MP Materials Corp. / DE (MP) FY 2021 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related notes appearing elsewhere in this annual report on Form 10-K for the year ended December 31, 2021 (this “Annual Report”). A discussion of changes in our results of operations and cash flows between years ended December 31, 2020 and 2019, has been omitted from this Annual Report, but may be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Comparison of the Years Ended December 31, 2020 and 2019,” of our annual report on Form 10-K for the year ended December 31, 2020, filed with the U.S. Securities and Exchange Commission on March 22, 2021. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Item 1A. Risk Factors” and elsewhere in this Annual Report. In addition, see “Cautionary Note Regarding Forward-Looking Statements.” References herein to the “Company,” “MP Materials,” “we,” “our,” and “us,” refer to MP Materials Corp. and its subsidiaries.

Executive Overview

MP Materials Corp. is the largest producer of rare earth materials in the Western Hemisphere. The Company owns and operates the Mountain Pass Rare Earth Mine and Processing Facility (“Mountain Pass”), the only rare earth mining and processing site of scale in North America. We estimate the rare earth concentrate we produced and sold in 2021 represented approximately 15% of the rare earth content consumed in the global market. Separated rare earth elements (“REE”) are critical inputs for the magnets that enable the mobility of electric vehicles (“EVs”), drones, defense systems, wind turbines, robotics and many other high-growth, advanced technologies. 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.

We currently produce a rare earth concentrate that we sell pursuant to the A&R Offtake Agreement (as defined in the “Comparability of Results” section below) to Shenghe Resources (Singapore) International Trading Pte. Ltd. (“Shenghe”), an affiliate of Shenghe Resources Holding Co., Ltd., a leading global rare earth company that is publicly listed in China, that, in turn, typically sells that product to refiners in China. These refiners separate the constituent REE contained in our concentrate and sell the separated products to their customers. Upon completion of our Stage II optimization project (“Stage II”), we anticipate producing separated rare earth oxides (“REO”), including neodymium-praseodymium (“NdPr”) oxide, and selling these products directly to end users, at which time we may no longer sell our concentrate.

In December 2021, we announced that we will build our initial rare earth metal, alloy and magnet manufacturing facility in Fort Worth, Texas (the “Fort Worth Facility”). In addition, we announced that we had entered into a long-term agreement with General Motors Company (NYSE: GM) (“GM”) to supply U.S.-sourced and manufactured rare earth materials, alloy and finished magnets for the electric motors in more than a dozen models using GM’s Ultium Platform, with a gradual production ramp that begins in 2023. We are currently negotiating the terms of a definitive long-term supply agreement with GM which will include all of the necessary terms and conditions. These developments are a part of our Stage III downstream expansion strategy (“Stage III”).

Highlights from the year ended December 31, 2021, include:

•Revenue growth of 147% year over year, driven by increases in REO production and sales volume and realized price per REO metric ton (“MT”);

•REO production growth of 10% year over year to 42,413 MTs, reflecting higher ore feed rates and mineral recoveries;

•Net income of $135.0 million, compared to a net loss of $21.8 million in the prior year, largely driven by higher revenues and a one-time, non-cash settlement charge of $66.5 million in the prior year;

•Adjusted EBITDA (see below) of $219.1 million, compared to $42.6 million in the prior year, representing growth of 414% year over year, driven by higher per-unit profitability and production efficiencies, slightly offset by increased public company and growth and development costs;

•Net cash provided by operating activities of $102.0 million, an increase from $3.3 million in the prior year;

•Adjusted Net Income (see below) growth of 693% year over year, largely driven by higher revenues;

•Diluted earnings per share of $0.73, compared to loss per share of $0.27 in the prior year;

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•Net proceeds of $672.3 million raised from the issuance of Convertible Notes (as defined in the “Liquidity and Capital Resources” section below) in March 2021; and

•Steady progress on our Stage II optimization project and acceleration of our Stage III strategy with the announcements of the Fort Worth Facility and the entrance into a long-term agreement with GM.

Our results of operations for the year ended December 31, 2021, demonstrate our strong operational execution as demand for rare earth materials continues to grow, which also resulted in prices for rare earth products, particularly those used in NdFeB magnets, to rise significantly. In 2021, we produced the highest REO output in the history of Mountain Pass. As we continue to drive strong performance in our Stage I operations, we are continuing to make progress on our Stage II optimization project and expect to reach normalized separated oxide production levels in 2023. In addition, our Stage III team is making significant progress on our strategy to repatriate magnet manufacturing to the United States, starting with our initial facility in Fort Worth, Texas.

We consider net income (loss) to be the most directly comparable financial measure calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) to Adjusted EBITDA and Adjusted Net Income (Loss), which are non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section below for the definitions of Adjusted EBITDA and Adjusted Net Income (Loss), as well as a reconciliation of net income (loss) to Adjusted EBITDA and Adjusted Net Income (Loss).

Key Performance Indicators

We use the following key performance indicators to evaluate the performance of our business. Our calculations of these performance indicators may differ from similar measures published by other companies in our industry or in other industries. The following table presents our key performance indicators:

REO Production Volume

We measure our REO-equivalent production volume for a given period in MTs, our principal unit of sale. This measure refers to the REO content contained in the rare earth concentrate we produce. Our REO production volume is a key indicator of our mining and processing capacity and efficiency.

The rare earth concentrate we currently produce is a processed, concentrated form of our mined rare earth-bearing ores. While our unit of production and sale is a MT of embedded REO, the actual weight of our rare earth concentrate is significantly greater, as the concentrate also contains non-REO minerals and residual moisture from the production process. We target REO content of greater than 60% per dry MT of concentrate (referred to as “REO grade”). The elemental distribution of REO in our concentrate is relatively consistent over time and production lot. We consider this the natural distribution, as it reflects the distribution of elements contained, on average, in our ore. As noted above, upon completion of Stage II, we expect to refine our rare earth concentrate to produce separated rare earths, including separated NdPr oxide.

REO Sales Volume

Our REO sales volume for a given period is calculated in MTs. A unit, or MT, is considered sold for purposes of this performance indicator once we recognize revenue on its sale. Our REO sales volume is a key measure of our ability to convert our production into revenue.

Realized Price per REO MT

We calculate the realized price per REO MT for a given period as the quotient of: (i) our Total Value Realized (see below) for a given period and (ii) our REO sales volume for the same period. We define Total Value Realized, which is a non-GAAP financial measure, as our product sales adjusted for the revenue impact of tariff-related rebates from Shenghe on account of

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prior sales, and, in connection with our sales of REO to Shenghe between July 1, 2019, and June 5, 2020, the Shenghe Implied Discount. The Shenghe Implied Discount is equal to the difference between (i) Shenghe’s average realized price, net of taxes, tariffs and certain other agreed-upon charges (such as one-time demurrage charges) on our products once sold to their ultimate customers and (ii) the amount of revenue we recognized on the sales of those products to Shenghe for sales between July 1, 2019, and June 5, 2020, which includes a non-cash portion.

