filings.toolsItem 1. FINANCIAL STATEMENTS
110K characters. Original on sec.gov ·
Item 1. FINANCIAL STATEMENTS
MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| (in thousands, except share and per share data) | June 30, 2024 | December 31, 2023 | |||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 295,604 | $ | 263,351 | |||||||
| Short-term investments | 641,398 | 734,493 | |||||||||
| Total cash, cash equivalents and short-term investments | 937,002 | 997,844 | |||||||||
| Accounts receivable, net of allowance for credit losses of $0 and $0, respectively (including related party) | 8,459 | 10,029 | |||||||||
| Inventories | 115,384 | 95,182 | |||||||||
| Government grant receivable | 19,371 | 19,302 | |||||||||
| Prepaid expenses and other current assets | 10,419 | 8,820 | |||||||||
| Total current assets | 1,090,635 | 1,131,177 | |||||||||
| Non-current assets | |||||||||||
| Property, plant and equipment, net | 1,217,073 | 1,158,054 | |||||||||
| Operating lease right-of-use assets | 9,357 | 10,065 | |||||||||
| Inventories | 17,102 | 13,350 | |||||||||
| Equity method investment | 9,339 | 9,673 | |||||||||
| Intangible assets, net | 8,283 | 8,881 | |||||||||
| Other non-current assets | 12,537 | 5,252 | |||||||||
| Total non-current assets | 1,273,691 | 1,205,275 | |||||||||
| Total assets | $ | 2,364,326 | $ | 2,336,452 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts and construction payable | $ | 19,755 | $ | 27,995 | |||||||
| Accrued liabilities | 74,943 | 73,939 | |||||||||
| Deferred revenue | 50,000 | — | |||||||||
| Other current liabilities | 13,380 | 6,616 | |||||||||
| Total current liabilities | 158,078 | 108,550 | |||||||||
| Non-current liabilities | |||||||||||
| Asset retirement obligations | 5,795 | 5,518 | |||||||||
| Environmental obligations | 16,523 | 16,545 | |||||||||
| Long-term debt, net | 936,610 | 681,980 | |||||||||
| Operating lease liabilities | 6,314 | 6,829 | |||||||||
| Deferred government grant | 18,762 | 17,433 | |||||||||
| Deferred income taxes | 107,702 | 130,793 | |||||||||
| Other non-current liabilities | 5,504 | 3,025 | |||||||||
| Total non-current liabilities | 1,097,210 | 862,123 | |||||||||
| Total liabilities | 1,255,288 | 970,673 | |||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| 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, 178,343,770 and 178,082,383 shares issued, and 165,331,382 and 178,082,383 shares outstanding, as of June 30, 2024, and December 31, 2023, respectively) | 18 | 17 | |||||||||
| Additional paid-in capital | 943,508 | 979,891 | |||||||||
| Retained earnings | 368,160 | 385,726 | |||||||||
| Accumulated other comprehensive income (loss) | (90) | 145 | |||||||||
| Treasury stock, at cost, 13,012,388 and 0 shares, respectively | (202,558) | — | |||||||||
| Total stockholders’ equity | 1,109,038 | 1,365,779 | |||||||||
| Total liabilities and stockholders’ equity | $ | 2,364,326 | $ | 2,336,452 |
See accompanying notes to the Condensed Consolidated Financial Statements.
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) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Rare earth concentrate (including related party) | $ | 24,426 | $ | 64,001 | $ | 64,502 | $ | 159,667 | |||||||||||||||
| NdPr oxide and metal (including related party) | 6,531 | — | 14,858 | — | |||||||||||||||||||
| Other rare earth products | 301 | 23 | 582 | 57 | |||||||||||||||||||
| Total revenue | 31,258 | 64,024 | 79,942 | 159,724 | |||||||||||||||||||
| Operating costs and expenses: | |||||||||||||||||||||||
| Cost of sales (excluding depreciation, depletion and amortization) (including related party) | 41,463 | 22,704 | 77,057 | 46,920 | |||||||||||||||||||
| Selling, general and administrative | 21,434 | 18,865 | 42,701 | 38,268 | |||||||||||||||||||
| Depreciation, depletion and amortization | 18,210 | 12,203 | 36,595 | 20,325 | |||||||||||||||||||
| Start-up costs | 1,373 | 4,121 | 2,660 | 8,789 | |||||||||||||||||||
| Advanced projects and development | 1,886 | 3,101 | 6,092 | 6,713 | |||||||||||||||||||
| Other operating costs and expenses | 384 | 2,547 | 761 | 5,264 | |||||||||||||||||||
| Total operating costs and expenses | 84,750 | 63,541 | 165,866 | 126,279 | |||||||||||||||||||
| Operating income (loss) | (53,492) | 483 | (85,924) | 33,445 | |||||||||||||||||||
| Interest expense, net | (6,745) | (1,392) | (9,602) | (2,751) | |||||||||||||||||||
| Gain on early extinguishment of debt | — | — | 46,265 | — | |||||||||||||||||||
| Other income, net | 12,084 | 13,821 | 24,741 | 27,514 | |||||||||||||||||||
| Income (loss) before income taxes | (48,153) | 12,912 | (24,520) | 58,208 | |||||||||||||||||||
| Income tax benefit (expense) | 14,098 | (5,517) | 6,954 | (13,366) | |||||||||||||||||||
| Net income (loss) | $ | (34,055) | $ | 7,395 | $ | (17,566) | $ | 44,842 | |||||||||||||||
| Earnings (loss) per share: | |||||||||||||||||||||||
| Basic | $ | (0.21) | $ | 0.04 | $ | (0.10) | $ | 0.25 | |||||||||||||||
| Diluted | $ | (0.21) | $ | 0.04 | $ | (0.28) | $ | 0.24 | |||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | 165,344,511 | 176,984,917 | 169,950,658 | 176,933,605 | |||||||||||||||||||
| Diluted | 165,344,511 | 177,859,118 | 176,068,146 | 193,528,819 |
See accompanying notes to the Condensed Consolidated Financial Statements.
MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income (loss) | $ | (34,055) | $ | 7,395 | $ | (17,566) | $ | 44,842 | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Change in net unrealized gains (losses) on available-for-sale securities | 90 | (297) | (185) | (355) | |||||||||||||||||||
| Foreign currency translation loss | (50) | — | (50) | — | |||||||||||||||||||
| Total comprehensive income (loss) | $ | (34,015) | $ | 7,098 | $ | (17,801) | $ | 44,487 |
See accompanying notes to the Condensed Consolidated Financial Statements.
MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Three months ended June 30, 2024 and 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share data) | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of April 1, 2024 | — | $ | — | 165,307,107 | $ | 18 | $ | 938,209 | $ | 402,215 | $ | (130) | $ | (202,558) | $ | 1,137,754 | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 35,624 | — | 5,473 | — | — | — | 5,473 | ||||||||||||||||||||||||||||||||||||||||||||
| Shares used to settle payroll tax withholding | — | — | (11,349) | — | (174) | — | — | — | (174) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (34,055) | — | — | (34,055) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | 40 | — | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | — | $ | — | 165,331,382 | $ | 18 | $ | 943,508 | $ | 368,160 | $ | (90) | $ | (202,558) | $ | 1,109,038 | |||||||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | — | (297) | — | (297) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | — | $ | — | 177,626,668 | $ | 17 | $ | 958,819 | $ | 406,261 | $ | (166) | $ | — | $ | 1,364,931 | |||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2024 and 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share data) | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2024 | — | $ | — | 178,082,383 | $ | 17 | $ | 979,891 | $ | 385,726 | $ | 145 | $ | — | $ | 1,365,779 | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 270,387 | 1 | 13,275 | — | — | — | 13,276 | ||||||||||||||||||||||||||||||||||||||||||||
| Shares used to settle payroll tax withholding | — | — | (249,663) | — | (4,124) | — | — | — | (4,124) | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | (13,012,388) | — | — | — | — | (202,558) | (202,558) | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | 240,663 | — | 3,737 | — | — | — | 3,737 | ||||||||||||||||||||||||||||||||||||||||||||
| Capped Call Options related to 2030 Notes | — | — | — | — | (49,271) | — | — | — | (49,271) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (17,566) | — | — | (17,566) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | — | (235) | — | (235) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | — | $ | — | 165,331,382 | $ | 18 | $ | 943,508 | $ | 368,160 | $ | (90) | $ | (202,558) | $ | 1,109,038 | |||||||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | — | (355) | — | (355) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | — | $ | — | 177,626,668 | $ | 17 | $ | 958,819 | $ | 406,261 | $ | (166) | $ | — | $ | 1,364,931 |
See accompanying notes to the Condensed Consolidated Financial Statements.
MP MATERIALS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the six months ended June 30, | |||||||||||
| (in thousands) | 2024 | 2023 | |||||||||
| Operating activities: | |||||||||||
| Net income (loss) | $ | (17,566) | $ | 44,842 | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation, depletion and amortization | 36,595 | 20,325 | |||||||||
| Accretion of discount on short-term investments | (16,317) | (13,933) | |||||||||
| Gain on early extinguishment of debt | (46,265) | — | |||||||||
| Stock-based compensation expense | 13,170 | 12,743 | |||||||||
| Amortization of debt issuance costs | 1,891 | 1,766 | |||||||||
| Lower of cost or net realizable value reserve | 17,753 | — | |||||||||
| Deferred income taxes | (6,954) | 13,356 | |||||||||
| Other | 928 | 557 | |||||||||
| Decrease (increase) in operating assets: | |||||||||||
| Accounts receivable (including related party) | 1,570 | 21,750 | |||||||||
| Inventories | (41,541) | (11,406) | |||||||||
| Government grant receivable | (4,837) | — | |||||||||
| Prepaid expenses, other current and non-current assets | (3,815) | (3,338) | |||||||||
| Increase (decrease) in operating liabilities: | |||||||||||
| Accounts payable and accrued liabilities | (6,862) | 252 | |||||||||
| Income taxes payable | — | (21,163) | |||||||||
| Deferred revenue | 50,000 | — | |||||||||
| Deferred government grant | 2,433 | — | |||||||||
| Other current and non-current liabilities | 9,533 | (292) | |||||||||
| Net cash provided by (used in) operating activities | (10,284) | 65,459 | |||||||||
| Investing activities: | |||||||||||
| Additions to property, plant and equipment | (98,326) | (130,236) | |||||||||
| Purchases of short-term investments | (833,705) | (320,884) | |||||||||
| Proceeds from sales of short-term investments | 90,695 | 447,327 | |||||||||
| Proceeds from maturities of short-term investments | 852,210 | 731,907 | |||||||||
| Proceeds from government awards used for construction | 96 | — | |||||||||
| Net cash provided by investing activities | 10,970 | 728,114 | |||||||||
| Financing activities: | |||||||||||
| Proceeds from issuance of long-term debt | 747,500 | — | |||||||||
| Payment of debt issuance costs | (16,118) | — | |||||||||
| Payments to retire long-term debt | (428,599) | — | |||||||||
| Purchase of capped call options | (65,332) | — | |||||||||
| Repurchases of common stock | (200,764) | — | |||||||||
| Principal payments on debt obligations and finance leases | (1,197) | (1,467) | |||||||||
| Tax withholding on stock-based awards | (4,124) | (6,132) | |||||||||
| Net cash provided by (used in) financing activities | 31,366 | (7,599) | |||||||||
| Net change in cash, cash equivalents and restricted cash | 32,052 | 785,974 | |||||||||
| Cash, cash equivalents and restricted cash beginning balance | 264,988 | 143,509 | |||||||||
| Cash, cash equivalents and restricted cash ending balance | $ | 297,040 | $ | 929,483 | |||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | 295,604 | $ | 927,245 | |||||||
| Restricted cash, current | 1,087 | 1,888 | |||||||||
| Restricted cash, non-current | 349 | 350 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 297,040 | $ | 929,483 |
See accompanying notes to the Condensed Consolidated Financial Statements.
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, and is constructing a rare earth metal, alloy and magnet manufacturing facility in Fort Worth, Texas (the “Fort Worth Facility”), where the Company anticipates manufacturing neodymium-iron-boron (“NdFeB”) permanent magnets and its precursor products.
The Company produces rare earth concentrate products as well as refined rare earth oxides and related products. The rare earth concentrate is principally sold pursuant to the Offtake Agreements to Shenghe (as such terms are defined in Note 19, “Related-Party Transactions”), a related party of the Company, that, in turn, typically sells that product to refiners in China. In the second half of 2023, the Company began producing and selling separated rare earth products, including neodymium-praseodymium (“NdPr”) oxide. Additionally, the Company has a long-term agreement with General Motors Company (NYSE: GM) (“GM”) to supply U.S.-sourced and manufactured rare earth materials and finished magnets for the electric motors in more than a dozen models based on GM’s Ultium Platform. In April 2024, pursuant to the long-term supply agreement with GM, the Company received a $50.0 million initial prepayment for magnetic precursor materials. See Note 2, “Significant Accounting Policies,” and Note 14, “Revenue Recognition” for additional details.
Operating segments are defined as components of an enterprise engaged in business activities, 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, metallization, and magnet manufacturing 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, since they are interim statements, 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 Form 10-K.
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 (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 receivables from customers. 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, 2024, Shenghe was the Company’s principal customer and accounted for more than 80% of revenue. 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 2023 primarily due to concerns over the global economic conditions and actual or perceived concerns over increases in the supply of or slower growth in the demand for rare earth products. Furthermore, while revenue is generated in the U.S., 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, the ongoing economic conflict between China and the U.S., which has previously resulted in tariffs and trade barriers, may negatively affect the Company’s business and results of operations. See Note 19, “Related-Party Transactions,” for additional information.
Deferred Revenue: Deferred revenue represents the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration in advance of such transfer. Amounts expected to be recognized as revenue during the 12-month period after the balance sheet date are classified as current deferred revenue with the remainder classified as non-current in the Company’s unaudited Condensed Consolidated Balance Sheets. See “Contract Balances” in Note 14, “Revenue Recognition” for additional information.
