MP Materials Q2 2026 Earnings Call - Heavy Rare Earth Expansion and Q4 Commercial Magnet Ramp Drive Record Revenue

Operator: Hello, welcome to the MP Materials Q2 2026 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you’ll be given instructions for the question and answer session. As a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I would like to turn the call over to Martin Sheehan, Head of Investor Relations. Mr. Sheehan, you may begin.

Martin Sheehan, Head of Investor Relations, MP Materials: Thank you, operator, good afternoon, everyone. Welcome to the MP Materials second quarter 2026 earnings conference call. With me today from MP Materials are James Litinsky, founder, chairman, and Chief Executive Officer, Michael Rosenthal, founder and Chief Operating Officer, and Ryan Corbett, Chief Financial Officer. As a reminder, today’s discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company’s actual results to differ materially from these statements are included in today’s presentation, earnings release, and in our SEC filings. We have included some non-GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in today’s earnings release and the appendix to today’s slide presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA and tons means metric tons.

The earnings release and slide presentation are available on our website. With that, I’ll turn the call over to Jim.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Thank you, Martin, thank you all for joining us today. This was another strong quarter of execution as we continued scaling both our materials and magnetics businesses. We expanded production, broadened our product portfolio, advanced commercial magnet manufacturing, and continued building the next phase of our operating platform. Starting with the Materials Segment, we produced 840 metric tons of NdPr, up 41% year-over-year, consistent with our expectations. Despite an extended planned plant shutdown in April, we met our production objectives while continuing to improve throughput as we ramp production at scale. We expect significant volume growth next quarter as we continue progressing toward our targeted year-end NdPr production run rate. Michael will discuss our operational progress in greater detail shortly. Customer demand continues to outpace our production growth.

NdPr sales exceeded 1,000 metric tons for the second consecutive quarter, up 127% year-over-year. As we scale NdPr production, our engineering and operations teams are also advancing three major initiatives: commissioning the heavy rare earth separation circuit, restarting our on-site chlor-alkali facility, and breaking ground on our new recycling facility. Michael will discuss these initiatives in greater detail, but I want to highlight that we are actively commissioning our Dy/Tb circuit and remain on track to begin shipping product from Mountain Pass to Independence later this year. In July, we entered into a long-term agreement to supply gadolinium oxide to a leading U.S. aerospace and defense manufacturer. This is expected to be a sizable nine-figure deal in total over multiple years that expands our heavy rare earth product portfolio at attractive returns. Our heavy rare earth strategy is deliberately disciplined.

We expand our product portfolio where customer demand and attractive returns justify investment, building the material segment one product at a time. We believe this approach can continue to expand both our product portfolio and the segment’s long-term earnings power. Our operating progress also translated into strong financial performance. The material segment generated $113.2 million of revenue plus PPA income and $32.5 million of adjusted EBITDA, a $45 million year-over-year improvement. Turning to magnetics, startup and customer qualification activities at Independence continued to advance. During the quarter, we delivered magnets to GM for in-vehicle qualification testing, and we continue to expect to begin commercial shipments in the fourth quarter, followed by a steady production ramp. Precursor production generated adjusted EBITDA margins exceeding 40%, highlighting the earnings potential of the magnetic segment as we continue scaling the business.

Ryan will discuss how the economics of the segment evolve as we ramp commercial magnet production over the coming quarters. At the same time, construction of our 10X facility continues to accelerate. Foundation work is underway. Long lead production equipment has been ordered, and we are prepared to begin vertical construction shortly. As we ramp Independence, we are already building the next phase of America’s domestic magnet manufacturing platform. Demand for secure, large-scale magnet manufacturing continues to grow. Structural supply constraints remain, and we continue to see strong interest from customers across automotive, industrial, aerospace, defense, and emerging physical AI applications. With Independence substantially committed and the Department of War supporting the development of 10X, we are able to be disciplined in selecting long-term partners and structuring commercial agreements that reflect the strategic value of domestic magnet manufacturing. We expect to have additional customer announcements over time.

One area of particularly strong interest is autonomous systems. Over the past several months, we have worked with U.S. and allied drone manufacturers to launch Project Swarm, an industrial coordination initiative designed to aggregate and standardize future magnet demand. We have already signed subscription agreements with a number of participants. Rather than asking emerging companies to make long-term purchasing commitments before their products are fully developed, Project Swarm allows them to secure future manufacturing capacity today while preserving the flexibility to continue innovating. Project Swarm reflects our belief that industrial leadership requires more than manufacturing capacity. It also requires helping coordinate the ecosystem around it. By reducing supply chain uncertainty, we can help innovative companies focus on building the next generation of autonomous systems while strengthening America’s industrial base and building long-term shareholder value. With that, let me turn the call over to Ryan. Ryan?

Ryan Corbett, Chief Financial Officer, MP Materials: Thanks, Jim. The company generated $126.1 million of revenue and PPA income, more than doubling last year’s revenue, driven primarily by the 127% increase in sales volumes of NdPr. The higher revenue and PPA income contributed to consolidated adjusted EBITDA of $28.5 million in the quarter, a $41 million improvement year-over-year. These factors also drove adjusted diluted EPS to improve $0.12 to a loss of $0.01 per share. On a sequential basis, materials revenue plus PPA income was essentially flat, with identical sales volumes and the impact of the price floor. Magnetics revenue declined slightly, which was driven by a much higher proportion of costs being attributable to the startup of magnet production versus precursor product production, which impacts the pricing of our metal products ahead of commercial magnet production.

