Item 1. FINANCIAL STATEMENTS

MP MATERIALS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	June 30, 2023		December 31, 2022
(in thousands, except share and per share data)
Assets
Current assets
Cash and cash equivalents	$	927,245	$	136,627
Short-term investments	200,828		1,045,718
Total cash, cash equivalents and short-term investments	1,128,073		1,182,345
Accounts receivable (including related party), net of allowance for credit losses of $0 and $0, respectively	11,106		32,856
Inventories	67,783		57,554
Income taxes receivable	4,127		2,201
Prepaid expenses and other current assets	12,788		18,872
Total current assets	1,223,877		1,293,828
Non-current assets
Property, plant and equipment, net	1,044,839		935,743
Operating lease right-of-use assets	10,133		99
Non-current inventories	7,410		5,744

Other non-current assets	3,186		2,373
Total non-current assets	1,065,568		943,959
Total assets	$	2,289,445	$	2,237,787
Liabilities and stockholders’ equity
Current liabilities
Accounts payable, construction payables and accrued liabilities	$	71,661	$	72,265
Income taxes payable	—		21,163
Current portion of operating lease liabilities	309		84
Other current liabilities	3,803		3,969
Total current liabilities	75,773		97,481
Non-current liabilities
Asset retirement obligations	5,406		5,295
Environmental obligations	16,562		16,580
Long-term debt, net	680,210		678,444
Operating lease liabilities, net of current portion	7,050		15
Deferred income taxes	135,592		122,353
Other non-current liabilities	3,921		4,985
Total non-current liabilities	848,741		827,672
Total liabilities	924,514		925,153
Commitments and contingencies (Note 10)
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, 177,626,668 and 177,706,608 shares issued and outstanding, as of June 30, 2023, and December 31, 2022, respectively)	17		18
Additional paid-in capital	958,819		951,008
Retained earnings	406,261		361,419
Accumulated other comprehensive income (loss)	(166)		189
Total stockholders’ equity	1,364,931		1,312,634
Total liabilities and stockholders’ equity	$	2,289,445	$	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 June 30,				For the six months ended June 30,
(in thousands, except share and per share data)	2023		2022		2023		2022
Revenue:
Product sales (including related party)	$	64,001	$	139,183	$	159,667	$	300,938


Other sales (including related party)	23		4,379		57		8,882
Total revenue	64,024		143,562		159,724		309,820

Operating costs and expenses:
Cost of sales (including related party)(excluding depreciation, depletion and amortization)	22,704		22,092		46,920		45,265
Selling, general and administrative	18,865		18,120		38,268		38,428
Advanced projects, start-up, development and other	7,222		1,769		15,502		3,587
Depreciation, depletion and amortization	12,203		5,407		20,325		10,667
Accretion of asset retirement and environmental obligations	227		419		454		837
Loss on sale or disposal of long-lived assets, net	2,320		1		4,810		258

Total operating costs and expenses	63,541		47,808		126,279		99,042
Operating income	483		95,754		33,445		210,778
Interest expense, net	(1,392)		(1,326)		(2,751)		(3,231)
Other income, net	13,821		2,212		27,514		2,406

Income before income taxes	12,912		96,640		58,208		209,953
Income tax expense	(5,517)		(23,371)		(13,366)		(51,133)
Net income	$	7,395	$	73,269	$	44,842	$	158,820

Earnings per share:
Basic	$	0.04	$	0.42	$	0.25	$	0.90
Diluted	$	0.04	$	0.38	$	0.24	$	0.83

Weighted-average shares outstanding:
Basic	176,984,917		176,527,570		176,933,605		176,442,043
Diluted	177,859,118		193,414,563		193,528,819		193,452,921

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 June 30,				For the six months ended June 30,
(in thousands)	2023		2022		2023		2022
Net income	$	7,395	$	73,269	$	44,842	$	158,820
Other comprehensive loss, net of tax:

Change in net unrealized losses on available-for-sale securities	(297)		(416)		(355)		(416)


Total comprehensive income	$	7,098	$	72,853	$	44,487	$	158,404

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 June 30, 2023 and 2022
	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
(in thousands, except share data)	Shares	Amount		Shares	Amount
Balance as of April 1, 2023	—	$	—	177,619,805	$	17	$	952,791	$	398,866	$	131	$	1,351,805
Stock-based compensation	—	—		14,268	—		6,184		—		—		6,184
Shares used to settle payroll tax withholding	—	—		(7,405)	—		(156)		—		—		(156)
Net income	—	—		—	—		—		7,395		—		7,395
Unrealized losses on available-for-sale securities	—	—		—	—		—		—		(297)		(297)