Investment Tax Credits: An investment tax credit (“ITC”) represents a benefit provided by federal, state, or local governments to encourage an entity to invest in specific types of assets. An ITC is commonly calculated as a percentage of the investment cost of a qualifying asset and may be subject to the scope of Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”). The accounting for an ITC may depend upon certain factors, including whether or not the ITC is refundable and/or transferable. The Company elected to account for its nonrefundable, transferable ITCs under ASC 740. This type of ITC is recognized when the Company places into service a qualifying asset and determines that it will more-likely-than-not comply with the requirements to receive the ITC. Additionally, the Company elected to account for these ITCs under the deferral method whereby the Company will initially record such ITC as a deferred liability and subsequently recognize the ITC in the income statement as a reduction to income tax expense over the useful lives of the qualifying assets. As a result of the deferral method, the Company also elected to recognize immediately in income tax expense the deferred tax effect, net of any valuation allowance, as a result of such transaction. See also Note 12, “Income Taxes.”
Capped Call Options: The Company’s Capped Call Options cover the aggregate number of shares of its common stock that initially underlie the 2030 Notes (as such terms are defined in Note 10, “Debt Obligations”), and generally reduce potential dilution to the Company’s common stock upon the conversion of the 2030 Notes and/or offset any cash payments the Company may make in excess of the principal amount of the converted 2030 Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Options.
The Company determined that the Capped Call Options meet the definition of a freestanding derivative under ASC Topic 815, “Derivatives and Hedging” (“ASC 815”), but are not required to be separately accounted for as a derivative as they meet the indexation and equity classification scope exception outlined in ASC 815. Accordingly, the Company recognized the cash paid to enter into the Capped Call Options contract during the first quarter of 2024 by recording an entry to “Additional paid-in capital” (“APIC”) in “Stockholders’ equity” within the Company’s unaudited Condensed Consolidated Balance Sheets. The Capped Call Options recorded in APIC will not be remeasured each reporting period. See Note 10, “Debt Obligations,” for additional information.
Treasury Stock: Treasury stock represents shares of the Company’s common stock that have been reacquired after having been issued, and is accounted for under the cost method. Treasury stock is excluded from the Company’s outstanding shares and recorded as a reduction of “Stockholders’ equity” within the Company’s unaudited Condensed Consolidated Balance Sheets, unless the repurchased shares are immediately retired. Incremental direct costs to purchase treasury stock, such as excise taxes and commission fees, are included in the cost of the shares acquired. As of June 30, 2024, the outstanding balance of the excise tax liability was $1.8 million and was included in “Accrued liabilities” within the Company’s unaudited Condensed Consolidated Balance Sheets. There was no outstanding excise tax liability balance as of December 31, 2023.
Recently Issued Accounting Pronouncements: During the three and six months ended June 30, 2024, there were no accounting pronouncements adopted by the Company that had a material impact on the Company’s unaudited Condensed Consolidated Financial Statements. The Company is currently evaluating the effect of adopting Accounting Standards Update
(“ASU”) No. 2023-07, “Improvements to Reportable Segment Disclosures,” and ASU No. 2023-09, “Improvements to Income Tax Disclosures,” on its disclosures.
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, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 31,746 | $ | — | $ | — | $ | 31,746 | $ | 2,795 | $ | — | $ | — | $ | 2,795 | |||||||||||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | 83,232 | — | — | 83,232 | 61,166 | — | — | 61,166 | |||||||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | 123,013 | 1 | — | 123,014 | 92,113 | 14 | — | 92,127 | |||||||||||||||||||||||||||||||||||||||
| Commercial paper | 57,279 | — | (4) | 57,275 | 93,447 | 15 | — | 93,462 | |||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | 337 | — | — | 337 | 13,799 | 2 | — | 13,801 | |||||||||||||||||||||||||||||||||||||||
| Total cash equivalents | 263,861 | 1 | (4) | 263,858 | 260,525 | 31 | — | 260,556 | |||||||||||||||||||||||||||||||||||||||
| Total cash and equivalents | 295,607 | 1 | (4) | 295,604 | 263,320 | 31 | — | 263,351 | |||||||||||||||||||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. agency securities | 2,240 | — | — | 2,240 | 118,370 | — | (78) | 118,292 | |||||||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | 629,472 | 33 | (84) | 629,421 | 615,962 | 249 | (10) | 616,201 | |||||||||||||||||||||||||||||||||||||||
| Commercial paper | 9,737 | — | — | 9,737 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Total short-term investments | 641,449 | 33 | (84) | 641,398 | 734,332 | 249 | (88) | 734,493 | |||||||||||||||||||||||||||||||||||||||
| Total cash, cash equivalents and short-term investments | $ | 937,056 | $ | 34 | $ | (88) | $ | 937,002 | $ | 997,652 | $ | 280 | $ | (88) | $ | 997,844 |
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, 2024 and 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 June 30, 2024, 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 the following income and expense amounts, all of which are included in “Other income, net” within the Company’s unaudited Condensed Consolidated Statements of Operations:
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Gross realized gains | $ | 1 | $ | — | $ | 3 | $ | 505 | |||||||||||||||
| Gross realized losses | $ | 8 | $ | — | $ | 14 | $ | 139 | |||||||||||||||
| Interest and investment income(1) | $ | 12,402 | $ | 13,805 | $ | 25,272 | $ | 27,152 |
(1)Includes interest and investment income on the Company’s available-for-sale securities and other money market funds.
As of June 30, 2024, all outstanding available-for-sale investments had contractual maturities within one year and aggregated to a fair value of $822.0 million.
NOTE 4—INVENTORIES
The Company’s inventories consisted of the following:
| June 30, 2024 | December 31, 2023 | ||||||||||
| (in thousands) | |||||||||||
| Raw materials and supplies, including spare parts(1) | $ | 44,556 | $ | 42,371 | |||||||
| Mined ore stockpiles | 30,638 | 28,507 | |||||||||
| Work in process | 28,350 | 15,019 | |||||||||
| Finished goods | 11,840 | 9,285 | |||||||||
| Total current inventories | 115,384 | 95,182 | |||||||||
| Add: Non-current portion(2) | 17,102 | 13,350 | |||||||||
| Total inventories | $ | 132,486 | $ | 108,532 |
(1)Includes raw materials to support activities pertaining to the Company’s rare earth metal, alloy and magnet manufacturing capabilities.
(2)Primarily represents stockpiled ore that is not expected to be processed within the next 12 months as well as certain raw materials that are not expected to be consumed within the next 12 months. The stockpiled ore amounts as of June 30, 2024 and December 31, 2023, were $10.8 million and $9.1 million, respectively.
As of June 30, 2024, the Company determined that a lower of cost or net realizable value reserve of $17.8 million was necessary on certain of the Company’s work in process and finished goods inventories, representing an increase of the reserve of $11.8 million since March 31, 2024. The reserve is largely attributable to elevated carrying costs of the Company’s initial production of separated products given the early stage of ramping the Stage II facilities to normalized production levels. Changes in the reserve are included in “Cost of sales (excluding depreciation, depletion and amortization) (including related party)” within the unaudited Condensed Consolidated Statements of Operations. There were no lower of cost or net realizable value reserves for the three and six months ended June 30, 2023.
