MP Materials Corp DE

NOTE 13—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. Other than the matter described below, the Company is not aware of any pending or threatened litigation that it believes would have a material adverse effect on its Consolidated Financial Statements.

The Company is currently in dispute with a general contractor for a construction project, which may go to binding arbitration. The Company disputes that it owes any monies in connection with this construction project. The Company is unable to estimate a range of loss, if any, at this time. If an unfavorable outcome were to occur in the case, it is possible that the impact could be material to the Company’s Consolidated Financial Statements in the period in which any such outcome becomes probable and reasonably estimable.

401(k) Plan: The Company maintains a qualified defined contribution retirement plan under the provisions of Section 401(k) of the Internal Revenue Code, which covers all eligible employees (the “MP 401(k) Plan”). Under the MP 401(k) Plan, eligible employees may contribute up to 90% of their pretax salary, subject to the Internal Revenue Service annual contribution limits. The Company makes a discretionary match contribution, where applicable, of 100% of employees’ elective salary deferrals, up to a maximum of 4% of eligible employee compensation. For the years ended December 31, 2023, 2022, and 2021, the Company recognized contribution expense of $2.0 million, $0.9 million, and $0.6 million, respectively.

NOTE 14—STOCKHOLDERS’ EQUITY

Common Stock and Preferred Stock

The Company’s certificate of incorporation authorizes it to issue up to 500,000,000 shares, consisting of (i)450,000,000 shares of common stock and (ii)50,000,000 shares of preferred stock, each with a par value of $0.0001 per share.

Public Warrants

Warrants to purchase 11,499,968 shares of the Company’s common stock at $11.50 per share (the “Public Warrants”) were issued in connection with the initial public offering of Fortress Value Acquisition Corp., the special purpose acquisition company that acquired MP Mine Operations LLC, a Delaware limited liability company (“MPMO”) and SNR on November 17, 2020 (the “Business Combination”), pursuant to the Warrant Agreement, dated April 29, 2020 (the “Warrant Agreement”), by and between the Company and Continental Stock Transfer & Trust Company (“CST”), as warrant agent. These warrants qualified as equity instruments as they were indexed to the Company’s stock and settlement in shares was within the Company’s control.

On May 4, 2021, at the direction of the Company, CST, in its capacity as warrant agent, delivered a notice of redemption to each of the registered holders of the outstanding Public Warrants for a redemption price of $0.01 per warrant (the “Redemption Price”), that remained outstanding on June 7, 2021 (the “Redemption Date”). In accordance with the Warrant Agreement, the Company’s Board of Directors elected to require that, upon delivery of the notice of redemption, all Public Warrants were to be exercised only on a “cashless basis.” Accordingly, a holder exercising a Public Warrant was deemed to pay the $11.50 per warrant exercise price by the surrender of 0.3808 of a share of common stock that such holder would have been entitled to receive upon a cash exercise, resulting in exercising warrant holders receiving 0.6192 of a share of common stock for each Public Warrant surrendered for exercise. All Public Warrants that remained unexercised on the Redemption Date were delisted, voided and no longer exercisable, and the holders had no rights with respect to those Public Warrants, except to receive the Redemption Price.

During the year ended December 31, 2021, the Company issued 7,080,005 shares of its common stock as a result of the cashless exercise of 11,434,455 Public Warrants. The Company redeemed the remaining 65,513 Public Warrants outstanding at the Redemption Date for a nominal amount.

NOTE 15—REVENUE RECOGNITION

The following table disaggregates the Company’s revenue from contracts with customers by type of good sold, which are transferred to customers at a point in time:

The Company evaluates the recognition of revenue based on the criteria set forth in ASC Topic 606, “Revenue from Contracts with Customers.” Given the nature of the Company’s contracts with customers, contract assets and contract liabilities are not material for any period presented. Furthermore, the amount of revenue recognized in the periods presented from performance obligations that were satisfied (or partially satisfied) in previous periods were not material to any period presented. Refer to Note 2, “Significant Accounting Policies,” for the Company’s revenue recognition policies.

Rare earth concentrate revenue is primarily generated from sales to Shenghe under the amended and restated offtake agreement (“A&R Offtake Agreement”) for sales between January 2022 and February 2022, or the Offtake Agreement (as defined in Note 20, “Related-Party Transactions”) 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, with an adjustment for the ultimate market price of the product realized by Shenghe upon sales to their customers, including the impact of changes in the exchange rate between the Chinese Yuan and the U.S. dollar.