Balance as of June 30, 2023	—	$	—	177,626,668	$	17	$	958,819	$	406,261	$	(166)	$	1,364,931

Balance as of April 1, 2022	—	$	—	177,526,007	$	18	$	932,384	$	157,966	$	—	$	1,090,368

Stock-based compensation	—	—		13,303	—		7,718		—		—		7,718

Shares used to settle payroll tax withholding	—	—		(5,178)	—		(202)		—		—		(202)
Net income	—	—		—	—		—		73,269		—		73,269
Unrealized losses on available-for-sale securities	—	—		—	—		—		—		(416)		(416)
Balance as of June 30, 2022	—	$	—	177,534,132	$	18	$	939,900	$	231,235	$	(416)	$	1,170,737


	Six months ended June 30, 2023 and 2022
	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		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	—	—		112,686	—		13,942		—		—		13,942
Shares used to settle payroll tax withholding	—	—		(192,626)	(1)		(6,131)		—		—		(6,132)
Net income	—	—		—	—		—		44,842		—		44,842
Unrealized losses on available-for-sale securities	—	—		—	—		—		—		(355)		(355)

Balance as of June 30, 2023	—	$	—	177,626,668	$	17	$	958,819	$	406,261	$	(166)	$	1,364,931

Balance as of January 1, 2022	—	$	—	177,816,554	$	18	$	936,299	$	72,415	$	—	$	1,008,732
Stock-based compensation	—	—		60,185	—		17,897		—		—		17,897
Shares used to settle payroll tax withholding	—	—		(342,607)	—		(14,296)		—		—		(14,296)
Net income	—	—		—	—		—		158,820		—		158,820
Unrealized losses on available-for-sale securities	—	—		—	—		—		—		(416)		(416)
Balance as of June 30, 2022	—	$	—	177,534,132	$	18	$	939,900	$	231,235	$	(416)	$	1,170,737

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 six months ended June 30,
(in thousands)	2023		2022
Operating activities:
Net income	$	44,842	$	158,820
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	20,325		10,667
Accretion of asset retirement and environmental obligations	454		837
Accretion of discount on short-term investments	(13,933)		(1,008)
Loss on sale or disposal of long-lived assets, net	103		258
Stock-based compensation expense	12,743		17,213
Accretion of debt discount and amortization of debt issuance costs	1,766		2,274
Revenue recognized in exchange for debt principal reduction	—		(13,566)
Deferred income taxes	13,356		42,106
Decrease (increase) in operating assets:
Accounts receivable (including related party)	21,750		18,261
Inventories	(11,406)		(3,552)
Income taxes receivable	(1,926)		(4,271)
Prepaid expenses, other current and non-current assets	(1,412)		1,437
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities	252		(5,476)
Income taxes payable	(21,163)		(3,463)
Other current and non-current liabilities	(292)		(675)
Net cash provided by operating activities	65,459		219,862
Investing activities:
Additions to property, plant and equipment	(130,236)		(122,584)
Purchases of short-term investments	(320,884)		(599,195)
Proceeds from sales of short-term investments	447,327		—
Proceeds from maturities of short-term investments	731,907		—


Proceeds from government awards used for construction	—		5,130
Net cash provided by (used in) investing activities	728,114		(716,649)
Financing activities:
Principal payments on debt obligations and finance leases	(1,467)		(4,488)
Tax withholding on stock-based awards	(6,132)		(14,296)

Net cash used in financing activities	(7,599)		(18,784)
Net change in cash, cash equivalents and restricted cash	785,974		(515,571)
Cash, cash equivalents and restricted cash beginning balance	143,509		1,181,157
Cash, cash equivalents and restricted cash ending balance	$	929,483	$	665,586

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	927,245	$	664,457
Restricted cash, current	1,888		600
Restricted cash, non-current	350		529
Total cash, cash equivalents and restricted cash	$	929,483	$	665,586

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 14, “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 would 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 robotics, 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 June 30, 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 14, “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 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.

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 unaudited Condensed 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.

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 in 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 lease prepayments, initial lease costs, or lease incentives received. The lease term may include periods covered by options to extend or terminate the lease when it is either 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 lease term. For finance leases, the ROU asset amortizes on a straight-line basis over the shorter of the lease term or the useful life of the underlying asset (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. For operating and finance leases, variable lease payments not included in the lease liability are expensed as incurred unless such costs are capitalized as part of another asset (e.g., inventory). Additionally, ROU assets are subject to impairment testing whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. See also Note 7, “Leases.”

