Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors

MP Materials Corp.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of MP Materials Corp. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Identification and disclosure of related party transactions with Shenghe

As discussed in Notes 3 and 18 to the consolidated financial statements, the Company has entered into a series of commercial agreements with Shenghe Resources (Singapore) International Trading Pte. Ltd (Shenghe), a related party. Under the agreements, Shenghe purchases rare earth products produced by the Company at specified prices.

We identified the identification and disclosure of the related party transactions with Shenghe as a critical audit matter. Subjective auditor judgment was required in assessing the sufficiency of the procedures performed to determine whether all such transactions were identified and disclosed properly by the Company.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the identification and disclosure of transactions with Shenghe. We applied auditor judgment to determine the nature and extent of procedures to be performed to identify transactions with Shenghe. We evaluated the identification and disclosure of transactions with Shenghe by:

• inquiring of management of the Company and the Audit Committee of the Board of Directors regarding (i) the Shenghe relationship and (ii) transactions between the Company and Shenghe

• reading the minutes from meetings of the Board of Directors

• obtaining and analyzing underlying documentation for a sample of sales transactions and comparing it to the contractual agreements with Shenghe

• confirming transactions and contractual agreements with Shenghe as of and for the year ended December 31, 2022 and comparing the responses to the Company’s consolidated financial statements

• reading the contractual agreements with Shenghe and comparing the terms to the disclosures in the Company’s consolidated financial statements.

We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed over the transactions with Shenghe, including the appropriateness of such evidence.

/s/ KPMG LLP

We have served as the Company’s auditor since 2017.

Denver, Colorado

February 28, 2023

MP MATERIALS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

			December 31,
(in thousands, except share and per share data)			2022						2021
Assets
Current assets
Cash and cash equivalents			$	136,627					$	1,179,297
Short-term investments			1,045,718						—
Total cash, cash equivalents and short-term investments			1,182,345						1,179,297
Accounts receivable (including related party)			32,856						51,009
Inventories			57,554						38,692
Income taxes receivable			2,201						—
Prepaid expenses and other current assets			18,872						7,809
Total current assets			1,293,828						1,276,807
Non-current assets
Property, plant and equipment, net			935,743						610,612
Non-current inventories			5,744						—
Other non-current assets			2,472						2,247
Total non-current assets			943,959						612,859
Total assets			$	2,237,787					$	1,889,666
Liabilities and stockholders’ equity
Current liabilities
Accounts payable, construction payables and accrued liabilities			$	72,265					$	35,734
Income taxes payable			21,163						3,463
Current installments of long-term debt—related party			—						16,082
Other current liabilities			4,053						4,264
Total current liabilities			97,481						59,543
Non-current liabilities
Asset retirement obligations			5,295						17,615
Environmental obligations			16,580						16,598
Long-term debt, net of current portion			678,444						674,927
Deferred income taxes			122,353						104,500
Other non-current liabilities			5,000						7,751
Total non-current liabilities			827,672						821,391
Total liabilities			925,153						880,934
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock ($0.0001 par value, 50,000,000 shares authorized, none issued and outstanding in either year)			—						—
Common stock ($0.0001 par value, 450,000,000 shares authorized, 177,706,608 and 177,816,554 shares issued and outstanding, as of December 31, 2022 and December 31, 2021, respectively)			18						18
Additional paid-in capital			951,008						936,299
Retained earnings			361,419						72,415
Accumulated other comprehensive income			189						—
Total stockholders’ equity			1,312,634						1,008,732
Total liabilities and stockholders’ equity			$	2,237,787					$	1,889,666

See accompanying notes to the Consolidated Financial Statements.

MP MATERIALS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

			For the year ended December 31,
(in thousands, except share and per share data)			2022						2021						2020
Revenue:
Product sales (including related party)			$	517,267					$	328,563					$	133,697
Other sales (including related party)			10,243						3,389						613
Total revenue			527,510						331,952						134,310
Operating costs and expenses:
Cost of sales (including related party)(excluding depreciation, depletion and amortization)			92,218						76,253						63,798
Selling, general and administrative			75,840						56,646						26,767
Advanced projects, start-up, development and other			11,817						4,573						140
Depreciation, depletion and amortization			18,356						24,382						6,931
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
Royalty expense			—						—						2,406
Write-down of inventories			—						1,809						—
Settlement charge			—						—						66,615
Total operating costs and expenses			200,099						166,607						169,013
Operating income (loss)			327,411						165,345						(34,703)
Interest expense, net			(5,786)						(8,904)						(5,009)
Other income, net			19,527						3,754						251
Income (loss) before income taxes			341,152						160,195						(39,461)
Income tax benefit (expense)			(52,148)						(25,158)						17,636
Net income (loss)			$	289,004					$	135,037					$	(21,825)
Earnings (loss) per share:
Basic			$	1.64					$	0.78					$	(0.27)
Diluted			$	1.52					$	0.73					$	(0.27)
Weighted-average shares outstanding:
Basic			176,519,203						173,469,546						79,690,821
Diluted			193,453,087						189,844,028						79,690,821

See accompanying notes to the Consolidated Financial Statements.

MP MATERIALS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

			For the year ended December 31,
(in thousands)			2022						2021						2020
Net income (loss)			$	289,004					$	135,037					$	(21,825)
Other comprehensive income, net of tax:
Change in net unrealized gains on available-for-sale securities			189						—						—
Total comprehensive income (loss)			$	289,193					$	135,037					$	(21,825)

See accompanying notes to the Consolidated Financial Statements.

MP MATERIALS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

			Preferred Stock												Common Stock												Shenghe Warrant						Additional Paid-in Capital						Retained Earnings (Accumulated Deficit)						Accumulated Other Comprehensive Income						Total Stockholders’ Equity (Deficit)
(in thousands, except share data)			Shares						Amount						Shares						Amount
Balance as of January 1, 2020			—						$	—					66,556,975						$	7					$	—					$	22,768					$	(40,797)					$	—					$	(18,022)
Issuance of Shenghe Warrant			—						—						—						—						53,846						—						—						—						53,846
Business Combination, including PIPE Financing			—						—						60,738,714						6						(53,846)						563,115						—						—						509,275
SNR Mineral Rights Acquisition			—						—						19,999,942						2						—						326,647						—						—						326,649
Common stock issuances			—						—						21,484,898						2						—						(2)						—						—						—
Stock-based compensation			—						—						2,013,006						—						—						5,014						—						—						5,014
Shares used to settle payroll tax withholding			—						—						(69,083)						—						—						(996)						—						—						(996)
Net loss			—						—						—						—						—						—						(21,825)						—						(21,825)
Other			—						—						(4,473)						—						—						(64)						—						—						(64)
Balance as of December 31, 2020			—						—						170,719,979						17						—						916,482						(62,622)						—						853,877
Redemption of Public Warrants			—						—						7,080,005						1						—						(2)						—						—						(1)
Stock-based compensation			—						—						180,026						—						—						22,931						—						—						22,931
Forfeiture of restricted stock			—						—						(90,000)						—						—						—						—						—						—
Shares used to settle payroll tax withholding			—						—						(73,456)						—						—						(3,330)						—						—						(3,330)
Net income			—						—						—						—						—						—						135,037						—						135,037
Other			—						—						—						—						—						218						—						—						218
Balance as of December 31, 2021			—						—						177,816,554						18						—						936,299						72,415						—						1,008,732
Stock-based compensation			—						—						357,845						—						—						33,066						—						—						33,066
Shares used to settle payroll tax withholding			—						—						(467,791)						—						—						(18,357)						—						—						(18,357)
Net income			—						—						—						—						—						—						289,004						—						289,004
Unrealized gains on available-for-sale securities			—						—						—						—						—						—						—						189						189
Balance as of December 31, 2022			—						$	—					177,706,608						$	18					$	—					$	951,008					$	361,419					$	189					$	1,312,634

See accompanying notes to the Consolidated Financial Statements.

MP MATERIALS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

			For the year ended December 31,
(in thousands)			2022						2021						2020
Operating activities:
Net income (loss)			$	289,004					$	135,037					$	(21,825)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization			18,356						24,382						6,931
Accretion of asset retirement and environmental obligations			1,477						2,375						2,255
Accretion of discount on short-term investments			(9,958)						—						—
Gain on forgiveness of Paycheck Protection Loan			—						(3,401)						—
Loss on sale or disposal of long-lived assets, net			391						569						101
Stock-based compensation expense			31,780						22,931						5,014
Accretion of debt discount and amortization of debt issuance costs			4,034						7,384						3,146
Write-down of inventories			—						1,809						—
Non-cash settlement charge			—						—						66,615
Revenue recognized in exchange for debt principal reduction			(13,566)						(54,828)						(21,312)
Deferred income taxes			17,789						17,425						(17,792)
Decrease (increase) in operating assets:
Accounts receivable (including related party)			18,153						(47,420)						(3,219)
Inventories			(24,314)						(8,229)						(9,224)
Income taxes receivable			(2,201)						—						—
Prepaid expenses, other current and non-current assets			(6,022)						(4,154)						1,794
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities			1,962						5,530						(3,848)
Income taxes payable			17,700						3,463						—
Refund liability to related party			—						—						(2,746)
Deferred revenue from related party			—						—						1,933
Other current and non-current liabilities			(1,071)						(902)						(4,546)
Net cash provided by operating activities			343,514						101,971						3,277
Investing activities:
Additions to property, plant and equipment			(326,595)						(123,870)						(22,370)
Purchases of short-term investments			(2,779,666)						—						—
Proceeds from sales of short-term investments			1,463,160						—						—
Proceeds from maturities of short-term investments			281,000						—						—
Proceeds from sale of property, plant and equipment			—						125						—
Proceeds from government awards used for construction			5,130						4,382						—
Net cash used in investing activities			(1,356,971)						(119,363)						(22,370)
Financing activities:
Proceeds from issuance of long-term debt			—						690,000						3,364
Proceeds from Second Additional Advance			—						—						35,450
Proceeds from Business Combination, including PIPE Financing			—						—						544,712
Principal payments on debt obligations and finance leases			(5,834)						(2,435)						(20,180)
Payment of underwriting and transaction costs			—						—						(40,325)
Payment of debt issuance costs			—						(17,749)						—
Tax withholding on stock-based awards			(18,357)						(3,330)						(996)
Other			—						(377)						(64)
Net cash provided by (used in) financing activities			(24,191)						666,109						521,961
Net change in cash, cash equivalents and restricted cash			(1,037,648)						648,717						502,868
Cash, cash equivalents and restricted cash beginning balance			1,181,157						532,440						29,572
Cash, cash equivalents and restricted cash ending balance			$	143,509					$	1,181,157					$	532,440
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents			$	136,627					$	1,179,297					$	519,652
Restricted cash, current			6,287						1,344						3,688
Restricted cash, non-current			595						516						9,100
Total cash, cash equivalents and restricted cash			$	143,509					$	1,181,157					$	532,440

See accompanying notes to the Consolidated Financial Statements.

MP MATERIALS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business: MP Materials Corp., including its subsidiaries (the “Company” or “MP Materials”), is the largest producer of rare earth materials in the Western Hemisphere. The Company, which is headquartered in Las Vegas, Nevada, owns and operates the Mountain Pass Rare Earth Mine and Processing Facility (“Mountain Pass”), the only active rare earth mining and processing site of scale in North America. MP Materials currently produces 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,”), a related party of the Company, that, in turn, typically sells that product to refiners in China. These refiners separate the constituent rare earth elements contained in the Company’s concentrate and sell the separated products to their customers.

