OMG, that's like what, a $2500 investment. $3000 maybe. I try not to get scared when big money gets tossed around like that.
And fortunately, cerium is co-produced with Neodymium and Praseodymium.
Ah, I see you are unfamiliar with the word "if".
The critical thing is if they can also hit the design cost target. If they can then they can sell because they will be the lowest cost producer. Economically, the lowest cost producer can ALWAYS sell. They simply lower the price to cover costs. Anyone else has to sell at a loss to take that market share away.
The market is certainly large enough for the non-cerium RE's to absorb the production.
Of course the stock price raises questions. But I not only don't know EXACTLY what is going on, I don't know at all.
There is a plant design and an output and cost planned. The way to quadruple My Pass production is to hit the target of that plan. It is not like asking how I am going to drive my car 300 mph. My car is not ever going to do that. But if you ask how it is going to drive 80 mph, I can tell you that is by pushing the gas pedal down, and waiting for the speed to ramp up.
The reason I think it is possible is that it is the plan, and while they have missed about every important deadline, and cost target, they have continuously stated that the plant will be brought to the target ... eventually.
We just don't know what the debt re-structuring underway is. Or even if there is debt re-structuring. I think the only thing we have some evidence for is that they are consulting with Jones Day. Jones Day has been the companies legal go-to for a long time. They were part of the legal counsel for the Neo acquisition. Maybe there is an acquisition being planned. Maybe they have another debt for equity swap proposal by debt-holders that they want advice on.
I see the rumors. This MB assured me that bankruptcy was imminent to be announced on last Monday. You are pulling assumptions out of nowhere about what is being done.
If one series is unable to be repaid, the debt-holders have a claim against assets, and those claims can only be sorted in a bankruptcy court, with a judge to sort thru the claims.
What I was getting at, is that the judge will put priority #1 at the secured debt. That's how the debt is structured. Where you don't want to be standing in a debt workout is the guy owed $100 by a business with $500 of assets and $500 of secured debt. You get nothing. Forcing that bankruptcy is foolish. If your debt is due 1st (as it is here), you want to have a workout. Stockholders are ALWAYS last in line.
And once again, you are jumping ahead to an impairment event. There is not a need to jump ahead to that. Bankruptcy is the process for companies that can't pay the bills. Restructuring the debt is to the advantage of the un-secured debt. Anything is better than a bankruptcy with a poor chance of recovery. And to be clear, that is what the S&P ratings keep saying: if the company runs out of cash and defaults, then the chance of recovery of the loans is very low (CCC+, I believe).
Interest payments and operating cash burn are large. But that is still sustainable with the current cash on hand.
I disagree with your assessment that a ramp up is impossible and expensive. Really that is all you have to say. If you believe they can't hit the business plan then it is clear that the company will fail. Trying to characterize the debt-holders by analogy with predators doesn't really matter. They could be a bunch of swell guys and they still have to be paid. Or they can be lions, and it just doesn't matter. It is a "show me the money" situation. Either you show it or you don't.
The thing you are missing is that the senior debt is not due for a few years. Yes, they are in a secured position and should have full recovery in a bankruptcy scenario. The debt due in 2016 and 2017 is not secured. If that can't be paid, a bankruptcy would likely not help the debt-holders.
Currently the Secured $650 million debt is being WELL paid also That debt gets 10% per year and gets repaid in 2020.
I don't see it like a lion though. Wanting to get a loan repaid is not some uncivilized predation. It seems like a reasonable expectation. The notes were a $650 million loan, and Molycorp should repay that loan, or sell the parts of the company to repay the debt. That is just the expectation.
The debt due in 2016 could be viewed as risky, with the company unlikely to earn enough before then. But the risk has to be considered with the Oaktree financing,which added a lot of cash, and has a $150 million secondary payment that would cover the 2016 debt. If the company was to improve to breakeven, the cash on hand and $150 million would cover the 2016 and 2017 debt.
And if they can actually ever HIT the business targets, they could easily have re-fi loans available to them at reasonable rates. It is the continued failure at the business side that is the problem. And will continue to be a problem.
Unless they actually run a successful business, the debt will eventually push them into a bankruptcy proceeding. That should not be in 2016, but could be in 2017, if they suck badly enough. The liquidation would easily cover the Secured debt, and probably the Oaktree debt. You really want to either own secured, or 2016 debt.
It should not be large at Mt Pass. I've expressed amazement at the actual physical scale before. But let's say they operate at 20,000 mt of RE's per year. The ore is about 7-8%. So they have to use excavation of about 300,000 mt of dirt and ore. A nice ballpark number is that a cubic yard of dirt weighs a ton. So that is 300,000 cubic yards, about 1000 cubic yards per day. Wikipedia tells me that a Caterpiler D-11 has a 57 cubic yards scoop. So they need it to dig 18 scoops per day and put those into a truck to dump at the crusher.
When you start to think about the daily operations, the diesel vehicles are not a big part of things. It is a savings to have lower fuel, but not a large volume cost item. Once the ore is pushed into the crusher, the process should use NG based electricity from the combined heat and power plant. No doubt there are diesel fueled Caterpiller machines in steady use. But maybe not so many, and possibly smaller ones.
There is a lot of movement of mass in mining not directly involved in moving the ore. You constantly are setting non-ore aside. You constantly have to contour the slopes to prevent landslides and make movement possible. You have to have the ability to scoop sand, as well as break rocks. So don't take the simplified cubic yards as the entire mining operation. But the reality is that they don't have to spend a lot of digging effort to completely load up the front end of processing.
And right now, they still are only producing at over 25% of capacity, so the ore mining part is even smaller.
