# MP Materials Corp. / DE (MP) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MP Materials Corp. / DE's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1801368/000180136823000009/mp-20221231.htm
Accession: 0001801368-23-000009
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MP/
All MD&A years: /company/MP/mda/
Previous year: /company/MP/mda/fy2021/ (FY 2021)
Next year: /company/MP/mda/fy2023/ (FY 2023)

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, 2022 (this “Annual Report”). A discussion of changes in our results of operations and cash flows between years ended December 31, 2021 and 2020, 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, 2021, 2020, and 2019,” of our annual report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission on February 28, 2022. 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. See also “Cautionary Note Regarding Forward-Looking Statements.”

Executive Overview

MP Materials Corp., including its subsidiaries (the “MP Materials,” “we,” “our,” and “us”), is the largest producer of rare earth materials in the Western Hemisphere. We own and operate 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 currently produce a rare earth concentrate that is principally sold pursuant to the Offtake Agreement to Shenghe (as such terms are defined in Note 3 “Relationship and Agreements with Shenghe,” in the notes to the Consolidated Financial Statements), that, in turn, typically sells that product to refiners in China. These refiners separate the constituent rare earth elements (“REE”) contained in our concentrate and sell the separated products to their customers.

Upon completing commissioning of the Stage II optimization project (“Stage II”), we anticipate producing and selling separated rare earth products, including neodymium-praseodymium (“NdPr”) oxide. In addition, we are constructing our initial rare earth metal, alloy and magnet manufacturing facility in Fort Worth, Texas (the “Fort Worth Facility”), where we anticipate manufacturing, among other products, neodymium-iron-boron (“NdFeB”) permanent magnets. Furthermore, in April 2022, we entered into a long-term supply 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 is expected to begin in late 2023, starting with alloy. These developments are a part of our Stage III downstream expansion strategy (“Stage III”).

Certain REE serve as critical inputs for the rare earth magnets located inside the electric motors and generators powering carbon-reducing technologies such as electric vehicles (“EVs”) and wind turbines, as well as drones, defense systems, 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.

Highlights from the year ended December 31, 2022, include:

•Revenue of $527.5 million, representing growth of 59% year over year, driven by an increase in realized price per rare earth oxide (“REO”) equivalent metric ton (“MT”);

•Net income of $289.0 million, representing growth of 114% year over year, largely driven by higher revenue, offset by higher cost of sales and selling, general and administrative expenses;

•Adjusted EBITDA (see below) of $388.6 million, representing growth of 77% year over year, driven by higher per-unit profitability, offset partially by higher personnel and other general and administrative costs;

•Adjusted Net Income (see below) of $320.6 million, representing growth of 108% year over year, largely driven by higher Adjusted EBITDA;

•Diluted earnings per share of $1.52, compared to $0.73 per share in the prior year;

•Net cash provided by operating activities of $343.5 million, an increase from $102.0 million in the prior year;

•Strong concentrate production volumes that remained steady year over year despite significant Stage II construction and recommissioning activities;

•Maintained strong balance sheet with cash, cash equivalents and short-term investments totaling $1,182.3 million as of December 31, 2022, despite significant capital expenditures to support Stage II and the Fort Worth Facility;

34

Table of Contents

•Substantially completed construction and/or commissioning of several circuits of the Stage II optimization project, including concentrate drying and roasting;

•Commenced construction of our Fort Worth Facility, including completion of the building shell in September 2022, and the entrance into a long-term supply agreement with GM to supply U.S.-sourced and manufactured rare earth materials, alloy and finished magnets; and

•Awarded a $35.0 million contract in February 2022 by the Department of Defense’s Office of Industrial Base Policy and Sustainment Program to design and build a facility to process heavy rare earth elements (“HREE”) at Mountain Pass.

Our results of operations for the year ended December 31, 2022, demonstrate our strong operational execution as demand for rare earth materials continues to grow, driving the higher realized prices for rare earth products, particularly those used in NdFeB magnets. Our Stage I concentrate operations continue to deliver strong production levels despite the significant Stage II-related work, including commissioning of the concentrate drying and roasting circuits and other Stage II circuits. We continue to expect that we will reach normalized separated oxide production levels by the end of 2023 after we complete the final commissioning of the Stage II assets. In addition, our Stage III magnetics team has made significant progress on our strategy to repatriate magnet manufacturing to the United States, starting with our initial facility in Fort Worth, Texas, while rapidly growing the organization’s engineering and manufacturing technology capabilities.

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

Key Performance Indicators

We have historically used the following key performance indicators to evaluate the performance of our business. However, as we evolve as a business and transition from a producer of rare earth concentrate to a producer of separated rare earth products upon completing the commissioning of our Stage II project, the metrics that management anticipates using to evaluate the business may change or be revised. For example, in completing the transition to separated rare earth products, we may determine that production cost per REO MT, which is a metric focused solely on Stage I concentrate operations, is no longer meaningful in evaluating and understanding our business or operating results. 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:

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Amount Change","","% Change"],["(in whole units or dollars, except percentages)","2022","","2021","","2020","","2022 vs. 2021","","2021 vs. 2020","","2022 vs. 2021","","2021 vs. 2020"],["REO production volume (MTs)","42,499","","","42,413","","","38,503","","","86","","","3,910","","","\u2014","%","","10","%"],["REO sales volume (MTs)","43,198","","","42,158","","","38,367","","","1,040","","","3,791","","","2","%","","10","%"],["Realized price per REO MT","$","11,974","","","$","7,745","","","$","3,311","","","$","4,229","","","$","4,434","","","55","%","","134","%"],["Production cost per REO MT","$","1,728","","","$","1,493","","","$","1,430","","","$","235","","","$","63","","","16","%","","4","%"]]
[[/GREPCENT_TABLE]]

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 equivalent, the actual weight of our rare earth concentrate is significantly greater, as the concentrate also contains non-REO minerals, loss-on-ignition, 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.

