The following Q&A was interesting:
Paul Forward - Stifel Nicolaus
Great. And just along those same lines, you had a couple of first and second quarters here cash from operations was negative on the order of $37 million both quarters. Just wanted to ask about, in the second half of the year with the Chloralkali plant ramping up and with your expectations of the market and what you’ve already got placed with customers. Can you anticipate a swing in either the third or fourth quarter if that positive cash from operations ...
There is no question that by far most the important parameter that we’re focused on is cash flow, we will again without any giving guidance we expect fully expect that we will be making progress towards that goal that you mentioned becoming cash flow positive from operations in the third. We should be even closer in the fourth and again depending on how a number of factors beyond our control overall markets pricing volumes et cetera I think we do have a good shot at being cash flow positive from operations in the fourth quarter. ...
The RE market is the critical factor in any estimate for Q3 and Q4. It looks reasonable to be skeptical of any strength in Q3. But it does look like the RE market may have bottomed, or be at the bottom. In that case, Q3 is going to be slow again ... I was surprised at how slow Q2 was and how low the volume was. Clearly the focus has to be on getting to cash flow positive, and the answer to the direct question was that Q4 could be when the corner is turned.
The question had a second part about the revolving credit facility, which looks nearly completed ... September/October final signing expected.
They have $264 M on hand.
The CapEx for the rest of 2013 is $167 M.
Q2 burned $37 M in cash.
2014 CapEx is $25 M for Mt Pass, $40 M for the rest of the company, and $60 M for Phase 2 Mt Pass (can be postponed indefinitely). At this time the plan is going to be set based on cash flow and needs.
Analysts currently predict $0.21 Q3 loss and $0.14 Q4 loss. Coincidentally, that sums to $0.35 loss for Q3 and Q4 ... about where they were for Q2. So expecting an operating cash burn of $40 M for the rest of 2013 lets us look at the year end books:
$264 M - $167 M - $40 M = $57 M.
If they have a revolving line of credit for $125, the cushion is large. Analysts currently project 2014 as a net 1-cent loss (I think they are wrong and 2014 will be profitable). But he cash on hand, a breakeven year, and the CapEx at the minimum ... the company is still going to be sound at the end of 2014.
And if Q4 catches the right market and is breakeven, then the cash situation is much better. The $40 M cash burn from operations is just the analyst expectations. If the RE market is at the bottom, then Q4 should be the turning of the corner.