MP MATERIALS CORP. / MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

The following discussion and analysis of financial condition, results of
operations, liquidity and capital resources should be read in conjunction with,
and is qualified in its entirety by, the unaudited Condensed Consolidated
Financial Statements and the notes thereto included in this Quarterly Report on
Form 10-Q ("Form 10-Q"), and the Consolidated Financial Statements and notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Annual Report on Form 10-K ("Form 10-K")
for the year ended December 31, 2021. 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   "Part II. Item 1A. Risk Factors"   and
elsewhere in this Form 10-Q and "Part I. Item 1A. Risk Factors" and elsewhere in
our Form 10-K. In addition, see   "Cautionary Note Regarding Forward-Looking
Statements."   References herein to the "Company," "we," "our," and "us," refer
to MP Materials Corp. and its subsidiaries.

Insight

MP Materials Corp. is the largest producer of rare earth materials in the
Western Hemisphere. The Company owns and operates the Mountain Pass Rare Earth
Mine and Processing Facility ("Mountain Pass"), the only rare earth mining and
processing site of scale in North America. We estimate the rare earth
concentrate we produced and sold in 2021 represented approximately 15% of the
rare earth content consumed in the global market.

Rare earth elements ("REE") are fundamental building blocks of the modern
economy, impacting trillions of dollars in global economic activity through the
enablement of end products across industries including transportation, clean
energy, robotics, national defense and consumer electronics, among others.
Neodymium ("Nd") and praseodymium ("Pr") are rare earth elements which in
combination form neodymium-praseodymium ("NdPr"), which represents a majority of
the value contained in our rare earth concentrate. NdPr is most often utilized
in NdPr magnets, which are also commonly referred to as "neo," "NdFeB," "NIB,"
or permanent magnets and are made predominantly from an alloy of NdPr, iron and
boron. NdPr magnets are the most widely used type of rare earth magnets and are
critical for many advanced technologies that are experiencing strong secular
growth, including electric vehicles ("EV"), drones, defense systems, wind
turbines, robotics and many others. The rapid growth of these and other advanced
motion technologies is expected to drive substantial demand growth for NdPr.

We produce our materials at Mountain Pass, one of the world's richest rare earth
deposits, co-located with integrated state-of-the-art processing and separation
facilities. We acquired the Mountain Pass assets in 2017, restarted operations
from cold-idle status and embarked on a deliberate, two-stage plan to optimize
the facility and position the Company for growth and profitability. We commenced
mining, comminution, beneficiation, and tailings management operations, which we
designated Stage I of our multi-stage optimization plan, between December 2017
and February 2018.

We currently produce a rare earth concentrate that we sell to Shenghe Resources
(Singapore) International Trading Pte. Ltd. ("Shenghe"), an affiliate of Shenghe
Resources Holding Co., Ltd., which, in turn, typically sells that product to
refiners in China. These refiners separate the constituent REE contained in our
concentrate and sell the separated products to their customers. Upon completion
of our Stage II optimization project ("Stage II"), we anticipate producing
separated rare earth oxides ("REO"), including NdPr oxide, and selling these
products directly to end users, at which time we may no longer sell our
concentrate.

In February 2022, we commenced construction of our initial rare earth metal,
alloy and magnet manufacturing facility in Fort Worth, Texas (the "Fort Worth
Facility"). Furthermore, in April 2022, we entered into a definitive long-term
supply agreement with General Motors Company (NYSE: GM) ("GM") to supply
U.S.-sourced and manufactured rare earth materials, alloy and finished magnets
for the electric motors in more than a dozen models using GM's Ultium Platform,
with a gradual production ramp that is expected to begin in late 2023, starting
with alloy. The definitive long-term supply agreement solidifies the terms of a
binding agreement announced by the Company in December 2021. These developments
are a part of our Stage III downstream expansion strategy ("Stage III").

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Key Performance Indicators

We use the following key performance indicators to evaluate the performance of
our business. Our calculations of these performance indicators may differ from
similar measures published by other companies in our industry or in other
industries. The following table presents our key performance indicators:

                              For the three months ended                                         For the six months ended June
                                       June 30,                           Change                              30,                               Change
(in whole units or dollars,
except percentages)             2022               2021              $               %               2022               2021              $                %
REO production volume (MTs)     10,300           10,305               (5)  
          -  %           21,128           20,154              974               5  %
REO sales volume (MTs)          10,000            9,877              123              1  %           21,706           19,670            2,036              10  %
Realized price per REO MT   $   13,918          $ 7,343          $ 6,575    

90% $13,864 $6,620 $7,244

   109  %
Production cost per REO MT  $    1,750          $ 1,538          $   212             14  %       $    1,666          $ 1,507          $   159              11  %


REO Production Volume

We measure our REO-equivalent production volume for a given period in metric
tons ("MTs"), our principal unit of sale. This measure refers to the REO content
contained in the rare earth concentrate we produce. Our REO production volume is
a key indicator of our mining and processing capacity and efficiency.

The rare earth concentrate we currently produce is a processed, concentrated
form of our mined rare earth-bearing ores. While our unit of production and sale
is a MT of embedded REO, the actual weight of our rare earth concentrate is
significantly greater, as the concentrate also contains non-REO minerals 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. As noted above, upon
completion of Stage II, we expect to refine our rare earth concentrate to
produce separated rare earths, including NdPr oxide.

OER Sales Volume

Our REO sales volume for a given period is calculated in MTs. A unit, or MT, is
considered sold for purposes of this performance indicator once we recognize
revenue on its sale. Our REO sales volume is a key measure of our ability to
convert our production into revenue.

