Molycorp faces ‘substantial debt,’ says going-concern status in doubt

By Lisa Kerner

Charlotte, N.C., March 17 – Molycorp, Inc. chief financial officer Michael Doolan acknowledged a disclosure in the company’s 10-K filed with the Securities and Exchange Commission regarding Molycorp’s ability to continue as a going concern during the company’s earnings call on Tuesday.

The company released its fourth-quarter and full-year 2014 financial results on Monday.

“As we have discussed, 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 and operations at our Mountain Pass facility,” Doolan said.

“We do have a substantial amount of debt, including approximately $206 million of convertible notes maturing in 2016, and have significant capital requirements, including interest payments.”

Debt and capital leases totaled about $1.7 billion at year’s end, up from about $1.4 billion at the end of 2013.

In the 10-K filing, the company said, “If we are unable to execute our business plan and restructure our debt, we may not be able to continue as a going concern.”

One analyst asked about the “pretty frightening language in terms of going concern risk” in the 10-K filing.

Molycorp president and chief executive officer Geoff Bedford said that from his perspective, the language refers to “two sort of fundamental issues, which aren’t new.”

The company has to consider the debt maturities coming due in 2016, 2017 and 2018 and has retained Miller Buckfire to look at capital structure alternatives. Also, production improvement is still needed at the company’s Mountain Pass, Calif., production facility because it’s still not cash flow positive, Bedford said.

While the company failed to meet its Mountain Pass production targets in 2014, Bedford said Molycorp did make progress in other areas, cutting costs and SG&A expenses and reducing headcount.

Product pricing, applications

Bedford was asked to comment on a five-year view of the rare earth industry as well as on supply and demand.

Given his experience, Bedford said that he remains “very bullish about rare earth in general” and that he doesn’t see the demand for rare earths “going anywhere.”

Rare earth prices softened “considerably” throughout most of 2014, he said, making for a challenging environment for all rare earth producers, including competitors in China. Downward pricing typically stimulates demand, something that was true for Molycorp’s magnetic space, he said.

Prices for magnetic rare earths have increased since the start of 2015, and magnetic applications currently represent the single fastest-growing rare earth market segment, according to Bedford.

Magnetic applications also represent the single largest value stream of any product Molycorp makes at Mountain Pass.

Applications that use permanent rare earth magnets include hybrid electric and all elective vehicles, factory automation systems and direct drive wind turbines.

Financial highlights

Molycorp had net revenue of $116 million for the fourth quarter, a 6% decrease from the third quarter.

Full-year 2014 net revenue was down 13% from 2013 at $476 million.

Revenue declines were attributed to lower rare earth prices and a shift in product mix.

The net loss attributable to common stockholders for the quarter was $330 million, or a loss of $1.43 per share.

Net loss for the full year was $607.8 million, or $2.70 per share.

Quarterly interest expense was $55 million, $41 million of which Molycorp paid out in cash.

The company reported negative cash flows from operating activities of $75.8 million during the fourth quarter and negative cash flows for the full year of $222.2 million.

At Dec. 31, cash and cash equivalents totaled $212 million, of which $124 million was in the United States. This compares with $314 million at the end of 2013, according to the earnings release.

Molycorp is a Greenwood Village, Colo.-based rare earth metals exploration company.

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