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 11, “Stock-based

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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 11, “Stock-based Compensation.”

Recently Issued Accounting Pronouncements: During the three and six months ended June 30, 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 June 30, 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.

NOTE 3—CASH, CASH EQUIVALENTS AND INVESTMENTS

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


	June 30, 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	$	5,129	$	—	$	—	$	5,129	$	7,373	$	—	$	—	$	7,373
Cash equivalents:
Money market funds	922,116		—		—		922,116		64,855		—		—		64,855
U.S. agency securities	—		—		—		—		63,605		1		(2)		63,604
U.S. Treasury securities	—		—		—		—		795		—		—		795
Total cash equivalents	922,116		—		—		922,116		129,255		1		(2)		129,254
Total cash and equivalents	927,245		—		—		927,245		136,628		1		(2)		136,627
Short-term investments:
U.S. agency securities	165,265		7		(253)		165,019		979,878		361		(17)		980,222
U.S. Treasury securities	35,783		26		—		35,809		65,586		1		(91)		65,496
Total short-term investments	201,048		33		(253)		200,828		1,045,464		362		(108)		1,045,718
Total cash, cash equivalents and short-term investments	$	1,128,293	$	33	$	(253)	$	1,128,073	$	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 and six months ended June 30, 2023 and 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 June 30, 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 six months ended June 30, 2023. There were no realized gains or losses recognized for the three months ended June 30, 2023 and for the three and six months ended June 30, 2022. Additionally, the Company recognized $13.8 million and $27.1 million of interest and investment income on its available-for-sale securities and other money market funds for the three and six months ended June 30, 2023, respectively, as compared to $1.7 million for the three and six months ended June 30, 2022. These amounts are included in “Other income, net” within the Company’s unaudited Condensed Consolidated Statements of Operations.

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As of June 30, 2023, the fair values of available-for-sale investments, by remaining contractual maturity, were as follows:


(in thousands)
Due within one year	$	178,001
Due after one year through two years	22,827
Total	$	200,828

NOTE 4—INVENTORIES

The Company’s inventories consisted of the following:


	June 30, 2023		December 31, 2022
(in thousands)
Materials and supplies(1)	$	33,729	$	28,590
In-process	31,683		27,212
Finished goods	2,371		1,752
Total current inventories	67,783		57,554
Add: Non-current portion(2)	7,410		5,744
Total inventories	$	75,193	$	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.

NOTE 5—PROPERTY, PLANT AND EQUIPMENT

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


	June 30, 2023		December 31, 2022
(in thousands)
Land and land improvements	$	16,211	$	16,102
Buildings and building improvements	25,625		15,111
Machinery and equipment	436,439		186,388
Assets under construction	207,393		338,482
Mineral rights	438,395		438,395
Property, plant and equipment, gross	1,124,063		994,478
Less: Accumulated depreciation and depletion	(79,224)		(58,735)
Property, plant and equipment, net	$	1,044,839	$	935,743

Additions to Property, Plant and Equipment: The Company capitalized expenditures related to property, plant and equipment of $128.6 million and $154.4 million for the six months ended June 30, 2023 and 2022, respectively, including amounts not yet paid (see Note 15, “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 six months ended June 30, 2022, included the purchase of approximately 18 acres of land in Fort Worth, Texas.

Placement of Certain Stage II Assets into Service: During the six months ended June 30, 2023, the Company transferred certain of its assets totaling $219.9 million and pertaining to its Stage II optimization project from assets under construction to buildings, machinery and equipment, with $211.3 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 six months ended June 30, 2023 and 2022, pursuant to the TIA, the Company had received zero and $5.1 million, respectively, in reimbursements from the DOD. As of June 30, 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

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“HREE Production Project Agreement”). As of June 30, 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 June 30,				For the six months ended June 30,
(in thousands)	2023		2022		2023		2022
Depreciation expense	$	9,189	$	2,257	$	14,434	$	4,358
Depletion expense	$	2,963	$	3,075	$	5,763	$	6,144

The Company recognized $2.2 million and $4.7 million of demolition costs for the three and six months ended June 30, 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 and six months ended June 30, 2023 and 2022.

