MP Materials Corp DE

Previous wording

We produce rare earth concentrate products as well as refined rare earth oxides and related products. The rare earth concentrate is principally sold pursuant to the Offtake Agreements to Shenghe (as such terms are defined in Note 19, “Related-Party Transactions,” in the notes to the unaudited Condensed Consolidated Financial Statements), that, in turn, typically sells that product to refiners in China. Following the commissioning of our Stage II optimization project (“Stage II”) in the second half of 2023, we began producing and selling separated rare earth products, including neodymium-praseodymium (“NdPr”) oxide. Additionally, we have a long-term agreement with General Motors Company (NYSE: GM) (“GM”) to supply U.S.-sourced and manufactured rare earth materials and finished magnets for the electric motors in more than a dozen models based on GM’s Ultium Platform. In April 2024, pursuant to the long-term supply agreement with GM, we received a $50.0 million initial prepayment for magnetic precursor materials. See Note 14, “Revenue Recognition” in the notes to the unaudited Condensed Consolidated Financial Statements for additional details. These developments are part of our Stage III downstream expansion strategy (“Stage III”).

Current wording

We produce rare earth concentrate products as well as refined rare earth oxides and related products. The rare earth concentrate is principally sold pursuant to the Offtake Agreements to Shenghe (as such terms are defined in Note 19, “Related-Party Transactions,” in the notes to the unaudited Condensed Consolidated Financial Statements), that, in turn, typically sells that product to refiners in China. Following the commissioning of our Stage II optimization project (“Stage II”) in the second half of 2023, we began producing and selling separated rare earth products, including neodymium-praseodymium (“NdPr”) oxide. Additionally, we have a long-term agreement with General Motors Company (NYSE: GM) (“GM”) to supply U.S.-sourced and manufactured rare earth materials and finished magnets for the electric motors in more than a dozen GM models. In April 2024, pursuant to the long-term supply agreement with GM, we received a $50.0 million initial prepayment for magnetic precursor materials. See Note 14, “Revenue Recognition” in the notes to the unaudited Condensed Consolidated Financial Statements for additional details. These developments are part of our Stage III downstream expansion strategy (“Stage III”).

Previous wording

Certain rare earth elements (“REE”) serve as critical inputs for the rare earth magnets inside the electric motors and generators powering carbon-reducing technologies such as hybrid and electric vehicles (referred to collectively as “xEVs”) and wind turbines, as well as drones, defense systems, robotics and many other high-growth, advanced technologies. In addition, rare earth magnets are critical components of various consumer electronics, appliance, and industrial products. Our integrated operations at Mountain Pass combine low production costs with high environmental standards, thereby restoring American leadership to a critical industry with a strong commitment to sustainability.

Current wording

Certain rare earth elements (“REE”) serve as critical inputs for the rare earth magnets inside the electric motors and generators powering carbon-reducing technologies such as hybrid and electric vehicles (referred to collectively as “xEVs”) and wind turbines, as well as drones, defense systems, robotics and many other high-growth, advanced technologies. In addition, rare earth magnets are critical components of various consumer electronics, appliances, and industrial products. Our integrated operations at Mountain Pass combine low production costs with high environmental standards, thereby restoring American leadership to a critical industry with a strong commitment to sustainability.

Previous wording

In March 2024, we issued $747.5 million aggregate principal amount of 3.00% unsecured convertible senior notes that mature, unless earlier converted, redeemed or repurchased, on March 1, 2030 (the “2030 Notes”). In connection with the offering, we entered into privately negotiated capped call transactions (the “Capped Call Options”) with certain financial institutions, which cover, subject to anti-dilution adjustments substantially similar to those in the 2030 Notes, 34.4 million shares of our common stock, the same number of shares that initially underlie the 2030 Notes.

Current wording

In March 2024, we issued $747.5 million in aggregate principal amount of 3.00% unsecured convertible senior notes that mature, unless earlier converted, redeemed or repurchased, on March 1, 2030 (the “2030 Notes”). In connection with the offering, we entered into privately negotiated capped call transactions (the “Capped Call Options”) with certain financial institutions, which cover, subject to anti-dilution adjustments substantially similar to those in the 2030 Notes, 34.4 million shares of our common stock, the same number of shares that initially underlie the 2030 Notes.

Previous wording

Also, in March 2024, principally in connection with the offering of the 2030 Notes, we repurchased (i) $480.0 million in aggregate principal amount of our 0.25% unsecured convertible senior notes that mature, unless earlier converted, redeemed or repurchased, on April 1, 2026 (the “2026 Notes” and, together with the 2030 Notes, the “Convertible Notes”) for $428.6 million, and (ii) 13.0 million shares of our common stock at an aggregate cost of $200.8 million. See the“Liquidity and Capital Resources” section below for full discussion of these transactions.

