EDITOR: | August 27th, 2015 | 8 Comments

Molycorp’s blow to the rare earth sector

| August 27, 2015 | 8 Comments
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MolycorpAnd then there was one.

Now Lynas Corp remains the only rare earth mine operating that is owned by a Western listed company. This after the news that Molycorp is placing its Mountain Pass rare earth mine on care and maintenance. In other words, it is mothballing America’s only rare earth mine. Who knows when it will ever re-open.

This is dreadful news. Not for Molycorp so much: the company has already sought Chapter 11 protection and, after all, it did in March warn that with rare earth prices being what they were, they could not guarantee that they would stay in business. The Chinese and Estonian operations will keep going, but that is scant comfort. No, the news is not the sort of thing that the promising future producers of REE need right now.

Its continuing losses, and Lynas’s problems (not to mention falling rare earth prices), have contributed to many investors fleeing the REE sector. The market will not take kindly to this latest development, Molycorp saying last month that a complete shutdown was not an option. Indeed, these were Molycorp’s words on July 2: “The company now has the funds to continue its operations and to move forward on releasing funds to pay post-petition suppliers and some pre-petition essential suppliers, as previously approved by the Court. Employees will continue to work their usual schedules, and purchasing of goods and services can move forward to ensure Molycorp’s customers can be serviced. Between now and the final hearing, the Mountain Pass facility will continue to run in an orderly and controlled way.”

This makes it all more urgent for some – any – of the advanced projects to get into production and show that rare earth mines can work. Fortunately, by and large these are not encumbered by the overheads that faced Molycorp. As The Atlantic magazine pointed out in 2009, Molycorp’s “effort to turn Mountain Pass into an environmentally friendly producer—call it the Whole Foods of premium free-range sustainable neodymium—comes with costs (its) Chinese competitors don’t have to pay: for starters, $2.4 million a year on environmental monitoring and compliance”.

The company went public in 2010. Two years later it outlaid $1.3 billion for Neo Materials Technologies Molycorp carries  $1.7 billion in debt.

The environmental issues were a burden, and that challenge does not confront other emerging producers. In 1998 processing at the mine site was halted after radioactive wastewater flooded the nearby Ivanpah Dry Lake. Then the mine was closed in 2002, the operation not being able to bear the environmental costs as rare earth prices tanked as the Chinese had pushed production in the 1990s and undercut Western mine costs. Then Beijing in 2009 dramatically reduced export quotas (from 50,000 tonnes down to 30,000 tonnes) and suddenly Molycorp and a growing number of Western countries saw their chance. But China – as usual – miscalculated, the soaring REE prices turning end-users to their “recycle, reduce and replace” efforts. (See Christopher Ecclestone’s post yesterday on InvestorIntel outlining the bungle that China has made of its minerals policy, especially the REE sector.)

And here we are.

It’s all a long way from those heady early days. There was great optimism in 1952 when the Los Angeles Times reported that “production from the world’s richest rare earth deposit, discovered several months ago near Mountain Pass, San Bernadino County, is expected to get underway next month”. As the paper noted at the time, “prior to the California discovery of rare earths, the United States was dependent on Brazil and India for these unusual minerals”.

By 1965, the same newspaper was reporting that Mountain Pass, which had been struggling to stay alive, was now a “boom town”. And it predicted that the big deal would be the europium oxide, used in manufacturing tubes for colour television sets.


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Comments

  • Jack Lifton

    Robin,

    I do not agree with one of your premises, namely that “This is dreadful news”[!]. The predecessors in interest to this latest version of a company operating the “mine” at Mountain Pass miscalculated on europium badly in the 1960s. They built a separation plant only to recover europium, which was 0.1% of their total rare earths, believing that the demand for Eu for a then unique phosphor for the then new and growing civilian color television market was open ended and thus its price would simply climb. By the time they were into production the need for Eu had been reduced by continuing R&D to just 1/8 of what had been projected in 1964, four years earlier. Then in the early 1980s Molycorp realized that its 6000 ton capacity SX plant couldn’t keep up with the then new demand for neodymium/praseodymium, didymium, for rare earth permanent magnets for the civilian automotive industry. Molycorp gambled on outsourcing its excess needs for separation to China. We know how that turned out!
    The latest version of Molycorp, the one that went bankrupt, thought it had learned from both experiences, so it was decided to focus on producing as much neodymium/praseodymium as possible by planning to produce as much total light rare earths as all of Inner Mongolia combined. The “new” Molycorp’s business modelers ignored two facts: 1. China’s massive installed (paid for) capacity, and 2. China’s many vertically integrated companies with SX separation systems the operating quirks of which had been then long worked out. The second of these was addressed by the current Molycorp by suddenly doing after several years of developing its original flawed business model what it should have done on the first day. It bought Neo Materials so as to become totally vertically integrated, but it appears that this move was far too late and the integration attempt only exposed the company’s core weaknesses in that it had no company owned or operated sources of the key raw materials, the heavy rare earths either for phosphors or magnets of the most common type, and that it could not get its massively bloated new 20,000 ton capacity to work.
    This morning Neo materials can continue to operate because it has never been dependent, never, for its raw materials on Molycorp’s Mountain Pass mine. The closing of that mine will have no effect on the global rare earths markets. It only affects those investors whose money was unsecured.