Upon completing commissioning of the Stage II optimization project (“Stage II”), the Company anticipates producing and selling separated rare earth products, including neodymium-praseodymium (“NdPr”) oxide, to customers globally. In addition, the Company is constructing its initial rare earth metal, alloy and magnet manufacturing facility in Fort Worth, Texas (the “Fort Worth Facility”), where it anticipates manufacturing, among other products, neodymium-iron-boron (“NdFeB”) permanent magnets. Furthermore, in April 2022, the Company 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 the Company’s Stage III downstream expansion strategy (“Stage III”).

Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s CODM views the Company’s operations and manages the business as one reportable segment.

The cash flows and profitability of the Company’s operations are significantly affected by the market price of rare earth products. The prices of rare earth products are affected by numerous factors beyond the Company’s control. The products of the Company are sold globally, with a primary focus in the Asian market due to the refining capabilities of the region. Rare earth products are critical inputs in hundreds of existing and emerging clean-tech applications including electric vehicles and wind turbines as well as drones and defense applications.

Basis of Presentation: The Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The Consolidated Financial Statements include the accounts of MP Materials Corp. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Concentration of Risk: Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents and short-term investments, and trade accounts receivable. The Company believes that its credit risk is limited because the Company’s current contracts are with companies that have a reliable payment history. The Company does not believe it is exposed to any significant risks related to its cash accounts, money market funds, or short-term investments.

As of December 31, 2022, Shenghe was the Company’s principal customer and accounted for more than 90% of product sales. Demand for rare earth concentrate is currently constrained to a relatively limited number of refiners, a significant majority of which are based in China. Furthermore, while revenue is generated in the United States, Shenghe conducts its primary operations in China and may transport and sell products in the Chinese market. Therefore, the Company’s revenue is affected by Shenghe’s ultimate realized prices in China, including the impact of changes in the exchange rate between the Chinese Yuan and the U.S. dollar. In addition, there has been ongoing economic conflict between China and the United States that has previously resulted in tariffs and trade barriers that may negatively affect the Company’s business and results of operations. See Note 3, “Relationship and Agreements with Shenghe,” and Note 18, “Related-Party Transactions,” for additional information.

The COVID-19 pandemic remains ongoing 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, the Company has 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, the Company has 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 the Company’s 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 the Company’s 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.

Use of Estimates**:** The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and (iii) the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to the useful lives and recoverability of long-lived assets (such as the effects of mineral reserves and cash flows from operating the mine in determining the life of the mine); the valuation allowance of deferred tax assets; asset retirement and environmental obligations; and determining the fair value of assets and liabilities in acquisitions and financial instruments in connection with transactions that require initial measurement to be at fair value. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from those estimates.

Cash, Cash Equivalents and Investments: Cash and cash equivalents consist of all cash balances and highly liquid investments, including U.S. treasury and agency securities, with a maturity of three months or less at the time of purchase.

The Company’s investments in U.S. treasury and agency securities have been classified and accounted for as available-for-sale securities and the Company reevaluates the classification each reporting period. The Company classifies its available-for-sale securities that do not otherwise meet the requirements to be accounted for as cash equivalents as either current or non-current based on each instrument’s underlying contractual maturity date as well as the Company’s expectations of sales and redemptions within the next twelve months. See Note 5, “Cash, Cash Equivalents and Investments,” for additional information.

Available-for-sale securities are recorded at fair value each reporting period. For unrealized losses in securities that the Company intends to hold and will not more likely than not be required to sell before recovery, the Company further evaluates whether declines in fair value below amortized cost are due to credit or non-credit related factors. The Company considers credit related impairments to be changes in value that are driven by a change in the creditor’s ability to meet its payment obligations, and records an allowance and recognizes a corresponding loss when the impairment is incurred.

Unrealized non-credit related losses and unrealized gains are reported, net of income taxes, in “Accumulated other comprehensive income” within the Company’s Consolidated Balance Sheets, until realized. Realized gains and losses are determined based on the specific identification method and are reported in “Other income, net” within the Company’s Consolidated Statements of Operations upon realization. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the straight-line method. Interest income is recognized when earned. These amounts are reported in “Other income, net” within the Company’s Consolidated Statements of Operations. Accrued interest receivable was $2.5 million as of December 31, 2022, and is included in “Prepaid expenses and other current assets” within the Company’s Consolidated Balance Sheets.

Restricted Cash: Restricted cash consists of funds that are contractually restricted as to usage or withdrawal due to legal agreement. The Company determines current or non-current classification based on the expected duration of the restriction. Current and non-current restricted cash is included in “Prepaid expenses and other current assets” and “Other non-current assets,” respectively, within the Consolidated Balance Sheets.

Accounts Receivable: Accounts receivable pertain to receivables arising from contracts with customers and are recorded at the invoiced amount and do not bear interest. The Company evaluates its estimate of expected credit losses based on historical

experience and current economic conditions for each portfolio of customers, though at present, the amounts are typically concentrated in a single customer. As of December 31, 2022 and 2021, the Company did not have an allowance for expected credit losses, as principally all of the Company’s receivables are from Shenghe and there is no history or expectation of uncollectible amounts.

Inventories: Inventories consist of raw materials and supplies, work in process (referred to as “in-process inventory”), and finished goods. Materials and supplies consist of raw materials, spare parts, reagent chemicals, maintenance supplies, and packaging materials used in the production of rare earth products. In-process inventory primarily consists of mine ore stockpiles and bastnaesite ore in various stages of the production process. Finished goods primarily consist of either packaged bastnaesite concentrate or roasted bastnaesite concentrate that is ready for sale.

Raw materials, in-process inventory and finished goods are carried at average cost. Supplies are carried at moving average cost. All inventories are carried at the lower of cost or net realizable value, which represents the estimated selling price of the product during the ordinary course of business based on current market conditions less costs to sell. Inventory cost includes all expenses directly attributable to the manufacturing process, including labor and stripping costs, and an appropriate portion of production overhead, including depletion, based on normal operating capacity.

Stockpiled ore tonnages are verified by periodic surveys. The Company evaluates the carrying amount of inventory on a periodic basis, considering slow-moving items, obsolescence, excess inventory levels, and other factors and recognizes related write-downs if it is determined that the inventory is impaired. Mine ore stockpiles that are not expected to be processed within the next twelve months are classified as non-current. See also Note 6, “Inventories.”

Property, Plant and Equipment: Property, plant and equipment are recorded at cost and depreciated over their useful lives. Expenditures for new property, plant and equipment and improvements that extend the useful life or functionality of the assets are recorded at their cost of acquisition or construction. Depreciation on property, plant and equipment is recognized on a straight-line basis over their estimated useful lives, as follows:

			Years
Land improvements			25
Buildings and building improvements			10-40
Machinery and equipment			3-20

Assets under construction include costs directly attributable to the construction or development of long-lived assets. These costs may include labor and employee benefits associated with the construction of the asset, site preparation, permitting, engineering, installation and assembly, procurement, insurance, legal, commissioning, and interest on borrowings to finance the construction of the assets. Depreciation is not recorded on the related assets until they are ready for their intended use. Repair and maintenance costs that do not extend the useful life of an asset are expensed as incurred. Gains and losses arising from the sale or disposal of property, plant and equipment are determined as the difference between the proceeds from sale or disposal and the carrying amount of the asset.

Property, plant and equipment primarily relate to the Company’s open-pit mine and processing and separating facility at Mountain Pass. In addition to the mine, Mountain Pass includes a crusher and mill/flotation plant, mineral recovery and separation plants, tailings processing and storage facilities, product finishing facilities, on-site evaporation ponds, a combined heat and power plant, water treatment plant, a chlor-alkali plant, as well as laboratory facilities to support research and development activities, offices, warehouses and support infrastructure. See also Note 7, “Property, Plant and Equipment.”

Mineral Rights: The Company capitalizes costs for acquiring and leasing mining properties and expenses costs to maintain mineral rights as incurred. Depletion on mineral rights is recognized on a straight-line basis over the estimated remaining useful life of the mine, which was approximately 33 years as of December 31, 2022. The Company determined that the straight-line method of depletion appropriately captures the estimated economic costs of extracting the minerals of the mine across its estimated useful life, and aligns with the benefit obtained from the depletion of the asset consistent with the current mine plan. Mineral rights are classified as a component of “Property, plant and equipment” within the Company’s Consolidated Balance Sheets. See also Note 7, “Property, Plant and Equipment.”

Leases: The Company determines if an arrangement is, or contains, a lease at contract inception. In some cases, the Company has determined that its lease arrangements include both lease and non-lease components. The Company has elected to use a practical expedient to account for each separate lease component and its associated non-lease components as a single lease component for the majority of its asset classes. The Company recognizes right-of-use (“ROU”) assets and lease liabilities upon commencement for all leases with a lease term greater than 12 months. The Company has elected to use a practical expedient to

not recognize leases with a lease term of 12 months or less in the Consolidated Balance Sheets for the majority of its asset classes. These short-term leases are expensed on a straight-line basis over the lease term. The ROU assets are included in “Other non-current assets” within the Consolidated Balance Sheets and the current and non-current portions of lease liabilities are included in “Other current liabilities” and “Other non-current liabilities,” respectively, within the Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. When the rate implicit to the lease cannot be readily determined, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. Lease liabilities are accreted each period and reduced for payments. The ROU asset also includes other adjustments, such as for the effects of escalating rents, rent abatements or initial lease costs. The lease term may include periods covered by options to extend or terminate the lease when it is reasonably certain that the Company will exercise a renewal option, or reasonably certain it will not exercise an early termination option. For operating leases, lease expense is recognized on a straight-line basis over the expected lease term. For finance leases, the ROU asset amortizes on a straight-line basis over the lease term (or the useful life of the underlying asset if title transfers at the end of the lease term or there is a purchase option the Company is reasonably certain to exercise) and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement. See also Note 9, “Leases.”

Impairment of Long-Lived Assets: Long-lived assets, including mineral rights, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. In estimating undiscounted cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of undiscounted cash flows from other asset groups. The Company’s estimates of undiscounted cash flows are based on numerous assumptions, and it is possible that actual cash flows may differ significantly from estimates, as actual produced reserves, prices, commodity-based and other costs, and closure costs are each subject to significant risks and uncertainties. The estimated undiscounted cash flows used to assess recoverability of long-lived assets and to measure the fair value of the Company’s mining operations are derived from current business plans, which are developed using short-term price forecasts reflective of the current price environment and the Company’s projections for long-term average prices. In addition to short- and long-term price assumptions, other assumptions include estimates of production costs; proven and probable mineral reserves estimates, including the timing and cost to develop and produce the reserves; value beyond proven and probable estimates; and estimated future closure costs.

If the carrying amount of the long-lived asset or asset groups is not recoverable on an undiscounted cash flows basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, based on the approach the Company believes a market participant would use. An impairment loss, if any, is recorded for the excess of the asset’s (or asset group’s) carrying amount over its fair value, as determined by a valuation technique appropriate to the given circumstances. See also Note 7, “Property, Plant and Equipment.”

