#AIS: MP Materials CEO James Litinsky on rare earths, supply chain, and energy independence
28:38 Share

Okay, so I wanted to do somebody, uh, this is a an incredible story of a turnaround of a business that impacts a lot of us in america, if you care about climate change in seta. Uh, his name is jim ln skii. And here's a guy who had all the success in the world running a hedge fund successfully, a business called Molly corp.

Goes into bankrupcy. He basically puts his entire fund in IT, brings that out of bankrupt, manages to build one of the first minds that was completely cleared. You heard what I said about california in california that minds some of these rare earth and critical metals that we need to make permanent magnets that we use in electric motors on the front lines of climate change, building factories now in south CarOlina with gm. And so gonna, through these things were going to talk about climate.

You were right.

We, man, give.

We open sort to the fans and .

just got ready.

everyone. So i'm jim, are you saw in a hedge fund and i'm now in the accidental industrial alist um so I want to take you through that journey um and then well, I do that will go through the problem that i'd like to solve, just rewrite some contact. So I think um if we think about a lot of the things that just came up with respect to the economy, it's been about a decade plus since the global financial crisis.

And in that decade plus, we've been in this environment where there's been essentially a full on boom, a lot of money printing and essentially is a very low or negative cost of capital in growth and technology, right? And what we've seen now, I guess we're on the the beginning stages of the aftermath of experiencing that economic animal, as was just discussed. But we we have just been through this period of of over a decade where there's been all of this money that has been gone to growth.

And what has happened during that time, sa multi eusden is the real economy has been starved. You haven't seen, I doubt many of you have friends they're investing in new steel mills or alyuminiy ls or nickle mines, maybe nickle mines now, right. But well, the real economy has been starved actually. Interestingly, we haven't noticed IT so much one because we're just starting to scale into electrification um but china has made investments.

So um pretty much all of the incremental steel and aluminum and commodities capacity in the world over the last decade has come online um because you know china has LED the way and you know as an aside um interestingly, about eighty percent of the aluminum and eighty eighty percent of the steel production in china's done with coal. So not only has this been you know, not only have they sort of taken over the real stuff and this isn't about wherever you are on the on the spectrum of are they just a really tough competitor or is this, you know, kind of economic grow war three a doesn't matter. What matters is, is that the incremental stuff in the real world has really the way has been made by china.

And and so when we think about what's now happening in the world as we electrify what I want to move on the next one here. I think one good thing about going after elan, as I don't have to really explain this chart, we are electrifying. And as we electrify what a lot of people might not fully understand is that, well, all this real stuff has come online ah the chinese have actually moved down the stream very intelligently. And so when we think about a lot of people may have heard of china twenty twenty five, but a lot of people probably haven't heard of a china twenty thirty five, which is the current mo, which is to move downstream in the standardization. And so actually .

when we look around the .

world today, four of the top ten OEM our chinese by global battery electric share. And so when we think about the single largest private employer in the country, the auto industry, we think about all these industries um that are mineral intensive. The chinese are actually have moved downstream and these are these are very mineral intensive industry.

So what this slide shows is as we go from a fossil fuel world to an electrification world, which we all, I think everyone in this room believes is is fake complete. And this actually excludes steel and elimination just in the the content of copper nico litham. And then what I focus on rare earths and some of these other things, um there's seven times as much content.

And so when we think about the the past of the fossil fuel driving a geopolitical uh games, manship and power in the world, the future is about minerals and what I focus on our earths. And so um we are going to get to to my journey as an excEllent uh industry a minute. But when you can see here is realms, there are kind of the way to think about IT is sort of like A A Young cousin of semon doctors.

Um to the E V business. So regardless of of how electrification happens, regardless of battery chemistry, how that a energy gets to a motor, that motor moves via magnets. And so this industry is expected to explode.

Um and it's not just it's not just evs, it's when turbine stones robots. Can anyone actually guess where this robot is wrong? This is is actually from short circuit.

John y number five. But i'm hoping elon will get us a Better robot of the future. But we think about all these industry is magnetics.

