No. The buybacks will be painful for shorts. As the company turns the corner and begins to profit, the underlying value supports a higher stock value. And rather than need money, they will have money in the form of profits.
There is no basis to predict a need for further capital raises at this point. They have MORE than enough capital for MORE than another year ... a year with HIGHER losses than they have had recently. And if they continue in 2014 with high losses, the stock price will be inconsequentially low. There would be no basis to predict profits or debt repayment that would allow further access to fresh capital.
In the last offering, Molycorp raised $247 million. They had $174 million at Q3 end. These add to a $421 million cash balance. Theywill spend another $70+ million on CapEx in Q4, concluding the Mt Pass construction. So that will take the cash balance down to $350 million. There will be $70 million CapEx in 2014, which drops cash to $280 million. They will have losses in Q4 2013. And probably losses beyond that. But they did move the costs lower in Q3, and they plan to move the costs much lower.
To get to a point where they need to raise cash, they really would have to be between $100 and $200 million cash. If they lost $35 million in operations each quarter, they would arrive at the end of 2014 with $140 million.
This is a year away, and if they turn the corner and progressively decrease losses, the cash will be higher. If they have a turn to profits, the cash will begin to increase.
Waterloo was the decisive battle that ended Napoleon's second war of empire. In that battle, Wellington combined with Prussian forces to defeat the Imperial French Army and effectively end the 2nd Empire of Napoleon.
There is a second financial story that gets often overlooked. Nathan Rothschild was a prominent trader in the English stock and bond exchange. He also used a network of information gathering to give him frequent advantage. His agents were on both sides of the battle lines, analyzing the situation. Rothschild received intelligence bulletins that preceded the rest of the market.
Rothschild went to the stock exchange and took up his usual position beside the famous 'Rothschild Pillar.' Rothschild gave a predetermined signal to his agents who were stationed nearby. Those agents immediately began to dump consuls on the market. As hundred of thousands of dollars worth of consuls poured onto the market their value started to slide. Then they began to plummet.
Word began to sweep through the Stock Exchange: "Rothschild knows." "Rothschild knows." "Wellington has lost at Waterloo."
Selling turned into a panic as people rushed to unload their 'worthless' consuls or paper money for gold and silver in the hope of retaining at least part of their wealth. Consuls continued their nosedive towards oblivion. It was selling for about five cents on the dollar.
Nathan Rothschild continued to give signals. On the cue from their boss, dozens of Rothschild agents made their way to the order desks around the Exchange and bought every consul in sight for just a 'song'!
The data for trades clearing by November 30th will be released tonight.
I'm guessing 63 million shares short. That is a rather large increase, but I think the price action and volume make that possible.
The other possibility is that they are just not announcing these. They said at the 3rd quarter CC that commissioning was almost complete.
"As many of you saw, we announced in October the mechanical completion of the chloralkali plant and the final portion of our multi-stage crack unit at Mountain Pass. As Constantine mentioned, we are now in the louder stages of commissioning both units. As chloralkali operations begin to ramp up, which we expect to occur in the current quarter, we should see increasing production of the chemical re-agent, reduced purchases of external re-agents and a reduction of waste water volumes and costs."
The commissioning is just a mechanical testing. At he CC that testing was underway. If there was a problem then it has to be fixed (say a pump is not operating at spec, or pressure testing a tank it leaks out a valve.
"the commissioning process comprises the integrated application of a set of engineering techniques and procedures to check, inspect and test every operational component of the project, from individual functions, such as instruments and equipment, up to complex amalgamations such as modules, subsystems and systems." (wikipedia).
They announced that mechanical construction was complete. It might be in operation now. Or it might be in remediation. They have not announced anything but that could be simply that they are just going to discuss the operational results at the quarter. Saying it is built and it checks out fine are less important than saying it lowers operational costs by some amount. And more importantly, that they expect the target costs to be hit after optimization (which is still to come).
This is off the topic of the illegal mining, but the front page of the Huffington Post has a big headline:
"SHANGHAI CHOKES ITSELF"
Shanghai is notorious for its terrible air quality, but the smog in this Chinese metropolis just hit absurd levels. The government's air pollution monitoring site records the level of PM2.5, particulate matter hazardous to health, at 477 as of this writing, one of the highest pollution levels ever recorded. The World Health Organization recommends an average PM2.5 level of 20 or below.
China has to consider the environmental cost of the rapid economic growth. It is a good thing to push the economy, but there are costs of unregulated operations. The mess from RE mining is significant and could end in Superfund-type costly cleanups.
That is significant. They talk a lot about stopping the illegal mining but it has been talk. They won't have any success with getting the wildcatters to clean up though. That will fall on the government. Hopefully some boots on the ground will bring some clarity about what the extreme environmental dangers of improper mining.