Offtake Advances Accounted for as Debt Obligations and Debt Discount: Subsequent to the June 2020 Modification to the Original Offtake Agreement and through the final repayment of the Prepaid Balance (as such terms are defined in Note 3, “Relationship and Agreements with Shenghe”) in March 2022, the Company accounted for prepayments or other advances received from Shenghe prior to or in connection with the June 2020 Modification as debt. The associated debt discount, which reduced the carrying amount of the debt, was amortized to interest expense using the effective interest method over the Company’s estimated contractual term of the underlying indebtedness. See also, Note 8, “Debt Obligations.”

Asset Retirement Obligations: The Company recognizes asset retirement obligations (“ARO”) for estimated costs of legally and contractually required closure, dismantlement, and reclamation activities associated with Mountain Pass. ARO are initially recognized at their estimated fair value in the period in which the obligation originates. 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 with differences between estimated and actual amounts recognized as an adjustment to operating expenses.

Subsequent increments in expected undiscounted cash flows are measured at their discounted values using updated estimates of the Company’s credit-adjusted risk-free rate applied to the increment only. Subsequent decrements in 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 increase 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 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. See also Note 10, “Asset Retirement and Environmental Obligations.”

Environmental Obligations: The Company has certain environmental remediation obligations that primarily relate to groundwater monitoring activities. Estimated remediation costs are accrued based on management’s best estimate at the end of each reporting period of the costs expected to be incurred to settle the obligation when those amounts are probable and estimable. Such cost estimates may include ongoing care, maintenance and monitoring costs associated with remediation activities. Changes in remediation estimates are reflected in earnings in the period the estimate is revised. Remediation costs included in environmental obligations are discounted to their present value when payments are readily estimable, and are discounted using a risk-free rate, which the Company derives from U.S. Treasury yields. See also Note 10, “Asset Retirement and Environmental Obligations.”

Debt Issuance Costs: Costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness. Debt issuance costs reduce the carrying amount of the associated debt.

Revenue Recognition: The Company’s revenue comes from sales of rare earth products produced at Mountain Pass. The Company’s sales are primarily to an affiliate of Shenghe. The Company’s performance obligation is to deliver rare earth products to the agreed-upon delivery point, and the Company recognizes revenue at the point in time control of the products transfers to the customer, which is typically when the rare earth products are delivered to the agreed-upon shipping point. At that time, the customer has the ability to direct the use of and obtain substantially all of the remaining benefits from the products, and the customer bears the risk of loss.

For sales to unrelated third parties, the transaction price is agreed to at the time the sale is entered into. For sales to Shenghe, the transaction price is typically based on an agreed-upon price per metric ton (“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 and certain other discounts. These ultimate market prices are forms of variable consideration. The Company typically negotiates with and bills an initial price to Shenghe; such prices are then updated based on final adjustments for quality differences and/or actual sales prices realized by Shenghe. Initial pricing is typically billed upon delivering the product to the agreed-upon shipping point and paid within 30 days or less. Final adjustments to prices may take longer to resolve. When the final price has not been resolved by the end of a reporting period, the Company estimates the expected sales price based on the initial price, current market pricing and known quality measurements, and further constrains such amounts to an amount that is probable not to result in a significant reversal of previously-recognized revenue. Revenue from product sales is recorded net of taxes collected from customers that are remitted to governmental authorities. When necessary and appropriate, the Company applies a portfolio approach in estimating a refund obligation. See also Note 4, “Revenue Recognition.”

Government Grants: In accounting for grants received from the government, the grant proceeds are recognized when there is reasonable assurance the conditions of the grant will be met, and the grant will be received. When a grant is related to an expense item, it is recognized as income (or a reduction of expense) over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When a grant is related to an asset, the funds received are recorded as reductions of the related asset’s carrying amount, thereby reducing future depreciation expense. See also Note 7, “Property, Plant and Equipment.”

Stock-Based Compensation: The cost of employee services received in exchange for an award of equity instruments is based on the grant-date fair value of the award and the expense is recognized ratably over the requisite service period. The fair value of Stock Awards (as defined in Note 15, “Stock-based Compensation,”) is equal to the fair value of the Company’s stock on the grant date. Stock Awards with graded vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company accounts for forfeitures in the period in which they occur based on actual forfeitures. See also Note 15, “Stock-based Compensation.”

Start-up Costs: Costs associated with restarting an existing facility or commissioning a new facility, circuit or process of the Company’s production, manufacturing, or separations facilities prior to achievement of commercial production, that do not qualify for capitalization, are expensed as incurred and considered start-up costs. Such costs may include certain salaries and wages, outside services, parts, training, and utilities, among other items, used or consumed directly in these start-up activities. Start-up costs are included in “Advanced projects, start-up, development and other” within the Company’s Consolidated Statements of Operations.

Earnings (Loss) Per Share: Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the additional dilution for all potentially dilutive securities such as unvested restricted stock awards. See also Note 17, “Earnings (Loss) per Share.”

Commitments and Contingencies: Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. If a loss contingency is not probable or reasonably estimable, disclosure of the contingency and estimated range of loss, if determinable, is made in the financial statements when it is at least reasonably possible that a material loss could be incurred. Legal costs incurred in connection with loss contingencies are expensed as incurred. See also Note 12, “Commitments and Contingencies.”

Income Taxes: The Company accounts for income taxes using the balance sheet method, recognizing certain temporary differences between the book basis of the liabilities and assets and the related income tax basis for such liabilities and assets. This method generates either a net deferred income tax liability or asset for the Company, as measured by the statutory tax rates in effect. The Company derives a deferred income tax expense or benefit by recording the change in either the net deferred income tax liability or asset balance for the year. The Company’s policy, if it were to have uncertain tax positions, is to recognize interest and/or penalties related to unrecognized tax benefits as part of its income tax expense. See also Note 11, “Income Taxes.”

Valuation of Deferred Tax Assets: The Company’s deferred income tax assets include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized. The Company reviews the likelihood that the benefit of the deferred tax assets will be realized and the need for valuation allowances on a quarterly basis, or more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the Company evaluates all available positive and negative evidence.

Certain categories of evidence carry more weight in the analysis than others based upon the extent to which the evidence may be objectively verified. The Company looks to the nature and severity of cumulative pretax losses (if any) in the current three-year period ending on the evaluation date, recent pretax losses and/or expectations of future pretax losses. Other factors considered in the determination of the probability of the realization of the deferred tax assets include, but are not limited to: earnings history; projected future financial and taxable income based upon existing reserves and long-term estimates of commodity prices; the duration of statutory carry forward periods; prudent and feasible tax planning strategies readily available that may alter the timing of reversal of the temporary difference; nature of temporary differences and predictability of reversal patterns of existing temporary differences; and the sensitivity of future forecasted results to commodity prices and other factors.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. However, recent cumulative losses are not solely determinative of the need for a valuation allowance. The Company also considers all other available positive and negative evidence in its analysis. See also Note 11, “Income Taxes.”

Recently Issued Accounting Pronouncements: There were no new accounting pronouncements recently issued or effective during the year ended December 31, 2022, that had or would be expected to have a material impact on the Company’s Consolidated Financial Statements.

Reclassifications: Certain amounts in prior periods have been reclassified to conform to the current year presentation.

NOTE 3—RELATIONSHIP AND AGREEMENTS WITH SHENGHE

Offtake Agreement

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

Pursuant to the Offtake Agreement, and subject to certain exclusions, Shenghe shall purchase on a “take-or-pay” basis the rare earth concentrate produced by the Company as the exclusive distributor in China, with certain exceptions for the Company’s direct sales globally. In addition, at the discretion of the Company, Shenghe may be required to purchase on a

“take-or-pay” basis certain non-concentrate rare earth products, although the Company may sell all non-concentrate rare earth products in its sole discretion to customers or end users in any jurisdiction. Under the Offtake Agreement, Shenghe is paid a variable commission on net proceeds to the Company.

Similar to the A&R Offtake Agreement, the sales price of rare earth concentrate sold to Shenghe 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. The sales price and other terms applicable to a quantity of offtake products are set forth in monthly purchase agreements between the Company and Shenghe.

Original Commercial Agreements

In May 2017, the Company entered into a set of commercial arrangements with Shenghe to fund the restart of operations at the mine, identify operational efficiencies, and sell products to Shenghe and third parties. As part of these arrangements, Shenghe (and its controlled affiliates) became both the principal customer and a related party when Leshan Shenghe obtained 110.98 MP Mine Operations LLC (“MPMO”) preferred units, which represented a 9.99% non-voting preferred interest in MPMO at the time. In connection with the Business Combination (as defined and discussed in Note 13, “Business Combination and Reverse Recapitalization,”), these MPMO preferred units were exchanged for the Company’s Common Stock.

The original commercial arrangements principally consisted of a technical services agreement (the “TSA”), an offtake agreement (the “Original Offtake Agreement”), and a distribution and marketing agreement (the “DMA”). The Original Offtake Agreement required Shenghe to advance the Company an initial $50.0 million (the “Initial Prepayment Amount”) and the TSA required Shenghe to fund any additional operating and capital expenditures to bring Mountain Pass to full operability. In connection with the Company’s acquisition of Mountain Pass, 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”) via a short-term, non-interest-bearing note, which required repayment within one year. In addition to the repayment of the First Additional Advance, pursuant to the Letter Agreement, the Initial Prepayment Amount increased by $30.0 million. 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, are referred to herein as the “Prepaid Balance.”

Under the Original Offtake Agreement, the Company 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. The gross profits were credited against the Prepaid Balance, and provided the means by which MP Materials repaid, and Shenghe recovered, such amounts (the “Gross Profit Recoupment”).

As originally entered, the DMA was to become effective upon termination of the Original Offtake Agreement. As compensation for Shenghe’s distribution and marketing services, the DMA entitled Shenghe to a portion of the net profits from the sale of rare earth products produced at Mountain Pass (the “Net Profit-Based Commission”). See below for further discussion of the DMA termination and associated accounting treatment.

The entrance into the Letter Agreement constituted a modification to the Original Offtake Agreement for accounting purposes (referred to as the “June 2017 Modification”). Based on the relationship between (i) the adjusted deemed proceeds the Company would ultimately receive from the Initial Prepayment Amount and (ii) the contractual amount owed to Shenghe at the time, the June 2017 Modification resulted in an implied discount on the Company’s sales prices to Shenghe under the Original Offtake Agreement, for accounting purposes (the “Shenghe Implied Discount”).

The Shenghe Implied Discount was applicable to Shenghe’s gross profit on the sales of rare earth products to its own customers (for sales made between July 2019 and early June 2020). That gross profit was a contractually determined amount based on Shenghe’s realized sales price (net of taxes, tariffs, and certain other adjustments) compared to the agreed-upon cash cost Shenghe would pay to the Company. The Shenghe Implied Discount amounted to 36% of that contractually determined gross profit amount. See also Note 4, “Revenue Recognition.”

Framework Agreement and Restructured Commercial Agreements

In May 2020, the Company entered into a framework agreement and amendment (the “Framework Agreement”) with Shenghe and Leshan Shenghe that restructured the commercial arrangements and provided for, among other things, a revised funding amount and schedule to settle Shenghe’s prepayment obligations to the Company, as well as an amendment to the Original Offtake Agreement, as discussed below.

Pursuant to the Framework Agreement, the Company 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 MP Materials issued to Shenghe a warrant on June 2, 2020 (the “Shenghe Warrant”), exercisable at a nominal price for 89.88 MPMO preferred units, which, at the time, reflected approximately 7.5% of the Company’s equity on a diluted basis, subject to certain restrictions. 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 (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 exchanged for the Company’s 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 (as described below) and (ii) the A&R Offtake Agreement and the Shenghe Warrant became effective (such events are collectively referred to as the “June 2020 Modification”).