NdPr oxide and metal revenue was generated from sales that commenced in the fourth quarter of 2023 under individual sales agreements. Other rare earth product revenue was generated primarily from sales of non-concentrate products, including sales to Shenghe of certain stockpiles of rare earth fluoride for the year ended December 31, 2022.

NOTE 16—GOVERNMENT GRANTS

Asset-Based Grants: 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 (this “project”) in the amount of $9.6 million. Pursuant to the terms of the TIA, the Company was required to utilize the funds to acquire property and equipment that contribute to the mission of this project. Furthermore, in exchange for these funds, the Company is required to provide the DOD with periodic reporting specific to this project for up to approximately five years.

During the years ended December 31, 2022 and 2021, pursuant to the TIA, the Company received $5.1 million and $4.4 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 were included in machinery and equipment as of December 31, 2023 and 2022. As of December 31, 2023, the Company is entitled to receive an additional $0.1 million from the DOD under the TIA.

In February 2022, the Company was awarded a $35.0 million contract by the DOD’s Office of Industrial Base Analysis and Sustainment program to design and build a facility to process heavy rare earth elements (“HREE”) at Mountain Pass (the “HREE Facility”) (the “HREE Production Project Agreement”). The Company must utilize the 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, the DOD will have certain rights to technical data following the completion of the project. The funds received pursuant to the HREE Production Project Agreement reduce the carrying amount of the fixed assets associated with the HREE Facility. During the year ended December 31, 2023, the Company had received $2.8 million from the DOD under the HREE Production Project Agreement, which reduced the carrying amount of assets under construction.

Income-Based Grants: As mentioned in Note 12, “Income Taxes,” in August 2022, the U.S. government enacted the Inflation Reduction Act of 2022, which, among other things, promotes clean energy adoption by providing several tax incentives for the domestic production and sale of eligible components for tax years beginning after December 31, 2022. Specifically, the 45X Credit provides a credit equal to 10% of eligible “production costs incurred” with respect to the production and sale of critical minerals, including NdPr oxide. In December 2023, the Internal Revenue Service released proposed regulations on the 45X Credit which, among other things, clarified that the definition of “production costs incurred” excludes direct and indirect materials costs, including costs related to the extraction or acquisition of raw materials.

For corporate taxpayers, the 45X Credit is eligible for the direct pay election, which allows a refund of the credit in excess of tax liability. The Company intends to make this election on its 2023 tax return, and such election is binding, unless revoked, for five years (i.e., through 2027). Accordingly, the Company determined that the 45X Credit is not within the scope of ASC 740, and instead, should be accounted for as an income-based grant. As such, during the period that the 45X Credit is refundable, the Company will recognize such credit as a reduction to either “Cost of sales (excluding depreciation, depletion and amortization) (including related party)” or “Depreciation, depletion and amortization,” within the Company’s Consolidated Statements of Operations, depending on the location of the corresponding expense, in the period the critical mineral is sold to a customer. Within the Company’s Consolidated Balance Sheets, such 45X Credit is reflected in “Government grant receivable” and, when applicable, “Deferred government grant.”

As of December 31, 2023, the 45X Credit in government grant receivable of $19.3 million as well as the related deferred government grant of $19.1 million, of which $1.7 million is included in “Other current liabilities” within the Company’s Consolidated Balance Sheet, primarily related to the inclusion of tax depreciation on assets that support production of critical minerals, including the Company’s Stage II circuits that were placed into service during 2023 and qualify for bonus tax depreciation treatment. The deferred government grant associated with tax depreciation in 2023 will be recognized as a reduction of depreciation expense on a straight-line basis over the remaining estimated useful life of the underlying long-lived assets, which is approximately 11 years. For the year ended December 31, 2023, the benefits recognized from income-based government grants in the Company’s Consolidated Statements of Operations were not material.

NOTE 17—STOCK-BASED COMPENSATION

2020 Incentive Plan: In November 2020, the Company’s stockholders approved the MP Materials Corp. 2020 Stock Incentive Plan (the “2020 Incentive Plan”), which permits the Company to issue stock options (incentive and/or non-qualified); stock appreciation rights (“SARs”); restricted stock, restricted stock units (“RSUs”) and other stock awards (“Stock Awards”); and performance awards. As of December 31, 2023, the Company has not issued any stock options or SARs.

