Item 1. FINANCIAL STATEMENTS

MP MATERIALS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

			March 31, 2023						December 31, 2022
(in thousands, except share and per share data)
Assets
Current assets
Cash and cash equivalents			$	651,215					$	136,627
Short-term investments			517,831						1,045,718
Total cash, cash equivalents and short-term investments			1,169,046						1,182,345
Accounts receivable (including related party), net of allowance for credit losses of $0 and $0, respectively			21,245						32,856
Inventories			61,804						57,554
Income taxes receivable			1,727						2,201
Prepaid expenses and other current assets			13,566						18,872
Total current assets			1,267,388						1,293,828
Non-current assets
Property, plant and equipment, net			1,002,240						935,743
Non-current inventories			6,844						5,744
Other non-current assets			4,630						2,472
Total non-current assets			1,013,714						943,959
Total assets			$	2,281,102					$	2,237,787
Liabilities and stockholders’ equity
Current liabilities
Accounts payable, construction payables and accrued liabilities			$	68,574					$	72,265
Income taxes payable			21,161						21,163
Other current liabilities			4,139						4,053
Total current liabilities			93,874						97,481
Non-current liabilities
Asset retirement obligations			5,351						5,295
Environmental obligations			16,571						16,580
Long-term debt, net			679,326						678,444
Deferred income taxes			129,711						122,353
Other non-current liabilities			4,464						5,000
Total non-current liabilities			835,423						827,672
Total liabilities			929,297						925,153
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock ($0.0001 par value, 50,000,000 shares authorized, none issued and outstanding in either period)			—						—
Common stock ($0.0001 par value, 450,000,000 shares authorized, 177,619,805 and 177,706,608 shares issued and outstanding, as of March 31, 2023, and December 31, 2022, respectively)			17						18
Additional paid-in capital			952,791						951,008
Retained earnings			398,866						361,419
Accumulated other comprehensive income			131						189
Total stockholders’ equity			1,351,805						1,312,634
Total liabilities and stockholders’ equity			$	2,281,102					$	2,237,787

See accompanying notes to the Condensed Consolidated Financial Statements.

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MP MATERIALS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

			For the three months ended March 31,
(in thousands, except share and per share data)			2023						2022
Revenue:
Product sales (including related party)			$	95,666					$	161,755
Other sales (including related party)			34						4,503
Total revenue			95,700						166,258
Operating costs and expenses:
Cost of sales (including related party)(excluding depreciation, depletion and amortization)			24,216						23,173
Selling, general and administrative			19,403						20,308
Advanced projects, start-up, development and other			8,280						1,818
Depreciation, depletion and amortization			8,122						5,260
Accretion of asset retirement and environmental obligations			227						418
Loss on sale or disposal of long-lived assets, net			2,490						257
Total operating costs and expenses			62,738						51,234
Operating income			32,962						115,024
Interest expense, net			(1,359)						(1,905)
Other income, net			13,693						194
Income before income taxes			45,296						113,313
Income tax expense			(7,849)						(27,762)
Net income			$	37,447					$	85,551
Earnings per share:
Basic			$	0.21					$	0.49
Diluted			$	0.20					$	0.45
Weighted-average shares outstanding:
Basic			176,881,723						176,355,566
Diluted			193,613,539						193,490,330

See accompanying notes to the Condensed Consolidated Financial Statements.

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MP MATERIALS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

			For the three months ended March 31,
(in thousands)			2023						2022
Net income			$	37,447					$	85,551
Other comprehensive loss, net of tax:
Change in net unrealized losses on available-for-sale securities			(58)						—
Total comprehensive income			$	37,389					$	85,551

See accompanying notes to the Condensed Consolidated Financial Statements.

