August 2, 2012 / 10:21 PM / 5 years ago

Molycorp posts loss as prices sag, eyes financing

(Reuters) - Molycorp Inc MCP.N posted a loss on Thursday after rare earth prices continued to sag in the second quarter and said slumping cash flow would force it to secure more financing to fund 2012 capital spending, sending the miner's shares tumbling.

Molycorp, the biggest rare earth producer outside of China, is in the midst of an $895 million expansion and modernization at its Mountain Pass mine in California. It is set to spend $289 million over the remainder of the year on the project.

The price of rare earths, essential to technology products such as smartphones and tablet computers, skyrocketed through 2010 and early 2011 as China, which produces more than 90 percent of global supply, repeatedly clamped down on exports.

The prices have softened since as consumers adjusted to quotas and new output came online.

With lower cash flow from operations than expected because softer rare earth prices, the company is looking to debt financing and vendor-financed equipment, among other options, to help bridge the gap.

Molycorp offered up to $650 million in debt earlier this year to help fund its $1.3 billion cash-and-stock takeover of Neo Material Technologies, a rare earth processor.

The company also warned on Thursday that it faces cost pressures on its capital projects, though Chief Executive Mark Smith said it has implemented a plan to control those pressures.

"You've got headwinds that we have to take into account, but we also have some tailwinds," he said. "And when you take a look at all of those, you end up with kind of a net-net zero impact."

The expansion at Mountain Pass is on track for production to 19,050 tonnes of rare earth products a year in the fourth quarter. The project will have the capacity to increase output to up to 40,000 tonnes a year, based on demand, by the end of the year.

The company expects to produce some 8,000 to 10,000 tonnes of rare earth products this year.

Mountain Pass was in operation from the 1950s to early 2000s, when it was shut down due to poor market conditions and environmental issues. Molycorp started processing stockpiled materials at the old plant in 2009.

BUMPS ON THE PASS

Molycorp's rare earth production volumes were lower in the second quarter than in the first quarter of 2012, as the company processed the last of its stockpiled feedstock at Mountain Pass, which was lower quality material.

"The good news is that our new mill and our new cracking facility are operating well and we're actually feeding new material into our legacy operations and producing material from that new feedstock now," said Smith.

The Colorado-based miner posted a loss of $67.6 million, or 71 cents a share, for the quarter ended June 30. That compared with a profit of $47.8 million, or 53 cents, a year earlier.

Adjusted to remove one-time items, Molycorp's loss was 3 cents a share.

Revenue rose 5 percent to $104.6 million on added volumes gained through its takeover of Neo Material. The average realized price per kilogram of rare earth material fell to $52 a kilogram in the second quarter, down from $81 in the year-before quarter.

Molycorp closed its takeover of Neo, now known as Molycorp Canada, late in the second quarter. That unit will report its first full period in the third quarter.

Molycorp's shares fell 12 percent to $14.07 on Thursday in after-market trade on the New York Stock Exchange. The stock has fallen more than 35 percent this year.

Reporting by Julie Gordon; Editing by Peter Galloway

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