Current wording

Also, in March 2024, principally in connection with the offering of the 2030 Notes, we repurchased (i) $480.0 million in aggregate principal amount of our 0.25% unsecured convertible senior notes that mature, unless earlier converted, redeemed or repurchased, on April 1, 2026 (the “2026 Notes” and, together with the 2030 Notes, the “Convertible Notes”) for $428.6 million, and (ii) 13.0 million shares of our common stock at an aggregate cost of $200.8 million. In August 2024, we repurchased an additional 2.2 million shares of our common stock at an aggregate cost of $24.3 million. See the“Liquidity and Capital Resources” section below for a full discussion of these transactions.

Previous wording

We have a mix of contracts with customers where we sell NdPr as (i) oxide, (ii) metal, where the amount of oxide required to produce such metal is variable, and (iii) metal, where we have a guarantee of the amount produced and sold based on the amount of oxide consumed. Among other factors, differences between quarterly NdPr Production Volume and NdPr Sales Volume may be caused by the time required for the conversion of NdPr oxide to NdPr metal, including time in-transit.

Current wording

We have a mix of contracts with customers where we sell NdPr as (i) oxide, (ii) metal, where the amount of oxide required to produce such metal is variable, and (iii) metal, where we have a guarantee of the amount produced and sold based on the amount of oxide consumed. Among other factors, differences between quarterly NdPr Production Volume and NdPr Sales Volume may be caused by the time required for the conversion of NdPr oxide to NdPr metal, including time in-transit, as well as differences in actual versus assumed yields of oxide to metal in the calculation of NdPr Sales Volume.

Previous wording

Subsequent to the implementation of our Stage I optimization plan, and starting in 2021, we have achieved at least 40,000 MTs of annual REO Production Volume. These results were achieved by optimizing the reagent scheme, reducing process temperatures, improving tailings facility management, and committing to operational excellence, which has allowed us to achieve approximately 92% uptime in 2023. Our Stage I optimization plan enabled us to achieve what we believe to be world-class production cost levels for rare earth concentrate.

Current wording

Subsequent to the implementation of our Stage I optimization plan, and starting in 2021, we have achieved at least 40,000 MTs of annual REO Production Volume. These results were achieved by optimizing the reagent scheme, reducing process temperatures, improving tailings facility management, and committing to operational excellence, which allowed us to achieve approximately 92% uptime in our most recent full fiscal year. Our Stage I optimization plan enabled us to achieve what we believe to be world-class production cost levels for rare earth concentrate.

Previous wording

The success of our business reflects our ability to continue to manage our costs. Our production achievements in Stage I have provided economies of scale to lower production costs per MT of REO produced in concentrate. Furthermore, we designed our Stage II process flow to capitalize on the inherent advantages of the bastnaesite ore at Mountain Pass, that is well-suited to low-cost refining by selectively eliminating the need to carry cerium, a lower-value mineral, through the separations process. Additionally, our location offers transportation advantages that create meaningful cost efficiencies in securing incoming supplies and shipping of our final products.

Current wording

The success of our business reflects our ability to continue to manage our costs and drive scale. Our production achievements in Stage I have provided economies of scale to lower production costs per MT of REO produced in concentrate. Furthermore, we designed our Stage II process flow to capitalize on the inherent advantages of the bastnaesite ore at Mountain Pass, which is well-suited to low-cost refining by selectively eliminating the need to carry cerium, a lower-value mineral, through the separations process. Additionally, our location and integration offer cost and transportation advantages that create meaningful efficiencies in production, security of incoming supplies and shipping of our final products.

Previous wording

During the second half of 2023, we began producing separated rare earth products. However, we expect that it may take many quarters to achieve our designed throughput of separated products. As we increase production of separated products over time, we expect to improve our per-unit production costs of NdPr oxide, which represents a majority of the value contained in our concentrate. Until such time, we may experience unstable operations and elevated costs of our initial production of separated products.

Current wording

During the second half of 2023, we began producing separated rare earth products. However, we continue to expect that it may take many quarters to achieve our designed throughput of separated products. As we increase production of separated products over time, we expect to improve our per-unit production costs of NdPr oxide, which represents a majority of the value contained in our concentrate. Until such time, we may experience unstable operations and elevated costs of our initial production of separated products.

Previous wording

Partially supported by a $35.0 million award from the Department of Defense’s Office of Industrial Base Policy, Industrial Base Analysis and Sustainment program, we are currently advancing the facilitating works, engineering and procurement on our processing and separations facility for heavy rare earth elements (“HREE”) (the “HREE Facility”), which will be built at Mountain Pass and will be integrated into the rest of our Stage I and Stage II facilities. The HREE Facility is expected to support the separating of HREE contained in the Mountain Pass ore as well as from third-party feedstocks.