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MP MATERIALS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

			Three months ended March 31, 2023 and 2022
			Preferred Stock												Common Stock																		Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Income						Total Stockholders’ Equity
(in thousands, except share data)			Shares						Amount						Shares						Amount
Balance as of January 1, 2023			—						$	—					177,706,608						$	18											$	951,008					$	361,419					$	189					$	1,312,634
Stock-based compensation			—						—						98,418						—												7,758						—						—						7,758
Shares used to settle payroll tax withholding			—						—						(185,221)						(1)												(5,975)						—						—						(5,976)
Net income			—						—						—						—												—						37,447						—						37,447
Unrealized losses on available-for-sale securities			—						—						—						—												—						—						(58)						(58)
Balance as of March 31, 2023			—						$	—					177,619,805						$	17											$	952,791					$	398,866					$	131					$	1,351,805
Balance as of January 1, 2022			—						$	—					177,816,554						$	18											$	936,299					$	72,415					$	—					$	1,008,732
Stock-based compensation			—						—						46,882						—												10,179						—						—						10,179
Shares used to settle payroll tax withholding			—						—						(337,429)						—												(14,094)						—						—						(14,094)
Net income			—						—						—						—												—						85,551						—						85,551
Balance as of March 31, 2022			—						$	—					177,526,007						$	18											$	932,384					$	157,966					$	—					$	1,090,368

See accompanying notes to the Condensed Consolidated Financial Statements.

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MP MATERIALS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

			For the three months ended March 31,
(in thousands)			2023						2022
Operating activities:
Net income			$	37,447					$	85,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization			8,122						5,260
Accretion of asset retirement and environmental obligations			227						418
Accretion of discount on short-term investments			(8,842)						—
Loss (gain) on sale or disposal of long-lived assets, net			(5)						257
Stock-based compensation expense			7,013						9,773
Accretion of debt discount and amortization of debt issuance costs			882						1,394
Revenue recognized in exchange for debt principal reduction			—						(13,566)
Deferred income taxes			7,377						23,479
Decrease (increase) in operating assets:
Accounts receivable (including related party)			11,611						13,901
Inventories			(5,024)						(927)
Income taxes receivable			474						—
Prepaid expenses, other current and non-current assets			(351)						694
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities			(3,586)						(7,176)
Income taxes payable			(2)						1,783
Other current and non-current liabilities			148						130
Net cash provided by operating activities			55,491						120,971
Investing activities:
Additions to property, plant and equipment			(74,462)						(54,932)
Purchases of short-term investments			(320,884)						—
Proceeds from sales of short-term investments			447,227						—
Proceeds from maturities of short-term investments			410,307						—
Proceeds from government awards used for construction			—						5,130
Net cash provided by (used in) investing activities			462,188						(49,802)
Financing activities:
Principal payments on debt obligations and finance leases			(846)						(3,817)
Tax withholding on stock-based awards			(5,976)						(14,094)
Net cash used in financing activities			(6,822)						(17,911)
Net change in cash, cash equivalents and restricted cash			510,857						53,258
Cash, cash equivalents and restricted cash beginning balance			143,509						1,181,157
Cash, cash equivalents and restricted cash ending balance			$	654,366					$	1,234,415
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents			$	651,215					$	1,233,300
Restricted cash, current			2,552						587
Restricted cash, non-current			599						528
Total cash, cash equivalents and restricted cash			$	654,366					$	1,234,415

See accompanying notes to the Condensed Consolidated Financial Statements.

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MP MATERIALS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 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 13, “Related-Party Transactions,”), 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 February 2023, the Company entered into a distributorship agreement (“Distribution Agreement”) with Sumitomo Corporation of Americas (“Sumitomo”), under which Sumitomo will serve as the exclusive distributor of NdPr oxide produced by the Company to Japanese customers. Further, in connection with the Distribution Agreement, the Company and Sumitomo intend to collaborate on the supply of rare earth metals and other products.

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 unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods. These unaudited Condensed Consolidated Financial Statements and notes thereto should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES

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

Use of Estimates**:** The preparation of the unaudited Condensed 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 unaudited Condensed Consolidated Financial Statements, and

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(iii) the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.

