Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MP Materials Corp (MP, Financial) achieved its second-best quarter of upstream productivity measured by REO produced per hour of uptime.
- Production momentum coming out of Q2 and into Q3 has been very strong, with Q3 on track for record levels of upstream production.
- NdPr production more than doubled in Q2 to over 270 tons, with expectations of another 50% increase in Q3.
- MP Materials Corp (MP) signed an agreement for a substantial commitment of NdPr oxide with a new customer, a household name global automaker.
- The company expects to earn approximately $190 million of incremental cash sources from additional customer prepayments and tax credits by the end of 2025, maintaining a strong balance sheet.
Negative Points
- Q2 was a challenging quarter operationally and financially due to rig damage in a thickener, impacting operations for about three weeks.
- The unanticipated downtime led to a significant reduction in REO production and financial performance.
- The company posted an adjusted EBITDA loss of $27.1 million and an adjusted diluted loss per share of $0.17 in the quarter.
- Realized pricing for REO and NdPr oxide is expected to be down low-single-digit percentages sequentially in Q3.
- Mechanical reliability of new assets in the midstream operation remains a significant challenge, impacting production efficiency.
Q & A Highlights
Q: Can you talk about the first upstream 60K milestone with the pilot testing around flotation and its impact on current operations?
A: We don't expect it to have any material impact on the operation. We will be running a midstream through this equipment to see the performance, and we expect it to lead to additive results even as a pilot. The grinding circuit investment might have more temporary interference, but it is promising for next year. β Michael Rosenthal, Chief Operating Officer
Q: Can you rehash the timeline and conditions to receive the $150 million of prepayments and tax receipts?
A: We received the first $50 million of prepayments for the downstream business. The remaining $100 million will be unlocked by further operational progress and is expected over the next 12 months. We also expect to receive nearly $20 million from a 45X tax credit soon and another $30 million from a 48C tax credit next year. β Ryan Corbett, Chief Financial Officer
Q: Can you provide specifics around the size and length of the commitment with the automaker and the Department of Defense supply contracts?
A: The OEM commitment is a multi-year agreement starting this year and ramping through 2025, representing a low double-digit percentage of our total targeted output. The DoD agreement is about $11 million for the National Defense stockpile. β Ryan Corbett, Chief Financial Officer
Q: What is your outlook on the Chinese economy and its impact on pricing?
A: The Chinese economy remains challenging with weak industrial production and consumer spending. However, Chinese industry is growing abroad, particularly in the global South. Despite the current environment, the medium to long-term demand picture remains bright. β James Litinsky, Chairman of the Board, Chief Executive Officer, Founder
Q: What criteria did you use to align with the particular automotive OEM for the agreement?
A: We prioritize customers that are thoughtful over the long term and are looking at this as partners. The agreement represents a low double-digit percentage of our total targeted output. We are seeing a lot of interest from other automakers as well. β Ryan Corbett, Chief Financial Officer
Q: Where do you hope to exit the year on a run rate basis in terms of NdPr production?
A: It's early to give specific numbers, but we are optimistic about significant improvement in the fourth quarter. July results put us on the path to a 50% growth in NdPr oxide production in Q3 versus Q2. β Michael Rosenthal, Chief Operating Officer
Q: How do you think about becoming EBITDA positive in the magnetics business?
A: We expect a positive EBITDA contribution nearly immediately once we start production in 2025. We have been investing in the business and expect it to be gross profit and EBITDA positive as we bring it on. β Ryan Corbett, Chief Financial Officer
Q: Can you provide additional color on the progress of the prototype production for magnets?
A: We have gone from metal to a finished magnet at performance characteristics that we're happy with. We are focused on ensuring we are ready for commercial scale production by the end of 2025. β Ryan Corbett, Chief Financial Officer
Q: Have you begun discussions with companies in the robotics value chain for potential supply agreements?
A: We expect robotics to be a gamechanger demand stream, though it is a few years out. We are seeing substantial international investment from major Chinese downstream producers, which is promising for the future. β James Litinsky, Chairman of the Board, Chief Executive Officer, Founder
Q: Can you give some color on the expected decline in NdPr production costs over the next couple of quarters?
A: We have identified the drivers of incremental variable costs and are working to optimize them. The focus is now on maintaining proper uptime and pushing throughput to achieve our targeted cost structure. β Ryan Corbett, Chief Financial Officer
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
