# MP Materials Corp. / DE (MP) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MP Materials Corp. / DE's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1801368/000180136825000009/mp-20241231.htm
Accession: 0001801368-25-000009
Filing date: 2025-02-28
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MP/
All MD&A years: /company/MP/mda/
Previous year: /company/MP/mda/fy2023/ (FY 2023)
Next year: /company/MP/mda/fy2025/ (FY 2025)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related notes appearing elsewhere in this annual report on Form 10-K for the year ended December 31, 2024 (this “Annual Report”). A discussion of changes in our consolidated results of operations and cash flows between years ended December 31, 2023 and 2022, has been omitted from this Annual Report, but may be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Comparison of the Years Ended December 31, 2023, 2022, and 2021,” of our annual report on Form 10-K for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission on February 28, 2024. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Item 1A. Risk Factors” and elsewhere in this Annual Report. See also “Cautionary Note Regarding Forward-Looking Statements.”

Executive Overview

MP Materials Corp., including its subsidiaries (“we,” “our,” and “us”), is the largest producer of rare earth materials in the Western Hemisphere. We own and operate the Mountain Pass Rare Earth Mine and Processing Facility (“Mountain Pass”) located near Mountain Pass, San Bernardino County, California, the only rare earth mining and processing site of scale in North America. We are also developing a rare earth metal, alloy and magnet manufacturing facility in Fort Worth, Texas (“Independence” or the “Independence Facility”).

During the fourth quarter of 2024, we modified our segment structure largely as a result of initial production of magnetic precursor products. Beginning with the fourth quarter of 2024, our reportable segments, which are primarily based on our internal organizational structure and types of products, are our two operating segments—Materials and Magnetics. In conjunction with this change, where applicable, prior period amounts have been recast to conform to this new segment reporting structure.

The Materials segment operates Mountain Pass, which produces refined rare earth products as well as rare earth concentrate and related products. The Materials segment primarily generates revenue from (i) sales of rare earth concentrate, primarily sold for further distribution to a single, principal customer in China, and (ii) sales of neodymium-praseodymium (“NdPr”) oxide and metal, primarily sold to customers in Japan, South Korea, and broader Asia.

The Magnetics segment operates the Independence Facility, where we began production of magnetic precursor products in December 2024 and anticipate manufacturing neodymium-iron-boron (“NdFeB”) permanent magnets by the end of 2025. Beginning in the first quarter of 2025, we expect that the Magnetics segment will begin generating revenue from sales of NdPr metal to a single customer in the U.S.

Certain rare earth elements (“REE”) serve as critical inputs for the rare earth magnets inside the electric motors and generators powering carbon-reducing technologies such as hybrid and electric vehicles (referred to collectively as “xEVs”) and wind turbines, as well as drones, defense systems, robotics and many other high-growth, advanced technologies. Our integrated operations combine low production costs with high environmental standards, thereby restoring American leadership to a critical industry with a strong commitment to sustainability.

Highlights from the year ended December 31, 2024, include:

•Commenced production of magnetic precursor products at Independence in December 2024;

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•Received a total of $100.0 million in customer prepayments for magnetic precursor products pursuant to the long-term supply agreement with GM;

•Continued NdPr sales momentum, including signing a supply agreement with a global automaker for a significant volume commitment;

•Achieved record rare earth oxide (“REO”) in concentrate production volume;

•Significantly advanced ramp-up of separated rare earth products production, producing record domestic NdPr oxide volumes;

•Issued $747.5 million of 2030 Notes (as defined below) in March 2024 and entered into Capped Call Options (as defined below) covering 34.4 million shares of common stock to offset potential dilution; concurrently repurchased a portion of our 2026 Notes (as defined below) at prices lower than the associated carrying amounts resulting in a $46.3 million gain on early extinguishment of debt;

•Received a $58.5 million Section 48C Qualifying Advanced Energy Project Tax Credit (the “48C Credit”) in March 2024 to support the construction of the Independence Facility;

•Repurchased 15.2 million or 8.6% of the Company’s outstanding shares at a total cost of $225.1 million at an average price of $14.76 per share through the Company’s share repurchase program that was implemented during the year;

•Completed a debt exchange in December 2024, reducing the principal amount of debt by $27.0 million by exchanging $142.3 million of 2026 Notes for $115.3 million of 2030 Notes; and

•Maintained a strong balance sheet with cash, cash equivalents and short-term investments totaling $850.9 million as of December 31, 2024, after incurring capital expenditures to advance construction of the Independence Facility, as well as various projects at Mountain Pass, including the HREE Facility.

Despite a continued weak pricing backdrop in 2024, our operating results for the Materials segment demonstrate solid operational execution. Our upstream concentrate operations delivered record production levels despite significant focus being spent on scaling midstream separated product operations. Although we remain well below our designed throughput of separated products, we have seen steady improvements throughout 2024. Furthermore, we expanded our customer base of separated rare earth products and steadily increased sales throughout the year. Although we continue to expect that it may take several quarters to achieve our designed throughput of separated products, we remain confident in our ability to achieve it in the future.

In addition, our Magnetics segment continued to make significant progress on our strategy to re-establish magnet manufacturing in the U.S., including commissioning our electrowinning capability to produce NdPr metal from NdPr oxide at Independence in the fourth quarter of 2024. Throughout 2024, we significantly advanced the organization’s engineering and manufacturing technology capabilities and meaningfully added to our magnetics team of scientists, technicians and engineers, with the team now comprised of over 100 employees. In addition, we recently began trial production of automotive-grade, sintered neodymium-iron-boron (“NdFeB”) magnets at our new product introduction (“NPI”) facility within Independence.

Recent Developments

2024 Offtake Agreement

In January 2024, we entered into a new offtake agreement with Shenghe (the “2024 Offtake Agreement”) that replaced and extended the offtake agreement entered into in March 2022 with Shenghe (the “2022 Offtake Agreement” and, together with the 2024 Offtake Agreement, the “Offtake Agreements”). The initial term of the 2024 Offtake Agreement is two years, with the option for us 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. See Note 19, “Related-Party Transactions,” in the notes to the Consolidated Financial Statements for additional discussion of the Offtake Agreements.

Section 48C Qualifying Advanced Energy Project Tax Credit    

In March 2024, we were awarded a $58.5 million 48C Credit to advance the construction of the Independence 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 allocation of the awards under the 48C Credit was issued by the Internal Revenue Service and Treasury following a competitive, oversubscribed process administered by the Department of Energy that evaluated the technical and commercial viability and environmental and community impact of approximately 250 projects. See Note 12, “Income Taxes,” in the notes to the Consolidated Financial Statements for additional information.

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NdPr Supply Agreement

In June 2024, we entered into an NdPr supply agreement with a global automaker, committing to a significant volume of NdPr products. The initial term of the agreement concludes on December 31, 2026, unless the volume commitment is fulfilled earlier. There is an option to extend the term by up to an additional three-year period, subject to mutual agreement.

Factors Affecting Our Performance

We believe we are uniquely positioned to capitalize on the trends of electrification and supply chain security, particularly as domestic xEV production and domestic industrial supply chain initiatives grow. Our continued success depends to a significant extent on our ability to take advantage of the following opportunities and meet the challenges associated with them.

Demand for REE

The key demand drivers for REE are a diverse array of growing end markets, including electric mobility; industrial, consumer and professional service robotics; renewable power generation; energy-efficient motors, pumps, and compressors; consumer and medical applications; critical defense systems; and catalysts and phosphors. Accordingly, the demand for our products may be impacted by demand for these downstream products, particularly the continued growth in xEVs. Despite the current macroeconomic conditions, we continue to believe that we benefit from the growth of the rare earth market, particularly the market for NdPr and permanent magnets, and from several demand tailwinds for REE. These include the trend toward electrification; geographic supply chain diversification, particularly in relation to China; the U.S. government initiatives to restore domestic supply of critical minerals; and the increasing requirement for environmentally-conscious production methods.

On the other hand, changes in technology could also reduce the use of REE, including NdPr, in the components in which they are now used, or lead to a decline in reliance on such components altogether. Additionally, a change in U.S. federal administration introduces shifts in policies, taxes, regulations, and priorities, all of which may give rise to demand uncertainty. Additionally, a more assertive trade policy towards China could lead to retaliatory actions, such as import or export restrictions, tariffs, or other measures. Actual, or perceived, decreases in demand for REE, whether through changes in technology or slower growth in the end markets that utilize REE, could result in a decline in the market price of REE, including NdPr, and/or result in pricing volatility. We also operate in a competitive industry. Many of our key competitors are based in China, where competitors may not be subject to the same rigorous environmental standards or may receive disproportionate government subsidies, and production costs are typically lower than in the U.S.