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 that it is exposed to any significant risks related to its cash accounts, money market funds, or short-term investments.

As of March 31, 2023, Shenghe was the Company’s principal customer and accounted for more than 90% of product sales. Rare earth concentrate is not quoted on any major commodities market or exchange and demand for rare earth concentrate is currently constrained to a relatively limited number of refiners, a significant majority of which are based in China. Uncertainty exists as to the market price of rare earth oxide (“REO”), as evidenced by the volatility experienced in 2022 and continued into 2023 due to concerns over the global economic conditions and actual or perceived concerns over increases in the supply of rare earth products. 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 is an 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 13, “Related-Party Transactions,” for additional information.

The impact of the COVID-19 pandemic and its effects continue to evolve. Since the onset of the pandemic, 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. 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 for capital projects and may impact the reliability of transportation, particularly as the Company expects a significant increase in inbound logistics of raw materials to be consumed in Stage II operations.

The Company continues to monitor the global situation, including the impacts of new and potential future variants of COVID-19, or other factors that may affect international shipping, logistics, and supply chain, 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.

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. The fair value of Stock Awards (as defined in Note 10, “Stock-based Compensation,”) is equal to the fair value of the Company’s stock on the grant date. The fair value of performance awards that include performance and/or market conditions is determined using a Monte Carlo simulation technique. The Monte Carlo simulation requires the use of inputs and assumptions such as the grant-date closing stock price, expected volatility, correlation coefficient to relevant peer groups or indices, risk-free interest rate and dividend yield.

Compensation cost for Stock Awards with graded vesting schedules is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards, which results in accelerated recognition of compensation cost. Compensation cost for performance awards with cliff vesting schedules is recognized on a straight-line basis over the requisite service period. Compensation cost is not adjusted based on the actual achievement of the market-based performance goals. The Company accounts for forfeitures in the period in which they occur based on actual forfeitures. See also Note 10, “Stock-based Compensation.”

Recently Issued Accounting Pronouncements: During the three months ended March 31, 2023, there were no accounting pronouncements adopted by the Company that had a material impact on the Company's unaudited Condensed Consolidated Financial Statements. Additionally, as of March 31, 2023, there were no accounting pronouncements pending adoption that are expected to have a material impact on the Company's unaudited Condensed Consolidated Financial Statements.

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

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NOTE 3—CASH, CASH EQUIVALENTS AND INVESTMENTS

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

			March 31, 2023																								December 31, 2022
(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			$	24,572					$	—					$	—					$	24,572					$	7,373					$	—					$	—					$	7,373
Cash equivalents:
Money market funds			626,643						—						—						626,643						64,855						—						—						64,855
U.S. agency securities			—						—						—						—						63,605						1						(2)						63,604
U.S. Treasury securities			—						—						—						—						795						—						—						795
Total cash equivalents			626,643						—						—						626,643						129,255						1						(2)						129,254
Total cash and equivalents			651,215						—						—						651,215						136,628						1						(2)						136,627
Short-term investments:
U.S. agency securities			482,012						201						(12)						482,201						979,878						361						(17)						980,222
U.S. Treasury securities			35,644						—						(14)						35,630						65,586						1						(91)						65,496
Total short-term investments			517,656						201						(26)						517,831						1,045,464						362						(108)						1,045,718
Total cash, cash equivalents and short-term investments			$	1,168,871					$	201					$	(26)					$	1,169,046					$	1,182,092					$	363					$	(110)					$	1,182,345

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 three months ended March 31, 2023. 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 March 31, 2023, 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 $0.5 million of gross realized gains and $0.1 million of gross realized losses during the three months ended March 31, 2023. Additionally, the Company recognized $13.3 million of interest and investment income on its available-for-sale securities and other money market funds for the three months ended March 31, 2023. These amounts are included in “Other income, net” within the Company’s unaudited Condensed Consolidated Statements of Operations.

