 (83,728)(87)%58,208 209,953 (151,745)(72)%
Income tax expenseIncome tax expense(23,371)(6,164)(17,207)279 %(51,133)(10,655)(40,478)380 %Income tax expense(5,517)(23,371)17,854 (76)%(13,366)(51,133)37,767 (74)%
Net incomeNet income$73,269 $27,166 $46,103 170 %$158,820 $43,285 $115,535 267 %Net income$7,395 $73,269 $(65,874)(90)%$44,842 $158,820 $(113,978)(72)%
Adjusted EBITDA$109,952 $46,447 $63,505 137 %$242,209 $79,447 $162,762 205 %
Adjusted Net Income$81,941 $33,440 $48,501 145 %$178,278 $56,646 $121,632 215 %
Adjusted EBITDA(2)
Adjusted EBITDA(2)
$26,951 $109,952 $(83,001)(75)%$85,651 $242,209 $(156,558)(65)%
Adjusted Net Income(2)
Adjusted Net Income(2)
$17,023 $79,609 $(62,586)(79)%$68,350 $173,652 $(105,302)(61)%
Free Cash Flow(2)
Free Cash Flow(2)
$(45,806)$31,239 $(77,045)n.m.$(64,777)$102,408 $(167,185)n.m.
n.m. - Not meaningful.
(1)Excludes depreciation, depletion and amortization.
(2)See the “Non-GAAP Financial Measures” section below.
Revenue consists primarily of product sales, which pertain to our sales of rare earth concentrate, including roasted concentrate, principally to Shenghe under the amended and restated offtake agreement (“A&R Offtake AgreementAgreement”) for sales between January 20212022 and February 2022, or the Offtake Agreement for sales beginning in March 2022. The sales price of rare earth concentrate sold to Shenghe under both agreements is based on an agreed-upon price per MT, 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.customers, including the impact of changes in the exchange rate between the Chinese Yuan and the U.S. dollar.
The increasedecrease in product sales for the three months ended June 30, 2022,2023, as compared to the prior year period, was driven by lower realized price per REO MT, which decreased by 55%, slightly offset by higher REO sales volume, which increased by 123 MTs, or 1%, to 10,000 MTs3%. Realized price per REO MT for the three months ended June 30, 2022, and2023, reflects a higher realized price per REO MT, which increased by 90%, reflecting higher demandsignificantly softer pricing environment for rare earth products.products, as compared to the prior year period. As noted above in the “Factors Affecting our Performance” section, market prices for rare earth products may be volatile due to actual or perceived changes in supply or demand. The higher REO sales volume for the three months ended June 30, 2023, as compared to the prior year period, was due to higher REO production volume, which increased 5% year over year primarily as a result of higher uptime, despite further processing a portion of the volume of REO produced from Stage I operations into the Stage II circuits as commissioning activities advance.
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volume of 10,300 MTs was relatively unchanged for the three months ended June 30, 2022, as compared to the prior year period, with higher ore feed rates offsetting lower ore feed grade.
The increasedecrease in product sales for the six months ended June 30, 2022,2023, as compared to the prior year period, was driven by higherlower realized price per REO MT, which decreased by 44%, and lower REO sales volume, which increaseddecreased by 2,036 MTs, or 10%, to 21,706 MTs6%. Realized price per REO MT for the six months ended June 30, 2022, and a higher realized price2023, reflects the significantly softer pricing environment for rare earth products, as compared to the prior year period when recent pricing peaked. The lower sales volume per REO MT which increased by 109%, reflecting higher demand for rare earth products. REO production volume increased by 974 MTs, or 5%, to 21,128 MTs for the six months ended June 30, 2022,2023, as compared to the prior year period, primarily reflecting higher ore feed rates.
REO sales volume varies period-to-period based onwas largely due to the timing of shipments butas well as further processing a portion of the volume of REO produced from Stage I operations into the Stage II circuits as commissioning activities advance.
Historically, given our take-or-pay offtake arrangement with Shenghe, our REO sales volumesvolume has generally tracktracked our REO production volumes over time given our take-or-pay arrangement with Shenghe.despite period-to-period differences caused by the timing of shipments. However, as we continue to accelerate commissioning activities for Stage II and production of separated rare earth materials, we expect that significant volumes of REO produced from Stage I operations will be retained for separation and not sold as concentrate. Accordingly, we expect that REO sales volume will be significantly lower than REO production volume in the second half of 2023. See also the “Quarterly Performance Trend” section below.
The increasedecrease in other sales for the three and six months ended June 30, 2022,2023, as compared to the prior year periods, was driven by $4.4 million and $8.5 million, respectively, of revenue related to a sales agreement with Shenghe entered into in March 2022 for certain stockpiles of rare earth fluoride (“REF”).fluoride.
Cost of sales (excluding depreciation, depletion and amortization) consists of production- and processing-related labor costs (including wages and salaries, benefits, and bonuses), mining and processing supplies (such as reagents), parts and labor for the maintenance of our mining fleet and processing facilities, other facilities-related costs (such as property taxes and utilities), packaging materials, and shipping and freight costs.
Cost of sales for the three and six months ended June 30, 2022,2023, increased year over year, partiallyprimarily due to higher REO sales volume. The increaseincreases in production cost per REO MT. Production cost per REO MT increased from $1,538 for the three months ended June 30, 2021, to $1,750 for the three months ended June 30, 2022, is due to $1,938 for the three months ended June 30, 2023, and from $1,666 for the six months ended June 30, 2022, to $1,958 for the six months ended June 30, 2023. The increases were principally driven by higher materials, supplies and payroll costs, including anthe increase in employee headcount to support the expansion of operations, as well as higher energyand to a lesser extent, materials and supplies costs, incurred following the restart of our CHP plant in January 2022. Additionally, shippingwhich increased slightly. Shipping and freight costs, increasedwhich are included in cost of sales but excluded from production cost per REO MT, decreased by $1.3$1.5 million and $2.5 million for the three and six months ended June 30, 2022,2023, respectively, as compared to the prior year period, due partially to higher volumes shipped. These increases in costs offset production efficiencies achieved during the three months ended June 30, 2022.