Price realized by REO MT

We calculate the realized price per REO MT for a given period as the quotient
of: (i) our Total Value Realized (see below) for a given period and (ii) our REO
sales volume for the same period. We define Total Value Realized, which is a
non-GAAP financial measure, as our product sales adjusted for the revenue impact
of tariff rebates related to prior period sales.

Realized price per REO MT is an important measure of the market price of our
product. Accordingly, we calculate realized price per REO MT to reflect a
consistent basis between periods by eliminating the revenue impact of
tariff-related rebates. See the   "Non-GAAP Financial Measures"   section below
for a reconciliation of our Total Value Realized, which is a non-GAAP financial
measure, to our product sales, which is determined in accordance with generally
accepted accounting principles in the United States ("GAAP"), as well as the
calculation of realized price per REO MT.

Production cost per REO MT

We calculate the production cost per REO MT for a given period as the quotient
of: (i) our Production Costs (see below) for a given period and (ii) our REO
sales volume for the same period. We define Production Costs, which is a
non-GAAP financial measure, as our cost of sales (excluding depletion,
depreciation and amortization) less stock-based compensation expense included in
cost of sales, shipping and freight costs, and costs attributable to certain
other sales, for a given period.

Production cost per REO MT is a key indicator of our production efficiency. As a
significant portion of our cash costs of Stage I production are fixed, our
production cost per REO MT is influenced by mineral recovery, REO grade, plant
feed rate and production uptime. See the   "Non-GAAP Financial Measures"
section below for a reconciliation of our Production Costs, which is a non-GAAP
financial measure, to our cost of sales (excluding depletion, depreciation and
amortization), which is determined in accordance with GAAP, as well as the
calculation of production cost per REO MT.

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Key Factors Affecting Our Performance

We believe we are uniquely positioned to capitalize on the key trends of
electrification and supply chain security, particularly as domestic EV
production grows. Our 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 driver for REE is their use in a diverse array of growing end
markets, including: clean-energy and transportation technologies (e.g., traction
motors in EVs and generators in wind power turbines); high-technology
applications (e.g., miniaturization of smart phones and other mobile devices,
fiber optics, lasers, robotics, medical devices, etc.); critical defense
applications (e.g., guidance and control systems, global positioning systems,
radar and sonar, drones, etc.); and essential industrial infrastructure (e.g.,
advanced catalyst applications in oil refining and pollution-control systems in
traditional internal-combustion automobiles, etc.). We believe these drivers
will fuel the continued growth of the rare earth market, particularly the market
for NdPr and permanent magnets.

We believe we benefit from several demand tailwinds for REE, and particularly
for NdPr. These include the trend toward geographic supply chain
diversification, particularly in relation to China, the U.S. government strategy
to restore domestic supply of key minerals, and the increasing acceptance of
environmental, social and governance mandates. However, changes in technology
may also drive down 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. We also operate in a competitive industry, and many of our key
competitors are based in China, where competitors may not be subject to the same
rigorous environmental standards and production costs are typically lower than
in the United States.

Maximize production efficiency

In 2021, REO production was approximately 3.5x greater than the highest ever
production in a twelve-month period by the prior operator of Mountain Pass using
principally the same capital equipment. We achieved these results through an
optimized reagent scheme, lower process temperatures, better management of the
tailings facility, and a commitment to operational excellence, driving
approximately 95% uptime. We also believe that our Stage I optimization
initiatives enabled us to achieve world-class production cost levels for rare
earth concentrate.

The success of our business reflects our ability to manage our costs. Our
production achievements in Stage I have provided economies of scale to lower
production costs per unit of REO produced in concentrate. Stage II is designed
to enable us to continue to manage our cost structure for separating REE through
an optimized facility process flow. The reintroduction of the oxidizing roasting
step will allow us to capitalize on the inherent advantages of the bastnaesite
ore at Mountain Pass, which is uniquely suitable to low-cost refining by
selectively eliminating the need to carry lower-value cerium through the
separations process. The recommissioning of our natural gas-powered combined
heat and power ("CHP") plant, which was completed in December 2021, removed our
reliance on the regional electric power grid. Further, our location offers
significant transportation advantages that create meaningful cost efficiencies
in securing incoming supplies and shipping of our final products.

We currently operate 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 greater capital, which may allow them to make similar or
greater efficiency improvements or undercut market prices for our product.

Development of our REE refining capacities and other opportunities

Stage II is focused on advancing our operations from the production of rare
earth concentrate to the separation of individual REE. Engineering and
procurement are largely complete, while construction and other recommissioning
activities are underway. The project incorporates upgrades and enhancements to
the existing facility process flow to reliably produce separated REE at a lower
cost and with an expected smaller environmental footprint per unit of REO
produced than previously achieved. As part of Stage II, we are reintroducing an
oxidizing roasting circuit, reorienting the plant process flow, increasing
product finishing capacity, improving wastewater management, and making other
improvements to materials handling and storage. Upon completion of Stage II, we
expect to be a global low-cost, high-volume producer of NdPr oxide, which
represents a majority of the value contained in our concentrate.

Further, we are pursuing vertical integration opportunities to process NdPr into
metal alloys and magnets, and incorporating magnet recycling capability. Our
long-term plans to expand our presence as a global source for rare earth
magnetics began with our recent announcement to build the Fort Worth Facility.
We believe integration into magnet production

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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 February 2022, we were awarded a $35.0 million contract by the Department of
Defense's Office of Industrial Base Analysis and Sustainment Program to design
and build a facility to process heavy rare earth elements ("HREE"). Successful
completion of this project will establish the first processing and separation
facility of its kind for HREEs in support of commercial and defense applications
in the United States. The HREE processing and separations facility will be built
at Mountain Pass and tie into our other Stage II facilities.