Current wording

Partially supported by a $35.0 million award from the Department of Defense’s Office of Industrial Base Policy, Industrial Base Analysis and Sustainment program, we are currently advancing the facilitating works, engineering and procurement on our processing and separations facility for heavy rare earth elements (“HREE”) (the “HREE Facility”), which will be built at Mountain Pass and will be integrated into the rest of our Stage I and Stage II facilities.

Previous wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

Rare earth concentrater evenue consists primarily of sales of traditional and roasted rare earth concentrate. The decreases in rare earth concentrate revenue for the three and six months ended June 30, 2024, as compared to the respective prior year periods, were driven by lower Realized Price per REO MT, which decreased by 33% and 45%, respectively, as well as lower REO Sales Volume, which decreased by 43% and 26%, respectively.

Current wording

Rare earth concentrater evenue consists primarily of sales of traditional and roasted rare earth concentrate. The decreases in rare earth concentrate revenue for the three and nine months ended September 30, 2024, as compared to the respective prior year periods, were driven primarily by lower Realized Price per REO MT, which decreased by 23% and 40%, respectively. The three months ended September 30, 2024, benefited from an increase in REO Sales Volume of 6%, while the nine months ended September 30, 2024, were impacted by lower REO Sales Volume, which decreased by 16%.

Previous wording

Realized Price per REO MT for the three and six months ended June 30, 2024, reflects the continued softness in the pricing environment for rare earth products. As noted above in the“Factors Affecting our Performance” section, market prices for rare earth products may be volatile due to actual or perceived changes in supply or demand. The decline in the market prices for rare earth products was largely attributable to lower than anticipated growth in demand for magnetic products, which negatively impacted the price of REE. The decreases in REO Sales Volume for the three and six months ended June 30, 2024, were due to the ramp-up of Stage II operations where a significant portion of the REO produced, which could otherwise have been sold as rare earth concentrate, was used to produce packaged and finished separated rare earth products. In addition, the decreases in REO Sales Volume were also impacted by higher unplanned downtime as a result of equipment damage to one of our thickeners, which impacted production for approximately three weeks and contributed to decreases in REO Production Volume for the three and six months ended June 30, 2024.

Current wording

Realized Price per REO MT for the three and nine months ended September 30, 2024, reflects the continued softness in the pricing environment for rare earth products. As noted above in the“Factors Affecting our Performance” section, market prices for rare earth products may be volatile due to actual or perceived changes in supply or demand. The decline in the market prices for rare earth products was largely attributable to lower than anticipated growth in demand for magnetic products, which negatively impacted the price of REE. The increase in REO Sales Volume for the three months ended September 30, 2024, was primarily the result of an increase in REO Production Volume of 28%, reflecting higher mineral recoveries and operational efficiencies achieved as part of our ongoing efforts to expand upstream capacity. The decrease in REO Sales Volume for the nine months ended September 30, 2024, was due to the ramp-up of Stage II operations where a significant portion of the REO produced, which could otherwise have been sold as rare earth concentrate, was used in our refining process to produce separated rare earth products.

Previous wording

Historically, our REO Sales Volume had generally tracked our REO Production Volume over time with slight period-to-period differences caused by the timing of shipments. However, as we continue to ramp up production of separated rare earth materials, we expect that significant volumes of REO produced from Stage I operations will be retained for separation and not sold as concentrate. In addition, a significant portion of the contained cerium in the REO produced will be intentionally rejected and may not result in finished product. Accordingly, as evidenced beginning in the third quarter of 2023 (see the“Quarterly Performance Trend” section below), we expect that REO Sales Volume will be significantly lower than REO Production Volume in the future as we produce and sell more separated products.

Current wording

Prior to the commencement of production of separated rare earth materials in the third quarter of 2023, our REO Sales Volume generally tracked our REO Production Volume over time with slight period-to-period differences caused by the timing of shipments. However, as we have ramped production of separated rare earth materials, significant volumes of REO produced from Stage I operations have been retained for separation rather than sold as concentrate, resulting in REO Sales Volume being significantly below REO Production Volume. In addition, a significant portion of the contained cerium in the REO produced is intentionally rejected and may not result in finished product. We expect this trend to continue in the future as we produce and sell more separated products. See the“Quarterly Performance Trend” section below for additional information.

Previous wording

NdPr oxide and metal revenue consists of sales of NdPr oxide and metal, which commenced in the fourth quarter of 2023, primarily pursuant to our distribution agreement with Sumitomo Corporation of Americas. As we ramp up production of separated rare earth products, we expect our NdPr oxide and metal revenue to become a larger proportion of our total revenue. Accordingly, to the extent we sell a greater volume of NdPr oxide and NdPr metal, we expect that rare earth concentrate revenue will decline in future periods.

