The last measurement of reserves was PR'd 4-9-12:
Molycorp's Rare Earth Reserves at Mountain Pass Increase by 36%
The updated estimate, based on the SEC's rigorous "Industry Guide 7" definition of proven and probable mineral reserves, expands Molycorp's reserves to 18.4 million short tons of rare earth ore, at an ore grade of 7.98% and a cut-off grade of 5%. This compares to a previous 2010 estimate of Molycorp's proven and probable reserves of 13.6 million short tons.
SRK now estimates that the proven and probable component of Molycorp's ore body contains approximately 2.94 billion pounds (1.3 million metric tons) of contained rare earth oxide (REO) equivalent. This compares to the previous estimate of 2.24 billion pounds of contained REO product (1.02 million metric tons).
So 2,940,000,000 pounds. 1,336,000,000 kg. 1,336,000 mt.
At 20,000 mt per year that is 67 years of proven reserves.
At 40,000 mt per year that is 33 years of proven reserves.
There is typically more to a resource than the proven reserves. But the current ore body they are working at Mt Pass is fairly old and quite likely is fairly well understood as to the boundaries. So that may be a good estimate. If the cutoff is lower, then more ore is considered as economical, and the reserves get larger.
It is worth noting that the historical maps of ore bodies that are within the mineral rights area for Mt Pass, show a few other ore bodies that are as yet unmeasured. There was a moment of excitement when Molycorp produced some historical (from archives of files) measurement of a surface sample with higher levels of different RE's, including some of the more pricy ones. There was a drilling program to follow up on that historical find, but the results were apparently so negligible they were never released. But there is strong evidence that the current ore body is not the only one in the domain of Molycorp mineral rights. That could add to the lifetime for the operation.
There are other companies
"Japan" is an ambiguous category. It is Japan's national interest to secure non-Chinese RE supplies. But that could mean they want Lynas to go bankrupt and fall into the control the lender, Sojitz. National interest is in secure non-Chinese RE supply for many countries.
Sometimes that is the same as propping up a particular failing company. Take GM, which was considered important to US national interests. The US basically took over the bankrupt GM, and re-capitalized it (wiping out prior stockholders), buying a large chunk of the new stock issue (since sold back to public stockholders). GM operations and the brand were saved as a matter of national interest. So it does happen. It would seem somewhat weird for Japan to prop up a failing Australian company.
It really is difficult to predict what the best course for Japan is. It would seem to me that Japan might want to force Sojitz to force bankruptcy at this point. Then if "Japan" can buy the company ... really all you need is a promise to bring the waste to Japan, and you could operate LAMP.
Use the waste to bury Fukushima ... (too soon?)
I agree with the general consensus here that Lynas is a poor business risk with the debt, unless you are well-capitalized. And unfortunately that is not MCP. There might well be a business case for an acquisition, but it REQUIRES a plan for the high cash burn for the short term. And that has risk for a company that is also at the edge of capital needs.
Too bad. I like the idea of greater control of the supply.
You can just short-cut around the concentrate. Mt Weld ore is about 10%. They plan to produce about 10,000 mt, so they need 100,000 tons of ore, at 100% efficiency. At 0.06% thorium, that is about 60 mt in 90,000 mt of leftover non-ore.
The argument was:
Lynas: It is safely below the radiation limits ... hardly more than natural thorium in Mt Weld. We will safely place it in your homes as drywall.
SMSL: If it is safe, just take it back to Australia.
Australia: We're not letting that stuff back in here.
SMSL: Then why should we believe it is safe to keep here?
Malaysian Govt: Maybe show how you can store it?
Lynas: ... crickets ...
Lynas: We can put it in roads safely.
I think the ALARA (as low as reasonably achievable) to radiation applies here. Even though it is a small amount of thorium per year, it is reasonable to isolate it away from humans. Lynas has been tone-deaf on that. It requires a plan for 90,000 mt per year of waste.