Cost of sales for the six months ended June 30, 2022, increased year over yearperiods, primarily due to higher REO sales volume. The increaseyear-over-year declines in production cost per REO MT from $1,507 for the six months ended June 30, 2021, to $1,666 for the six months ended June 30, 2022, is due to higher materials, suppliestrucking rates and payroll costs, including an increase in employee headcount to support the expansion of operations,diesel fuel prices as well as higher energy costs incurred following the restart of our CHP plant in January 2022. Additionally, shipping and freight costs increased by $2.5 million for the six months ended June 30, 2022, as compared to the prior year period, due partially to higher volumes shipped. These increases in costs offset production efficiencies achieved during the six months ended June 30, 2022.
Notwithstanding the increase in employee headcount discussed above and the impact of costs associated with recommissioning the CHP plant, we believe our productionlower transportation cost per REO MT has stabilized in the short-term, with operating efficiencies helping to offset the impact of inflationary pressure on materials, supplies, energy and labor. In addition, we continue to anticipate efficiency opportunities as we increase REO production volumes in our milling and flotation circuit over time.roasted concentrate. Production cost per REO MT may varyvaries period to period based on the timing of scheduled outages of our production facilities for maintenance as well as anticipated tie-ins of certain other Stage II-related facilities in the next year.maintenance. See also the “Quarterly Performance Trend” section below.
Selling, general and administrative expenses consist primarily of accounting, finance and administrative personnel costs, including stock-based compensation expense related to these personnel; professional services (including legal, regulatory, audit and others); certain engineering expenses; insurance, license and permit costs; facilities rent and other costs; office supplies; general facilities expenses; and certain environmental, health, and safety expenses; and gain or loss on sale or disposal of long-lived assets.expenses.
Selling, general and administrative expenses for the three months ended June 30, 2023, increased by $0.7 million, or 4%, and decreased by $0.2 million, or less than 1%, for the six months ended June 30, 2023, as compared to the respective prior year periods. Stock-based compensation expense included in selling, general and administrative expenses for the three and six months ended June 30, 2022, reflect an increase in2023, decreased by $2.2 million and $5.4 million, respectively, when compared to the respective prior year periods, due primarily to the timing of grants and the recognition of stock-based compensation expenseon an accelerated basis for virtually all of $3.0 million and $7.6 million respectively, primarily from a grant of restrictedour stock units made to our chief executive officer during the fourth quarter of 2021. Excluding stock-based compensation expense, selling, general and administrative expense for the three and six months ended June 30, 2022, increasedawards. These decreases were offset by $2.6 million, or 29% and $5.1 million, or 28% respectively, primarily due toyear-over-year increases in personnel costs (other than stock-based compensation expense), which increased $2.4 million and $4.0 million, respectively, and other general and administrative costs.costs required to further build out our corporate infrastructure in support of our downstream expansion.
Advanced projects, start-up, development and other consists principally of start-up costs associated with restarting an existing facility or commissioning a new facility, circuit or process of our production, manufacturing, or separations facilities prior to achievement of commercial production; costs incurred in connection with research and development of new processes or to significantly enhance our existing processes,processes; as well as costs incurred to support growth initiatives or pursue other opportunities.
Advanced projects, start-up, development and other for the three and six months ended June 30, 2023, increased year over year primarily due to an increase of $3.3 million and $6.4 million, respectively, in start-up costs, which primarily relate to certain government contracts,costs that do not qualify for capitalization, such as salaries and start-upwages, outside services, parts, and training, used or consumed directly in the commissioning and starting up of our Stage II circuits and facilities that are not yet in commercial
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costs, as well asproduction. The remaining increase primarily relates to costs incurred to support growth and development initiatives or pursue other opportunities. Advanced projects, development and other for the three and six months ended June 30, 2022, increased year over year primarily due to certain start-up costs that do not qualify for capitalization associated with our Stage II optimization project and our Stage III initiatives. In addition, the year-over-year increase for the six months ended June 30, 2022, includes one-time start-up costs associated with restart of our CHP plant.
Depreciation, depletion and amortization primarily consists of depreciation of property, plant and equipment and depletion of mineral rights. The year-over-year decreaseincrease in depreciation, depletion and amortization for the three and six months ended June 30, 2022,2023, primarily reflects a decreasean increase in depletiondepreciation of $6.9 million and $10.1 million, respectively, resulting from a revision to extendthe continued placement of new circuits and facilities associated with our estimate of the remaining useful life of the mineral rightsStage II optimization project into service, which began at the beginningend of the fourth quarter of 2021.2022.
Write-downAccretion of inventoriesasset retirement and environmental obligations is based on the estimated future cash flows required to reclaim certain land areas associated with mineral extraction activities and certain related facilities at Mountain Pass and to monitor groundwater contamination, respectively. Accretion of asset retirement and environmental obligations for the three and six months ended June 30, 2021, pertains to2023, decreased year over year primarily as a non-cash write-downresult of a portiondecrement to our asset retirement obligation during the third quarter of 2022, which reduced the accretion of our legacy low-grade stockpile inventory duringasset retirement obligation in subsequent periods.
Loss on sale or disposal of long-lived assets, net consists of gains or losses on the second quartersale or disposal of 2021. See Note 5, “Inventories,”property, plant and equipment, as well as demolition costs. The year-over-year increase in loss on sale or disposal of long-lived assets, net, for the notesthree and six months ended June 30, 2023, principally relates to demolition costs incurred in connection with demolishing and removing certain out-of-use older facilities and infrastructure from the unaudited Condensed Consolidated Financial Statements for more information.Mountain Pass site to accommodate future expansion in rare earth processing.
Interest expense, net principallyconsists of expense associated with the 0.25% per annum interest rate and amortization of the debt issuance costs on our Convertible Notes (as defined in the “Liquidity and Capital Resources” section below); the and amortization of the discount on oura previous debt obligation to Shenghe; and the expense associated with the 0.25% per annum interest rate on our Convertible Notes,Shenghe, offset by interest capitalized.capitalized interest. Interest expense, net for the three and six months ended June 30, 2022,2023, decreased year over year due to the full repayment of the Offtake Advancesdebt obligation to Shenghe in the first quarter of 2022, offset by the timing of the issuance of the Convertible Notes in March 2021.2022.