Current wording

NdPr oxide and metal revenue consists of sales of NdPr oxide and metal, which commenced in the fourth quarter of 2023. As we ramp up production of separated rare earth products, we expect our NdPr oxide and metal revenue to become a larger proportion of our total revenue. Accordingly, to the extent we sell a greater volume of NdPr oxide and NdPr metal, we expect that rare earth concentrate revenue will decline in future periods.

Previous wording

COS for the three and six months ended June 30, 2024, increased year over year primarily due to the current year periods’ inclusion of $11.8 million and $17.8 million, respectively, in reserves on certain of our work in process and finished goods inventories. We may incur additional similar reserves of inventories prior to achieving normalized production levels on our Stage II facilities. The increases in COS were also driven by: (i) $1.9 million in higher repairs and maintenance expenses associated with the thickener equipment damage in the second quarter of 2024; (ii) higher payroll costs, which increased as a result of salaries and wages of certain employees no longer being considered start-up costs given the commencement of initial production of separated products in late 2023; and (iii) higher professional services, as well as higher property and other taxes.

Current wording

The increases in COS for the three and nine months ended September 30, 2024, were driven by elevated per-unit production costs associated with separated rare earth products sold in the current year periods, as we continue to ramp and optimize production of separated products. The increases in COS were also attributable to higher payroll costs, professional services, and property and other taxes. Additionally, the nine months ended September 30, 2024, included $1.9 million in higher repairs and maintenance expenses associated with the thickener equipment damage in the second quarter of 2024. Lastly, COS for the nine months ended September 30, 2024, included $15.1 million in reserves on certain of our work in process and finished goods inventories, which represented a reduction in the reserve of $2.7 million from the most recent quarter that benefited COS for the three months ended September 30, 2024. We may incur additional reserves on inventories prior to achieving normalized production levels on our Stage II facilities.

Previous wording

SG&A expenses increased by $2.6 million, or 14% for the three months ended June 30, 2024, and by $4.4 million, or 12% for the six months ended June 30, 2024, as compared to the respective prior year periods. The increases in SG&A expenses were primarily due to higher legal costs and additional professional services costs related to our enterprise resource planning system implementation. In addition, SG&A expenses for the six months ended June 30, 2024, were also impacted by higher personnel costs (other than stock-based compensation expense), in part to support our downstream expansion.

Current wording

The increases in SG&A expenses were primarily due to higher personnel costs (other than stock-based compensation expense), which increased by $1.1 million and $3.1 million for the three and nine months ended September 30, 2024, respectively, as compared to the respective prior year periods, partially due to increased employee headcount to support our downstream expansion. In addition, higher legal costs as well as costs related to our enterprise resource planning system implementation contributed to the increase for both comparable periods.

Previous wording

Depreciation, depletion and amortization primarily consists of depreciation of property, plant and equipment and depletion of mineral rights. The year-over-year increase in depreciation, depletion and amortization for the three and six months ended June 30, 2024, primarily reflects an increase in depreciation of $5.9 million and $15.6 million, respectively. Depreciation increased as a result of the timing of placing new circuits and facilities associated with our Stage II optimization project into service, which occurred progressively throughout 2023, and the placement of certain of our Fort Worth Facility assets into service in the fourth quarter of 2023.

Current wording

Depreciation, depletion and amortization primarily consists of depreciation of property, plant and equipment and depletion of mineral rights. The year-over-year increases in depreciation, depletion and amortization for the three and nine months ended September 30, 2024, primarily reflect increases in depreciation of $2.1 million and $17.6 million, respectively. Depreciation increased as a result of the timing of placing new circuits and facilities associated with our Stage II optimization project into service, which occurred progressively throughout 2023, and the placement of certain of our Fort Worth Facility assets into service in the fourth quarter of 2023.

Previous wording

Start-up costs for the three and six months ended June 30, 2024, decreased by $2.7 million and $6.1 million, respectively, as compared to the prior year comparable periods, attributable to the commencement of our operations related to our Stage II optimization project. As mentioned above, start-up costs associated with Stage II decreased, specifically as a result of salaries and wages of certain employees no longer being considered start-up given the commencement of initial production of separated products in late 2023. Start-up costs attributable to our Stage III initiatives increased modestly year over year, in-line with the development of our magnetics capability and team headcount.

Current wording

Start-up costs for the three and nine months ended September 30, 2024, decreased by $5.7 million and $11.8 million, respectively, as compared to the prior year comparable periods, attributable to the commencement of our operations related to our Stage II optimization project. Start-up costs associated with Stage II decreased, specifically as a result of salaries and wages of certain employees no longer being considered start-up given the commencement of initial production of separated products in late 2023, which also resulted in the higher personnel costs discussed above within COS. Start-up costs attributable to our Stage III initiatives increased by $0.8 million and $2.0 million, respectively, for the three and nine months ended September 30, 2024, as compared to the prior year comparable periods, in line with the development of our magnetics capability and team headcount.