Molycorp has a paste tailings plan. They de-water the tailings and then spread them in a layer which re-solidifies (back to rock-ish). They can keep layering right there at Mt Pass. It wasn't cheap, but it complies with US/California environmental disposal standards.
It remains to be demonstrated if they can now recycle that waste water with the Chlor Alkali facility, saving on that disposal. Then they can get to nearly complete onsite disposal control.
I like that better also. LAMP sounds like a headache.And if it isn't MCP that has the winning bid ... anyone else needs to buy LAMP, or build from scratch.
I've no idea really about the level of radioactive waste. It is a low level radioactivity, but Lynas has been so obviously non-cooperative and tried so hard to bulldoze the opposition that it is difficult to actually evaluate the waste. It has always LOOKED like exporting radioactive waste to dump it elsewhere, when Australian standards were too high. There may really be no waste issue, but they badly botched the public relations.
But Lynas has a market cap of under $400 million. They are at the end of their cash reserves. IIRC, they had $67 million at year end, and had a $10 million payment to make. That takes them to $57 million. They have another $35 million debt payment in September. And they are going to burn cash for another year before getting to smooth operations ($150 million more?). Chances are they don't have $35 million in September.
If I had Lynas stock, I would rather have a straight stock swap and try to get my money back with the Lynas/MCP/Neo combo, which at least would be a giant player in RE ... better that than a stock offering or bankruptcy. Trying to raise $200 million (MCP's last raise amount?) is too punitive with a $400 million market cap.
Just random thinking here ... is there value in Lynas for MCP? Would a stock swap make sense, or is the debt issue and cash burn there just too large? On the one hand the consolidation is nice and there are assets that are good. But on the other, that is a money pit of despair.
I have no idea how Lynas can do anything other than have a share offering of massive size and miniscule price. It is either that or declare bankruptcy and let the assets get sold.
I think I was disagreeing with both of you.
The comment that Walter made:
"Japan will not allow that to happen IMO."
and that you disagreed with in:
Japan does not need Lynas.
Both those had the assumption that a strategic non-Chinese RE supply from Mt Weld, is EQUIVALENT to needing Lynas as currently owned.
The US decided it needed GM to continue. And it provided financial help to a new ownership group to keep that company operational. But the vital strategic interest was the continuation of those car manufacturing plants, without regard to the ownership. The owners of the company were wiped out. The GM brand and operations were saved.
I think Japan cares that Mt Weld is mined and RE's are sold. And the US cared that GM cars are made and sold. But be very careful in connecting the dots between national interests and your interests. They may be aligned ... I simply don't know.
Walter would be more careful to say:
Japan won't allow Mt Weld RE production to disappear
and you could disagree with that by saying:
Japan does not need Mt Weld RE's.
You both phrased it in terms of Lynas, which is the public company with financial difficulties, and control of those assets and associated debts. A GM-style assistance doesn't help Lynas or any current stockholder.
I don't know enough to agree with either of you. I just was struck with the unstated assumption. If it was something you both knew then mark it down to nit-picking from a random source. You are under no obligation to spell out everything.
You are also making an incorrect assumption in equating LYNAS with MT-WELD-LAMP. Lynas is a business that is running out of money. They may or may not be a good risk to put more money into. But if they fail, then Mt Weld and Lamp infrastructure will still exist. Likely a Malaysian business capital would be interested in acquiring the assets in a bankruptcy proceeding, and the current debt holders would be interested in recovery. The actual flow of RE's would be interrupted, but only transiently. As a nation, Japan might prefer that interruption not occur. But as a business matter, the RE supply would still be there, just momentarily idle as it changes ownership.
New financing almost has to be by offering stock. Current debt holders would not allow secondary claims against the assets. The question is whether the best business course is too declare bankruptcy and use that process to re-start the business in a debt-free manner. Essentially the current stockholders are wiped out. New ownership (possibly private, possibly equity) puts in the new capital, buying the assets, and that money is distributed to the debt holders. Meanwhile if the current management takes it bankrupt, they probably keep it running, and come out of the bankruptcy as the new management.