Consolidated adjusted EBITDA declined modestly, primarily reflecting the costs associated with the planned biannual plant shutdown at Mountain Pass and the transition period at Magnetics ahead of commercial magnet revenue. Looking ahead to Q3, regarding pricing, our current view of sales mix and timing suggests that realized pricing for NdPr oxide sales will be in the high 90s per kilogram, leaving PPA income to come in at roughly $10 per kilogram. With market pricing hovering at about $110 per kilogram in the first part of Q3, we continue to expect minimal PPA income from stockpiled NdPr contained in concentrate that is stored in inventory. We would expect a slight sequential decline in overall PPA income. Given timing of shipments and metallization lead times, we expect sales volumes in the materials segment to be flattish, depending on the ultimate sales mix.

As of June 30th, we had approximately 650 metric tons of NdPr oxide and metal on hand, in transit, at toll processors, or waiting for shipment. Turning to Magnetics, the segment delivered another solid quarter of revenue and EBITDA performance, declining slightly sequentially as we discussed on our last call. This leaves approximately $46 million of prepaid revenue to be earned for magnetic precursor products over the next three to four quarters on a modestly declining basis quarter-to-quarter. Once this prepayment is fully recognized, we will no longer expect to produce these products for external sale and instead will dedicate metal production capacity towards our needs for the manufacture and delivery of finished magnets. As Jim also noted, we expect initial commercial magnet deliveries to start within the fourth quarter, beginning with modest volumes, with capacity ramping over the following quarters.

As I mentioned last quarter, in the short term, financials period to period will be impacted by the eventual roll-off of precursor product deliveries, the early scaling of magnet production, timing of certain product testing milestones at our customers’ facilities, as well as investments in our team and product development capabilities. Importantly, these efforts will pay off not only for scaled production for GM, but also our follow-on contracts with Apple and the Department of War, as well as other future customers. Regarding cash flow, CapEx in the quarter was $230.3 million, with a little over 60% attributable to the Magnetics segment. Note that in the second quarter, we acquired the 10X site for approximately $80 million. This brings our year-to-date spend to $308 million as of June 30th. We continue to expect full-year CapEx spend to be in the $500 million to $600 million range.

Lastly, on the balance sheet, we ended the quarter with $1.45 billion of cash and short-term investments. Together with expected improvements to operating cash flow from growing oxide sales, related cost reductions, as well as magnet production, this fully funds our long-term capital plan and preserves our fortress balance sheet. With that, let me turn it over to Michael. Michael?

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: Thanks, Ryan. Operationally, it was another solid quarter across both the Materials and Magnetics divisions as we continued to increase production while investing in the next phase of growth. At Mountain Pass, results were generally in line with expectations. Upstream production was solid. As we noted on our Q1 call, Q2 included our scheduled semiannual maintenance outage, and results reflected the normal effects of shutdown, maintenance, and restart activities associated with that work. Unrelated projects extended the downtime, and that, along with the effects of certain pilot testing, contributed to the year-over-year comparisons. During the quarter, we advanced several important initiatives in the upstream business, including a full plant reagent trial that delivered very encouraging results. When implemented, we expect this change to sustain current performance while affording a positive impact on reclaimed water quality and providing greater resiliency in our supply chain, albeit at a modestly higher direct cost.

We also expanded pilot testing of a new pre-float process that we now anticipate implementing at scale by 2028. This initiative will improve concentrate quality. More important benefits may be realized in our midstream circuits with lower operating costs, improved uptime, and higher finished product quality. As I’ve discussed previously, we continue to look for both traditional and innovative ways to unlock additional value from the world-class Mountain Pass ore body. We are highly encouraged by early exploratory drilling results that suggest the potential for additional ore within the existing pit contours. Combined with ongoing advancements in flotation performance, a growing ability to manage variability in ore and gangue mineralogy, and several promising ore pre-concentration initiatives, I am increasingly confident in the long-term development potential of this unique asset. More to come on this in the coming quarters.

In our midstream operations, performance continues to show significant year-over-year growth and steady sequential improvement adjusted for scheduled downtime. Most of our circuits are performing very well. We are seeing encouraging progress across the operation. Through targeted equipment upgrades and process enhancements, we are addressing the handful of circuits that continue to present reliability challenges affecting yield and throughput. While intermittent one-off issues occasionally impact production, overall plant reliability, throughput, and operational consistency continue to trend in the right direction. Based on current performance, I expect Q3 NdPr production to exceed 1,000 metric tons. The past three months have been particularly fruitful for our growth initiatives. In May, we achieved mechanical completion of our first heavy rare earth separation circuit. Since then, the team has been focused on punch list completion, equipment checkouts, and completing initial commissioning activities. We are preparing to introduce feed to the circuit imminently.

While the exact ramp will ultimately depend on the realities of commissioning a new circuit at scale and prioritizing quality over quantity, we remain on track to produce terbium and dysprosium later this year. We also made significant progress on our samarium program, advancing both engineering and procurement, and are planning first production in 2028. As Jim noted, we are excited to have secured a long-term commercial arrangement for gadolinium at attractive economics. Combined with the technical success of an extended pilot campaign, we are now moving forward with engineering and procurement to complete the gadolinium separation project on a similar timeline. In the quarter, we finished clearing land and demolition of previously retired assets and are planning to break ground this month on an expanded area that will house both magnet recycling and additional heavy rare earth separation and finishing.

This marks another important step in expanding the range of products and value-added capabilities at Mountain Pass. Lastly, we continue to make meaningful forward progress on our chlor-alkali recommissioning effort. Several important milestones were achieved during the quarter, including bringing additional brine pretreatment online. We are already seeing positive results in crystallizer performance, providing an encouraging early indication of the operational benefits we expect the chlor-alkali project to deliver. Our magnetics operation also had an extremely productive quarter. We made substantial progress in GM customer qualification activities while continuing to scale towards 24/7 production across all major processes. Importantly, we are now demonstrating the capability and consistency required to support our customers’ volume ramp, clearing one of the most important milestones in the qualification process. Achieving these milestones required extraordinary effort across the organization.