Pursuant to the 2020 Incentive Plan,9,653,671 shares of common stock were initially available for issuance. The number of shares of common stock available under the 2020 Incentive Plan may be increased annually on the first day of each calendar year, beginning with the year ended December 31, 2021, and continuing until (and including) the year ending December 31, 2030, with such annual increase equal to the lesser of (i)2% of the number of shares of stock issued and outstanding on December 31 st of the immediately preceding fiscal year and (ii) an amount determined by the Board of Directors. The number of shares of common stock that remain available for future grants under the 2020 Incentive Plan shall be reduced by the sum of the aggregate number of shares of common stock that become subject to outstanding options, outstanding free-standing SARs, outstanding Stock Awards, and outstanding performance awards denominated in shares of common stock, other than substitute awards. As of December 31, 2023, there were 5,928,540 shares available for future grants under the 2020 Incentive Plan.

Market-Based PSUs: In February 2023, pursuant to the 2020 Incentive Plan, the Compensation Committee of the Company’s Board of Directors adopted a performance share plan (the “2023 Performance Share Plan”). Pursuant to the 2023 Performance Share Plan, for the year ended December 31, 2023, the Company granted 62,709 of market-based performance stock units (“PSUs”) at target, all of which cliff vest after a requisite performance and service period ofthree years. The PSUs have the potential to be earned at between 0% and 200% of the number of awards granted depending on the level of growth of the Company’s total shareholder return (“TSR”) as compared to the TSR of the S&P 400 Index and the S&P 400 Materials Group over the performance period. The fair value of the market-based PSUs was determined using a Monte Carlo simulation technique.

The following table contains information on the Company’s performance awards:

As of December 31, 2023, the unamortized compensation cost not yet recognized related to performance awards totaled $2.1 million and the weighted-average period over which the costs are expected to be recognized was 2.0 years.

Stock Awards: Pursuant to the terms and conditions of certain executive employment agreements, in connection with the consummation of the Business Combination,2,013,006 shares of restricted stock were issued in November 2020, of which 200,000 shares immediately vested and the remainder of shares were to vest ratably pursuant the respective employment agreements over the requisite service period of four years.

The Company granted 805,322,382,742 and 1,026,387 RSUs to employees during the years ended December 31, 2023, 2022, and 2021, respectively, which, with the exception of 67,700,36,461 and 80,350 RSUs granted during the years ended December 31, 2023, 2022 and 2021, respectively, that vested immediately, vest ratably in equal installments over the requisite service period offour years.

Additionally, the Company granted 48,177,23,975 and 18,394 RSUs to non-employee directors during the years ended December 31, 2023, 2022, and 2021, respectively, of which,10,691,6,881 and 5,810 vested immediately into tax-deferred stock units (“DSUs”) during the years ended December 31, 2023, 2022 and 2021, respectively. The remaining RSUs granted vest into DSUs upon the earlier of one year after the grant date and the next annual stockholder meeting. The DSUs are settled as shares of common stock of the Company upon the earlier of (i) June 15 th of the fifth year after grant, (ii) a change in control of the Company, or (iii) the director’s separation from the Board, unless the director elects to defer settlement until retirement.

The grant date fair value of the Company’s Stock Awards is based on the closing stock price of the Company’s shares of common stock on the date of grant. The weighted-average grant date fair value of Stock Awards granted during the years ended December 31, 2023, 2022, and 2021 was $24.13, $38.52 and $41.24, respectively.

The following table contains information on the Company’s Stock Awards:

As of December 31, 2023, the unamortized compensation cost not yet recognized related to Stock Awards totaled $23.2 million and the weighted-average period over which the costs are expected to be recognized was 1.8 years. The total fair value of Stock Awards that vested during the years ended December 31, 2023, 2022 and 2021, was $20.7 million, $40.0 million and $10.9 million, respectively.

Stock-Based Compensation: The Company’s stock-based compensation and related income tax benefit were recorded as follows:

NOTE 18—FAIR VALUE MEASUREMENTS

ASC Topic 820, “Fair Value Measurement,” 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:

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, 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 Consolidated Balance Sheets approximate the fair value of cash, cash equivalents and restricted cash due to the short-term nature of these assets.

Short-term Investments

The fair value of the Company’s short-term investments, which are classified as available-for-sale securities, is estimated based on quoted prices in active markets and is classified as a Level 1 measurement.

Convertible Notes

The fair value of the Company’s Convertible Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement.

Equipment Notes

The Company’s equipment notes are classified within Level 2 of the fair value hierarchy because there are inputs that are directly observable for substantially the full term of the liability. Model-based valuation techniques for which all significant inputs are observable in active markets were used to calculate the fair values of liabilities classified within Level 2 of the fair value hierarchy.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying amounts and estimated fair values by input level of the Company’s financial instruments were as follows:

NOTE 19—EARNINGS PER SHARE

Basic 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 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:

The following table presents potentially dilutive shares that were not included in the computation of diluted EPS because to do so would have been antidilutive:

The following table presents the calculation of basic and diluted EPS for the Company’s common stock:

(1)The years ended December 31, 2022, and 2021, were tax-effected at a rate of 15.3% and 15.7%, respectively.

