Jim Litinsky: Sure. Well, Corinne, let me — there’s multiple parts to that. Let me take them all. With respect to Stage III, I think we were very careful in how we set up that business going way back to the beginning and making sure I think if you — on some of our earlier calls, we said repeatedly that we weren’t going to rob Peter to pay Paul. In other words, we were viewing that business as a standalone business where we have to earn an attractive return on capital to make that investment. And so as we proceeded with that, we structured initial contracts to make sure that we felt like that was an attractive business. There’s no doubt that the playbook around the world has changed with respect to the cost of capital, the overall perception of electrification and the pace of penetration.
But what I would tell you on that is that we’re talking about a Western world supply chain that basically doesn’t exist. And so going from zero to something is still a very attractive opportunity. To the extent that something changes, we’re always flexible and opportunistic and are willing to throw out any playbook at any time if that makes sense. But from everything we see on the ground today, even though the environment is tough, from what we’re hearing from customers, there’s still a desire for this supply chain to exist. Admittedly, there’s just a lot of pain and challenge with — from a capital and execution standpoint to make all of that happen kind of writ large. With respect to overall other prices, I just want to take you back to — because I think it’s really important, and forgive me, if I say this repeatedly, I know I kind of addressed this earlier, we can’t predict commodities prices.
Nobody knows. Even the people on the inside, nobody knows. And all you can do is position yourselves you sort of act within the things that you can control. And from the beginning, we set up our balance sheet to make sure that we could survive a variety of environments. And if you look at our business today, just look at our initial content, we’re a low-cost producer to the world. And so as things get uneconomic, of course, they can be uneconomic for a period of time. but they cannot persist that way indefinitely forever. And so what we focus on is being absolutely low cost. And that’s why again, we wanted to highlight on the call today, there’s a couple of things about our business, we’re not standing still in this environment. Upstream 60K is a modest amount of capital to expand our REO output by approximately 50%.
That’s incredible. I mean, if you think about — and again, I get that the pendulum is sort of to the negative today. But if you think about when EVs were as cool as AI is today, right, a few years ago, people perceived the assets of MP before we had done a lot of this work to be worth $10 billion. So now add that by 50%, and that means the new upside is $15 billion without adjusting for inflation over a long period of time. And so, the point is that these pendulums swing back and forth, all we can do is control the things that we can control and work on executing this. And so — that’s also why, lastly, I just — the last point is I thought Ryan’s comments were really important. With respect to Stage II, we — the new playbook is we are thinking very thoughtfully about making sure that our Stage II, our refining is ultra low cost.
We’ve made incredible progress in that business, but we have a long way to go. And if prices were at 150 NdPr, we might not care about a few bucks here or a few bucks there of cost. But in this environment, we do. And I do think also that having to fight through and survive environments like this is what makes for great operations, right? When you have no alternative but to get your cost down because you need to survive, that’s you really do a lot of great work. And we’ve lived through that, right? If you — we took control of these assets in ’17, and it was hand to mouth for quite some time. We went through a cycle of a down cycle and survived very strongly. And so no doubt that this time, we will, and that’s how we’re thinking about things.
We do not spend a lot of time trying to predict prices.
Corinne Blanchard: Great. Thank you very much. Good luck.
Operator: Our next question comes from Bill Peterson with JPMorgan. Please proceed.
Bill Peterson: Yeah. Hi, good afternoon and thanks for taking the question. I’d like to ask kind of prior question or similar lines of questions in a different way. Is there kind of a right level of pricing where you would cycle more through Stage II? And maybe I guess is there a minimum level you would need to run to — I guess, maybe continue to try to improve sort of debottlenecking yield, overall cost improvements across separation, finishing? Is there like a minimum level? In other words, can you make cost improvements by running a lower rated Stage II, such that if it was a higher price environment, you could really take advantage of that from that leverage.
Jim Litinsky: Michael, do you want to go ahead?
Michael Rosenthal: Yeah. Hi, this is Michael. Sorry about that. I think just to start off with the last part of that question, we are currently running all circuits at commercial and significant throughput volumes. So we are able at those levels to demonstrate chemistry to demonstrate throughput capability and demonstrate the effectiveness of our processes. So that’s not a question. We do run at lower uptime in parts of the Stage II business or all of the Stage II business than we do in the upstream business. As we continue to make improvements in each area of the operation, we will see that cost structure come down and the trade-off that Ryan talked about running through Stage II versus running at more modest volumes and producing more concentrate for sale.
We’ll see that pendulum also swing. And so we expect — and I mentioned, starting 2Q, we expect that to become more noticeable. But as we get leach yields in an area or in a position where we’re maximizing recovery of NdPr and at the most reagent effective method, we will run more material free leach once it gets that far. We will have to produce it as a finished product. But we want to make sure that also when we’re at that point, we’re not losing material through inefficient operations in, for example, purification processes or losing material in product finishing. So all of those things, we want to make sure that we have the process, the integrated process running efficiently before we push through volume and end up losing hard-won gain in one part of the process.
So we’re very confident that we’ll do that because we see every day, we see the progress every single day. And we see that the process works. We just also see opportunity to do it better. And in the current pricing environment, the necessity of pushing volume just for volume’s sake to repeat what we’ve already said, that economic trade-off is not at a start.
Bill Peterson: And then on the pricing, like what kind of — I mean, there was some number of 70 to 90 that may not be attractive, maybe 150. What is the right work — how do you guys see what the framework where that would make more sense?