Previous wording

Advanced projects and development consists principally of costs incurred in connection with research and development of new processes or to significantly enhance our existing processes; and certain government contracts, as well as costs incurred to support growth initiatives or pursue other opportunities. Advanced projects and development for the three and six months ended June 30, 2024, decreased year over year, primarily due to lower costs incurred for legal, consulting, and advisory services to support growth initiatives, such as potential acquisitions, mergers, or other investments, which decreased by $1.5 million and $1.3 million, respectively, when compared to the respective prior year periods. This was partially offset by continued investment in research and development activities associated with Stage III magnetics, which increased by $0.5 million and $1.0 million, respectively, when compared to the respective prior year periods.

Current wording

Advanced projects and development consists principally of costs incurred in connection with research and development of new processes or to significantly enhance our existing processes; and certain government contracts, as well as costs incurred to support growth initiatives or pursue other opportunities. Advanced projects and development for the three and nine months ended September 30, 2024, decreased year over year, primarily due to lower costs incurred for legal, consulting, and advisory services to support growth initiatives, such as potential acquisitions, mergers, or other investments, which decreased by $0.9 million and $2.2 million, respectively, when compared to the respective prior year periods. This was partially offset by continued investment in research and development activities associated with Stage III magnetics, which increased by $0.6 million and $1.6 million, respectively, when compared to the respective prior year periods.

Previous wording

Other operating costs and expenses consists primarily of accretion of asset retirement and environmental obligations and gains or losses on disposals of long-lived assets, including demolition costs. Other operating costs and expenses for the three and six months ended June 30, 2024, decreased year over year as a result of demolition costs incurred in the prior year period, associated with demolishing and removing certain out-of-use older facilities and infrastructure from the Mountain Pass site to accommodate future expansion in rare earth processing.

Current wording

Other operating costs and expenses consists primarily of accretion of asset retirement and environmental obligations and gains or losses on disposals of long-lived assets, including demolition costs. Other operating costs and expenses decreased year over year as a result of demolition costs incurred in the prior year periods, totaling $0.8 million and $5.5 million for the three and nine months ended September 30, 2023, respectively, associated with demolishing and removing certain out-of-use older facilities and infrastructure from the Mountain Pass site to accommodate future expansion in rare earth processing.

Previous wording

Interest expense, net principally consists of expense associated with the 0.25% and 3.00% per annum interest rates and amortization of the debt issuance costs on our 2026 Notes and 2030 Notes, respectively, offset by capitalized interest. Interest expense, net for the three and six months ended June 30, 2024, increased year over year due to the issuance of the 2030 Notes, partially offset by repurchases of the 2026 Notes.

Current wording

Interest expense, net principally consists of expense associated with the 0.25% and 3.00% per annum interest rates and amortization of the debt issuance costs on our 2026 Notes and 2030 Notes, respectively, offset by capitalized interest. Interest expense, net for the three and nine months ended September 30, 2024, increased year over year due to the issuance of the 2030 Notes, partially offset by repurchases of the 2026 Notes.

Previous wording

Gain on early extinguishment of debt during the six months ended June 30, 2024, is the result of the repurchase of a portion of our 2026 Notes at prices lower than the associated carrying amounts. See the“Liquidity and Capital Resources” section below for additional information.

Current wording

Gain on early extinguishment of debt during the nine months ended September 30, 2024, is the result of the repurchase of a portion of our 2026 Notes at prices lower than the associated carrying amounts. See the“Liquidity and Capital Resources” section below for additional information.

Previous wording

Other income, net consists of interest and investment income and non-operating gains or losses. Other income, net for the three and six months ended June 30, 2024, decreased year over year as a result of interest and investment income earned on our short-term investments. Interest and investment income is principally generated from accretion of the discount on such investments.

Current wording

Other income, net consists of interest and investment income and non-operating gains or losses. Other income, net for the three and nine months ended September 30, 2024, decreased year over year as a result of lower interest and investment income earned on our short-term investments, whose balance decreased slightly over the applicable periods. Interest and investment income is principally generated from accretion of the discount on such investments.

Previous wording

Income tax benefit (expense) consists of an estimate of U.S. federal and state income taxes in the jurisdictions in which we conduct business, adjusted for federal, state and local allowable income tax benefits, the effect of permanent differences and any valuation allowance against deferred tax assets. The effective tax rate (income tax expense as a percentage of income before income taxes) was 29.3% and 28.4% for the three and six months ended June 30, 2024, respectively, as compared to 42.7% and 23.0% for the three and six months ended June 30, 2023, respectively. The effective tax rate for the three and six months ended June 30, 2024 and 2023, differed from the statutory tax rate of 21% primarily due to the Section 45X Advanced Manufacturing Production Credit and the California Competes Tax Credit, offset by state income tax expense and a deduction limitation on officers’ compensation.