As of March 31, 2023, the fair values of available-for-sale investments, by remaining contractual maturity, were as follows:

(in thousands)
Due within one year			$	494,930
Due after one year through two years			22,901
Total			$	517,831

NOTE 4—INVENTORIES

The Company’s inventories consisted of the following:

			March 31, 2023						December 31, 2022
(in thousands)
Materials and supplies(1)			$	31,402					$	28,590
In-process			28,929						27,212
Finished goods			1,473						1,752
Total current inventories			61,804						57,554
Add: Non-current portion(2)			6,844						5,744
Total inventories			$	68,648					$	63,298

(1)Includes materials 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.

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NOTE 5—PROPERTY, PLANT AND EQUIPMENT

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

			March 31, 2023						December 31, 2022
(in thousands)
Land and land improvements			$	16,112					$	16,102
Buildings and building improvements			15,856						15,111
Machinery and equipment			275,541						186,388
Assets under construction			323,444						338,482
Mineral rights			438,395						438,395
Property, plant and equipment, gross			1,069,348						994,478
Less: Accumulated depreciation and depletion			(67,108)						(58,735)
Property, plant and equipment, net			$	1,002,240					$	935,743

Additions to Property, Plant and Equipment: The Company capitalized expenditures related to property, plant and equipment of $74.3 million and $68.0 million for the three months ended March 31, 2023 and 2022, respectively, including amounts not yet paid (see Note 14, “Supplemental Cash Flow Information”). The capitalized expenditures 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. Additionally, the capitalized expenditures for the three months ended March 31, 2022, included the purchase of approximately 18 acres of land in Fort Worth, Texas.

Placement of Certain Stage II Assets into Service: At the end of the first quarter of 2023, the Company transferred certain of its assets totaling $86.4 million and pertaining to its Stage II optimization project from assets under construction to buildings, machinery and equipment, with $85.7 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 in the amount of $9.6 million. During the three months ended March 31, 2023 and 2022, pursuant to the TIA, the Company had received zero and $5.1 million, respectively, in reimbursements from the DOD. As of March 31, 2023, the Company is entitled to receive an additional $0.1 million from the DOD under the TIA.

In February 2022, the Company was awarded a $35.0 million contract by the DOD’s Office of Industrial Base Analysis and Sustainment program to design and build a facility to process heavy rare earth elements (“HREE”) at Mountain Pass (the “HREE Production Project Agreement”). As of March 31, 2023, the Company has not yet received any funds from the DOD under the HREE Production Project Agreement.

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

			For the three months ended March 31,
(in thousands)			2023						2022
Depreciation expense			$	5,245					$	2,101
Depletion expense			$	2,800					$	3,069

The Company recognized $2.5 million of demolition costs for the three months ended March 31, 2023, which are included in “Loss on sale or disposal of long-lived assets, net” within the Company’s unaudited Condensed Consolidated Statements of Operations, incurred in connection with demolishing and removing certain old facilities from the Mountain Pass site that have not been used in the Company’s operations. There were no impairments recognized for the three months ended March 31, 2023 and 2022.

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NOTE 6—DEBT OBLIGATIONS

The Company’s long-term debt was as follows:

			March 31, 2023						December 31, 2022
(in thousands)
Long-term debt
Convertible Notes due 2026			$	690,000					$	690,000
Less: Unamortized debt issuance costs			(10,674)						(11,556)
Long-term debt, net			$	679,326					$	678,444

Convertible Notes

In March 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 common stock of the Company, or a combination thereof. The Company has the option to redeem the Convertible Notes, in whole or in part, beginning on April 5, 2024.

The 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 March 31, 2023, based on the 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 March 31, 2023.

Interest expense related to the Convertible Notes was as follows:

			For the three months ended March 31,
(in thousands)			2023						2022
Coupon interest			$	431					$	431
Amortization of debt issuance costs			882						877
Convertible Notes interest expense			$	1,313					$	1,308

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 3.0 years as of March 31, 2023.

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.