Ryan Corbett: Yeah, Bill, this is Ryan. I think my — maybe I’ll start. Mike, feel free to jump in. But my offhand comment on 70 to 90 was not that it was unattractive. It was that I do not think for many greenfield projects that, that is actually the incentive price. I think there are a lot of hopeful projects out there that think they will be economic at 70 to 90 and likely will not be, which is referring back to Jim’s comment. That’s exactly what we’ve seen and probably one of the largest potential additions to supply in the Western world. So that was my comment. I think 70 to 90, again, you can do the math on the incremental profit potential of going from selling concentrate to separating the product and selling it as oxide.
There is significant incremental profit at 70 and at 90. There’s incremental profit at 55. But if we know that the parts of the process that are suboptimized, I think what Michael was walking you through is we make the decision every single day, whether to run or not based on the trade-off of the potential profit we get in our upstream product versus pushing suboptimized product and maybe losing yield or adding an incremental dollar to a variable cost that makes that trade-off not worth at these prices just to push volume for volume sake.
Jim Litinsky: And I just want to add because I referenced it but expand upon it because I know I’ve probably — again, like a broken record, have talked about this on a lot of calls, where when we think about global supply and how hard it is to get this stuff online. From a financial analysis perspective, it’s sort of very easy to pick an incentive price and then sort of assign that number and expect that people will come online and they can earn an attractive return at that number. The practical reality is, and again, as Ryan just referenced, look at the sort of the biggest source of potential incremental supply that was expected to come online out of Australia has just come out and said massive cost overruns does not necessarily have the capital to complete sort of meeting support because there’s — the reality is that these are really hard things to get online.
And again, that’s why I go back to the value of what we have. Again, if you take any amount of medium or long-term view, the ability to get this supply online, it’s really challenging. That’s also why, Upstream 60K was a relevant thing that people should appreciate about what we believe is our ability to bring on incremental supply. But also to be clear, the comment when Ryan was giving those numbers, that was not to suggest that there’s not a lot of incremental profit at 70 or 90. That was not the point there is. At these prices here, we are being extra thoughtful because we just want to maximize our cash flow. But we are still working very maniacally to get our cost structure down because we know that the pendulum will ultimately swing. And typically, the cycle seems to be moving faster these days.
And so that pendulum may swing back much more quickly than people think.
Bill Peterson: Yes, that’s all well understood. I’d like to ask M&A in a different way, but actually kind of maybe similar to what you’re kind of getting at. You mentioned earlier about the stressed assets. Are there actually — I’m not talking about the rumored M&A, I’m talking about are there other assets out there that may make sense for you to take on as you think about a long-term potential market or even areas like heavy rare earths as opposed to light as part of your magnetization efforts, things like that. I just wondered if that’s of interest as maybe assets are lower valuation these days.
Jim Litinsky: Yeah, absolutely, Bill. I mean that’s why we — it is very important for us to have positioned the company to be able to be offensive at times like now. And we’ve talked about how our expectation is over a long period of time, we’ll be able to pick up a lot of invested dollars at $0.10, if you will. I do think there is typically, when you think about a project, there’s typically a disconnect where you have someone who’s started it or promoted or whatever, and they think it’s going to cost x and they want to get wide discount rate. And then what inevitably happens is it turns out it cost 3x and the discount rate is why plus something. And so there needs to be typically catalysts that cause those two perspectives to converge to something that is sort of doable for all sides.
And times like now are the kinds of times that cause that weather that caused that to happen. And so that’s a long-winded way of saying that we’re always looking opportunistically and expect that there will be some opportunities out of this. But again, whatever the investment is, I think the — I go back to Upstream 60K, which is from an opportunity standpoint is an enormous home run relative to anything we see out there right now.
Bill Peterson: Yeah. Makes sense.
Jim Litinsky: Next question. Thanks, Bill.
Operator: Our Final question comes from [Davis Sunderland with Baird] (ph). Please proceed.
Unidentified Analyst: Hey, guys, thanks for the update. Appreciate the time. I was just wondering if you could talk a little bit more about the physical expansion that’s already been completed for Upstream 60K? Maybe any incremental capital that will be spent on that this year and just how we think about volumes ramping up from that over the next four years.
Jim Litinsky: Mike, you want to kick us off?
Michael Rosenthal: That’s right. The total amount of capital spend this year will be relatively modest. We have small equipment expansion to our grinding circuit, which we think will help release some additional capacity there and also result in more efficient grinding, which we think will be a key contributor to better flotation recovery. That’s the one kind of capital activity that we have ongoing. We have significant other piloting activity, and we’re working to execute all of these plans as capital efficiently as possible. As I’ve said in the past, there’s sort of three ways of looking at it. One is sort of optimizations, which are effectively low capital. Others are sort of modest capital investments that we hope have sort of step change improvement and then there’s the possibility of some larger investments, which lead to a much bigger potential the throughput increases over — for production.
So the one project ongoing now that I think we talked about is in the second category with modest capital that we hope would be to some degree of step change in that recovery, but we don’t have that built into our plans for this year. So we hope to bring it online sometime in the second half of the year.
Unidentified Analyst: Awesome. Thanks guys.
Operator: Thank you all for your questions. That will conclude the Q&A session. I will now turn the conference over to Jim Litinsky for further remarks.
Jim Litinsky: Well, thank you, everyone. And I just wanted to reiterate that despite what is clearly a tough pricing environment, I think the execution across the board across all stages of our business has been really remarkable. And I have no doubt that we are positioned very well for the coming months and years ahead. So we wish prices were higher, but we won’t focus on it. We’ll just keep working on the things that we can control and continuing to execute for you all. So we look forward to seeing you next quarter. Thanks, everyone.
Operator: That concludes today’s conference call. Thank you all for your participation. You may now disconnect your lines.