NOTE 6—DEBT OBLIGATIONS

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


	June 30, 2023		December 31, 2022
(in thousands)
Long-term debt
Convertible Notes due 2026	$	690,000	$	690,000
Less: Unamortized debt issuance costs	(9,790)		(11,556)
Long-term debt, net	$	680,210	$	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 the Convertible Notes. As of June 30, 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 June 30, 2023.

Interest expense related to the Convertible Notes was as follows:


	For the three months ended June 30,				For the six months ended June 30,
(in thousands)	2023		2022		2023		2022
Coupon interest	$	431	$	431	$	862	$	862
Amortization of debt issuance costs	884		879		1,766		1,756
Convertible Notes interest expense	$	1,315	$	1,310	$	2,628	$	2,618

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 2.8 years as of June 30, 2023.

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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:


	June 30, 2023		December 31, 2022
(in thousands)
Equipment notes
Current	$	2,279	$	2,392
Non-current	3,651		4,743
	$	5,930	$	7,135

As of June 30, 2023, none of the agreements or indentures governing the Company’s indebtedness contain financial covenants.

NOTE 7—LEASES

The Company has operating and finance leases for certain office space, warehouses, vehicles and equipment used in its operations. In November 2021, the Company entered into a lease agreement for corporate office space. The lease commenced during the second quarter of 2023, and at lease commencement, the Company recorded an operating lease liability of $7.3 million and an ROU asset of $10.3 million, primarily comprised of the lease liability as well as $2.9 million of payments for lessor-owned tenant improvements. The lease has an initial term of 91 months expiring in October 2030, with an option to renew for one five-year period at the election of the Company. Excluding rent abatement in the first year of the lease, the initial annual base rent payment is $1.2 million, subject to an annual escalator.

The Company’s lease agreements do not contain material residual value guarantees or restrictive covenants. As of June 30, 2023, the Company was not reasonably certain of exercising any material purchase, renewal, or termination options contained within its lease agreements.

As of June 30, 2023, the maturities of the Company’s operating and finance lease liabilities were as follows:


(in thousands)	Operating Leases		Finance Leases
Period:
Remainder of 2023	$	154	$	94
2024	1,284		186
2025	1,304		137
2026	1,337		17
2027	1,370		12
Thereafter	4,066		48
Total lease payments	9,515		494
Less: Imputed interest	(2,156)		(51)
Total	$	7,359	$	443

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Supplemental disclosure for the unaudited Condensed Consolidated Balance Sheets related to the Company’s operating and finance leases is as follows:


	Location on Unaudited Condensed Consolidated Balance Sheets	June 30, 2023		December 31, 2022
(in thousands)
Operating Leases:
Right-of-use assets	Operating lease right-of-use assets	$	10,133	$	99

Operating lease liability, current	Current portion of operating lease liabilities	$	309	$	84
Operating lease liability, non-current	Operating lease liabilities, net of current portion	7,050		15
Total operating lease liabilities		$	7,359	$	99

Finance Leases:
Right-of-use assets	Other non-current assets	$	472	$	451

Finance lease liability, current	Other current liabilities	$	173	$	354
Finance lease liability, non-current	Other non-current liabilities	270		242
Total finance lease liabilities		$	443	$	596

NOTE 8—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 June 30, 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 June 30, 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 and six months ended June 30, 2023 and 2022.

The balance as of both June 30, 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 June 30, 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 June 30, 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 and six months ended June 30, 2023 and 2022.

The total estimated aggregate undiscounted cost of $26.9 million and $27.2 million as of June 30, 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 June 30, 2023, and December 31, 2022, included current portions of $0.5 million.

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Financial Assurances

The Company is required to provide the applicable government agencies with financial assurances relating to the closure and reclamation obligations. As of June 30, 2023, and December 31, 2022, the Company had financial assurance requirements of $45.4 million and $43.5 million, respectively, which were satisfied with surety bonds placed with California state and regional agencies.

NOTE 9—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 tax expense as a percentage of income before income taxes) including discrete items was 42.7% and 23.0% for the three and six months ended June 30, 2023, respectively, as compared to 24.2% and 24.4% for the three and six months ended June 30, 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 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 10—COMMITMENTS AND CONTINGENCIES

Litigation: The Company may become party to lawsuits, administrative proceedings, and government investigations, including environmental, regulatory, construction, 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 it believes would have a material adverse effect on its unaudited Condensed Consolidated Financial Statements.

NOTE 11—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 June 30, 2023, the Company has not issued any stock options or SARs and there were 6,244,076 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 six months ended June 30, 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.