35

Table of Contents

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 rebates related to prior period sales, and, in connection with our sales to Shenghe between January 1, 2020, and June 5, 2020 under the terms of the Original Offtake Agreement, the Shenghe Implied Discount (as defined and discussed in Note 3 “Relationship and Agreements with Shenghe,” and Note 4 “Revenue Recognition,” in the notes to the Consolidated Financial Statements).

Realized price per REO MT is an important measure of the market price of our concentrate product. Accordingly, we calculate realized price per REO MT to reflect a consistent basis between periods by eliminating the revenue impact of tariff rebates and the impact of recognizing revenue at a discount during the period between January 1, 2020, and June 5, 2020. 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.

Production cost per REO MT is a key indicator of our concentrate 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 and demand for green technologies increases. Our continued 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 hybrid electric vehicles, and generators in wind power turbines); consumer and medical applications (e.g., miniaturization of smart phones and other mobile devices, computing devices, speakers and microphones, fiber optics, lasers, robotics, medical ventilators, etc.); critical defense systems (e.g., guidance and control systems, global positioning systems, radar and sonar, drones, etc.); and essential industrial infrastructure (e.g., power tools, pollution-control systems in traditional internal-combustion automobiles, glass polishing, etc.).

We believe we benefit from the continued growth of the rare earth market, particularly the market for NdPr and permanent magnets, and from several demand tailwinds for REE. These include the trend toward electrification; geographic supply chain diversification, particularly in relation to China; the U.S. government initiatives to restore domestic supply of key minerals; and the increasing acceptance of environmental, social and governance mandates. However, changes in technology could 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.

36

Table of Contents

Maximizing Production Efficiency

In 2022, REO production continued to be approximately 3.5x greater than the highest ever production in a twelve-month period achieved at Mountain Pass prior to the implementation and completion of Stage I. These results were achieved through an optimized reagent scheme, lower process temperatures, better management of the tailings facility, and a commitment to operational excellence, driving approximately 95% uptime. Our Stage I optimization project enabled us to achieve what we believe to be world-class production cost levels for rare earth concentrate.

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, Stage II was 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 cerium, a lower-value mineral, through the separations process. Additionally, 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 more capital, which may allow them to make similar or greater efficiency improvements or undercut market prices for our product.

Development of Our REE Refining, Metal Alloy, and Magnet-Making Capabilities

Stage II advances our operations from the production of rare earth concentrate to the separation of individual REE. Significant commissioning activities commenced in the fourth quarter of 2022 beginning with the concentrate drying and roasting circuits. Construction and recommissioning of certain other circuits was also substantially complete in the fourth quarter of 2022. The project incorporated upgrades and enhancements to the prior facility process flow to reliably produce separated REE at a low cost and with the intent of minimizing our impact on the environment. As part of Stage II, we have reintroduced an oxidizing roasting circuit, reoriented portions of the plant process flow, increased product finishing capacity, improved wastewater management, and made other improvements to materials handling and storage. Upon reaching run-rate production of REE in 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 concentrate.

In February 2022, we were awarded a $35.0 million contract by the Department of Defense’s Office of Industrial Base Policy and Sustainment Program to design and build a facility to process HREE. Successful completion of this project will establish, for the first time in many years, commercial-scale processing and separation of HREE in support of commercial and defense applications in the United States. The HREE processing and separations facility (the “HREE Facility”) will be built at Mountain Pass and will be integrated into the rest of our Stage I and Stage II facilities. The Company is currently advancing the facilitating works, engineering and procurement for the HREE Facility, which is expected to support the separating of HREE contained in the Mountain Pass ore as well as from third-party feedstocks.

In addition, we are currently constructing the Fort Worth Facility, and developing engineering and manufacturing technology to process NdPr oxide into metal alloys and magnets, while incorporating magnet recycling capabilities. These initiatives support our long-term plans to become a leading global source for rare earth magnets. 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.

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 December 31, 2022, SRK Consulting (U.S.), Inc., an independent consulting firm that we retained to assess our reserves, estimated total proven and probable reserves of 1.96 million short tons of REO contained in 29.30 million short tons of ore at Mountain Pass, with an average ore grade of 6.32%. 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 completing the commissioning of Stage II, our expected mine life was approximately 34 years as of December 31, 2022. Over time, we expect to be able to continue to grow our expected mine life through additional exploratory drilling and improved processing capabilities, which may result in changes to various assumptions underlying our mineral reserve estimate.

37

Table of Contents

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.

