UPDATE 2-Molycorp rises to profit on sales volume, prices

Thu Aug 11, 2011 5:50pm EDT

* Q2 EPS $0.52 vs estimate $0.40

* Revenue at $99.6 million, sales volume quadruples

* CEO says rare earth prices stable, could rise

* Financing talks with Sumitomo on-going (In U.S. dollars)

By Julie Gordon

TORONTO, Aug 11 (Reuters) - Molycorp (MCP.N) rose to a profit on Thursday as the company, which is modernizing its Mountain Pass mine in California, sold more rare earth products at higher prices, a trend it expects to continue.

Molycorp chief executive Mark Smith told Reuters that he believes rare earth prices will stay strong in 2011, despite recent reports of lower prices for certain of the metals and declining demand out of Japan.

"If you take a look at that fundamental supply-demand problem that we have right now, I find it hard to believe that prices will not be stable or increasing between now and the end of the year," said Smith.

China produces some 95 percent of the world's supply of rare earths -- used in high-tech electronics such as smartphones and wind turbines -- and has repeatedly clamped down on exports, creating a supply deficit in the rest of the world, sending prices skyrocketing.

Smith said that while a downturn in the global economy could have an impact on demand for rare earths, it would take a big decrease for Molycorp to feel the crunch.

"We certainly have not seen any problem whatsoever selling everything that we're making into the market today," said Smith. "And we don't see any relaxation in that demand through the rest of this year."

BEATS EXPECTATIONS

Molycorp reported a net income of $43.5 million, or 52 cents a share, in the quarter ended June 30, compared with a year-ago loss of $23.3 million, or 47 cents a share.

Analysts, on average, had expected earnings of 40 cents a share, according to Thomson Reuters I/B/E/S.

Revenue soared to $99.6 million from $1.9 million in the same period of 2010, as sales volume quadrupled.

The average realized sales price rose to $72.10 per kilogram of rare earth oxide (REO) equivalent, compared with $7.16 per kilogram in the year-ago quarter.

Molycorp plans to produce about 5,000 tonnes of rare earth products this year, primarily from stockpiled material.

The company is on track to bring Mountain Pass back into production by late 2012, with annual output of 19,050 tonnes. The project can be ramped up to 40,000 tonnes a year based on market demand.

Shares of Molycorp closed at $54.14 on Thursday on the New York Stock Exchange. The shares have more than quadrupled in value since the company listed at $13.25 in late July last year.

SUMITOMO DEAL

The Colorado-based rare earth producer also said on Thursday it would meet with Japan's Sumitomo Corp (8053.T) later this month to try to work out a delayed $130 million financing deal.

"The market has changed a lot since we originally talked to them and signed a letter of intent last December," said Smith. "The parties are either going to reach an agreement, or not, by the end of September."

The financing, which was originally expected to close in February, will see Sumitomo buy $100 million of Molycorp's common stock and provide $30 million in debt financing.

In June, sources told Reuters that Sumitomo was struggling to find customers for Molycorp's rare earth products as Japanese demand for light rare earths has plunged and prices were seen as too high. [ID:nT9E7H2010]

At the time, Smith said he was certain the deal would go forward. [ID:nN1E75J0J1]

"There's changed circumstances," Smith said on Thursday. "But I still think the best thing to do, for both parties, is to move forward with the deal."

He added that even without the Sumitomo deal, the $781 million Mountain Pass expansion project is fully funded.

"It's kind of a nice position to be in, because it gives us a bit better leverage to hold these negotiations," he said. (Reporting by Julie Gordon; editing by Rob Wilson)

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