OMG, they did open the market today and there is still a process of bids and asks. You sure had us worried when the market was closed and no one could sell.
Japan wants Lynas and Molycorp mines and businesses to operate. That has nothing to do with the stock prices. They might prefer that the companies went thru bankruptcy and new management operated them with the debt shed to default. Look at how airlines go bankrupt and you realize that the planes kept flying ...
I think people take the world interest in non-China RE supplies as equivalent to interest in the success of stockholders in these companies. If you want non-China RE supply, you just care that the mines are run by someone. My interest is in the survival of MCP, not Mt Pass business operations.
There is a billion dollar investment in RE processing at the Mt Pass RE source. I am interested in a return on investment, not a default, and the value going to the next group.
The stock represents the value of owning the entire business, assets and debt. And some estimate of the future value of the business operations. It looks like the value of assets is less than the sum of the debts. The only way that the stock makes sense is if the business makes money. I haven't gone thru a liquidation calculation to see if there is residual value for the stockholders.
I very much think that Japanese interests would let Lynas fail. The dominant interest seems to be the debt owed to lenders from Japan. They are probably ambivalent about whether they get repaid by Lynas success, or repaid by seizing the company in bankruptcy. Sojitz offered next to nothing when Lynas asked for more time. Lynas managed to sell stock, and make a necessary debt payment, only slightly late. Japanese debt-holders don't look conciliatory, like they feel they need to accommodate a non-profitable ownership and management group.
I very much think that the debt-holders in secured positions are ambivalent about MCP failure. They can get paid in liquidation. Unsecured has to be analyzing it themselves, but the S&P has a pretty high risk for recovery as their (pseudo) analysis.
That was my thinking also. They did not present a single bit of reasoning other than the equity swap indicated default risk by bondholders. That's not a ratings analysis, that is just reporting the price is low, so hey, must be bad news.
Here, at least they take note of an additional amount of liquidity as being a useful thing.
Maybe I didn't read it close enough, but IIRC all it really said was some bonds were sold REALLY cheap, and Molycorp wasn't buying back at par or with cash. That just wasn't enough information to male a downgrade conclusion.
I can accept that characterization. The clarification I would offer is that the 49-0 game ended, and death is also a final ending. We agree that the future is not written ... I took death spiral as a conclusion. A death spiral ends in death.
No doubt the news has all been bad.
I don't argue this is a well run company. I argue that the business plan is simple enough to be run by ordinary people. It doesn't take Steve Jobs to run a mine. Dig up dirt. Process out the valuable parts. Sell the valuable parts. If you can do that for lower costs than revenues, it is a profit. So far Molycorp has not. And they have made MANY mistakes.
But at the heart, the reason they lose money is that they dig up dirt, and spend too much making a sale-able metal/chemical, at the market prices. They are not hiding the plan: it is process improvement, to lower costs. They cannot hide the failure to deliver adequate progress on that plan.
I don't believe I am unrealistically positive. I probably am being somewhat unrealistic about the ease of running an ore processing plant. I think it should be relatively easy. The fact that they keep finding "bottlenecks" is irritating, and a sign of poor design.
But at this point I do think the plant is nearing the final operational status. They will soon determine the optimal operation, in production volume and in costs. The market clearly has a negative opinion of that final Project Phoenix outcome. And if it really can't hit the targets, then Molycorp will fail.
I just don't read stock price charts. I don't see a death spiral, because I just see the price. If you have the talent of looking at the past prices and determining the future price ... "death", then more power to you. I don't. The price went down. I can use that price to calculate crude odds. But I can't gain information from the stock price ... it is just something I lack the talent for. The price is simply what I can buy at or sell for. I'm not happy with the stock price, but I can't say the declines are a death spiral. I lack that chart reading ability.
That would be incorrect. Management has done nothing but say the company will survive.
Stock prices eventually reflect the underlying value. There is a lot of risk and uncertainty with company that SAYS things like "cash flow positive by the end of 2014" and then does not deliver. If they deliver a cash flow positive result, then the value gets easier to understand, and the risk is reduced.
It is highly inaccurate to say that management has said nothing to indicate the company will survive. And somewhat inaccurate to say they have DONE nothing to lead to the company survival. What they have done has led to survival so far, over the short term life of Molycorp to date (IPO in 2010). The long term survival requires profitable business operations, same as any other business.
There is no death spiral. There is a market price for ownership of Molycorp. The market price of the stock seems to factor in a HIGH probability of bankruptcy, and a LOW probability of the target operational success.
I don't think there is anything going on in the market. I don't buy any conspiracy theories about manipulation. I think investors have given up on Molycorp.
Of course the stock price now offers a HUGE upside if the company does deliver the promised results. Any shift in operations to profits should drive the market cap back towards a few $billions, a 10-fold type of gain. You have to conclude that the market is giving odds of 10-to-1 against that scenario, with a current market cap of about $200 million. And naturally, the shorts are attracted to a company with high market odds of failure, and low market odds of success.