Results of Operations

Comparison of the Years Ended December 31, 2022, 2021, and 2020

The following table summarizes our results of operations:

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","Amount Change","","% Change"],["(in thousands, except percentages)","2022","","2021","","2020","","2022 vs. 2021","","2021 vs. 2020","","2022 vs. 2021","","2021 vs. 2020"],["Revenue:"],["Product sales","$","517,267","","","$","328,563","","","$","133,697","","","$","188,704","","","$","194,866","","","57","%","","146","%"],["Other sales","10,243","","","3,389","","","613","","","6,854","","","2,776","","","202","%","","453","%"],["Total revenue","527,510","","","331,952","","","134,310","","","195,558","","","197,642","","","59","%","","147","%"],["Operating costs and expenses:"],["Cost of sales(1)","92,218","","","76,253","","","63,798","","","15,965","","","12,455","","","21","%","","20","%"],["Selling, general and administrative","75,840","","","56,646","","","26,767","","","19,194","","","29,879","","","34","%","","112","%"],["Advanced projects, start-up, development and other","11,817","","","4,573","","","140","","","7,244","","","4,433","","","158","%","","n.m."],["Depreciation, depletion and amortization","18,356","","","24,382","","","6,931","","","(6,026)","","","17,451","","","(25)","%","","252","%"],["Accretion of asset retirement and environmental obligations","1,477","","","2,375","","","2,255","","","(898)","","","120","","","(38)","%","","5","%"],["Loss on sale or disposal of long-lived assets, net","391","","","569","","","101","","","(178)","","","468","","","(31)","%","","463","%"],["Royalty expense","\u2014","","","\u2014","","","2,406","","","\u2014","","","(2,406)","","","n.m.","","(100)","%"],["Write-down of inventories","\u2014","","","1,809","","","\u2014","","","(1,809)","","","1,809","","","(100)","%","","n.m."],["Settlement charge","\u2014","","","\u2014","","","66,615","","","\u2014","","","(66,615)","","","n.m.","","(100)","%"],["Total operating costs and expenses","200,099","","","166,607","","","169,013","","","33,492","","","(2,406)","","","20","%","","(1)","%"],["Operating income (loss)","327,411","","","165,345","","","(34,703)","","","162,066","","","200,048","","","98","%","","n.m."],["Interest expense, net","(5,786)","","","(8,904)","","","(5,009)","","","3,118","","","(3,895)","","","(35)","%","","78","%"],["Other income, net","19,527","","","3,754","","","251","","","15,773","","","3,503","","","420","%","","n.m."],["Income (loss) before income taxes","341,152","","","160,195","","","(39,461)","","","180,957","","","199,656","","","113","%","","n.m."],["Income tax benefit (expense)","(52,148)","","","(25,158)","","","17,636","","","(26,990)","","","(42,794)","","","107","%","","n.m."],["Net income (loss)","$","289,004","","","$","135,037","","","$","(21,825)","","","$","153,967","","","$","156,862","","","114","%","","n.m."],["Adjusted EBITDA(2)","$","388,631","","","$","219,077","","","$","42,609","","","$","169,554","","","$","176,468","","","77","%","","414","%"],["Adjusted Net Income(2)","$","320,557","","","$","154,187","","","$","19,748","","","$","166,370","","","$","134,439","","","108","%","","681","%"]]
[[/GREPCENT_TABLE]]

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, the A&R Offtake Agreement, or the Offtake Agreement. The sales price of rare earth concentrate sold to Shenghe under these agreements is based on an agreed-upon price per MT, subject to certain quality adjustments depending on the measured characteristics of the product, with an adjustment for the ultimate market price of the product realized by Shenghe upon sales to their customers, including the impact of changes in the exchange rate between the Chinese Yuan and the U.S. dollar. As discussed above, revenue recorded on sales under the Original Offtake Agreement also reflects the Shenghe Implied Discount.

The increase in product sales for the year ended December 31, 2022, as compared to the prior year, was driven by a higher realized price per REO MT, which increased by 55%, reflecting higher demand for rare earth products. REO sales volume and REO production volume were relatively unchanged for the year ended December 31, 2022, as compared to the prior year, with higher ore feed rates largely offsetting lower ore feed grade. REO sales volume varies period to period based on the timing of shipments, but generally tracks our REO production volumes over time given our take-or-pay arrangements with Shenghe. See the “Quarterly Performance Trend” section below.

38

Table of Contents

The increase in other sales for the year ended December 31, 2022, as compared to the prior year, was driven primarily by $8.5 million of revenue related to a sales agreement with Shenghe entered into in March 2022 for certain stockpiles of rare earth fluoride (“REF”).

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, 2022, increased year over year primarily due to increase in production cost per REO from $1,493 for the year ended December 31, 2021, to $1,728 for the year ended December 31, 2022. The increase in production cost per REO MT was driven by higher materials, supplies and payroll costs, including an increase in employee headcount to support the expansion of operations, as well as higher energy costs incurred following the restart of our combined heat and power (“CHP”) plant in January 2022. These increases in costs offset production efficiencies achieved during the year ended December 31, 2022. Additionally, shipping and freight costs increased by $4.1 million for the year ended December 31, 2022, as compared to the prior year, largely driven by higher diesel fuel costs. Production cost per REO MT varies period to period based on the timing of scheduled outages of our production facilities for maintenance. See the “Quarterly Performance Trend” section below.

Selling, 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; and certain environmental, health and safety expenses.