NOTE 5—PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment consisted of the following:
| June 30, 2024 | December 31, 2023 | ||||||||||
| (in thousands) | |||||||||||
| Land and land improvements | $ | 39,351 | $ | 27,091 | |||||||
| Buildings and building improvements | 93,666 | 92,203 | |||||||||
| Machinery and equipment | 539,679 | 503,145 | |||||||||
| Assets under construction | 257,706 | 211,848 | |||||||||
| Mineral rights | 438,395 | 438,395 | |||||||||
| Property, plant and equipment, gross | 1,368,797 | 1,272,682 | |||||||||
| Less: Accumulated depreciation and depletion | (151,724) | (114,628) | |||||||||
| Property, plant and equipment, net | $ | 1,217,073 | $ | 1,158,054 |
Additions to Property, Plant and Equipment: The Company capitalized expenditures related to property, plant and equipment of $96.1 million and $128.6 million for the six months ended June 30, 2024 and 2023, respectively, including amounts not yet paid (see Note 20, “Supplemental Cash Flow Information”). The capitalized expenditures for the six months ended June 30, 2024, related primarily to machinery, equipment and assets under construction to support the Company’s Fort Worth Facility, as well as its HREE Facility (as defined in Note 15, “Government Grants”), and other projects at Mountain Pass. The capitalized expenditures for the six months ended June 30, 2023, related to machinery, equipment, and assets under construction to support the Company’s Stage II optimization project, and assets under construction for its Fort Worth Facility.
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) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Depreciation expense | $ | 15,094 | $ | 9,189 | $ | 29,994 | $ | 14,434 | |||||||||||||||
| Depletion expense | $ | 2,763 | $ | 2,963 | $ | 5,895 | $ | 5,763 |
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 “Other operating costs and expenses” 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 never been used in the Company’s operations. There were no property, plant and equipment impairments recognized for the three and six months ended June 30, 2024 and 2023. For information on the Company’s asset-based government grants, which impact the carrying amount of the Company’s property, plant and equipment, see Note 15, “Government Grants.”
NOTE 6—EQUITY METHOD INVESTMENT
The Company’s equity method investment balance was $9.3 million and $9.7 million, as of June 30, 2024, and December 31, 2023, respectively, and pertains to the Company’s 49% equity interest in VREX Holdco Pte. Ltd. (“VREX Holdco”). VREX Holdco wholly owns Vietnam Rare Earth Company Limited (“VREX”), which owns and operates a metal processing plant and related facilities in Vietnam. The Company determined that VREX Holdco is a variable interest entity, but that the Company is not the primary beneficiary. Consequently, the Company does not consolidate VREX Holdco, and instead, accounts for its investment in VREX Holdco under the equity method of accounting as it has the ability to exercise significant influence, but not control, over VREX Holdco’s operating and financial policies.
For the three and six months ended June 30, 2024, the Company recognized $0.2 million and $0.3 million of Company’s share of VREX Holdco’s net loss, respectively, which were included in “Other income, net” within the Company’s unaudited Condensed Consolidated Statements of Operations. As of June 30, 2024, the tolling fees due to VREX Holdco pursuant to the Tolling Agreement (as defined in Note 19, “Related-Party Transactions,”) and capitalized to inventories that are subject to intra-entity profit or loss elimination were immaterial. See Note 19, “Related-Party Transactions,” for a discussion on the transactions between the Company and VREX Holdco during the three and six months ended June 30, 2024.
As of June 30, 2024, the Company evaluated its equity method investment for impairment to determine if there were any events or changes in circumstances that would indicate if the carrying amount of its investment had experienced an “other-than-temporary” decline in value. As a result, no impairment charges were recorded during the three and six months ended June 30, 2024.
NOTE 7—INTANGIBLE ASSETS
The Company’s intangible assets were as follows:
| June 30, 2024 | December 31, 2023 | ||||||||||
| (in thousands) | |||||||||||
| Intangible assets with indefinite lives: | |||||||||||
| Emissions allowances | $ | 316 | $ | 316 | |||||||
| Intangible assets with definite lives: | |||||||||||
| Patent and intellectual property license | 8,963 | 8,963 | |||||||||
| Less: Accumulated amortization | (996) | (398) | |||||||||
| Patent and intellectual property license, net | 7,967 | 8,565 | |||||||||
| Intangible assets, net | $ | 8,283 | $ | 8,881 |
Amortization expense related to amortizing intangible assets was $0.3 million and $0.6 million for the three and six months ended June 30, 2024. There was no amortization expense related to amortizing intangible assets recognized for the three and six months ended June 30, 2023. No impairment charges were recorded during the three and six months ended June 30, 2024 and 2023.
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, 2024, 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.
As of June 30, 2024, 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, 2024 and 2023.
The balance as of both June 30, 2024 and December 31, 2023, included current portions of $0.2 million, which are included in “Other current liabilities” within the Company’s unaudited Condensed Consolidated Balance Sheets. The total estimated future undiscounted cash flows required to satisfy the Company’s asset retirement obligations were $52.6 million and $50.2 million as of June 30, 2024, and December 31, 2023, respectively.
Environmental Obligations
The Company has certain environmental monitoring and remediation obligations 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 consultant’s plan, the Company developed an estimate of future cash payments for the environmental obligations.
As of June 30, 2024, the Company estimated the cash outflows related to these environmental activities will be incurred annually over the next 24 years. The Company’s environmental obligations 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, 2024 and 2023.
The total estimated aggregate undiscounted cost of $26.4 million and $26.7 million as of June 30, 2024, and December 31, 2023, 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, 2024, and December 31, 2023, included current portions of $0.5 million, which are included in “Other current liabilities” within the Company’s unaudited Condensed Consolidated Balance Sheets.
Financial Assurances
The Company is required to provide certain government agencies with financial assurances relating to closure and reclamation obligations. As of June 30, 2024, and December 31, 2023, the Company had financial assurance requirements of $45.5 million and $45.4 million, respectively, which were satisfied with surety bonds placed with applicable California state and regional agencies.
NOTE 9—ACCRUED LIABILITIES
The Company’s accrued liabilities consisted of the following:
| June 30, 2024 | December 31, 2023 | ||||||||||
| (in thousands) | |||||||||||
| Accrued payroll and related | $ | 10,777 | $ | 14,499 | |||||||
| Accrued construction costs | 51,950 | 46,976 | |||||||||
| Accrued taxes | 3,391 | 3,373 | |||||||||
| Other accrued liabilities | 8,825 | 9,091 | |||||||||
| Accrued liabilities | $ | 74,943 | $ | 73,939 |
NOTE 10—DEBT OBLIGATIONS
The Company’s long-term debt, net, was as follows:
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Principal Amount | Unamortized Debt Issuance Costs | Carrying Amount | Principal Amount | Unamortized Debt Issuance Costs | Carrying Amount | |||||||||||||||||||||||||||||
| Convertible Notes due 2026 | $ | 210,000 | $ | (1,909) | $ | 208,091 | $ | 690,000 | $ | (8,020) | $ | 681,980 | |||||||||||||||||||||||
| Convertible Notes due 2030 | 747,500 | (18,981) | 728,519 | — | — | — | |||||||||||||||||||||||||||||
| Total long-term debt outstanding | $ | 957,500 | $ | (20,890) | $ | 936,610 | $ | 690,000 | $ | (8,020) | $ | 681,980 |
Convertible Notes due 2026
In March 2021, the Company issued $690.0 million aggregate principal amount of 0.25% unsecured convertible senior notes (the “2026 Notes”) at a price of par. Interest on the 2026 Notes is payable on April 1st and October 1st of each year, beginning on October 1, 2021.