The A&R Offtake Agreement maintained the key take-or-pay, amounts owed on actual and deemed advances from Shenghe, and other terms of the Original Offtake Agreement, with the following changes, among other items: (i) as to the offtake products subject to the A&R Offtake Agreement, provided that if the Company sold such offtake products to a third party, then, until the Prepaid Balance was reduced to zero, the Company would pay an agreed percentage of its revenue from such sales to Shenghe, to be credited against the amounts owed on Offtake Advances; (ii) provided that the sales price to be paid by Shenghe for the Company’s rare earth products (a portion of which reduced the Prepaid Balance rather than being paid in cash) would be based on market prices (net of taxes, tariffs and certain other agreed charges) less applicable discounts; and (iii) obliged the Company to pay Shenghe, on an annual basis, an amount equal to the Company’s annual net income, less any amounts recouped through the Gross Profit Recoupment mechanism over the course of the year, until the Prepaid Balance was reduced to zero.

The sales price and other terms applicable to a quantity of offtake products were set forth in monthly purchase agreements between the Company and Shenghe. In March 2022, the Company made a $2.9 million payment to Shenghe pursuant to item (iii) discussed above. Upon payment by the Company, the Prepaid Balance was repaid in full, and the A&R Offtake Agreement was terminated.

Accounting for the June 2020 Modification

As noted above, in May 2020, the Company renegotiated various aspects of its relationship with Shenghe and entered into the Framework Agreement to restructure the aforementioned set of arrangements. Prior to the June 2020 Modification, for accounting purposes, the Original Offtake Agreement constituted a deferred revenue arrangement; however, as a result of the June 2020 Modification, the A&R Offtake Agreement constituted a debt obligation as well as provided for the issuance of the Shenghe Warrant. For further discussion of the deferred revenue arrangement, see Note 4, “Revenue Recognition,” and for further discussion of the debt obligation, see Note 8, “Debt Obligations.”

The DMA provided Shenghe with the right of first refusal to be the Company’s distribution and marketing agent for product sales after the expiration of the Original Offtake Agreement and until April 2047 in exchange for the Net Profit-Based Commission. Under the Original Offtake Agreement, Shenghe would also have been responsible for funding additional advance payments toward the Company’s Stage II optimization project. The agency relationship was not to commence until any such additional amount was also recovered under the Original Offtake Agreement. Although it had not yet commenced, the DMA was enforceable, and could only be terminated upon the mutual agreement of the parties involved.

At its inception in May 2017, the DMA was determined to be at-market, as it provided an expected commission to Shenghe for its services that was consistent with the Company’s expectations for a regular sales commission based on its revenue and cost expectations at the time. In connection with the June 2020 Modification, the Company determined that the existing arrangement within the DMA now provided Shenghe with a favorable, off-market return for the future distribution and marketing services, due in part to (i) favorable changes in expected profitability, driven partially by changes in tariffs, as well as cost performance in Stage I, (ii) favorable estimates of the capital cost of the Stage II optimization project, and (iii) favorable changes in expected production, based on higher than forecast contained rare earth oxide equivalent production in Stage I.

Taken together, the Company concluded that the above factors would likely result in materially lower per-unit costs (including depreciation) and higher profitability versus its original estimates. Therefore, these changes in circumstances meant that the Net Profit-Based Commission would no longer be commensurate with the value of the service; and therefore, created an off-market feature. These same factors would also result in the Company fulfilling its obligations under the Original Offtake Agreement more quickly, resulting in a longer period of payments under the now-unfavorable terms of the DMA.

In addition, as noted above, Shenghe would still have had to provide the additional advances required to complete Stage II, which would have created a near-term cash commitment for Shenghe and Shenghe would have remained exposed to the potential that actual costs would exceed estimates and remained committed to fund them. Further, these upfront payments were to be non-interest bearing, exposing Shenghe to economic cost from the time value of money. Therefore, as part of the renegotiations, the Company and Shenghe agreed to terminate the DMA. As a result of the June 2020 Modification, specifically the termination of the DMA, the Company recorded a non-cash settlement charge of $66.6 million during the year ended December 31, 2020.

NOTE 4—REVENUE RECOGNITION

Sales to Shenghe Under the Original Offtake Agreement: Beginning in July 2019 and through early June 2020, the Company and Shenghe periodically agreed on a cash sales price for each MT of rare earth concentrate delivered by the Company, which was recognized as revenue upon each sale. This sales price was intended to approximate the Company’s cash cost of production. Sales during this period were made under the Original Offtake Agreement and were impacted by the Shenghe Implied Discount, which is discussed in Note 3, “Relationship and Agreements with Shenghe.”

The Shenghe Implied Discount amounted to 36% of the difference between Shenghe’s realized price on its sales of rare earth products to its own customers (net of taxes, tariffs, and certain other adjustments, such as demurrage) and the agreed-upon cash cost for those products (i.e., its gross profit). In addition to the revenue the Company recognized from the cash sales prices, it also realized an amount of deferred revenue applicable to these sales equal to 64% of Shenghe’s gross profit. The full gross profit amount realized by Shenghe on such sales reduced the Prepaid Balance (and consequently, the Company’s contractual obligations to Shenghe), but the remaining 36% was not recognized as revenue.

In addition, sales to Shenghe under the Original Offtake Agreement typically provided Shenghe with a discount in the amount of between 3% and 6% of the initial cash price of the Company’s rare earth products sold in consideration of Shenghe’s sales efforts to resell such rare earth products (the “Shenghe Sales Discount”). The Shenghe Sales Discount was considered a reduction in the transaction price and thus was not recognized as revenue. Additionally, the Shenghe Sales Discount was not applied to reduce the Prepaid Balance; however, it was considered as part of Shenghe’s cost of acquiring the Company’s product in the calculation of Shenghe’s gross profit.

Sales to Shenghe Under the A&R Offtake Agreement: Beginning after the June 2020 Modification and through February 2022, the sales price (and other terms applicable to the quantity of products sold) were set forth in monthly purchase agreements with Shenghe. Furthermore, the June 2020 Modification provided that the sales price to be paid by Shenghe for the Company’s rare earth products would be based on market prices (net of taxes, tariffs and certain other agreed charges) less applicable discounts. A portion of the sales price was in the form of debt repayment, with the remainder paid in cash. See Note 8, “Debt Obligations,” for further information.

As a result of the June 2020 Modification, revenue recognized under the A&R Offtake Agreement did not include the Shenghe Implied Discount. In addition, rather than adjusting the sales price for the Shenghe Sales Discount, as was the case with sales made under the Original Offtake Agreement, revenue under the A&R Offtake Agreement was reduced by a fixed monthly sales charge (similarly accounted for as a reduction in the transaction price). The A&R Offtake Agreement was terminated in March 2022 when the Company entered into the Offtake Agreement.

Sales to Shenghe Under the Offtake Agreement: Beginning in March 2022, pursuant to the Offtake Agreement and similar to the A&R Offtake Agreement, the sales price of rare earth concentrate sold to Shenghe 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. Under the Offtake Agreement, Shenghe is paid a variable commission on net proceeds to the Company, which is accounted for as a reduction in the transaction price. The sales price and other terms applicable to a quantity of offtake products are set forth in monthly purchase agreements between the Company and Shenghe.

Deferred Revenue: As mentioned in Note 3, “Relationship and Agreements with Shenghe,” the Original Offtake Agreement was accounted for as a deferred revenue arrangement and the June 2020 Modification effectively replaced this deferred revenue arrangement with a debt obligation (see Note 8, “Debt Obligations”). Prior to the June 2020 Modification, Offtake Advances received from Shenghe were accounted for as deferred revenue. Under the Original Offtake Agreement, Shenghe’s gross profit was retained by Shenghe and applied to reduce the Prepaid Balance.

Activity for the deferred revenue balance (including current portion) was as follows:

(in thousands)			For the year ended December 31, 2020
Opening balance(1)			$	35,543
Prepayments received(2)			11,050
Revenue recognized(3)			(9,117)
Effect of June 2020 Modification(4)			(37,476)
Ending balance			$	—

(1)Of this amount, $6.6 million was classified as current based on when such amounts were expected to be realized.

(2)Related to the remaining contractual commitment for Shenghe to provide funds to the Company (the Initial Prepayment Amount).

(3)As discussed above, as a result of the Shenghe Implied Discount, the Company recognized an amount of deferred revenue applicable to sales made under the Original Offtake Agreement equal to 64% of the gross profit realized by Shenghe on sales of this product to its own customers. As discussed below, this amount included a tariff rebate of $1.4 million received in May 2020, but excluded the tariff rebate realized in August 2020.

(4)The remaining balance of deferred revenue was derecognized in connection with the June 2020 Modification.

Tariff-Related Rebates: In May 2020, the government of the People’s Republic of China suspended certain tariffs that had been charged to consignees of the Company’s product on imports, and provided such relief retroactive to March 2020. In addition, Shenghe began negotiating for tariff rebates from sales prior to March 2020, which affected Shenghe’s realized prices, and thus the contractual Prepaid Balance. These, in turn, affected the Company’s realized prices and, as a result, the deferred revenue and the Shenghe Implied Discount on the Company’s prior sales. The Company realized $1.4 million of revenue related to tariff rebates received in May 2020, which included amounts related to prior periods. While additional tariff rebates were possible, the Company did not have insight into Shenghe’s negotiations or their probability of success, and such negotiations were outside of the Company’s control. Thus, the Company fully constrained estimates of any future tariff rebates that may have been realized at that time.

In January 2021 and August 2020, the Company received additional information from Shenghe regarding its successful negotiation of additional tariff rebates. Consequently, the Company revised its estimates of variable consideration and recognized $2.0 million and $9.3 million of revenue for the years ended December 31, 2021 and 2020, respectively, primarily related to additional tariff credits realized for sales from the pre-modification period. Since these rebates were recognized after the June 2020 Modification, the amounts were treated as a reduction to the principal balance of the debt obligation, partially offset by a proportionate reduction in the related debt discount, as discussed in Note 8, “Debt Obligations.”

NOTE 5—CASH, CASH EQUIVALENTS AND INVESTMENTS

The following table presents the Company’s cash, cash equivalents and short-term investments:

			December 31, 2022																								December 31, 2021
(in thousands)			Amortized Cost Basis						Unrealized Gains						Unrealized Losses						Estimated Fair Value						Amortized Cost Basis						Unrealized Gains						Unrealized Losses						Estimated Fair Value
Cash:
Demand deposits			$	7,373					$	—					$	—					$	7,373					$	26,536					$	—					$	—					$	26,536
Cash equivalents:
Money market funds			64,855						—						—						64,855						1,152,761						—						—						1,152,761
U.S. agency securities			63,605						1						(2)						63,604						—						—						—						—
U.S. Treasury securities			795						—						—						795						—						—						—						—
Total cash equivalents			129,255						1						(2)						129,254						1,152,761						—						—						1,152,761
Total cash and equivalents			136,628						1						(2)						136,627						1,179,297						—						—						1,179,297
Short-term investments:
U.S. agency securities			979,878						361						(17)						980,222						—						—						—						—
U.S. Treasury securities			65,586						1						(91)						65,496						—						—						—						—
Total short-term investments			1,045,464						362						(108)						1,045,718						—						—						—						—
Total cash, cash equivalents and short-term investments			$	1,182,092					$	363					$	(110)					$	1,182,345					$	1,179,297					$	—					$	—					$	1,179,297

The Company does not intend to sell, nor is it more likely than not that the Company will be required to sell, any investments in unrealized loss positions before recovery of their amortized cost basis. The Company did not recognize any credit losses related to its available-for-sale investments during the year ended December 31, 2022. The unrealized losses on the

Company’s available-for-sale investments were primarily due to unfavorable changes in interest rates subsequent to initial purchase. None of the available-for-sale investments held as of December 31, 2022, were in a continuous unrealized loss position for greater than 12 months and the unrealized losses and the related risk of expected credit losses were not material.