Selling, general and administrative expenses for the year ended December 31, 2022, increased by $19.2 million, or 34%, as compared to prior year, driven by higher stock-based compensation expense, which increased by $10.3 million when compared to prior year, primarily from a grant of restricted stock units made to our Chief Executive Officer during the fourth quarter of 2021. Other year-over-year increases included higher personnel costs (other than stock-based compensation expense), which increased $6.5 million, and other general and administrative costs required to further build out our corporate infrastructure and support our separations business and magnetics initiatives.

Advanced projects, start-up, 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 initiatives or pursue other opportunities. Advanced projects, start-up, development and other for the year ended December 31, 2022, increased year over year primarily due to an increase in start-up costs of $7.2 million, associated with the restart of our CHP plant, our Stage II optimization project and our Stage III initiatives, as well as continued investment in research and development activities, particularly with regards to magnetics.

Depreciation, depletion and amortization primarily consists of depreciation of property, plant and equipment and depletion of mineral rights. The year-over-year decrease in depreciation, depletion and amortization for the year ended December 31, 2022, was primarily driven by a decrease in depletion of $5.0 million as a result of a revision to extend our estimate of the remaining useful life of the mineral rights at the beginning of the fourth quarter of 2021. In addition, the year ended December 31, 2022, includes a reduction in depreciation of $2.7 million as a result of a decrement to our asset retirement obligation (see Note 10, “Asset Retirement and Environmental Obligations,” in the notes to the Consolidated Financial Statements for more information).

Accretion of asset retirement and environmental obligations is based on the estimated future cash flows required to reclaim our mine pit and certain related facilities at Mountain Pass and to monitor groundwater contamination, respectively. Accretion of asset retirement and environmental obligations for the year ended December 31, 2022, decreased year over year primarily as a result of the decrements to our asset retirement obligation recorded during the fourth quarter of 2021 and the third quarter of 2022, the latter of which will further reduce the accretion of our asset retirement obligation in future periods.

Royalty expense relates to our obligation to pay SNR (as defined in the “Other Information” section below) for the right to extract rare earth ores contained in our mine. Following the Business Combination (as defined in the “Other Information” section below), we no longer 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 6, “Inventories,” in the notes to the Consolidated Financial Statements for more information.

39

Table of Contents

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 distribution and marketing agreement (the “DMA”) with Shenghe. See Note 3, “Relationship and Agreements with Shenghe,” in the notes to the Consolidated Financial Statements for a discussion of the termination of the DMA and associated accounting treatment.

Interest expense, net principally consists of the expense associated with the 0.25% per annum interest rate and the amortization of the debt issuance costs on our Convertible Notes (as defined in the “Liquidity and Capital Resources” section below) and the amortization of the discount on our debt obligation to Shenghe, offset by interest capitalized. Interest expense, net for the year ended December 31, 2022, decreased year over year due to the full repayment of the Offtake Advances in the first quarter of 2022, offset by the timing of the issuance of the Convertible Notes in March 2021. During the year ended December 31, 2022, we capitalized interest of $0.4 million as compared to $0.3 million in the prior year.

Other income, net consists of interest and investment income and non-operating gains or losses. Other income, net for the year ended December 31, 2022, increased year over year as a result of interest and investment income earned on our short-term investments, which were purchased starting in the second quarter of 2022. The year-over-year increase was offset by 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.

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 15.3% and 15.7% for the years ended December 31, 2022 and 2021, respectively. The effective tax rates differed from the statutory tax rate of 21% primarily due to benefits for percentage depletion and foreign-derived intangible income, excess tax benefits on stock-based compensation, and a partial release of the valuation allowance against deferred tax assets, offset by state income tax expense and a deduction limitation on officer’s compensation.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases, and provides several tax incentives to promote clean energy for tax years beginning after December 31, 2022. At this time, we do not expect the minimum tax or excise tax to have a material impact on our Consolidated Financial Statements. We are continuing to evaluate the impact of the clean energy incentives.

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, quarterly production is impacted by the timing of scheduled outages of our production facilities for maintenance, which typically occur in the second and fourth quarter. As noted above, as we evolve as a business and transition from a producer of rare earth concentrate to a producer of separated rare earth products, the metrics that management anticipates using to evaluate the business may change or be revised.

The following table presents our key performance indicators for the quarterly periods indicated:

[[GREPCENT_TABLE]]
[["","FY2022","","FY2021","","FY2020"],["(in whole units or dollars)","Q4","","Q3","","Q2","","Q1","","Q4","","Q3","","Q2","","Q1","","Q4","","Q3","","Q2","","Q1"],["REO production volume (MTs)","10,485","","","10,886","","","10,300","","","10,828","","","10,261","","","11,998","","","10,305","","","9,849","","","9,337","","","10,197","","","9,287","","","9,682"],["REO sales volume (MTs)","10,816","","","10,676","","","10,000","","","11,706","","","9,674","","","12,814","","","9,877","","","9,793","","","10,320","","","9,429","","","10,297","","","8,321"],["Realized price per REO MT","$","8,515","","","$","11,636","","","$","13,918","","","$","13,818","","","$","10,101","","","$","7,693","","","$","7,343","","","$","5,891","","","$","4,070","","","$","3,393","","","$","3,093","","","$","2,544"],["Production cost per REO MT","$","1,928","","","$","1,653","","","$","1,750","","","$","1,594","","","$","1,525","","","$","1,449","","","$","1,538","","","$","1,475","","","$","1,589","","","$","1,389","","","$","1,412","","","$","1,300"]]
[[/GREPCENT_TABLE]]

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. In recent years, our principal sources of liquidity have been financing through the consummation of the Business Combination, the issuance of the Convertible Notes in March 2021, and net cash from operating activities. As of December 31, 2022, we had $1,182.3 million of cash, cash equivalents and short-term investments and $690.0 million principal amount of long-term debt.