Current wording

Income tax benefit (expense) consists of an estimate of U.S. federal and state income taxes in the jurisdictions in which we conduct business, adjusted for federal, state and local allowable income tax benefits, the effect of permanent differences and any valuation allowance against deferred tax assets. The effective tax rate (income tax expense as a percentage of income before income taxes) was 26.8% and 27.5% for the three and nine months ended September 30, 2024, respectively, as compared to 4.5% and 24.5% for the three and nine months ended September 30, 2023, respectively. The effective tax rate for the three and nine months ended September 30, 2024 and 2023, differed from the statutory tax rate of 21% primarily due to the Section 45X Advanced Manufacturing Production Credit (the “45X Credit”) and the California Competes Tax Credit, offset by state income tax expense and a deduction limitation on officers’ compensation. For additional information on the 45X Credit, see Note 15, “Government Grants,” in the notes to the unaudited Condensed Consolidated Financial Statements.

Previous wording

While our business is not highly seasonal in nature, we sometimes experience a timing lag between production and sales, which may result in volatility in our results of operations between periods. The timing lag may be the result of, or influenced by, factors such as the timing and duration of shipments or the time required to convert materials. In addition, quarterly production of concentrate is impacted by the timing of scheduled outages of our production facilities for maintenance, which typically occur in the second and fourth quarters. Finally, since we began production of separated rare earth materials in the third quarter of 2023, certain volumes of REO produced are further processed rather than sold as concentrate.

Current wording

While our business is not highly seasonal in nature, we sometimes experience a timing lag between production and sales, which may result in volatility in our results of operations between periods. The timing lag may be the result of, or influenced by, factors such as the timing and duration of shipments or the time required to convert materials. In addition, quarterly production of concentrate and separated products is impacted by the timing of scheduled outages of our production facilities for maintenance, which typically occur in the second and fourth quarters. Finally, since we began production of separated rare earth materials in the third quarter of 2023, certain volumes of REO produced are further processed or rejected rather than sold as concentrate.

Previous wording

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. 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 2026 Notes in March 2021, and net cash from operating activities. In addition, we issued the 2030 Notes in March 2024, resulting in net proceeds of $731.4 million prior to the use of a portion of these funds to repurchase the 2026 Notes, repurchase shares of our common stock, and purchase Capped Call Options, as discussed below. As of June 30, 2024, we had $937.0 million of cash, cash equivalents and short-term investments and $957.5 million principal amount of long-term debt.

Current wording

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. Since becoming a public company, our principal sources of liquidity have been the issuance of the 2026 Notes in March 2021, and net cash from operating activities. In addition, we issued the 2030 Notes in March 2024, resulting in net proceeds of $731.4 million prior to the use of a portion of these funds to repurchase the 2026 Notes, repurchase shares of our common stock, and purchase Capped Call Options, as discussed below. As of September 30, 2024, we had $866.5 million of cash, cash equivalents and short-term investments and $957.5 million of principal amount of long-term debt.

Previous wording

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 market conditions, decisions regarding downstream production capability, and future acquisitions.

Current wording

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 approximately $200 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 market conditions, decisions regarding downstream production capability, and future acquisitions.

Previous wording

2026 Notes: In March 2021, we issued $690.0 million aggregate principal amount of 0.25% unsecured convertible senior notes at a price of par. Interest on the 2026 Notes is payable on April 1 st and October 1 st of each year, beginning on October 1, 2021.

Current wording

2026 Notes: In March 2021, we issued $690.0 million in aggregate principal amount of 0.25% unsecured convertible senior notes at a price of par. Interest on the 2026 Notes is payable on April 1 st and October 1 st of each year, beginning on October 1, 2021.

Previous wording

Contemporaneous with the pricing of the 2030 Notes, we entered into privately negotiated transactions with certain holders of the 2026 Notes to repurchase $400.0 million in aggregate principal amount of the 2026 Notes, using $358.0 million of the net proceeds from the offering of the 2030 Notes. The price we paid to repurchase the 2026 Notes, 89.5% of par value, was the same for each lender and approximated the trading price of the 2026 Notes at the time of the repurchases. Subsequent to the issuance of the 2030 Notes, we repurchased an additional $80.0 million in aggregate principal amount of the 2026 Notes in open market transactions for $70.6 million. As a result of the repurchases of 2026 Notes, during the six months ended June 30, 2024, we recorded a $46.3 million gain on early extinguishment of debt.