Contemporaneous with the pricing of the 2030 Notes (as defined below), the Company entered into privately negotiated transactions with certain holders of the 2026 Notes to repurchase $400.0 million in aggregate principal amount of the 2026 Notes, using $358.0 million of the net proceeds from the offering of the 2030 Notes. The price the Company paid to repurchase the 2026 Notes, 89.5% of par value, was the same for each lender and approximated the trading price of the 2026 Notes at the time of the repurchases. Subsequent to the issuance of the 2030 Notes, the Company repurchased an additional $80.0 million in aggregate principal amount of the 2026 Notes in open market transactions for $70.6 million. As a result of the repurchases of 2026 Notes, during the six months ended June 30, 2024, the Company recorded a $46.3 million gain on early extinguishment of debt included within the Company’s unaudited Condensed Consolidated Statements of Operations.
The remaining 2026 Notes outstanding mature, unless earlier converted, redeemed or repurchased, on April 1, 2026. The initial conversion price of the remaining 2026 Notes is approximately $44.28 per share, or 22.5861 shares per $1,000 principal amount of notes, subject to adjustment upon the occurrence of certain events. As of June 30, 2024, the maximum number of shares that could be issued to satisfy the conversion feature of the 2026 Notes was 5,999,994 shares. The 2026 Notes’ if-converted value did not exceed its principal amount as of June 30, 2024.
In March 2024, the Company provided a written notice to the trustee and the holders of the 2026 Notes that it has irrevocably elected to fix the settlement method for all conversions that may occur subsequent to the election date, to a combination of cash and shares of the Company’s common stock with the specified dollar amount, per $1,000 principal amount of the 2026 Notes, of $1,000. As a result, for any conversions of 2026 Notes occurring after the election date, a converting holder will receive (i) up to $1,000 in cash per $1,000 principal amount of the 2026 Notes and (ii) shares of the Company’s common stock for any conversion consideration in excess of $1,000 per $1,000 principal amount of the 2026 Notes converted. Prior to the election being made, the Company could have elected to settle the 2026 Notes in cash, shares of the Company’s common stock or a combination thereof.
Convertible Notes due 2030
In March 2024, the Company issued $747.5 million in aggregate principal amount of 3.00% unsecured convertible senior notes that mature, unless earlier converted, redeemed or repurchased, on March 1, 2030 (the “2030 Notes” and, together with the 2026 Notes, the “Convertible Notes”), at a price of par. Interest on the 2030 Notes is payable on March 1st and September 1st of each year, beginning on September 1, 2024. In connection with the issuance, the Company recorded debt issuance costs of $19.9 million, of which $3.7 million was settled through the issuance of shares of the Company’s common stock (see Note 20, “Supplemental Cash Flow Information”).
The 2030 Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, at an initial conversion price of approximately $21.74 per share, or 45.9939 shares per $1,000 principal amount of 2030 Notes, subject to adjustment upon the occurrence of certain events. As of June 30, 2024, the maximum number of shares that could be issued to satisfy the conversion feature of the 2030 Notes was 48,132,646 shares. The 2030 Notes’ if-converted value did not exceed its principal amount as of June 30, 2024.
Prior to December 1, 2029, at their election, holders of the 2030 Notes may convert their outstanding notes under the following circumstances: i) during any calendar quarter commencing with the third quarter of 2024 if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; ii) during the five business day period after any ten consecutive trading day period (the “Measurement Period”) in which the trading price (as defined in the indenture governing the 2030 Notes) per $1,000 principal amount of 2030 Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; iii) if the Company calls any or all of the 2030 Notes for redemption, the notes called for redemption may be converted at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or iv) upon the occurrence of specified corporate events set forth in the indenture governing the 2030 Notes. On or after December 1, 2029, and prior to the close of business on the second scheduled trading day immediately preceding the maturity date of the 2030 Notes, holders may convert their outstanding notes at any time, regardless of the foregoing circumstances.
The Company has the option to redeem for cash the 2030 Notes, in whole or in part, beginning on March 5, 2027, if certain conditions are met as set forth in the indenture governing the 2030 Notes. The redemption price is equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.
If the Company undergoes a fundamental change (as defined in the indenture governing the 2030 Notes), holders may require the Company to repurchase for cash all or any portion of their outstanding 2030 Notes at a price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest.
In addition, following certain corporate events that occur prior to the maturity date of the 2030 Notes or if the Company delivers a notice of early redemption, holders may, at their election, convert their outstanding 2030 Notes in connection with such event or notice, as applicable, and the Company will, in certain circumstances, increase the conversion rate but not to exceed 64.3915 shares per $1,000 principal amount of any converted 2030 Notes, subject to further adjustment upon the occurrence of certain events.
Capped Call Options
In March 2024, in connection with the offering of the 2030 Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Options”) with certain financial institutions (“Counterparties”). The Capped Call Options cover, subject to anti-dilution adjustments substantially similar to those in the 2030 Notes, 34.4 million shares of the Company’s common stock, the same number of shares that initially underlie the 2030 Notes. The Capped Call Options have an expiration date of March 1, 2030, subject to earlier exercise.
The Capped Call Options are expected generally to reduce the potential dilution to the Company’s common stock upon conversion of the 2030 Notes and/or offset cash payments the Company is required to make in excess of the principal amount of the converted 2030 Notes, as the case may be, in the event that the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Options, is greater than the strike price of the Capped Call Options, which initially corresponds to the initial conversion price of the 2030 Notes, or approximately $21.74 per share of common stock, with such reduction and/or offset subject to an initial cap of $31.06 per share of the Company’s common stock.
The Capped Call Options are separate transactions, entered into by the Company with each of the Counterparties, and are not part of the terms of the 2030 Notes. Holders of the 2030 Notes will not have any rights with respect to the Capped Call Options. The Capped Call Options meet the criteria for classification as equity and, as such, are not remeasured each reporting period. During the first quarter of 2024, the Company paid $65.3 million for the Capped Call Options, which was recorded as a reduction to APIC within the Company’s unaudited Condensed Consolidated Balance Sheets along with the offsetting associated deferred tax impact of $16.1 million.
The Company elected to integrate the Capped Call Options with the 2030 Notes for federal income tax purposes pursuant to applicable U.S. Treasury Regulations. Accordingly, the $65.3 million gross cost of the purchased Capped Call Options will be deductible for income tax purposes as original discount interest over the term of the 2030 Notes.
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) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Coupon interest | $ | 5,737 | $ | 431 | $ | 7,651 | $ | 862 | |||||||||||||||
| Amortization of debt issuance costs | 978 | 884 | 1,891 | 1,766 | |||||||||||||||||||
| Convertible Notes interest expense | $ | 6,715 | $ | 1,315 | $ | 9,542 | $ | 2,628 |
The debt issuance costs associated with the 2026 Notes and the 2030 Notes are being amortized to interest expense over the terms of each note at effective interest rates of 0.51% and 3.49%, respectively. The remaining term of the 2026 Notes and the 2030 Notes were 1.8 years and 5.7 years, respectively, as of June 30, 2024.