    Jack

    August 27, 2015 - 8:49 AM

  • Tracy Weslosky

    ALKANE is now officially at top and Northern Minerals is coming up on 2nd place hard as LYNAS’ heels are looking worn from all the tripping.

    The next question is: who in the good ole’ United States of America is going to be the voice of sustainability? Rare Element Resources, UCORE Rare Metals, Texas Rare Earth Resources and U.S. Rare Earths are all still in play….good on all of you for having the endurance and commitment in face of some substantial market challenges!

    I remember having the artwork that is featured above done and I remember writing the Rare Earth Fight Club series. The point in this series, I started in 2010 — is that no one wins when everyone is fighting each other. The rare earth industry has been challenged by internal fighting, which the more mature players have since separated themselves from the pack by showing respect and teamwork to the overall goals of the industry. This is why Jack and I are hosting the Global Technology Metals Market summit on Wednesday, October 14th in Toronto. To bring us together for the good of the whole.

    For the record, I have the utmost respect for Constantine Karayannopoulos and will be interested to see how the Neomaterial assets proceed.

    August 27, 2015 - 10:24 AM

  • JJBeswick

    Seems to me the BIG winner in all of this is Lynas, and that’s confirmed by the amazingly generous debt restructuring approved by their Japanese partners JARE.
    JARE have agreed a 2 year extension of the debt repayment: but NOT on the same terms (a good outcome in itself). Instead JARE offered much more than that: interest rate discounts so long as Lynas can meet Nd/Pr production targets and modest debt repayment goals.
    This is no small thing: Lynas can reduce the interest rate from (the previous) 7% to 2.8% if they meet targets that are very much in scope.
    It’s VERY clear that JARE- the Japanese Govt/ Sojitz RE Distributor partnership- are very keen to secure ex-China supplies of the key magnet REs; the only option is Lynas thanks to Moly’s demise.
    With Lynas (FINALLY) getting close to full production rates and generating positive cashflow it seems a very strong strategic partnership is finally being consumated.
    Japan REALLY want a secure supply of magnet REs and its name is Lynas.
    The other debtor, Mt Kellet, were only modestly less generous in their rollover agreement; I guess they are a little less invested in securing supplies of the magnet REs…..

    August 27, 2015 - 12:29 PM

  • Robin Bromby

    Jack — absolutely and I take your point. I meant “dreadful” only in respect of the “look” of it for the average investor out there in terms of perceptions of the REE sector. Readers of InvestorIntel know the difference between REE companies, the complexities of the various elements in terms of demand and pricing, but I suspect most other investors do not. And from what I see in the mainstream financial media, that shallowness of understanding about REE is still very evident.

    August 27, 2015 - 4:03 PM

  • Tim Ainsworth

    Does anyone think this represents any sort of catalyst for investors, or just more “tripping”:

    “Welcoming this step change, our customers have responded very positively, in particular, outside China:
     NdPr sales to Japan reached over 630tons, setting Lynas above 60% market share, and further strengthening the partnership built over recent years with Japanese industry.
     80% of our La and Ce products were sold outside China, thanks in particular to strong demand for our Cerium.”

    Lynas June QR

    August 28, 2015 - 1:46 AM

  • irishrover

    Question is how does Estonia run without feed from Mt. Pass and how does Magnaquench division perform without Nd/Pr feed from internal operations?
    Margins will take a pounding

    August 28, 2015 - 7:59 AM

  • RAJ

    I worked in a Rare Earths company in India for 29 years. I feel that Lynas Corpn., the only producer of Rare Earth products outside China will become a monopoly company because it will take several years for other companies to come to production. Production is increasing and they can double production if needed. The prices of products are expected to go higher due to supply/demand theory. They have restructured their debts. They got certification that it is least pollutant. Amanda said that company is for sale if a good offer comes. What else we need?
    RAJ

    August 28, 2015 - 11:42 AM

  • asrms

    I agree with the Lynas comments already made. Further, all those other potential LREE producers are some years away from production (never mind cash in hand financing). Do we also think that such companies will just fly through the whole set up process without time consuming teething problems (both Lynas and MCP thought they would and look what happened to them).

    Where are other non Japanese companies going to go for their non chinese LREE supply now? What will Siemens do etc? This is now in Lynas hands – they have probably two years in which to make themselves a truly ‘moat’ process product supply chain by proving the quality of the product they make and the quantity that they can produce. If they do down now it will be because of their own ineptitude; not low REE prices. They have the total support of their financiers and an improving bottom line – even merging or eventual buyout is not out of the question for the future. It is in Lynas hands.

    August 28, 2015 - 11:55 AM

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