If you think Japan has a strategic national interest in the RE supply (they do), you have to be sure that interest is equal to a strategic national interest that coincides with current stockholders. Japan might be a Magic Knight for the employees of Lynas, for the debt-holders, for the management of Lynas, and still that might not be a Magic Knight for stock holders. Be careful about that leap.
I do not know enough to make an informed opinion, and this is merely a caution based on the logic, not the facts. There could be facts that make the equivalence a correct assumption ... I just don't know the situation. But look at the GM bankruptcy, which was strategically important for the US. And KMart, whch wasn't.
I had no chance yesterday to listen ... I was waiting during a surgery for my wife, which went well.
The bottom line bad news for the quarter continues to be the low revenues. It is hard to make significant money with $123 million in sales.
Mt Pass production rate is still going to be under the rated 19,050 mt per year for the first half of 2014. Potentially they are on track for 2nd half rate increases. but as they always say:
"Production rates will be based on sufficient ramp-up, demand and market economics “
Cost was $24.52 per kg in Q4 ... still high.
Chlor Alkali is now operating. There is almost $5 million wastewater disposal each quarter. This is projected to be dropped by 70%, so a $3.5 million per quarter cost reduction (although this is proportional to output).
Q1-2014 expectations are low. They remarked it would be better than Q4 and trends are currently positive. EBITDA positive … will be close in Q2.
The problem in the Q4 results is the RE market. And that problem is one that can't be beat by increasing production and lowering costs. You can only sell what the market will buy, and in Q4 the market bought squat. There are a lot of positives on the operation front ... Chlor-alkali, ongoing cracking optimization, inventory reductions on the raw material side. But the RE demand side went south.
Prices are stable, as producers are refusing to produce and compete on lower prices. Molycorp continues to talk that the customers are at low inventory ... but they still aren't buying in volume.
The projection of cash flow positive prior to interest had a bit of an interesting twist to me. I took that as cash flow positive prior to CapEx and Interest. It almost sounded like they were projecting 2014 as having $100 million of losses ... attributable to the interest payments. I'll have to revisit the comments on that again.
At year end they had $314 million cash on hand. They plan $85-$90 million CapEx in 2014. Interest will total $100 million. Before operational results they should burn down to $124 million. If they are operting in that breakeven prior to interest then the numbers stay about the same. They must turn the operational results around rapidly.
The Q4 results don't show any significant step forward in operational results. Hidden in all the losses, the actual cash burn from the quarter was about the same as previous quarters.
At a glance:
$123.8 million Revenues
($132.4 million) cost excluding DA
($30.7 million) SG&A
($4.7 million) R&D
($8.7 million) other expense
($1.4 million) Foreign Exchange
($54.1 million) total cash burn
($24.9 million) interest expense
They need higher revenues and lower costs. But we know that. If they cut that cash burn in half for Q1 and move quickly to that breakeven (before interest) then 2014 has enough cash. If they are slow then the cash available will be a concern in the second half of 2014.
I will have to go thru the numbers more closely. There are things like the $32 million tax benefit in there that have to get taken out to actually look at the actual cash burn. Inventory writedowns don't burn cash, and tax benefits don't produce cash. The numbers are always there, it is just a matter of loing at them carefully.
I think that at this point I still think the cash available is adequate. I would definitely like it if they say they can defer some CapEx if they need to.
Well you get to hear the CC before market tomorrow. I would definitely not participate in the after hours trading. I don't know why the magnet and alloy sector was as low as it was. I want to hear the explanation of that. I thought they would see some power in that segment ... possibly $30 million more revenues from there than they saw.
That segment result is disappointing. Certainly, underperformance there is an apt description.