Current wording

Contemporaneous with the pricing of the 2030 Notes, we entered into privately negotiated transactions with certain holders of the 2026 Notes to repurchase $400.0 million in aggregate principal amount of the 2026 Notes, using $358.0 million of the net proceeds from the offering of the 2030 Notes. The price we paid to repurchase the 2026 Notes, 89.5% of par value, was the same for each lender and approximated the trading price of the 2026 Notes at the time of the repurchases. Subsequent to the issuance of the 2030 Notes, we repurchased an additional $80.0 million in aggregate principal amount of the 2026 Notes in open market transactions for $70.6 million. As a result of these repurchases, we recorded a $46.3 million gain on early extinguishment of debt in the first quarter of 2024.

Previous wording

The remaining 2026 Notes outstanding mature, unless earlier converted, redeemed or repurchased, on April 1, 2026. The initial conversion price of the remaining 2026 Notes is approximately $44.28 per share, or 22.5861 shares per $1,000 principal amount of notes, subject to adjustment upon the occurrence of certain events. As of June 30, 2024, the maximum number of shares that could be issued to satisfy the conversion feature of the 2026 Notes was 5,999,994 shares.

Current wording

The remaining 2026 Notes outstanding mature, unless earlier converted, redeemed or repurchased, on April 1, 2026. The initial conversion price of the remaining 2026 Notes is approximately $44.28 per share, or 22.5861 shares per $1,000 principal amount of notes, subject to adjustment upon the occurrence of certain events. As of September 30, 2024, the maximum number of shares of common stock that could be issued to satisfy the conversion feature of the 2026 Notes was 5,999,994 shares of common stock.

Previous wording

The 2030 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at an initial conversion price of approximately $21.74 per share, or 45.9939 shares per $1,000 principal amount of 2030 Notes, subject to adjustment upon the occurrence of certain events. As of June 30, 2024, the maximum number of shares that could be issued to satisfy the conversion feature of the 2030 Notes was 48,132,646 shares.

Current wording

The 2030 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at an initial conversion price of approximately $21.74 per share, or 45.9939 shares per $1,000 principal amount of 2030 Notes, subject to adjustment upon the occurrence of certain events. As of September 30, 2024, the maximum number of shares of common stock that could be issued to satisfy the conversion feature of the 2030 Notes was 48,132,646 shares of common stock.

Previous wording

Equipment Notes: We have financing agreements for the purchase of certain equipment, including trucks, tractors, loaders, graders, and various other machinery. As of June 30, 2024, we had $3.7 million in principal (and accrued interest) outstanding under the equipment notes. See Note 10, “Debt Obligations,” in the notes to the unaudited Condensed Consolidated Financial Statements for further information.

Current wording

Equipment Notes: We have financing agreements for the purchase of certain equipment, including trucks, tractors, loaders, graders, and various other machinery. As of September 30, 2024, we had $3.1 million in principal (and accrued interest) outstanding under the equipment notes. See Note 10, “Debt Obligations,” in the notes to the unaudited Condensed Consolidated Financial Statements for further information.

Previous wording

Leases: We have lease arrangements for certain equipment and facilities, including office space, vehicles and equipment used in our operations. As of June 30, 2024, we had future expected lease payment obligations totaling $9.5 million, with $1.7 million due within the next 12 months. See Note 11, “Leases,” in the notes to the unaudited Condensed Consolidated Financial Statements for further information.

Current wording

Leases: We have lease arrangements for certain equipment and facilities, including office space, vehicles and equipment used in our operations. As of September 30, 2024, we had future expected lease payment obligations totaling $9.7 million, with $2.3 million due within the next 12 months. See Note 11, “Leases,” in the notes to the unaudited Condensed Consolidated Financial Statements for further information.

Previous wording

In March 2024, our Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $300.0 million of our outstanding common stock. The program is effective until March 1, 2025, and does not require the purchase of any minimum number of shares.

Current wording

In March 2024, our Board of Directors approved a share repurchase program (the “Program”) effective for one year under which the Company became authorized to repurchase up to an aggregate amount of $300.0 million of our outstanding common stock. In August 2024, our Board of Directors approved a $300.0 million increase to the Program, bringing the total authorized amount to $600.0 million. The Program was also extended and is effective until August 30, 2026. This authorization does not require the purchase of any minimum number of shares.

Previous wording

During the six months ended June 30, 2024, we repurchased 13.0 million shares of our common stock under the program at an aggregate cost of $200.8 million. See Note 16, “Stockholders’ Equity and Stock-based Compensation,” in the notes to the unaudited Condensed Consolidated Financial Statements for additional information.

Current wording

During the nine months ended September 30, 2024, we repurchased 15.2 million shares of our common stock under the Program at an aggregate cost of $225.1 million. See Note 16, “Stockholders’ Equity and Stock-based Compensation,” in the notes to the unaudited Condensed Consolidated Financial Statements for additional information.