It is funny that they propose mining 7.3 million tonnes per year of 0.064% ore per year. Molycorp will mine about 350,000 tonnes of 7% ore, and with an 80% recovery, and make 19,000 tonnes of RE's. I am not impressed with the ore. They scale up really high and it seems to work, but they better drill and delineate that ore better. Any low grade ore (relatively speaking) has a major impact on the economics. Mt Pass has a very well drilled ore body that makes it reasonable to expect high percent RE's.
That appears to be the grade. It is a nice mix of RE's but it is at a very very low concentration. They like to dwell on the 48% yttrium in their ore. But the reality is that the ABSOLUTE grade of Round Top is 0.028% yttrium, compared to Mt Pass' 0.007%. For all but 4 elements, Mt Pass is higher in absolute concentration.
RE . . . . . . Round Top . . . . . . Mt Pass
Dy . . . . . . . . 0.004 . . . . . . . . . . 0.003
Er . . . . . . . . . 0.004 . . . . . . . . . . 0.001
Yb . . . . . . . . 0.006 . . . . . . . . . . 0.001
Y . . . . . . . . . 0.028 . . . . . . . . . . 0.007
Every other RE has a higher concentration in Mt Pass ore.
They also will have to have a plan for the uranium ... they mention that they would like to be selling that also.
TRER has an $18 million market cap. They propose a business venture which starts with spending $293 million, and begins operations who knows when. They have to get permits and they have to get money. The economics they propose are favorable. I think they have underestimated costs myself. They break costs into $2.09 per ton for mining and $12.69 per ton for processing. It is a project worth considering, although the financing may break the deal.
Say they get the permits and approvals. Then they need to raise $500 million (initial CapEx plus 1 years operational costs after startup). Say they raise that as half stock and half debt. They issue 500 million shares at $0.50. Call that the entire share count. Then they earn $300 million per year. Say they have a PE of 10. The share price is $6. That is great ... practically 5 doublings (0.5, 1, 2, 4, 8). But if they end at $100 million earned per year, and a PE of 8 ... that gets them a share price of $1.6. That is still a hefty return, but the risk has to be assessed. Some of these rare earth start ups have had to raise additional funding with additional share sales. That debt has HIGH interest and a few years of that can play havoc with the earnings ... you don't want to go thru life saying cash positive prior to debt.
There are a lot of these little exploration companies around issuing PEA's. They have to get a lot ducks in a row before moving even a small amount on the road to production. The biggest takeaway from all of these is that MCP stock is a bargain compared to them. TRER is not even in a position to put a business plan together. This is a nice estimate, but it is still quite far from a start.
Texas Rare Earth Resources has a new Preliminary Economic Assessment up (google). I'm not able to come up with the same numbers for net value and revenues ... probably I don't know the basket price. They also use both tonnes and tons in their estimates ... that's not my doing..
Here are some of the numbers:
Ore grade: 0.0634%, or 634 ppm.
20,000 tonnes of ore per day at an average unit cost of $15.16 per ton, mining, processing an SG&A.
7,300,000 tonnes ore per year.
71.5% RE recovery.
So a ton:
2000 x 634/1,000,000 x 71.5% / 2.2 (kg/lb) = 0.4121 kg
0.4121 x 7,300,000 x 1.1 tonnes/ton = 3,309,163 kg ... about 3300 mt of REO's per year.
$293 million initial capital cost.
$553 million life of mine sustaining capital
20 year mine life (without ore depletion).
They calculate a mine life revenues total of $7.9 billion. That requires a basket price of $120 per kg ($120,000 per mt).
3300 x $120,000 x 20 = $7.9 billion.
Costs at $15.16 per ton would be:
$15.16 x 7,300,000 tonnes x 1.1 tonnes per ton = $121.7 million
The TMR basket price is $54 per kg. I calculate that the sustaining capital is about $27 million per year. Costs per TONNE calculate to $16.76 ... use $17. If those numbers are right then a future year might look more like:
3,300,00 x ($54-17) - 27,000,000 = $95 million per year.
A NPV at 10% for spending $293 million today, and starting $95 million payments in 2 years, for 20 years, is $450 million.
I calculate a basket price of about $115 for the spot prices they use in the PEA and using the percentages of elements in the TMR website ... no idea why the basket from spot prices and the TMR basket price are different.
Naked shorting is intended to be shorting that is covered prior to the 3-day market transaction slowness. The biggest use is in options. Say you exercise a call, and will get 100 shares in 3 days. You sell short, without borrowing and the shares from the option are then assigned to the short position. This works even without locating shares to borrow (options agents are legally allowed to naked short).
Now that generates a short period with the stock chasing the trade, but eventually it gets sorted. The initial event is called a "failure to deliver" or FTD. The market generates an IOU to cover the FTD shares. That IOU is essentially traded as another share. If there is a share chasing it, as soon as that IOU gets held for 3 days, the transactions would catch up.
