You can’t move a mine; Molycorp is the largest operational rare earth mine outside of China
With six news announcements thus far, it’s been quite an October for Colorado-based Molycorp, Inc. (NYSE: MCP) — the lone large-scale North American rare-earth elements producer and the only advanced material manufacturer in the world that controls both a world-class rare earth resource and can produce high-purity, custom-engineered rare earth products. Molycorp reported that the final phases of its USD$1.5 billion expansion and modernization of its REE mining and processing facility (arguably the most technologically advanced REE production complex in the world) in Mountain Pass, California are complete. On October 2nd, Molycorp announced that the mine’s chloralkali process plant is “mechanically complete” and work to start up the plant has begun. MCP also confirmed that the final unit of its multi-stage cracking plant at Mountain Pass is is being commissioned. These are the last major construction activities of the re-build of Mountain Pass — which will help Molycorp focus on increasing production while continuing to reduce our production costs — and will enter into production in the fourth quarter of this year. The Mountain Pass mine has the capacity to produce 19,050 metric tons of REE ore.
On October 8th, Molycorp named industry veteran Geoff Bedford (Molycorp’s Executive Vice President and COO) as the company’s next President and CEO. Bedford will assume the position effective December 2nd, replacing Constantine Karayannopoulos, who was appointed interim President and CEO in December 2012 (Karayannopoulos will continue as a Director and Vice Chairman of Molycorp’s Board). Bedford previously served as EVP and COO of Neo Material Technologies since 1999, until Molycorp acquired the company in June 2012. Commenting on the announcement, Chairman of the Molycorp Board of Directors, Dr. Ross Bhappu, stated: “Molycorp is very fortunate to have someone of Geoff’s caliber, expertise, and breadth of rare earth industry knowledge to assume the next generation of leadership of the company. He has the operational experience as well as the deep knowledge of this company to lead Molycorp to the next level of performance.”
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With sales being lower than expected, due to a combination of lower production and lower prices (a strained market overall due to global economic weakness, price volatility and competition from illegal mining in China), revenues and cash flows have come up short. The light rare earth metals (i.e. cerium, which makes up over 48% of Molycorp’s production, and lanthanum) continue to struggle pricewise. As a result, on October 15, Molycorp announced a proposed offering of (dilutive) common stock and five days later MCP announced the successful close of its offering, raising a net total of approximately USD$247.5 million (51,750,000 common MCP shares at a price USD$5 per share) to fund current capital expenditures and other cash requirements, including expenditures at its Mountain Pass facility. Chilean Molibdenos y Metales S.A. (Molymet), one of Molycorp’s most significant shareholders, invested approximately USD$70 million in MCP’s most-recent stock offering.
Although its stock price has lost nearly a quarter of its value this month alone, the good news for Molycorp is that China has begun an aggressive search outside of its borders for rare earths (particularly HREEs) investments, which reveals a lot in terms of China’s long-term REE strategy. China has decreased its excessive REE mining (and will continue to do so for the foreseeable future) as well as exports of HREEs, due to illegal mining and resource nationalism (banning of limiting the export of one product in favor of producing a higher value-added product). The current Chinese crackdown on illegal and unsafe REE producers is a very important factor. China has shut down many illegal mines and processing plants in actions coordinated between the central government in Beijing and local governments, which until recently were the ones most reluctant to participate in the fight against REE smuggling. Beijing has long tried to keep the REE industry under tighter control in order to control prices more effectively. The recent Chinese developments suggest that rare earth prices will rise again. There is evidence, nevertheless, that a long term REE price increase is possible (or even likely) for some rare earths such as praseodymium, neodymium. Goldman, Sachs & Co. predicts that by 2016, cerium and lanthanum will still draw the most demand, accounting for about two-thirds all REE sales. This is good news for Molycorp — the largest producer of such elements outside of China.
On October 22nd Molycorp announced that it will release its financial results for the third fiscal quarter (ended on September 30, 2013) after market close on November 7th. Release of MCP’s financial results will be followed by an investor conference call at 4:30pm EST presented by Constantine Karayannopoulos, Molycorp’s interim President and CEO; Geoff Bedford, Executive Vice President and COO; and Michael Doolan, Executive Vice President and CFO.
InvestorIntel has been in contact with Jim Sims, Molycorp’s VP of Corporate Communications, and looks forward to interviewing Mr. Bedford after the release of the company’s latest financials.
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