You would have to look at the issues ... the PR's. There tends to be an official number for the offering, and then an oversubscribe number.
For instance the $360 million:
Molycorp, Inc. (NYSE: MCP) (“Molycorp” or the “Company”) today announced the pricing of its previously announced public offering of $360 million aggregate principal amount (or up to an aggregate of $414 million aggregate principal amount if the underwriters of such offering exercise their over-allotment option in full) of its 6.00% Convertible Senior Notes due 2017
Looking at an old PR, the S&P number is right:
Molycorp, Inc. (NYSE: MCP) (“Molycorp” or the “Company”) today announced the closing of its previously announced public offerings of $414 million aggregate principal amount (which includes the exercise by the underwriters in the offering of their $54 million over-allotment option in full) of its 6.00% Convertible Senior Notes due 2017
The point I was making is that the downgrade to CCC did not stop access. The downgrade to SD is relevant only if they need cash. They only need cash if they burn thru the exoisting cash with losses. If they lose that much money, they SHOULD declare bankruptcy.
So I agree that capital access is cut off in the event of further losses. Capital access is cut off because they have fully mortgaged everything. And they still haven't operated profitably.
If they make profits then they will have access to capital markets, for re-fi's.
The S&P calling it selective default is mistaken IMO. The notes were not due. The company made a lowball offer to open market purchase them, using equity. Yes, the bottom line is that the bondholders ACCEPTED a highly distressed price, and that indicates that no one wants to hold debt from Molycorp. The S&P should leave off the downgrade ... it isn't default. The recovery prospects are not good, unless Molycorp makes money, and everyone knows that.
It takes a long time to be delisted. Really long. The $1 share price rule is that if a stock price is under $1 (the minimum bid requirement) for 30 CONSECUTIVE market days, then the NYSE/Nasdaq sends a letter that says the stock price must be above $1 within the next 180 days, or the stock is off the NYSE/Nasdaq.
MCP has closed under $1 for 5 market days in a row. If it closes over $1 then the clock is re-set.
The 180 day clock is sometimes allowed to be extended further. But ultimately, even if MCP was under $1 for the next 25 days, they have 2 quarterly reports before the 180 days is up, which is plenty of time to deliver better results. And if they can't then of course they would do a reverse split, or move to pink sheet trading.
But those would be a LONG time away. I think the current prices below $1 will be a temporary thing.
The S&P downgrade was in July of 2014. They closed a $400 million financing agreement September 11, 2014. That hardly is shut off from capital markets.
The company has to deliver. They have adequate cash, and they have run thru every excuse. The management team is not bad ... they are adequate to the job.
I think these are the debt numbers:
$650 million at 10%, secured ... due 2020
$360 million convertible notes at 6% ... due 2017 (now reduced by $27 million)
$230 million convertible notes at 3.25% ... due 2016
$150 million convertible notes at 5.5% ... due 2018 (now reduced by $11 million)
$250 million (Oaktree) ambiguous interest ... due 2020
$150 million (Oaktree future) ambiguous interest ... due 2020?
The $150 million from Oaktree that is to be received in 2016 will cover most of the $230 million due then. They will either need to have $80 million cash available or else they will need to re-fi.
If they are profitable, they will have no trouble re-fi'ing the $333 million due in 2017 and the $80 million needed for 2016, at a decent interest rate, and due in 5 years in 2021. Ideally, they turn to profitable before they burn much of the existing high level of cash on hand. If they were to hit profits with $200 million cash on hand, they could take the $150 million Oaktree loan, and cash on hand, and pay the 2016 notes off. Then re-fi the 2017 note, in 2017, for 5 years, due in 2022. 2018 has only $139 million due. Pay some, re-fi some.
The capital markets should be shut until MCP turns a profit. Then they should open up again.
I agree with what mcp_0 said: you don't have to sell it all. They have to produce about 20,000 mt at about $7000 per mt, for a net cost of production of $140 million. With SG&A of $30 million and $116 million of debt payment, they need to sell enough to have $300 million revenues.
The Nd is 12% of the production, about 2400 mt. The Pr is 4% of production about 800 mt. Current price of Nd-oxide is over $70,000 per mt. Current price of Pr-oxide is over $116,000 per mt.
2400 x $70,000 = $168 million
800 x $116,000 = $92.8 million
That is $260 million in revenues. If they sell lanthanum, they would be over $300 million per year. If they sell some cerium, some other elements, then they add to that revenue total.
If prices go higher, then it looks better. And if they find markets for the cerium, it also looks better. But the plan as they currently tell it is to sell the non-cerium elements.