Other income, net consists of interest and investment income and non-operating gains or losses. Other income, decreased year over yearnet for the three and six months ended June 30, 2022, as a result of a non-cash gain recognized during the second quarter of 2021 as a result of the Small Business Administration’s approval to forgive the Paycheck Protection Loan, which had a principal amount of $3.4 million. Interest and investment income for the three and six months ended June 30, 2022,2023, increased year over year as a result of interest and investment income earned on our short-term investments, which were purchased starting in the second quarter of 2022. Interest and investment income is principally generated from accretion of the discount on such investments.
Income tax expense consists of an estimate of U.S. federal and state income taxes in the jurisdictions in which we conduct business, adjusted for federal, state and local allowable income tax benefits, the effect of permanent differences and any valuation allowance against deferred tax assets. The effective tax rate (income taxestax expense as a percentage of income or loss before income taxes) was 42.7% and 23.0% for the three and six months ended June 30, 2023, respectively, as compared to 24.2% and 24.4% for the three and six months ended June 30, 2022, respectively, as compared to 18.5% and 19.8%respectively. The effective tax rate for the three and six months ended June 30, 2021. The effective tax rates2023, differed from the statutory tax rate of 21% primarily due to state income tax expense and a deduction limitation on officer’sofficers’ compensation, offset by the Section 45X Advanced Manufacturing Production Credit and the California Competes Tax Credit (“CCTC”). The effective tax rate for the three and six months ended June 30, 2022, differed from the statutory tax rate of 21% primarily due to state income tax expense and a deduction limitation on officers’ compensation, partially offset by the California competesCCTC.
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. We do not expect the minimum tax or excise tax to have a material impact on our unaudited Condensed Consolidated Financial Statements. We expect to benefit from the Section 45X Advanced Manufacturing Production Credit, which provides a credit awardedequal to us in10% of the fourth quartercosts incurred with respect to the production of 2021.certain critical minerals, including NdPr oxide.
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Quarterly Performance Trend
While our business is not highly seasonal in nature, we sometimes experience a timing lag between production and sales, which may result in volatility in our results of operations between periods. In addition, quarterly production is impacted by the timing of scheduled outages of our production facilities for maintenance, which typically occur in the second and fourth quarter.quarters. As noted above, as we evolve as a business and transition from a producer of rare earth concentrate to a producer of separated rare earth products, the metrics that management anticipates using to evaluate the business may change or be revised.
The following table presents our key performance indicators for the quarterly periods indicated:
FY2022FY2021FY2020FY2023FY2022FY2021
(in whole units or dollars)(in whole units or dollars)Q2Q1Q4Q3Q2Q1Q4Q3Q2(in whole units or dollars)Q2Q1Q4Q3Q2Q1Q4Q3Q2
REO production volume (MTs)REO production volume (MTs)10,300 10,828 10,261 11,998 10,305 9,849 9,337 10,197 9,287 REO production volume (MTs)10,863 10,671 10,485 10,886 10,300 10,828 10,261 11,998 10,305 
REO sales volume (MTs)REO sales volume (MTs)10,000 11,706 9,674 12,814 9,877 9,793 10,320 9,429 10,297 REO sales volume (MTs)10,271 10,215 10,816 10,676 10,000 11,706 9,674 12,814 9,877 
Realized price per REO MTRealized price per REO MT$13,918 $13,818 $10,101 $7,693 $7,343 $5,891 $4,070 $3,393 $3,093 Realized price per REO MT$6,231 $9,365 $8,515 $11,636 $13,918 $13,818 $10,101 $7,693 $7,343 
Production cost per REO MTProduction cost per REO MT$1,750 $1,594 $1,525 $1,449 $1,538 $1,475 $1,589 $1,389 $1,412 Production cost per REO MT$1,938 $1,978 $1,928 $1,653 $1,750 $1,594 $1,525 $1,449 $1,538 
Liquidity and Capital Resources
Liquidity refers to our ability to generate sufficient cash flows to meet the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations, debt service and other commitments. In recent years, our principal sources of liquidity have been financing through the consummation of the business combination with Fortress Value Acquisition Corp. in November 2020, the issuance of the Convertible Notes in March 2021, and net cash from operating activities. As of June 30, 2022,2023, we had $1,264.1$1,128.1 million of cash, cash equivalents and short-term investments and $690.0 million principal amount of long-term debt.
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Our results of operations and cash flows depend in large part upon the market prices of REO and particularly the price of rare earth concentrate. Rare earth concentrate is not quoted on any major commodities market or exchange and demand is currently constrained to a relatively limited number of refiners, a significant majority of which are based in China. Although we believe that our cash flows from operations and cash on hand are adequate to meet our liquidity requirements for the foreseeable future, uncertainty exists as to the market price of REO, as evidenced by the volatility experienced in 2022, especially in light of the ongoing COVID-19 pandemic, including the emergence of new and potential future variants. Volatility in the market price of REO 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.
Our current working capital needs relate mainly to our mining and beneficiation operations. However, as we transition to selling separated REO and other rare earth products, and advance our Stage III magnetics initiatives, we anticipate our working capital needs will increase significantly. Our principal capital expenditure requirements relate mainly to completing the commissioning of our Stage II optimization project, constructing the HREE Facility, and developing the Fort Worth Facility, as well as periodic replacement of mining or processing equipment, as well as our Stage II optimization project and related HREE project and the development of the Fort Worth Facility.equipment. Our future capital requirements will also depend on several other factors, including future acquisitions and potential additional investments in further downstream production.
The completion of our mission to become a fully integrated domestic magnetics producer is expected to be capital intensive. In accelerating the strategic opportunity for the separation of HREE, enhancements were made to the design andinitial scope of the initial Stage II project. Including these enhancements and other factors impacting the remaining cost of completion and including certain early design and procurement costs associated with the initial costs of a HREE separation facilityFacility, and the development and construction costs of the Fort Worth Facility, as well as other growth and infrastructure investments at Mountain Pass, we expect to incur up tospend approximately $500$300 million of capital costs in 2022.2023. We expect to incur further costs in 2023 and 2024 to complete the HREE separation facilityFacility and the Fort Worth Facility.Facility in 2024, in addition to investing in other growth and maintenance projects.