Maximizing Upstream (“Stage I”) and Midstream (“Stage II”) Production Efficiency

Following the implementation of our Stage I optimization plan, we have achieved at least 40,000 metric tons (“MTs”) of annual REO Production Volume since 2021. These results were achieved by optimizing the reagent scheme, reducing process temperatures, improving tailings facility management, and committing to operational excellence, which allowed us to achieve record production levels in 2024. Our Stage I optimization plan has enabled us to achieve what we believe to be world-class production cost levels for rare earth concentrate.

In November 2023, we announced our “Upstream 60K” strategy whereby we intend to grow our annual REO Production Volume to approximately 60,000 MTs by expanding upstream capacity via investments in further beneficiation, including the ability to process alternative feedstocks and upgrade lower-grade feedstocks. We aim to achieve this initiative within the next three years with modest incremental capital investment.

Stage II advanced our operations from the production of rare earth concentrate to the separation of individual REE. The Stage II optimization project incorporated upgrades and enhancements to the prior facility process flow to produce separated REE at a lower cost while minimizing our impact on the environment. More specifically, we have reintroduced an oxidizing roasting circuit, reoriented portions of the plant process flow, increased product finishing capacity, improved wastewater management, and made other improvements to materials handling and storage. The reintroduction of the oxidizing roasting circuit allows subsequent stages of the production process to occur at lower temperatures, and with lower volumes of materials and reagents, which supports lower operating and maintenance costs and higher uptime than would otherwise be achievable.

The success of our business reflects our ability to continue to manage our costs and drive scale. Our production achievements in Stage I have provided economies of scale to lower production costs per MT of REO produced in concentrate. Furthermore, we designed our Stage II process flow to capitalize on the inherent advantages of the bastnaesite ore at Mountain Pass, which is well-suited to low-cost refining by selectively eliminating the need to carry cerium, a lower-value element, through the separations process. Additionally, our location and integration offer cost and transportation advantages that create meaningful efficiencies in production, security of incoming supplies and shipping of our final products.

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During the second half of 2023, we began producing separated rare earth products. We continue to expect that it may take many quarters to achieve our designed throughput of separated products. As we increase production of separated products over time, we expect to improve our per-unit production costs of NdPr oxide, which represents a majority of the value contained in our concentrate. Until such time, we may experience unstable operations and elevated costs of our initial production of separated products.

We currently generate our revenue from our Materials segment, which operates a single site in a single location, and any stoppage in activity, including for reasons outside of our control, could adversely impact our production, results of operations and cash flows. In addition, several of our current and potential competitors are government supported and may have access to substantially more capital, which may allow them to make similar or greater efficiency improvements or undercut market prices for our products.

Development of Our Downstream Manufacturing Capabilities (“Stage III”)

We are completing the installation of equipment at Independence and continue to develop engineering and manufacturing technology to process NdPr metal into magnets, while incorporating magnet recycling capabilities. These initiatives support our long-term plans to become a leading global source for rare earth magnets. We believe integration into magnet production will provide some protection from commodity pricing volatility, while also enhancing our business profile as the producer of a critical industrial output in addition to a producer of resources. We expect our Stage III efforts to continue to benefit from geopolitical developments, including initiatives to repatriate critical materials supply chains.

In December 2024, we commissioned our electrowinning capability to produce NdPr metal from NdPr oxide at Independence. Further, we introduced capabilities to produce neodymium-praseodymium-iron-boron alloy flake, a key precursor product that is utilized as the material feedstock for magnet manufacturing. In addition, we recently began trial production of automotive-grade, sintered NdFeB magnets at our NPI facility within Independence. In the near-term, we expect to generate revenue from the sale of magnetic precursor products ahead of commissioning of our magnet manufacturing capabilities, which are targeted to enter service at the end of 2025. Following commissioning of these capabilities and qualification of our finished magnets, we expect to generate revenue primarily from the sale of finished magnets.

While we have grown increasingly confident about our future outlook with the progress made to-date, there are inherent risks in finalizing construction and developing the process technology for magnet manufacturing. For instance, unforeseen delays in construction or the installation of specific equipment may occur, or we may not meet customer specifications on time, which could adversely affect both the amount and timing of our revenue from permanent magnets and precursor products. Furthermore, we anticipate that nearly all revenue from permanent magnets and precursor products will come from a single customer, thus concentrating the risk, including the possibility that demand might not meet our current expectations.

Our Mineral Reserves

Our ore body has proven over more than 60 years of operations to be one of the world’s largest and highest-grade rare earth resources. As of December 31, 2024, SRK Consulting (U.S.), Inc., an independent consulting firm that we retained to assess our reserves, estimated total proven and probable reserves of 2.04 million short tons of REO contained in 29.69 million short tons of ore at Mountain Pass, with an average ore grade of 5.97%. These estimates use an estimated economical cut-off grade of 2.50% total rare earth oxide. Based on these estimated reserves and our expected annual production rate of REO upon production ramp-up of Stage II, our expected mine life was approximately 29 years as of December 31, 2024. Over time, we expect to be able to continue to grow our expected mine life through additional exploratory drilling and improved processing capabilities, which may result in changes to various assumptions underlying our mineral reserve estimate.

Mining activities in the U.S. are heavily regulated, particularly in California. Regulatory changes may make it more challenging for us to access our reserves. In addition, new mineral deposits may be discovered elsewhere, which could make our operations less competitive.

Key Performance Indicators

In evaluating the performance of our Materials segment, we use the key performance indicators (“KPIs”) outlined below. Our calculations of these KPIs may differ from similar measures published by other companies in our industry or in other industries. See the “Materials Segment” section below for further discussion of year-over-year changes in KPIs. Since the Magnetics segment only recently commenced production, we have not established any KPIs for its operations.

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REO Production Volume

We measure our REO-equivalent production volume for a given period in MTs, our principal unit of sale for our concentrate product. This measure refers to the REO content contained in the rare earth concentrate we produce and, beginning in the second quarter of 2023, includes volumes fed into downstream circuits for commissioning and starting up our separations facilities and for producing separated rare earth products, a portion of which is also included in our KPI, NdPr Production Volume. REO Production Volume is a key indicator of the mining and processing capacity and efficiency of our upstream operations.

The rare earth concentrate is a processed, concentrated form of our mined rare earth-bearing ores. While our unit of production and sale is a MT of contained REO, the actual weight of our rare earth concentrate is significantly greater, as the concentrate also contains non-REO minerals, loss-on-ignition, and residual moisture from the production process. We target REO content of greater than 60% per dry MT of concentrate (referred to as “REO grade”). The elemental distribution of REO in our concentrate is relatively consistent over time and production lot. We consider this the natural distribution, as it reflects the distribution of elements contained, on average, in our ore.

REO Sales Volume

Our REO Sales Volume for a given period is calculated in MTs. A unit, or MT, is considered sold once we recognize revenue on its sale as determined in accordance with generally accepted accounting principles in the United States (“GAAP”). Our REO Sales Volume is a key measure of our ability to convert our concentrate production into revenue. Our REO Sales Volume for the years ended December 31, 2024 and 2023, included both traditional concentrate as well as roasted concentrate.

Realized Price per REO MT

We calculate the Realized Price per REO MT for a given period as the quotient of: (i) our rare earth concentrate sales, which are determined in accordance with GAAP, for a given period and (ii) our REO Sales Volume for the same period. Realized Price per REO MT is an important measure of the market price of our concentrate product.

NdPr Production Volume

We measure our NdPr Production Volume for a given period in MTs, our principal unit of sale for our NdPr separated products. NdPr Production Volume refers to the volume of finished and packaged NdPr oxide produced at Mountain Pass for a given period. NdPr Production Volume is a key indicator of the separating and finishing capacity and efficiency of our midstream operations.

