EDITOR: | July 9th, 2014 | 10 Comments

Is there to be life after Molycorp? You bet there is.

| July 09, 2014 | 10 Comments
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Adam-SmithAs usual Adam Smith’s “invisible hand” is guiding the market place for rare earth producers and juniors in the right direction. I say this because Wall Street players (using other people’s money, of course) have long set their rare earth course by sighting upon Molycorp as the archetype rare earth “play.” But alas they have now lost most of the money entrusted to them by others and small investors have moved to right sized rare earth ventures as the drivers for future production of the right mix of products. Don’t despair for the Wall/Bay/Howe Street “boys’ they will just have to use their own money, built by taking trading profits and fees into their own pockets, for building  penthouses in the sky, buying premier grand cru vintages, and getting the best medical care the NHSs and ACA cannot provide for their STDs and other afflictions.

I am delighted that the right sized rare earth ventures are moving up as Molycorp descends into no-more-perks (or sky high salaries for that matter) for executives’ territory and the up value of its share certificates for use as papier hygenique since the MCP paper will be less expensive than the same-use products of Georgia Pacific.

So as Molycorp’s share price heads down and Rare Element Resources’ share price heads up and probably will surpass that of MCP shortly let me spin a theory for you of what I think should ( or may ) be happening:

Molycorp overpaid for Neo Materials Technologies and the overpayment is part of or all of its debt.  However it is most likely true that Neo is still worth today half of what it was sold to Molycorp for. So if I were Messieurs Karyannoupoulos and Black I would examine the scenario below

  1. Black acquires control of the equity in the company, Molycorp,
  2. Black dismisses Karyannoupoulos or K resigns as Chairman along with Bedford as CEO
  3. K offers to buy Neo from Molycorp for half of what Molycorp paid. This gives the company, Molycorp, a substantial amount of money  to settle its debt most of which is due to the goodwill cost for the acquisition of Neo anyway
  4. Black arranges the financing for the Neo buyout and thus
    1. Makes the bankruptcy judge deliriously happy by paying off the creditors
    2. Gets a good operating mine very cheap
    3. Gets a state of the art traditional light rare earth separation plant with a large capacity for cheap,
    4. Black reconfigures Molycorp as a toll refiner thus making any and every other light rare earth project in the America’s vastly more likely to go forward and succeed at a lower capital cost
    5. Black produces just enough material from Mountain Pass to make breakeven for the new company and all toll refining is then very profitable.
    6. K continues Neo’s original business and retains an agreement to be the marketing agent of Molycorp for products and toll refining looking to a future when Chinese costs rise to the point that Molycorp can produce light rare earth products competitively enough to sell against the Chinese producers in their own markets-perhaps in the later part of this decade.

OK. This is fanciful, because it doesn’t take into account the details of the necessary financial and legal manipulations, which may make the above scenario impossible or too expensive. But, in fact, I said a few months ago, and I repeat that Molycorp, shorn of debt and Neo (and Boulder Wind if it still has it as well as of its small rare earth metal operation in Arizona) could be a profitable toll refiner backstpped by its own mining capacity. I realize that Molycorp might have to create a hydrometallurgical treatment arm to prepare other people’s feed stocks for its toll operations, but this could be profitable also as it would throw off SEG and HREE residues that would be very valuable to the southeast Asian market even now.

The new Molycorp would not be equipped to process SEGs and HREEs at Mountain Pass, but there may be other locations outside of China where that can be done in the near future.

This is all speculation, and I’ll let you know if Mr. Black calls me. I’m pretty sure that I’ll never hear again from Mr. Karyannoupoulos.

Oh, and an even better fantasy: Black buys control of Lynas and thus owns the non-Chinese world’s largest toll refining capacity and the two largest non-Chinese light rare earth deposits. I’ll bet Goldman-Sachs would buy into that. I remember a time when it, G-S, had that very idea.

To paraphrase the purported Chinese curse: “We live in interesting times.”

At last the rare earths’ markets will be populated with the right sized ventures with the right distribution of rare earths. Who could have seen that coming?


Jack Lifton

Editor:

Jack Lifton is the CEO for Jack Lifton, LLC and is a consultant, author, and lecturer on the market fundamentals of technology metals. Technology metals ... <Read more about Jack Lifton>


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Comments

  • Tracy Weslosky

    The fact is that as of 2PM EST today, the following rare earth stocks are moving north today: TSX: FRO, ASX: HAS, NYSE AMEX: REE, TSX: REE, OTCQX: HREEF, TSXV: HRE, NYSE AMEX: TAS, TSXV: TSM, OTCQX: UURAF, TSXV: UCU…and yes, even ASX: LYN, OTCQX: LYSDY —

    July 9, 2014 - 2:25 PM

  • motherearth

    Jack , how much you bet Neo buys GWG? More interesting by the minute.