Um it's it's really powerful. So um that's unfocused. And this is just an example of the commodity needs as we elect fy.

If we take those projects of what's going to happen in electrification, just in my space, so this is nd, pr. This is the the stuff that we make the input into magnetics. You can see there's a huge deposits that is looming.

And moving on, look at my space. Here's the chAllenge. So outside of us, this entire supply chain is essentially doma sad in china and IT doesn't even have to be nefarious. But what happens when the largest manufacturer in the world are all competing for what I showed you on that prior slide, a shortage of supply. And we've seen lots of headlines, whether it's the semiconductor issue or just today, there was A A headline that Robin is fighting with the supplier over seat costs.

You all of these things where we're seeing the shortage is in the supply chain that, that are flowing through um if there's an allocation of materials and the materials are controlled um by china or another geopolitical rival, which downstream businesses do we think we are going to get those materials? And this is actually now an extension al issue for all of us. Um so back to my story.

Um so this is now past this is the mind to math mention that um we bought this at a bankrupcy in my fund going back about five years ago. This site went bankrupt. A IT was a public company sort of IT rose.

And then I fell and nobody believed that we could compete against china. In fact, I had to we showed up. I showed in the della's are course steps.

I mean, IT was literally like out of a movie, there were other creditors or pushing to send this thing in a bankrupcy. And you look at this thing, you're like, wait, this is the one of most valuable rare of materials minds in the world. And and this is the future.

This is a material for electrification. And no one wants that. Not only is no one want IT, but people think that actually we can even produce their economically because the chinese are taken over the industry. And so we actually kicked in a couple million dollars just to keep IT in car madness, just to keep the eight employees onside going, so that this thing could actually keep its permit through the bankrupcy, because otherwise they were just going to raise IT to the ground.

So we we went through that journey um and we ended up buying and so this asses this is about two billion dollars of replacement costs not to mention the fact that um this is one of the markey sites in the world and and um you is in a state jurisdiction, all of these assets up over here to the left. These are what make IT envionmental ally friendly. So we don't put anything back into the water supply.

We have dry tAilings, which essentially means that um for sure we're the cleanness where Operation in the world if you go on to youtube, you can kind of see how history ally some of that mining and processing is done but no one wanted IT um and everyone thought that that this couldn't be done but we bought IT out a bankrupcy we took on IT was sort of A A distress turn around and start up at the same time. We had we had no accounting software. We literally had eight people in a mine and I show up on the hetchy manager and know people thought I was pretty insane and probably I know what I was getting into.

Like I said, I was an accident, but I I couldn't believe that no one else wanted to do this. And I Frankly, that I felt, as an american, somebody had to do this. And you, there I was on the court of steps.

And so I went for IT and you know fast words at today and we're now we're now public. We went a tramp mention went public a couple of years ago or six and half billion doll market cap. It's been obviously a massive thank you.

So this has been a massive home run for myself in my investors. But more importantly, I, I and I only little that ultimately worked capitals here. We want to do a great job for for our clients and ourselves.

But I hope that we can can contextualize this for what needs to happen throughout our economy because I do think that um as painful as the adjustment may be that we're now in this period that we're about to be in um with with you know some of the as the capital comes out of the growth space, there is going to be a big beautiful bull market in real stuff. And IT is just beginning. And I can give some statistics with the best is I don't want to ruin my best time, so i'm going to finish up quick.

But there is a lot of stuff that needs to get built and this supply chain stuff is. And so what we're doing at mp, you can see our stage when we're doing um we just reported our quarter couple weeks ago. We're now from a site four years ago that I had to beg on the courthouse steps just to keep IT alive.

We're now doing um approximately four hundred and fifty million of a run rate ebata today. So and then uh, we announced the deal we announced the deal with gm. We actually have already broken grounds, a magnetics facility and forward taxes.

And this is a scale deal. It's not exclusive. We expect to bring in other OEM. We will be making magnets.

So we'll be shipping material that will be environmentally produced from mountain past california over to our sign for worth and make magnetics. And our goal is to build a western magnet ics champion. And so I guess with all of that, I would say, um hopefully this kind of thing can inspire you. We need the good news is there needs to be a lot more stuff like this or maybe I share some stats on some of the other space because I don't want to make this just about earth.