NdPr Sales Volume

Our NdPr Sales Volume for a given period is calculated in MTs and on an NdPr oxide-equivalent basis (as further discussed below). A unit, or MT, is considered sold once the Materials segment recognizes revenue on its sale, whether sold as NdPr oxide or NdPr metal, as determined in accordance with GAAP. For these NdPr metal sales, the MTs sold and included in NdPr Sales Volume are calculated based on the volume of NdPr oxide used to produce such NdPr metal. We utilize an assumed material conversion ratio of 1.20, such that a sale of 100 MTs of NdPr metal would be included in this KPI as 120 MTs of NdPr oxide-equivalent. NdPr Sales Volume is a key measure of our ability to convert our production of separated NdPr products into revenue. In the future, NdPr Sales Volume for the Materials segment is expected to include sales made to the Magnetics segment.

For the Materials segment, we have a mix of contracts with customers where we sell NdPr as (i) oxide, (ii) metal, where the amount of oxide required to produce such metal is variable, and (iii) metal, where we have a guarantee of the amount produced and sold based on the amount of oxide consumed. Among other factors, differences between quarterly NdPr Production Volume and NdPr Sales Volume may be caused by the time required for the conversion of NdPr oxide to NdPr metal, including time in-transit, as well as differences in actual versus assumed yields of oxide to metal in the calculation of NdPr Sales Volume.

NdPr Realized Price per KG

We calculate the NdPr Realized Price per kilogram (“KG”) for a given period as the quotient of: (i) our Materials segment NdPr oxide and metal sales, which are determined in accordance with GAAP, for a given period and (ii) our NdPr Sales Volume for the same period. NdPr Realized Price per KG is an important measure of the market price of our NdPr products. In the future, NdPr Realized Price per KG for the Materials segment is expected to include sales made to the Magnetics segment.

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Results of Operations

Comparison of the Years Ended December 31, 2024, 2023, and 2022

Consolidated Results

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[[/GREPCENT_TABLE]]

Revenue

Rare earth concentrate revenue consists of sales of traditional and roasted rare earth concentrate. For the majority of our sales of rare earth concentrate, the sales price is based on preliminary market price per MT, with an adjustment for the ultimate market price of the product realized upon final sale, including the impact of changes in the exchange rate between the Chinese Yuan and the U.S. dollar.

NdPr oxide and metal revenue consists of sales of NdPr oxide and metal produced at Mountain Pass under individual sales agreements, as well as sales under our distribution agreement with Sumitomo Corporation of Americas. As we ramp up production of separated rare earth products, we expect our NdPr oxide and metal revenue to become a larger portion of our total revenue. Accordingly, to the extent we sell a greater volume of NdPr oxide and NdPr metal, we expect that rare earth concentrate revenue will decline in future periods.

Other revenue consists of sales of rare earth products other than rare earth concentrate and NdPr oxide and metal, including cerium chloride and lanthanum carbonate, and rare earth fluoride.

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[[/GREPCENT_TABLE]]

Total revenue decreased for the year ended December 31, 2024, compared to the prior year, primarily as a result of lower market prices of rare earth products. Additionally, the ramp-up in midstream operations impacted the comparison for rare earth concentrate revenue, as a significantly higher portion of REO produced was refined and sold as NdPr oxide and metal during 2024. See the “Materials Segment” section below for further discussion of year-over-year changes in revenue.

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Cost of sales (excluding depreciation, depletion and amortization)

Cost of sales (excluding depreciation, depletion and amortization) (“COS”) consists of mining, processing, and separations-related labor costs (including wages and salaries, benefits, bonuses, and stock-based compensation); mining, processing, and separations-related supplies and reagents; parts and labor for the maintenance of our mining fleet and processing and separating facilities; other facilities-related costs (such as property taxes and utilities); packaging materials; and shipping and freight costs.

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[[/GREPCENT_TABLE]]

The increase in COS for the year ended December 31, 2024, was driven by production costs associated with separated rare earth products sold in the current year, which are currently elevated as we continue to ramp and optimize production of separated products toward normalized capacity. Notwithstanding, per-unit production costs of separated products are necessarily higher than those of rare earth concentrate due to the additional processing required. Such costs pertain primarily to chemical reagents, employee labor, maintenance expenses, and consumables. The increase in COS was also attributable to (i) $21.5 million in write-downs of certain of our separated product inventories due to the elevated production costs, (ii) higher labor costs, professional services and property taxes, and (iii) $1.9 million in higher repairs and maintenance expenses associated with the thickener equipment damage in the second quarter of 2024. Lastly, COS for the year ended December 31, 2024, benefited from the Section 45X Advanced Manufacturing Production Credit (the “45X Credit”) in the amount of $12.2 million.

As we produce and sell more separated products, we expect that COS may continue to increase in 2025 even as certain per-unit production efficiencies and economies of scale are expected to be achieved, primarily due to the higher production costs associated with separated rare earth products versus rare earth concentrate, as discussed above. Accordingly, in future periods, any further increase in sales of NdPr oxide and metal will likely result in higher year-over-year COS. Additionally, we may incur additional reserves on inventories prior to achieving normalized production levels on our midstream operations.

Selling, general and administrative

Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs (including salaries, benefits, bonuses, and stock-based compensation) of our administrative functions such as executives, accounting and finance, legal, and information technology; professional services (including legal, regulatory, audit and others); certain engineering expenses; insurance, license and permit costs; corporate office lease cost; office supplies; and certain environmental, health and safety expenses.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

The increase in SG&A expenses for the year ended December 31, 2024, was driven primarily by $4.4 million in higher personnel costs (other than stock-based compensation expense, which decreased by $1.4 million), partially due to increased employee headcount to support our downstream expansion. In addition, higher legal costs contributed to the increase in 2024. SG&A expenses for the year ended December 31, 2024, benefited from the 45X Credit in the amount of $2.8 million.

Depreciation, depletion and amortization

Depreciation, depletion and amortization (“DD&A”) primarily consists of depreciation of property, plant and equipment and depletion of mineral rights.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

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The year-over-year increase in DD&A for the year ended December 31, 2024, primarily reflects an increase in depreciation of $19.6 million, as a result of the timing of placing certain Stage II circuits and facilities into service, which occurred progressively throughout 2023, along with the placement of building and building improvement assets associated with the Independence Facility into service in the fourth quarter of 2023.

Start-up costs

Start-up costs relate to costs associated with restarting an existing facility or commissioning a new facility, circuit or process of our production, manufacturing, or separations facilities prior to the achievement of commercial production, that do not qualify for capitalization. Such costs, which are expensed as incurred, include certain salaries and wages, outside services, parts, training, and utilities, among other items, used or consumed directly in these start-up activities.

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[[/GREPCENT_TABLE]]

The year-over-year decrease in start-up costs for the year ended December 31, 2024, was attributable to the commencement of our operations related to our Stage II optimization project. Start-up costs associated with Stage II decreased, specifically as a result of salaries and wages of certain employees no longer being considered start-up given the commencement of initial production of separated products in late 2023, which also resulted in the higher personnel costs discussed above within COS. Start-up costs attributable to our Stage III initiatives increased modestly in 2024 by $2.6 million, in line with the development of our magnetics capability and growth of our assembled workforce.

Advanced projects and development

Advanced projects and development consists principally of costs incurred in connection with research and development of new processes or to significantly enhance our existing processes, and certain government contracts, as well as costs incurred to support growth initiatives or pursue other opportunities.

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Advanced projects and development","$","9,307","","","$","14,932","","","$","4,249","","","$","(5,625)","","","$","10,683","","","(38)","%","","251","%"]]
[[/GREPCENT_TABLE]]

Advanced projects and development for the year ended December 31, 2024, decreased year over year, primarily due to lower costs incurred for legal, consulting, and advisory services to support growth initiatives, such as potential acquisitions, mergers, or other investments, which decreased by $6.4 million in 2024. This was partially offset by continued investment in research and development activities associated with our Magnetics segment, which increased by $1.9 million in 2024.

Other operating costs and expenses

Other operating costs and expenses consists primarily of accretion of asset retirement and environmental obligations and gains or losses on disposals of long-lived assets, including demolition costs.

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Other operating costs and expenses","$","4,348","","","$","7,234","","","$","1,868","","","$","(2,886)","","","$","5,366","","","(40)","%","","287","%"]]
[[/GREPCENT_TABLE]]

Other operating costs and expenses for the year ended December 31, 2024, decreased year over year as a result of $5.5 million of demolition costs incurred in 2023, associated with demolishing and removing certain out-of-use older facilities and infrastructure from the Mountain Pass site to accommodate future expansion in rare earth processing. This decrease was offset by a $2.0 million loss on environmental obligations incurred in 2024.