Under the terms of the Original Offtake Agreement, for the period between July 1, 2019, and June 5, 2020, Shenghe purchased our rare earth products at an agreed-upon cash price per MT, which was intended to approximate our cash cost of production, and in turn resold it at market prices to its customers. As discussed below, in addition to the revenue we recognized from the cash sales prices, we also realized an amount of deferred revenue applicable to these sales equal to 64% of Shenghe’s gross profit. Upon entrance into the A&R Offtake Agreement, we began to recognize revenue at the full value of our product.

Realized price per REO MT is an important measure of the market price of our product. Accordingly, we calculate realized price per REO MT to reflect a consistent basis between periods by eliminating the impact of recognizing revenue at a discount during the period between July 1, 2019, and June 5, 2020, and the revenue impact of tariff-related rebates. See the “Non-GAAP Financial Measures” section below for a reconciliation of our Total Value Realized, which is a non-GAAP financial measure, to our product sales, which is determined in accordance with GAAP, as well as the calculation of realized price per REO MT.

Production Cost per REO MT

We calculate the production cost per REO MT for a given period as the quotient of: (i) our Production Costs (see below) for a given period and (ii) our REO sales volume for the same period. We define Production Costs, which is a non-GAAP financial measure, as our cost of sales (excluding depletion, depreciation and amortization) less stock-based compensation expense included in cost of sales, shipping and freight costs, and costs attributable to certain other sales, for a given period.

Production cost per REO MT is a key indicator of our production efficiency. As a significant portion of our cash costs of Stage I production are fixed, our production cost per REO MT is influenced by mineral recovery, REO grade, plant feed rate and production uptime. See the “Non-GAAP Financial Measures” section below for a reconciliation of our Production Costs, which is a non-GAAP financial measure, to our cost of sales (excluding depletion, depreciation and amortization), which is determined in accordance with GAAP, as well as the calculation of production cost per REO MT.

Key Factors Affecting Our Performance

We believe we are uniquely positioned to capitalize on the key trends of electrification and supply chain security, particularly as domestic EV production grows. Our success depends to a significant extent on our ability to take advantage of the following opportunities and meet the challenges associated with them.

Demand for REE

The key demand driver for REE is their use in a diverse array of growing end markets, including: clean-energy and transportation technologies (e.g., traction motors in EVs and generators in wind power turbines); high-technology applications (e.g., miniaturization of smart phones and other mobile devices, fiber optics, lasers, robotics, medical devices, etc.); critical defense applications (e.g., guidance and control systems, global positioning systems, radar and sonar, drones, etc.); and essential industrial infrastructure (e.g., advanced catalyst applications in oil refining and pollution-control systems in traditional internal-combustion automobiles, etc.). We believe these drivers will fuel the continued growth of the rare earth market, particularly the market for NdPr.

We believe we benefit from several demand tailwinds for REE, and particularly NdPr. These include the trend toward electrification, geographic supply chain diversification particularly in relation to China, the U.S. government strategy to restore domestic supply of key minerals, and the increasing acceptance of environmental, social and governance mandates. However, changes in technology may also drive down the use of REE, including NdPr, in the components in which they are now used, or lead to a decline in reliance on such components altogether. We also operate in a competitive industry, and many of our key competitors are based in China, where competitors may not be subject to the same rigorous environmental standards and production costs are typically lower than in the United States.

Maximizing Production Efficiency

In 2021, REO production was approximately 3.5x greater than the highest ever production in a twelve-month period by the prior operator of Mountain Pass using principally the same capital equipment. We achieved these results through an optimized reagent scheme, lower process temperatures, better management of the tailings facility, and a commitment to operational

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excellence, driving approximately 95% uptime. We believe that our Stage I optimization initiatives enabled us to achieve world-class production cost levels for rare earth concentrate.

The success of our business reflects and will reflect our ability to manage our costs. Our production achievements in Stage I have provided economies of scale to lower production costs per unit of REO produced in concentrate. Stage II is designed to enable us to continue to manage our cost structure for separating REE through an optimized facility process flow. The reintroduction of the oxidizing roasting step will allow us to capitalize on the inherent advantages of the bastnaesite ore at Mountain Pass, which is uniquely suitable to low-cost refining by selectively eliminating the need to carry lower-value cerium through the separations process. The recommissioning of our natural gas-powered combined heat and power (“CHP”) plant, which was completed in December 2021, will remove our reliance on the regional electric power grid. Further, our location offers significant transportation advantages that create meaningful cost efficiencies in securing incoming supplies and shipping of our final products.

We currently operate a single site in a single location, and any stoppage in activity, including for reasons outside of our control, could adversely impact our production, results of operations and cash flows. In addition, several of our current and potential competitors are government supported and may have access to substantially greater capital, which may allow them to make similar or greater efficiency improvements or undercut market prices for our product.

Development of Our REE Refining Capabilities and Other Opportunities

Stage II is focused on advancing our operations from the production of rare earth concentrate to the separation of individual REE. Engineering, procurement, construction, and other recommissioning activities are underway and involve upgrades and enhancements to the existing facility process flow to reliably produce separated REE at a lower cost and with an expected smaller environmental footprint per unit of REO produced. As part of Stage II, we are in the process of reintroducing an oxidizing roasting circuit, reorienting the plant process flow, increasing product finishing capacity, improving wastewater management, and making other improvements to materials handling and storage. Upon completion of Stage II, we expect to be a global low-cost, high-volume producer of NdPr oxide, which represents a majority of the value contained in our ore.

Further, we are pursuing opportunities to integrate further downstream into the business of upgrading NdPr into metal alloys and magnets, including magnet recycling, ultimately expanding our presence as a global source for rare earth magnetics, as evidenced by our recent announcement to build the Fort Worth Facility. We believe integration into magnet production will provide some protection from commodity pricing volatility, while also enhancing our business profile as the producer of a critical industrial output in addition to a producer of resources. We expect our Stage III efforts to continue to benefit from geopolitical developments, including initiatives to repatriate critical materials supply chains.

In February 2022, we were awarded a $35.0 million contract by the Department of Defense’s Office of Industrial Base Policy to design and build a facility to process heavy rare earth elements (“HREE”). Successful completion of this project will establish the first processing and separation facility of its kind for HREEs in support of commercial and defense applications in the United States. The HREE processing and separations facility will be built at Mountain Pass and tie in with the rest of our Stage II facilities.

Our Mineral Reserves

Our ore body has proven over more than 60 years of operations to be one of the world’s largest and highest-grade rare earth resources. As of September 30, 2021, SRK Consulting (U.S.), Inc., an independent consulting firm that we retained to assess our reserves, estimates total proven and probable reserves of 2.1 million short tons of REO contained in 30.4 million short tons of ore at Mountain Pass, with an average ore grade of 6.36%. These estimates use an estimated economical cut-off of 2.49% total rare earth oxide. Based on these estimated reserves and our expected annual production rate of REO upon completion of Stage II, as of September 30, 2021, our expected mine life was approximately 35 years. We expect to be able to continue to grow our expected mine life through exploratory drilling programs over time.

