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Are Molycorp’s Plans on the Sale of Common Stock and CEO Change a Cause for Concern?   

By EI Staff | October 16, 2013

Where Exactly Could Molycorp be Headed in with New Leadership and a $200 million Stock Sale?

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Greenwood Village, Colorado-headquartered Molycorp, Inc. has seen a downward slide in its stock price this week from closing at $7.10 on Monday, October 14th to $5.58 at close yesterday, October 15th. The huge drop came on the back of news that it intends to sell $200 million worth of its common stock for its funding needs. These relate primarily to general capital expenditures and other cash requirements, including for expenses at the Mountain Pass, California facility.

News of the requirement for capital comes after it had come out with lacklustre numbers for the second quarter. At its Q2 earnings call, Molycorp reported a higher net loss at 74 million versus the 50.1 million figure in Q1. Total company net revenues at 136.9 million were also 6% lower than the 146.4 million figure reported in Q1. Segment revenues also came in lower with chemicals and oxide reporting 41.5 million in revenues, a decrease of 35% as compared to the first quarter. The rare metals segment also reported a 9% decline in revenues for Q2 versus a 26% increase in Q1 earlier. The performance decline in Q2 could be correlated to weakness in demand as well as pricing of rare earth materials which they use.

Importantly, in terms of cash being maintained on their balance sheet, as of June 30th, Molycorp had 264 million of cash and cash equivalents versus 404.8 million as of March 31st. At the Q2 call, CFO Michael Doolan had said that they plan to fund remaining capital expenditures from this cash balance and cash generated from operations. He also said they would be evaluating and pursuing additional sources of liquidity.

The Mountain Pass facility, for which they state they plan to use funds from the sale of common stock, had successfully demonstrated operational capacity of approximately 15,000 metric tonnes per year, making it one of the highest capacity rare-earth processing facilities in the world. The plant has an original design capacity of 19,050 metric tonnes per year. CEO Constantine Karayannopoulos had stressed at the same event that they had been working hard to bring Mountain Pass to that original design capacity. In such a case, the additional capital expenditure requirement for Mountain Pass could make sense, with it largely being utilized for its ramp up.

Molycorp also recently announced a major change to its senior management team with current COO Geoff Bedford being named as the company’s next President and Chief Executive Officer. He would be replacing Constantine Karayannopoulos, the current CEO. Geoff Bedford does have a solid 14 years of rare earth industry experience in his cap.

Molycorp's Performance in Detail at its Q2 2013 Earnings Call




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