Molycorp warns of impairment charge, delays results

TORONTO Thu Feb 28, 2013 11:39am EST

TORONTO (Reuters) - Rare earth producer Molycorp Inc (MCP.N) on Thursday said it is delaying its quarterly results and its annual report because it has yet to determine the size of a goodwill impairment charge that will be recorded in the fourth quarter.

Molycorp said it expects the goodwill impairment charge, most of which will be related to its acquisition last year of rare earth processor Neo Material Technologies Inc, will be "substantial." Its shares fell 2.2 percent.

The company said it is writing down the value of the goodwill associated with the $1.3 billion acquisition of Neo Material. The writedown follows a warning by Molycorp last month of significantly lower-than-estimated revenue and cash flow for the first half of this year.

Molycorp, which had been expected to report financial results for the fourth quarter and 2012 full year later on Thursday, said it now expects to file its annual report by March 15. It said it will reschedule its earnings conference call to coincide with the filing.

A surge in metal prices following the 2008-09 economic crisis spurred mining companies across the globe to make costly acquisitions and develop mammoth projects, but capital expenditure costs have soared in the past year and metals prices have stagnated, forcing many of the world's largest miners to record major writedowns.

Brazilian mining giant Vale SA (VALE5.SA) posted its first quarterly loss in 10 years on Wednesday, taking $5.66 billion of writedowns on money-losing mines.

The world's largest gold miner, Barrick Gold Corp (ABX.TO), booked a $3.8 billion charge earlier this month to write down the value of Lumwana, a Zambian copper mine it acquired in 2011, as part of its C$7.3 billion ($7.11 billion) takeover of Equinox Minerals.

NEO DEAL

Molycorp's deal for Neo Material Technologies had been touted as a game changer in the rare earth industry as it transformed Molycorp into a one-stop rare earth shop.

The acquisition gave Molycorp access to Neo's rare earth-processing capabilities and patents, making it the only major North American player with the ability to both mine and process the metals used in magnets and others applications.

The company recorded a substantial jump in goodwill on its books following the close of the deal last June, rising to more than $505 million as of June 30, 2012, from $3.4 million in the previous quarter.

Byron Capital Markets analyst Jon Hykawy said he was not too concerned by the writedown, as it is unlikely to impact the company's long-term prospects.

"If the goodwill impairment charge breaches any covenants attached to any debt being carried by the company, then there may be an impact on future prospects." wrote Hykawy, in a note to clients. "Barring that, however, a charge of this type cannot affect future cash flows."

"We continue to believe that the mine-to-magnet business model is the correct model in the rare earths space," he said.

Molycorp shares, which fell more than 9 percent early in the day, were down 14 cents at $6.10 in mid-morning trading on the New York Stock Exchange.

($1=$1.03 Canadian)

(Reporting by Euan Rocha; Editing by Lisa Von Ahn, Peter Galloway and Leslie Adler)

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