Thursday, May 8, 2014

Molycorp Posts Wider Losses As Rare Earth Metal Prices Drop

Molycorp Inc (MCP) announced dismal earnings results for the first quarter of its 2014 fiscal year (1QFY14, ended: March 31, 2014) after the bell yesterday. The company reported per share loss of 29 cents, higher when compared to a loss of 17 cents reported in the same period last year. Losses reported in the quarter were also higher than the Street’s expectations of a per-share loss of about 21 cents. Revenues, on the other hand, declined 18% on a year-over-year (YoY) basis to come in at $118.5 million, which missed analysts’ estimates by $25.9 million. The stock is down about 12% in pre-market trading.

Molycorp said that its earnings and revenues declined due to lower pricing of rare earths and magnetic powders. Furthermore, the company also registered lower sales volume in its Resources segment as interruptions at its Mountain Pass facility led to lower-than-expected production levels.

Molycorp’s volumetric sales for the quarter came in at 3,518 metric tons, up from 3,274 metric tons recorded in the same period last year. Average selling price (ASP), however, declined 24.6% over the last one year to come in at $33.69 per kilogram.

The company’s Resources segment sold 988 metric tons of Rare earth oxides. Total production for the segment came in at 1,111 metric tons for the quarter. The segment generated revenues of $15.60 million while ASP came to $15.75 per kg during the quarter.

Molycorp’s Chemicals and oxides segment saw its volumetric sales came in at 1,926 metric tons, which combined generated revenues of $46.60 million. The ASP for the products that come under this segment was recorded at $24.20 per kilogram. The YoY decline in the segment’s ASP is attributable to the fact that the product mix comprises relatively lighter rare earth materials that are cheaper in comparison to their heavier counterparts. Magnetic Materials and Alloys segment registered volumetric sales of 1,374 metric tons, which generated sales of $55.91 million. The segment’s ASP came to $40.71 per kilogram.

The Rare Metals segment saw average selling price come to $202.21 per kilogram. The company sold 101 metric tons of rare metals for a total of $20.40 million.

Molycorp is also facing liquidity problems as its cash and cash equivalents declined from $404.8 million in 1QFY13 to $236.1 million. The rare earth miner generated negative cash flows of $45.80 million from its operational activities during the quarter.

Molycorp is trying to ramp up production at its Mountain Pass facility in California.

Demand for rare earths has been declining over the last few years as customers have been destocking. Average selling prices also declined after China reduced its export restrictions. Furthermore, destocking, along with the shift to LED applications, resulted in weaker demand in the phosphor market last year.

In addition, The Inner Mongolia Baotou Steel Rare Earth Group, China’s largest producer of rare earth elements (REEs), has recently acquired nine regional mining companies. The acquisitions are in line with the Chinese government’s master plan to consolidate and improve the sector.

The Chinese master plan was executed after rare earth prices started declining in 2012, following which the country’s government and rare earth producers decided to control supply and production to maintain pricing power. It was decided that Beijing would encourage exports of high-value downstream products and limit export of raw materials.

Export quotas and export duties imposed in 2010 led to an increase in prices, however, the bubble burst soon after and rare earth elements’ average selling prices began falling. However, a state-sanctioned crackdown on illegal mines in the country, along with the consolidation in the Chinese rare earth industry, is expected to result in a rebound in prices in the future.

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