Equipment Notes
The Company has financing agreements for the purchase of certain equipment, including trucks and loaders, graders, and various other machinery. The Company’s equipment notes, which are secured by the purchased equipment, have terms of 5 years and interest rates of 4.5% 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, 2024 | December 31, 2023 | ||||||||||
| (in thousands) | |||||||||||
| Equipment notes | |||||||||||
| Current | $ | 2,051 | $ | 2,106 | |||||||
| Non-current | 1,600 | 2,637 | |||||||||
| $ | 3,651 | $ | 4,743 |
As of June 30, 2024, none of the agreements or indentures governing the Company’s indebtedness contain financial covenants.
NOTE 11—LEASES
The Company has operating and finance leases for certain office space, warehouses, vehicles and equipment used in its operations. The Company’s lease agreements do not contain material residual value guarantees or restrictive covenants. As of June 30, 2024, the Company was not reasonably certain of exercising any material purchase, renewal, or termination options contained within its lease agreements. No ROU asset impairment charges were recorded during the three and six months ended June 30, 2024 and 2023.
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, 2024 | December 31, 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Operating leases: | |||||||||||||||||
| Right-of-use assets | Operating lease right-of-use assets | $ | 9,357 | $ | 10,065 | ||||||||||||
| Operating lease liability, current | Other current liabilities | $ | 998 | $ | 959 | ||||||||||||
| Operating lease liability, non-current | Operating lease liabilities | 6,314 | 6,829 | ||||||||||||||
| Total operating lease liabilities | $ | 7,312 | $ | 7,788 | |||||||||||||
| Finance leases: | |||||||||||||||||
| Right-of-use assets | Other non-current assets | $ | 481 | $ | 591 | ||||||||||||
| Finance lease liability, current | Other current liabilities | $ | 189 | $ | 195 | ||||||||||||
| Finance lease liability, non-current | Other non-current liabilities | 288 | 388 | ||||||||||||||
| Total finance lease liabilities | $ | 477 | $ | 583 |
NOTE 12—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 or deficiencies 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 or benefit as a percentage of income or loss before income taxes) including discrete items was 29.3% and 28.4% for the three and six months ended June 30, 2024, respectively, as compared to 42.7% and 23.0% for the three and six months ended June 30, 2023, 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 (the “45X 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.
In March 2024, the Company was awarded a $58.5 million Section 48C Qualifying Advanced Energy Project Tax Credit (the “48C Credit”) to advance the construction on its Fort Worth Facility. The 48C Credit is an investment tax credit equal to 30% of qualified investments for certified projects that meet prevailing wage and apprenticeship requirements and are placed in service after the date of the award. The 48C Credit is not eligible for direct pay (i.e., it is nonrefundable); however, it is transferable to an unrelated taxpayer at a negotiated rate. As of June 30, 2024, the Company placed into service certified projects and recognized a $3.5 million 48C Credit, which was recorded to income tax receivable, included in “Prepaid expenses and other current assets,” and deferred investment tax credit, included primarily in “Other non-current liabilities” within the Company’s unaudited Condensed Consolidated Balance Sheets. This amount will be recognized as a reduction to income tax expense on a straight-line basis over the estimated useful life of the associated long-lived assets.
NOTE 13—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. Other than the matter described below, 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.
The Company is currently in dispute with a general contractor for a construction project, which is scheduled to go to binding arbitration. The Company disputes that it owes any monies (and believes it has a valid claim against the contractor) in connection with this construction project. The Company is unable to estimate a range of loss, if any, at this time. If an unfavorable outcome were to occur in the binding arbitration, it is possible that the impact could be material to the Company’s unaudited Condensed Consolidated Financial Statements in the period in which any such outcome becomes probable and reasonably estimable.
NOTE 14—REVENUE RECOGNITION
The following table disaggregates the Company’s revenue from contracts with customers by type of good sold, which are transferred to customers at a point in time:
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Rare earth concentrate | $ | 24,426 | $ | 64,001 | $ | 64,502 | $ | 159,667 | |||||||||||||||
| NdPr oxide and metal | 6,531 | — | 14,858 | — | |||||||||||||||||||
| Other rare earth products | 301 | 23 | 582 | 57 | |||||||||||||||||||
| Total revenue | $ | 31,258 | $ | 64,024 | $ | 79,942 | $ | 159,724 |
Rare earth concentrate revenue is primarily generated from sales to Shenghe under either the 2022 Offtake Agreement, or starting in January 2024, under the 2024 Offtake Agreement (as such terms are defined in Note 19, “Related-Party Transactions”). The sales price of rare earth concentrate sold to Shenghe under both agreements is based on a preliminary market price per MT and estimated exchange rate between the Chinese yuan and the U.S. dollar, with an adjustment for the ultimate market price of the product realized by Shenghe upon sales to their customers, including the impact of changes in the exchange rate between the Chinese yuan and the U.S. dollar.
NdPr oxide and metal revenue was generated from sales made primarily under the Company’s distribution agreement with Sumitomo Corporation of Americas. Other rare earth products revenue was generated primarily from sales of other non-concentrate products, including cerium.
Contract Balances: The Company recognizes revenue based on the criteria set forth in ASC Topic 606, “Revenue from Contracts with Customers.” Given the nature of the Company’s contracts with customers, contract assets are not material for any period presented. Furthermore, the amount of revenue recognized in the periods presented from performance obligations that were satisfied (or partially satisfied) in previous periods were not material to any period presented.
Contract liabilities, commonly referred to as deferred revenue, represent the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration in advance of such transfer. Deferred revenue decreases as revenue is recognized from the satisfaction of the related performance obligations. In April 2024, pursuant to the long-term agreement with GM, GM prepaid to the Company $50.0 million for magnetic precursor materials. As of June 30, 2024, the Company had not yet satisfied any of the related performance obligations, and as such, the Company classified the $50.0 million as current deferred revenue in its unaudited Condensed Consolidated Balance Sheets. The Company expects to satisfy the performance obligations within the 12-month period after June 30, 2024. There were no other deferred revenue balances as of both June 30, 2024 and December 31, 2023.
NOTE 15—GOVERNMENT GRANTS
Asset-Based Grants: In November 2020, the Company was awarded a Defense Production Act Title III technology investment agreement (“TIA”) from the Department of Defense (“DOD”) to establish domestic processing for separated light rare earth elements (this “project”) in the amount of $9.6 million. During the six months ended June 30, 2024, pursuant to the TIA, the Company received $0.1 million in reimbursements from the DOD, which was the final reimbursement expected for this project. There were no reimbursements received for the six months ended June 30, 2023.
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 Facility”) (the “HREE Production Project Agreement”). There were no reimbursements received from the DOD under the HREE Production Project Agreement for the six months ended June 30, 2024 and 2023.