Mining activities in the United States are heavily regulated, particularly in California. Regulatory changes may make it more challenging for us to access our reserves. In addition, new mineral deposits may be discovered elsewhere, which could make our operations less competitive.

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Comparability of Results

Business Combination and Reverse Recapitalization

Pursuant to the terms of the Agreement and Plan of Merger, dated as of July 15, 2020, as amended on August 26, 2020 (the “Merger Agreement”), on November 17, 2020, MP Mine Operations LLC (“MPMO”), the company that owns the Mountain Pass mine and processing facilities, and Secure Natural Resources LLC (“SNR”), the company that holds the mineral rights to the Mountain Pass mine and surrounding areas as well as intellectual property rights related to the processing and development of rare earth minerals, were combined with Fortress Value Acquisition Corp., a special purpose acquisition company (“FVAC”) (the “Business Combination”), and became indirect wholly-owned subsidiaries of FVAC, which was in turn renamed MP Materials Corp.

The Business Combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, and the acquisition of SNR (the “SNR Mineral Rights Acquisition”) was treated as an asset acquisition. Furthermore, MPMO was deemed to be the accounting acquirer and FVAC the accounting acquiree, which, for financial reporting purposes, results in MPMO’s historical financial information becoming that of the Company.

Our Relationship and Agreements with Shenghe

In May 2017, prior to our acquisition of Mountain Pass, we entered into a set of commercial arrangements with Shenghe, which principally consisted of a technical services agreement (the “TSA”), an offtake agreement (the “Original Offtake Agreement”), and a distribution and marketing agreement (the “DMA”). We also issued to Leshan Shenghe Rare Earth Co., Ltd. (“Leshan Shenghe”), the majority stockholder of Shenghe, a preferred interest in the Company, which was ultimately exchanged for shares of our common stock in connection with the Business Combination.

The Original Offtake Agreement required Shenghe to advance us an initial $50.0 million (the “Initial Prepayment Amount”) to fund the restart of operations at the mine and the TSA required Shenghe to fund any additional operating and capital expenditures required to bring Mountain Pass to full operability. Shenghe also agreed to provide additional funding of $30.0 million to the Company pursuant to a separate letter agreement dated June 20, 2017 (the “Letter Agreement”) (the “First Additional Advance”), in connection with our acquisition of Mountain Pass. In addition to the repayment of the First Additional Advance, pursuant to the Letter Agreement, the Initial Prepayment Amount was increased by $30.0 million. We refer to the aggregate prepayments made by Shenghe pursuant to the Original Offtake Agreement and the Framework Agreement (as defined below), as adjusted for Gross Profit Recoupment (as defined below) amounts and any other qualifying repayments to Shenghe, inclusive of the $30.0 million increase to the Initial Prepayment Amount, as the “Prepaid Balance.”

Under the Original Offtake Agreement, upon the mine achieving certain milestones and being deemed commercially operational (which was achieved on July 1, 2019), we sold to Shenghe, and Shenghe purchased on a firm “take or pay” basis, all of the rare earth products produced at Mountain Pass. Shenghe marketed and sold these products to customers, and retained the gross profits earned on subsequent sales. These gross profits were credited against the Prepaid Balance, and provided the means by which we repaid, and Shenghe recovered, such amounts (the “Gross Profit Recoupment”).

As discussed within Note 4, “Relationship and Agreements with Shenghe,” in the notes to the Consolidated Financial Statements, the entrance into the Letter Agreement constituted a modification to the Original Offtake Agreement (referred to as the “June 2017 Modification”), which for accounting purposes, resulted in an implied discount on the Company’s sales prices to Shenghe under the Original Offtake Agreement (the “Shenghe Implied Discount”).

For sales to Shenghe under the Original Offtake Agreement between July 1, 2019, and June 5, 2020, the Company and Shenghe periodically agreed on an initial cash sales price, which was intended to approximate our cash cost of production, for each MT of rare earth concentrate. In addition, since the Shenghe Implied Discount applied to sales to Shenghe during this period, we also realized an amount of deferred revenue applicable to these sales equal to 64% of the gross profit realized by Shenghe of this product to its own customers. The full gross profit amount realized by Shenghe on such sales reduced the Prepaid Balance (and consequently, our contractual obligations to Shenghe). For example, for a hypothetical shipment of REO to Shenghe on which it realized gross profit of $1.00 (the difference between the sales price to its customers and its cash cost paid to us), we would recognize $0.64 as non-cash revenue through a reduction in the deferred revenue balance, and the remaining $0.36 would not be recorded as revenue, but would reduce the Prepaid Balance. Shenghe’s gross profit was influenced by market conditions as well as import duties, which were imposed on our products by the General Administration of Customs of the People’s Republic of China during this period. See also “Key Performance Indicators” section above.

In May 2020, we entered into a framework agreement and amendment (the “Framework Agreement”) with Shenghe and Leshan Shenghe that significantly restructured the commercial arrangements. Pursuant to the Framework Agreement, we

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entered into an amended and restated offtake agreement with Shenghe on May 19, 2020 (the “A&R Offtake Agreement”), which, upon effectiveness, superseded and replaced the Original Offtake Agreement, and we issued to Shenghe a warrant on June 2, 2020 (the “Shenghe Warrant”). Pursuant to the Framework Agreement, Shenghe funded the remaining portion of the Initial Prepayment Amount and agreed to fund an additional $35.5 million advance to us (the “Second Additional Advance” and together with the Initial Prepayment Amount, inclusive of the $30.0 million increase pursuant to the Letter Agreement, the “Offtake Advances”), which amounts were fully funded on June 5, 2020. The Shenghe Warrant was ultimately exchanged for shares of our common stock in connection with the Business Combination.

Upon the funding of the remaining obligations on June 5, 2020, among other things, (i) the TSA and the DMA were terminated and (ii) the A&R Offtake Agreement and the Shenghe Warrant became effective (such events are collectively referred to as the “June 2020 Modification”). Thus, at the present time, Leshan Shenghe’s and Shenghe’s involvement with the Company and Mountain Pass consists of only the A&R Offtake Agreement, which will terminate when Shenghe has fully recouped all of the Prepaid Balance. Full repayment of the remaining obligation will occur by the end of the first quarter of 2022 whether through non-cash recoupments from sales or a cash payment based, in part, on the Company’s GAAP net income for the year ended December 31, 2021. In February 2022, we entered into a term sheet with Shenghe which provides that once our A&R Offtake Agreement expires, we will continue to sell and Shenghe will continue to purchase our rare earth concentrate under an offtake arrangement.

As discussed in further detail within Note 4, “Relationship and Agreements with Shenghe,” in the notes to the Consolidated Financial Statements, as a result of the June 2020 Modification, we recorded a non-cash settlement charge of $66.6 million during the second quarter of 2020 (reflecting a deemed payment to terminate the DMA). In addition, the accounting treatment specific to the Shenghe Implied Discount was no longer required as a result of the June 2020 Modification.

