UPDATE 2-Molycorp swings to profit, warns on costs

Thu Feb 23, 2012 5:32pm EST

* Adj Q4 EPS $0.41 v Street view $0.41

* Q4 revenue rises sixfold to $132.9 million

* Company warns costs to rise in 2012 on labor, chemicals

* Sees continued growth in demand, tight supply

By Julie Gordon

Feb 23 (Reuters) - Miner Molycorp rose to a quarterly profit on Thursday as it produced more rare earths and rare-earth speciality products, and sold them at a higher average price.

The Colorado-based company said it sees strong sales growth over the next year, but warned that production costs would be higher on rising chemical and labor costs.

Rising costs could also put a dent in Molycorp's $781 million budget for the expansion and modernization of its Mountain Pass mine and processing facility in California, though Chief Executive Mark Smith played down the impact.

"There are clearly cost pressures in this industry right now," he told Reuters. "We are constantly evaluating that situation, making adjustments to the project management plan, with the goal of staying as close to that budget number as absolutely possible."

Molycorp expects the rare earth mine and new manufacturing plant to achieve its commercial production rate by the end of the third quarter.

The company is also eyeing upgrades to boost output at its Silmet processing facility in Eastern Europe and at its Tolleson facility in Arizona. The miner maintained its 2012 production outlook at 8,000 to 10,000 tonnes of rare earth products.

In 2011, Molycorp produced 3,516 tonnes of rare earth products, up from 1,830 tonnes in 2010. The average realized selling price jumped to $97 per tonne from $19 in 2010 on higher prices for the individual oxides, as well as the addition of new, higher-value rare earth products.

Despite a pullback in prices in recent months, Smith was optimistic on the outlook for rare earths, which are used in electronic devices like smartphones and tablets, as well as in green technology products like hybrid cars and wind turbines.

"We do anticipate a continued growing demand for these products," said Smith. "And, certainly in the next three to five years, we don't expect any significant players in this market other than China, Molycorp and potentially Lynas."

China currently produces about 95 percent of the global supply of the group of 17 metals. The country has repeatedly clamped down on rare earth exports, sending prices of the individual oxides, metals and alloys soaring.

Lynas Corp is developing a 20,000 tonne a year rare earth mine in Australia with a processing facility in Malaysia, but a legal challenge in Malaysia threatens to delay the project, which was expected to start operations in June.

SOARING REVENUE

For the quarter ended Dec. 31, Molycorp's net income rose to $26.6 million, or 26 cents a share. That compared with a net loss of $7.9 million, or 12 cents a share, in the year-before quarter.

On an adjusted basis, income was $35.9 million, or 41 cents a share, compared with an adjusted profit of $2.2 million, or 3 cents a share, in the same quarter of 2010.

Revenue rose more than sixfold to $132.9 million, reflecting both the higher production and a bump in the realized selling price.

Analysts, on average, had expected earnings of 41 cents a share on revenue of $134.95 million.

Molycorp said it produced 886 tonnes of rare earth products in the fourth quarter, compared with 359 tonnes in the same period of 2010. The average selling price in the quarter was $124 a tonne.

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