Our estimated costs or estimated time to complete and commission these projects may increase, potentially significantly, due to factors outside of our control. While we believe that we have sufficient cash resources to fund these initiatives and operating working capital in the near term, we cannot assure this. If our available resources prove inadequate to fund our plans or commitments, we may be forced to revise our strategy and business plans or could be required, or elect, to seek additional funding through public or private equity or debt financings; however, such funding may not be available on terms acceptable to us, if at all. Any delays in our ongoing capital projects or substantial cost increases, including construction costs and related materials costs related to their execution, could significantly impact our ability to maximize our revenue opportunities and adversely impact our business and cash flows.
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Debt and Other Long-Term Obligations
Convertible Notes: In March 2021, we 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 are convertible into shares of the Company’sour 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 notes.
We aim to allocate an amount equal to the net proceeds from the Convertible Notes offering to existing or future investments in, or the financing or refinancing of, eligible “green projects.” Eligible green projects are intended to reduce the Company’sour environmental impact and/or enable the production of low-carbon technologies. Pending such allocation of the net proceeds to eligible green projects, we intend tomay use the net proceeds from the Convertible Notes offering for general corporate purposes.
Offtake Advances: In March 2022, the Company made a $2.9 million payment to Shenghe pursuant to an obligation under the A&R Offtake Agreement to pay Shenghe, on an annual basis, an amount equal to our annual net income, less any amounts recouped through the Gross Profit Recoupment mechanism over the course of the year, until the Prepaid Balance was reduced to zero (terms as discussed and defined in Note 3, “Relationship and Agreements with Shenghe,” in the notes to the unaudited Condensed Consolidated Financial Statements).
Upon payment by the Company, the Prepaid Balance was repaid in full, and the A&R Offtake Agreement was terminated. Prior to full repayment, the debt to Shenghe was satisfied primarily through product sales, where partial non-cash consideration was received by the Company in the form of debt reduction (generally equal to approximately 15% of the ultimate market value of the REO, excluding tariffs, duties and certain other charges).
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Equipment Notes: We have previously entered into several financing agreements for the purchase of equipment, including trucks, tractors, loaders, graders, and various other machinery, most recently in February 2021.machinery. As of June 30, 2022,2023, we had $8.4$5.9 million in principal (and accrued interest) outstanding under the equipment notes.
Leases: We have lease arrangements for certain equipment and facilities, including office space, vehicles and equipment used in our operations. As of June 30, 2023, we had future expected lease payment obligations totaling $10.0 million, with $0.5 million due within the next 12 months. See Note 7, “Leases,” in the notes to the unaudited Condensed Consolidated Financial Statements for further information.
Asset Retirement and Environmental Obligations: See Note 8, “Asset Retirement and Environmental Obligations,” in the notes to the unaudited Condensed Consolidated Financial Statements for our estimated cash requirements to settle asset retirement and environmental obligations.
Cash Flows
The following table summarizes our cash flows:
For the six months ended June 30,ChangeFor the six months ended June 30,Change
(in thousands, except percentages)(in thousands, except percentages)20222021$%(in thousands, except percentages)20232022$%
Net cash provided by (used in):Net cash provided by (used in):Net cash provided by (used in):
Operating activitiesOperating activities$219,862 $47,969 $171,893 358 %Operating activities$65,459 $219,862 $(154,403)(70)%
Investing activitiesInvesting activities$(716,649)$(44,566)$(672,083)1508 %Investing activities$728,114 $(716,649)$1,444,763 n.m.
Financing activitiesFinancing activities$(18,784)$670,490 $(689,274)n.m.Financing activities$(7,599)$(18,784)$11,185 (60)%
n.m. - Not meaningful.
Net Cash Provided by Operating Activities: Net cash provided by operating activities increaseddecreased by $171.9$154.4 million for the six months ended June 30, 2022,2023, as compared to the prior year period, reflecting the increasea decrease in product sales, an increase in inventories as we prepare for the operation of our Stage II separations facilities, and a net$6.5 million increase duein cash paid for income taxes, as compared to the timing of receipt or payment of working capital items, such as accounts receivable,prior year period. The decrease in net cash provided by operating activities was partially offset by increasesan $11.7 million increase in interest received on our cost of sales; selling, generalshort-term investments and administrative expenses; and paymentsmoney market funds for income taxes of $16.6 million.the six months ended June 30, 2023, as compared to the prior year period. In addition, $13.6 million of our product sales was excluded from cash provided by operating activities for the six months ended June 30, 2022, since that portion of the sales price was retained by Shenghe to reduce the debt obligation, compared to $22.9 millionwith no similar amount in the priorcurrent year period.
Net Cash Used inProvided by (Used in) Investing Activities: Net cash used inprovided by investing activities increased by $672.1was $728.1 million for the six months ended June 30, 2022,2023, compared to net cash used in investing activities of $716.6 million in the prior year period. The change related primarily to gross sales and maturities of short-term investments of $1,179.2 million and purchases of short-term investments of $320.9 million in the current year period, attributablecompared to purchases of short-term investments of $599.2 million in the second quarter of 2022 and an increase in additionsprior year period. Additions to property, plant and equipment relating primarily to our Stage II optimization project and our Fort Worth Facility, partially offset by $5.1 million of proceeds from government awards used for construction, specifically our Stage II optimization project.
Net Cash Provided by (Used in) Financing Activities: Net cash used in financing activities was $18.8 million for the six months ended June 30, 2022,2023, increased by $7.7 million when compared to net cash provided by financing activities of $670.5 million in the prior year period. The current year period consisted primarily of tax withholding on stock-based awards and principal payments on debt obligations and finance leases while the prior year period, consistedrelating primarily ofto continued construction spend on our Stage II optimization project and the net proceeds received from the issuance of the Convertible Notes in March 2021 of $672.3 million.

Fort Worth Facility.