For sales to Shenghe under the A&R Offtake Agreement after June 5, 2020, the sales price of our rare earth products is based on market prices (net of taxes, tariffs and certain other agreed charges) less applicable discounts. A portion of the sales price to Shenghe is in the form of debt repayment, with the remainder paid in cash.

As a result of the above, the amount of revenue we recorded for periods that included any portion of the period from July 1, 2019, until June 5, 2020, is not comparable, in the aggregate or on a per unit basis, to the amount of revenue recorded in other periods that commenced after June 5, 2020. As discussed in the “Key Performance Indicators” section above, in the calculation of our realized price per REO MT, we eliminate the impact of recognizing revenue at a discount during the period between July 1, 2019, and June 5, 2020, in order to reflect a consistent basis between years presented.

Tariff-Related Rebates

Starting in May 2020, the government of the People’s Republic of China granted retroactive tariff relief to certain importers of rare earth minerals including Shenghe and its affiliates and other consignees of our products, relating to periods prior to the formal lifting of the tariffs. As a result, Shenghe’s eventual realized prices for the REO sold prior to May 2020 were higher than originally realized by us and resulted in tariff rebates to end customers, which contractually were due to Shenghe. On account of these rebates in the second and third quarters of 2020 and the first quarter of 2021, we received from Shenghe certain credits against our contractual commitments to them.

Impact of the COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (known as “COVID-19”) began to impact the population of China. In March 2020, the outbreak of COVID-19 was declared a global pandemic after growing both in the United States and globally. The responses by governments, societies, and private sector entities to the COVID-19 pandemic, which include temporary closures of businesses, social distancing, travel restrictions, “shelter in place,” and other governmental regulations and various economic stimulus programs, have significantly impacted market volatility and general global economic conditions, including significant business and supply chain disruption as well as broad-based changes in supply and demand.

Since the onset of the COVID-19 pandemic in the first quarter of 2020, we have experienced, at times, significant shipping delays due to congestion and slowdowns at U.S. and international ports caused by shortages in vessels, containers, and truckers, also disrupting the global supply chain. Congestion and slowdowns have affected and may continue to affect the capacity at ports to receive deliveries of products or the loading of shipments onto vessels. Despite these factors, we have not experienced a reduction in production or sales due to the COVID-19 pandemic; however, the COVID-19 pandemic has contributed to certain cost and schedule pressures on the Stage II optimization project. The Company has worked proactively and diligently to adjust working schedules and hours to optimize logistics and shipping, which has thus far prevented a significant negative impact on our product sales and has mitigated certain impacts on Stage II construction and recommissioning progress. However, there can

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be no assurance that the ongoing COVID-19 pandemic will not have a negative impact on our production, sales, or growth projects in the future.

Furthermore, as the situation continues to evolve, including as a result of new and potential future variants of COVID-19 (such as the Delta and Omicron variants), the possibility of federal or state mandates on vaccinations, or other factors that may affect international shipping and logistics or involve responses to government actions such as strikes or other disruptions, it is impossible to predict the effect and ultimate impact of the COVID-19 pandemic on the Company’s business and results of operations. The extent and duration of any business disruptions, and related financial impact, cannot be estimated at this time.

Results of Operations

Comparison of the Years Ended December 31, 2021, 2020, and 2019

The following table summarizes our results of operations:

n.m. - Not meaningful.

(1)Excludes depreciation, depletion and amortization.

(2)See the “Non-GAAP Financial Measures” section below.

Revenue consists primarily of product sales, which pertain to our sales of rare earth concentrate principally to Shenghe under the Original Offtake Agreement for sales between January 1, 2020, and June 5, 2020, or the A&R Offtake Agreement for sales after June 5, 2020.

The increase in product sales for the year ended December 31, 2021, as compared to the prior year, was driven by higher REO sales volume, which increased by 3,791 MTs, or 10%, to 42,158 MTs for the year ended December 31, 2021, and a higher realized price per REO MT, which increased by 134%, reflecting higher demand for rare earth products. REO production volume increased by 3,910, or 10%, to 42,413 MTs for the year ended December 31, 2021, as compared to the prior year, primarily reflecting higher ore feed rates and mineral recoveries. The improvements were driven by continued optimization of the flotation circuit, including operational consistency, and adjustments to the reagent scheme developed through previous

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pilots that resulted in higher production and improved product quality. Product sales for year ended December 31, 2020, were negatively impacted by the Shenghe Implied Discount, in which $3.7 million of the value of products sold to Shenghe from January 1, 2020, until June 5, 2020, was not recognized as revenue. As mentioned above, starting after June 5, 2020, the accounting treatment specific to the Shenghe Implied Discount was no longer required.

REO sales volume varies period to period based on the timing of shipments, but sales volumes generally track our production volumes over time given our take-or-pay arrangement with Shenghe. See the “Quarterly Performance Trend” section below for further discussion on realized price per REO MT.

Cost of sales (excluding depreciation, depletion and amortization) consists of production- and processing-related labor costs (including wages and salaries, benefits, and bonuses), mining and processing supplies (such as reagents), parts and labor for the maintenance of our mining fleet and processing facilities, other facilities-related costs (such as property taxes and utilities), packaging materials, and shipping and freight costs.

Cost of sales for the year ended December 31, 2021, increased year over year primarily due to higher REO sales volume. The increase in production cost per REO MT from $1,430 for the year ended December 31, 2020, to $1,493 for the year ended December 31, 2021, is primarily due to higher payroll costs and employee headcount, including an increase in hiring ahead of the completion of our Stage II optimization project. Cost discipline and production efficiencies achieved during the year ended December 31, 2021, more than offset higher material and supplies costs as well as COVID-19-impacted freight-in costs.

Notwithstanding an increase in employee headcount as we progress toward completion of our Stage II optimization project, we believe our production cost per REO MT has stabilized in the short-term, with operating efficiencies largely offsetting raw material and logistics pressures. We anticipate additional efficiency opportunities as we increase REO production volumes in our milling and flotation circuit over time. In addition, production cost per REO MT may vary period to period based on the timing of scheduled outages of our production facilities for maintenance as well as anticipated tie-ins of certain Stage II-related facilities over the next twelve months. See the “Quarterly Performance Trend” section below for further discussion on production cost per REO MT.

General and administrative expenses consist primarily of accounting, finance and administrative personnel costs, including stock-based compensation expense related to these personnel; professional services (including legal, regulatory, audit and others); certain engineering expenses; insurance, license and permit costs; facilities rent and other costs; office supplies; general facilities expenses; certain environmental, health and safety expenses; and gain or loss on sale or disposal of long-lived assets.