Our results of operations and cash flows depend in large part upon the market prices of REO and particularly the price of rare earth concentrate. Rare earth concentrate is not quoted on any major commodities market or exchange and demand is

40

Table of Contents

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 are adequate to meet our liquidity requirements for the foreseeable future, uncertainty exists as to the market price of REO, as evidenced by the volatility experienced in 2022, especially in light of the ongoing COVID-19 pandemic, including the emergence of new and potential future variants.

Our current working capital needs relate mainly to our mining and beneficiation operations. However, as we transition to selling separated REO and other rare earth products, and advance our Stage III magnetics initiatives, we anticipate our working capital needs will increase significantly. Our principal capital expenditure requirements relate mainly to completing the commissioning of our Stage II optimization project, constructing the HREE Facility, and developing the Fort Worth Facility, as well as periodic replacement of mining or processing equipment. Our future capital requirements will also depend on several other factors, including future acquisitions and potential additional investments in further downstream production.

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 initial scope of the Stage II project. Including these enhancements and other factors impacting the remaining cost of completion and including certain early design and procurement costs associated with the HREE 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 spend approximately $300 million of capital costs in 2023. We expect to incur further costs to complete the HREE Facility and the Fort Worth Facility in 2024, in addition to investing in other growth and maintenance projects.

Our estimated costs or estimated time to complete and commission these projects may increase, potentially significantly, due to factors outside of our control. While we believe that we have sufficient cash resources to fund these initiatives and operating working capital in the near term, we cannot assure this. If our available resources prove inadequate to fund our plans or commitments, we may be forced to revise our strategy and business plans or could be required, or elect, to seek additional funding through public or private equity or debt financings; however, such funding may not be available on terms acceptable to us, if at all. Any delays in our ongoing capital projects or substantial cost increases, including construction costs and related materials costs related to their execution, could significantly impact our ability to maximize our revenue opportunities and adversely impact our business and cash flows.

Debt and Other Long-Term Obligations

Convertible Notes: In March 2021, we issued $690.0 million aggregate principal amount of 0.25% unsecured green convertible senior notes that mature, unless earlier converted, redeemed or repurchased, on April 1, 2026 (the “Convertible Notes”), at a price of par. Interest on the Convertible Notes is payable on April 1st and October 1st of each year, beginning on October 1, 2021.

The Convertible Notes may, at our election, be settled in cash, shares of our common stock, or a combination thereof. We have the option to redeem the Convertible Notes, in whole or in part, beginning on April 5, 2024. The Convertible Notes are convertible into shares of our common stock at an initial conversion price of $44.28 per share, or 22.5861 shares, per $1,000 principal amount of notes, subject to adjustment upon the occurrence of certain corporate events. However, in no event will the conversion exceed 28.5714 shares of common stock per $1,000 principal amount of notes.

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

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

41

Table of Contents

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 our 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.

Equipment Notes: We have previously entered into several financing agreements for the purchase of equipment, including trucks, tractors, loaders, graders, and various other machinery. As of December 31, 2022, we had $7.1 million in principal (and accrued interest) outstanding under the equipment notes, of which $2.4 million is due within the next 12 months.

Leases: We have lease arrangements for certain equipment and facilities, including office space, vehicles and equipment used in our operations. As of December 31, 2022, we had future expected lease payment obligations, including leases that have not yet commenced, totaling $10.7 million, with $1.7 million due within the next 12 months.

Purchase Obligations: Our outstanding purchase obligations as of December 31, 2022, primarily consist of purchase orders initiated with vendors and suppliers in the ordinary course of business for operating and maintenance capital expenditures that will be settled within one year. In certain instances, we are permitted to cancel, reschedule or adjust these orders. Consequently, only a small portion of these outstanding purchase orders relate to firm, non-cancelable and unconditional obligations. We have also entered into long-term supply arrangements for certain chemical reagents used in our operations, which is based on current consumption requirements.

Asset Retirement and Environmental Obligations: See Note 10, “Asset Retirement and Environmental Obligations,” in the notes to the Consolidated Financial Statements for our estimated cash requirements to settle asset retirement and environmental obligations.

Other: In order to support our Stage II separations, HREE Facility, and Fort Worth Facility, we expect to hire at least an additional 175 full-time employees within the next two years, which will result in additional cash requirements for salaries, benefits and training. In addition, we expect to spend approximately $8 million to $10 million within the next two years on implementing a new enterprise resource planning system. Lastly, our engineering, procurement, and construction contracts are typically cancellable.