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 September 30,
2021, SRK Consulting (U.S.), Inc., an independent consulting firm that we
retained to assess our reserves, estimates total proven and probable reserves of
2.1 million short tons of REO contained in 30.4 million short tons of ore at
Mountain Pass, with an average ore grade of 6.36%. These estimates use an
estimated economical cut-off of 2.49% total rare earth oxide. Based on these
estimated reserves and our expected annual production rate of REO upon
completion of Stage II, as of September 30, 2021, our expected mine life was
approximately 35 years. We expect to be able to continue to grow our expected
mine life through exploratory drilling programs over time.

Mining activities in the United States 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.

RECENT DEVELOPMENTS

Direct debit agreement with Shenghe

In March 2022, the Company entered into an offtake agreement with Shenghe (the
"Offtake Agreement"), which became effective upon the termination of the A&R
Offtake Agreement (as discussed and defined in   Note 3, "Relationship and
Agreements with Shenghe,"   in the notes to the unaudited Condensed Consolidated
Financial Statements). The initial term of the Offtake Agreement is two years,
with the option to extend the term at the Company's discretion for an additional
one-year period. See the   "Liquidity and Capital Resources"   section below for
additional information on the termination of the A&R Offtake Agreement.

Pursuant to the Offtake Agreement, and subject to certain exclusions, Shenghe
shall purchase on a "take or pay" basis the rare earth concentrate produced by
the Company as the exclusive distributor in China, with certain exceptions for
the Company's direct sales globally. In addition, at the discretion of the
Company, Shenghe may be required to purchase on a "take or pay" basis certain
non-concentrate rare earth products, although the Company may sell all
non-concentrate rare earth products in its sole discretion to customers or end
users in any jurisdiction. Under the Offtake Agreement, Shenghe will be paid a
variable commission on net proceeds to the Company.

The sales price of rare earth concentrate sold to Shenghe is based on an
agreed-upon price per MT, subject to certain quality adjustments depending on
the measured characteristics of the product, with an adjustment for the ultimate
market price of the product realized by Shenghe upon sales to their customers.
The sales price and other terms applicable to a quantity of offtake products are
set forth in monthly purchase agreements between the Company and Shenghe.

Impact of the COVID-19 pandemic

In December 2019, a novel strain of coronavirus (known as "COVID-19") began to
impact the population of China. In March 2020, the outbreak of COVID-19 was
declared a global pandemic after growing both in the United States and globally.
The responses by governments, societies, and private sector entities to the
COVID-19 pandemic, which include temporary closures of businesses, social
distancing, travel restrictions, "shelter in place," and other governmental
regulations and various economic stimulus programs, have significantly impacted
market volatility and general global economic conditions, including significant
business and supply chain disruption as well as broad-based changes in supply
and demand.

Since the onset of the COVID-19 pandemic in the first quarter of 2020, we have
experienced, at times, significant shipping delays due to congestion and
slowdowns at U.S. and international ports caused by shortages in vessels,
containers, and truckers, also disrupting the global supply chain. Congestion
and slowdowns have affected and may continue to affect the capacity at ports to
receive deliveries of products or the loading of shipments onto vessels. Despite
these factors, we have not experienced a

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reduction in production or sales due to the COVID-19 pandemic; however, the
COVID-19 pandemic has contributed to certain cost and schedule pressures on the
Stage II optimization project. The Company has worked proactively and diligently
to adjust working schedules and hours to optimize logistics and shipping, which
has thus far prevented a significant negative impact on our product sales and
has mitigated certain impacts on Stage II construction and recommissioning
progress. However, there can be no assurance that the ongoing COVID-19 pandemic
will not have a negative impact on our production, sales, or growth projects in
the future.

Furthermore, as the situation continues to evolve, including as a result of new
and potential future variants of COVID-19, the possibility of federal or state
mandates on vaccinations, or other factors that may affect international
shipping and logistics or involve responses to government actions such as
strikes or other disruptions, it is impossible to predict the effect and
ultimate impact of the COVID-19 pandemic on the Company's business and results
of operations. The extent and duration of any business disruptions, and related
financial impact, cannot be estimated at this time.

Operating results

Comparison of three and six month periods ended June 30, 2022 and 2021

The following table summarizes our operating results:

                                 For the three months ended June                                           For the six months ended June
                                               30,                                Change                                30,                                 Change
(in thousands, except
percentages)                          2022               2021                $                %               2022                2021                $                 %
Revenue:
Product sales                    $   139,183          $ 72,522          $ 66,661              92  %       $  300,938          $ 132,261          $ 168,677             128  %
Other sales                            4,379               596             3,783             635  %            8,882                828              8,054             973  %
Total revenue                        143,562            73,118            70,444              96  %          309,820            133,089            176,731             133  %

Operating costs and expenses:
Cost of sales(1)                      22,092            17,955             4,137              23  %           45,265             35,891              9,374              26  %
Selling, general and
administrative                        18,222            12,647             5,575              44  %           38,787             26,105             12,682              49  %
Advanced projects, development
and other                              1,668               984               684              70  %            3,486              1,109              2,377             214  %
Depreciation, depletion and
amortization                           5,407             6,666            (1,259)            (19) %           10,667             12,816             (2,149)            (17) %
Accretion of asset retirement
and environmental obligations            419               592              (173)            (29) %              837              1,185               (348)            (29) %
Write-down of inventories                  -             1,809            (1,809)           (100) %                -              1,809             (1,809)           (100) %
Total operating costs and
expenses                              47,808            40,653             7,155              18  %           99,042             78,915             20,127              26  %
Operating income                      95,754            32,465            63,289             195  %          210,778             54,174            156,604             289  %
Interest expense, net                 (1,326)           (2,639)            1,313             (50) %           (3,231)            (3,793)               562             (15) %
Other income                           2,212             3,504            (1,292)            (37) %            2,406              3,559             (1,153)            (32) %