General and administrative expenses for the year ended December 31, 2021, reflect an increase in stock-based compensation expense of $13.5 million, primarily from grants of restricted stock and restricted stock units (“Stock Awards”) made during the fourth quarter of 2020 related to the Business Combination. Prior to the fourth quarter of 2020, we had not granted any Stock Awards nor recorded any stock-based compensation expense. Excluding stock-based compensation expense, general and administrative expenses increased by $16.8 million, or 63%, mainly due to increases in personnel costs, insurance, and legal costs, the majority of which were incurred to support our operations as a public company, as well as a legal settlement of $1.0 million, including legal fees.

Advanced projects, development and other consists principally of costs incurred in connection with research and development of new processes or to significantly enhance our existing processes, certain government contracts, and start-up costs, as well as costs incurred to support growth and development initiatives or other opportunities. Advanced projects, development and other for the year ended December 31, 2021, increased year over year due to costs incurred under certain of our government contracts as well as other costs incurred to support growth and development initiatives, particularly with regards to metal, alloy, and magnet manufacturing, including recycling.

Depreciation, depletion and amortization consists of depreciation of property, plant and equipment; depletion of mineral rights; and amortization of finance lease right-of-use assets. The increase in depreciation, depletion and amortization for the year ended December 31, 2021, primarily reflects the depletion of the mineral rights resulting from the SNR Mineral Rights Acquisition in November 2020, which increased by $15.2 million for the year ended December 31, 2021, as well as the impact of additional equipment purchases and assets placed into service, including the CHP plant in December 2021, offset slightly by a reduction in depreciation of $1.1 million as a result of a decrement to our asset retirement obligation during the year ended December 31, 2021. At the beginning of the fourth quarter of 2021, as a result of an updated life of mine, we revised our estimate of the remaining useful life of the mineral rights to approximately 35 years from approximately 23 years.

Accretion of asset retirement and environmental obligations is based on the requirement to reclaim and remediate the land surrounding our mine and processing facilities upon the retirement of the Mountain Pass facility and on the estimated

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future cash flow requirement to monitor groundwater contamination, respectively. Accretion of asset retirement and environmental obligations remained relatively flat year over year.

Royalty expense relates to our obligation to pay SNR for the right to extract rare earth ores contained in our mine and was based on 2.5% of product sales, subject to certain minimums. Following the Business Combination, we do not incur royalty expenses on a consolidated basis.

Write-down of inventories for the year ended December 31, 2021, pertains to a non-cash write-down of a portion of our legacy low-grade stockpile inventory during the second quarter of 2021. See Note 8, “Property, Plant and Equipment,” in the notes to the Consolidated Financial Statements for more information.

Settlement charge of $66.6 million for the year ended December 31, 2020, which was non-cash, was recorded in connection with the termination of the DMA. See Note 4, “Relationship and Agreements with Shenghe,” in the notes to the Consolidated Financial Statements for a detailed discussion of the termination of the DMA and associated accounting treatment.

Other income, net, which consists primarily of gains or losses on extinguishment of debt and interest income, for the year ended December 31, 2021, increased year over year as a result of a non-cash gain recognized during the second quarter of 2021 as a result of the Small Business Administration’s approval to forgive the Paycheck Protection Loan, which had a principal amount of $3.4 million. For more information, see the “Liquidity and Capital Resources” section below.

Interest expense, net consists primarily of the coupon interest and the amortization of the debt issuance costs on our Convertible Notes; the amortization of the discount on our debt obligation to Shenghe; and interest expense associated with promissory notes with certain private investment funds, which were repaid in full upon the consummation of the Business Combination; offset by interest capitalized.

Interest expense, net for the year ended December 31, 2021, increased year over year, reflecting interest expense from our Convertible Notes and the amortization of the discount on our debt obligations to Shenghe, which was higher than the interest expense incurred on the promissory notes in the prior year. During the year ended December 31, 2021, we capitalized interest of $0.3 million as compared to the capitalized interest of $0.2 million in the prior year.

Income tax benefit (expense) consists of an estimate of U.S. federal and state income taxes and 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 taxes as a percentage of income or loss before income taxes) was 15.7% for the year ended December 31, 2021, as compared to 44.7% for the year ended December 31, 2020, principally due to a valuation allowance release in the prior year. The effective tax rate for the year ended December 31, 2021, was lower than the federal statutory tax rate of 21% primarily due to the income tax benefit received from percentage depletion, offset partially by state income tax expense.

Quarterly Performance Trend

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. In addition, our realized price per REO MT for the quarterly periods prior to the second quarter of 2020 were adversely impacted by the imposition of Chinese import duties in 2018 (and subsequent increase in May 2019). The import duties were lifted in May 2020.

The following table presents our key performance indicators for the quarterly periods since the mine achieved commercial operations:

Liquidity and Capital Resources

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.

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Historically, our principal sources of liquidity have been the Offtake Advances from Shenghe, issuances of notes or other debt, and net cash from operating activities. More recently, through the consummation of the Business Combination, including the PIPE Financing (as defined within Note 3, “Business Combination and Reverse Recapitalization,” in the notes to the Consolidated Financial Statements), and the issuance of the Convertible Notes, we raised $504.4 million and $672.3 million in net proceeds, respectively.

As of December 31, 2021, we had $1,179.3 million of cash and cash equivalents, $690.0 million principal amount of long-term debt (to third parties) and $16.6 million principal amount of related-party debt pertaining to our Offtake Advances with Shenghe.

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 limited 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 is adequate to meet our liquidity requirements for the foreseeable future, uncertainty exists as to the market price of REO, especially in light of the ongoing COVID-19 pandemic, including the emergence of new and potential future variants (such as the Delta and Omicron variants).

Our current working capital needs relate mainly to our mining and beneficiation operations. Our principal capital expenditure requirements relate mainly to the periodic replacement of mining or processing equipment, as well as our Stage II optimization project and related HREE project and the development of the Fort Worth Facility. Our future capital requirements will depend on several factors, including future acquisitions and potential additional investments in further downstream production (for example, pursuit of further Stage III downstream expansion opportunities).

The completion of our mission to become a fully integrated domestic magnetics producer is expected to be capital intensive. In accelerating the strategic opportunity for the separation of HREE, enhancements were made to the design and scope of the initial Stage II project. Including these enhancements and other factors impacting the remaining cost of completion, and including the initial costs of a HREE separation facility and the development and construction costs of the Fort Worth Facility, as well as other growth and infrastructure investments at Mountain Pass, we expect to incur approximately $500 million of capital costs in 2022. We expect to incur further costs to complete the HREE separation facility and the Fort Worth Facility in 2023 and 2024.

Our estimated costs or estimated time to complete 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

The Company’s material cash requirements include the following contractual and other obligations.

Convertible Notes: On March 26, 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 1st and October 1st of each year, beginning on October 1, 2021. The Convertible Notes may, at the Company’s election, be settled in cash, shares of common stock of the Company, or a combination thereof. The Company has the option to redeem the Convertible Notes, in whole or in part, beginning on April 5, 2024. The Company received net proceeds of $672.3 million from the issuance of the Convertible Notes.