As expected at this stage of the ramp, the team has had to work through a wide range of technical, operational, and customer-driven challenges. As we have said before, the rigor required to meet the auto industry’s exacting standards positions us well to serve customers with the most demanding performance requirements. I am incredibly proud of what we have accomplished and continue to be impressed by the ingenuity, determination, and unwavering spirit our team brings to the mission every day. While there remains important work ahead, we are making very meaningful progress across the operation, and our foundational customers are increasingly seeing and validating that progress as well. The results of those efforts will become increasingly evident in the quarters ahead. Our partnership with Apple on magnet recycling, magnet production, and joint development continues to advance.

At the same time, our engineering team is expanding the portfolio of high-performance magnet grades we can produce while continuously refining the underlying chemistry. Consistent with what we discussed last quarter, we are steadily reducing the heavy rare earth intensity of our products through both grain boundary diffusion technology and other process innovations across each stage of production, and we expect that trend to continue. Finally, development of the 10X facility is advancing to plan. Learnings from Independence, combined with direct customer feedback, are being incorporated into final equipment selections and detailed engineering of the plant. We are leveraging that experience to bring the project forward wherever possible while maintaining the discipline required to successfully execute a project of this scale, and we remain very much on track.

Stepping back, one of the most rewarding aspects of this journey is seeing how the knowledge, experience, and capabilities we develop in one area continue to create opportunities in another. Lessons from one facility improve another. New products open additional commercial opportunities, and operational advances create entirely new avenues for growth. That gives me tremendous confidence in both the underlying value of the vertically integrated platform we are building today and the opportunities it will enable us to pursue tomorrow. With that, I’ll hand it back to Jim.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Thanks, Michael. If there’s one thing I hope today’s update reinforces, it is that industrial companies are not built by assembling assets. They are built by compounding capabilities. Not every quarter is linear, but over time, every quarter should leave the business a little more capable, a little more resilient, and a little more valuable than it was before. That is what we try to do at MP, I think this quarter was another good example. With that in mind, let me leave you with one broader thought. History suggests that markets often struggle to value general-purpose technologies in real time. During the railroad era, the age of electrification, and more recently, the telecommunications and internet era, investors understandably became consumed with the same questions. Was too much capital being invested? Would the economics justify the spending? Which companies would ultimately earn attractive returns?

Those debates were important, they often obscured where the largest long-term opportunities would ultimately emerge. The world itself was changing, the most enduring value was ultimately created by those who understood what the new world would require. I believe we are living through another one of those moments. Today’s debate is centered on AI infrastructure and the returns on compute. That is an important discussion, market participants should ask those questions. If history is any guide, the infrastructure phase of a general-purpose technology is rarely where its full economic impact becomes apparent. The larger opportunity often emerges when that infrastructure becomes pervasive enough for entrepreneurs to build businesses that redefine entire industries. I believe AI is approaching that transition.

The next phase will be defined less by creating intelligence and more by deploying it into the physical economy, into machines that manufacture, move, build, transport, and defend. That transition has implications well beyond technology. Increasingly, governments recognize that the ability to build those machines and the supply chains that support them is itself a strategic capability. We believe that’s a structural shift, not a cyclical one. It reinforces our conviction that resilient domestic production of critical materials and components will become increasingly important over the coming decade. Against that backdrop, our responsibility is straightforward. We try to build capabilities that matter over decades. We do that by investing patiently, allocating capital thoughtfully, and increasingly by pairing long-term strategic partnerships with contracted cash flows that allow us to keep building through change. We believe that approach allows us to pursue long-term opportunities while managing risk along the way.

With that, I’ll open it up for questions. Operator?

Operator: Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you’ll hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question will come from the line of Lawson Winder with Bank of America Securities. You may unmute your audio and ask your question.

Lawson Winder, Analyst, Bank of America Securities: Thanks very much, operator. Good evening, gentlemen. Nice quarter. Great update once again. If I may, I’d like to just ask about the defense contract. Congratulations on achieving the first of that. My questions would be multi-part but all related to this particular contract. To start off, would you describe this as the first of many? Where do you think it kind of goes from here? If you could maybe speak to how contracts like this might work. So would it be spot price linked or base escalated? There’s no spot price exposure. Just if it’s relevant, what is the relevance or significance of gadolinium being the first mineral for this contract? Thanks very much.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Yeah. Thanks, Lawson. It’s Ryan. I’ll take that. Yeah, obviously, we’re very pleased with the progress here. It was a significant offtake agreement, as Jim mentioned in his remarks. A long-term deal representing nine figures over time. Importantly, to your point on spot prices, we’ve locked in economics on this contract. I think importantly, this speaks to our ability to continue to drive incremental value out of the world-class Mountain Pass asset, the ore body, the refining assets, the intellectual capital, the know-how. This is an example of hopefully many to come over time. The thing about this contract is

Ryan Corbett, Chief Financial Officer, MP Materials: The economics with this initial customer are very attractive on a standalone basis. To your point and your question, there is an opportunity to grow volumes over time that would come at significant incremental return, given the vast majority of the capital being deployed upfront. In terms of gadolinium being sort of the first that we’ve announced here, as you’ll recall, we had committed in our agreements with the Department of War to begin production of samarium in 2028. The way that we will approach separating out the dysprosium and terbium first, as Michael mentioned very shortly, that leaves us with an SEG product that we had been evaluating how to maximize the economics from that product set. This was a very logical way to do that.

I think that there is opportunity for us to look at the other heavy rares contained in the ore body over time and continue to find interesting ways to grow the earnings power of that business.

Lawson Winder, Analyst, Bank of America Securities: Okay, fantastic. Thank you for that answer. I’ll leave it there.

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: Great.

Thanks all.

Ryan Corbett, Chief Financial Officer, MP Materials: Thanks.

Operator: Our next question comes from George Gianarikas with Canaccord Genuity. Please go ahead with your question.