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Interest expense, net

Interest expense, net principally consists of the expense associated with the 0.25% and 3.00% per annum interest rates and amortization of the debt issuance costs on our 2026 Notes and 2030 Notes, respectively, offset by capitalized interest.

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Interest expense, net","$","23,010","","","$","5,254","","","$","5,786","","","$","17,756","","","$","(532)","","","338","%","","(9)","%"]]
[[/GREPCENT_TABLE]]

Interest expense, net for the year ended December 31, 2024, increased year over year due to the issuance of the 2030 Notes, slightly offset by repurchases of the 2026 Notes.

Gain on early extinguishment of debt

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Gain on early extinguishment of debt","$","52,911","","","$","\u2014","","","$","\u2014","","","$","52,911","","","$","\u2014","","","N/M","","N/M"],["N/M = Not meaningful."]]
[[/GREPCENT_TABLE]]

Gain on early extinguishment of debt for the year ended December 31, 2024, was the result of the repurchase and exchange of portions of our 2026 Notes at prices lower than the associated carrying amounts. See the “Liquidity and Capital Resources” section below for additional information.

Other income, net

Other income, net consists of interest and investment income and non-operating gains or losses.

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Other income, net","$","46,178","","","$","56,048","","","$","19,527","","","$","(9,870)","","","$","36,521","","","(18)","%","","187","%"]]
[[/GREPCENT_TABLE]]

Other income, net for the year ended December 31, 2024, decreased year over year as a result of lower interest and investment income earned on our short-term investments, whose balance decreased slightly over the applicable periods. Interest and investment income is principally generated from accretion of the discount on such investments.

Income tax expense (benefit)

Income tax expense or benefit consists of an estimate of U.S. federal and state income taxes in the jurisdictions in which we conduct business, adjusted for federal, state and local allowable income tax benefits, the effect of permanent differences and any valuation allowance against deferred tax assets.

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Income (loss) before income taxes","$","(93,347)","","","$","33,075","","","$","341,152","","","$","(126,422)","","","$","(308,077)","","","N/M","","(90)","%"],["Income tax expense (benefit)","$","(27,923)","","","$","8,768","","","$","52,148","","","$","(36,691)","","","$","(43,380)","","","N/M","","(83)","%"],["Effective tax rate","29.9 %","","26.5 %","","15.3 %"],["N/M = Not meaningful."]]
[[/GREPCENT_TABLE]]

The effective tax rate for the year ended December 31, 2024, differed from the statutory tax rate of 21% primarily due to state income tax expense, percentage depletion in excess of basis, the 45X Credit, and the California Competes Tax Credit, offset by a deduction limitation on officers’ compensation. For additional information on the 45X Credit, refer to Note 12, “Income Taxes,” and Note 15, “Government Grants,” in the notes to the Consolidated Financial Statements.

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Segment Results

Materials Segment

The Materials segment operates Mountain Pass, which produces refined rare earth oxides and related products as well as rare earth concentrate products.

KPIs

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Amount Change","","% Change"],["(in whole units or dollars, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Rare earth concentrate(1)"],["REO Production Volume (MTs)","45,455","","","41,557","","","42,499","","","3,898","","","(942)","","","9","%","","(2)","%"],["REO Sales Volume (MTs)","32,703","","","36,837","","","43,198","","","(4,134)","","","(6,361)","","","(11)","%","","(15)","%"],["Realized Price per REO MT","$","4,414","","","$","6,854","","","$","11,974","","","$","(2,440)","","","$","(5,120)","","","(36)","%","","(43)","%"],["Separated NdPr products(1)"],["NdPr Production Volume (MTs)","1,294","","","200","","","N/A","","1,094","","","N/A","","547","%","","N/A"],["NdPr Sales Volume (MTs)","1,142","","","10","","","N/A","","1,132","","","N/A","","N/M","","N/A"],["NdPr Realized Price per KG","$","51","","","$","70","","","N/A","","$","(19)","","","N/A","","(27)","%","","N/A"],["N/A = Not applicable as there was neither NdPr production nor sales volume in the year ended December 31, 2022."],["N/M = Not meaningful."],["(1) See the \u201cKey Performance Indicators\u201d section above for further discussion of the definitions of our KPIs."]]
[[/GREPCENT_TABLE]]

Revenue and Segment Adjusted EBITDA

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Revenue:"],["Rare earth concentrate","$","144,363","","","$","252,468","","","$","517,267","","","$","(108,105)","","","$","(264,799)","","","(43)","%","","(51)","%"],["NdPr oxide and metal","57,762","","","695","","","\u2014","","","57,067","","","695","","","N/M","","N/M"],["Other revenue","1,730","","","282","","","10,243","","","1,448","","","(9,961)","","","513","%","","(97)","%"],["Total revenue","$","203,855","","","$","253,445","","","$","527,510","","","$","(49,590)","","","$","(274,065)","","","(20)","%","","(52)","%"],["Segment Adjusted EBITDA(1)","$","(14,148)","","","$","130,392","","","$","407,773","","","$","(144,540)","","","$","(277,381)","","","N/M","","(68)","%"],["N/M = Not meaningful."],["(1) Segment Adjusted EBITDA is management\u2019s primary segment measure of profit or loss in assessing segment performance and deciding how to allocate the Company\u2019s resources. See Note 20, \u201cSegment Reporting,\u201d in the notes to the Consolidated Financial Statements for additional information on the calculation of Segment Adjusted EBITDA."]]
[[/GREPCENT_TABLE]]

The year-over-year decreases in rare earth concentrate revenue were driven by lower Realized Price per REO MT, as well as lower REO Sales Volume. Realized Price per REO MT for the years ended December 31, 2024 and 2023, reflects a significantly softer pricing environment for rare earth products following the cyclical peak in pricing in February 2022. As noted above in the “Factors Affecting our Performance” section, market prices for rare earth products may be volatile due to actual or perceived changes in supply or demand. The decline in the market prices for rare earth products in 2024 and 2023 was largely attributable to lower than anticipated growth in demand for magnetic products, which negatively impacted the price of REE. The decrease in REO Sales Volume for the year ended December 31, 2024, as compared to the prior year, was due to the ramp-up in midstream operations, where a significantly higher portion of REO produced was refined and sold as NdPr oxide and metal during 2024. The decrease in REO Sales Volume for the year ended December 31, 2023, as compared to the prior year, was due to the start-up of midstream operations, where a significant portion of the REO produced, which could otherwise have been sold as rare earth concentrate, was used to charge the Stage II circuits, establish separations work-in-process inventory, or produce packaged and finished separated rare earth products, the majority of which had not yet been sold.

Until we commenced our midstream operations, our REO Sales Volume generally tracked our REO Production Volume over time with slight period-to-period differences caused by the timing of shipments. However, as we continue to ramp up

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production of separated rare earth materials, we expect that significant volumes of REO produced from upstream operations will continue to be consumed for separation and not sold as concentrate. In addition, a significant portion of the contained cerium in the REO produced will be intentionally rejected and may not result in finished product. Accordingly, we continue to expect that REO Sales Volume will be significantly lower than REO Production Volume in the future as we produce and sell more separated products.

The increase in NdPr oxide and metal revenue for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily driven by higher NdPr Production Volume as a result of ramping production of separated products throughout 2024, partially offset by lower NdPr Realized Price per KG. There was no NdPr oxide and metal revenue for the year ended December 31, 2022, since we had not yet commenced midstream operations. We currently expect to begin intersegment sales of NdPr oxide to the Magnetics segment starting in 2025.

Other revenue for the year ended December 31, 2024, increased as compared to the prior year, primarily due to current year sales of other refined products, including lanthanum and cerium. Other revenue for the year ended December 31, 2022, consisted primarily of $8.5 million of revenue related to certain stockpiles of rare earth fluoride.

The decrease in Materials Segment Adjusted EBITDA for the year ended December 31, 2024, when compared to the prior year, was primarily due to lower revenues and higher cost of sales (excluding depreciation, depletion and amortization and stock-based compensation expense) (“Segment COS”), partially offset by lower selling, general and administrative (excluding stock-based compensation expense) (“Segment SG&A”). The lower revenue was driven by lower realized prices and lower REO Sales Volume, partially offset by higher NdPr Sales Volume, as discussed above.