The Company recognized $0.3 million of gross realized gains and $0.6 million of gross realized losses during the year ended December 31, 2022. Additionally, the Company recognized $19.8 million of interest and investment income on its available-for-sale securities and other money market funds for the year ended December 31, 2022. These amounts are included in “Other income, net” within the Company’s Consolidated Statements of Operations.

As of December 31, 2022, the fair values of available-for-sale investments, by remaining contractual maturity, were as follows:

(in thousands)
Due within one year			$	1,052,364
Due after one year through two years			57,753
Total			$	1,110,117

NOTE 6—INVENTORIES

The Company’s inventories consisted of the following:

			December 31,
(in thousands)			2022						2021
Materials and supplies(1)			$	28,590					$	10,711
In-process			27,212						25,574
Finished goods			1,752						2,407
Total current inventories			57,554						38,692
Add: Non-current portion(2)			5,744						—
Total inventories			$	63,298					$	38,692

(1)Includes materials acquired during the third quarter of 2022 to support activities pertaining to the Company’s rare earth metal, alloy and magnet manufacturing facility as a part of Stage III.

(2)Represents stockpiled ore that is not expected to be processed within the next 12 months.

During the second quarter of 2021, the Company recognized a non-cash write-down of a portion of its legacy low-grade stockpile inventory of $1.8 million, after determining that it contained a significant amount of alluvial material that did not meet the Company’s requirement for mill feed and, as a result, was deemed unusable. The write-down is included in the Consolidated Statement of Operations for the year ended December 31, 2021, as “Write-down of inventories.” No write-down of inventories was recorded for the years ended December 31, 2022 or 2020.

NOTE 7—PROPERTY, PLANT AND EQUIPMENT

The Company’s property, plant and equipment consisted of the following:

			December 31,
(in thousands)			2022						2021
Land and land improvements			$	16,102					$	7,925
Buildings and building improvements			15,111						8,791
Machinery and equipment			186,388						61,822
Assets under construction			338,482						134,327
Mineral rights			438,395						437,376
Property, plant and equipment, gross			994,478						650,241
Less: Accumulated depreciation and depletion			(58,735)						(39,629)
Property, plant and equipment, net			$	935,743					$	610,612

Additions to Property, Plant and Equipment: The Company capitalized expenditures related to property, plant and equipment of $361.2 million, $138.0 million and $26.2 million for the years ended December 31, 2022, 2021 and 2020, respectively, including amounts not yet paid (see Note 19, “Supplemental Cash Flow Information”). The capitalized expenditures for the year ended December 31, 2022, related to machinery, equipment, and assets under construction to support the Company’s Stage II optimization project, and assets under construction for its rare earth metal, alloy and magnet manufacturing facility as a part of Stage III, including the purchase of approximately 18 acres of land in Fort Worth, Texas. The capitalized expenditures for the years ended December 31, 2021 and 2020, mostly related to vehicles, machinery, equipment, and assets under construction to support the Stage II optimization project and other capital projects at Mountain Pass.

Placement of Certain Stage II Assets into Service: At the end of the fourth quarter of 2022, the Company transferred certain of its assets totaling $121.0 million and pertaining to its Stage II optimization project from assets under construction to buildings, machinery and equipment, with $115.2 million relating to machinery and equipment.

Government Awards: In November 2020, the Company was awarded a Defense Production Act Title III technology investment agreement (“TIA”) from the Department of Defense (“DOD”) to establish domestic processing for separated light rare earth elements (this “project”) in the amount of $9.6 million. Pursuant to the terms of the TIA, the Company was required to utilize the funds to acquire property and equipment that contribute to the mission of this project. Furthermore, in exchange for these funds, the Company is required to provide the DOD with periodic reporting specific to this project for up to approximately five years.

During the years ended December 31, 2022 and 2021, pursuant to the TIA, the Company received $5.1 million and $4.4 million, respectively, in reimbursements from the DOD. The funds received reduced the carrying amount of certain fixed assets associated with the Company’s Stage II optimization project, which were included in machinery and equipment as of December 31, 2022, and assets under construction as of December 31, 2021. As of December 31, 2022, the Company is entitled to receive an additional $0.1 million from the DOD under the TIA.

In February 2022, the Company was awarded a $35.0 million contract by the DOD’s Office of Industrial Base Analysis and Sustainment Program to design and build a facility to process heavy rare earth elements (“HREE”) at Mountain Pass (the “HREE Production Project Agreement”). The Company must utilize the funds to acquire property and equipment that will contribute to commercial-scale production of separated HREE at Mountain Pass. The Company will be paid fixed amounts upon the completion of certain project milestones. In exchange for these funds, the DOD will have certain rights to technical data following the completion of the project. The funds received pursuant to the HREE Production Project Agreement will reduce the carrying amount of the fixed assets associated with the Company’s HREE processing and separations facility. As of December 31, 2022, the Company has not yet received any funds from the DOD.

Change in Estimates of Asset Retirement Costs: As a result of a decrement to the Company’s ARO during the third quarter of 2022 and fourth quarter of 2021, the carrying amount of the Company’s total property, plant and equipment was reduced by $10.4 million and $8.7 million, respectively, the majority of which pertained to buildings, machinery and equipment, and assets under construction, in the amounts of $0.6 million, $2.7 million and $6.7 million, respectively, and $2.0 million, $2.4 million and $3.2 million, respectively. Additionally, the Company’s depreciation expense for the years ended December 31, 2022 and 2021, was reduced by $2.7 million and $1.1 million, respectively, reflecting the excess of the decrement over the carrying amount of the related property, plant and equipment. See Note 10, “Asset Retirement and Environmental Obligations,” for further information on the decrements.

The Company’s depreciation and depletion expense were as follows:

			For the year ended December 31,
(in thousands)			2022						2021						2020
Depreciation expense			$	5,808					$	6,825					$	4,702
Depletion expense(1)			$	12,209					$	17,200					$	1,961

(1)At the beginning of the fourth quarter of 2021, as a result of an updated life of mine, the Company revised its estimate of the remaining useful life of the mineral rights to approximately 35 years from approximately 23 years. The effect of the change in estimate was a reduction in depletion expense for the years ended December 31, 2022 and 2021 of $6.1 million and $1.5 million, respectively.

There were no impairments recognized for the years ended December 31, 2022, 2021 and 2020.

NOTE 8—DEBT OBLIGATIONS

The Company’s current and non-current portions of long-term debt were as follows:

			December 31,
(in thousands)			2022						2021
Long-term debt
Convertible Notes due 2026			$	690,000					$	690,000
Less: Unamortized debt issuance costs			(11,556)						(15,073)
Long-term debt, net of current portion			$	678,444					$	674,927
Long-term debt to related party
Offtake Advances			$	—					$	16,599
Less: Unamortized debt discount			—						(517)
Net carrying amount			—						16,082
Less: Current installments of long-term debt to related party			—						(16,082)
Long-term debt to related party, net of current portion			$	—					$	—

Convertible Notes

On March 26, 2021, the Company 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 the Company’s Common Stock, 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 price exceed 28.5714 shares of Common Stock per $1,000 principal amount of notes. As of December 31, 2022, based on the initial conversion price, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes was 19,714,266. The Convertible Notes’ if-converted value did not exceed its principal amount as of December 31, 2022.

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 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 the Company’s Common Stock and the conversion rate on each such trading day; (iii) if the Company calls 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 the Company undergoes a fundamental change (as defined in the indenture governing the Convertible Notes), holders may require it 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 the Company delivers a notice of redemption, it 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.

Interest expense related to the Convertible Notes was as follows:

			For the year ended December 31,
(in thousands)			2022						2021						2020
Coupon interest			$	1,725					$	1,318					$	—
Amortization of debt issuance costs			3,517						2,675						—
Convertible Notes interest expense			$	5,242					$	3,993					$	—

The debt issuance costs are being amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 0.51%. The remaining term of the Convertible Notes was 3.3 years as of December 31, 2022.

Offtake Advances

In connection with the June 2020 Modification, which is discussed in Note 3, “Relationship and Agreements with Shenghe,” Shenghe agreed to fund an additional $35.5 million advance to the Company (previously defined as the “Second Additional Advance”) and the Company issued the Shenghe Warrant. For accounting purposes, the June 2020 Modification effectively replaced the deferred revenue arrangement relating to the Original Offtake Agreement with a debt obligation relating to the A&R Offtake Agreement and the issuance of the Shenghe Warrant.

Under the A&R Offtake Agreement, a portion of the sales prices of products sold to Shenghe was paid in the form of debt reduction, rather than cash. In addition, the Company was required to pay the following amounts to Shenghe in cash to reduce the debt obligation until repaid in full: (i) an agreed-upon percentage of sales of products to parties other than Shenghe; (ii) 100% of net profits from asset sales; and (iii) 100% of net income determined under GAAP, less the tax-effected amount of total non-cash recoupment from sales of products to Shenghe. For the years ended December 31, 2022, 2021 and 2020, $14.2 million, $52.8 million and $12.0 million, respectively, of the sales prices of products sold to Shenghe was paid in the form of debt reduction (see Note 19, “Supplemental Cash Flow Information”). During both the years ended December 31, 2022 and 2021, the Company made a payment to Shenghe of $0.2 million based on sales to other parties. No amounts were required to be paid based on asset sales.

The A&R Offtake Agreement did not have a stated rate (and was non-interest-bearing), and repayment was contingent on a number of factors, including market prices realized by Shenghe, the Company’s sales to other parties, asset sales, and the Company’s annual net income. The imputed interest rate was a function of this discount taken together with the Company’s expectations about the timing of the anticipated reductions of the debt obligation. The Company had determined that it would recognize adjustments from these estimates following a prospective method where the Company updated its estimate of the effective interest rate in future periods based on revised estimates of the timing of remaining principal reductions at that time. The effective rate applicable from the June 5, 2020, inception to full repayment, was between 4.41% and 24.75%.

As discussed in Note 4, “Revenue Recognition,” in January 2021 and August 2020, the Company was informed of tariff rebates of $2.2 million and $9.7 million, respectively, that Shenghe received, which increased the gross profit earned by Shenghe on certain sales. In addition, during the year ended December 31, 2020, after the June 2020 Modification, but relating to sales made prior the June 2020 Modification, Shenghe realized higher gross profit than estimated by the Company in the amount of $0.4 million due to higher market prices. As a result of these events, for the years ended December 31, 2021 and 2020, the Company recorded reductions in the principal amount of the debt obligation of $2.2 million and $10.1 million, respectively, and the corresponding debt discount of $0.2 million and $0.8 million, respectively.

As discussed in Note 3, “Relationship and Agreements with Shenghe,” the Company made a $2.9 million payment to Shenghe in March 2022 pursuant to item (iii) above. Upon payment by the Company, the Prepaid Balance was repaid in full, and the A&R Offtake Agreement was terminated.