The Convertible Notes are convertible into shares of the Company’s 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 the Company’s 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

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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 below) 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 the Company’s 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.

We aim 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.” Eligible green projects are intended to reduce the Company’s environmental impact and/or enable the production of low-carbon technologies. Pending such allocation of the net proceeds to eligible green projects, we may use the net proceeds from the Convertible Notes offering for general corporate purposes.

Offtake Advances: As of December 31, 2021, we had debt recorded to Shenghe with a carrying amount of $16.1 million, of which $16.6 million was principal and $0.5 million was debt discount. As described above, the debt is to be satisfied primarily through product sales where partial non-cash consideration is received by the Company in the form of debt reduction (generally equal to approximately 15% of the ultimate market value of the REO, excluding tariffs, duties and certain other charges). Additional cash payments are required as a result of product sales to other parties, and under certain other conditions.

We follow an imputed interest rate model to calculate the amortization of the embedded discount, which is recognized as non-cash interest expense, by estimating the timing of anticipated payments and reductions of the debt principal balance. The effective rate applicable from the June 5, 2020, inception to December 31, 2021, was between 4.41% and 16.28%. As of December 31, 2021, the Company updated its estimate of the effective interest rate to 24.75%, to be applied prospectively. However, since full repayment of the remaining principal amount will occur by the end of the first quarter of 2022 whether through non-cash recoupments from sales or a cash payment based, in part, on the Company’s GAAP net income for the year ended December 31, 2021, the amount of interest expense to be recognized in the first quarter of 2022 pertaining to the Offtake Advances will only consist of the remaining unamortized discount. The increases over time in the imputed rate between June 5, 2020, and December 31, 2021, were primarily due to increases in expected market prices resulting in earlier anticipated repayments of the outstanding balance, which resulted in higher implicit interest rates in order to fully amortize the debt discount concurrent with the expected final repayment of the debt balance.

Paycheck Protection Loan: In April 2020, we obtained a loan of $3.4 million pursuant to the Paycheck Protection Program under the CARES Act (the “Paycheck Protection Loan” or the “Loan”). The Loan, which was in the form of a note dated April 15, 2020, issued by CIBC Bank USA, was to mature on April 14, 2022, and bore interest at a rate of 1% per annum. In June 2021, we received notification from the Small Business Administration that the Loan and related accrued interest was forgiven.

Equipment Notes: We have entered into several financing agreements for the purchase of equipment, including trucks, tractors, loaders, graders, and various other machinery. In February 2021, we entered into financing agreements for the purchase of equipment, including trucks and loaders, in the aggregate amount of $9.7 million, including $0.3 million for the associated extended warranties. These equipment notes have terms of 5 years and interest rates of 4.5% per annum with monthly payments commencing in April 2021. As of December 31, 2021, we had $9.7 million in principal (and accrued interest) outstanding under the equipment notes.

Leases: We have lease arrangements for certain equipment and facilities, including office space, vehicles and equipment used in our operations. As of December 31, 2021, we had future expected lease payment obligations, including leases that have not yet commenced, totaling $11.2 million, with $0.6 million payable within the next 12 months.

Purchase Obligations: Our outstanding purchase obligations as of December 31, 2021, 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

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orders. Consequently, only a small portion of these outstanding purchase orders relate to firm, non-cancelable and unconditional obligations. We have also entered into a long-term supply arrangement for certain chemical reagents used in our operations, which is based on current consumption requirements.

Other: In order to support our Stage II optimization project and our Fort Worth Facility, we expect to hire at least an additional 250 full-time employees within the next two years, which will result in additional cash requirements for salaries, benefits and training. Our engineering, procurement, and construction contract pertaining to our Stage II optimization project is cancellable. See Note 11, “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.

Public Warrants

Warrants to purchase 11,499,968 shares of our common stock at $11.50 per share were issued in connection with FVAC’s initial public offering (the “Public Warrants”) 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.

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, our 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.

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

Cash Flows

The following table summarizes our cash flows:

n.m. - Not meaningful.

Net Cash Provided by (Used in) Operating Activities: Net cash provided by operating activities increased by $98.7 million for the year ended December 31, 2021, as compared to the prior year, reflecting the increase in product sales, partially offset by the increase in our cost of sales and general and administrative expenses (all as discussed above) and by a reduction due to the timing of payment of working capital items, such as accounts receivable. In addition, $54.8 million of our product sales was excluded from cash provided by operating activities for the year ended December 31, 2021, since that portion of the sales price was retained by Shenghe to reduce the debt obligation, compared to $21.3 million in the prior year.

Net Cash Provided by (Used in) Investing Activities: Net cash used in investing activities increased by $97.0 million for the year ended December 31, 2021, as compared to the prior year, attributable mainly to an increase in capital expenditures relating primarily to our Stage II optimization project, as well as the commissioning of our CHP plant and water treatment plant as well as other investments at Mountain Pass, partially offset by $4.4 million of proceeds from a government award used for construction, specifically our Stage II optimization project.

Net Cash Provided by (Used in) Financing Activities: Net cash provided by financing activities increased by $144.1 million for the year ended December 31, 2021, as compared to the prior year, attributable primarily to the net proceeds received from the issuance of the Convertible Notes in March 2021 of $672.3 million, versus the $35.5 million in proceeds received from the Second Additional Advance and $504.4 million in proceeds from the consummation of the Business Combination,

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including the PIPE Financing, in the prior year. In addition, the change reflects $40.3 million payments of underwriting and transaction costs in the prior year, and a year-over-year decrease of $17.7 million in principal payments on debt obligations and finance leases.

Non-GAAP Financial Measures

We present Total Value Realized, Production Costs, Adjusted EBITDA, Adjusted Net Income (Loss) and Free Cash Flow, which are non-GAAP financial measures that we use to supplement our results presented in accordance with GAAP. These measures may be similar to measures reported by other companies in our industry and are regularly used by securities analysts and investors to measure companies’ financial performance. Total Value Realized, Production Costs, Adjusted EBITDA, Adjusted Net Income (Loss) and Free Cash Flow are not intended to be a substitute for any GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance or liquidity of other companies within our industry or in other industries.

Total Value Realized

Total Value Realized, which we use to calculate our key performance indicator, realized price per REO MT, is a non-GAAP financial measure. As mentioned above, realized price per REO MT is an important measure of the market price of our product. The following table presents a reconciliation of our Total Value Realized, to our product sales, which is determined in accordance with GAAP, as well as the calculation of realized price per REO MT:

(1)Represents the difference between the contractual amount realized by Shenghe and the amount of deferred revenue we recognized.

(2)The amounts pertain to tariff rebates due to the retroactive effect of lifting of Chinese tariffs in May 2020.

(3)May not recompute as presented due to rounding.

