Molycorp (NYSE: MCP) released their fourth quarter results on March 14; while the results were not excellent; they were not quite as bad as many had feared. There were even one or two bright spots. The rare earth metals producer earned revenues of USD$ 528 million last year (+33%) and a net loss of USD$ 359 million. The fourth quarter 2012 revenues were $134.3 million. And this was the little bright spot that ‘didn’t break the camel’s back’ for it showed a slight (1% year-over-year) increase. The main reason for the yearly loss surge was a benevolence impairment charge of USD $258.3 million and another USD$ 11.9 million impairment charge for other assets. Despite the losses, the market reacted in a ‘relatively’ favorable way as shares were up 1.8% after the bell opening. At the time of writing, they are trading at anywhere between USD$ 6.20 to USD$ 6.50.
The results and the decision to postpone the announcement allowing for the market to absorb the bad news sooner, reflects a renewed sense of confidence in Molycorp’s management and a change of culture at the company since Constantine Karayannopoulos took over from Mark Smith – whom, incidentally, the Financial Times describes as having being fired. In that respect, the SEC investigation woes will by now have been fully absorbed by the market. Molycorp has also announced a reorganization plan at all locations, which may include job cuts. Molycorp also announced that it has signed a distribution agreement for the SorbX product with Univar USA, a worldwide distributor of chemical products, which would enable the Company to sell much of its cerium production for the year thanks to an exclusive five-year agreement with Molycorp, which, if anything at all suggests a level of confidence in Molycorp’s future.
Let no investor accuse Molycorp of having excessive cerium capacity now…a frequent complaint. As for the other complaint, related to the shortage of HREE; new players will be coming on line with production in the next four years. If there is a message or lesson to the market here, it is that the emerging REE plays should feature a strong HREE potential, because Molycorp could be signing additional Univar type agreements as the company continues along a ‘stabilization’ path, potentially dominating, if not saturating, the LREE market.
Molycorp’s earnings announcement, after some analysis, suggests that there is room for optimism left. The most striking change over the Mark Smith days is the management approach. Karyannopoulos has chosen to promise less, facing bad news head on and even delivering a few pleasant surprises. The increase in production and an expansion of the product range will likely have offset the effects of months of negative campaigning by armchair REE sector analysts and even some professional ones. Molycorp’s results suggest that 2013 should be a year of improvements, especially as its Mountain Pass facility is expected in to achieve full commercial production in the latter half of 2013. Indeed, the Molycorp results may also serve as a sort of barometer for the REE industry as a whole and to this effect Molycorp also expects that the global demand and supply will be balanced in 2013, which represents good news for both suppliers and customers; indeed, if prices were too high – taking a cue from the Saudis at OPEC – the search for REE alternatives would receive a major boost.
Balanced prices make alternatives less desirable. As for alternatives, another favorite reason to peddle industry pessimism by ‘Lazy-boy’ chair REE industry captains, there are no imminent simple solutions that will make LREE’s irrelevant. Each element has specific physical and chemical properties that pose tremendous challenges to scientists studying substitutes. Even then, to develop a substitution at an industrial scale is an altogether more difficult matter and nobody seems to truly believe that we are anything less than twenty years away from prototypes. The world has been talking about oil replacements for decades and today, more oil is produced than ever before.
Excellent piece Alessandro.
Constantine Karayannopoulos proves what any good investor understands: leadership is a vital component for success. During the teleconference yesterday, Constantine said something intriguing to me that reflects the change in corporate culture, he said: “We are going to run this company as owners not as managers.”
Last year he was our keynote speaker at the Technology Metals Summit and we are delighted to receive confirmation that Mr. Greg Kroll, Director of Sales and Marketing for Molycorp will be present at our upcoming annual event for the industry.
You are right — this news is good for Molycorp, and our industry as a whole.
Hmmm,
Every division posted a loss. How can that be good??
The $1bn goodwill and intangibles was written down by about 1/4, with no indication of why the value is greater than their patents, valued at a fraction of that.
They still claim the medium term COP is about $7/kg with around $15 for now.
Sorbex seems mildly positive.
Inventory is still high and has been written down a bit.
Raising extra funds has kept them liquid for now but I realy don’t see a path to profitibility and paying off their huge debt.
“Patience is the most necessary quality for business, many a man would rather you heard his story than grant his request.”
Lord Chesterfield
I also listened to yesterdays teleconference and found the tone of Mr. Karayannopoulos presentation to be a refreshing change from that of Mr. Smith. Seemed very straight-forward with no BS. I’m hoping he can do for MCP what Mr. Mulally did for Ford.
Cerium: Hold your horses before you count your chickens. Let’s see how much SorbX, at what net price, is actually sold. As of now, Molycorp has hire a commissioned salesman (Univar), with no guaranteed sales. If Univar doesn’t sell enough, then Molycorp can terminate Univar’s exclusivity to sell it. Does anyone have an idea at what cerium oxide equivalent price the SorbX can be sold?
As per jan johnson, it’s not clear how forthcoming the goodwill writedown was.
Now Molycorp claims it will achieve 6 to 7 USD/kg production cost after the chlor-alkali facility is up and running. Let’s wait and see if this actually materializes – and without benefit of a continuing series of one-time charges excluded from that figure. Anyhow, I guess that’s officially curtains on the long-claimed, much hyped (by Mark Smith) 2.77/kg.
CK seemed to say that prices, etc. would stabilize this year, and then eventually go up. But could prices keep going down? And now with Baotou production halt over, Lynas soon beginning sales, and Molycorp ramping up? What if the global economy continues to be lethargic? CK’s pronouncements may be more realistic than Mark Smith, but that’s not saying much.
Is CK now interim CEO or permanent (in the sense of not being interim, and no search for replacement underway) CEO? The FT article said “Constantine Karayannopoulos, Neo’s former chief executive who has been serving as interim CEO of Molycorp since December” and “Mr Karayannopoulos, who took over when Mark Smith, previous CEO was fired, said Molycorp was in the process of recruiting a permanent replacement.” Did CK state yesterday that Molycorp was in the process of recruiting a permanent replacement, or was this only said when CK started as interim CEO? Molycorp’s press release referred to him as being President and Chief Executive Officer, and I don’t recall any mention of that on the conference call.
Alessandro,
Another bad pump on Moly. Honestly, this blog is losing credibility with this endless spin. Moly is not producing much. And considering their prior timelines as a developing company, noting the fractional increases at Mountain Pass underscores the failure on Moly’s part to get Phoenix up and running.
I agree the new CEO is more honest about the company as a whole and this is a key improvement. But the vagueness was rampant in the call and your filling in the blanks with rosy nonsense is no help. Moly has not solved the Cerium production question. We need more facts on the production, contract terms and the ability to ramp up Phoenix to be anywhere near answering that question. And in fact the real issue is can Moly produce enough at a good enough price and avoid future write-downs to survive. I think we learned very little in that direction. If we set future promises aside the current path is not good. To write an article saying the call was good based on future promises and mostly ignoring the current realities is a little hard to take. The market had little reaction to the call IMO. Good thing. I’d hate to think people are buying a stock with a threat of bankruptcy based on this pump.
I also find the warning that others must focus on HREE’s because Moly has locked up the LREE market to be poorly researched and poorly analyzed journalism. Overall, I wish you didn’t write this. We need less of this trash on the REE blogs.
. . . and a new cycle of deceits has just started!
boy- yu guys are tough, near the zero bottom you stay negative. if it all is going to zero, why bother to even read, follow, or comment?