George Gianarikas, Analyst, Canaccord Genuity: Hi, everyone. Thank you for taking my questions. Maybe rebuilding a critical material supply chain is as much a human capital challenge as it is a technical one, and this has been out in the press recently, but to what extent is the broader domestic shortage of specialized talent, whether it’s engineers or metallurgists, how is that impacting your ability to scale 10X and the other facilities you have planned? Thank you.

Ryan Corbett, Chief Financial Officer, MP Materials: Well, I think I’ll start and then maybe Mike-- Certainly as we look around the country and really around the world, but particularly in America, we have an enormous onshoring construction boom happening, right? Particularly with AI and data centers. When you think about construction, electricians, pipe fitters, runs the gamut of the trades that we need to bring a lot of this stuff online. Getting talent to build things is hard, but this is really something that we have been focused on really since the beginning of life as a company. If you recall, we went public in the middle of COVID in 2020, and we were bringing online our refining assets. We’ve historically, really all we know as a company is fighting through challenges in supply chain talent and whatnot.

With respect to maybe more specific talent, yes, this is a capability that has not really existed in the country, certainly not on a vertically integrated basis. It’s something that we’ve been at from the beginning, whether it’s at the mine, the refinery, or in building the magnetics business. Michael, I don’t know if you want to add anything about the engineers and talent.

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: I think finding talented people who have experience is. There’s a limited pool of those in this country and in the world. We try to make ourselves an attractive place to work, empower people to do really interesting and exciting things, and give them a lot of resources. We hope through that to be the employer of choice in this industry. I think we’re really, really proud of the team that we’ve built.

Ryan Corbett, Chief Financial Officer, MP Materials: One thing, I actually used to say this way back when in the very beginning, when we were first public, talent begets talent, scale begets scale. If you look at the business that we’ve built, whether it’s contracted cash flows from GM, Apple, the Department of War, this new big customer announcement today, we certainly have built the momentum as a company. We have a lot of people who want to join us on this mission. We have a lot to build, but it’s easier today than it was a few years ago because people know who we are and believe in what we’re doing and know that the assets that we’re creating are long-term and priceless to some extent.

George Gianarikas, Analyst, Canaccord Genuity: Thank you. If I may ask a follow-up. As your perspective customers evaluate capacity at 10X, how are those allocation conversations progressing regarding pricing structure? Are partners willing to agree to things like pricing floors or upfront capital prepayments to preserve and reserve future production slots? Thank you.

Ryan Corbett, Chief Financial Officer, MP Materials: It’s an excellent question. I think this is really a question for us because when I look at all of the conversations we’re having and the potential demand that we see, I don’t lose any sleep about filling out the demand for this facility. I think if we look across. I’ll give you a simple example. If we think about physical AI and all of the growth that we expect, and you can see many other companies talk about the robotics industry, right? If we were to be producing, say, 30 or 40 million humanoid robots a year in the world, that alone would eat up 100% of the rare earth magnet production globally, including China.

When you think about that for a moment, obviously the Chinese are going to make a lot of robots, by the way, we’re going to make cars, we’re going to make data centers, we’re going to make electronics, we’re going to make all sorts of things. There’s a lot of demand to come. I actually think that we’ll have the ability to be somewhat of a kingmaker in a couple of verticals. That is something that we think about, and we’re in the good position to be thoughtful because we can be patient. As it stands today, we have everything fully contracted if that’s what we want. Lastly, what I would say is that’s sort of some of the

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: logic around Project Swarm. Although we are capitalists, we are first and foremost patriots. When we look around the world today, certainly it’s quite obvious that drones are to at least a portion of the future of warfare. What we have today developing in the American supply chain is we have dozens of companies, and we talk to them. Obviously, we have a number that are customers now as part of this project. We have dozens of companies that are getting backed by many billions of dollars, and they’re trying to innovate. Individually, it’s immaterial demand. The entire American drone industry would still be materially smaller than just our GM business as it stands today. That’s going to change over the next five or 10 years.

The point is that we have a unique position and a duty to work with everybody to coordinate, to standardize magnetic grades around the DOW preferred grades that we’re going to be producing at 10x. We’re just taking the lead in helping coordinate that so that we know that the American companies, we don’t know who will be the winner, but we want to make sure that any innovating company in America knows that the supply chain will be there for them. MP will be there for them. Before we sell out the whole facility, so to speak, tongue in cheek, I just want to make sure that the instruments of warfare and national security are taken care of. That was sort of some of the thinking behind that. Obviously that’s underway.

We have a number of companies that are already signed up, and that should also provide some fruitful opportunities as we grow our business.

Ryan Corbett, Chief Financial Officer, MP Materials: Thank you.

Operator: Our next question comes from Max Yurell with BMO. Please go ahead with your question. Press star six to unmute.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Why don’t we skip Max and come back to him?

Operator: Not a problem. Your next question will come from Brian Lee with Goldman Sachs & Co. Please go ahead with your question.

Brian Lee, Analyst, Goldman Sachs & Co.: Hey, guys. Good afternoon. Thanks for taking the questions. I have a two-part question. I’ll just ask it all at once. On this new offtake for gadolinium, congrats on that. Just maybe high level sense of capacity for more heavies offtakes, just what are the other heavies you could see offtakes on? Where are you having the most engagement today? Secondarily, how to think about those and the economics for those in the context of the 9-digit type deal here you’re announcing for gadolinium specifically. Thanks, guys.

Ryan Corbett, Chief Financial Officer, MP Materials: Hey, thanks, Ryan. It’s Ryan. On that front, I mentioned obviously that we are underway on the samarium program that Michael gave an update on. That is certainly an area where we intend to continue to commercialize that business and respond to the demand that we’re seeing in that space. Certainly, I think that there is opportunity for follow-on volume beyond this existing contract on the gadolinium side. There are a number of critical use cases for these products. It’s interesting to see what’s going on in the market today. You’re seeing large aerospace companies announce difficulties in their supply chain from what they explain as very tiny parts. I think the reality is it speaks to how critical some of these materials are powering hundreds of millions and billions of dollars of value downstream of them.