Cash Flows

The following table summarizes our cash flows:

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","Amount Change","","% Change"],["(in thousands, except percentages)","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020","","2022 vs 2021","","2021 vs 2020"],["Net cash provided by (used in):"],["Operating activities","$","343,514","","","$","101,971","","","$","3,277","","","$","241,543","","","$","98,694","","","237","%","","n.m."],["Investing activities","$","(1,356,971)","","","$","(119,363)","","","$","(22,370)","","","$","(1,237,608)","","","$","(96,993)","","","n.m.","","434","%"],["Financing activities","$","(24,191)","","","$","666,109","","","$","521,961","","","$","(690,300)","","","$","144,148","","","n.m.","","28","%"]]
[[/GREPCENT_TABLE]]

n.m. - Not meaningful.

Net Cash Provided by Operating Activities: Net cash provided by operating activities increased by $241.5 million for the year ended December 31, 2022, as compared to the prior year, reflecting the increase in product sales and a net increase due to the timing of receipt or payment of working capital items, such as accounts receivable, despite a year-over-year build in inventories, partially offset by increases in our cost of sales; selling, general and administrative expenses; and payments for income taxes of $18.9 million. In addition, $13.6 million of our product sales was excluded from cash provided by operating activities for the year ended December 31, 2022, since that portion of the sales price was retained by Shenghe to reduce the debt obligation, compared to $54.8 million in the prior year.

Net Cash Used in Investing Activities: Net cash used in investing activities increased by $1,237.6 million for the year ended December 31, 2022, as compared to the prior year, reflecting gross purchases of short-term investments of $2,779.7 million and sales and maturities of short-term investments of $1,744.2 million; an increase in additions to property, plant and equipment relating primarily to our Stage II optimization project and the construction of our Fort Worth Facility; and a $0.7 million increase in proceeds from government awards used for construction, specifically our Stage II optimization project.

42

Table of Contents

Net Cash Provided by (Used in) Financing Activities: Net cash used in financing activities was $24.2 million for the year ended December 31, 2022, compared to net cash provided by financing activities of $666.1 million in the prior year. The current year consisted primarily of tax withholding on stock-based awards and principal payments on debt obligations and finance leases while the prior year consisted primarily of the net proceeds received from the issuance of the Convertible Notes in March 2021 of $672.3 million.

Non-GAAP Financial Measures

We present Total Value Realized, Production Costs, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, 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, Adjusted Diluted EPS, 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:

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(in thousands, unless otherwise stated)","2022","","2021","","2020"],["Product sales","$","517,267","","","$","328,563","","","$","133,697"],["Adjusted for:"],["Shenghe Implied Discount(1)","\u2014","","","\u2014","","","3,664"],["Tariff rebates(2)","\u2014","","","(2,050)","","","(10,347)"],["Total Value Realized","517,267","","","326,513","","","127,014"],["Divided by:"],["REO sales volume (in MTs)","43,198","","","42,158","","","38,367"],["Realized Price per REO MT (in dollars)","$","11,974","","","$","7,745","","","$","3,311"]]
[[/GREPCENT_TABLE]]

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

(2)Represents non-cash revenue recognized in connection with tariff rebates relating to product sales from prior periods. See Note 4, “Revenue Recognition,” in the notes to the Consolidated Financial Statements.

Production Costs

Production Costs, which we use to calculate our key performance indicator, production cost per REO MT, is a non-GAAP financial measure. Production cost per REO MT is a key indicator of our concentrate production efficiency. As mentioned above, in completing the transition to separated rare earth products, we may determine that production cost per REO MT, which is a metric focused solely on Stage I concentrate operations, and consequently, Production Costs, are no longer meaningful in evaluating and understanding our business or operating results. The following table presents a reconciliation of our Production

43

Table of Contents

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:

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(in thousands, unless otherwise stated)","2022","","2021","","2020"],["Cost of sales (excluding depreciation, depletion and amortization)","$","92,218","","","$","76,253","","","$","63,798"],["Adjusted for:"],["Stock-based compensation expense(1)","(2,853)","","","(4,294)","","","(277)"],["Shipping and freight(2)","(13,002)","","","(8,923)","","","(8,220)"],["Other(3)","(1,715)","","","(79)","","","(446)"],["Production Costs","74,648","","","62,957","","","54,855"],["Divided by:"],["REO sales volume (in MTs)","43,198","","","42,158","","","38,367"],["Production Cost per REO MT (in dollars)","$","1,728","","","$","1,493","","","$","1,430"]]
[[/GREPCENT_TABLE]]

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

(2)Includes $1.3 million for the year ended December 31, 2022, of shipping and freight costs associated with sales of REF stockpiles.

(3)Amount for the year ended December 31, 2022, pertains primarily to costs (excluding shipping and freight) attributable to sales of REF stockpiles.

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, start-up and other non-recurring costs; 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 or loss. 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.