Production Costs

Production Costs, which we use to calculate our key performance indicator, production cost per REO MT, is a non-GAAP financial measure. As mentioned above, production cost per REO MT is a key indicator of our production efficiency. The following table presents a reconciliation of our Production Costs to our cost of sales (excluding depreciation, depletion and amortization), which is determined in accordance with GAAP, as well as the calculation of production cost per REO MT:

(1)Pertains only to the amount of stock-based compensation expense included in cost of sales.

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(2)Pertains to costs attributable to sales of stockpiles.

(3)May not recompute as presented due to rounding.

Adjusted EBITDA

We define Adjusted EBITDA as our GAAP net income or loss before interest expense, net; income tax expense or benefit; and depreciation, depletion and amortization; further adjusted to eliminate the impact of stock-based compensation expense; transaction-related costs and other non-recurring costs; non-cash accretion of asset retirement and environmental obligations; gain or loss on sale or disposal of long-lived assets; write-downs of inventories; royalty expense; settlement charge; tariff rebates; and other income, net. We present Adjusted EBITDA because it is used by management to evaluate our underlying operating and financial performance and trends.

Adjusted EBITDA excludes certain expenses that are required in accordance with GAAP because they are non-recurring, non-cash or are not related to our underlying business performance. This non-GAAP financial measure is intended to supplement our GAAP results and should not be used as a substitute for financial measures presented in accordance with GAAP. In addition, the comparability between years presented below as well as the trend of our Adjusted EBITDA is impacted by the accounting treatment of the modifications of our agreements with Shenghe. Had the Shenghe Implied Discount applicable to sales made under the Original Offtake Agreement been recognized in revenue, our Adjusted EBITDA for the years ended December 31, 2020 and 2019, would have been higher by $3.7 million and $1.9 million, respectively.

The following table presents a reconciliation of our Adjusted EBITDA, which is a non-GAAP financial measure, to our net income (loss), which is determined in accordance with GAAP:

(1)Principally included in “General and administrative” within our Consolidated Statements of Operations. Approximately $15.3 million and $4.9 million of the amounts for the years ended December 31, 2021 and 2020, respectively, pertained to a one-time grant of stock awards to employees and executives upon the consummation of the Business Combination.

(2)Amount for the year ended December 31, 2021, includes mainly advisory, consulting, accounting and legal expenses principally in connection with secondary equity offerings and the redemption of the Company’s Public Warrants in May and June 2021. Amount for the year ended December 31, 2020, includes mainly advisory, consulting, accounting, legal expenses and one-time employee bonuses in connection with the Business Combination, as well as non-recurring costs for SAP implementation. Amounts for the year ended December 31, 2019, includes mainly severance payments to certain former members of our executive team.

(3)For the year ended December 31, 2019, we recorded a gain on sales of idle mining equipment following the acquisition of Mountain Pass.

(4)Represents a non-cash write-down of a portion of our legacy low-grade stockpile inventory during the second quarter of 2021.

(5)Relates to our obligation to pay SNR for the right to extract rare earth ores contained within Mountain Pass. Following the Business Combination, we do not incur royalty expenses on a consolidated basis.

(6)As discussed in the “Comparability of Results” section above, in connection with terminating the DMA, we recognized a one-time, non-cash settlement charge.

(7)Represents non-cash revenue recognized in connection with tariff rebates received relating to product sales from prior periods.

(8)Amount for the year ended December 31, 2021, principally represents a non-cash gain recognized as a result of the Small Business Administration’s approval to forgive the Paycheck Protection Loan.

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Adjusted Net Income (Loss)

We calculate Adjusted Net Income (Loss) as our GAAP net income or loss excluding the impact of depletion; stock-based compensation expense; transaction-related and other non-recurring costs; gain or loss on sale or disposal of long-lived assets; write-downs of inventories; royalty expense; settlement charge; tariff rebates; and other income or loss, net; adjusted to give effect to the income tax impact of such adjustments; and the release of valuation allowance. To calculate the income tax impact of such adjustments on a year-to-date basis, we utilize an effective tax rate equal to our income tax expense excluding material discrete costs and benefits, with any impacts of changes in effective tax rate being recognized in the current period. We present Adjusted Net Income (Loss) because it is used by management to evaluate our underlying operating and financial performance and trends.

Adjusted Net Income (Loss) excludes certain expenses that are required in accordance with GAAP because they are non-recurring, non-cash, or not related to our underlying business performance. As a result of the SNR Mineral Rights Acquisition, the mineral rights for the rare earth ores contained in our mine were recorded at fair value as of the date of the Business Combination, resulting in a significant step-up of the carrying amount of the asset which will cause depletion to be meaningfully higher in future periods. While the depletion expense related to the stepped-up mineral rights asset is excluded from Adjusted Net Income (Loss), the revenue related to such mineral rights is reflected in Adjusted Net Income (Loss) as this asset contributes to our revenue generation. This non-GAAP financial measure is intended to supplement our GAAP results and should not be used as a substitute for financial measures presented in accordance with GAAP. In addition, the comparability between years presented below as well as the trend of our Adjusted Net Income (Loss) is impacted by the accounting treatment of the modifications of our agreements with Shenghe.

The following table presents a reconciliation of our Adjusted Net Income (Loss), which is a non-GAAP financial measure, to our net income (loss), which is determined in accordance with GAAP:

(1)Principally includes the depletion associated with the mineral rights for the rare earth ores contained in the Company’s mine, which were recorded in connection with the SNR Mineral Rights Acquisition at fair value as of the date of the Business Combination, resulting in a significant step-up of the carrying amount of the asset. See Note 3, “Business Combination and Reverse Recapitalization” in the notes to the Consolidated Financial Statements for more information on the accounting for the asset acquisition.

(2)Principally included in “General and administrative” within our Consolidated Statements of Operations. Approximately $15.3 million and $4.9 million of the amounts for the years ended December 31, 2021 and 2020, respectively, pertained to a one-time grant of stock awards to employees and executives upon the consummation of the Business Combination.

(3)Amount for the year ended December 31, 2021, includes mainly advisory, consulting, accounting and legal expenses principally in connection with secondary equity offerings and the redemption of the Company’s Public Warrants in May and June 2021. Amount for the year ended December 31, 2020, includes mainly advisory, consulting, accounting, legal expenses and one-time employee bonuses in connection with the Business Combination, as well as non-recurring costs for SAP implementation. Amounts for the year ended December 31, 2019, includes mainly severance payments to certain former members of our executive team.

(4)For the year ended December 31, 2019, we recorded a gain on sales of idle mining equipment following the acquisition of Mountain Pass.

(5)Represents a non-cash write-down of a portion of our legacy low-grade stockpile inventory during the second quarter of 2021.

(6)Relates to our obligation to pay SNR for the right to extract rare earth ores contained within Mountain Pass. Following the Business Combination, we do not incur royalty expenses on a consolidated basis.

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(7)In connection with terminating the DMA, we recognized a one-time, non-cash settlement charge.

(8)Represents non-cash revenue recognized in connection with tariff rebates received relating to product sales from prior periods.

(9)Amount for the year ended December 31, 2021, principally represents a non-cash gain recognized as a result of the Small Business Administration’s approval to forgive the Paycheck Protection Loan.