    July 9, 2014 - 2:32 PM

  • Jack Lifton

    Motherearth,

    That’s not a bad idea for Neo. It could probably build a tailor-made SX plant in South Africa and not only refine SKK ore but do hydrometallurgy and toll processing for the others. That alone would revitalize the south African rare earth industry.

    Jack

    Jack

    July 9, 2014 - 2:43 PM

    • motherearth

      Jack I’ll buy you lunch if it happens, I’m just across the river from you.

      July 9, 2014 - 2:54 PM

  • the_next_frontier

    Jack/Tracy,
    What is your opinion on the “recent” news from Frontier on optimization of their flow sheet giving them the capability of producing oxides with higher purity (according to their calculations this will improve their basket price by about 8 dollars). Also they recently announced that as a result of their processes they will produce significant quantities of Manganese Sulphate By-product that can be used as an animal feed. What will be the impact of this by-product on their revenue?
    On another note, what do you think in relation to Frontier’s delays in publishing a PFS? Is this normal? Should we expect similar delays for other junior miners in the RE space?

    July 9, 2014 - 8:37 PM

  • Curious Shepherd

    Jack,

    It has been a little over a year since you published the “culling of the herd”.
    Any plans on a follow up article(s)?

    July 9, 2014 - 11:05 PM

  • Fred

    My analysis of Molycorp:

    It’s in a sink or swim situation right now. If it can swim, it can brush aside takeover attempts or leadership changes.

    If it can’t swim, it needs cash. Every time MCP stock goes down, it decreases the possibility of floating more stock. (Wisdom of the street is “don’t try to catch a falling knife”.) It can’t float a bond offering without the market’s faith in it. Staring at an MCP default, Apollo/Black already is one of the big bondholders. It pushes forward a re-structuring plan, which it has already decided upon. It picks and chooses the assets that remain in MCP. Maybe a few get sold off. The others turn a profit. The mine gets put into caretaker status. LREE prices increase because of this. (Who said only the Chinese can play this game?) Existing bondholders get paid largely from promises of future mine royalties. At higher LREE prices, the mine goes back into production. Apollo/Black gets rich. Just maybe the existing shareholders will still have equity.

    July 10, 2014 - 12:07 AM

  • Tim Ainsworth

    Jack, I’m confused, your statement “Black produces just enough material from Mountain Pass to make breakeven” now suggests you agree with Dudley and that Mt Pass can be operated at least cash neutral.
    Given the broader metric of 30% fixed costs and current pricing I’m left wondering what portion of the 19ktpa nameplate is required at steady state “to make breakeven”?

    July 10, 2014 - 12:40 AM

    • Jack Lifton

      Tim,

      In my HYPOTHETICAL I am suggesting that the owner of the toll refinery maintain Mountain Pass production IN CASE it is needed. Please note that when I first visited Mountain Pass under the Mark Smith regime I was shown a pile of ore concentrate that I was told was 22,000 metric tons of 70% material. I asked Mark Smith why, with this reserve, he didn’t increase the company’s then (2009) production of, as I recall, 4000 tons per year. He told me that the concentrate was all he had and he wanted it to last long enough to get the SX plant restarted while he was working on re-starting the mine. I suggested that he should base his business model on an output of just 6,000 tons per year-the amount I understood was the capacity of the SX plant. He replied that his plan was to build a billion dollar business and that you couldn’t do that with 6000 tons per year.
      Molycorp was not public at that time (June 10, 2009) and had no announced plans to go public. I was told, in fact, that the target year for a public offering was 2012.
      By tolling an SX plant can keep profitable. When and if the market demand increases the tolling plant can substitute its own mined concentrates and take the market. In the North American environment this was (and is) a winning strategy.
      So I guess my answer to you, Tim, is that i don’t know how much is required today for Molycorp as a toll refiner to break even, but I know that as a integrated primary producer at today’s prices it cannot be profitable at any level with its debt.
      Jack

      July 10, 2014 - 8:26 AM

  • rodenas

    MCP insider trading. Why MOLYMET paid 4.90 per share if they are insiders and beneficial owners of MOLYCORP ?£http://www.nasdaq.com/quotes/insiders/molibdenos-y-metales-sa-877061

    July 10, 2014 - 7:00 AM

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