Income before income taxes            96,640            33,330            63,310             190  %          209,953             53,940            156,013             289  %
Income tax expense                   (23,371)           (6,164)          (17,207)            279  %          (51,133)           (10,655)           (40,478)            380  %
Net income                       $    73,269          $ 27,166          $ 46,103             170  %       $  158,820          $  43,285          $ 115,535             267  %

Adjusted EBITDA                  $   109,952          $ 46,447          $ 63,505             137  %       $  242,209          $  79,447          $ 162,762             205  %
Adjusted Net Income              $    81,941          $ 33,440          $ 48,501             145  %       $  178,278          $  56,646          $ 121,632             215  %

(1) Excluding depreciation, depletion and amortization.

Revenue consists primarily of product sales, which pertain to our sales of rare
earth concentrate principally to Shenghe under the A&R Offtake Agreement for
sales between January 2021 and February 2022, or the Offtake Agreement for sales
beginning in March 2022. The sales price of rare earth concentrate sold to
Shenghe under both agreements is based on an agreed-upon price per MT, subject
to certain quality adjustments depending on the measured characteristics of the
product, with an adjustment for the ultimate market price of the product
realized by Shenghe upon sales to their customers.

The increase in product sales for the three months ended June 30, 2022, as
compared to the prior year period, was driven by higher REO sales volume, which
increased by 123 MTs, or 1%, to 10,000 MTs for the three months ended June 30,
2022, and a higher realized price per REO MT, which increased by 90%, reflecting
higher demand for rare earth products. REO production

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volume of 10,300 MTs was relatively unchanged for the three months ended
June 30, 2022, as compared to the prior year period, with higher ore feed rates
offsetting lower ore feed grade.

The increase in product sales for the six months ended June 30, 2022, as
compared to the prior year period, was driven by higher REO sales volume, which
increased by 2,036 MTs, or 10%, to 21,706 MTs for the six months ended June 30,
2022, and a higher realized price per REO MT, which increased by 109%,
reflecting higher demand for rare earth products. REO production volume
increased by 974 MTs, or 5%, to 21,128 MTs for the six months ended June 30,
2022, as compared to the prior year period, primarily reflecting higher ore feed
rates.

REO’s sales volume varies from period to period depending on the timing of shipments, but sales volumes generally track our production volumes over time given our firm purchase agreement with Shenghe. See also the “Quarterly Performance Trend” section below.

The increase in other sales for the three and six months ended June 30, 2022, as
compared to the prior year periods, was driven by $4.4 million and $8.5 million,
respectively, of revenue related to a sales agreement with Shenghe entered into
in March 2022 for certain stockpiles of rare earth fluoride ("REF").

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

Cost of sales for the three months ended June 30, 2022, increased year over year
partially due to higher REO sales volume. The increase in production cost per
REO MT from $1,538 for the three months ended June 30, 2021, to $1,750 for the
three months ended June 30, 2022, is due to higher materials, supplies and
payroll costs, including an increase in employee headcount to support the
expansion of operations, as well as higher energy costs incurred following the
restart of our CHP plant in January 2022. Additionally, shipping and freight
costs increased by $1.3 million for the three months ended June 30, 2022, as
compared to the prior year period, due partially to higher volumes shipped.
These increases in costs offset production efficiencies achieved during the
three months ended June 30, 2022.

Cost of sales for the six months ended June 30, 2022, increased year over year
primarily due to higher REO sales volume. The increase in production cost per
REO MT from $1,507 for the six months ended June 30, 2021, to $1,666 for the six
months ended June 30, 2022, is due to higher materials, supplies and payroll
costs, including an increase in employee headcount to support the expansion of
operations, as well as higher energy costs incurred following the restart of our
CHP plant in January 2022. Additionally, shipping and freight costs increased by
$2.5 million for the six months ended June 30, 2022, as compared to the prior
year period, due partially to higher volumes shipped. These increases in costs
offset production efficiencies achieved during the six months ended June 30,
2022.

Notwithstanding the increase in employee headcount discussed above and the
impact of costs associated with recommissioning the CHP plant, we believe our
production cost per REO MT has stabilized in the short-term, with operating
efficiencies helping to offset the impact of inflationary pressure on materials,
supplies, energy and labor. In addition, we continue to anticipate efficiency
opportunities as we increase REO production volumes in our milling and flotation
circuit over time. Production cost per REO MT may vary period to period based on
the timing of scheduled outages of our production facilities for maintenance as
well as anticipated tie-ins of certain other Stage II-related facilities in the
next year. See also the   "Quarterly Performance Trend"   section below.

Selling, general and administrative expenses consist primarily of accounting,
finance and administrative personnel costs, including stock-based compensation
expense related to these personnel; professional services (including legal,
regulatory, audit and others); certain engineering expenses; insurance, license
and permit costs; facilities rent and other costs; office supplies; general
facilities expenses; certain environmental, health, and safety expenses; and
gain or loss on sale or disposal of long-lived assets.

Selling, general and administrative expenses for the three and six months ended
June 30, 2022, reflect an increase in stock-based compensation expense of $3.0
million and $7.6 million respectively, primarily from a grant of restricted
stock units made to our chief executive officer during the fourth quarter of
2021. Excluding stock-based compensation expense, selling, general and
administrative expense for the three and six months ended June 30, 2022,
increased by $2.6 million, or 29% and $5.1 million, or 28% respectively,
primarily due to increases in personnel costs and other general and
administrative costs.

Advanced projects, development and other consists principally of costs incurred
in connection with research and development of new processes or to significantly
enhance our existing processes, certain government contracts, and start-up

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costs, as well as costs incurred to support growth and development initiatives
or other opportunities. Advanced projects, development and other for the three
and six months ended June 30, 2022, increased year over year primarily due to
certain start-up costs that do not qualify for capitalization associated with
our Stage II optimization project and our Stage III initiatives. In addition,
the year-over-year increase for the six months ended June 30, 2022, includes
one-time start-up costs associated with restart of our CHP plant.

Depreciation, depletion and amortization primarily include depreciation of property, plant and equipment and depletion of mining rights. The year-over-year decrease in amortization, depletion and amortization for the three and six-month periods ended June 30, 2022primarily reflects a decrease in depletion resulting from a revision to extend our estimate of the remaining useful life of mineral rights to early Q4 2021.

Write-down of inventories for the three and six months ended June 30, 2021,
pertains to a non-cash write-down of a portion of our legacy low-grade stockpile
inventory during the second quarter of 2021. See   Note 5, "Inventories,"   in
the notes to the unaudited Condensed Consolidated Financial Statements for more
information.

Interest expense, net consists of the amortization of the debt issuance costs on
our Convertible Notes (as defined in the   "Liquidity and Capital Resources"
section below); the amortization of the discount on our debt obligation to
Shenghe; and the expense associated with the 0.25% per annum interest rate on
our Convertible Notes, offset by interest capitalized. Interest expense, net for
the three and six months ended June 30, 2022, decreased year over year due to
the full repayment of the Offtake Advances in the first quarter of 2022, offset
by the timing of the issuance of the Convertible Notes in March 2021.

Other income consists of interest and investment income and non-operating gains
or losses. Other income decreased year over year for the three and six months
ended June 30, 2022, as a result of a non-cash gain recognized during the second
quarter of 2021 as a result of the Small Business Administration's approval to
forgive the Paycheck Protection Loan, which had a principal amount of $3.4
million. Interest and investment income for the three and six months ended
June 30, 2022, increased year over year as a result of our short-term
investments, which were purchased in the second quarter of 2022.

Income tax expense 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. The
effective tax rate (income taxes as a percentage of income or loss before income
taxes) was 24.2% and 24.4% for the three and six months ended June 30, 2022,
respectively, as compared to 18.5% and 19.8% for the three and six months ended
June 30, 2021. The effective tax rates differed from the statutory tax rate of
21% primarily due to state income tax expense and a deduction limitation on
officer's compensation, partially offset by the California competes tax credit
awarded to us in the fourth quarter of 2021.

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. In addition, quarterly production is
impacted by the timing of scheduled outages of our production facilities for
maintenance, which typically occur in the second and fourth quarter.

The following table presents our key performance indicators for the quarterly
periods indicated:

                                       FY2022                                               FY2021                                                      FY2020
(in whole units or dollars)     Q2                Q1                Q4                Q3               Q2               Q1               Q4               Q3               Q2
REO production volume (MTs)   10,300            10,828            10,261           11,998           10,305            9,849            9,337           10,197            9,287
REO sales volume (MTs)        10,000            11,706             9,674           12,814            9,877            9,793           10,320            9,429           10,297

Price achieved by REO MT $13,918 $13,818 $10,101

$7,693 $7,343 $5,891 $4,070 $3,393 $3,093
Production cost per REO MT $1,750 $1,594 $1,525

$1,449 $1,538 $1,475 $1,589 $1,389 $1,412

Cash 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. In recent years, our principal sources of liquidity have been
financing through the consummation of the business combination with Fortress
Value Acquisition Corp. in November 2020, the issuance of the Convertible Notes
in March 2021, and net cash from operating activities. As of June 30, 2022, we
had $1,264.1 million of cash, cash equivalents and short-term investments and
$690.0 million principal amount of long-term debt.

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Our results of operations and cash flows depend in large part upon the market
prices of REO and particularly the price of rare earth concentrate. 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 exists as to the market
price of REO, especially in light of the ongoing COVID-19 pandemic, including
the emergence of new and potential future variants.

Our current working capital needs relate mainly to our mining and beneficiation
operations. Our principal capital expenditure requirements relate mainly to the
periodic replacement of mining or processing equipment, as well as our Stage II
optimization project and related HREE project and the development of the Fort
Worth Facility. Our future capital requirements will depend on several factors,
including future acquisitions and potential additional investments in further
downstream production.

The completion of our mission to become a fully integrated domestic magnetics
producer is expected to be capital intensive. In accelerating the strategic
opportunity for the separation of HREE, enhancements were made to the design and
scope of the initial Stage II project. Including these enhancements and other
factors impacting the remaining cost of completion, and including the initial
costs of a HREE separation facility and the development and construction costs
of the Fort Worth Facility as well as other growth and infrastructure
investments at Mountain Pass, we expect to incur up to approximately $500
million of capital costs in 2022. We expect to incur further costs in 2023 and
2024 to complete the HREE separation facility and the Fort Worth Facility.

Our estimated costs or estimated time to complete 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.

Debts and other long-term obligations

Convertible Notes: In March 2021, we issued $690.0 million aggregate principal
amount of 0.25% unsecured green convertible senior notes that mature, unless
earlier converted, redeemed or repurchased, on April 1, 2026 (the "Convertible
Notes"), at a price of par. Interest on the Convertible Notes is payable on
April 1st and October 1st of each year, beginning on October 1, 2021.

The Convertible Notes are convertible into shares of the Company's common stock
at an initial conversion price of $44.28 per share, or 22.5861 shares, per
$1,000 principal amount of notes, subject to adjustment upon the occurrence of
certain corporate events. However, in no event will the conversion price exceed
28.5714 shares of common stock per $1,000 principal amount of notes.

We aim to allocate an amount equal to the net proceeds from the Convertible
Notes offering to existing or future investments in, or the financing or
refinancing of, eligible "green projects." Eligible green projects are intended
to reduce the Company's environmental impact and/or enable the production of
low-carbon technologies. Pending such allocation of the net proceeds to eligible
green projects, we intend to use the net proceeds from the Convertible Notes
offering for general corporate purposes.

Offtake Advances: In March 2022, the Company made a $2.9 million payment to
Shenghe pursuant to an obligation under the A&R Offtake Agreement to pay
Shenghe, on an annual basis, an amount equal to our annual net income, less any
amounts recouped through the Gross Profit Recoupment mechanism over the course
of the year, until the Prepaid Balance was reduced to zero (terms as discussed
and defined in   Note 3, "Relationship and Agreements with Shenghe,"   in the
notes to the unaudited Condensed Consolidated Financial Statements).

Upon payment by the Company, the Prepaid Balance was repaid in full, and the A&R
Offtake Agreement was terminated. Prior to full repayment, the debt to Shenghe
was satisfied primarily through product sales, where partial non-cash
consideration was received by the Company in the form of debt reduction
(generally equal to approximately 15% of the ultimate market value of the REO,
excluding tariffs, duties and certain other charges).

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Equipment Notes: We have previously entered into several financing agreements
for the purchase of equipment, including trucks, tractors, loaders, graders, and
various other machinery, most recently in February 2021. As of June 30, 2022, we
had $8.4 million in principal (and accrued interest) outstanding under the
equipment notes.

Cash flow

The following table summarizes our cash flows:

                                           For the six months ended June 30,                           Change
(in thousands, except percentages)              2022                2021                       $                   %
Net cash provided by (used in):
Operating activities                       $   219,862          $  47,969                $  171,893                  358  %
Investing activities                       $  (716,649)         $ (44,566)               $ (672,083)                1508  %
Financing activities                       $   (18,784)         $ 670,490                $ (689,274)                   n.m.


n.m. - Not meaningful.

Net Cash Provided by Operating Activities: Net cash provided by operating
activities increased by $171.9 million for the six months ended June 30, 2022,
as compared to the prior year period, reflecting the increase in product sales
and a net increase due to the timing of receipt or payment of working capital
items, such as accounts receivable, partially offset by increases in our cost of
sales; selling, general and administrative expenses; and payments for income
taxes of $16.6 million. In addition, $13.6 million of our product sales was
excluded from cash provided by operating activities for the six months ended
June 30, 2022, since that portion of the sales price was retained by Shenghe to
reduce the debt obligation, compared to $22.9 million in the prior year period.

Net Cash Used in Investing Activities: Net cash used in investing activities
increased by $672.1 million for the six months ended June 30, 2022, compared to
the prior year period, attributable to purchases of short-term investments of
$599.2 million in the second quarter of 2022 and an increase in additions to
property, plant and equipment relating primarily to our Stage II optimization
project and our Fort Worth Facility, partially offset by $5.1 million of
proceeds from government awards used for construction, specifically our Stage II
optimization project.

Net Cash Provided by (Used in) Financing Activities: Net cash used in financing
activities was $18.8 million for the six months ended June 30, 2022, compared to
net cash provided by financing activities of $670.5 million in the prior year
period. The current year period consisted primarily of tax withholding on
stock-based awards and principal payments on debt obligations and finance leases
while the prior year period consisted primarily of the net proceeds received
from the issuance of the Convertible Notes in March 2021 of $672.3 million.


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Non-GAAP Financial Measures

We present Total Value Realized, Production Costs, Adjusted EBITDA, Adjusted Net
Income, 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. Total Value Realized, Production
Costs, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash
Flow are not intended to be a substitute for any GAAP financial measure 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.

Total realized value

Total Value Realized, which we use to calculate our key performance indicator,
realized price per REO MT, is a non-GAAP financial measure. As mentioned above,
realized price per REO MT is an important measure of the market price of our
product. The following table presents a reconciliation of our Total Value
Realized, to our product sales, which is determined in accordance with GAAP, as
well as the calculation of realized price per REO MT:

                                              For the three months ended 

June For the six months ending in June

                                                            30,                                    30,
(in thousands, unless otherwise stated)            2022               2021               2022                2021
Product sales                                 $   139,183          $ 72,522          $  300,938          $ 132,261
Adjusted for:
Tariff rebate(1)                                        -                 -                   -             (2,050)
Total Value Realized                              139,183            72,522             300,938            130,211
Divided by:
REO sales volume (in MTs)                          10,000             9,877              21,706             19,670

Price achieved by REO MT (in dollars)(2) $13,918 $7,343

$13,864 $6,620

(1)Represents non-cash revenue recognized as part of a price rebate received relating to product sales from prior periods.

(2) May not be recalculated as presented due to rounding.

Production costs

Production Costs, which we use to calculate our key performance indicator,
production cost per REO MT, is a non-GAAP financial measure. As mentioned above,
production cost per REO MT is a key indicator of our production efficiency. The
following table presents a reconciliation of our Production Costs to our cost of
sales (excluding depreciation, depletion and amortization), which is determined
in accordance with GAAP, as well as the calculation of production cost per REO
MT:

                                                   For the three months ended June        For the six months ended June
                                                                 30,                                   30,
(in thousands, unless otherwise stated)                2022               2021               2022               2021
Cost of sales (excluding depreciation, depletion
and amortization)                                  $   22,092          $ 17,955          $   45,265          $ 35,891
Adjusted for:
Stock-based compensation expense(1)                      (506)             (578)             (1,221)           (1,896)
Shipping and freight(2)                                (3,508)           (2,183)             (6,752)           (4,281)
Other(3)                                                 (580)               (6)             (1,136)              (79)
Production Costs                                       17,498            15,188              36,156            29,635
Divided by:
REO sales volume (in MTs)                              10,000             9,877              21,706            19,670

Production cost per REO MT (in dollars)(4) $1,750 $1,538 $1,666 $1,507

(1) Relates only to the amount of stock-based compensation expense included in cost of sales.

(2)Includes $0.7 million and $1.3 million for the three and six months ended
June 30, 2022, respectively, of shipping and freight costs associated with sales
of REF stockpiles.

(3) Primarily relates to costs (excluding shipping and freight) attributable to REF’s inventory sales.

(4) May not be recalculated as presented due to rounding.

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Adjusted EBITDA

We calculate Adjusted EBITDA as our GAAP net income 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; transaction-related, start-up and other non-recurring
costs; accretion of asset retirement and environmental obligations; gain or loss
on sale or disposal of long-lived assets; write-downs of inventories; tariff
rebates; and other income or loss. 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, which is determined in accordance
with GAAP:

                                                     For the three months ended June         For the six months ended June
                                                                   30,                                    30,
(in thousands)                                            2022               2021               2022               2021
Net income                                           $    73,269          $ 27,166          $  158,820          $ 43,285
Adjusted for:
Depreciation, depletion and amortization                   5,407             6,666              10,667            12,816
Interest expense, net                                      1,326             2,639               3,231             3,793
Income tax expense                                        23,371             6,164              51,133            10,655
Stock-based compensation expense(1)                        7,440             4,498              17,213            10,171
Transaction-related, start-up and other
non-recurring costs(2)                                       931               247               2,456             1,305
Accretion of asset retirement and environmental
obligations                                                  419               592                 837             1,185
Loss on sale or disposal of long-lived assets,
net(3)                                                         1               170                 258                37
Write-down of inventories(4)                                   -             1,809                   -             1,809
Tariff rebate(5)                                               -                 -                   -            (2,050)
Other income(6)                                           (2,212)           (3,504)             (2,406)           (3,559)
Adjusted EBITDA                                      $   109,952          $ 46,447          $  242,209          $ 79,447

(1) Mainly included in “Sales, general and administrative expenses” in our unaudited condensed consolidated statements of income.

(2)Amounts for the three and six months ended June 30, 2022, are principally
comprised of start-up costs that do not qualify for capitalization, which relate
to the restart of our CHP plant as well as certain costs associated with our
Stage II optimization project and Stage III initiatives. Start-up costs are
included in "Advanced projects, development and other" within our unaudited
Condensed Consolidated Statements of Operations. Amounts for the three and six
months ended June 30, 2021, relate to advisory, consulting, accounting and legal
expenses pertaining to non-recurring transactions, and are primarily included in
"Selling, general and administrative" within our unaudited Condensed
Consolidated Statements of Operations.

(3) Included in “Sales, general and administrative expenses” in our unaudited condensed consolidated statements of income.

(4) Represents a non-cash write-down of a portion of our legacy low-grade inventory during the second quarter of 2021.

(5) Represents non-cash revenue recognized as part of a price rebate received relating to product sales from prior periods.

(6)Amounts for the three and six months ended June 30, 2022, are principally
comprised of interest and investment income. Amounts for the three and six
months ended June 30, 2021, principally represent a non-cash gain recognized as
a result of the Small Business Administration's approval to forgive the Paycheck
Protection Loan.

Adjusted net income and adjusted diluted EPS

We calculate Adjusted Net Income as our GAAP net income excluding the impact of
depletion; stock-based compensation expense; transaction-related, start-up and
other non-recurring costs; gain or loss on sale or disposal of long-lived
assets; write-downs of inventories; tariff rebates; 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. We calculate Adjusted
Diluted EPS as our GAAP diluted earnings per share ("EPS") excluding the per
share impact, using GAAP diluted weighted-average shares outstanding as the
denominator, of depletion; stock-based compensation expense;
transaction-related, start-up and other non-recurring costs; gain or loss on
sale or disposal of long-lived assets; write-downs of inventories; tariff
rebates; 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.

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 excluding
material discrete costs and benefits, with any impacts of changes in effective
tax rate being

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recognized in the current period. We present Adjusted Net Income and Adjusted
Diluted EPS because it is used by management to evaluate our underlying
operating and financial performance and trends.

Adjusted Net Income 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. As a result of the
acquisition of Secure Natural Resources LLC, the mineral rights for the rare
earth ores contained in our mine were recorded at fair value, resulting in a
significant step-up of the carrying amount of the asset which caused depletion
to be meaningfully higher than prior periods. While the depletion expense
related to the stepped-up mineral rights asset is excluded from Adjusted Net
Income and Adjusted Diluted EPS, the revenue related to such mineral rights is
reflected in Adjusted Net Income and Adjusted Diluted EPS as this asset
contributes to our revenue generation. 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 provides a reconciliation of our adjusted net earnings, which is a non-GAAP financial measure, to our net earnings, which is determined in accordance with GAAP:

                                                    For the three months 

ended in June For the six months ended in June

                                                                  30,                                   30,
(in thousands)                                          2022               2021               2022               2021
Net income                                          $   73,269          $ 27,166          $  158,820          $ 43,285
Adjusted for:
Depletion(1)                                             3,075             4,686               6,144             9,217
Stock-based compensation expense(2)                      7,440             4,498              17,213            10,171
Transaction-related, start-up and other
non-recurring costs(3)                                     931               247               2,456             1,305
Loss on sale or disposal of long-lived assets,
net(4)                                                       1               170                 258                37
Write-down of inventories(5)                                 -             1,809                   -             1,809
Tariff rebate(6)                                             -                 -                   -            (2,050)
Other(7)                                                   (30)           (3,504)               (224)           (3,559)
Tax impact of adjustments above(8)                      (2,745)           (1,632)             (6,389)           (3,569)
Adjusted Net Income                                 $   81,941          $ 33,440          $  178,278          $ 56,646

(1)Represents depletion associated with mining rights for rare earth ores contained in the Company’s mine.

