EDITOR: | June 25th, 2015 | 18 Comments

Lifton weighs in on Molycorp – Requiem for a Lightweight

| June 25, 2015 | 18 Comments
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punch-above-your-weightMolycorp has been punching out of its class almost from the beginning.

Molycorp is not gone. It is its equity investors who are gone to the cleaners. This wipe-out of the equity has been expected-even desired-for some time, since the company’s fate has been entirely in the hands of its debt-holders for at least two years.

So, now let the “restructuring” begin. Debtor-in-possession financing has been “secured,” but the  Bankruptcy Court(s) with jurisdiction will now have to approve a restructuring plan. This will entail the court’s soliciting testimony from among others angry shareholders who will want either the company’s assets sold and anything left over after the senior debt holders are satisfied to be distributed to the equity holders, or, at the very least, the current management dismissed and replaced.

I’m sure that the idea of the (any) restructuring “experts” retained is now to pare down the company’s operations; sell “non-core assets; “ operate at a break-even instead of the previous bloat; and relist the company’s shares as soon as possible on a big board so as to run up the price and cash out their debtor-in-possession “investments.”

I’m certain also that the above campaign will be accompanies by a rehash of how critical rare earths are to the nation’s defense and a rehash of the need for self-sufficiency for the USA in these “strategic” materials, etc….

My advice has not been sought, but I will give it anyway:

If a court accepts a plan it must contain the following conditions:

  1. Put Project Phoenix (“PP”) into profitable/break even operation within 6 months or close it down;
  2. If PP is closed down then continue to operate the mine only at the level demanded by the market and the capacity and needs of the three overseas separation facilities (The two Neo ones in China and the one in Estonia) and if the mine (and PP) cannot be operated competitively by January 2016 shut them both down.
  3. Operate the former Neo Materials as an independent profit-center buying feedstocks from wherever it can competitively
  4. Sell off all non-core assets such as those now agglomerated as Molycorp Metals.
  5. Sell Boulder Wind

Some of the above has, I believe, already was begun before today’s filing.

I am waiting for Molycorp’s equivalent of Carl Denham (of King Kong fame) to say (in my paraphrase of “Twas beauty killed the beast.”) “Twas the market killed the beast.” But, in fact, it was the rigidity of planning, a type of incompetence, that killed this beast. I really hope the court appoints a new generation of managers instead of employing Dr. Frankenstein’s procedures to try to resurrect this beast


Jack Lifton

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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

    Jack.

    Allow me be the first to say — you were right, and I was wrong.

    I believed that Molycorp was too big to fail. I believed that after Constantine’s amazing deal in selling Neomaterials to Molycorp that perhaps — they could do anything.

    After the stock went from $2 to $70+, I thought maybe this was the chosen one: but I was wrong.

    Would it have survived if MCP had not bought NEM? What do YOU think Jack?

    June 25, 2015 - 9:30 AM

  • Jack Lifton

    Tracy,

    MCP would NOT have survived even up until now without NEMs. I hope that the new plan offers NEM’s original management an opportunity to buy it back, so that we don’t lose that company’s expertise in its core competency.

    Jack

    June 25, 2015 - 9:36 AM

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    June 25, 2015 - 9:48 AM

  • motherearth

    Thank you Jack, here’s a thought, Moly needs feedstock and Rareco is for sale, Great Western haves 3 bids on Rareco could you guess as to who that might be, and might that work for Moly?

    June 25, 2015 - 11:09 AM

  • Billy

    Jack both know without some miracle Molycorp will never be profitable.

    Mountain Pass distribution of Lanthanum 33.2%, and Cerium 49.1% – yes combined that’s 82.3% which HAS to be produced at a loss to get to the remaining “critical” rare earths

    The figures from Customs showed that China totally exported 14,575 tons of Lanthanum and Cerium, accounting for 52.49% of the country’s total export volume in 2014

    …… this means Molycorp competes directly with the Chinese for the sale of these two products

    it’s not like they can send the Lanthanum and Cerium to the tails

    June 25, 2015 - 1:14 PM

  • irishrover

    Question is whether Mt. Pass can make money. Only one of the two Neo plants in China can handle Mt. Pass material on an as is basis. Unfortunately when Pheonix arose from the ashes the abandoned the old Moly process of knocking out the Ce before SX. This flaw consumes a lot of acid and is very difficult (expensive) to change out. Bigger question is how the Magnaquench division will perform if they cannot produce enough Nd/Pr for their own demand. A double whammy

    June 25, 2015 - 3:06 PM

  • Jeff Thompson

    Any thoughts as to whether the publicity that Molycorp’s bankruptcy filing brings might focus some investment attention on the remaining North American REE companies, such as Texas Rare Earths, for example, in an effort to find out “Who’s left?”, and who might be able to fill the need that Molycorp couldn’t.