We expect to continue to see pretty exciting growth opportunities just within that element. You’ve got the periodic table. You know all the other elements that are in the ore body. Certainly, we think yttrium is another opportunity set. We will be producing a yttrium product and are looking at different ways to maximize the value of that output from the ore body as well. Certainly more to come on that front.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Let me just add one more thing. I want to hit on what Ryan just said because I think it’s really important. There are no heavies getting out of China or very limited. Magnets are on a licensing basis. We are in a regime right now of controlled scarcity. People are sort of getting fed just in time. What that’s actually creating, and we’re seeing this behind the scenes with many companies that we talk to, is there’s a lot of concern. There’s disruption in the supply chain. Obviously, AI is getting all the headlines. If you look through, and maybe in the coming days there’ll be some reporting or some analyst reports on this, but if you look through the industrial supply chain, particularly in aerospace, we are seeing real disruption.

It’s not full on panic yet, but it’s real disruption from allocations that have to happen due to scarcity. I do think that’s going to open up, and obviously we see it here, the beginning of it, but that’s going to really open up some interesting opportunities for us. It’s also something that we need to pay attention to because uneasy detente is not necessarily a condition where we can just sort of be relaxed in this supply chain. It’s still very challenging out there.

Brian Lee, Analyst, Goldman Sachs & Co.: Appreciate all that color. I’ll pass it on. Thanks, guys.

Operator: Our next question comes from Max Yurell with BMO. Please go ahead with your question.

Max Yurell, Analyst, BMO: Hey, guys. I think this works now. Very fitting for the-

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Yes, hello

opening song, as always. With the recent U.S. government announcement and them banning the export of magnet scrap, is this changing how you’re thinking about developing recycling capacity? Have you seen any new customer inquiries into potentially adding more magnet recycling capacity? Thanks.

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: Thanks for the question. It’s Michael. I think recycling has been a part of our vertically integrated strategy for some time. Obviously, we announced the agreement with Apple last year. This has been part of a challenge throughout the world, which is shipment of critical minerals or byproducts in magnet and also battery supply chains have been challenging, and it creates a problem of supply availability. Recycling is not just doing the processing, it’s also the collection and the aggregation, pre-processing, removal from other parts of the assemblies. This will just highlight the importance of the work that we’re doing. We’ve definitely seen a lot of interest in recycling. Our primary focus is dealing with the process waste from our independence and 10X in supporting Apple, but we are looking at scaling that business in line with the market conditions.

Max Yurell, Analyst, BMO: Thanks, Michael.

Operator: Our next question comes from Riccardo Gualtiero Torretta with Barclays. Please go ahead with your question.

Riccardo Gualtiero Torretta, Analyst, Barclays: Hi, congratulations on all progress. My first question is on the commissioning of the Dy/Tb circuit that’s underway. Is that basically going to be incrementally adding any costs for the second half of this year? You also had semiannual maintenance in April. I was wondering if that had any impact on the cost this quarter. Really, it’s a function of how much do you think cost could potentially improve in the second half?

Ryan Corbett, Chief Financial Officer, MP Materials: Yeah, sure, Richard, it’s Ryan. I’ll take that. As it relates to the heavy rare earth circuit, certainly, I think we’ve talked about investments that are apparent in the P&L right now. You mentioned two of the most critical ones, the maintenance outage and staffing ahead of heavy rare earth production. If you look at how that will take shape over the course of the rest of the year from a heavy rare earth perspective on dysprosium and terbium, that will make its way into inventory and then find its way down to in-process, and ultimately we’ll recognize the value of those products through magnet sales. Once we get into full-scale commercial production and we are inventorying those costs, that will come out of the P&L until we ultimately recognize the magnet sale.

In terms of what I think you’re getting at on overall cost position in the business, I think we feel increasingly confident that the path to lowering our cost structure is very clear. I think we’ve said consistently that we need to be operating consistently at our target production levels, and that will give us the benefit of the fixed cost absorption math that we’ve walked through previously. Beyond that, we see pretty clear opportunities to improve process efficiency, reduce maintenance intensity, and then certainly, as we’ve talked about, we expect some pretty tangible benefits from bringing chlor-alkali online. In terms of timing of those, we expect those benefits to build progressively through 2027 as we consistently produce at a more targeted throughput.

Riccardo Gualtiero Torretta, Analyst, Barclays: Great. Thank you for that color. As a follow-up, maybe bigger picture, congratulations again on the signing of the long-term offtake for gadolinium. Can you maybe talk about, in the prepared remarks, talked about how demand continues to increase. Should we expect maybe a stronger cadence of new contracts and new announcements? Just curious about negotiations. Are they picking up or are you getting more inbound incremental demand for capacity that would suggest you probably need to expand from here?

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Well, one thing I would say, we covered this quite a bit on the last call, I think I have a feeling we’ll be continuing to cover it over coming quarters. I remain convicted in the view that NdPr is the binding constraint. We look around the world today, we see a lot of magnet facilities intending to come online. There’s a number of groups out there that are investing, trying to put things together. When we talk to companies in the downstream and we look at the markets, there are a number of verticals, right? Whether it’s magnetics or in the beginning of the question, you were referencing heavies. I would say it goes back to the point I was previously making about controlled scarcity, which is sort of the state of the world right now.

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: That is not an acceptable state, again, as we referenced earlier, you’re seeing in the aerospace industry today. I think just as an example and not to Honeywell Aerospace lost a quarter of their value today in what they referenced on their call was $15 million upstream in the supply chain. That gives you, when you’re talking about a company that’s going to lose $15 billion of market cap over $10 or $15 million of upstream supply from a supplier to one of their suppliers, that is the extent of the problem. That’s a long-winded way of saying it’s really in every vertical. It’s in the heavies, again, I think in magnets and I reference this with robotics and I try to temper it because nobody knows when and how these things come online.

