UPDATE 1-Molycorp posts loss on rare earth prices

Thu Nov 8, 2012 4:40pm EST

* Q3 adj loss $0.05/share vs Street-view loss $0.07/share

* Revenue up 49 percent at $205.6 million

* Lower rare earth prices, one-time charges hit profit

* Mountain Pass expansion to be completed in Q4 2012

* CEO says expansion cost likely up 10-14 pct

By Julie Gordon

Nov 8 (Reuters) - Rare earth producer Molycorp Inc reported a third-quarter loss on Thursday, as lower rare earth prices and higher production costs outweighed a boost in output.

The company also said the expansion and modernization of its Mountain Pass rare earth project in California is on track to be completed by the end of the year, with some 80 percent of facilities already operating at their Phase 1 expanded capacity.

But Chief Executive Mark Smith warned that the cost of the expansion would likely prove to be higher than the $895 million budgeted, in part due to issues with engineering.

"We will end up spending a little bit more on the project than what has been advertised. It's going to be in the 10 to 14 percent range, in terms of increases in costs for the project," he told Reuters in an interview.

Smith said defective engineering services were mainly to blame for the cost overruns. The company filed a claim earlier this week in the Colorado Federal District court against M&K Chemical Engineering Consultants Inc.

Mountain Pass is expected to produce more than 19,000 tonnes of rare earths a year at its Phase 1 capacity, with the potential to expand output up to 40,000 tonnes a year.

Further expansions will depend on customer demand for rare earths, a group of 17 metals that are essential for technology items like smartphones, tablets and high-efficiency appliances.

"Obviously, we've got some economic issues going on across the world, so we are seeing some impact from that," said Smith, though he added that customer demand is stabilizing.

Molycorp reported a net loss of $15.5 million, or 19 cents a share, in the quarter ended Sept 30. That compared with earnings of $45.1 million, or 49 cents a share, in the year-earlier period.

Adjusted to remove one-time items, the loss was 5 cents a share. Analysts, on average, had expected a loss of 7 cents a share, according to Thomson Reuters I/B/E/S.

Revenue rose 49 percent to $205.6 million on sales of 4,391 tonnes of total rare earth and rare metal products.

The miner's third quarter profit was hit by significantly lower realized rare earth prices and higher production costs.

Also weighing on profit was a one-time charge related to the takeover of Neo Material Technologies, now known as Molycorp Canada, and inventory write-downs.

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