They can pay the debt if they get to a profit. Any debt can then be re-fi'd at better terms. The entire business plan is to get the Mt Pass operation to profitable. If they do that, the debt is really not a problem.
Companies that are succeeding can raise money. Companies that are failing have trouble doing that. Molycorp is currently failing. They have not delivered the Mt Pass progress that they have promised and planned. If/when they operate Mt Pass at capacity and at target costs, they will have a successful business.
The debt is large. But not as large as people think. The debt is still under $2 billion, even with the new loans ... call it $1.8 billion. If that was a 30-year mortgage at 5%, that would require annual payments of $116 million to pay off. Currently the interest is high, and the debt is due much sooner than 30 years. But ultimately, the plan has to be to keep re-fi'ing a shrinking debt burden, paying it while still making profits in excess of that debt burden.
They have quite a bit of cash reserves after this latest financing. And the 2016 debt should be payable with the money from this last re-fi. But the critical thing remains to get Mt Pass to the targets. IMO, that gets the numbers to profits enough to cover the debt burden.
It is always slow to get released. I often find it on the WSJ site sooner than the Nasdaq.
short interest wsj
short interest nasdaq
and then click on thru. Generally, it takes a few hours before the updated info shows up.
Post it here when you see it. Thanks.
Although, if the bondholder was a "happy meal" bondholder, then the deal makes sense as an exit strategy. They already made the money at the bond issue. Now they just want to cover the short, which is to say, return the shares to the lender, Molycorp. Molycorp gives them shares, and they return the loaned shares.
There can be some different scenarios and we don't know what they are.
My bad ... you are right. I read the number for the 2017 notes.
$27 million in aggregate principal amount of the 2017 Notes and $11 million in aggregate principal amount of the 2018 Notes.
Adjust all of the numbers I used ... to reflect the $38 million rather than $27 million.
Nice catch, Thanks.
They continue to pay interest up to the date of the exchange ... no further. This just formalizes that even though interest on those bonds is paid twice yearly, the interest is accumulating continuously. If the exchange happened the day before the interest payment was due, Molycorp doesn't get to keep the interest.
They are buying debt back at a steep discount, using stock that is priced at a steep discount. It isn't a large amount of bonds, and it isn't a large amount of stock.
I tend to think the stock is discounted much more than the bonds. There was a thread a short while ago that some of the bonds were trading at 30-cents-on-the-dollar of par value. And we all agreed that if Molycorp had money, that was an incredible discount. Molycorp STILL doesn't have the money to buy back debt. And the stock price is so low that I don't want to see much of this stock-for-debt exchange. If they had $16 million to spare, I would rather they bought bonds with $16 million of cash. But they don't have spare cash.
My guess is that the bondholders also see the stock discount and are not looking at an exit strategy, but at an equity investment. They get a favorable conversion. If they convert $27 million into 15 million shares, they pay $1.80 per share ... frankly that is a better investment than a bond at 50% of par value due interest and repayment. If Molycorp succeeds at their plan, then I think the bonds are a good investment ... but I think the stock is a great investment.
It looks very good. They are buying $27 million of bond par value back for $16 million in share value.
There is a short term negative. The amount of shares is to be between 15,056,603 and 11,239,436, in order to be at the value of $15,960,000. The ideal for the bondholders is to get 15,056,603 shares at $1.06 per share. They have an incentive to short at $1.20 and cover at $1.06, if they can. If they can sell 15,056,603 shares at $1.2, they can exit with $18 million. If the share price doesn't hit the $1.06, they have to buy some to cover, but nothing is ever exact.
Say you are making fireworks and selling them to your friends for $5 and to Chinese buyers at $25. And the WTO said the price had to be the same. So you sell to your friends at $25, and later, have them to dinner and hand them $20. You put the cost of the dinner on your expenses as a sales event, and price it at $20.
You are still doing exactly the same thing, but now you record all sales as at $25, which complies.
I suppose that if you wanted to control the amount exported, you could also just pretend that your friends offered you $26, so your production naturally went to the higher price, your friend.
China doesn't want to eliminate the control of RE distribution, or the internal competitive advantage they gain by having cheap domestic RE's. They are going to have to achieve that with WTO compliant policies, and there are ways to do that.
Of course they will comply. The way to keep the export tax that they are currently going to eliminate is to put a high tax across the board ... and then provide internal tax breaks for companies in China. The net effect is a tax on exported RE's. If they adjust the tax correctly, they can achieve the exact same policy objectives of the tax and quota system that has been ruled to violate WTO rules.
There is an export tax and quota system they have to scrap. They will substitute a hidden tax system of visible public large taxes, and secret tax rebates and tax credits. Externally, they still sell limited amounts to Japan, at high prices. Internally, they sell at the same high price, but (wink, wink), the taxes collected at sale get given back to the buyer, in "unrelated" tax credits.