Previous wording

Net Cash Provided by (Used in) Operating Activities: Net cash used in operating activities was $10.3 million for the six months ended June 30, 2024, as compared to net cash provided by operating activities of $65.5 million in the prior year period. The change in cash flows from operating activities was primarily driven by a decrease in revenue and an increase in inventories to support commissioning of our Stage II separations facilities and the related change in working capital as we increase production of separated products. These decreases were partially offset by the receipt of a $50.0 million initial prepayment pursuant to the long-term supply agreement with GM for magnetic precursor materials.

Current wording

Net Cash Provided by (Used in) Operating Activities: Net cash used in operating activities was $17.1 million for the nine months ended September 30, 2024, as compared to net cash provided by operating activities of $76.5 million in the prior year period. The change in cash flows from operating activities was primarily driven by a decrease in revenue and an increase in inventories to support commissioning of our Stage II separations facilities and the related change in working capital as we increase production of separated products. These decreases were partially offset by the receipt of a $50.0 million initial prepayment pursuant to the long-term supply agreement with GM for magnetic precursor materials and receipt of $19.4 million related to the 45X Credit claimed on our 2023 federal tax return.

Previous wording

Net Cash Provided by Investing Activities: Net cash provided by investing activities decreased by $717.1 million for the six months ended June 30, 2024, as compared to the prior year period. The change in cash flows from investing activities was primarily driven by the net cash flow impact, which was $749.2 million, of a year-over-year decrease in proceeds from short-term investments, offset by year-over-year increases in purchases and maturities of short-term investments. Also, additions to property, plant and equipment for the six months ended June 30, 2024, decreased by $32.0 million when compared to the prior year period, and related primarily to a decrease in construction spend on our Stage II optimization project given the timing of completion.

Current wording

Net Cash Provided by Investing Activities: Net cash provided by investing activities decreased by $306.1 million for the nine months ended September 30, 2024, as compared to the prior year period. The decrease in cash flows from investing activities was primarily driven by the net cash flow impact, which was $349.3 million, of a year-over-year increase in purchases of short-term investments, offset only partially by a small increase in proceeds from sales and maturities of short-term investments. Also, additions to property, plant and equipment for the nine months ended September 30, 2024, decreased by $43.2 million when compared to the prior year period, and related primarily to a decrease in construction spend on our Stage II optimization project given the timing of completion and placement into service.

Previous wording

Net Cash Provided by (Used in) Financing Activities: Net cash provided by financing activities was $31.4 million for the six months ended June 30, 2024, as compared to net cash used in financing activities of $7.6 million in the prior year period. The change in cash flows from financing activities was driven by the net cash flow impact, which was $36.7 million, of the issuance of the 2030 Notes, the payments of debt issuance costs associated with the 2030 Notes, the payments made to retire a significant portion of the 2026 Notes, the purchase of the Capped Call Options, and the payments made to repurchase our common stock, all of which occurred during the six months ended June 30, 2024.

Current wording

Net Cash Provided by (Used in) Financing Activities: Net cash provided by financing activities was $6.0 million for the nine months ended September 30, 2024, as compared to net cash used in financing activities of $8.6 million in the prior year period. The change in cash flows from financing activities was driven by the net cash flow impact, which was $12.4 million, of the issuance of the 2030 Notes, the payments of debt issuance costs associated with the 2030 Notes, the payments made to retire a significant portion of the 2026 Notes, the purchase of the Capped Call Options, and the payments made to repurchase our common stock, all of which occurred during the nine months ended September 30, 2024.

Previous wording

(6)Tax impact of adjustments is calculated using an adjusted effective tax rate, which excludes the impact of discrete tax costs and benefits, to each adjustment. The adjusted effective tax rates were 24.7%, 30.1%, 31.3% and 25.1% for the three and six months ended June 30, 2024 and 2023, respectively.

Current wording

(6)Tax impact of adjustments is calculated using an adjusted effective tax rate, which excludes the impact of discrete tax costs and benefits, to each adjustment. The adjusted effective tax rates were 33.1%, 28.5%, 29.8% and 26.7% for the three and nine months ended September 30, 2024 and 2023, respectively.

Previous wording

(1)Tax impact of adjustments is calculated using an adjusted effective tax rate, which excludes the impact of discrete tax costs and benefits, to each adjustment. The adjusted effective tax rates were 24.7%, 30.1%, 31.3% and 25.1% for the three and six months ended June 30, 2024 and 2023, respectively.

Current wording

(1)Tax impact of adjustments is calculated using an adjusted effective tax rate, which excludes the impact of discrete tax costs and benefits, to each adjustment. The adjusted effective tax rates were 33.1%, 28.5%, 29.8% and 26.7% for the three and nine months ended September 30, 2024 and 2023, respectively.