Take AI and memory for an example, when ChatGPT hit the market, Micron had a $50 billion enterprise value. Three years later, all of a sudden, people woke up to a dramatic memory squeeze, it’s a trillion now. Obviously, these are very different industries, that’s the kind of stuff that I do think is going to happen as more of these physical AI use cases come online. I just don’t know which one will happen first, that’s the kind of thing that we’re seeing. Again, with respect to magnets, which is obviously the vast majority of our business, I think NdPr is the binding constraint for all that we see for the foreseeable future.

Operator: Our next question comes from Corinne Blanchard with Deutsche Bank. Please go ahead with your question.

Corinne Blanchard, Analyst, Deutsche Bank: Hey, good afternoon, guys. I would say most of my question have probably been answered, maybe we can go back on the quarter itself and your view going into 3Q. I think you had maybe a higher than expected material segment performance this quarter, which did impact a little bit the cost. Can you just maybe talk about how we should think about that going into 3Q and 4Q?

Ryan Corbett, Chief Financial Officer, MP Materials: Yeah, sure, Corinne, it’s Ryan. I think from a sales perspective, I think sort of dovetailing off of what Jim said, certainly demand for NdPr remains extremely strong. I think we were fortunate to be able to continue to ramp up available capacity for metallization and things like that to continue the cadence of sales within Q2. I mentioned in my prepared remarks, likely a flattish volume sequentially. A lot of that, of course, really depends on shipment timing, lead times for metallization, and things of that nature. It is always a bit lumpy, but that’s generally what we’re seeing from a sequential performance perspective. We’ve talked in the past about the fact that as we scale production, ultimately we will continue to build the ultimate tonnage of product within the channel, given the fact that we have multiple outlets to market.

You should expect as we grow production over the next several quarters, eventually we will need to fill that channel back up to support the higher volume levels. That’s generally what we’re seeing in the short term.

Corinne Blanchard, Analyst, Deutsche Bank: Thank you. Going back to the China export ban, do you expect any maybe impact on the reagent or cost coming from the export ban list or do you expect very minimal impact?

Ryan Corbett, Chief Financial Officer, MP Materials: From our perspective, we expect minimal impact given everything you know about us, I don’t think any of this came as a shock probably to us or to anyone out there. We’ve been thoughtfully preparing our supply chain to be resilient for a very long time. The team has done an excellent job on sourcing there. We don’t see any immediate impact.

Corinne Blanchard, Analyst, Deutsche Bank: All right. Thank you, Ryan.

Operator: Our next question comes from Carlos de Alba with MS. Please go ahead with your question.

Carlos de Alba, Analyst, Morgan Stanley: Thank you. Good afternoon, guys. Good to see the progress that you are making. On GM, encouraging to know that the initial commercial magnet deliveries will start later in the year. Just wanted to see if you can provide any color from what you have been hearing from them regarding the early qualification and testing that they may have already done with your magnets.

Ryan Corbett, Chief Financial Officer, MP Materials: Sure, Carlos, it’s Ryan. We’re overall extremely pleased with the progress we’ve been making with General Motors and with our engagement with them. I think it’s important that folks understand the qualification process here is not about whether you’re making a magnet to spec. That’s a tiny piece of it. It’s about staging capacity as we ramp and then versus the needs at the individual motor plants. It’s ensuring batch traceability and quality systems of ours are integrated with our customer systems. Certainly to your point, it’s about having our customer observe ultimately the impact to the overall systems across the vehicle when they do a part swap. That is a long and painstaking process, but the results that we’ve been seeing are extremely encouraging. As we reiterated, our current expectation is to begin regular production deliveries sometime in the fourth quarter.

Carlos de Alba, Analyst, Morgan Stanley: All right. Okay, good. Maybe, I don’t know, Michael, I was intrigued by the planned reagent trial that you guys did. Can you maybe provide more color, particularly on the benefits, the potential increase in cost that you mentioned, and the timing of deployment?

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: Thanks, Carlos. We regularly do the trials of different reagents to ensure resiliency and flexibility. Though this quarter is probably a bigger one than we’ve done in some time. I would say, as you know, one of the things that we pride ourselves on is we recycle all the water in our flotation process from our tailings. Preserving the quality of that is an important consideration. We do expect to make a change in our reagents later this year. The direct cost of the reagent is somewhat higher than our legacy product, but we think the overall benefits outweigh that. We’re looking forward to the change. Overall, we’re positive on that change and that the flotation results will be excellent.

Carlos de Alba, Analyst, Morgan Stanley: Maybe just to add up on that, this reagent supplier or reagent material that you’re going to use are not from China whatsoever, right?

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: Correct.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: All right, great. Thank you very much.

Operator: Our next question comes from Bill Peterson with JPMorgan. Please go ahead with your question.

Bill Peterson, Analyst, JPMorgan: Hello, can you hear me?

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: Yes.

Bill Peterson, Analyst, JPMorgan: Okay. Yeah. Hey, guys. Thanks for taking the question. Nice job on the quarterly execution. Understanding that you expect NdPr to be the long-term bottleneck, as you discussed many times. Overlaying that with the, I guess, tightness of really multiple materials in the near term that you also described. You have your SEG Plus, which can address some of the materials, but how does that inform your expectations of procuring other heavies that may be in short supply given the export restrictions? Would you still be evaluating acquiring other assets or upsizing recycling efforts, which was something that was mentioned in a prior question?

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: Hi, Bill. It’s Michael. Thanks for the question. I think what we’ve been saying for some time is that we’ve built a heavy rare separation circuit that has the ability to process third-party feedstocks. We also have a site that is capable of handling feedstocks of different type and purity. We think that gives us a lot of flexibility. Certainly terbium and dysprosium have been the focus for obvious reasons. We expect to bring in other heavies with that basket. We’ve designed for a certain mix of different samarium, gadolinium, terbium, yttrium, et cetera. To the extent these are valuable and wanted by the market, we’re looking at ways to process those.