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Net Cash Used in Financing Activities: Net cash used in financing activities decreased by $11.2 million for the six months ended June 30, 2023, as compared to the prior year period, reflecting lower tax withholding on stock-based awards and lower principal payments on debt obligations and finance leases, principally due to a $2.9 million payment to Shenghe in the prior year period to fully satisfy the debt obligation.
Non-GAAP Financial Measures
We present Total Value Realized, Production Costs, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Production Costs, and Free Cash Flow, which are non-GAAP financial measures that we use to supplement our results presented in accordance with GAAP. These measures may be similar to measures reported by other companies in our industry and are regularly used by securities analysts and investors to measure companies’ financial performance. Total Value Realized, Production Costs, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Production Costs, and Free Cash Flow are not intended to be a substitute for any GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance or liquidity of other companies within our industry or in other industries.
Total Value Realized
As noted above, we no longer utilize Total Value Realized since we do not expect to receive any additional tariff rebates, which we use to calculate our key performance indicator, realized price per REO MT, is a non-GAAP financial measure. As mentioned above, realized price per REO MT is an important measure of the market price of our product. The following table presents a reconciliation of our Total Value Realized, topreviously adjusted from our product sales which isas determined in accordance with GAAP, as well as the calculation of realized price per REO MT:
For the three months ended June 30,For the six months ended June 30,
(in thousands, unless otherwise stated)2022202120222021
Product sales$139,183 $72,522 $300,938 $132,261 
Adjusted for:
Tariff rebate(1)
— — — (2,050)
Total Value Realized139,183 72,522 300,938 130,211 
Divided by:
REO sales volume (in MTs)10,000 9,877 21,706 19,670 
Realized price per REO MT (in dollars)(2)
$13,918 $7,343 $13,864 $6,620 
(1)Represents non-cash revenue recognized in connection with a tariff rebate received relating to product sales from prior periods.
(2)May not recompute as presented due to rounding.
Production Costs
Production Costs, which we use to calculate our key performance indicator, production cost per REO MT, is a non-GAAP financial measure. As mentioned above, production cost per REO MT is a key indicator of our production efficiency. The following table presents a reconciliation of our Production Costs to our cost of sales (excluding depreciation, depletion and amortization), which is determined in accordance with GAAP, as well as the calculation of production cost per REO MT:
For the three months ended June 30,For the six months ended June 30,
(in thousands, unless otherwise stated)2022202120222021
Cost of sales (excluding depreciation, depletion and amortization)$22,092 $17,955 $45,265 $35,891 
Adjusted for:
Stock-based compensation expense(1)
(506)(578)(1,221)(1,896)
Shipping and freight(2)
(3,508)(2,183)(6,752)(4,281)
Other(3)
(580)(6)(1,136)(79)
Production Costs17,498 15,188 36,156 29,635 
Divided by:
REO sales volume (in MTs)10,000 9,877 21,706 19,670 
Production cost per REO MT (in dollars)(4)
$1,750 $1,538 $1,666 $1,507 
(1)Pertains only to the amount of stock-based compensation expense included in cost of sales.
(2)Includes $0.7 million and $1.3 million for the three and six months ended June 30, 2022, respectively, of shipping and freight costs associated with sales of REF stockpiles.
(3)Pertains primarily to costs (excluding shipping and freight) attributable to sales of REF stockpiles.
(4)May not recompute as presented due to rounding.
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GAAP.
Adjusted EBITDA
We calculate Adjusted EBITDA as our GAAP net income before interest expense, net; income tax expense or benefit; and depreciation, depletion and amortization; further adjusted to eliminate the impact of stock-based compensation expense; start-up costs; transaction-related start-up and other non-recurring costs; accretion of asset retirement and environmental obligations; gain or loss on sale or disposal of long-lived assets; write-downs of inventories; tariff rebates; and other income or loss. We present Adjusted EBITDA because it is used by management to evaluate our underlying operating and financial performance and trends. Adjusted EBITDA excludes certain expenses that are required in accordance with GAAP because they are non-recurring, non-cash or are not related to our underlying business performance. This non-GAAP financial measure is intended to supplement our GAAP results and should not be used as a substitute for financial measures presented in accordance with GAAP.
The following table presents a reconciliation of our Adjusted EBITDA, which is a non-GAAP financial measure, to our net income, which is determined in accordance with GAAP:
For the three months ended June 30,For the six months ended June 30,For the three months ended June 30,For the six months ended June 30,
(in thousands)(in thousands)2022202120222021(in thousands)2023202220232022
Net incomeNet income$73,269 $27,166 $158,820 $43,285 Net income$7,395 $73,269 $44,842 $158,820 
Adjusted for:Adjusted for:Adjusted for:
Depreciation, depletion and amortizationDepreciation, depletion and amortization5,407 6,666 10,667 12,816 Depreciation, depletion and amortization12,203 5,407 20,325 10,667 
Interest expense, netInterest expense, net1,326 2,639 3,231 3,793 Interest expense, net1,392 1,326 2,751 3,231 
Income tax expenseIncome tax expense23,371 6,164 51,133 10,655 Income tax expense5,517 23,371 13,366 51,133 
Stock-based compensation expense(1)
Stock-based compensation expense(1)
7,440 4,498 17,213 10,171 
Stock-based compensation expense(1)
5,730 7,440 12,743 17,213 
Transaction-related, start-up and other non-recurring costs(2)
931 247 2,456 1,305 
Start-up costs(2)
Start-up costs(2)
3,828 812 8,392 2,320 
Transaction-related and other non-recurring costs(3)
Transaction-related and other non-recurring costs(3)
2,160 119 5,482 136 
Accretion of asset retirement and environmental obligationsAccretion of asset retirement and environmental obligations419 592 837 1,185 Accretion of asset retirement and environmental obligations227 419 454 837 
Loss on sale or disposal of long-lived assets, net(3)
170 258 37 
Write-down of inventories(4)
— 1,809 — 1,809 
Tariff rebate(5)
— — — (2,050)
Other income(6)
(2,212)(3,504)(2,406)(3,559)
Loss on sale or disposal of long-lived assets, netLoss on sale or disposal of long-lived assets, net2,320 4,810 258 
Other income, netOther income, net(13,821)(2,212)(27,514)(2,406)
Adjusted EBITDAAdjusted EBITDA$109,952 $46,447 $242,209 $79,447 Adjusted EBITDA$26,951 $109,952 $85,651 $242,209 
(1)Principally included in “Selling, general and administrative” within our unaudited Condensed Consolidated Statements of Operations.
