Shares of Molycorp Inc MCP.N tumbled on Thursday after the rare earth producer said 2013 revenue would come below estimates due to lower selling prices and a delay in achieving full production at its California processing plant.
The company now expects its Mountain Pass plant to achieve its Phase 1 commercial production rate of 19,050 tonnes of rare earth products a year by mid-2013, having failed to meet its 2012 year-end deadline.
The delay comes after a review of the planned start-up by interim Chief Executive Constantine Karayannopoulos, who stepped into the top job in December, replacing Mark Smith.
"My conclusion was if we were going to be successful ramping up Mountain Pass to full commercial production, we needed to do it in a rational way," said Karayannopoulos.
With all key production components at the new manufacturing complex now running, the company will increase throughput in small increments to allow for troubleshooting as it moves toward its full Phase 1 run rate.
"We want to hit the run rate by mid-year," said Karayannopoulos. "Can we do it sooner? I would hope so and frankly I think we should, but I'm not going to make any promises."
Molycorp is also evaluating its capital needs for 2013 as it completes its $1.25 billion revitalization of the historic rare earth mine and processing plant.
The project was part of a global push to develop new sources of rare earths, an key ingredient in an array of consumer items like smartphones and hybrid vehicles.
The price of individual rare earth metals and alloys soared in 2010 and 2011 as China, the world's primary producer, clamped down on exports. But prices tumbled last year as new sources came online and as some customers turned to alternatives.
Karayannopoulos, who ran Neo Material Technologies until it was taken over by Molycorp last year, told Reuters he plans to stay on as interim CEO for "months, perhaps quarters, but not years" as he deals with the operational issues.
"What I'd like to do is hand the company to whoever comes in after me without any baggage," he said. "There are a few problems, like all companies have, and I'll deal with them."
He had previously hoped to hand over the reins in the first quarter of 2013.
Molycorp shares were down 21.8 percent at $8.44 late Thursday afternoon on the New York Stock Exchange. The volatile stock is down more than 65 percent in the last 12 months.
The market reaction may be a bit overblown, said Byron Capital Markets analyst Jon Hykawy, noting the company had previously announced engineering issues at Mountain Pass.
"The ramp being delayed to this point is not particularly shocking," he said. "Most of the stuff there is in place. The one thing that was slow was the solvent extraction area, and that was down to the engineering issues they had."
Molycorp filed a claim against an engineering contractor in November and warned that defective services at the project would likely have an impact on development costs.
The Colorado-based company has been plagued with uncertainty in recent months, including an investigation by U.S. securities regulators over the accuracy of its disclosures and worries over the health of markets for its rare earth products.
Molycorp, which has operations in North America, Europe and Asia, said it would postpone a decision to expand Mountain Pass to its Phase 2 capacity of 40,000 tonnes a year until market demand and pricing justify higher output.
(Additional reporting by Sandhya Vijayan in Bangalore; Editing by Frank McGurty, Tim Dobbyn and Richard Chang)