There are a few other ways to generate a naked short ... all it is just selling a short position without locating the shares to borrow. Since the markets still have the ridiculous 3-day transaction settling, the trades don't get reversed. The person with the short has a short and the FTD's generate IOU shares.
IMO the modern computer market should have already moved to instant trade settlement. And if the shares are not verified, then the short sale is not accepted. Why buy phantom shares from a shady naked short seller when you can buy real, verifiable shares from the rest of the market?
Covering short shares is buying. That demand raises the price.
It is impossible to tell the price after covering. Say there are 100 shares of a company, all in the market. Say there are 25 shares borrowed and sold short. There is actually demand for 125 shares of ownership at that market price. You could argue that the investment long dollars stay constant during covering ... so if the shares are at $10, there is a $12,500 investment interest in that company. When the shares short are covered, that $12,500 would correlate to a $12.50 per share price. Of course the buying of 25 shares (and removal from long hands) is demand, and who knows what the actual price of 100 shares is after the 25 are returned.
It isn't rocket science. A short position generates new shares. In one account (a margin account) the shares are bought and held. The account manager lends the shares to a short seller who sells the shares. Now the shares are in 2 places, the new account, and the original account. Both accounts own shares. The same shares in fact. The process can continue, with margin accounts always being loanable shares. Selling short is dilution. Since covering the short position takes shares back out of the market, it is share count contraction, and should raise the price.
Those are ALL almost certain signs of the imminent transformation of gold into marshmallows. Just read the divine words of the Angel Macaroni.
Karayannopoulos said, “We believe that the additional $245 million net that we raised from the capital markets in October provides us with a sufficient cash cushion to bridge interest expenses and operating capital needs until we achieve positive cash flow.”
Bedford observed that, after the company optimizes its production rates in the first half of next year, “We anticipate increasing production volumes as demand requires and seeing our production cost continues into decline. Current demand by external and internal customers appears relatively strong for lanthanum, neodymium, praseodymium and light rare earth concentrate, which we call LREC. That gives us confidence that we should achieve operating cash breakeven within this segment in 2014.”
“Overall, in the near to mid-term, we continue to expect to see rare earths volumes increase,” he advised. “Longer term, we continue to expect global demand for rare earths to increase across multi-sectors.”
Actually the low IQ analysis is all the tea-party types hollering that it is a failure, simply because it was not INSTANTLY perfect. It will get installed and it will be cheaper and better healthcare. People will like it. People DO like it.
All you have to do is recognize that it is Romneycare, covering the entire country. And in Massachusetts, Romneycare is quite well liked. People wish it was cheaper, but the bottom line is healthcare is expensive. What everyone wants is "free" healthcare from your emplyer, but that just hides the fact that healthcare is expensive. Buying it (like a car)) forces individuals to consider the price tag on what is a major decision.
The Fox news and conservative news LOVE the idea that some old couple might have to buy a comprehensive plan, which covers maternity benefits ... which they won't use. That is just how it works. They share the insurance pool with young couples who will use maternity healthcare, but won't use the cancer coverage. That couple past reproductive years will get cheaper healthcare, as will the young couple, by joining a larger pool.
There is no doubt that healthcare i too expensive. But that has to do with many things. The affordable insurance that people will buy is going to trim costs slightly.
Two bits of recent news on gallium and indium
Electronics company Philips and LED and lighting company Cree reported surging sales in their LED-based lighting products for the last quarter, improving hopes for a positive outlook for gallium demand over the coming years.
Half of the world's total annual gallium consumption is used by the LED industry
Gallium is already on its way to becoming the workhorse of the solar tech field, and now it looks like the soft metal is is on track to become a thoroughbred. A team of US scientists has hit upon an improved method for growing indium gallium nitride (InGaN) crystals that could lead to record-breaking solar cell efficiency. So far the method has resulted in a film of InGaN that has “almost ideal characteristics.”
To ice the cake, an analysis of the film revealed the precise reason why the results of the new InGaN growing method were so good, which could lead to further improvements in LED technology as well as solar cells.
At Q3 end they had $173.9 million cash on hand. They raised $247.5 million in the October stock sale. Those allow for about $421 million of cash reserves. They will spend another $70+ million on CapEx, concluding the Mt Pass construction. So that will take the cash balance down to $350 million. The operations and debt had a cash burn and that will continue in Q4. But the cost reduction side is moving the line. If they continue on that, the result will be that each quarter ADDS to the cash balance. It looks like that point is close ... Q4 is going to show a smaller cash burn and Q1 and Q2 should see the corner turned.
The plan makes sense. Executing it has been painfully slow. Shorts have profited from the delays and over-promises of imminent success. I would never say to expect imminent success. But still the probability of success is increasing slightly.