(2)The Convertible Notes were antidilutive for the year ended December 31, 2023. Convertible debt becomes antidilutive whenever its interest expense (net of tax) per common share obtainable upon conversion exceeds basic EPS.

NOTE 20—RELATED-PARTY TRANSACTIONS

Offtake Agreement: In March 2022, the Company entered into an offtake agreement (the “Offtake Agreement”) with Shenghe Resources (Singapore) International Trading Pte. Ltd. (“Shenghe”), a majority-owned subsidiary of Leshan Shenghe Rare Earth Co., Ltd. whose ultimate parent is Shenghe Resources Holding Co., Ltd., a leading global rare earth company listed on the Shanghai Stock Exchange. The Offtake Agreement became effective upon the termination of the amended and restated offtake agreement with Shenghe. The initial term of the Offtake Agreement istwo years, with the option to extend the term at the Company’s discretion for an additionalone-year period.

Pursuant to the Offtake Agreement, and subject to certain exclusions, Shenghe is obligated to purchase on a “take or pay” basis the rare earth concentrate produced by the Company as the exclusive distributor in China, with certain exceptions for the Company’s direct sales globally. In addition, at the discretion of the Company, Shenghe may be required to purchase on a “take or pay” basis certain non-concentrate rare earth products, although the Company may sell all non-concentrate rare earth products in its sole discretion to customers or end users in any jurisdiction.

The sales price of rare earth concentrate sold to Shenghe is based on an agreed-upon price per metric ton, with an adjustment for the ultimate market price of the product realized by Shenghe upon sales to their customers. The sales price and other terms applicable to a quantity of offtake products are set forth in monthly purchase agreements between the Company and Shenghe. Under the Offtake Agreement, Shenghe is paid a variable commission on net proceeds to the Company.

In January 2024, the Company entered into a new offtake agreement with Shenghe (the “New Offtake Agreement”) that replaced and extended the Offtake Agreement. The initial term of the New Offtake Agreement istwo years, with the option for the Company to extend the term for an additionalone-year period. The terms of the New Offtake Agreement are substantially the same as those of the Offtake Agreement with the exception of the addition of NdPr metal into the definition of non-concentrate rare earth products.

Tolling Agreement with VREX Holdco: In October 2023, prior to the Company’s investment in VREX Holdco, the Company entered into a tolling agreement with VREX Holdco (the “Tolling Agreement”). Pursuant to the Tolling Agreement, the Company delivers NdPr oxide to VREX Holdco, which VREX Holdco then causes VREX to process into NdPr metal for delivery to the Company’s customers globally. As several of the Company’s potential customers that manufacture magnets outside of China prefer to purchase NdPr metal in addition to NdPr oxide, this Tolling Agreement enables the Company to distribute NdPr products more widely to customers in Japan and other global markets. During the term of the Tolling Agreement, the Company will pay VREX Holdco a processing fee per unit of rare earth metal produced. The Company maintains title to the products and directly enters into sales agreements for the produced NdPr metal. The initial term of the Tolling Agreement isthree years and may be renewed for additional three-year terms.

During the year ended December 31, 2023, prior to the Company’s investment in VREX Holdco, the Company made a payment of $1.2 million to VREX Holdco for tolling services, of which, the majority was for services yet to be performed by VREX. Refer to Note 6, “Equity Method Investment,” for additional information on the investment in VREX Holdco.

Revenue and Cost of Sales: The Company’s related-party revenue and cost of sales were as follows:

(1)Represents sales agreements with Shenghe for non-concentrate products, including certain stockpiles of rare earth fluoride.

Purchases of Materials and Supplies: The Company purchases certain reagent products (generally produced by an unrelated third party manufacturer) used in the flotation process as well as other materials from Shenghe in the ordinary course of business. Total purchases for the years ended December 31, 2023, 2022 and 2021, totaled $8.3 million, $18.5 million and $4.8 million, respectively.

Accounts Receivable: As of December 31, 2023 and 2022, $9.2 million and $29.8 million, respectively, of the accounts receivable as stated on the Consolidated Balance Sheets, were receivable from and pertained to sales made to Shenghe in the ordinary course of business.

NOTE 21—SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information and non-cash investing and financing activities were as follows: