Hedrick: Molycorp is Great News for the Rare Earth Industry

James-HedrickJames Hedrick sat next to me at TREM 2012 in DC last week. While he retired from his position as the rare-earth commodity specialist for the U.S. Geological Survey in early 2010 after 31 years, he now runs Hedrick Consultants and is anything but retired. Off of the back of my hand, James or “Jim” as we call him sits on the Board for US Rare Earths, along with the Advisory Boards of numerous companies including Stans Energy, Great Western Minerals Group and Arafura Resources.

This morning he sent me some notes on Mark Smith’s presentation at TREM and gave us authorization to print them. His conclusion is that the start-up of Molycorp is great news for the rare earth industry. He did however say we should note some caution from the perspective that if an environmental issue or natural disaster should occur, as Mountain Pass is in an earthquake hazard area; this could easily shut down the mine, at least temporarily. And of course, we should all know (most RareMetalBlog readers do) that Molycorp is the only commercial-size company mining and processing outside of China.

Additional key takeaways and analysis from the presentation by Mark Smith, CEO of Molycorp by Jim included the following:
Molycorp’s recent $1.36 billion purchase of Neo Material Technologies was to acquire a high-quality product producer with 1,375 employees at 20 operations in 10 countries.

Neo Material had $306.8 million in cash and equivalents; assets of $850.5 million; and $198.2 million in long-term debt making it a reasonable cost acquisition. Molycorp saw it as a strategically valuable acquisition for their company.

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Molycorp will get access to:

  • some heavy rare earth elements (HREEs);
  • both of Neo Material’s plants in China; the Zibo facility has been allocated a quota of 1,131 tons light rare earth elements (LREEs) and 142 tons HREEs for 2012; Neo Material’s other plant in Jiangyin is also expected to get an allotment.

And –

  • Molycorp’s 20,000 tonnes Mountain Pass rare earth oxide solvent extraction plant is expected to come on line 2012, however, it will take at least a year to get the plant balanced and running before Molycorp gets commercial rare earth product out.
  • Molycorp will have access to 11 Neo Material’s production centres broken down as follows: 2 rare earths & zirconium facilities, 7 rare metals facilities, and 2 Neo Material’s powders facilities.
  • Molycorp will also gain access to intellectual property as well as new markets in Asia and Europe — specifically Neo Material’s Magnequench facility and the intellectual property in China such as the production centers producing magnet powders, bonded magnets, and other rare-metal production facilities, including gallium, rhenium, indium, tantalum, and niobium. Mark Smith noted that Neo Material has 28 patents.
  • Neo Material’s Magnequench division has $800 million in sales per annum. The US taxpayer and job base really took a hit when the Government let China take this plant and intellectual property out of the US. A total of 39% of Neo Material’s revenues are from Magnequench and therefore the US suffered a huge negative cash flow, loss of jobs, loss of intellectual property, loss of a manufacturing facility, and loss of a direct pipeline for future neodymium production from a US mine to US buyer when this facility was sent to China.
  • The acquisition adds alloy and rare earth magnetic powder production to Molycorp’s pipeline and matches up downstream from Molycorp’s separated oxide products.
  • The purchase will allow access to China’s markets. Mark Smith announced he will send an additional 3,000 to 5,000 metric tons rare-earth oxide in bastnasite concentrate to China, about 7%-12% of phase 2 expansion output. The material will go to the Zibo plant. Zibo has been allotted export quotas and has passed its environmental compliance.
  • Mark Smith also announced Molycorp has been producing 2,800 tons of ore per day since October 2011 according to Andy Davis of Molycorp. The new mill will start up in March 2012 producing rare earth cake (bastnasite concentrate). He added that everything is on or ahead of schedule, including the crusher, the mill, the solvent extraction plant, and the combined heat and power plant that will power the mill, dryers, calciners and the solvent extraction plant.

Addendum (3-28-2012), here is the correct information regarding Molycorp's plans to produce commercial rare earth products from the new Project Phoenix facility.

  • Molycorp will be operating our new, state-of-the-art Project Phoenix rare earth oxide production facility at our full Phase 1 annual production rate of 19,050 metric tons of rare earth oxide (REO) equivalent by the end of the third quarter of 2012. We will achieve mechanical completion of Project Phoenix's Phase 2 production capacity of 40,000 metric tons of REO equivalent by the end of 2012. We are producing commercial rare earth product now — an estimated 8,000-10,000 metric tons of REO equivalent product across all Molycorp facilities in 2012 — and we will be producing commercial rare earth product from our Project Phoenix facility in 2012.

Special thanks to James Hedrick who also is a member of the REE World Advisory Board, and is the editor of REEHandbook — the ultimate guide to rare earths.


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Tracy Weslosky

About Tracy Weslosky

Tracy Weslosky is the Publisher and Editor-in-Chief of InvestorIntel, a leading global investment intelligence source created for the innovative and entrepreneurial minded that represents over 50 publicly listed companies globally that are listed on InvestorIntel.com. Tracy is also the Founder & CEO for ProEdge Media Corp., an online publishing and media production company since 2001; and is the Managing Partner for 724 Capital Corp., a business consulting firm that currently represents U.S. Rare Earths, Inc. Previously she has owned a boutique Investment Banking firm for 7 years that was the basis for a business reality television series called, DealFlow. Aired around the world for 3 years on CNBC World, WealthTV and many other networks globally; Tracy is a speaker, writer and an entrepreneur.
  1. I believe that all this news hasn’t yet been transferred into a higher stock value. Molycorp will have a good year… Some investors haven’t woken up yet, 2012 can be a good year for the rare earth sector, after a terrible period, now hopefully ending.

  2. Could we please get some more elaboration from Mr. Hendrick on “Molycorp’s 20,000 tonnes Mountain Pass rare earth oxide solvent extraction plant is expected to come on line 2012, however, it will take at least a year to get the plant balanced and running before Molycorp gets commercial rare earth product out.”?
    Specifically, the “at least a year” starts when – now, September 30?
    What/how much exactly will Molycorp be producing (able to produce) during this at least a year of plant balancing and running, and how does that dovetail or not with being able to send certain products for processing by Neo Materials in China (can Neo do some of the processing while the plant shakedown in in process?)? What is meant by getting “commercial product out” – is this a matter of producing products of a certain quality, is it a volume matter (commercial volumes), and not just a production cost optimization matter? Will there be any real meaning to the claim of a 19,050 tpa rate as of September 30?
    Thanks.

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  4. I agree because if the solvent extraction plant is built in 4Q 2012 the plant will not be in full commercial production before 3Q 2013.
    So the GWG HREE SX Plant in SA will Be only before MCP.

  5. 4now, as you have been a continual source of misinformation on Molycorp, whether intentional or not, I would prefer to hear elaboration from Mr. Hendrick.

  6. i speak not for mr. H. but an experiened process person might highlight–
    the plant is a new , unqualified aggregate of equipment and people which MCP may wish to qualify and optimize prior to shipping product and reputation to their users.
    the user[s] may chose to do the same for their downstream customers.
    TIME TO DO?
    CAVEAT EMPTOR

  7. Molycorp will be operating our new, state-of-the-art Project Phoenix rare earth oxide production facility at Mountain Pass, California, at our full Phase 1 annual production rate of 19,050 metric tons of rare earth oxide (REO) equivalent by the end of the third quarter of 2012.
    We will achieve mechanical completion of Project Phoenix’s Phase 2 production capacity of 40,000 metric tons of REO equivalent by the end of 2012.
    We are producing commercial rare earth product now — an estimated 8,000-10,000 metric tons of REO equivalent product across all Molycorp facilities in 2012 — and we will be producing commercial rare earth product from our Project Phoenix facility in 2012.
    With all due respect to my friend Jim Hedrick, there is no substance to the contention that “it will take at least a year to get the plant balanced and running before Molycorp gets commercial rare earth product out.”

  8. Mr. Sims,
    Can you clarify some things that are unclear from your statements?
    You state, “We will achieve mechanical completion of Project Phoenix’s Phase 2 production capacity of 40,000 metric tons of REO equivalent by the end of 2012.”
    Is “mechanical completion” the same as complete and producing? Are you implying 40,000mt of production capacity will be online and ready to produce? Will it be?
    You note Molycorp is producing “an estimated 8,000-10,000 metric tons of REO equivalent product across all Molycorp facilities in 2012.”
    Can you clarify where material is produced and in what amounts? Do you produce anywhere other than Mt. Pass and Silmet?
    In regard to the statement, “we will be producing commercial rare earth product from our Project Phoenix facility in 2012.”
    What products will be produced at Project Phoenix in 2012?
    Can you clarify your issue with Mr. Hedrick’s statement that “it will take at least a year to get the plant balanced and running before Molycorp gets commercial rare earth product out”?
    How long will it take to get the new Project Phoenix Plant balanced and selling product?
    Are you objecting to the phrase, “before Molycorp gets commercial rare earth product out” because the new Project Phoenix plant will “get product out” or because Molycorp is currently selling product from other facilities?
    The answers to these questions are not clear from your public filings so your clarification would be appreciated.

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