Equipment Notes

The Company has entered into several financing agreements for the purchase of equipment, including trucks, tractors, loaders, graders, and various other machinery. The Company’s equipment notes, which are secured by the purchased equipment, have terms of between 4 to 5 years and interest rates of between 0.0% and 6.5% per annum. See also Note 19, “Supplemental Cash Flow Information.”

The current and non-current portions of the equipment notes, which are included within the Consolidated Balance Sheets in “Other current liabilities” and “Other non-current liabilities,” respectively, were as follows:

			December 31,
(in thousands)			2022						2021
Equipment notes
Current			$	2,392					$	2,566
Non-current			4,743						7,095
			$	7,135					$	9,661

Paycheck Protection Loan

In April 2020, the Company obtained a loan of $3.4 million pursuant to the Paycheck Protection Program under the CARES Act (the “Paycheck Protection Loan”). In June 2021, the Company received notification from the Small Business Administration that the Paycheck Protection Loan and related accrued interest was forgiven. Consequently, for the year ended December 31, 2021, the Company recorded a gain on forgiveness of the Paycheck Protection Loan in the amount of $3.4 million, which is included in “Other income, net” within the Company’s Consolidated Statements of Operations.

Interest expense, net

Interest expense, net, was as follows:

			For the year ended December 31,
(in thousands)			2022						2021						2020
Interest expense			$	6,146					$	9,168					$	5,171
Interest capitalized to property, plant and equipment, net			(360)						(264)						(162)
Interest expense, net			$	5,786					$	8,904					$	5,009

Debt Maturities

The following is a schedule of debt repayments as of December 31, 2022:

(in thousands)			Convertible Notes						Equipment Notes
Year ending December 31,
2023			$	—					$	2,392
2024			—						2,106
2025			—						2,098
2026			690,000						539
2027			—						—
Thereafter			—						—
Total minimum payments			$	690,000					$	7,135

As of December 31, 2022, none of the agreements governing the Company’s indebtedness contain financial covenants.

NOTE 9—LEASES

The Company has operating and finance leases for certain office space, warehouses, vehicles and equipment used in its operations, with lease terms ranging from one month to five years, excluding any leases that have not yet commenced. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional one to five years. These optional periods have not been considered in the determination of the ROU asset or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options. The Company’s leases do not contain any termination options or material residual value guarantees, reasonably certain purchase options, or restrictive covenants.

In November 2021, the Company entered into a lease agreement for corporate office space in a building that is currently being constructed by the landlord. The lease, which is estimated to commence by the end of the first quarter of 2023, has an initial term of 91 months, with one subsequent five-year renewal option on the same terms and conditions, exercisable at the Company’s option. The initial annual base rent payment will be $1.2 million, subject to an annual escalator. Pursuant to the lease agreement, the Company is entitled to receive a tenant improvement allowance of $1.8 million. As of December 31, 2022 and 2021, the Company has paid $0.6 million and $0.2 million, respectively, in prepaid rent and a security deposit, which were included in “Prepaid expenses and other current assets” and “Other non-current assets,” respectively, within the Consolidated Balance Sheet.

Total lease cost included the following components:

			Location on Consolidated Statements of Operations						For the year ended December 31,
						2022						2021						2020
Operating lease cost			Primarily Cost of sales (including related party) (excluding depreciation, depletion and amortization)						$	424					$	780					$	2,466
Finance lease cost
Amortization of right-of-use assets			Depreciation, depletion and amortization						339						357						268
Interest on lease liabilities			Interest expense, net						44						60						50
									383						417						318
Short-term lease cost			Primarily Cost of sales (including related party) (excluding depreciation, depletion and amortization)						1,509						1,163						1,246
									$	2,316					$	2,360					$	4,030

NOTE 10—ASSET RETIREMENT AND ENVIRONMENTAL OBLIGATIONS

Asset Retirement Obligations

The Company estimates ARO based on the requirements to reclaim certain land and facilities associated with mining activity at Mountain Pass. Minor reclamation activities related to discrete portions of the Company’s operations are ongoing. As of December 31, 2022, the Company estimated a significant portion of the cash outflows for major reclamation activities including the retirement of Mountain Pass will be incurred beginning in 2056 and 2057.

In June 2021, San Bernardino County approved a re-zoning request for certain of the Company’s properties such that certain of the Company’s processing and separations facilities would be zoned for industrial end uses as opposed to the prior “resource conservation” designation. In September 2022, and as a result of the re-zoning of this land, the Company received final approval from San Bernardino County and the Division of Mine Reclamation (California) on a revised reclamation plan. The revision removed from the regulatory oversight under The Surface Mining and Reclamation Act of 1975 the majority of the buildings and equipment used in the processing and separations facilities, including the land underlying such buildings and equipment.

As a result of the final approval of the reclamation plan, in the third quarter of 2022, the Company revised its estimated cash flows pertaining to the settlement of the reclamation and removal activities associated with Mountain Pass, including removing the previous estimates of the cash flows associated with the processing and separations facilities that no longer require reclamation. The changes in estimates resulted in an ARO decrement of $13.1 million, of which $10.4 million reduced the carrying amounts of the associated property, plant and equipment, and $2.7 million, reflecting the excess of the decrement over the carrying amount of the related property, plant and equipment, was recorded as a reduction to depreciation expense for the year ended December 31, 2022.

In the fourth quarter of 2021, the Company revised its estimated timing and cash flows pertaining to the settlement of the reclamation and removal activities associated with Mountain Pass as a result of an updated life of mine where the Company determined that the estimated commencement of the reclamation and removal activities will now occur in 2056 and 2057 for a significant portion of the assets requiring reclamation at the time. The changes in estimates resulted in an ARO 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, reflecting the excess of the decrement over the carrying amount of the related property, plant and equipment, was recorded as a reduction to depreciation expense for the year ended December 31, 2021.

The following is a summary of the Company’s ARO:

			December 31,
(in thousands)			2022						2021
Beginning balance			$	17,757					$	25,646
Obligations settled			(144)						(199)
Accretion expense			976						1,876
Additional ARO			—						213
Revisions in estimated cash flows			(13,114)						(9,779)
Ending balance			$	5,475					$	17,757

The balance as of December 31, 2022 and 2021, included current portions of $0.2 million and $0.1 million, respectively. The total estimated future undiscounted cash flows required to satisfy the Company’s ARO as of December 31, 2022 and 2021, were $50.4 million and $167.3 million, respectively. As of December 31, 2022, the credit-adjusted risk-free rate ranged between 6.5% and 12.0% depending on the timing of expected settlement and when the increment was recognized. There were no significant increments for the years ended December 31, 2022 and 2021, and there were no significant increments or decrements for the year ended December 31, 2020.

Environmental Obligations

The Company has certain environmental remediation liabilities related to the monitoring of groundwater contamination. The Company engaged an environmental consultant to develop a remediation plan and remediation cost projections based upon that plan. Utilizing the remediation plan developed by the environmental consultant, the Company developed an estimate of future cash payments for the remediation plan.

As of December 31, 2022, the Company estimated the cash outflows related to these environmental activities will be incurred annually over the next 25 years. The Company’s environmental remediation liabilities are measured at the expected value of future cash outflows discounted to their present value using a discount rate of 2.93%. There were no significant changes in the estimated remaining remediation costs for the years ended December 31, 2022, 2021 and 2020.

The total estimated aggregate undiscounted cost of $27.2 million and $27.7 million as of December 31, 2022 and 2021, respectively, principally related to water monitoring activities required by state and local agencies. Based on the Company’s estimate of the cost and timing and the assumption that payments are considered to be fixed and reliably determinable, the Company has discounted the liability. The balance as of December 31, 2022 and 2021, included current portions of $0.5 million.

As of December 31, 2022, the total environmental remediation costs were as follows (in thousands):

Year ending December 31,
2023			$	520
2024			536
2025			552
2026			569
2027			587
Thereafter			24,411
Total			27,175
Effect of discounting			(10,075)
Total environmental obligations			$	17,100

Financial Assurances

The Company is required to provide the applicable government agencies with financial assurances relating to the closure and reclamation obligations. As of December 31, 2022 and 2021, the Company had financial assurance requirements of $43.5 million and $39.0 million, respectively, which were satisfied with surety bonds placed with California state and regional agencies.

NOTE 11—INCOME TAXES

Income tax benefit (expense) consisted of the following:

			For the year ended December 31,
(in thousands)			2022						2021						2020
Current:
Federal			$	(24,382)					$	(4,818)					$	—
State			(9,977)						(2,915)						(156)
Total current			(34,359)						(7,733)						(156)
Deferred:
Federal			(19,236)						(15,851)						14,088
State			1,447						(1,574)						3,704
Total deferred			(17,789)						(17,425)						17,792
Total tax benefit (expense)			$	(52,148)					$	(25,158)					$	17,636

During the years ended December 31, 2021 and 2020, the Company recorded $0.4 million and $4.7 million, respectively, related to certain deductible expenditures incurred in connection with the Business Combination to “Additional paid-in capital.”

Income (loss) before income taxes, by tax jurisdiction, was as follows:

			For the year ended December 31,
(in thousands)			2022						2021						2020
United States			$	341,152					$	160,195					$	(39,461)

Income taxes differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pretax income (loss) as a result of the following:

			For the year ended December 31,
			2022												2021												2020
(in thousands, except tax rates)			Percent						Amount						Percent						Amount						Percent						Amount
Computed income tax benefit (expense) at the statutory rate			21.0		%				$	(71,642)					21.0		%				$	(33,641)					21.0		%				$	8,287
Changes resulting from:
State and local income taxes, net of federal benefits			3.3		%				(11,395)						2.7		%				(4,288)						4.3		%				1,729
Limitation on officer’s compensation			2.3		%				(8,067)						1.7		%				(2,638)						(1.2)		%				(478)
Depletion in excess of basis			(4.5)		%				15,248						(6.1)		%				9,663						1.1		%				425
Paycheck Protection Loan forgiveness			—		%				—						(0.5)		%				714						—		%				—
Foreign-derived intangible income			(4.0)		%				13,676						(1.8)		%				2,886						—		%				—
California Competes Tax Credit, net of federal detriment			(0.9)		%				3,160						(1.2)		%				1,975						—		%				—
Excess tax benefits on stock-based compensation			(1.0)		%				3,575						(0.6)		%				974						—		%				—
Valuation allowance			(0.8)		%				2,845						0.5		%				(821)						23.7		%				9,333
Other, net			(0.1)		%				452						—		%				18						(4.2)		%				(1,660)
Total effective tax rate and income tax benefit (expense)			15.3		%				$	(52,148)					15.7		%				$	(25,158)					44.7		%				$	17,636

The tax effects of temporary differences that gave rise to significant portions of the deferred income tax assets and deferred income tax liabilities were as follows:

			December 31,
(in thousands)			2022						2021
Deferred tax assets:
Asset retirement and environmental obligations			$	5,643					$	8,744
Net operating losses			—						2,174
Inventories			12,448						6,695
Offtake Advances, net of debt discount			—						4,034
Shenghe Warrant			—						2,329
Research and experimental costs			691						—
Stock-based compensation			3,785						2,688
Organization costs			776						860
Credits			346						764
Other			351						636
Gross deferred tax assets			24,040						28,924
Less: Valuation allowance			(346)						(3,192)
Net deferred tax assets			23,694						25,732
Deferred tax liabilities:
Property, plant and equipment			(36,481)						(14,077)
Prepaid expenses			(1,567)						(1,192)
Deferred revenue			(6,604)						(9,938)
Mineral rights			(101,195)						(104,735)
Other			(200)						(290)
Total deferred tax liabilities			(146,047)						(130,232)
Non-current deferred tax liabilities, net			$	(122,353)					$	(104,500)

For income tax purposes, the Business Combination was treated as a tax-free reorganization whereby the taxable years of MPMO and Secure Natural Resources LLC (“SNR”) ended on November 17, 2020, and the Company became the new parent and sole filer of a tax return for the remainder of 2020 as MPMO and SNR became disregarded entities. Although the SNR Mineral Rights Acquisition was treated as an asset acquisition, the assets, liabilities and other attributes took carryover basis for income tax purposes because of the tax-free reorganization nature of the transaction.