Bill Peterson, Analyst, JPMorgan: All right. Thanks, Michael.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: As far as overall heavies, I do want to stress that. We’ve talked about this a couple quarters. We’ve made remarkable strides in reducing heavies needed as we’ve advanced our intellectual property and our manufacturing processes and expertise. What I would also say is that where we see the big demand use cases in the industry are essentially, if not no heavy, the vast majority of demand is no heavy. By that I mean, for example, robotics would be one. Disk drives are another. There are a number of use cases. I think that it’s, I’m not going to say 100% because obviously we will do some national security-oriented items and we’ve talked about drones. I think that by the time 10X comes online, the vast majority of that facility will be no heavies or very limited heavies.

Obviously, anything can change and we’re flexible and prepared to adapt, and we do see a variety of feedstock opportunities around the world. I don’t want you to come away as if we’re not concerned about, frankly, everything, because we’ve been around this long enough to know that things can change quickly. To the extent that it’s being marketed out there, as a reason to invest or a binding constraint, I still go back to, Andy, if you want to make rare earth magnets and you want to make rare earth magnets for the vast majority of demand use cases, particularly the ones that will be attractive margin business, I think that it’s going to be about your ability to create a scaled factory with precision manufacturing, great intellectual property and it’s going to be likely no heavies, at least from an MP standpoint.

Bill Peterson, Analyst, JPMorgan: Yeah, thanks for that. That’s actually the lead-in to the next question. You mentioned earlier about the grain boundary diffusion and kind of low or no heavy magnet developments. Is there any milestones or data points you can share in terms of how these magnets are performing compared to conventional magnets? Just I think it’d be helpful for investors and just to be able to measure your progress on these developments.

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: I think magnets are produced to meet certain performance requirements and specifications, and so our products are meeting and exceeding the specifications of our customer and the requirements, not just for magnetic performance, but also temperature performance. Rust, other factors are considered in that. I think we’re really proud of the quality of what we’re producing. We’re waiting for additional qualification. To the extent the question is like the impact of GBD, it’s not just GBD that’s the factor. The design, the chemistry, the microstructure, the grain alignment, all these things go into the performance of the magnet. Those are the things that we’ve built a large team of 100 plus engineers and a lot of intellectual property to develop and to continue to develop. We’re quite pleased with that.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Yeah, just hitting on that. Yeah, I was just going to say, remember that, Michael’s referenced this, customers don’t buy a mix. Customers aren’t interested in a mix of what your formulas are. They just want you to hit a spec. To the extent that you can use a variety of processes, GBD, manufacturing, precision, et cetera, to improve how you can deliver that’s really going to be the name of the game.

Bill Peterson, Analyst, JPMorgan: Perfect. Thanks, guys, and congrats again.

Operator: Our next question comes from-

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: Thanks.

Operator: Derick Ma with TD Cowen. Please go ahead with your question.

Derick Ma, Analyst, TD Cowen: Thank you for taking the question. I appreciate the commentary on security of supply concerns from automotive, industrial defense, and other potential counterparties. We haven’t yet seen an acceleration in new magnetics contracts. Why do you think that is, and what do you think needs to happen in the industry to turn those strong demand signals into firm contracts for Independence and 10X?

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: I’m sorry. Maybe I’m confused at the premise of the question. Independence is fully sold out between GM and Apple. It’s possible that we’ll fit another customer or two in there. 10X is 100% contracted with the Department of War. It’s likely that as we start to bring that facility online, we will end up contracting almost all of that capacity to industry as opposed to the Department of War, maybe I’m confused at the question. You’re saying we’re not contracted? Or what are you trying to?

Derick Ma, Analyst, TD Cowen: I guess those industrial and automotive and other contracts could take the place of the Defense Department of War contract. It’s kind of a guarantee of EBITDA, are you seeing the demand coming from those sources that could replace the contract in 10X, I guess is what I’m asking?

Ryan Corbett, Chief Financial Officer, MP Materials: This is Ryan. I think certainly, the level of activity and customer engagement is extremely high. I think sort of what Jim is getting at is the fact that, I think we got asked this question another way earlier of pace of announcements. We are in no rush to announce a deal to announce a deal. I think we’re in a very enviable position where the value of the platform that we are able to deliver to customers is becoming more and more apparent by the day. I think that the needs of those customers are growing more and more apparent by the day.

Again, given the security that we’ve been provided by this offtake agreement with the Department of War to invest aggressively and quickly, that does not mean we need to contract quickly and contract in a way that does not maximize long-term value to the company. You’ve seen us do exactly this across every piece of our business, right? We’ve had a gadolinium product available for sale for a very, very long time. You’re hearing us announce it today because we picked the right partner to do that provides the right risk-adjusted return on capital. You will see us continue to operate the same way we always have, which is to announce something significant when it’s ready.

Derick Ma, Analyst, TD Cowen: Okay, understood. Thank you.

Operator: Our next question comes from Matt Summerville with D.A. Davidson. Please go ahead with your question.

Matt Summerville, Analyst, D.A. Davidson: Yes. Excuse me. Thank you. Just a couple quick ones. First, can you kind of talk through the puts and takes in magnetics revenue and EBITDA in the second half of the year, and how we should be thinking about the ultimate phasing of the commercial ramp over the course of 2027 to hit that initial 1,000 tons per year nameplate? I have a quick follow-up after.

Ryan Corbett, Chief Financial Officer, MP Materials: Yeah, sure. It’s Ryan again. I’ll take that. I think we’ve tried to message to you all that the ramp down in precursor product sales and the ramp up of magnet sales will definitionally be lumpy and nonlinear. Good example obviously is this quarter. We began operating the commercial magnet production facilities for our trial shipments and for our run and rate testing. If you look at the P&L there, you saw a pretty significant amount of overhead and labor and materials costs that are not yet inventoriable but are very typical of a startup of this type of operation. Just given the structure of our arrangement on the pricing for precursor products, that necessitates that many of those costs that previously were ascribable to metal production are now allocated into the magnet portions of the facility.

