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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Publication Date: September 18, 2012
Why Gold and Precious Metals and Why Now ?
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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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Talison Lithium ( TLH) Has 30% of World Supply – and Expanding

English: Richard H Griffiths with NASA electri...

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March 18

The potential is tremendous – although they used to say that about me .

Here is part of an interview with the CEO:

The outlook for the silvery-white metal remains promising, with plenty of growth in the near term from electronics and the promise of vast demand from electric vehicles in the future. The market continues to be dominated by four main players, one of which is Toronto-listed Talison Lithium Ltd., which went public in 2010 and controls about 30% of global lithium production.

Chief executive Peter Oliver spoke with the Canadian Financial Post about his company, the growing lithium market, and why some of his smaller competitors are going to struggle to get off the ground.

Q  There was a period when everyone wanted to talk about lithium. You don’t hear about it nearly as much anymore. What is the market like these days?

A  That big run a few years ago was a lot of hype around electric vehicles. To be honest, that’s never been our focus. We’ve been producing for 25 years and sales have grown an average of 15% a year for the last 10 years. The electric vehicle story is still some years away, so what’s driving growth at the moment is new applications, such as small-format batteries and aerospace alloys and solar energy applications. iPads are a classic example. I think they reached 50 million sales in half the time it took iPhones to do it. They just take off so quickly and the demand is quite strong from things like that now. So there’s a whole raft of new industries developing using lithium, and the electric vehicle story is really the future.

When do the electric vehicles kick in?
A  We’ve consistently had the view that it’s probably 2015 before there’s going to be a significant increase in demand for lithium from electric vehicles. There’s nothing out there at the moment to suggest it will be a lot quicker than that. But there’s definitely a lot of work being done and a lot of momentum building.

Q  What happens to the market once the electric vehicle demand does ramp up?

A  I think the lithium market will double or more in the next 10 years. We’re doubling our production capacity, and the other existing producers are also expanding their capacity. [But] I think there’s no risk of a shortage of supply. There’s plenty of capacity within the existing producers to meet a large proportion of growth from the market, including electric vehicles.


Q  There are a lot of junior companies trying to raise money that have quite a different message.

A  . The existing four producers have a much lower cost base and they’ll expand first and capture the market growth. It’s not until the market grows beyond the capacity of those four, which is some years away, before there’s a gap in the market for new producers that have a higher cost base. It will be a very tough road for [juniors], that’s for sure. If you went back to what people said a few years ago, a lot of them should already be in production. They still haven’t got funding. It’s a really tough road to get into production.

How big is the market right now, and how fast is it growing?
A  It’s roughly 150,000 tonnes of lithium carbonate equivalent [a year], which is the standard unit that lithium products are compared to. We’ve been growing at 15% per annum for the last 10 years. Global demand is growing a little less than that, but it’s still quite strong.

Is the market in balance right now?  
The market is fairly tight right now, and prices have started to move up. The existing producers are all expanding, so they’re pretty much all fully sold, including us.

What about price?
It’s in the order of US$5,500 to US$6,000 a tonne, depending on the grade of lithium carbonate. In 2008, it peaked around about the same level. Then it dropped a bit through the next couple of years through the global financial crisis. And now it’s just started to get back to 2008 levels. We’ve increased our prices this year by about 15%.

How did Talison get into the business and seize such a large amount of the market share?
Talison started with producing [lithium] concentrate for the glass industry 25 years ago. In the last 15 years, the market has developed in China for lithium concentrates for conversion into chemicals. And it’s really in the last 10 years that our market share has exploded. We’ve got about 80% of the Chinese market, and probably a similar percentage of our sales go into China. Which is probably why we have a low profile, because no one really knows what’s going on in China.

What is your key message for investors?
I think the key theme is that there’s a long lead-up time to bring on new production. But on the demand side, new technologies are coming onstream so fast that we need to have capacity in place now to capture the growth that comes in the future. And if you wait for the demand to be there, you won’t be able to meet it. So we’re putting our production capacity in place now to meet that future growth

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IAMGOLD – Inferred Resources Increase Rare Earths Potential

Niobec, à Saint-Honoré.