(2)Amounts for the three and six months ended June 30, 2022, are principally comprised of start-up costs that do not qualify for capitalization, which relateRelates to the restart of our CHP plant as well as certain costs associated with our Stage II optimization project and Stage III initiatives. Start-up costs are included in “Advanced projects, start-up, development and other” within our unaudited Condensed Consolidated Statements of Operations. AmountsOperations that do not qualify for capitalization incurred in connection with the initial commissioning and starting up of our separations capability at Mountain Pass and our metal alloy and magnet-making capabilities at Fort Worth prior to the achievement of commercial production. These costs include payroll of employees directly involved in such commissioning activities, training costs, costs of testing and commissioning the new circuits and processes, and other related costs. Given the nature and scale of the related costs and activities, management does not view these as normal, recurring operating expenses, but rather as non-recurring investments to develop such capabilities. Therefore, we believe it is useful and necessary for investors to understand our core operating performance in current and future periods by excluding the impact of these start-up costs.
(3)The majority of the amounts for the three and six months ended June 30, 2021, relate to advisory, consulting, accounting and legal expenses pertaining to non-recurring transactions, and2023, are primarily included in “Selling, general“Advanced projects, start-up, development and administrative”other” within our unaudited Condensed Consolidated Statements of Operations.Operations, and pertain to legal, professional services, and other costs associated with non-recurring transactions.
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(3)Included in “Selling, general and administrative” within our unaudited Condensed Consolidated StatementsTable of Operations.Contents
(4)Represents a non-cash write-down of a portion of our legacy low-grade stockpile inventory during the second quarter of 2021.
(5)Represents non-cash revenue recognized in connection with a tariff rebate received relating to product sales from prior periods.
(6)Amounts for the three and six months ended June 30, 2022, are principally comprised of interest and investment income. Amounts for the three and six months ended June 30, 2021, principally represent a non-cash gain recognized as a result of the Small Business Administration’s approval to forgive the Paycheck Protection Loan.
Adjusted Net Income and Adjusted Diluted EPS
We calculate Adjusted Net Income as our GAAP net income excluding the impact of depletion; stock-based compensation expense; start-up costs; transaction-related start-up and other non-recurring costs; gain or loss on sale or disposal of long-lived assets; write-downs of inventories; tariff rebates; and other items that we do not consider representative of our underlying operations; adjusted to give effect to the income tax impact of such adjustments. We calculate Adjusted Diluted EPS as our GAAP diluted earnings per share (“EPS”) excluding the per share impact, using GAAPadjusted diluted weighted-average shares outstanding, as the denominator, of depletion; stock-based compensation expense; start-up costs; transaction-related start-up and other non-recurring costs; gain or loss on sale or disposal of long-lived assets; write-downs of inventories; tariff rebates; and other items that we do not consider representative of our underlying operations; adjusted to give effect to the income tax impact of such adjustments.
Adjusted Net Income and Adjusted Diluted EPS exclude certain expenses that are required in accordance with GAAP because they are non-recurring, non-cash, or not related to our underlying business performance. To calculate the income tax impact of such adjustments on a year-to-date basis, we utilize an effective tax rate equal to our income tax expense excluding material discrete costs and benefits, with any impacts of changes in effective tax rate being
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recognized in the current period. We present Adjusted Net Income and Adjusted Diluted EPS because it is used by management to evaluate our underlying operating and financial performance and trends.
Adjusted Net Income and Adjusted Diluted EPS exclude certain expenses that are required in accordance with GAAP because they are non-recurring, non-cash, or not related to our underlying business performance. As a result of the acquisition of Secure Natural Resources LLC, the mineral rights for the rare earth ores contained in our mine were recorded at fair value, resulting in a significant step-up of the carrying amount of the asset which caused depletion to be meaningfully higher than prior periods. While the depletion expense related to the stepped-up mineral rights asset is excluded from Adjusted Net Income and Adjusted Diluted EPS, the revenue related to such mineral rights is reflected in Adjusted Net Income and Adjusted Diluted EPS as this asset contributes to our revenue generation. These non-GAAP financial measures are intended to supplement our GAAP results and should not be used as a substitute for financial measures presented in accordance with GAAP.
The following table presents a reconciliation of our Adjusted Net Income, which is a non-GAAP financial measure, to our net income, which is determined in accordance with GAAP:
For the three months ended June 30,For the six months ended June 30,
(in thousands)2022202120222021
Net income$73,269 $27,166 $158,820 $43,285 
Adjusted for:
Depletion(1)
3,075 4,686 6,144 9,217 
Stock-based compensation expense(2)
7,440 4,498 17,213 10,171 
Transaction-related, start-up and other non-recurring costs(3)
931 247 2,456 1,305 
Loss on sale or disposal of long-lived assets, net(4)
170 258 37 
Write-down of inventories(5)
— 1,809 — 1,809 
Tariff rebate(6)
— — — (2,050)
Other(7)
(30)(3,504)(224)(3,559)
Tax impact of adjustments above(8)
(2,745)(1,632)(6,389)(3,569)
Adjusted Net Income$81,941 $33,440 $178,278 $56,646 
For the three months ended June 30,For the six months ended June 30,
(in thousands)2023202220232022
Net income$7,395 $73,269 $44,842 $158,820 
Adjusted for:
Stock-based compensation expense(1)
5,730 7,440 12,743 17,213 
Start-up costs(2)
3,828 812 8,392 2,320 
Transaction-related and other non-recurring costs(3)
2,160 119 5,482 136 
Loss on sale or disposal of long-lived assets, net2,320 4,810 258 
Other(21)(30)(41)(224)
Tax impact of adjustments above(4)
(4,389)(2,002)(7,878)(4,871)
Adjusted Net Income(5)
$17,023 $79,609 $68,350 $173,652 
(1)Represents the depletion associated with the mineral rights for the rare earth ores contained in the Company’s mine.