I think the interesting thing is, behind the scenes, we had our best metal production quarter ever. I think that what we’ve laid out is the beginning of commercial shipments of magnets in Q4. There’ll be a modest ramp of volume over time, but again, as I mentioned earlier, we need to be sequencing exactly those deliveries at different production cadences, aligning with the demand at various production plants of our customer. We will learn more about that and have more to share with you guys as we get closer to the end of the year, as far as the cadence of 2027.

Matt Summerville, Analyst, D.A. Davidson: Thanks. Just quickly as a follow-up, as I think about NdPr demand for just the U.S. Defense complex, can you help frame what that looks like today and what it could look like, say, over the next few years if the administration sort of gets its way with its desired rearmament and incremental militarization as a function of where they want to take the DOW budget, how significant that could be to NdPr demand, if there’s a way to frame that? Thanks.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: I’m sorry, that’s classified. We could tell you, but we’d have to kill you. Defense demand currently, if you’re looking at things like missiles, is a small amount of demand. The key question, if we look at drones, for example, there are estimates. It’s hard to know because a lot’s China and Ukraine. There are estimates that maybe drone production is somewhere around 12 million a year. If you do the math, we estimate that maybe it’s somewhere between 500 and 1,000 tons of magnet demand. It’s not a huge amount relative to the industry. It is essentially 100% in China, and that is certainly a dual use technology that, in fact, we saw some recent stuff around drones this past week with the Chinese further banning export. I think the takeaway is that if you look at the demand today, it’s relatively immaterial.

If you look at it Three to five years out, it’s going to be quite large given the fact that realistically, MP is the only company that can satisfy that demand, because that’s going to be an area where there’s going to be very strict watching of what is sent out of China, obviously to support the American defense supply chain. That, again, is some of the thinking around Swarm, which is we want to be early and ahead of it and help the industry standardize and make sure that they know that we’re going to be there for them. I think it will be a very attractive piece of business for us. Again, it’s immaterial today.

Matt Summerville, Analyst, D.A. Davidson: Thank you.

Operator: Our last question comes from Ben Kallo with Baird. Please go ahead with your question.

Ben Kallo, Analyst, Baird: Hey, guys. Thanks for taking my question. I know we’re short on time, so I’m just going to ask a big picture question. Throughout history, I think that in times of extreme scarcity, there’s always been innovation. I just want to understand what you guys are doing to make sure that you’re ahead on that innovation side, because it seems like the problem, throughout the call, you’ve been stressing how big the problem is. It seems like the innovation will come in and help solve the problem. What are you guys doing in terms of R&D or anything else? Thank you, guys.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Sure. There’s innovation, there’s sort of different levels of that. There’s innovation as far as getting your cost structure down, thrifting hard or expensive materials. That is obviously something as we have been doing from the beginning with Independence and soon with 10X, where we’ve got an enormous team and we are maniacal at pushing that forward. I would say that I’m very proud of the team that we’ve assembled and the progress that we’ve made. We talk about that quite a bit. I think there’s quite a bit of innovation happening there. Then I think if you’re talking about sort of innovation as far as substitution, there’s no question that people are always going to try to substitute expensive or hard-to-find things.

We witnessed this, you go back five or six years ago when the EV was on the rise, there was talk about people who were saying, "We’re going to have rare earth free magnets." Of course that sort of flamed out. It didn’t really happen. There was some heavy thrifting, but it didn’t happen. In fact, demand went quite a bit higher. Interestingly, with respect to robotics, you do not hear that at all. I think one of the reasons is because when it comes to robotics, size, weight, torque density, these things really matter more so. In a big car, you can have a bigger magnet, a less efficient magnet. There’s ways that you can compensate. You can make those cost trade-offs.

When it comes to some of these physical AI use cases, I think it’s going to be that much harder to innovate, and that’s probably one of the reasons why we don’t hear a lot of that talk. Again, when things get scarce and hard, people are always going to try, and there needs to be some. There’s no question because the supply-demand imbalance is so large.

Michael Rosenthal, Founder and Chief Operating Officer, MP Materials: I think we’re also seeing working with our customers to innovate our products and to customize or to accommodate our products and their needs to what is available and what we can make available. I think the fact that we will have a domestic supply chain for the first time in a long time gives unique opportunities for that kind of innovation.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: On that point, just one last point that is something that we don’t talk much about, but given the team that we’ve built, and our thinking about magnetics formulas and how we do things, these things are never static, right? There are different things that come in, everything is cyclical. The way you make a magnet today may be very different than how you make it three years from now, because there may be different things that are scarce. We have done a lot of work around building the capability to make sure that we are being thoughtful about how we’re making magnets and also how we’re making the capability to make magnets so that we can evolve over time as the market evolves. I think that’s going to be a key thing.

If you think the world is just going to be static and it’s like, I got to get X of this and Y of that, by the time that comes to fruition, things may totally have changed. They may have not, but you’ve got to be in a position to adapt quickly, and I think that our magnetics team has been at that for years, and I think we have pretty extraordinary capability on that front.

Ben Kallo, Analyst, Baird: Thank you. Awesome.

Operator: That concludes the question and answer portion of today’s call. I will now hand the call back to Mr. Litinsky for closing remarks.

James Litinsky, Founder, Chairman, and Chief Executive Officer, MP Materials: Okay. Thank you. This was a really solid quarter of execution. A lot is going on both at Mountain Pass and in Texas. A little bit of breaking news, during the call, I got a photo. We are now officially vertical on our site for 10X. We are moving very quickly on construction there, and we will get back to work and see you next quarter.