Long story short: it saves money to have cheaper diesel, but they may not use much diesel. Say they use 500 gallons per day for 60 days in a quarter. And now save $2 per gallon. That is $60,000 savings per quarter.
I pulled that 500 gallons per day number straight out of my ... no idea what they use.
This doesn't make sense to me. You declare bankruptcy when you run out of rope. And quite clearly, there is still cash left, and no debt maturing that needs repayment.
I don't have any idea what is going on. They could be looking into re-working the debt like the re-worked that last set. If the debt is heavily discounted, they might be looking at a some crazy plan.
I don't know the debt trading, but I saw a comment here that it is trading at 15-cents-on the dollar of par value. That would make the price tag for the $1.6 billion of total debt something like $230 million. I think the 2016 debt load due is something around $200 million (after the last equity for debt swap, I don't recall the number). So that is trading in the market for $30 million.
There simply isn't any reliable info. It could be that the rumors are right and Molycorp has burned thru all cash, has interest due, and bills to pay, and needs chapter 11 protection. That seems unlikely. I don't know what the debt relief they are trying to cram thru is. It does not seem likely that they are seeking debt relief via a bankruptcy at this time.
But who knows ...
No. Rare earths are incredibly small in actual amount. Say Molycorp wants to ship 1000 mt to China. Call the density about 2 (table salt is about that) g/cm3. That is 2 metric tonnes per per cubic meter. That's 500 cubic meters of volume. A standard 20-ft cargo shipping container will hold about 33 cubic meters and 14 metric tonnes. There are higher load containers, but even using those, it is only about 70 cargo containers.
They probably are not shipping that much to China per month. There already is a problem in that more containers come in than go out (empty shipping back to China). So all you have to do is rail ship to an open port and it gets loaded and shipped really fast. Vancouver has been REALLY busy with other west coast ports off-line. Vancouver is about 2200 miles from San Diego. So shipping by rail would add $10,000-ish or about $10 per tonne to get to the furthest away west coast port.
The logistics of moving stuff requires planning around obstacles like strikes, but the actual physical amount of RE's is small ... they just are high priced.
And I think the densities of MCP material exports are higher than the table salt I used, and they can use heavier load cargo containers. I believe Mt Pass has a rail spur. At full operations they should be shipping about 2000 mt per month from Mt Pass. So they will probably be loading empty rail flat cars and shipping out a couple times per month. They could hit a bunch of the west coast ports pretty easily ... San Diego, LA, SF, Portland, Seattle, Vancouver.
I think they have to deliver on the business plan. So far they have failed every quarter to make the expected progress. For a long time they keep reporting losses and projecting a future time when the operations are breakeven, moving to profitable. All of those suggested points in time have been missed.
I'm going to keep holding this as a high risk stock. If they can deliver on the business plan, that fundamental change will drive the value of the company much higher. If they keep reporting losses, and don't deliver then they will go out of business.
Q4-2014 is complete and probably is another big loss. The Q3 report was about 1.2 months into the Q4 quarter and they said that HCl costs were high in Q3 and that was continuing so far thru Q4. The plan calls for HCl generation on site, using brine and energy. With energy costs so low, that is an attractive plan. But in the transcript all they say is that they are still experiencing start up issues from construction related problems.
Geoff Bedford: ...The program for chlor-alkali, the repair and refurbishment program, there is a capital cost to that or a maintenance cost of that; but it is really not material. We are thinking in the $3 million to $5 million range.
With respect to the fourth quarter and the out-quarters, we really did make significant progress with chlor-alkali over the quarter. We have been able to get that production back online and we are seeing a much greater volume of HCl coming out of that plant.
Michael Doolan: ... That not being the case ... not a significant impact on the overall cost structure. The big rise from the $16-and-change in Q2 to the $33 was unfortunately just the lack of volume through.
So they need to reduce the chemical costs, and to increase the production rate, and hit the business plan targets, but so far, they are currently limited by the acid supply, which follows the other limits, which follow other problems.
Progress would move the stock price.
You are right. I had to go look it up. I was cognizant of the rules when I had a stock at delisting prices in the recession ... but they changed the rules during that time.
The 30 trading day period ending on a calendar month end is an odd one. A simple 30-day trading period would make more sense as a rule. What if MCP traded at $1.01 for Jan 3rd to Feb 26th, but then closed at $0.99 on Feb 27th (end of calendar month)?
As an exercise, there are 19 market days left in January ... the 5th to the 30th, minus the MLK holiday. So I think the 30 days prior is back to December 17th/18th. The average for the last 10-ish days is about $0.80. So 20 days at $1.10 average and a close over $1 would re-set the clock on January 3th.
The Feb 27th close has a 30 market day window from Jan 16th (MLK holiday Monday 1-19).
The rules look like they change to a simple 30-market day average if the company provides a plan. I believe it is a plan to just expect better results and better stock prices.
I'm a bit surprised by the continued sub-$1 stock price. IMO, the company performance should be resolved in the next 6 months ... we should know if they will survive or fail in that window. If they are on a survival path then the stock price will be higher.
I tend to look at the stock price as reflecting the odds. Odds on the long term, as well as the near term reporting expectations. The stock price indicates investors expect bad Q4-2014 numbers and don't expect much chance of the long term survival.
I wonder if MCP will have a PR that basically pre-announces the Q4 range, as they have several times lately. Perhaps an update on Chlor-alkali operation with numbers on how low the production was with the expensive acid burden on costs.
I think there is a good chance of a daily close over $1 prior to the Q4 report. And a single day with a close over $1 will reset the clock. JMO, but I am surprised at how low the stock price went, and how it has stayed low.
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.