The increase in Segment COS for the year ended December 31, 2024, was driven by production costs associated with separated rare earth products sold in the current year, which are currently elevated as we continue to ramp and optimize production of separated products toward normalized capacity. The increase in Segment COS was also attributable to (i) $21.5 million in write-downs of certain of our separated product inventories due to the elevated production costs, (ii) higher labor costs, professional services and property taxes, and (iii) $1.9 million in higher repairs and maintenance expenses associated with the thickener equipment damage in the second quarter of 2024. Lastly, Segment COS for the year ended December 31, 2024, benefited from the 45X Credit in the amount of $12.2 million.

Segment SG&A for the Materials segment decreased year over year by $4.5 million, which was primarily due to the 45X Credit in 2024 for costs that qualify as “production costs incurred” but are presented in SG&A expenses within the financial statements, as well as lower environmental, outside services, and legal costs, as compared to the prior year.

The decrease in Materials Segment Adjusted EBITDA for the year ended December 31, 2023, when compared to the prior year, was similarly driven by lower revenues and to a lesser extent, higher Segment SG&A. Segment SG&A for the Materials segment increased year over year by $3.1 million, which was primarily due to higher environmental, outside services, and legal costs, as compared to the prior year, which were largely incurred in connection with completing the Stage II optimization project and commencing midstream operations, as well as higher corporate allocations.

Magnetics Segment

The Magnetics segment operates the Independence Facility, where we began production of magnetic precursor products in December 2024 and anticipate the manufacturing of NdFeB permanent magnets by the end of 2025. Pursuant to the long-term agreement with GM, we received prepayments of $50.0 million in April 2024 and $50.0 million in December 2024 for magnetic precursor products, with an additional and final $50.0 million prepayment expected to be received in the first half of 2025, subject to achieving a certain milestone. As of December 31, 2024, the Magnetics segment had not yet generated revenue; however, we expect that it will begin recording sales of magnetic precursor products, specifically NdPr metal, to a single customer in the U.S. in the first quarter of 2025.

Segment Adjusted EBITDA

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Segment Adjusted EBITDA(1)","$","(12,224)","","","$","(6,522)","","","$","(2,684)","","","$","(5,702)","","","$","(3,838)","","","(87)","%","","143","%"],["(1) Segment Adjusted EBITDA is management\u2019s primary segment measure of profit or loss in assessing segment performance and deciding how to allocate the Company\u2019s resources. See Note 20, \u201cSegment Reporting,\u201d in the notes to the Consolidated Financial Statements for additional information on the calculation of Segment Adjusted EBITDA."]]
[[/GREPCENT_TABLE]]

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The year-over-year decreases in Magnetics Segment Adjusted EBITDA, when compared to the respective prior years, were primarily due to $4.5 million and $2.3 million of higher Segment SG&A expenses, respectively. These increases were driven by the development of the Independence Facility and downstream magnetics capabilities, primarily from higher personnel costs associated with increased headcount to support the engineering, technical, and administrative functions, as well as increases in other costs, such as property taxes. Additionally, continued investment in research and development activities related to magnetics contributed to higher expenses of $1.9 million in 2024 compared to 2023, and an additional $1.3 million of expenses in 2023 compared to 2022. The commencement of recognizing revenue and Segment COS from magnetic precursor products, which is expected to occur in the first quarter of 2025, will significantly impact the historical trend of Magnetics Segment Adjusted EBITDA.

Corporate Expenses and Other

Corporate expenses and other is primarily comprised of the operating results of other business activities that excludes our Materials and Magnetics segments and includes costs incurred at the corporate level that are not allocated to the operating segments, specifically relating to executive compensation, investor relations, other corporate costs, and unallocated shared service functions such as legal, information technology, human resources, finance and accounting and supply chain. Corporate expenses and other excludes stock-based compensation expense.

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022","","2024 vs. 2023","","2023 vs. 2022"],["Corporate expenses and other","$","23,796","","","$","21,368","","","$","16,458","","","$","2,428","","","$","4,910","","","11","%","","30","%"]]
[[/GREPCENT_TABLE]]

The increase in corporate expenses and other for the year ended December 31, 2024, as compared to the prior year, was primarily due to higher personnel costs (other than stock-based compensation expense) related to executives and administrative personnel as well as higher legal costs. The increase in corporate expenses and other for the year ended December 31, 2023, as compared to the prior year, was due to higher personnel costs (other than stock-based compensation expense) from an increase in employee headcount to further build out our corporate infrastructure to support the growth in our business and initiatives, as well as higher building rent expense following the commencement of the lease for corporate office space in April 2023.

Quarterly Performance Trend

While our business is not highly seasonal in nature, we sometimes experience a timing lag between production and sales, which may result in volatility in our results of operations between periods. The timing lag may be the result of, or influenced by, factors such as the timing and duration of shipments or the time required to convert materials. In addition, quarterly production of concentrate and separated products is impacted by the timing of scheduled outages of our production facilities for maintenance, which typically occur in the second and fourth quarters. Finally, since we began production of separated rare earth materials in the second half of 2023, certain volumes of REO produced are further processed or rejected rather than sold as concentrate.

The following table presents our KPIs, which pertain to the Materials segment, for the quarterly periods indicated:

[[GREPCENT_TABLE]]
[["","FY2024","","FY2023","","FY2022"],["(in whole units or dollars)","Q4","","Q3","","Q2","","Q1","","Q4","","Q3","","Q2","","Q1","","Q4","","Q3","","Q2","","Q1"],["Rare earth concentrate"],["REO Production Volume (MTs)","11,478","","","13,742","","","9,084","","","11,151","","","9,257","","","10,766","","","10,863","","","10,671","","","10,485","","","10,886","","","10,300","","","10,828"],["REO Sales Volume (MTs)","7,803","","","9,729","","","5,839","","","9,332","","","7,174","","","9,177","","","10,271","","","10,215","","","10,816","","","10,676","","","10,000","","","11,706"],["Realized Price per REO MT","$","4,717","","","$","4,425","","","$","4,183","","","$","4,294","","","$","5,622","","","$","5,718","","","$","6,231","","","$","9,365","","","$","8,515","","","$","11,636","","","$","13,918","","","$","13,818"],["Separated NdPr products"],["NdPr Production Volume (MTs)","413","","","478","","","272","","","131","","","150","","","50","","","N/A","","N/A","","N/A","","N/A","","N/A","","N/A"],["NdPr Sales Volume (MTs)","468","","","404","","","136","","","134","","","10","","","\u2014","","","N/A","","N/A","","N/A","","N/A","","N/A","","N/A"],["NdPr Realized Price per KG","$","51","","","$","47","","","$","48","","","$","62","","","$","70","","","N/A","","N/A","","N/A","","N/A","","N/A","","N/A","","N/A"],["N/A = Not applicable as there was either no NdPr production volume or no NdPr sales volume in these periods."]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

Liquidity refers to our ability to generate sufficient cash flows to meet the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations, debt service and other commitments. Since becoming a public company, our principal sources of liquidity have been the issuance of the 2026 Notes in March 2021, and net

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cash from operating activities. In addition, we issued the 2030 Notes in March 2024, resulting in net proceeds of $731.4 million prior to the use of a portion of these funds to repurchase the 2026 Notes, repurchase shares of our common stock, and purchase Capped Call Options, as discussed below. As of December 31, 2024, we had $850.9 million of cash, cash equivalents and short-term investments and $930.5 million of principal amount of long-term debt.

Our results of operations and cash flows depend in large part upon the market prices of rare earth products. Rare earth concentrate is not quoted on any major commodities market or exchange and demand is currently constrained to a relatively limited number of refiners, a significant majority of which are based in China. Although we believe that our cash flows from operations and cash on hand are adequate to meet our liquidity requirements for the foreseeable future, uncertainty continues to exist as to the market price of rare earth products, as evidenced by the volatility experienced in 2022 and the significant decrease in the market price of REO subsequently experienced, primarily due to concerns over the global economic conditions and actual or perceived concerns over increases in the supply of and/or decreases in demand for rare earth products. The significant decrease in the market price of rare earth products in 2023 and 2024 negatively impacted our cash flows from operations and liquidity.

Our current working capital needs relate mainly to our mining, beneficiation, and separation operations. Our working capital needs have increased materially as we have ramped up the production and sales of separated rare earth products in 2024; we expect certain portions of our working capital needs may continue to see further increases in 2025 as we continue to scale production of separated rare earth products and advance our Stage III magnetics initiatives, including the production and sales of magnetic precursor products, as well as commissioning of our magnet manufacturing capabilities.