Income-Based Grants: In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022, which, among other things, promotes clean energy adoption by providing several tax incentives for the domestic production and sale of eligible components for tax years beginning after December 31, 2022. Specifically, the 45X Credit provides a credit equal to 10% of eligible “production costs incurred” with respect to the production and sale of critical minerals, including NdPr oxide. In December 2023, the Internal Revenue Service released proposed regulations on the 45X Credit which, among other things, clarified that the definition of “production costs incurred” excludes direct and indirect materials costs, including costs related to
the extraction or acquisition of raw materials. The Company accounts for the 45X Credit as an income-based grant as it is not within the scope of ASC 740 due to it being refundable.
As of June 30, 2024 and December 31, 2023, the government grant receivable and deferred government grant within the Company’s unaudited Condensed Consolidated Balance Sheets pertain to the 45X Credit. As of June 30, 2024, the non-current portion of government grant receivable and current portion of deferred government grant of $4.8 million and $1.9 million, respectively, are included in “Other non-current assets” and “Other current liabilities,” respectively. The current portion of deferred government grant as of December 31, 2023, was $1.7 million. For the three and six months ended June 30, 2024, the benefits recognized in the Company’s unaudited Condensed Consolidated Statements of Operations pertaining to the 45X Credit, which are included as reductions to “Cost of sales (excluding depreciation, depletion and amortization) (including related party)” were $1.9 million and $2.4 million, respectively, and to “Depreciation, depletion and amortization,” were $0.5 million and $0.9 million, respectively. There were no benefits recognized from income-based government grants for the three and six months ended June 30, 2023.
NOTE 16—STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION
Treasury Stock
In March 2024, the Company’s Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to an aggregate amount of $300.0 million of the Company’s outstanding common stock. The authorization is effective until March 1, 2025, and does not require the purchase of any minimum number of shares.
Additionally, in March 2024, pursuant to the Company’s share repurchase program, the Company paid $200.8 million to repurchase 13.0 million shares of its outstanding common stock, of which 12.3 million shares were repurchased contemporaneous with the 2030 Notes offering using $191.6 million of the net proceeds from such offering. The shares repurchased in connection with the 2030 Notes offering were privately negotiated transactions with or through one of the initial purchasers of the 2030 Notes or its affiliate at a price of $15.53 per share, which was equal to the closing price per share of common stock on the date of such transactions. As of June 30, 2024, $99.2 million remained available for share repurchase in total under the share repurchase program.
Capped Call Options
In March 2024, in connection with the offering of the 2030 Notes, the Company entered into the Capped Call Options with the Counterparties, which cover, subject to anti-dilution adjustments substantially similar to those in the 2030 Notes, 34.4 million shares of the Company’s common stock, the same number of shares that initially underlie the 2030 Notes. The Capped Call Options meet the criteria for classification as equity and, as such, are not remeasured each reporting period. During the first quarter of 2024, the Company paid $65.3 million for the Capped Call Options, which was recorded as a reduction to APIC within the Company’s unaudited Condensed Consolidated Balance Sheets along with the offsetting associated deferred tax impact of $16.1 million. See Note 10, “Debt Obligations,” for additional information.
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, 2024, the Company has not issued any stock options or SARs and there were 5,336,736 shares available for future grants under the 2020 Incentive Plan.
Market-Based PSUs: In January 2024, pursuant to the 2020 Incentive Plan, the Compensation Committee of the Company’s Board of Directors adopted a performance share plan (the “2024 Performance Share Plan”). Pursuant to the 2024 Performance Share Plan, during the six months ended June 30, 2024, the Company granted 177,766 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.
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) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Cost of sales (excluding depreciation, depletion and amortization) (including related party) | $ | 617 | $ | 795 | $ | 2,076 | $ | 1,917 | |||||||||||||||
| Selling, general and administrative | 4,776 | 4,636 | 10,538 | 10,410 | |||||||||||||||||||
| Start-up costs | 121 | 292 | 235 | 397 | |||||||||||||||||||
| Advanced projects and development | 189 | 7 | 321 | 19 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 5,703 | $ | 5,730 | $ | 13,170 | $ | 12,743 | |||||||||||||||
| Stock-based compensation capitalized to property, plant and equipment, net(1) | $ | (230) | $ | 454 | $ | 106 | $ | 1,199 | |||||||||||||||
(1)Includes the impact of forfeitures recognized during the three and six months ended June 30, 2024.
NOTE 17—FAIR VALUE MEASUREMENTS
ASC 820, “Fair Value Measurement,” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
| Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; | |||||||
| Level 2: | Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, quoted prices or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability and model-based valuation techniques (e.g., the Black-Scholes model) for which all significant inputs are observable in active markets. | |||||||
| Level 3: | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy. The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate. The fair value of the Company’s accounts receivable, accounts payable, and accrued liabilities approximates the carrying amounts because of the immediate or short-term maturity of these financial instruments.
Cash, Cash Equivalents and Restricted Cash
The Company’s cash, cash equivalents and restricted cash are classified within Level 1 of the fair value hierarchy. The carrying amounts reported in the 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:
| June 30, 2024 | |||||||||||||||||||||||||||||
| (in thousands) | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 295,604 | $ | 295,604 | $ | 295,604 | $ | — | $ | — | |||||||||||||||||||
| Short-term investments | $ | 641,398 | $ | 641,398 | $ | 641,398 | $ | — | $ | — | |||||||||||||||||||
| Restricted cash | $ | 1,436 | $ | 1,436 | $ | 1,436 | $ | — | $ | — | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| 2026 Notes | $ | 208,091 | $ | 186,638 | $ | 186,638 | $ | — | $ | — | |||||||||||||||||||
| 2030 Notes | $ | 728,519 | $ | 671,330 | $ | 671,330 | $ | — | $ | — | |||||||||||||||||||
| Equipment notes | $ | 3,651 | $ | 3,580 | $ | — | $ | 3,580 | $ | — |
| December 31, 2023 | |||||||||||||||||||||||||||||
| (in thousands) | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 263,351 | $ | 263,351 | $ | 263,351 | $ | — | $ | — | |||||||||||||||||||
| Short-term investments | $ | 734,493 | $ | 734,493 | $ | 734,493 | $ | — | $ | — | |||||||||||||||||||
| Restricted cash | $ | 1,637 | $ | 1,637 | $ | 1,637 | $ | — | $ | — | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| 2026 Notes | $ | 681,980 | $ | 619,496 | $ | 619,496 | $ | — | $ | — | |||||||||||||||||||
| Equipment notes | $ | 4,743 | $ | 4,628 | $ | — | $ | 4,628 | $ | — |
NOTE 18—EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing Net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing Net income (loss) 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 earnings (loss) per share to the weighted-average common shares outstanding used in the calculation of diluted earnings (loss) per share:
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Weighted-average shares outstanding, basic | 165,344,511 | 176,984,917 | 169,950,658 | 176,933,605 | |||||||||||||||||||