(10)Tax impact of adjustments is calculated using an adjusted effective tax rate, excluding the impact of discrete tax costs and benefits, to each adjustment. The adjusted effective tax rates were 17.5%, 25.0% and 27.3% for the years ended December 31, 2021, 2020 and 2019, respectively. See Note 12, “Income Taxes,” in the notes to the Consolidated Financial Statements for more information on the effective tax rate.

(11)Reflects the one-time impact of the release of the majority of our valuation allowance.

Free Cash Flow

We calculate Free Cash Flow as net cash provided by or used in operating activities less additions of property, plant and equipment, net of proceeds received from government awards used for construction. We believe Free Cash Flow is useful for comparing our ability to generate cash with that of our peers. The presentation of Free Cash Flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities and does not necessarily indicate whether cash flows will be sufficient to fund cash needs.

The following table presents a reconciliation of our Free Cash Flow, which is a non-GAAP financial measure, to our net cash provided by (used in) operating activities, which is determined in accordance with GAAP:

(1)Under the terms of the A&R Offtake Agreement and pursuant to the accounting treatment thereof, $54.8 million and $21.3 million of our product sales for the years ended December 31, 2021 and 2020, respectively, were excluded from cash provided by operating activities since that portion of the sales price was retained by Shenghe to reduce the debt obligation.

(2)Amount for the year ended December 31, 2021, is net of $4.4 million in proceeds received from a government award used for construction, specifically Stage II.

Critical Accounting Estimates

Preparation of the Consolidated Financial Statements in accordance with GAAP requires our management to make judgments, estimates and assumptions that impact the reported amount of revenue and operating expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (i) the estimate or assumption is complex in nature or requires a high degree of judgment and (ii) the use of different judgments, estimates and assumptions could have a material impact on our Consolidated Financial Statements. Our significant accounting policies are described in Note 2, “Significant Accounting Policies,” in the notes to the Consolidated Financial Statements. Our critical accounting estimates are described below.

Revenue

We recognize revenue from sales of rare earth products produced from our facility. Our principal customer, Shenghe, purchased the vast majority of our production for the years ended December 31, 2021, 2020 and 2019, and is an affiliate of an equity holder of the Company. We recognize revenue at the point in time control of the products transfers to the customer and, under our offtake agreements with Shenghe, our performance obligation is typically satisfied when we deliver products to the agreed-upon shipping point. The transaction price with Shenghe is typically based on an agreed-upon price per MT but subject to certain quality adjustments based on REO content, with an adjustment for the ultimate market price of the product realized by Shenghe in their sales to their customers, further adjusted for certain contractually negotiated amounts. We typically negotiate with and bill an initial price to Shenghe; such prices are then updated based on final adjustments for REO content and/or actual sales prices realized by Shenghe. Sales to Shenghe under the Original Offtake Agreement between July 1, 2019, and June 5, 2020, also reflect an adjustment for the Shenghe Implied Discount.

Debt Obligations and Imputed Interest Rate Applied to Debt Discount

In connection with the June 2020 Modification, we recorded a total principal amount of $94.0 million in debt due to the nature of our obligations, including a carrying amount upon issuance of $85.7 million based on the fair value of the instrument upon issuance, offset by the resulting debt discount of $8.3 million. Since the A&R Offtake Agreement does not have a stated

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rate, and the timing and method of repayment is contingent on several factors, including our production and sales volumes, market prices realized by Shenghe, our sales to other parties, our asset sales and the amount of our annual net income, we estimated the timing of payments and other reductions to the outstanding balance to determine an imputed interest rate.

The debt discount represents the difference between the fair value of the debt liability issued and the total amount of the contractual obligation as a consequence of our entry into the A&R Offtake Agreement. The imputed interest rate is calculated by amortizing the debt discount over the time period that management expects to bring the total outstanding principal balance to zero and determining the annualized interest rate necessary to fully amortize the discount in the same period when final principal reduction is expected to occur. Actual repayments or reductions in the principal balance may differ in timing and amount from our estimates, and we therefore expect to update our estimates each reporting period. Accordingly, the imputed interest rate is likely to differ in future periods.

We have determined that we will recognize adjustments from these estimates using the prospective method. Under the prospective method, we will update our estimate of the effective imputed interest rate in future periods based on revised estimates of the timing of remaining principal reductions. This rate will then be used to recognize interest expense for subsequent reporting periods, until the estimates are updated again. Under this method, the effective interest rate is not constant, and changes are recognized prospectively as an adjustment to the effective yield. See Note 9, “Debt Obligations,” in the notes to the Consolidated Financial Statements for further discussion.

Asset Retirement Obligations

We recognize asset retirement obligations for estimated costs of legally and contractually required closure, dismantlement, and reclamation activities associated with Mountain Pass. Asset retirement obligations are initially recognized at their estimated fair value in the period in which the obligation is incurred. Fair value is based on the expected timing of reclamation activities, cash flows to perform activities, amount and uncertainty associated with the cash flows, including adjustments for a market risk premium, and discounted using a credit-adjusted risk-free rate. The liability is accreted over time through periodic charges to earnings and reduced as reclamation activities occur; differences between estimated and actual amounts are recognized as an adjustment to operating expense.

Subsequent increments in expected undiscounted cash flows are measured at their discounted values using updated estimates of our credit-adjusted risk-free rate applied to the increment only. Subsequent decrements in the expected undiscounted cash flows are reduced based on the weighted-average credit-adjusted risk-free rate associated with the obligation. When increments and decrements are caused by a change in the estimated timing of settlement, the Company treats the increase in cash flows in the year of the updated estimate as an increment and the reduction in cash flows in the original year as a decrement. Associated asset retirement costs, including the effect of increments and decrements, are recognized as adjustments to the related asset’s carrying amount and depreciated or depleted over the related asset’s remaining useful life. If a decrement is greater than the carrying amount of the related asset, the difference is recognized as a reduction to depreciation expense. As of December 31, 2021, the credit-adjusted risk-free rate ranged between 6.5% and 8.2%, depending on the timing of expected settlement and when the layer or increment was recognized.

As a result of an update to our life of mine in the fourth quarter of 2021, we revised our estimated timing and cash flows pertaining to the settlement of the reclamation and removal activities associated with Mountain Pass, estimating that a significant portion of the cash outflows will now be incurred beginning in 2057 instead of 2043. The change in estimate resulted in a decrement of $9.8 million, of which $8.7 million reduced the carrying amounts of the associated property, plant and equipment, and $1.1 million was recorded as a reduction to depreciation expense for the year ended December 31, 2021. See Note 11, “Asset Retirement and Environmental Obligations,” in the notes to the Consolidated Financial Statements for further discussion.

Recently Adopted and Issued Accounting Pronouncements

Recently adopted and issued accounting pronouncements are described in Note 2, “Significant Accounting Policies,” in the notes to the Consolidated Financial Statements.