But when we think about all the materials that we need for this electric fiction boom, uh, and the supply chain that needs to be built, this is like, this is the era of its as if know the nineteen teens and ford is just out I mean there is an an entire supply chain and its not just tvs, it's when turbines, its drones as robots and IT needs to be a bunch of real stuff that we all create. And so um I don't think some percentage of us don't need to necessarily debate whether a crypto is going to go up or down now a time to pay that. I think because this is something that we need to do um to to get competitive again. So I guess with that, all fat the mike and feel the fire from the best is thank you.

Tesla and their quarterly earnings said something to the effective um you we are going to consider becoming a mining companies. Well, right. And then I think elon said something on the earnings call of which I thought was religious. And he's like I encourage every entrepreneur there to get into lithium. Please become a lithium minor, right? Um so maybe if you can just quantify for us and I you shows the the the gap for your for N D P R, but broadly speaking with him and all the other things that we need to actually electrify and get to a reasonable place and climate change, how behind the curve are we really?

So it's a great question. And the data is tough because a lot of IT is reliant on battery chemistry. And so we don't know exactly how much Nicole be, how much you, but we do know certainly lithium, nickel, copper, all of these things, it's multiple.

We need. Here's actually maybe this is a great, sad, some some good source that I utilize estimated that we probably need on the order of forty to fifty copper and nickel projects over the next couple decades. So call IT roughly two hundred billion dollars of capecchi to satisfy the demand for electrification that we have over the next couple decades.

And what's so interesting you mentioned, and obviously I assume elon seize this, is if you look at the multiple les, just think about IT from a strict investor point of view, from a financial arbitrary and point. Look at the multiples of where auto EMS trade or certain in tesla, and then look at what's happening the mining industry today. So so actually the nickel industry is dominated by essentially glancin valley, those two businesses.

And i'm not not pitching stocks, but as an investor, we'll see with the example those two businesses right now at today, commodity Prices are essentially going to free cash for themselves out in three years about and they're buying back stock, right? And so this is how start the arbitrage is that in the real economy, mining and materials companies, steel companies are trading a double digital free casual IELTS, their buying backstop. They have no leverage in their businesses.

And then downstream, everyone's reliant on them. In upstream, these guys, they don't want to spend to build out new capacity because the capitals too high. So it's going to happen is I think you're going to see um maybe an A O L time Warner moment. And I don't mean at the negative way, but I think you could see a tesla or someone like that buy upstream into these industries because ultimately downstream, they all lize that the real stuff is in shortage and you can't have the enterprise value downstream because it's .

like mysore chairs. How much of your night when you're sleeping, do you think there's an x percent chance i'm to have some huge environmental cattles py? Like part of I think why a lot of folks, folks like this, who could probably go into that business don't is in the back of their mind.

They think men, this is like, this is a lot of nearly stuff. If something goes wrong, how do you manage that risk and how well, how big is at risk? We try to do this in america.

So the single most important thing we do at mp is safety. And we actually, on our last call said last two years, we've had two years without a lost time injury. And we gave everybody, every single employee in the company, a bit of cash bonus to celebrate ate that milestone, which is really critical.

The reality is this is in software, right? It's a real stuff. All we can do is our best. I I just think I think Frankly, as as human being, as an american, I would rather have minds being done in eating in the state of california over elsewhere in the world where I certainly know that. I assure you that nickle mining in russia is not as environmentally friendly as IT is in canada.

But I think most people may or may not know this. But for example, all of the cobalt that goes into a lot of these E S. A lot of IT comes from D, R.

C. And if you go and see the state of governance in D R C, women rights in D R C, child rights in D R C, they're not exist. And so IT is a very, very complicated um dirty supply chain that feeds the beast. And even though you may think you're doing the right thing by you driving this plug in hybrid or you know your together prius, if you trace that stuff back, it's a really complicated.

