Molycorp Inc Financial Collapse : The Fall of Rare Earth Industry

Molycorp went public in 2010, a period when prices for rare earth metals like dysprosium and neodymium were sky high.

Jacob Kepler/Bloomberg Molycorp went public in 2010, a period when prices for rare earth metals like dysprosium and neodymium were sky high.

North America’s flagship rare earth mining company is at risk of collapse, a symbol of how far the entire industry has fallen from its highs a few years ago.

Molycorp Inc. warned on Monday night that it may not be able to continue as a going concern if it can’t fix its balance sheet. The Colorado-based company has US$1.7 billion of debt, including US$206.5 million of convertible notes that mature in June of 2016. It is bleeding cash from operations and is not in a position to meet its future obligations. Its cash position was down to US$212 million at the end of December.

“We are focused on this issue and have retained financial and other advisers to assist us in strengthening our current financial position,” chief financial officer Michael Doolan said on a conference call.

The stock plunged 35% on Tuesday to close at just US48¢, giving Molycorp a market value of US$117 million. It is a stunning fall for a company that was worth almost US$80 a share at its peak in 2011, and acquired Canadian firm Neo Material Technologies Inc. for US$1.3 billion.

Molycorp went public in 2010, a period when prices for rare earth metals like dysprosium and neodymium were sky high. China, which controlled nearly all rare earth production, slapped massive export quotas on the metals that year and created supply disruptions worldwide. Rare earths have a number of important uses in sectors such as automobiles, green energy and consumer electronics, and limiting supply gave Chinese firms a potential advantage.

However, the jump in prices was short-lived. China removed the export quotas — which never worked particularly well — after the World Trade Organization deemed them illegal, and production from China and other parts of the world has expanded over the last few years.

Demand has also been soft for some rare earth products, and prices have dropped well over 50% for many of the metals.

Molycorp’s Mountain Pass mine, located in California, is the biggest rare earth project outside of China. However, it has not lived up to expectations thus far. The company has faced operational problems and has struggled to ramp up production, despite some recent improvements.

Those issues, combined with plunging prices, have put Molycorp in a tenuous financial position. The company lost US$329.8 million in the fourth quarter of 2014, which includes US$231.7 million of impairment charges. Its cash position dropped 33% year-over-year.

“We have incurred and will continue to incur operating losses due to continuing softness in product pricing, inconsistent or depressed demand for our products, and the delayed ramp-up of operations at our Mountain Pass facility,” Mr. Doolan said.

Molycorp continues to face significant capital spending requirements and interest payments on its debt, which put additional pressure on the balance sheet. The company said it does not believe it has breached any debt covenants, but noted that some covenants are “subject to interpretation.”

Additionally, Molycorp said it is not meeting listing requirements of the New York Stock Exchange and may be delisted. The company is considering a share consolidation to meet minimum share price requirements on the exchange.

Like Molycorp, Canadian rare earth companies have shed nearly all of their value in the last few years. Shares of Avalon Rare Metals Inc. are down 97% from their 2011 high, while Quest Rare Minerals Ltd.’s shares have dropped 98%.

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Rare Earths Molycorp (MCP : NYSE : US$11.83)

English: Ashwani Kumar, Indian politician and ...
English: Ashwani Kumar, Indian politician and Minister of State, speaks at a plenary session titled Big Bets on Technology and Manufacturing held at the World Economic Forum’s India Economic Summit 2008 in New Delhi, India. (Photo credit: Wikipedia)

Rare Earths
Molycorp (MCP : NYSE : US$11.83)

August 15
Window of opportunity? While China, the world’s largest producer of rare earths, is clamping down on exports, the world’s
second-largest producer is planning to increase its output.

The Wall Street Journal highlighted that, while China bickers with the U.S. and other major rare earths consumers of export limits, India, currently the world’s second-largest producer of rare earths and home to large deposits of rare earths, has been presented with a window of opportunity to boost production to fill the drop  ff in China’s exports.

The WSJ reported that state-owned Indian Rare Earths, which suspended mining in 2004 due to its inability to compete with China on price, is building a rare-earth processing plant in the eastern state of Orissa. A company official said the plant should begin operations in September. The government also has two ships prospecting off the southern coast of India for reserves on the seabed.

Rare earths deposits are abundant on the ocean floor but have never been mined on an industrial scale. India’s rare-earth strategy appears to be driven not just by economic considerations, but also by the country’s rivalry with China, the WSJ stated. In July, Ashwani Kumar, India’s minister for earth sciences, said China was using deep-sea mining with a strategic purpose,” Kumar said.

mining as a way of staking territorial claims in ocean areas. India, he told local media, was being forced to do the same.
“Countries like China have taken to deep-sea mining with a strategic purpose,” Kumar said.

Talison Lithium – Update Q3

Blackwood Road, Greenbushes Western Australia
Blackwood Road, Greenbushes Western Australia (Photo credit: Wikipedia)

Talison Lithium* (TLH : TSX : $3.59

 

April 13

This follows up  our initial article 

March 18

Australian-based lithium producer Talison Lithium reported third-quarter sales that rose 15%, helped by higher output.

The company reported quarterly sales of 111,896 tonnes of lithium concentrate, up from 97,001 tonnes of lithium concentrate in the year-ago period. Talison sold lithium for an average price of $340 per tonne, 12% above last year.

Production increased 6% to 93,563 tonnes of lithium concentrate. Commenting on the results, Peter Oliver, Talison’s CEO and Managing Director, said, “During the quarter Talison achieved another record level of production at Greenbushes. This record was especially pleasing given the extensive construction activity currently underway to expand production capacity. The expansion is nearly complete and, together with the recent price increase, positions Talison strongly for the expected growth in the lithium market.”

Looking ahead, Talison expects to sell approximately 350,000-360,000 tonnes of lithium concentrate for the full year ending June 30, 2012, in line with earlier expectations.

Talison also noted that production at its flagship Greenbushes in Western Australia will be shut down for about two weeks during May for expansion work.

 

 

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