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IAMGOLD (IAG : NYSE Target US $ 25.00

Big REE resource adds optionality to Niobec

IAMGOLD has declared an initial inferred resource of 466.8 million tonnes grading 1.65% TREO (Total Rare Earth Oxides), based on the company’s 2011 exploration program at Niobec. The resource is based on 29 holes totalling 13,798 metres of diamond drilling, including a single underground hole drilled from the Niobec mine.

The REE Zone is located approximately one kilometre north of Niobec.

The company expects that further exploration drilling will extend the resource model at depth, to the south and southwest. In January 2012, the company initiated a follow-up 2,750 metres to define the lateral extent of the resource and establish the limits of the REE mineralization with greater certainty. IAMGOLD is also planning a second phase of drilling for resource definition and exploration at depth. This work will be followed by a scoping or PEA study at a later date.

The rare earth element market has exploded in terms of pricing due to China’s actions to restrict exports to protect its domestic industry. Producers in the space include Molycorp ($2.45 billion market cap), and explorer/developers include Avalon ($350 million market cap) and Rare Element Resources ($300 million market cap). Molycorp is currently  expanding its throughput capacity at its Mountain Pass operation to 40,000 tonnes per year from current production in the range of 5,000-5,800 tonnes in 2011.

Based on early 2011 pricing (source:, the recoverable (54%) rare earth oxide resource at Niobec would be valued at >$70 billion or approximately $150/tonne of resource . Using higher spot prices, the recoverable resource value would be approaching $400 billion (source:, underscoring the extreme volatility in REE pricing. Based on much lower 2009 prices before market conditions tightened, the recoverable value of the resource would only be in the range of $10-11 billion (worth $20-22/tonne, which equates to our long-term site costs/tonne assumed at Niobec).

CAVEAT : It is far too early to ascribe value to the REE Zone, but it certainly adds optionality to the value of Niobec.

We conservatively value Niobec (excluding the REE) at $745 million or $2/share based on a 10% discount rate and a long-term Niobium pricing of $40/kg. The new REE resource does, however, highlight the upside potential of the valuation for the Niobec mine, for which the company is seeking a partial sale/possible IPO (potentially 2013) to unlock greater value for the company.


AMP continues to rate IAMGOLD shares a BUY with a US$ 25.00 target price based on 0.9x our peak NAVPS estimate of US$26.21. The shares trade at a deeply discounted valuation of 0.67x P/NAV vs. the senior intermediate average of 0.87x.

Investment risks

The typical risks associated with any mining investment include commodity and exchange rate risk, and permitting and technical (development/operating) risk. In particular, investors considering an investment in IAMGOLD must consider the development risks associated with Westwood and Quimsacocha projects, in addition to technical/development risks associated with the proposed expansion of Niobec.

This review is for: Apprentice Millionaire Portfolio 2012

The first edition of Stock Market Magic: Building Your Apprentice Millionaire Portfolio authored by Jack A. Bass, was published in March 2012. This review is based upon reading that edition and the author’s stock market letter at

This comprehensive volume (some 500 pages ) offers the reader the nuts and bolts as to what the Apprentice Millionaire Portfolio strategy is based upon – investing , trading and selection.

While many investors today talk about an ” investing” style, I challenge how many have actually developed their own criteria – here in this 500 page volume is a written system and series of selections. Many of the basics have stood the test of time. The volume also allows for junior companies to be considered with the ” blue chips” of each sector. More than 150 companies are profiled.

The books offers Watchlists of stock selections in a variety of sectors such as energy and precious metals. This will allow the reader to create a portfolio in line with the AMP process and thinking. In that way a great deal of hard work has already been done.

It should be noted that the book contains information on how to analyze a wide variety of stocks. Actually a great proportion of the book is devoted to giving the investor the basic thesis of why an industry such as energy was chosen and why particular stocks are the top picks for each industry or sector analysis. Information is in a clear and readable format.

Different from Graham and Dodd’s disdain for “speculators,” or what we might call “traders” the author gives actual trades to back up the assertion that not every selection has to be made until ” death do you part “.

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