The completion of our mission to become a fully integrated domestic magnetics producer is expected to be capital intensive. With the construction portion of our Stage II optimization project complete, our principal capital expenditure requirements relate mainly to further investment in Mountain Pass, including the development of the HREE Facility, Upstream 60K, and other growth and investment projects, completing the buildout of Independence, as well as periodic repairs and maintenance of mining and rare earth processing equipment. We expect to spend between $150 million and $175 million of capital costs in 2025 (net of any proceeds from government awards received). Our future capital requirements will also depend on several other factors, including market conditions, de-bottlenecking initiatives, decisions regarding downstream production capability, and potential acquisitions.

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

Debt and Other Long-Term Obligations

2026 Notes: In March 2021, we issued $690.0 million in aggregate principal amount of 0.25% unsecured convertible senior 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, we 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 we 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, we 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 these repurchases in the first quarter of 2024, we recorded a $46.3 million gain on early extinguishment of debt during the year ended December 31, 2024.

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.

In March 2024, we provided a written notice to the trustee and the holders of the 2026 Notes that we have 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 our common stock with the specified dollar amount per $1,000 principal amount of the 2026 Notes of $1,000. As

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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 our 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, we could have elected to settle the 2026 Notes in cash, shares of our common stock or a combination thereof.

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

If we undergo a fundamental change (as defined in the indenture governing the 2026 Notes), holders may require us to repurchase for cash all or any portion of their outstanding 2026 Notes at a price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date of the 2026 Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for holders who elect to convert their outstanding 2026 Notes in connection with such corporate event or notice of redemption, as the case may be.

2030 Notes: In March 2024, we 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, 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, we recorded debt issuance costs of $19.9 million, of which $3.7 million was settled through the issuance of shares of our common stock.

The 2030 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our 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.

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 our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; ii) during the five business day period after any ten consecutive trading day period (the “2030 Notes 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 2030 Notes measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; iii) if we call any or all of the 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.

We have 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 we undergo a fundamental change (as defined in the indenture governing the 2030 Notes), holders may require us 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 we deliver 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 we will, in certain circumstances, increase

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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, we 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 our common stock, the same number of shares that initially underlie the 2030 Notes issued in March 2024. 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 our common stock upon conversion of the 2030 Notes and/or offset cash payments we are 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 our 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 our 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. We paid $65.3 million for the Capped Call Options in March 2024.

Convertible Notes Debt Exchange: In December 2024, we entered into privately negotiated exchange agreements with certain holders of the 2026 Notes (the “Debt Exchange Agreements”). Pursuant to the Debt Exchange Agreements, $142.3 million in aggregate principal amount of the 2026 Notes was exchanged for $115.3 million in aggregate principal amount of the 2030 Notes (the “Debt Exchange”), which had the same terms and conditions as the 2030 Notes issued in March 2024.

As a result of the Debt Exchange, we recorded a $6.6 million gain on early extinguishment of debt; a $13.8 million increase (net of the associated deferred tax impact of $4.0 million) to “Additional paid-in capital” included within the Consolidated Balance Sheets, as the 2030 Notes pertaining to this Debt Exchange were issued at a substantial premium; and total debt issuance costs of $4.5 million, of which $0.6 million were allocated to additional paid-in capital. For the avoidance of doubt, the 2030 Notes issued as part of the Debt Exchange are not associated with the Capped Call Options.

Equipment Notes: We have financing agreements for the purchase of certain equipment, including trucks and loaders, graders, and various other machinery. As of December 31, 2024, we had $2.6 million in principal (and accrued interest) outstanding under the equipment notes, of which $2.1 million is due within the next 12 months.

In December 2024, we entered into a secured uncommitted non-revolving credit facility (the “Uncommitted Credit Facility”) with Caterpillar Financial Services Corporation, providing an aggregate borrowing capacity of $25.0 million, which may be used only to finance agreed-upon equipment from a specific supplier. The interest rates for the various borrowings under the Uncommitted Credit Facility will approximate market rates and will be fixed for the duration of the advance. As of December 31, 2024, we did not have borrowings outstanding under the Uncommitted Credit Facility.

Leases: We have lease arrangements for certain equipment and facilities, including office space, vehicles and equipment used in our operations. As of December 31, 2024, we had future expected lease payment obligations totaling $9.1 million, with $2.0 million due within the next 12 months. See Note 11, “Leases,” in the notes to the Consolidated Financial Statements for further information.

Purchase Obligations: Our outstanding purchase obligations as of December 31, 2024, primarily consist of purchase orders initiated with vendors and suppliers in the ordinary course of business for operating and maintenance capital expenditures that will be settled within one year. In certain instances, we are permitted to cancel, reschedule or adjust these orders. Consequently, only a small portion of these outstanding purchase orders relate to firm, non-cancellable and unconditional obligations. We have also entered into long-term supply arrangements for certain chemical reagents used in our operations, which is based on current consumption requirements.

Asset Retirement and Environmental Obligations: See Note 8, “Asset Retirement and Environmental Obligations,” in the notes to the Consolidated Financial Statements for our estimated cash requirements to settle asset retirement and environmental obligations.

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Other: In order to support the continued advancement of our Independence Facility and magnetics capability, we expect to hire an additional 100 full-time employees within the next two years, which will result in additional cash requirements for salaries, benefits and training. Lastly, our engineering, procurement, and construction contracts are typically cancellable.

Repurchases of Common Stock

In March 2024, our Board of Directors approved a share repurchase program (the “Program”) effective for one year under which the Company became authorized to repurchase up to an aggregate amount of $300.0 million of our outstanding common stock. In August 2024, our Board of Directors approved a $300.0 million increase to the Program, bringing the total authorized amount to $600.0 million. The Program was also extended and is effective until August 30, 2026. This authorization does not require the purchase of any minimum number of shares.

We may purchase shares from time to time at the discretion of management through open market purchases, privately negotiated transactions, block trades, accelerated or other structured share repurchase programs, or other means. The manner, timing, pricing and amount of any transactions will be subject to our discretion and may be based upon market conditions, regulatory requirements and alternative opportunities that we may have for the use or investment of our capital. During the year ended December 31, 2024, we repurchased 15.2 million shares of our common stock under the Program at an aggregate cost of $225.1 million.

As of December 31, 2024, $375.0 million was available for additional share repurchases under the Program. See Note 16, “Stockholders’ Equity and Stock-Based Compensation,” in the notes to the Consolidated Financial Statements for additional information.

Cash Flows

The following table summarizes our cash flows:

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","$ Change","","% Change"],["(in thousands, except percentages)","2024","","2023","","2022","","2024 vs 2023","","2023 vs 2022","","2024 vs 2023","","2023 vs 2022"],["Net cash provided by (used in):"],["Operating activities","$","13,349","","","$","62,699","","","$","343,514","","","$","(49,350)","","","$","(280,815)","","","(79)","%","","(82)","%"],["Investing activities","$","10,057","","","$","68,697","","","$","(1,356,971)","","","$","(58,640)","","","$","1,425,668","","","(85)","%","","N/M"],["Financing activities","$","(4,791)","","","$","(9,917)","","","$","(24,191)","","","$","5,126","","","$","14,274","","","(52)","%","","(59)","%"]]
[[/GREPCENT_TABLE]]

N/M = Not meaningful.

Net Cash Provided by Operating Activities: Net cash provided by operating activities decreased by $49.4 million for the year ended December 31, 2024, as compared to the prior year. The decrease in cash flows from operating activities was primarily driven by a decrease in revenue and an increase in inventories as we ramped up production of separated products, as well as an increase in cash paid for interest of $10.1 million due to the 2030 Notes. The decrease was partially offset by the receipt of $100.0 million in initial prepayments pursuant to the long-term supply agreement with GM for magnetic precursor products and receipt of $19.4 million related to the 45X Credit claimed on our 2023 federal tax return.

Net Cash Provided by (Used in) Investing Activities: Net cash provided by investing activities decreased by $58.6 million for the year ended December 31, 2024, as compared to the prior year. The decrease in cash flows from investing activities was primarily driven by a $141.1 million net cash flow impact of a year-over-year increase in purchases of short-term investments, offset only partially by a small increase in proceeds from sales and maturities of short-term investments. This was partially offset by lower additions to property, plant and equipment for the year ended December 31, 2024, which decreased by $72.8 million when compared to the prior year, and related primarily to a decrease in construction spend on our Stage II optimization project given the timing of completion and placement into service. Additionally, net cash provided by investing activities in the prior year included a $9.7 million payment in exchange for a 49% equity interest in VREX Holdco.

