MP Materials Corp DE

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 December 31, 2023, we had $997.8 million of cash, cash equivalents and short-term investments and $690.0 million principal amount of long-term debt.

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 continues to exist as to the market price of REO, as evidenced by the volatility experienced in 2022 and the significant decrease seen in 2023, primarily due to concerns over the global economic conditions and actual or perceived concerns over increases in the supply of and/or decreases in demand for rare earth products. The significant decrease in the market price of rare earth products in 2023 negatively impacted our cash flows from operations and liquidity.

Our current working capital needs relate mainly to our mining, beneficiation, and separation operations. As we began the transition to selling separated rare earth products in 2023, our working capital needs increased materially, portions of which we expect to continue in 2024 as we ramp up the production and sales of separated rare earth products and advance our Stage III magnetics initiatives.

The completion of our mission to become a fully integrated domestic magnetics producer is expected to be capital intensive. With the construction portion of our Stage II optimization project complete, our principal capital expenditure requirements relate mainly to further investment in Mountain Pass, including the development of the HREE Facility, Upstream 60K, and other growth and investment projects, completing the buildout of the Fort Worth Facility, as well as periodic repairs and maintenance of mining and rare earth processing equipment. We expect to spend between $200 million and $250 million of capital costs in 2024, with further costs for all of these identified projects in 2025. Our future capital requirements will also depend on several other factors, including future acquisitions and potential additional investments in further downstream production.

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.

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 1 st and October 1 st of each year, beginning on October 1, 2021.

The Convertible Notes may, at our election, be settled in cash, shares of our common stock, or a combination thereof. We have 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 our 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 exceed 28.5714 shares of common stock per $1,000 principal amount of notes.

Prior to January 1, 2026, at their election, holders of the Convertible Notes may convert their outstanding notes under the following circumstances: (i) during any calendar quarter commencing with the third quarter of 2021 if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the indenture governing the Convertible Notes) per $1,000 principal amount of Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (iii) if we call any or all of the Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events set forth in the indenture governing the Convertible Notes. On or after January 1, 2026, and prior to the maturity date of the Convertible Notes, holders may convert their outstanding notes at any time, regardless of the foregoing circumstances.

If we undergo a fundamental change (as defined in the indenture governing the Convertible Notes), holders may require us to repurchase for cash all or any portion of their outstanding notes at a price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for holders who elect to convert their outstanding notes in connection with such corporate event or notice of redemption, as the case may be.

At the time of issuance, we aimed 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” intended to reduce our environmental impact and/or enable the production of low-carbon technologies. As of December 31, 2023, all the net proceeds from the Convertible Notes offering were allocated to investments in eligible green projects, including through the utilization of the permitted 36-month lookback period. Until such time that the allocation was complete, the net proceeds were held for general corporate purposes.

Equipment Notes: We have financing agreements for the purchase of certain equipment, including trucks, tractors, loaders, graders, and various other machinery. As of December 31, 2023, we had $4.7 million in principal (and accrued interest) outstanding under the equipment notes, of which $2.1 million is due within the next 12 months.

Leases: We have lease arrangements for certain equipment and facilities, including office space, vehicles and equipment used in our operations. As of December 31, 2023, we had future expected lease payment obligations totaling $10.4 million, with $1.7 million due within the next 12 months. See Note 11, “Leases,” in the notes to the Consolidated Financial Statements for further information.

Purchase Obligations: Our outstanding purchase obligations as of December 31, 2023, primarily consist of purchase orders initiated with vendors and suppliers in the ordinary course of business for operating and maintenance capital expenditures that will be settled within one year. In certain instances, we are permitted to cancel, reschedule or adjust these orders. Consequently, only a small portion of these outstanding purchase orders relate to firm, non-cancelable and unconditional obligations. We have also entered into long-term supply arrangements for certain chemical reagents used in our operations, which is based on current consumption requirements.

Asset Retirement and Environmental Obligations: See Note 8, “Asset Retirement and Environmental Obligations,” in the notes to the Consolidated Financial Statements for our estimated cash requirements to settle asset retirement and environmental obligations.

Other: In order to support our Fort Worth Facility, we expect to hire at least an additional 100 full-time employees within the next two years, which will result in additional cash requirements for salaries, benefits and training. We also expect to spend an additional $5 million to $6 million within the next year on completing the implementation of a new enterprise resource planning system. Lastly, our engineering, procurement, and construction contracts are typically cancellable.

Cash Flows

The following table summarizes our cash flows:

N/M = Not meaningful.

Net Cash Provided by Operating Activities: Net cash provided by operating activities decreased by $280.8 million for the year ended December 31, 2023, as compared to the prior year, reflecting a decrease in revenue, an increase in inventories to support our Stage II separations facilities as well as our Stage III initiatives, and a $1.2 million increase in cash paid for income taxes, as compared to the prior year. The decrease in net cash provided by operating activities was partially offset by a $20.4 million increase in interest received on our short-term investments and money market funds for the year ended December 31, 2023, as compared to the prior year. In addition, $13.6 million of our revenue was excluded from cash provided by operating activities for the year ended December 31, 2022, since that portion of the sales price was retained by Shenghe to reduce the debt obligation, with no similar amount in the current year.

Net Cash Provided by (Used in) Investing Activities: Net cash provided by investing activities was $68.7 million for the year ended December 31, 2023, compared to net cash used in investing activities of $1,357.0 million in the prior year. The change related primarily to activity in our short-term investments, with the total activity (i.e., purchases, sales, and maturities) in the current year resulting in net cash proceeds of $337.4 million, which were largely used to fund additions to property, plant and equipment. For the year ended December 31, 2022, the total activity in our short-term investments resulted in net cash purchases of $1,035.5 million. Additions to property, plant and equipment for the year ended December 31, 2023, which related primarily to construction spend on our Stage II optimization project, the Fort Worth Facility, and other investments in Mountain Pass, decreased by $64.7 million when compared to the prior year, which was largely due to the timing of substantially completing the assets associated with the Stage II optimization project. Net cash provided by investing activities in the current year was partially offset by a $9.7 million payment in exchange for a 49% equity interest in VREX Holdco.

Net Cash Used in Financing Activities: Net cash used in financing activities decreased by $14.3 million for the year ended December 31, 2023, as compared to the prior year, 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 to fully satisfy the debt obligation.