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


	For the three months ended June 30,				For the six months ended June 30,
(in thousands)	2023		2022		2023		2022
Cost of sales	$	795	$	506	$	1,917	$	1,221
Selling, general and administrative	4,636		6,837		10,410		15,805
Advanced projects, start-up, development and other	299		97		416		187
Total stock-based compensation expense	$	5,730	$	7,440	$	12,743	$	17,213

Stock-based compensation capitalized to property, plant and equipment, net	$	454	$	278	$	1,199	$	684

NOTE 12—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.

			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

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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:


	June 30, 2023
(in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	927,245	$	927,245	$	927,245	$	—	$	—
Short-term investments	$	200,828	$	200,828	$	200,828	$	—	$	—
Restricted cash	$	2,238	$	2,238	$	2,238	$	—	$	—
Financial liabilities:
Convertible Notes	$	680,210	$	612,789	$	612,789	$	—	$	—
Equipment notes	$	5,930	$	5,764	$	—	$	5,764	$	—


	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 13—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 June 30,		For the six months ended June 30,
	2023	2022	2023	2022
Weighted-average shares outstanding, basic	176,984,917	176,527,570	176,933,605	176,442,043
Assumed conversion of Convertible Notes	—	15,584,409	15,584,409	15,584,409
Assumed conversion of restricted stock	555,282	845,450	639,214	996,994
Assumed conversion of RSUs	318,919	457,134	371,591	429,475

Weighted-average shares outstanding, diluted	177,859,118	193,414,563	193,528,819	193,452,921

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The following table presents unweighted potentially dilutive shares that were not included in the computation of diluted EPS because to do so would have been antidilutive:


	For the three months ended June 30,		For the six months ended June 30,
	2023	2022	2023	2022
Convertible Notes	15,584,409	—	—	—
RSUs	399,817	6,013	3,184	6,013

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


	For the three months ended June 30,				For the six months ended June 30,
(in thousands, except share and per share data)	2023		2022		2023		2022
Calculation of basic EPS:
Net income	$	7,395	$	73,269	$	44,842	$	158,820
Weighted-average shares outstanding, basic	176,984,917		176,527,570		176,933,605		176,442,043
Basic EPS	$	0.04	$	0.42	$	0.25	$	0.90

Calculation of diluted EPS:
Net income	$	7,395	$	73,269	$	44,842	$	158,820
Interest expense, net of tax(1):
Convertible Notes(2)	—		993		2,025		1,981
Diluted income	$	7,395	$	74,262	$	46,867	$	160,801
Weighted-average shares outstanding, diluted	177,859,118		193,414,563		193,528,819		193,452,921
Diluted EPS	$	0.04	$	0.38	$	0.24	$	0.83

(1)The six months ended June 30, 2023, was tax-effected at a rate of 23.0%, and the three and six months ended June 30, 2022, were tax-effected at a rate of 24.2% and 24.4%, respectively.

(2)The Convertible Notes were antidilutive for the three months ended June 30, 2023. Convertible debt becomes antidilutive whenever its interest expense (net of tax) per common share obtainable upon conversion exceeds basic EPS.

NOTE 14—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 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 will deliver NdPr oxide to VREX which VREX will then process into NdPr metal for delivery to the Company’s customers globally. During the

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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 June 30, 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 $62.6 million and $151.7 million for the three and six months ended June 30, 2023, respectively, as compared to $131.6 million and $286.6 million for the three and six months ended June 30, 2022, respectively. During the six months ended June 30, 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 $4.4 million and $8.5 million for the three and six months ended June 30, 2022, respectively.

Cost of sales, which includes shipping and freight, related to these agreements with Shenghe was $22.3 million and $45.0 million for the three and six months ended June 30, 2023, respectively, as compared to $21.0 million and $43.6 million for the three and six months ended June 30, 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 $1.8 million for the three and six months ended June 30, 2023, respectively, as compared to $1.4 million and $2.6 million for the three and six months ended June 30, 2022, respectively.

Accounts Receivable: As of June 30, 2023, and December 31, 2022, $10.1 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 15—SUPPLEMENTAL CASH FLOW INFORMATION

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


	For the six months ended June 30,
(in thousands)	2023		2022
Supplemental cash flow information:
Cash paid for interest	$	1,045	$	1,040
Cash payments related to income taxes	$	23,101	$	16,621
Change in construction payables	$	(1,600)	$	31,839
Supplemental non-cash investing and financing activities:

Revenue recognized in exchange for debt principal reduction	$	—	$	13,566
Operating right-of-use assets obtained in exchange for lease liabilities	$	7,304	$	168

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