And this I think we've forgotten a big education on supply chain over the last two years with covet and the value may be of redundancy. And what happens if you give a dictator a little too much power than the germans are learning a hard lesson about what happens when you shut down nuclear reactors in the side? Hey, let's buy our, let's buy our energy from putin.

A great point you raised about the germans because I think it's a fair analogy to say that germany is to nag us as we are to china supplies. And so we see, we see this coming, right? We see. And again, this is the geopolitical leverage.

It's a national security issue, is a national security.

It's A A .

democracy. A democracy issue .

is that a war issue? Is that something that gets to the point where we would have to go to war if, for example, we didn't get the natural resources in critical elements we need. Nothing said that I could not. That would happen, but could IT happen. Where is so important that all these other countries can electrify?

And how about this? I'll make a prediction. I'll bet that in the next five years, we will see a major household name OEM fail and need to bail out due to not you know Prices and up on them, but lack of access to a material. Some kind .

of critical .

in a problem.

Do we if you think about what do we need to even predict, we went to a number of wars in the middle ast over oil. So if this is the new oil, and that is the analogy, it's clearly gonna you conflicts. And the question is, are we going to build a strategic reserve of these materials?

Do we have a strategic reserve? We talked about the food supply problem. And for ever educated us on, hey, we've got like thirty days of food. This country has ninety days of food. Do we need of a strategic reserve of these rare of minerals?

And just and I just don't think they'll be enough because when you think about this is we're talking about chart, trillions of dollars of year to electrify a so great demand is so great, we're talking about build up supply. We can build up supply or if we can, we need to put the capital in. And right now, and that's why, again, well, the the investor panel, maybe they can lead into this, but that's why I think the whole spaces are screaming by because if you look across all these companies, the cost of capital is just so high. And so one of two things has to happen or both, which is Prices just have to go vertical, uh, where someone starts taking them out or we're just not gonna the stuff to electrify.

Understand that there has now been demonstrated significantly more lithia tell me from off on this in the oceans than there isn't a crust and there may be systems for extracting with them from the oceans that are electric chemical in nature um that will allow us to kind of access that resource and what you know, obviously, if you can get a system that can scale, you can get IT all very quickly.

I T let me step back and then step down to investment styles or psychical, just like industries, I believe in cycles, right? The cure for high Prices is high Prices. There's no question of my mind whether it's that or there will be someone or Frankly, maybe someone in this audience.

We will have some breakthrough, right? And so we will solve this problem. But the chAllenge is, is that I don't even think that we've ignited the proper focus and resources to actually solve this problem. And so there maybe that may be an example of a solution, but battle take five to ten years. But in the meantime, there's there's a lot of resources that they need to be applied to.

Adam jonas, who is the poto analyst at Morgan stanly, causes us the mother of all cap bc cycles. I think great. And I think his estimate was like, you know something like three trillion dollars of capex. S needs to get spent over the next decade even to have a living chance on all of this stuff um and so if you're looking at new areas, so take your N D P R N P materials head off um but if you are in the same position you were back then now not not really you don't need to go to the courthouse steps.

But where would you be looking? You know, would you look at livia? Would you look at nico? Would you look at trying to do what you know china is doing and create Better and simpler er and cheaper chemistries for batteries? Like where would you spend your time right now if you doing M P?

So I think you actually set IT perfectly well in the leading, which is just anything that is real stuff. And so yeah, all of IT, lithia, copper, nico steel, aluminium, all of these areas that have been starved. The cost of capital is just so high across the world that if you can come up with solutions to deliver the shortages.

And again, i'm not saying the next three months we could have a brutal recession for six months, but we see the long term five, ten year trend. I think anywhere you look in this space, you're looking in the right direction. It's a wind that you're back as opposed to and again, and not you taking of you, but to come up with the new ucar pt of currency right now, it's a huge wind that you're back rode to.

Could you get your mind Operational in today's political environment? Do you think like if you had to start from scratch or if you found a new thing in nava or whatever IT is.

that's a great question. And that's the chAllenge is that IT takes to get any of these things. IT takes a decade, right? IT takes if you have all the capital in place, all the human capital or just the you have going through that process to build IT the materials costs.