(2)Principally included in “Selling, general and administrative” within our unaudited Condensed Consolidated Statements of Operations.
(3)(2)Amounts for the three and six months ended June 30, 2022, are principally comprised of start-up costs that do not qualify for capitalization, which relateRelates to the restart of our CHP plant as well as certain costs associated with our Stage II optimization project and Stage III initiatives. Start-up costs are included in “Advanced projects, start-up, development and other” within our unaudited Condensed Consolidated Statements of Operations. AmountsOperation that do not qualify for capitalization incurred in connection with the initial commissioning and starting up of our separations capability at Mountain Pass and our metal alloy and magnet-making capabilities at Fort Worth prior to the achievement of commercial production. These costs include payroll of employees directly involved in such commissioning activities, training costs, costs of testing and commissioning the new circuits and processes, and other related costs. Given the nature and scale of the related costs and activities, management does not view these as normal, recurring operating expenses, but rather as non-recurring investments to develop such capabilities. Therefore, we believe it is useful and necessary for investors to understand our core operating performance in current and future periods by excluding the impact of these start-up costs.
(3)The majority of the amounts for the three and six months ended June 30, 2021, relate to advisory, consulting, accounting and legal expenses pertaining to non-recurring transactions, and2023, are primarily included in “Selling, general“Advanced projects, start-up, development and administrative”other” within our unaudited Condensed Consolidated Statements of Operations.Operations, and pertain to legal, professional services, and other costs associated with non-recurring transactions.
(4)Included in “Selling, general and administrative” within our unaudited Condensed Consolidated Statements of Operations.
(5)Represents a non-cash write-down of a portion of our legacy low-grade stockpile inventory during the second quarter of 2021.
(6)Represents non-cash revenue recognized in connection with a tariff rebate received relating to product sales from prior periods.
(7)Amounts for the three and six months ended June 30, 2021, principally represent a non-cash gain recognized as a result of the Small Business Administration’s approval to forgive the Paycheck Protection Loan, which is included in “Other income” within our unaudited Condensed Consolidated Statements of Operations.
(8)Tax impact of adjustments is calculated using an adjusted effective tax rate, excludingwhich excludes the impact of discrete tax costs and benefits, to each adjustment. The adjusted effective tax rates were 24.0%31.3%, 24.7%25.1%, 20.6%24.0% and 21.1%,24.7% for the three and six months ended June 30, 20222023 and 2021,2022, respectively.
(5)Effective September 30, 2022, we no longer exclude depletion expense when calculating and presenting Adjusted Net Income. For purposes of comparability, we have revised the prior year for this change.
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The following table presents a reconciliation of our Adjusted Diluted EPS, which is a non-GAAP financial measure, to our diluted EPS, which is determined in accordance with GAAP:
For the three months ended June 30,For the six months ended June 30,
2022202120222021
Diluted EPS$0.38 $0.15 $0.83 $0.24 
Adjusted for:
Depletion(1)
0.02 0.03 0.03 0.05 
Stock-based compensation expense0.04 0.02 0.09 0.05 
Transaction-related, start-up and other non-recurring costs(2)
0.00 0.00 0.01 0.01 
Loss on sale or disposal of long-lived assets, net0.00 0.00 0.00 0.00 
Write-down of inventories(3)
0.00 0.01 0.00 0.01 
Tariff rebate(4)
0.00 0.00 0.00 (0.01)
Other(5)
0.00 (0.02)0.00 (0.02)
Tax impact of adjustments above(6)
(0.01)(0.01)(0.03)(0.02)
Adjusted Diluted EPS$0.43 $0.18 $0.93 $0.31 
Diluted weighted-average shares outstanding193,414,563 193,145,644 193,452,921 186,282,857 
For the three months ended June 30,For the six months ended June 30,
2023202220232022
Diluted EPS$0.04 $0.38 $0.24 $0.83 
Adjusted for:
Stock-based compensation expense0.03 0.04 0.07 0.09 
Start-up costs0.02 — 0.04 0.01 
Transaction-related and other non-recurring costs0.01 — 0.03 — 
Loss on sale or disposal of long-lived assets, net0.01 — 0.02 — 
Tax impact of adjustments above(1)
(0.02)(0.01)(0.04)(0.02)
Adjusted Diluted EPS(2)
$0.09 $0.41 $0.36 $0.91 
Diluted weighted-average shares outstanding177,859,118 193,414,563 193,528,819 193,452,921 
Assumed conversion of Convertible Notes(3)
15,584,409 — — — 
Adjusted diluted weighted-average shares outstanding193,443,527 193,414,563 193,528,819 193,452,921 
(1)Represents the depletion associated with the mineral rights for the rare earth ores contained in the Company’s mine.
(2)Amounts for the three and six months ended June 30, 2022, are principally comprised of start-up costs that do not qualify for capitalization, which relate to the restart of our CHP plant as well as certain costs associated with our Stage II optimization project and Stage III initiatives. Amounts for the three and six months ended June 30, 2021, relate to advisory, consulting, accounting and legal expenses pertaining to non-recurring transactions.
(3)Represents a non-cash write-down of a portion of our legacy low-grade stockpile inventory during the second quarter of 2021.
(4)Represents non-cash revenue recognized in connection with a tariff rebate received relating to product sales from prior periods.
(5)Amount for the three and six months ended June 30, 2021, principally represents a non-cash gain recognized as a result of the Small Business Administration’s approval to forgive the Paycheck Protection Loan.
(6)Tax impact of adjustments is calculated using an adjusted effective tax rate, excludingwhich excludes the impact of discrete tax costs and benefits, to each adjustment. The adjusted effective tax rates were 24.0%31.3%, 24.7%25.1%, 20.6%24.0% and 21.1%,24.7% for the three and six months ended June 30, 2023 and 2022, respectively.
(2)Effective September 30, 2022, we no longer exclude depletion expense when calculating and 2021, respectively.presenting Adjusted Diluted EPS. For purposes of comparability, we have revised the prior year for this change.