Net Cash Used in Financing Activities: Net cash used in financing activities decreased by $5.1 million for the year ended December 31, 2024, as compared to the prior year. The decrease in cash flows used in financing activities was driven by the net cash flow impact, which was $12.4 million, of the issuance of the 2030 Notes, the payments of debt issuance costs associated with the 2030 Notes, the payments made to retire a significant portion of the 2026 Notes, the purchase of the Capped Call Options, and the payments made to repurchase our common stock, offset partially by debt issuance costs of $4.5 million recorded in connection with the Debt Exchange, all of which occurred during year ended December 31, 2024.

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Non-GAAP Financial Measures

We present Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Diluted EPS, and Free Cash Flow, which are non-GAAP financial measures that we use to supplement our results presented in accordance with GAAP. These measures may be similar to measures reported by other companies in our industry and are regularly used by securities analysts and investors to measure companies’ financial performance. Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Diluted EPS, and Free Cash Flow are not intended to be substitutes for any GAAP financial measures and, as calculated, may not be comparable to other similarly titled measures of performance or liquidity of other companies within our industry or in other industries.

Adjusted EBITDA

We define Adjusted EBITDA as our GAAP net income or loss before interest expense, net; income tax expense or benefit; and depreciation, depletion and amortization; further adjusted to eliminate the impact of stock-based compensation expense; initial start-up costs; transaction-related and other costs; accretion of asset retirement and environmental obligations; gain or loss on disposals of long-lived assets; gain or loss on early extinguishment of debt; other income or loss; and other items that we do not consider representative of our underlying operations. We present Adjusted EBITDA because it is used by management to evaluate our underlying operating and financial performance and trends. Adjusted EBITDA excludes certain expenses that are required in accordance with GAAP because they are non-recurring, non-cash or are not related to our underlying business performance. This non-GAAP financial measure is intended to supplement our GAAP results and should not be used as a substitute for financial measures presented in accordance with GAAP.

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

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(in thousands)","2024","","2023","","2022"],["Net income (loss)","$","(65,424)","","","$","24,307","","","$","289,004"],["Adjusted for:"],["Depreciation, depletion and amortization","78,057","","","55,709","","","18,356"],["Interest expense, net","23,010","","","5,254","","","5,786"],["Income tax expense (benefit)","(27,923)","","","8,768","","","52,148"],["Stock-based compensation expense(1)","23,183","","","25,236","","","31,780"],["Initial start-up costs(2)","5,303","","","20,607","","","7,432"],["Transaction-related and other costs(3)","8,367","","","11,435","","","1,784"],["Accretion of asset retirement and environmental obligations(4)","929","","","908","","","1,477"],["Loss on environmental obligations(4)","1,998","","","\u2014","","","\u2014"],["Loss on disposals of long-lived assets, net(4)","1,421","","","6,326","","","391"],["Gain on early extinguishment of debt","(52,911)","","","\u2014","","","\u2014"],["Other income, net","(46,178)","","","(56,048)","","","(19,527)"],["Adjusted EBITDA","$","(50,168)","","","$","102,502","","","$","388,631"]]
[[/GREPCENT_TABLE]]

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

(2)Included in “Start-up costs” within our Consolidated Statements of Operations and excludes any applicable stock-based compensation, which is included in the “Stock-based compensation expense” line above. Relates to certain costs incurred in connection with the commissioning and starting up of our initial separations capability at Mountain Pass and our initial magnet-making capabilities at the Independence Facility prior to the achievement of commercial production. These costs include labor of incremental employees hired in advance to work directly on such commissioning activities, training costs, costs of testing and commissioning the new circuits and processes, and other related costs. Given the nature and scale of the related costs and activities, management does not view these as normal, recurring operating expenses, but rather as non-recurring investments to initially develop our separations and magnet-making capabilities. Therefore, we believe it is useful and necessary for investors to understand our core operating performance in current and future periods by excluding the impact of these start-up costs. To the extent additional start-up costs are incurred in the future to expand our separations and magnet-making capabilities after initial achievement of commercial production (e.g., significantly expanding production capacity at an existing facility or building a new separations or magnet manufacturing facility), such costs would not be considered an adjustment for this non-GAAP financial measure.

(3)Pertains to legal, consulting, and advisory services, and other costs associated with specific transactions, including potential acquisitions, mergers, or other investments. For the year ended December 31, 2024, amount is principally included in “Selling, general and administrative” within our Consolidated Statements of Operations. For the years ended December 31, 2023 and 2022, amounts are principally included in “Advanced projects and development” within our Consolidated Statements of Operations.

(4)Included in “Other operating costs and expenses” within our Consolidated Statements of Operations.

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Adjusted Net Income (Loss) and Adjusted Diluted EPS

We calculate Adjusted Net Income (Loss) as our GAAP net income or loss excluding the impact of stock-based compensation expense; initial start-up costs; transaction-related and other costs; gain or loss on disposals of long-lived assets; gain or loss on early extinguishment of debt; and other items that we do not consider representative of our underlying operations; adjusted to give effect to the income tax impact of such adjustments; and the release of valuation allowance. We calculate Adjusted Diluted EPS as our GAAP diluted earnings or loss per share excluding the per share impact, using adjusted diluted weighted-average shares outstanding as the denominator, of stock-based compensation expense; initial start-up costs; transaction-related and other costs; gain or loss on disposals of long-lived assets; gain or loss on early extinguishment of debt; and other items that we do not consider representative of our underlying operations; adjusted to give effect to the income tax impact of such adjustments; and the release of valuation allowance. In addition, when appropriate, we include an adjustment to reverse the impact of applying the if-converted method to our 2026 Notes if necessary to reconcile between GAAP diluted earnings or loss per share and Adjusted Diluted EPS. When applicable, adjusted diluted weighted-average shares outstanding reflect the anti-dilutive impact of our Capped Call Options entered into in connection with the issuance of our 2030 Notes.

Adjusted Net Income (Loss) and Adjusted Diluted EPS exclude certain expenses that are required in accordance with GAAP because they are non-recurring, non-cash, or not related to our underlying business performance. To calculate the income tax impact of such adjustments on a year-to-date basis, we utilize an effective tax rate equal to our income tax expense or benefit excluding material discrete costs and benefits, with any impacts of changes in effective tax rate being recognized in the current period. We present Adjusted Net Income (Loss) and Adjusted Diluted EPS because it is used by management to evaluate our underlying operating and financial performance and trends. These non-GAAP financial measures are intended to supplement our GAAP results and should not be used as a substitute for financial measures presented in accordance with GAAP.

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

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(in thousands)","2024","","2023","","2022"],["Net income (loss)","$","(65,424)","","","$","24,307","","","$","289,004"],["Adjusted for:"],["Stock-based compensation expense(1)","23,183","","","25,236","","","31,780"],["Initial start-up costs(2)","5,303","","","20,607","","","7,432"],["Transaction-related and other costs(3)","8,367","","","11,435","","","1,784"],["Loss on environmental obligations(4)","1,998","","","\u2014","","","\u2014"],["Loss on disposals of long-lived assets, net(4)","1,421","","","6,326","","","391"],["Gain on early extinguishment of debt","(52,911)","","","\u2014","","","\u2014"],["Other","\u2014","","","(51)","","","(273)"],["Tax impact of adjustments above(5)","3,959","","","(16,482)","","","(6,716)"],["Release of valuation allowance","\u2014","","","\u2014","","","(2,845)"],["Adjusted Net Income (Loss)","$","(74,104)","","","$","71,378","","","$","320,557"]]
[[/GREPCENT_TABLE]]

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

(2)Included in “Start-up costs” within our Consolidated Statements of Operations and excludes any applicable stock-based compensation, which is included in the “Stock-based compensation expense” line above. Relates to certain costs incurred in connection with the commissioning and starting up of our initial separations capability at Mountain Pass and our initial magnet-making capabilities at the Independence Facility prior to the achievement of commercial production. These costs include labor of incremental employees hired in advance to work directly on such commissioning activities, training costs, costs of testing and commissioning the new circuits and processes, and other related costs. Given the nature and scale of the related costs and activities, management does not view these as normal, recurring operating expenses, but rather as non-recurring investments to initially develop our separations and magnet-making capabilities. Therefore, we believe it is useful and necessary for investors to understand our core operating performance in current and future periods by excluding the impact of these start-up costs. To the extent additional start-up costs are incurred in the future to expand our separations and magnet-making capabilities after initial achievement of commercial production (e.g., significantly expanding production capacity at an existing facility or building a new separations or magnet manufacturing facility), such costs would not be considered an adjustment for this non-GAAP financial measure.