As of December 31, 2022 and 2021, the Company did not have any net operating loss carryforwards for federal income tax purposes, and had zero and $7.4 million, respectively, for state income tax purposes. As of December 31, 2022, the Company considered the positive and negative evidence to determine the need for a valuation allowance to offset its deferred tax assets and has concluded that it is more likely than not that, with the exception of certain deferred tax assets related to California Alternative Minimum Tax credits, its deferred tax assets will be realized through future taxable temporary differences, principally resulting from the deferred tax liability recorded as a result of the SNR Mineral Rights Acquisition which occurred during the 2020 tax year.

During the fourth quarter of 2021, the Company received notice from the State of California that it had been awarded a California Competes Tax Credit (“CCTC”) of $14.8 million that is available to be offset against the Company’s California state income tax liability over the next several years. The credit is allocated in varying amounts over a five-year period based on the Company’s ability to meet certain milestones related to California employees hired, the annual wage of these employees, and the capital investments made by the Company in California. Once the annual milestones are met, a credit amount is awarded. However, a portion of the credit could be “clawed back” if the milestones are not continually met for each of the three following years. For the years ended December 31, 2022 and 2021, it was determined that the Company had met the relevant annual milestones for the CCTC and as a result, the Company recorded a credit of $4.0 million and $2.5 million, respectively, which resulted in an income tax benefit and a reduction to the Company’s California state income tax payable for the 2022 and 2021 tax years.

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 the Company’s Consolidated Financial Statements. We are continuing to evaluate the impact of the clean energy incentives.

The Company has evaluated its tax positions for the years ended December 31, 2022, 2021 and 2020 and determined that there were no uncertain tax positions requiring recognition in the Consolidated Financial Statements. The tax years from 2019 onward remain open to examination by the taxing jurisdictions to which the Company is subject.

NOTE 12—COMMITMENTS AND CONTINGENCIES

Litigation: The Company may become party to lawsuits, administrative proceedings and government investigations, including environmental, regulatory, and other matters, in the ordinary course of business. Large, and sometimes unspecified, damages or penalties may be sought in some matters, and certain matters may require years to resolve. The Company is not aware of any pending or threatened litigation that would have a material adverse effect on its Consolidated Financial Statements.

In January 2019, a former employee filed a complaint with the California Labor & Workforce Development Agency alleging numerous violations of California labor law, and subsequently filed a representative action against the Company. In October 2021, the Company entered into a memorandum of understanding to settle the lawsuit in the amount of approximately $1 million, including legal fees, which is included in “Selling, general and administrative” within the Consolidated Statement of Operations for the year ended December 31, 2021. In August 2022, the court granted final approval of the class settlement, and in September 2022, the Company paid the settlement amount.

NOTE 13—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, MPMO and SNR were combined with Fortress Value Acquisition Corp., a special purpose acquisition company (“FVAC”) (the “Business Combination”), and became wholly-owned subsidiaries of FVAC, which was in turn renamed MP Materials Corp.

As of December 31, 2019, and through the date of the Business Combination, MPMO had outstanding 1,000 voting common units with no par value and 110.98 non-voting preferred units with no par value, which were held by Leshan Shenghe. In addition, as discussed in Note 3, “Relationship and Agreements with Shenghe,” in connection with the June 2020 Modification, MPMO issued the Shenghe Warrant. Immediately prior to the Business Combination, the Shenghe Warrant was exercised and MPMO issued 89.88 non-voting preferred units with no par value to Leshan Shenghe. As a result, 200.86 non-voting preferred units were outstanding immediately prior to the Business Combination.

In connection with the Business Combination and pursuant to the Merger Agreement, the Company issued shares of its common stock with a par value of $0.0001 per share (“Common Stock”) to unitholders of MPMO at an exchange ratio of approximately 59,908.35 shares of the Company’s Common Stock for each common unit and preferred unit of MPMO, resulting in the issuance of 71,941,538 shares of the Company’s Common Stock. In addition, in connection with the SNR Mineral Rights Acquisition, 19,999,942 shares (adjusted for fractional shares) of the Company’s Common Stock were issued to SNR unitholders. See below for further discussion of the SNR Mineral Rights Acquisition.

Immediately prior to the consummation of the Business Combination and pursuant to the Parent Sponsor Warrant Exchange Agreement, entered into by FVAC and Fortress Acquisition Sponsor LLC, a Delaware limited liability company (the “Sponsor”), on July 15, 2020, the Sponsor exchanged all 5,933,333 of its private placement warrants (the “Private Placement Warrants”) for an aggregate of 890,000 shares of FVAC Class F common stock that, upon the consummation of the Business Combination, were converted into Common Stock of the Company (the “Parent Sponsor Warrant Exchange”).

In connection with the consummation of the Business Combination, the Company issued, in a private placement transaction, an aggregate of 20,000,000 shares of Common Stock for an aggregate purchase price of $200.0 million, to PIPE investors pursuant to the terms of respective subscription agreements entered into separately between the Company and each PIPE investor, each dated July 15, 2020 (the “PIPE Financing”).

After giving effect to the above, shares of the Company’s Common Stock issued and outstanding immediately after the closing of the Business Combination were as follows (including restricted stock issued to certain executives upon closing):

Stockholder						Number of Shares
FVAC public stockholders(1)						34,464,151
Private Placement Warrants						890,000
MPMO unitholders(2)						71,941,538
SNR unitholders						19,999,942
PIPE Financing						20,000,000
Restricted stock issued to certain MPMO executives						2,013,006
Total						149,308,637

(1)Represents the outstanding shares held by FVAC’s public stockholders (Class A common stock) which were not redeemed in connection with the Business Combination. The Company received gross proceeds of $344.7 million and net proceeds of $332.6 million after $12.1 million of underwriting commissions in connection with the sale of these shares.

(2)Includes 5,384,563 shares issued relating to the Shenghe Warrant.

MPMO’s merger with FVAC was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, MPMO was determined to be the accounting acquirer and FVAC was treated as the acquired company for financial reporting purposes. Accordingly, for accounting purposes, the merger was treated as the equivalent of MPMO issuing stock for the net assets of FVAC, accompanied by a recapitalization. The net assets of FVAC are stated at historical cost, with no goodwill or other intangible assets recorded.

Pursuant to the amended and restated letter agreement dated July 15, 2020, and amended and restated on August 26, 2020, by and among FVAC and the holders of FVAC Class F common stock, all of the shares of FVAC Class A common stock issued upon the conversion of FVAC Class F common stock (held by insiders initially purchased prior to the FVAC initial public offering (“IPO”), were subject to certain vesting and forfeiture provisions (the “Vesting Shares”) based on the achievement of certain volume weighted-average price (“VWAP”) thresholds of the Company’s Common Stock.

The holders of MPMO Holding Company, which was a Delaware corporation formed by MPMO pursuant to the Merger Agreement (“MPMO HoldCo”), preferred stock and common stock and SNR Holding Company, LLC, which was a Delaware limited liability company formed by SNR pursuant to the Merger Agreement (“SNR HoldCo”), common stock immediately prior to the closing of the Business Combination were given the contingent right to receive up to an additional 12,860,000 shares of the Company’s Common Stock (the “Earnout Shares”) based on the achievement of certain VWAP thresholds of the Company’s Common Stock.

The Company determined that the Earnout Shares issued to the Sponsor, holders of MPMO HoldCo preferred stock and common stock, and holders of SNR HoldCo common stock met the criteria for equity classification under ASC Subtopic 815-40, “Contracts in Entity’s Own Equity.” The Company estimated that the total fair value of the Earnout Shares at closing of the Business Combination was $171.2 million, consisting of $134.0 million and $37.2 million ascribed to the MPMO and SNR earnouts, respectively.

In December 2020, 8,625,000 Vesting Shares vested, and 12,859,898 Earnout Shares (adjusted for fractional shares) were issued after achievement of the aforementioned VWAP thresholds. As of December 31, 2022 and 2021, the Vesting Shares and the Earnout Shares delivered to the equityholders were recorded as equity with an allocation between common stock at par value and additional paid-in capital, and the Earnout Shares delivered to MPMO equityholders were accounted for as a distribution. Since all Earnout Shares were determined to be equity-classified at initial recognition and through the date of achievement of the thresholds, no remeasurement was required.

SNR Mineral Rights Acquisition

The acquisition of SNR did not meet the criteria for the acquisition of a business under ASC Topic 805, “Business Combinations” (“ASC 805”), and was accounted for as an asset acquisition since substantially all of the fair value of the assets acquired was concentrated in a single asset, the mineral rights for the rare earth ores contained in the Company’s mine. The net assets acquired in the SNR Mineral Rights Acquisition were $324.1 million, which was principally comprised of a mineral rights asset of $434.7 million, net of the associated deferred tax liability of $109.1 million.

MPMO and SNR had a relationship prior to the Business Combination, specifically related to a royalty agreement and an intellectual property license. The Company considered the provisions of ASC 805 regarding the settlement of pre-existing relationships. Immediately prior to the consummation of the Business Combination, MPMO had a $3.9 million liability related to the minimum royalty, which was effectively settled through intercompany when MPMO and SNR became wholly-owned subsidiaries of the Company. The settlement of the liability was reflected in the cost of the acquisition due to the pre-existing contractual relationship being cancellable without penalty and no gain or loss was recognized.

Transaction Costs

In connection with the Business Combination, the Company incurred direct and incremental costs of $33.5 million, consisting of legal and professional fees, of which $28.2 million was related to equity issuance costs and recorded to “Additional paid-in capital” as a reduction of proceeds at the time of the Business Combination, $3.3 million was recorded to “Selling, general and administrative” expenses, for the year ended December 31, 2020, and $2.0 million was related to the SNR Mineral Rights Acquisition, which was included as a component of the cost of the acquisition.

NOTE 14—STOCKHOLDERS’ EQUITY

Common Stock and Preferred Stock

On November 17, 2020, in connection with the consummation of the Business Combination, FVAC amended and restated its first amended and restated certificate of incorporation (the “Second Amended and Restated Certificate of Incorporation”). Pursuant to the terms of the Second Amended and Restated Certificate of Incorporation, the Company increased the number of authorized shares of all classes of capital stock from 221,000,000 shares to 500,000,000, consisting of (i) 450,000,000 shares of Common Stock and (ii) 50,000,000 shares of preferred stock (“Preferred Stock”), each with a par value of $0.0001 per share.