| Assumed conversion of 2026 Notes | — | — | 6,117,488 | 15,584,409 | |||||||||||||||||||
| Assumed conversion of restricted stock | — | 555,282 | — | 639,214 | |||||||||||||||||||
| Assumed conversion of RSUs | — | 318,919 | — | 371,591 | |||||||||||||||||||
| Weighted-average shares outstanding, diluted | 165,344,511 | 177,859,118 | 176,068,146 | 193,528,819 |
The following table presents unweighted potentially dilutive shares that were not included in the computation of diluted earnings (loss) per share because to do so would have been antidilutive:
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| 2026 Notes | — | 15,584,409 | — | — | |||||||||||||||||||
| 2030 Notes | 34,380,440 | — | 34,380,440 | — | |||||||||||||||||||
| Restricted Stock | 342,601 | — | 342,601 | — | |||||||||||||||||||
| RSUs | 1,869,835 | 399,817 | 1,869,835 | 3,184 | |||||||||||||||||||
| Total | 36,592,876 | 15,984,226 | 36,592,876 | 3,184 |
The following table presents the calculation of basic and diluted earnings (loss) per share 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) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Calculation of basic earnings (loss) per share: | |||||||||||||||||||||||
| Net income (loss) | $ | (34,055) | $ | 7,395 | $ | (17,566) | $ | 44,842 | |||||||||||||||
| Weighted-average shares outstanding, basic | 165,344,511 | 176,984,917 | 169,950,658 | 176,933,605 | |||||||||||||||||||
| Basic earnings (loss) per share | $ | (0.21) | $ | 0.04 | $ | (0.10) | $ | 0.25 | |||||||||||||||
| Calculation of diluted earnings (loss) per share: | |||||||||||||||||||||||
| Net income (loss) | $ | (34,055) | $ | 7,395 | $ | (17,566) | $ | 44,842 | |||||||||||||||
| Interest expense, net of tax(1): | |||||||||||||||||||||||
| 2026 Notes(2) | — | — | 760 | 2,025 | |||||||||||||||||||
| Gain on early extinguishment of debt(1)(2)(3) | — | — | (33,145) | $ | — | ||||||||||||||||||
| Diluted income (loss) | $ | (34,055) | $ | 7,395 | $ | (49,951) | $ | 46,867 | |||||||||||||||
| Weighted-average shares outstanding, diluted | 165,344,511 | 177,859,118 | 176,068,146 | 193,528,819 | |||||||||||||||||||
| Diluted earnings (loss) per share | $ | (0.21) | $ | 0.04 | $ | (0.28) | $ | 0.24 |
(1)The six months ended June 30, 2024 and 2023, were tax-effected at a rate of 28.4% and 23.0%, respectively.
(2)The 2026 Notes were antidilutive for the three months ended June 30, 2024 and 2023. Convertible debt becomes antidilutive whenever the combined impact of interest expense and any gains or losses recognized on actual settlements of convertible debt (net of tax) per common share obtainable upon conversion exceeds basic earnings (loss) per share.
(3)Pertains to the 2026 Notes, a portion of which were repurchased during the six months ended June 30, 2024.
In connection with the issuance of the 2030 Notes, the Company entered into Capped Call Options, which were not included for purposes of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive. The Capped Call Options are expected to partially offset the potential dilution to the Company’s common stock upon any conversion of the 2030 Notes. The Company has not exercised any of the Capped Call Options as of June 30, 2024.
As discussed in Note 10, “Debt Obligations,” in March 2024, the Company provided a written notice to the trustee and the holders of the 2026 Notes that it has irrevocably elected to fix the settlement method for all conversions that may occur subsequent to the election date, to a combination of cash and shares of the Company’s common stock with the specified dollar amount per $1,000 principal amount of the 2026 Notes of $1,000. As a result, subsequent to the election, only the amounts in excess of the principal amount are considered in diluted earnings (loss) per share. The amount of the 2026 Notes settled in shares of common stock will have a dilutive impact on diluted earnings (loss) per share when the average market price of the Company’s common stock for a given period exceeds the conversion price, which was initially approximately $44.28 per share of common stock.
NOTE 19—RELATED-PARTY TRANSACTIONS
Offtake Agreements: In March 2022, the Company entered into an offtake agreement (the “2022 Offtake Agreement”) with Shenghe Resources (Singapore) International Trading Pte. Ltd. (“Shenghe”), a majority-owned subsidiary of Leshan
Shenghe Rare Earth Co., Ltd. whose ultimate parent is Shenghe Resources Holding Co., Ltd., a leading global rare earth company listed on the Shanghai Stock Exchange. The 2022 Offtake Agreement became effective upon the termination of the amended and restated offtake agreement with Shenghe. The initial term of the 2022 Offtake Agreement was two years, with the option to extend the term at the Company’s discretion for an additional one-year period.
Pursuant to the 2022 Offtake Agreement, and subject to certain exclusions, Shenghe was 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.
The sales price of rare earth concentrate sold to Shenghe were based on a preliminary market price per metric ton, 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 were set forth in monthly purchase agreements between the Company and Shenghe. Under the 2022 Offtake Agreement, Shenghe was paid a variable commission on net proceeds to the Company.
In January 2024, the Company entered into a new offtake agreement with Shenghe (the “2024 Offtake Agreement” and, together with the 2022 Offtake Agreement, the “Offtake Agreements”) that replaced and extended the 2022 Offtake Agreement. The initial term of the 2024 Offtake Agreement is two years, with the option for the Company to extend the term for an additional one-year period. The terms of the 2024 Offtake Agreement are substantially the same as those of the 2022 Offtake Agreement with the exception of the addition of NdPr metal into the definition of non-concentrate rare earth products.
Tolling Agreement with VREX Holdco: In October 2023, prior to the Company’s investment in VREX Holdco, the Company entered into a tolling agreement with VREX Holdco (the “Tolling Agreement”). Pursuant to the Tolling Agreement, the Company delivers NdPr oxide to VREX Holdco, which VREX Holdco then causes VREX to process into NdPr metal for delivery to the Company’s customers globally. During the term of the Tolling Agreement, the Company will pay VREX Holdco a processing fee per unit of rare earth metal produced. The Company maintains title to the products and directly enters 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.
Revenue and Cost of Sales: The Company’s related-party revenue and cost of sales were as follows:
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Rare earth concentrate | $ | 24,426 | $ | 62,630 | $ | 64,502 | $ | 151,684 | |||||||||||||||
| NdPr oxide and metal | $ | 1,699 | $ | — | $ | 2,245 | $ | — | |||||||||||||||
| Cost of sales (excluding depreciation, depletion and amortization) | $ | 21,477 | $ | 22,279 | $ | 40,709 | $ | 44,988 |
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 $1.2 million and $2.3 million for the three and six months ended June 30, 2024, respectively, as compared to $0.9 million and $1.8 million for the three and six months ended June 30, 2023, respectively.
Accounts Receivable: As of June 30, 2024, and December 31, 2023, $3.4 million and $9.2 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 20—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) | 2024 | 2023 | |||||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for interest | $ | 910 | $ | 1,045 | |||||||
| Cash payments related to income taxes | $ | — | $ | 23,101 | |||||||
| Change in construction payables and accrued construction costs | $ | (2,211) | $ | (1,600) | |||||||
| Supplemental non-cash investing and financing activities: | |||||||||||
| Common stock issued in exchange for financial advisory services | $ | 3,737 | $ | — | |||||||
| Operating ROU assets obtained in exchange for lease liabilities | $ | — | $ | 7,304 | |||||||
| Excise tax obligation related to repurchases of common stock | $ | 1,794 | $ | — |
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