    June 25, 2015 - 7:46 PM

  • Tim Ainsworth

    What chance Mt Pass when they couldn’t even capture the 4ktpa La China is currently shipping into US FCC?
    Q for Neo is can they compete with former customers sans patent, look to successive reported ASP’s since expiration.
    Lol Jack, what’s a stake in a Dy free Wind Turbine worth these daze, given everyone’s doing it? Actually Moly “invested in Boulder Wind Power’s Series B Convertible Preferred Stock as part of a $35 million capital raise by the company” without qualification. Unless there was something subsequent I doubt it’s theirs to sell.

    June 26, 2015 - 5:51 AM

  • Jack Lifton

    Tim,
    Thanks and thanks for the clarification on Boulder Wind, the name of which I’m afraid is a metaphor for Molycorp.

    Jack

    June 26, 2015 - 5:56 AM

  • Tim Ainsworth

    charles, the problem with Moly was lack of a business plan to MATCH the asset.
    Jack highlighted years ago the ridiculous scale of Moly @ 2 x 19ktpa, and perhaps to a lesser degree, Lynas. Not only has the end market proven him very right but also his point re the protracted difficulties in commissioning these oversized plants.
    What planning went into marketing Moly’s 82% Ce/La at the point of selecting a 19ktpa module?
    Perhaps with the benefit of some experience pre 2011 Lynas negotiated foundation offtakes for Ce/La that still underpin current sales guidance of 15ktpa. June QR in a few weeks will demonstrate what progress they’ve made in producing it.

    June 26, 2015 - 7:02 AM

  • Sluggo

    Tim: Please elaborate! “Lol Jack, what’s a stake in a Dy free Wind Turbine worth these daze, given everyone’s doing it? -” Thanks

    June 26, 2015 - 11:43 AM

  • Tim Ainsworth

    Jack, something I cannot rationalise is MolyMet’s $600M+ investment in Moly, 20% of common equity.

    This from MolyMet’s largest SH, private Austrian Plansee:

    “”Focus on molybdenum and tungsten.

    The Plansee Group has gradually increased its holding in the Chilean company Molymet to 14 percent. The company has annual revenues of US$1.2 billion and 1620 employees. Schwarzkopf: “This reflects our continuing commitment to our strategy of focusing on the two high-tech materials molybdenum and tungsten.” Molymet is a listed company and is the world’s largest processor of molybdenum ore concentrates, with a market share of 30 percent. “In the last fiscal year, Molymet raised its holding in the West’s largest processor of rare earth metals, the US company Molycorp, to 20 percent of the shares. This increases the strategic value of our holding over the long term”, said Dr. Schwarzkopf.”

    What “strategic value of our holding”???

    What possible relationship does Mt Pass have to “the two high-tech materials molybdenum and tungsten”???

    Hard to see how they could now leverage 20% commons into any meaningful but neither does it seem credible that $600M was simply passive?

    Following your commentary over the years I thought there may perhaps be some toll producer angle for some Sth American resource but ATM $600M+ just looks like being swallowed in Ch 11.

    June 26, 2015 - 11:57 AM

  • Tim Ainsworth

    Lol Sluggo, I’d give U the links but they don’t sit well here, shouldn’t be so hard to research.

    June 26, 2015 - 12:01 PM

  • Sluggo

    Quite right Tim. Thanks

    June 26, 2015 - 12:39 PM

  • Tim Ainsworth
    June 26, 2015 - 10:56 PM

  • Tim Ainsworth

    Yet we are witnessing the very same in the graphite space ATM, one behemoth even advertising broadly online for a S&M Mgr. Silly me, I thought all those giga tonnes were fait accompli, no product specialist experience required.

    Investors have been played for a sucker on the opaque end markets for both.

    While Lynas still needs to prove baseline production the quasi Govt JOGMEC does appear to be back in the fold, although LT debt unresolved. Don’t underestimate potential ROI, current period has necessitated a razor focus on costs & the opportunities for production efficiencies have not even been contemplated by market.

    June 27, 2015 - 6:35 AM

  • Tim Ainsworth

    Well, appears Neo Mgt, oops Moly Mgt, have got in bed with Oaktree to ditch the behemoth.

    If the Judge agrees Good Co/Bad Co looks like Phoenix burns again.

    July 2, 2015 - 11:04 AM

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