(2) Included primarily in “Sales, general and administrative expenses” in our unaudited condensed consolidated statements of income.

(3)Amounts for the three and six months ended June 30, 2022, are principally
comprised of start-up costs that do not qualify for capitalization, which relate
to the restart of our CHP plant as well as certain costs associated with our
Stage II optimization project and Stage III initiatives. Start-up costs are
included in "Advanced projects, development and other" within our unaudited
Condensed Consolidated Statements of Operations. Amounts for the three and six
months ended June 30, 2021, relate to advisory, consulting, accounting and legal
expenses pertaining to non-recurring transactions, and are primarily included in
"Selling, general and administrative" within our unaudited Condensed
Consolidated Statements of Operations.

(4) Included in “Sales, general and administrative expenses” in our unaudited condensed consolidated statements of income.

(5) Represents a non-cash write-down of a portion of our legacy low-grade inventory during the second quarter of 2021.

(6)Represents non-cash revenue recognized as part of a price rebate received relating to product sales from prior periods.

(7) Amounts for the three and six months ended June 30, 2021primarily represent a non-cash gain recognized as a result of the Small Business Administration approval to cancel the Paycheck Protection Loan, which is included in “Other Revenue” in our unaudited Condensed Consolidated Statements of Income.

(8)Tax impact of adjustments is calculated using an adjusted effective tax rate,
excluding the impact of discrete tax costs and benefits, to each adjustment. The
adjusted effective tax rates were 24.0%, 24.7%, 20.6% and 21.1%, for the three
and six months ended June 30, 2022 and 2021, respectively.

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

                                                        For the three months ended June 30,               For the six months ended June 30,
                                                            2022                     2021                     2022                    2021
Diluted EPS                                         $             0.38          $       0.15          $            0.83          $       0.24
Adjusted for:
Depletion(1)                                                      0.02                  0.03                       0.03                  0.05
Stock-based compensation expense                                  0.04                  0.02                       0.09                  0.05
Transaction-related, start-up and other
non-recurring costs(2)                                            0.00                  0.00                       0.01                  0.01
Loss on sale or disposal of long-lived assets, net                0.00                  0.00                       0.00                  0.00
Write-down of inventories(3)                                      0.00                  0.01                       0.00                  0.01
Tariff rebate(4)                                                  0.00                  0.00                       0.00                 (0.01)
Other(5)                                                          0.00                 (0.02)                      0.00                 (0.02)
Tax impact of adjustments above(6)                               (0.01)                (0.01)                     (0.03)                (0.02)
Adjusted Diluted EPS                                $             0.43          $       0.18          $            0.93          $       0.31
Diluted weighted-average shares outstanding                193,414,563           193,145,644                193,452,921           186,282,857


(1)Represents depletion associated with mining rights for rare earth ores contained in the Company’s mine.

(2)Amounts for the three and six months ended June 30, 2022, are principally
comprised of start-up costs that do not qualify for capitalization, which relate
to the restart of our CHP plant as well as certain costs associated with our
Stage II optimization project and Stage III initiatives. Amounts for the three
and six months ended June 30, 2021, relate to advisory, consulting, accounting
and legal expenses pertaining to non-recurring transactions.

(3) Represents a non-cash write-down of a portion of our legacy low-grade inventory during the second quarter of 2021.

(4)Represents non-cash revenue recognized as part of a price rebate received relating to product sales from prior periods.

(5) Amount for the three and six months ended June 30, 2021primarily represents a non-cash gain recognized as a result of the Small Business Administration approval to cancel the paycheck protection loan.

(6)Tax impact of adjustments is calculated using an adjusted effective tax rate,
excluding the impact of discrete tax costs and benefits, to each adjustment. The
adjusted effective tax rates were 24.0%, 24.7%, 20.6% and 21.1%, for the three
and six months ended June 30, 2022 and 2021, respectively.

Free movement of capital

We calculate Free Cash Flow as net cash provided by 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:

                                                                    For the six months ended June
                                                                                 30,
(in thousands)                                                         2022                2021
Net cash provided by operating activities(1)                       $  219,862          $  47,969
Additions to property, plant and equipment, net(2)                   (117,454)           (44,691)
Free Cash Flow                                                     $  102,408          $   3,278


(1)Under the terms of the A&R Offtake Agreement and pursuant to the accounting
treatment thereof, $13.6 million and $22.9 million of our product sales for the
six months ended June 30, 2022 and 2021, respectively, were excluded from cash
provided by operating activities since that portion of the sales price was
retained by Shenghe to reduce the debt obligation.

(2) Amount for the six months ended June 30, 2022is net of $5.1 million in proceeds from government grants used for construction, specifically our Phase II optimization project.

Critical Accounting Policies

A complete discussion of our critical accounting policies is included in our
Form 10-K for the year ended December 31, 2021. There have been no significant
changes in our critical accounting policies during the three months ended
June 30, 2022.

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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 unaudited Condensed
Consolidated Financial Statements.

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