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

			March 31, 2023						December 31, 2022
(in thousands)
Equipment notes
Current			$	2,327					$	2,392
Non-current			4,187						4,743
			$	6,514					$	7,135

As of March 31, 2023, none of the agreements or indentures governing the Company’s indebtedness contain financial covenants.

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NOTE 7—ASSET RETIREMENT AND ENVIRONMENTAL OBLIGATIONS

Asset Retirement Obligations

The Company estimates asset retirement obligations based on the requirements to reclaim certain land areas associated with mineral extraction activities and certain related facilities at Mountain Pass. Minor reclamation activities related to discrete portions of the Company’s operations are ongoing. As of March 31, 2023, 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.

As of March 31, 2023, 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 or decrements for the three months ended March 31, 2023 and 2022.

The balance as of both March 31, 2023, and December 31, 2022, included current portions of $0.2 million. The total estimated future undiscounted cash flows required to satisfy the Company’s asset retirement obligations were $50.3 million and $50.4 million as of March 31, 2023, and December 31, 2022, respectively.

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 March 31, 2023, 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 three months ended March 31, 2023 and 2022.

The total estimated aggregate undiscounted cost of $27.0 million and $27.2 million as of March 31, 2023, and December 31, 2022, 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 both March 31, 2023, and December 31, 2022, included current portions of $0.5 million.

Financial Assurances

The Company is required to provide the applicable government agencies with financial assurances relating to the closure and reclamation obligations. As of both March 31, 2023, and December 31, 2022, the Company had financial assurance requirements of $43.5 million, which were satisfied with surety bonds placed with California state and regional agencies.

NOTE 8—INCOME TAXES

The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate to its year-to-date pretax book income or loss. The tax effects of discrete items, including but not limited to, excess tax benefits associated with stock-based compensation, valuation allowance adjustments based on new evidence, and enactment of tax laws, are reported in the interim period in which they occur. The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 17.3% and 24.5% for the three months ended March 31, 2023 and 2022, respectively. The Company’s effective income tax rate can vary from period to period depending on, among other factors, percentage depletion, executive compensation deduction limitations, the Section 45X Advanced Manufacturing Production Credit, and changes to its valuation allowance against deferred tax assets. Certain of these and other factors, including the Company’s history and projections of pretax earnings, are considered in assessing its ability to realize its net deferred tax assets.

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. The Company does not expect the minimum tax or excise tax to have a material impact on the unaudited Condensed Consolidated Financial

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Statements. The Company expects to benefit from the Section 45X Advanced Manufacturing Production Credit, which provides a credit equal to 10% of the costs incurred with respect to the production of certain critical minerals, including NdPr oxide.

NOTE 9—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 unaudited Condensed Consolidated Financial Statements.

NOTE 10—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 (collectively, the “Stock Awards”); and performance awards, which vest contingent upon the attainment of either or a combination of market- or performance-based goals. As of March 31, 2023, the Company has not issued any stock options or SARs and there were 6,326,026 shares available for future grants under the 2020 Incentive Plan.

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

Stock-Based Compensation: The Company’s stock-based compensation was recorded as follows:

			For the three months ended March 31,
(in thousands)			2023						2022
Cost of sales			$	1,122					$	715
Selling, general and administrative			5,774						8,968
Advanced projects, start-up, development and other			117						90
Total stock-based compensation expense			$	7,013					$	9,773
Stock-based compensation capitalized to property, plant and equipment, net			$	745					$	406

NOTE 11—FAIR VALUE MEASUREMENTS

Accounting Standards Codification (“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.

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

Short-term Investments

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

Convertible Notes

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

Equipment Notes

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

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

			March 31, 2023
(in thousands)			Carrying Amount						Fair Value						Level 1						Level 2						Level 3
Financial assets:
Cash and cash equivalents			$	651,215					$	651,215					$	651,215					$	—					$	—
Short-term investments			$	517,831					$	517,831					$	517,831					$	—					$	—
Restricted cash			$	3,151					$	3,151					$	3,151					$	—					$	—
Financial liabilities:
Convertible Notes			$	679,326					$	652,485					$	652,485					$	—					$	—
Equipment notes			$	6,514					$	6,350					$	—					$	6,350					$	—

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			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					$	—

NOTE 12—EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method or the if-converted method, as applicable.