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:

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(in thousands)","2022","","2021","","2020"],["Net income (loss)","$","289,004","","","$","135,037","","","$","(21,825)"],["Adjusted for:"],["Depreciation, depletion and amortization","18,356","","","24,382","","","6,931"],["Interest expense, net","5,786","","","8,904","","","5,009"],["Income tax expense (benefit)","52,148","","","25,158","","","(17,636)"],["Stock-based compensation expense(1)","31,780","","","22,931","","","5,014"],["Transaction-related, start-up and other non-recurring costs(2)","9,216","","","3,716","","","4,438"],["Accretion of asset retirement and environmental obligations","1,477","","","2,375","","","2,255"],["Loss on sale or disposal of long-lived assets, net","391","","","569","","","101"],["Write-down of inventories","\u2014","","","1,809","","","\u2014"],["Royalty expense","\u2014","","","\u2014","","","2,406"],["Settlement charge","\u2014","","","\u2014","","","66,615"],["Tariff rebates(3)","\u2014","","","(2,050)","","","(10,347)"],["Other income, net(4)","(19,527)","","","(3,754)","","","(352)"],["Adjusted EBITDA","$","388,631","","","$","219,077","","","$","42,609"]]
[[/GREPCENT_TABLE]]

(1)Principally included in “Selling, general and administrative” within our Consolidated Statements of Operations.

44

Table of Contents

(2)Amount for the year ended December 31, 2022, is principally comprised of start-up costs, which relate to the restart of our CHP plant as well as certain costs associated with our Stage II optimization project and Stage III initiatives. 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 our 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.

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

(4)Amount for the year ended December 31, 2022, is principally comprised of interest and investment income. 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.

Adjusted Net Income and Adjusted Diluted EPS

We calculate Adjusted Net Income as our GAAP net income or loss excluding the impact of stock-based compensation expense; transaction-related, start-up 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 items that we do not consider representative of our underlying operations; adjusted to give effect to the income tax impact of such adjustments; and the release of valuation allowance. We calculate Adjusted Diluted EPS as our GAAP diluted EPS excluding the per share impact, using GAAP diluted weighted-average shares outstanding as the denominator, of stock-based compensation expense; transaction-related, start-up 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 items that we do not consider representative of our underlying operations; adjusted to give effect to the income tax impact of such adjustments; and the release of valuation allowance. Adjusted Net Income and Adjusted Diluted EPS exclude certain expenses that are required in accordance with GAAP because they are non-recurring, non-cash, or not related to our underlying business performance. 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 and Adjusted Diluted EPS because it is used by management to evaluate our underlying operating and financial performance and trends. These non-GAAP financial measures are intended to supplement our GAAP results and should not be used as a substitute for financial measures presented in accordance with GAAP.

Historically, we had excluded the depletion on the mineral rights for the rare earth ores contained in our mine, which were recorded at fair value upon the acquisition of SNR, from Adjusted Net Income and Adjusted Diluted EPS. Effective September 30, 2022, we no longer exclude depletion expense when calculating and presenting Adjusted Net Income and Adjusted Diluted EPS. For purposes of comparability, we have revised the prior years for this change.

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

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(in thousands)","2022","","2021","","2020"],["Net income (loss)","$","289,004","","","$","135,037","","","$","(21,825)"],["Adjusted for:"],["Stock-based compensation expense(1)","31,780","","","22,931","","","5,014"],["Transaction-related, start-up and other non-recurring costs(2)","9,216","","","3,716","","","4,438"],["Loss on sale or disposal of long-lived assets, net","391","","","569","","","101"],["Write-down of inventories","\u2014","","","1,809","","","\u2014"],["Royalty expense","\u2014","","","\u2014","","","2,406"],["Settlement charge","\u2014","","","\u2014","","","66,615"],["Tariff rebates(3)","\u2014","","","(2,050)","","","(10,347)"],["Other(4)","(273)","","","(3,754)","","","(352)"],["Tax impact of adjustments above(5)","(6,716)","","","(4,071)","","","(16,969)"],["Release of valuation allowance","(2,845)","","","\u2014","","","(9,333)"],["Adjusted Net Income","$","320,557","","","$","154,187","","","$","19,748"]]
[[/GREPCENT_TABLE]]

(1)Principally included in “Selling, general and administrative” within our Consolidated Statements of Operations.

(2)Amount for the year ended December 31, 2022, is principally comprised of start-up costs, which relate to the restart of our CHP plant as well as certain costs associated with our Stage II optimization project and Stage III initiatives. 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 our Public

45

Table of Contents

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.

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

(4)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, which is included in “Other income, net” within our Consolidated Statements of Operations.

(5)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 16.3%, 17.5% and 25.0% for the years ended December 31, 2022, 2021 and 2020, respectively. See Note 11, “Income Taxes,” in the notes to the Consolidated Financial Statements for more information on the effective tax rate.

The following table presents a reconciliation of our Adjusted Diluted EPS, which is a non-GAAP financial measure, to our diluted EPS, which is determined in accordance with GAAP:

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(in thousands)","2022","","2021","","2020"],["Diluted EPS","$","1.52","","","$","0.73","","","$","(0.27)"],["Adjusted for:"],["Stock-based compensation expense","0.16","","","0.12","","","0.06"],["Transaction-related, start-up and other non-recurring costs(1)","0.05","","","0.02","","","0.06"],["Loss on sale or disposal of long-lived assets, net","\u2014","","","\u2014","","","\u2014"],["Write-down of inventories","\u2014","","","0.01","","","\u2014"],["Royalty expense","\u2014","","","\u2014","","","0.03"],["Settlement charge","\u2014","","","\u2014","","","0.84"],["Tariff rebates(2)","\u2014","","","(0.01)","","","(0.13)"],["Other(3)","\u2014","","","(0.02)","","","\u2014"],["Tax impact of adjustments above(4)","(0.04)","","","(0.02)","","","(0.22)"],["Release of valuation allowance","(0.01)","","","\u2014","","","(0.12)"],["Adjusted Diluted EPS","$","1.68","","","$","0.83","","","$","0.25"],["Diluted weighted-average shares outstanding","193,453,087","","","189,844,028","","","79,690,821"]]
[[/GREPCENT_TABLE]]

(1)Amount for the year ended December 31, 2022, is principally comprised of start-up costs, which relate to the restart of our CHP plant as well as certain costs associated with our Stage II optimization project and Stage III initiatives. 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 our 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.