(3)Pertains to legal, consulting, and advisory services, and other costs associated with specific transactions, including potential acquisitions, mergers, or other investments. For the year ended December 31, 2024, amount is principally included in “Selling, general and administrative” within our Consolidated Statements of Operations. For the years ended December 31, 2023 and 2022, amounts are principally included in “Advanced projects and development” within our Consolidated Statements of Operations.

(4)Included in “Other operating costs and expenses” within our Consolidated Statements of Operations.

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(5)Tax impact of adjustments is calculated using an adjusted effective tax rate, which excludes the impact of discrete tax costs and benefits, to each adjustment. The adjusted effective tax rates were 31.3%, 25.9% and 16.3% for the years ended December 31, 2024, 2023 and 2022, respectively. See Note 12, “Income Taxes,” in the notes to the Consolidated Financial Statements for more information on the effective tax rate.

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

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["","2024","","2023","","2022"],["Diluted earnings (loss) per share","$","(0.57)","","","$","0.14","","","$","1.52"],["Adjusted for:"],["Stock-based compensation expense","0.14","","","0.13","","","0.16"],["Initial start-up costs","0.03","","","0.11","","","0.04"],["Transaction-related and other costs","0.05","","","0.06","","","0.01"],["Loss on environmental obligations","0.01","","","\u2014","","","\u2014"],["Loss on disposals of long-lived assets, net","0.01","","","0.03","","","\u2014"],["Gain on early extinguishment of debt","(0.32)","","","\u2014","","","\u2014"],["Tax impact of adjustments above(1)","0.02","","","(0.08)","","","(0.04)"],["Release of valuation allowance","\u2014","","","\u2014","","","(0.01)"],["2026 Notes if-converted method(2)","0.19","","","\u2014","","","\u2014"],["Adjusted Diluted EPS","$","(0.44)","","","$","0.39","","","$","1.68"],["Diluted weighted-average shares outstanding","169,882,640","","","178,152,212","","","193,453,087"],["Assumed conversion of 2026 Notes(3)(4)","(3,042,029)","","","15,584,409","","","\u2014"],["Adjusted diluted weighted-average shares outstanding","166,840,611","","","193,736,621","","","193,453,087"]]
[[/GREPCENT_TABLE]]

(1)Tax impact of adjustments is calculated using an adjusted effective tax rate, which excludes the impact of discrete tax costs and benefits, to each adjustment. The adjusted effective tax rates were 31.3%, 25.9% and 16.3% for the years ended December 31, 2024, 2023 and 2022, respectively. See Note 12, “Income Taxes,” in the notes to the Consolidated Financial Statements for more information on the effective tax rate.

(2)For the year ended December 31, 2024, since the 2026 Notes were dilutive for purposes of computing GAAP diluted loss per share but antidilutive for purposes of computing Adjusted Diluted EPS, within this reconciliation, we have included this adjustment to reverse the impact of applying the if-converted method to the 2026 Notes in the computation of GAAP diluted loss per share.

(3)For the year ended December 31, 2024, since the 2026 Notes were dilutive for purposes of computing GAAP diluted loss per share but antidilutive for purposes of computing Adjusted Diluted EPS, the adjusted diluted weighted-average shares outstanding exclude the potentially dilutive securities associated with the 2026 Notes.

(4)For the year ended December 31, 2023, the 2026 Notes were antidilutive for GAAP purposes. For purposes of calculating Adjusted Diluted EPS, we have added back the assumed conversion of the 2026 Notes since they would not be antidilutive when using Adjusted Net Income (Loss) as the numerator in the calculation of Adjusted Diluted EPS.

Free Cash Flow

We calculate Free Cash Flow as net cash provided by or used in operating activities less additions to property, plant and equipment, net of proceeds from government awards used for construction. We believe Free Cash Flow is useful for comparing our ability to generate cash with that of our peers. The presentation of Free Cash Flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities and does not necessarily indicate whether cash flows will be sufficient to fund cash needs.

The following table presents a reconciliation of our Free Cash Flow, which is a non-GAAP financial measure, to our net cash provided by operating activities, which is determined in accordance with GAAP:

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(in thousands)","2024","","2023","","2022"],["Net cash provided by operating activities","$","13,349","","","$","62,699","","","$","343,514"],["Additions to property, plant and equipment, net(1)","(186,322)","","","(259,097)","","","(321,465)"],["Free Cash Flow","$","(172,973)","","","$","(196,398)","","","$","22,049"]]
[[/GREPCENT_TABLE]]

(1)Amounts for the years ended December 31, 2024, 2023 and 2022, are net of $0.1 million, $2.8 million and $5.1 million, respectively, in proceeds from government awards used for construction.

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Critical Accounting Estimates

Preparation of the Consolidated Financial Statements in accordance with GAAP requires our management to make judgments, estimates and assumptions that impact the reported amount of revenue and operating expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (i) the estimate or assumption is complex in nature or requires a high degree of judgment and (ii) the use of different judgments, estimates and assumptions could have a material impact on our Consolidated Financial Statements. Our significant accounting policies are described in Note 2, “Significant Accounting Policies,” in the notes to the Consolidated Financial Statements. Our critical accounting estimates are described below.

Inventories

Raw materials, mined ore stockpiles, work in process, and finished goods are carried at weighted average cost. Supplies are carried at moving average cost. All inventories are carried at the lower of cost or net realizable value, which represents the estimated selling price of the product during the ordinary course of business based on current market conditions less reasonably predictable costs of completion, disposal, and transportation. Costs of completion include labor, utilities, reagents, maintenance, and allocated production overhead costs.

We evaluate the carrying amount of inventory each reporting period, considering recent and expected market prices, slow-moving items, obsolescence, excess inventory levels, and other factors and recognize related write-downs if it is determined that the inventory is impaired. In addition, our estimate of costs of completion is impacted by forecasted production levels, which are particularly sensitive while our midstream operations are at subscale production levels. Although considerable effort is made to ensure the accuracy of our forecasts of future product demand, market conditions, or other cost assumptions, any significant unanticipated unfavorable changes in market price, demand, or expected usage could have a significant negative impact on the value of our inventory and our results of operations. Until such time that we achieve our anticipated throughput, we may continue to incur write-downs of our separated product inventories. See Note 4, “Inventories,” in the notes to the Consolidated Financial Statements for more information.

Revenue

We recognize revenue from sales of rare earth products produced at Mountain Pass. We recognize revenue at the point in time control of the products transfers to the customer and our performance obligation is typically satisfied when we deliver products to the agreed-upon shipping point. The transaction price for our rare earth concentrate products is typically based on a preliminary market price per MT, with an adjustment for the ultimate market price of the product realized by Shenghe upon sales to their customers. At the end of each reporting period, we estimate forms of variable consideration, including an assessment on constraining such variable consideration, based on historical experience, current market prices and currency exchange rates, and other factors that can be reasonably anticipated. Historically, the differences between our estimates of variable consideration and actual consideration have not been material to any reporting period.

Asset Retirement Obligations (“ARO”)

We recognize ARO for estimated costs of legally and contractually required closure, dismantlement, and reclamation activities associated with Mountain Pass. ARO are initially recognized at their estimated fair value in the period in which the obligation is incurred. In determining fair value, management makes estimates based on the expected timing of reclamation activities; cash flows to perform activities, which involves utilizing an assumption for future inflation; amount and uncertainty associated with the cash flows, including adjustments for a market risk premium; and discounts such amounts using a credit-adjusted risk-free rate. Although we base our estimates on historical experience and reevaluate our estimated timing and cash flows regularly, since the majority of the cash flows to settle our ARO occur decades in the future, it is inherently difficult to accurately predict the ultimate cash flows used to settle such obligations. As a result, these estimates and assumptions are subjective and can vary over time. See Note 8, “Asset Retirement and Environmental Obligations,” in the notes to the Consolidated Financial Statements for more information.

Recently Adopted and Issued Accounting Pronouncements

Recently adopted and issued accounting pronouncements are described in Note 2, “Significant Accounting Policies,” in the notes to the Consolidated Financial Statements.

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