(3)The Convertible Notes were antidilutive for GAAP purposes for the three months ended June 30, 2023. For purposes of calculating Adjusted Diluted EPS, we have added back the assumed conversion of the Convertible Notes since they would not be antidilutive when using Adjusted Net Income as the numerator in the calculation of Adjusted Diluted EPS.
Production Costs
Production Costs, which we use to calculate our key performance indicator, production cost per REO MT, is a non-GAAP financial measure. Production cost per REO MT is a key indicator of our concentrate production efficiency. As mentioned above, in completing the transition to separated rare earth products, we may determine that production cost per REO MT, which is a metric focused solely on Stage I concentrate operations, and consequently, Production Costs, are no longer meaningful in evaluating and understanding our business or operating results.
The following table presents a reconciliation of our Production Costs to our cost of sales (excluding depreciation, depletion and amortization), which is determined in accordance with GAAP, as well as the calculation of production cost per REO MT:
For the three months ended June 30,For the six months ended June 30,
(in thousands, unless otherwise stated)2023202220232022
Cost of sales (excluding depreciation, depletion and amortization)$22,704 $22,092 $46,920 $45,265 
Adjusted for:
Stock-based compensation expense(1)
(795)(506)(1,917)(1,221)
Shipping and freight(1,995)(3,508)(4,283)(6,752)
Other(11)(580)(614)(1,136)
Production Costs19,903 17,498 40,106 36,156 
Divided by:
REO sales volume (in MTs)10,271 10,000 20,486 21,706 
Production cost per REO MT (in dollars)$1,938 $1,750 $1,958 $1,666 
(1)Pertains only to the amount of stock-based compensation expense included in cost of sales.
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Free Cash Flow
We calculate Free Cash Flow as net cash provided by operating activities less additions to property, plant and equipment, net of proceeds from government awards used for construction. We believe Free Cash Flow is useful for comparing our ability to generate cash with that of our peers. The presentation of Free Cash Flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities and does not necessarily indicate whether cash flows will be sufficient to fund cash needs.
The following table presents a reconciliation of our Free Cash Flow, which is a non-GAAP financial measure, to our net cash provided by operating activities, which is determined in accordance with GAAP:
For the six months ended June 30,For the six months ended June 30,
(in thousands)(in thousands)20222021(in thousands)20232022
Net cash provided by operating activities(1)
Net cash provided by operating activities(1)
$219,862 $47,969 
Net cash provided by operating activities(1)
$65,459 $219,862 
Additions to property, plant and equipment, net(2)
Additions to property, plant and equipment, net(2)
(117,454)(44,691)
Additions to property, plant and equipment, net(2)
(130,236)(117,454)
Free Cash FlowFree Cash Flow$102,408 $3,278 Free Cash Flow$(64,777)$102,408 
(1)Under the terms of the A&R Offtake Agreement and pursuant to the accounting treatment thereof, $13.6 million and $22.9 million of our product sales for the six months ended June 30, 2022, and 2021, respectively, were excluded from cash provided by operating activities since that portion of the sales price was retained by Shenghe to reduce the debt obligation.
(2)AmountAmounts for the six months ended June 30, 2023 and 2022, isare net of zero and $5.1 million, respectively, in proceeds from government awards used for construction, specifically our Stage II optimization project.
Critical Accounting Policies
A complete discussion of our critical accounting policies is included in our Form 10-K for the year ended December 31, 2021.2022. There have been no significant changes in our critical accounting policies during the three months ended June 30, 2022.2023.
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Recently Adopted and Issued Accounting Pronouncements
Recently adopted and issued accounting pronouncements are described in Note 2, “Significant Accounting Policies,” in the notes to the unaudited Condensed Consolidated Financial Statements.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
We had cash, cash equivalents and short-term investments totaling $1,264.1 million as of June 30, 2022, of which $1,234.5 million was invested in money market funds, U.S. Treasury and agency securities. Our cash, cash equivalents and short-term investments are held for working capital and general corporate purposes. We do not enter into investments for trading or speculative purposes.
Our cash equivalents and short-term investments are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of our expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. As our short-term investments are classified as available-for-sale, no gains are recognized due to changes in interest rates. As losses due to changes in interest rates are generally not considered to be credit related, no losses in such investments are recognized due to changes in interest rates unless we intend to sell, it is more likely than not that we will be required to sell, we sell prior to maturity, or we otherwise determine that all or a portion of the decline in fair value is due to credit related factors.
As of June 30, 2022, a hypothetical increase of 100-basis points in interest rates would not have a material impact on the value of our cash equivalents or short-term investments in our unaudited Condensed Consolidated Financial Statements.
With the exception of the item above, thereThere have been no material changes in our market risk exposures for the three months ended June 30, 2022,2023, as compared to those discussed in our Form 10-K for the year ended December 31, 2021.2022.
ITEM 4.    CONTROLS AND PROCEDURES
The Company’s management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30, 2022.2023. Based on this evaluation, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2022,2023, to ensure that information required to be disclosed by the Company in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the United States Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
There were no changes that occurred during the fiscal quarter covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
From time to time, we may be subject to legal and governmental proceedings and claims in the ordinary course of business. We are not currently a party to any material legal or governmental proceedings, and, to our knowledge, none is threatened.
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ITEM 1A.    RISK FACTORS
The Company’s business, reputation, results of operations and financial condition, as well as the price of the Company’s common stock, can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A. “Risk Factors” in our Form 10-K for the year ended December 31, 2021.2022. When any one or more of these risks materialize from time to time, the Company’s business, reputation, results of operations and financial condition, as well as the price of the Company’s common stock, can be materially and adversely affected. There have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2021.
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ITEM 4.    MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Form 10-Q for the quarterly period ended June 30, 2022.2023.
ITEM 5.    OTHER INFORMATION
During the three months ended June 30, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).
ITEM 6.    EXHIBITS
Exhibit No.Description
31.1*
31.2*
32.1**
32.2**
95.1*
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Inline XBRL File (included in Exhibit 101).
*Filed herewith.
**Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MP MATERIALS CORP.
Dated:August 5, 20224, 2023By:/s/ Ryan Corbett
Ryan Corbett
Chief Financial Officer
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