The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS:

			For the three months ended March 31,
			2023						2022
Weighted-average shares outstanding, basic			176,881,723						176,355,566
Assumed conversion of Convertible Notes			15,584,409						15,584,409
Assumed conversion of restricted stock			723,145						1,148,539
Assumed conversion of RSUs			424,262						401,816
Weighted-average shares outstanding, diluted			193,613,539						193,490,330

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

			For the three months ended March 31,
(in thousands, except share and per share data)			2023						2022
Calculation of basic EPS:
Net income			$	37,447					$	85,551
Weighted-average shares outstanding, basic			176,881,723						176,355,566
Basic EPS			$	0.21					$	0.49
Calculation of diluted EPS:
Net income			$	37,447					$	85,551
Interest expense, net of tax(1):
Convertible Notes			1,086						988
Diluted income			$	38,533					$	86,539
Weighted-average shares outstanding, diluted			193,613,539						193,490,330
Diluted EPS			$	0.20					$	0.45

(1)The three months ended March 31, 2023 and 2022, were tax-effected at a rate of 17.3% and 24.5%, respectively.

NOTE 13—RELATED-PARTY TRANSACTIONS

Offtake Agreement: In March 2022, the Company entered into an offtake agreement (the “Offtake Agreement”) with Shenghe Resources (Singapore) International Trading Pte. Ltd. (“Shenghe”), a majority-owned subsidiary of Leshan Shenghe

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

The sales price of rare earth concentrate sold to Shenghe is based on an agreed-upon price per metric ton, 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.

Tolling Agreement with VREX: In March 2023, the Company entered into a tolling agreement with Vietnam Rare Earth Company Limited (“VREX”), a majority-owned subsidiary of Shenghe, which owns and operates a metal processing plant and related facilities in Vietnam (the “Tolling Agreement”). Pursuant to the Tolling Agreement, the Company would deliver NdPr oxide to VREX which VREX would then process into NdPr metal for delivery to the Company’s customers globally. During the term of the Tolling Agreement, the Company will pay VREX a processing fee per unit of rare earth metal produced. The Company will maintain title to the products and directly enter into sales agreements for the produced NdPr metal. The initial term of the Tolling Agreement is three years and may be renewed for additional three-year terms. As of March 31, 2023, there have not yet been any transactions as contemplated under the Tolling Agreement.

Product Sales and Cost of Sales: Product sales from sales agreements with Shenghe for rare earth products were $89.1 million and $155.0 million for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2022, the Company also entered into sales agreements with Shenghe for non-concentrate products, including certain stockpiles of rare earth fluoride. These sales, which are included in the unaudited Condensed Consolidated Statements of Operations in “Other sales (including related party),” were $4.1 million for the three months ended March 31, 2022.

Cost of sales, which includes shipping and freight, related to these agreements with Shenghe was $22.7 million and $22.6 million for the three months ended March 31, 2023 and 2022, 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 were $0.9 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively.

Accounts Receivable: As of March 31, 2023, and December 31, 2022, $18.8 million and $29.8 million, respectively, of the accounts receivable as stated in the unaudited Condensed Consolidated Balance Sheets, were receivable from and pertained to sales made to Shenghe in the ordinary course of business.

NOTE 14—SUPPLEMENTAL CASH FLOW INFORMATION

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

			For the three months ended March 31,
(in thousands)			2023						2022
Supplemental cash flow information:
Cash paid for interest			$	105					$	83
Cash payments related to income taxes			$	—					$	2,500
Change in construction payables			$	(130)					$	13,096
Supplemental non-cash investing and financing activities:
Revenue recognized in exchange for debt principal reduction			$	—					$	13,566

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