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

(3)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, which is included in “Other income, net” within our Consolidated Statements of Operations.

(4)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 16.3%, 17.5% and 25.0% for the years ended December 31, 2022, 2021 and 2020, respectively. See Note 11, “Income Taxes,” in the notes to the Consolidated Financial Statements for more information on the effective tax rate.

Free Cash Flow

We calculate Free Cash Flow as net cash provided by operating activities less additions to property, plant and equipment, net of proceeds 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 operating activities, which is determined in accordance with GAAP:

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(in thousands)","2022","","2021","","2020"],["Net cash provided by operating activities(1)","$","343,514","","","$","101,971","","","$","3,277"],["Additions to property, plant and equipment, net(2)","(321,465)","","","(119,488)","","","(22,370)"],["Free Cash Flow","$","22,049","","","$","(17,517)","","","$","(19,093)"]]
[[/GREPCENT_TABLE]]

46

Table of Contents

(1)As a result of the accounting treatment for the A&R Offtake Agreement, $13.6 million, $54.8 million and $21.3 million of our product sales for the years ended December 31, 2022, 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)Amounts for the years ended December 31, 2022 and 2021, are net of $5.1 million and $4.4 million, respectively, in proceeds from government awards used for construction, specifically our Stage II optimization project.

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, 2022, 2021 and 2020, and is an affiliate of an equity holder of MP Materials. 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. In addition, sales to Shenghe under the Original Offtake Agreement between January 1, 2020, and June 5, 2020, also reflected 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 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 did not have a stated rate, and the timing and method of repayment was 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 represented the difference between the fair value of the debt liability issued and the total amount of the contractual obligation as a result of our entrance into the A&R Offtake Agreement. The imputed interest rate was calculated by amortizing the debt discount over the time period that management expected 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 was expected to occur. Actual repayments or reductions in the principal balance differed in timing and amount from our estimates, and we therefore updated our estimates each reporting period. We recognized adjustments from these estimates using the prospective method. Under the prospective method, we updated our estimate of the effective imputed interest rate in future periods based on revised estimates of the timing of remaining principal reductions. This rate was then used to recognize interest expense for subsequent reporting periods, until the estimates were updated again. Under this method, the effective interest rate was not constant, and changes were recognized prospectively as an adjustment to the effective yield.

In March 2022, we made a $2.9 million payment to Shenghe pursuant to an obligation under the A&R Offtake Agreement to pay Shenghe, on an annual basis, an amount equal to our annual net income, less any amounts recouped through the Gross Profit Recoupment mechanism during such year, until the Prepaid Balance was reduced to zero. Upon payment, the Prepaid Balance was repaid in full, and the A&R Offtake Agreement was terminated. See Note 3, “Relationship and Agreements with Shenghe,” and Note 8, “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. In determining fair value, management makes estimates based on the expected timing of reclamation activities; cash flows to perform activities, which involves utilizing an assumption for future

47

Table of Contents

inflation; amount and uncertainty associated with the cash flows, including adjustments for a market risk premium; and discounts such amounts using a credit-adjusted risk-free rate. Although we base our estimates on historical experience and reevaluate our estimated timing and cash flows regularly, since the majority of the cash flows to settle our asset retirement obligations occur decades in the future, it is inherently difficult to accurately predict the ultimate cash flows used to settle such obligations. As a result, these estimates and assumptions are subjective and can vary over time.

As illustrated in Note 10, “Asset Retirement and Environmental Obligations,” in the notes to the Consolidated Financial Statements, our asset retirement obligations have decreased from $25.6 million as of December 31, 2020, to $5.5 million as of December 31, 2022, as a result of revisions in our estimated timing and cash flows pertaining to required reclamation activities. In particular, as a result of an updated life-of-mine, which revised the estimated timing of cash flows by approximately an additional 13 years, we recorded a decrement of $9.8 million during the year ended December 31, 2021. Furthermore, during the year ended December 31, 2022, we recorded another decrement of $13.1 million, the effect of removing estimated cash flows pertaining to certain of our processing and separations facilities at Mountain Pass that no longer required reclamation.

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.

Other Information

COVID-19 Pandemic

The COVID-19 pandemic remains on-going and continues to impact the global economy. Through the end of 2022, varying degrees of preventative measures were still in place in China and other parts of the world, including city-wide lockdowns, travel restrictions, closures of non-essential businesses and other quarantine measures. Since 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. We have 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.

As the situation continues to evolve, including as a result of new and potential future variants of COVID-19, 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 our business, results of operations, production and sales volumes, or growth projects. Accordingly, the extent and duration of any business disruptions, and related financial impact, cannot be estimated at this time.

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 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, resulted in MPMO’s historical financial information becoming that of MP Materials Corp.