Public Warrants

Warrants to purchase 11,499,968 shares of the Company’s Common Stock at $11.50 per share were issued in connection with FVAC’s IPO (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. These warrants qualified as equity instruments as they were indexed to the Company’s stock and settlement in shares was within the Company’s control.

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

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

NOTE 15—STOCK-BASED COMPENSATION

2020 Incentive Plan: In November 2020, the Company’s stockholders approved the MP Materials Corp. 2020 Stock Incentive Plan (the “2020 Incentive Plan”), which permits the Company to issue stock options (incentive and/or non-qualified); stock appreciation rights (“SARs”); restricted stock, restricted stock units (“RSUs”) and other stock awards (“Stock Awards”); and performance awards. As of December 31, 2022, the Company has not issued any stock options, SARs or performance awards.

Pursuant to the 2020 Incentive Plan, 9,653,671 shares of Common Stock were initially available for issuance. The number of shares of Common Stock available under the 2020 Incentive Plan may be increased annually on the first day of each calendar year, beginning with the year ended December 31, 2021, and continuing until (and including) the year ending December 31, 2030, with such annual increase equal to the lesser of (i) 2% of the number of shares of stock issued and outstanding on

December 31st of the immediately preceding fiscal year and (ii) an amount determined by the Board of Directors. The number of shares of Common Stock that remain available for future grants under the 2020 Incentive Plan shall be reduced by the sum of the aggregate number of shares of Common Stock that become subject to outstanding options, outstanding free-standing SARs, outstanding Stock Awards, and outstanding performance awards denominated in shares of Common Stock, other than substitute awards. As of December 31, 2022, there were 6,551,497 shares available for future grants under the 2020 Incentive Plan.

Stock Awards: Pursuant to the terms and conditions of certain executive employment agreements, in connection with the consummation of the Business Combination, 2,013,006 shares of restricted stock were issued during the year ended December 31, 2020, of which 200,000 shares immediately vested and the remainder of shares were to vest ratably pursuant the respective employment agreements over the requisite service period of four years.

The Company also granted 382,742, 1,026,387 and 386,639 RSUs to employees, during the years ended December 31, 2022, 2021, and 2020, respectively, which, with the exception of 36,461 and 80,350 RSUs granted during the years ended December 31, 2022 and 2021, respectively, that vested immediately, vest ratably in equal installments over the requisite service period of four years.

Additionally, the Company granted 23,975, 18,394 and 15,922 RSUs to non-employee directors during the years ended December 31, 2022, 2021, and 2020, respectively, of which, 6,881 and 5,810 vested immediately into tax-deferred stock units (“DSUs”) during the years ended December 31, 2022 and 2021, respectively. The remaining RSUs granted vest into DSUs upon the earlier of one year after the grant date and the next annual stockholder meeting, The DSUs are settled as shares of Common Stock of the Company upon the earlier of (i) June 15th of the fifth year after grant, (ii) a change in control of the Company, or (iii) the director’s separation from the Board, unless the director elects to defer settlement until retirement.

The grant date fair value of the Company’s Stock Awards is based on the closing stock price of the Company’s shares of Common Stock on the date of grant. The weighted-average grant date fair value of Stock Awards granted during the years ended December 31, 2022, 2021, and 2020 was $38.52, $41.24 and $14.53, respectively.

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

			Number of Shares						Weighted-Average Grant Date Fair Value
Nonvested as of January 1, 2022			2,869,680						$	23.51
Granted			406,717						$	38.52
Vested			(1,032,513)						$	22.17
Forfeited			(35,721)						$	32.51
Nonvested as of December 31, 2022			2,208,163						$	26.76

As of December 31, 2022, the unamortized compensation cost not yet recognized related to Stock Awards totaled $29.9 million and the weighted-average period over which the costs are expected to be recognized was 1.9 years. The total fair value of Stock Awards that vested during the years ended December 31, 2022, 2021 and 2020, was $40.0 million, $10.9 million and $2.9 million, respectively.

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

			For the year ended December 31,
(in thousands)			2022						2021						2020
Cost of sales			$	2,853					$	4,294					$	277
Selling, general and administrative			28,554						18,246						4,737
Advanced projects, start-up, development and other			373						391						—
Total stock-based compensation expense			$	31,780					$	22,931					$	5,014
Stock-based compensation capitalized to property, plant and equipment, net			$	1,286					$	—					$	—
Income tax benefit for stock-based compensation arrangements			$	4,256					$	3,185					$	1,259

NOTE 16—FAIR VALUE MEASUREMENTS

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

			Level 1			Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
			Level 2			Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, quoted prices or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in active markets.
			Level 3			Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy. The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate. The fair value of the Company’s accounts receivable, accounts payable, and accrued liabilities approximates the carrying amounts because of the immediate or short-term maturity of these financial instruments.

Cash, Cash Equivalents and Restricted Cash

The Company’s cash, cash equivalents and restricted cash are classified within Level 1 of the fair value hierarchy. The carrying amounts reported in the Consolidated Balance Sheets approximate the fair value of cash, cash equivalents and restricted cash due to the short-term nature of these assets.

Short-term Investments

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

Convertible Notes

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

Offtake Advances

The Company’s Offtake Advances were classified within Level 3 of the fair value hierarchy as of December 31, 2021, because there were unobservable inputs that followed an imputed interest rate model to calculate the amortization of the embedded debt discount, which was recognized as non-cash interest expense, by estimating the timing of anticipated payments and reductions of the debt principal balance. This model-based valuation technique, for which there were unobservable inputs, was used to estimate the fair value of the liability classified within Level 3 of the fair value hierarchy as of December 31, 2021.

Equipment Notes

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

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

			December 31, 2022
(in thousands)			Carrying Amount						Fair Value						Level 1						Level 2						Level 3
Financial assets:
Cash and cash equivalents			$	136,627					$	136,627					$	136,627					$	—					$	—
Short-term investments			$	1,045,718					$	1,045,718					$	1,045,718					$	—					$	—
Restricted cash			$	6,882					$	6,882					$	6,882					$	—					$	—
Financial liabilities:
Convertible Notes			$	678,444					$	610,650					$	610,650					$	—					$	—
Equipment notes			$	7,135					$	6,807					$	—					$	6,807					$	—

			December 31, 2021
(in thousands)			Carrying Amount						Fair Value						Level 1						Level 2						Level 3
Financial assets:
Cash and cash equivalents			$	1,179,297					$	1,179,297					$	1,179,297					$	—					$	—
Restricted cash			$	1,860					$	1,860					$	1,860					$	—					$	—
Financial liabilities:
Convertible Notes			$	674,927					$	880,026					$	880,026					$	—					$	—
Offtake Advances			$	16,082					$	16,501					$	—					$	—					$	16,501
Equipment notes			$	9,661					$	9,737					$	—					$	9,737					$	—

NOTE 17—EARNINGS (LOSS) PER SHARE

Pursuant to the Second Amended and Restated Certificate of Incorporation and as a result of the Business Combination and reverse recapitalization, the Company has retrospectively adjusted the weighted-average shares outstanding prior to November 17, 2020, to give effect to the exchange ratio used to determine the number of shares of Common Stock into which the MPMO common units and preferred units, which were outstanding prior the Business Combination, converted.

Basic EPS is computed based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method or the if-converted method, as applicable. During the periods when there is a net loss, potentially dilutive common stock equivalents have been excluded from the calculation of diluted loss per share as their effect is anti-dilutive.

			For the year ended December 31,
			2022						2021						2020
Weighted-average shares outstanding, basic			176,519,203						173,469,546						79,690,821
Assumed conversion of Public Warrants			—						2,840,624						—
Assumed conversion of Convertible Notes			15,584,409						11,997,860						—
Assumed conversion of restricted stock			921,772						1,257,360						—
Assumed conversion of RSUs			427,703						278,638						—
Weighted-average shares outstanding, diluted			193,453,087						189,844,028						79,690,821

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

			For the year ended December 31,
(in thousands, except share and per share data)			2022						2021						2020
Calculation of basic EPS:
Net income (loss)			$	289,004					$	135,037					$	(21,825)
Weighted-average shares outstanding, basic			176,519,203						173,469,546						79,690,821
Basic EPS			$	1.64					$	0.78					$	(0.27)
Calculation of diluted EPS:
Net income (loss)			$	289,004					$	135,037					$	(21,825)
Interest expense, net of tax(1):
Convertible Notes			4,441						3,366						—
Diluted income (loss)			$	293,445					$	138,403					$	(21,825)
Weighted-average shares outstanding, diluted			193,453,087						189,844,028						79,690,821
Diluted EPS			$	1.52					$	0.73					$	(0.27)

(1)The years ended December 31, 2022 and 2021, were tax-effected at a rate of 15.3% and 15.7%, respectively. As discussed in Note 8, “Debt Obligations,” the Convertible Notes were issued in March 2021; therefore, no adjustment is required for the year ended December 31, 2020.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding as they would be anti-dilutive:

			For the year ended December 31,
			2022						2021						2020
Public Warrants			—						—						11,499,968
Restricted stock			—						—						1,813,006
RSUs			24,442						18,322						397,662
Total			24,442						18,322						13,710,636

NOTE 18—RELATED-PARTY TRANSACTIONS

Revenue and Cost of Sales: Sales of rare earth concentrate under sales agreements with Shenghe, which are included in the Consolidated Statements of Operations in “Product sales (including related party),” were $487.0 million, $326.6 million and $133.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. During the year ended December 31, 2022, the Company also entered into sales agreements with Shenghe for non-concentrate products, including certain stockpiles of rare earth fluoride (“REF”). These sales, which are included in the Consolidated Statements of Operations in “Other sales (including related party),” were $9.7 million for the year ended December 31, 2022. Cost of sales, which includes shipping and freight, related to these agreements with Shenghe, was $88.6 million, $76.0 million and $63.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Purchases of Materials and Supplies: The Company purchases certain reagent products (generally produced by an unrelated third party manufacturer) used in the flotation process as well as other materials from Shenghe in the ordinary course of business. Total purchases for the years ended December 31, 2022, 2021 and 2020, totaled $18.5 million, $4.8 million and $2.6 million, respectively.

Accounts Receivable: As of December 31, 2022 and 2021, $29.8 million and $49.9 million of the accounts receivable, respectively, and as stated on the Consolidated Balance Sheets, were receivable from and pertained to sales made to Shenghe in the ordinary course of business.

Indebtedness: The Company’s related-party debt is described in Note 8, “Debt Obligations.”

NOTE 19—SUPPLEMENTAL CASH FLOW INFORMATION

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

			For the year ended December 31,
(in thousands)			2022						2021						2020
Supplemental cash flow information:
Cash paid for interest			$	2,096					$	1,204					$	3,089
Cash payments related to income taxes, net			$	18,860					$	4,172					$	255
Supplemental non-cash investing and financing activities:
Property, plant and equipment acquired with equipment notes			$	—					$	9,407					$	1,216
Property, plant and equipment purchased but not yet paid			$	34,569					$	14,082					$	4,054
SNR Mineral Rights Acquisition			$	—					$	—					$	324,125
Revenue recognized in exchange for debt principal reduction			$	13,566					$	54,802					$	21,312
Paycheck Protection Loan forgiveness			$	—					$	3,401					$	—
Decrease in estimates of asset retirement costs			$	10,395					$	8,713					$	—
Operating right-of-use assets obtained in exchange for lease liabilities			$	168					$	—					$	2,932
Finance right-of-use assets obtained in exchange for lease liabilities			$	42					$	88					$	724