And so I could I do IT. I think the world needs IT. And I think that what we do environmentally is so unique that I think we could get IT done.

But this is a big chance. And I think, Frankly, it's it's a you guys we're talking in the last session about we need to come together. This is a big time area where we need to come together.

There should be a grand bargain, right? There should be the environmentalists should say OK. I accept that we need this stuff. I accept that we don't wanted to be only made in russian china. And they should loosen up on some of the permanent stuff. And I think the people who are just like georgia, your mind mind mind don't care, need to accept that we need to have really tough standards um and I think we should have some kind of grand bargain and I could be your tax policy focused on IT. But there needs to be some kind of coming together in our country to recognize .

that we need this time in, let's be intellectually honest, people are hypocrites s the the people in the eu, people in united states, they want the energy they want achieve. They're complaining about the expense of, you know, even a modest increase in energy costs, ten percent, twenty percent, which they could stand. They will complain about IT, and they will not allow fracking in their country.

But they're more than willing to let russia, france, for they don't want the coal bolt coming out of the ground in california. They're more than willing to let fifteen year olds digit out of the ground without a next eight year old. Lds, as horrific as IT is.

And it's intellectually dishonour this democracy. And I think we have to own the that we want to live in large houses, and we want to blow the air conditioner on some ridiculous setting. America's homes are three times bigger than other homes.

So to build on this two, two very quick stories, there is a massive deposit lithium in vta, which would be enough to basically feed tesla and another om. Okay, so this would get probably summer between one and one and a half million cars, pure uh electric on the road by twenty thirty. And there they were completely permitted um by the B L M, the beer of land management.

And there was a loss that that was pulled and it's still wrangling its way through the federal court system. And what IT is is a claim that the there is an upper woodgrove that could be endangered um through this mining. They have yet to find an natural upper world growth in the area and but nothing can have the theoretical and so the problem is that we've now delayed two years.

You I could get resolved this year, but I could be another two, three years, which means a lytham um isn't actually available until twenty. Warming continues to one story. Second story is that just yesterday the california uh the city of coasters a rejected a bid to build an electrical sis facility to create a hundred million leaders of clean water every single day. Um is the deco plant .

the deco .

plant because they didn't want IT because .

they going to lose some jellyfish .

or something. No, they just didn't want IT was unsightly. I don't want this in pretty a cost of so and and so to your point, when the rubber meets the road, these unfortunate decisions get made and there's no way to sort of come talk.

These people want to take thirty minutes, hours. I mean, that's the hypocras y of that if americans .

really want to talk about.

Concerning was in, I wasn't calling you out specifically, but since you unclose yourself cacti, us, in fact.

complete such a great point. And my entire argument is that we're going we will answer this question as a country, either now or later. And the point about four of the ten largest auto EMS in the world are now chinese companies. And so this is now a competitive issue.

And so we can keep kicking the can. Are you kind of like the line and just cut through the nonsense because of the government was like you?

Well, I think I think that it's fair to say that the the local officials are very happy with what we've done, with what we've achieved, the informer, the magnetics facility. We have some partnerships with dod. The president announced those, the G M.

Things in in texas xi. So I think that there is Frankly support from both sides of the isle for what we're doing. You know, there were executive waters on the rare earth magnetics industry, specifically both in the trump administration and in the biden administration. So I think what we're doing is hopefully non partisan and and Frank, I think all this should be and that that know the point about the grounds bargain. But even you raise a great point about just all of this stuff that is there's so much push back and we we need to figure out a way to get past that because this stuff has has to get me I mean.

not a huge fan disclaimer.

I was also in investing.

I am not an invest company, but we do appreciate you give us the education and we do need to be independent from communist countries and and really have the supply chain situation dial in to appreciate the hardwork for amErica and for freedom .

and I have you got so thank you. 我 对 ring man .

give IT .

time we open sources to the fans。 And i've .

just .

got crazy with. Why, right?

We should all just get a room, just have one big, huge, or because there are.

Sexual tension need to release me.

we 离开。