Some things in the non-GAAP breakdown:
$119.7 million writedown on Goodwill.
$16.8 million inventory writedown
$5.4 million water removal
$9.4 million investment writedowns (I wonder if this is Boulder Wind Power?)
About $30 million depreciation, amortization
I was way off in guessing at the magnet and Alloy sector. My guess:
Resource . . . . . 1100 x $13 x 0.94 ASP = $13.4 million revenues, $46 million loss
Oxides . . . . . . . 1700 x $34 x 0.94 ASP = $54.3 million revenues, $7 million loss
Mag+Alloy . . . . 1800 x $43 ASP = $77.4 million revenues, $15 million profit
Rare Metal . . . . . 100 x $200 ASP = $20 million revenues, breakeven
What it is:
Resource . . . . . 1034 x $10.89 ASP = $11.3 million revenues
Oxides . . . . . . . 1760 x $31.48 ASP = $55.4 million revenues
Mag+Alloy . . . . 1353 x $43.82 ASP = $59.3 million revenues
Rare Metal . . . . . 58 x $249.93 ASP = $14.5 million revenues
IMO, they need to explain the magnet and alloy low volume.
Yep. The results are pretty much in line (at a quick glance). And Chlor-Alkali is operational.
I'm not understanding the losses yet. There is $120 million reduction in the value of Goodwill ... that clouds the numbers a bit. Magnet revenues look lower than I expected.
Q4-2013 willl have a large CapEx. I think the number was around $70 million planned for Q4. They have only tossed around some numbers for 2014 CapEx. I don't know that they have stood behind any number. I think they have been saying $100 to $150 million, but they have also kept talking about how they could defer the majority of that based on operational progress.
So the range might be from $50 million CapEx to $150 million CapEx, with the higher number only coming into play late in 2014, if they see RE market growth and see progress on operational results. I expect they will answer the 2014 CapEx question with a little more authority today.
Right now there is so much negative news in the broader market that the MCP specifics are a bit lost.
MCP does not run into earnings, in general. IIRC most days with earnings have been flat. The analyst consensus for Q4 is nothing great. I think MCP is wildly underpriced (love the Cramer prediction of a triple (but hate Cramer)). But they need to "show me the money". They are reporting the Annual report for 2013 ad 2013 was an awful year.
The most critical thing is progress on the completion of the processing facility. If they are done, and they can project lower costs, then the future cost side will keep improving.
There are a lot on this board that always predict the worst. I see the basis for he analyst estimates, and I am predicting slightly better bottom line number, but not with any great confidence.
I am much more concerned about the Chlor-Alkali facility. If they say it is in operation that is good news. If they say there are problems to resolve that is bad news. That will end up influencing my judgement of the results more than anything.
I don't think there is any hidden agenda. He is short and makes the argument for his position. Much more reasonably than most shorts. I may disagree but I'm not going to agree that there are hidden agendas, or lies, or misleading.
He's wrong, of course. But not someone I feel needs ignoring. I don't bother to click on or read anything by Steind76. There is just not any reasonable chance that he will say anything insightful. And there is a large chance that he will say things that are wildly wrong and misleading.
But there is no reason to ignore all shorts just because they hold the opposite investment position. If they make a COMPELLING argument then consider selling and moving on. That pretty much has only happened one time in my time in the market but there was an instance, Panacos (Yahoo PANC, price is 0.0027). I bought a small bit on impulse after reading a clinical trial result that blew me away. And then I read the short posts, asked questions, did some better research, and sold. I took a small loss, but the shorts were correct on the big picture.
My position in MCP is neither small nor under-informed. But if I was convinced, or the facts changed, I would be stupid to not confirm and use things that shorts say. I'm comfortable being long. And I'm comfortable not reading Steind76, but I don't generalize that to all shorts.
Good for him. Of course his claim to speak for Ukraine is based on a random selection after some rioters got the President deposed. I'm thinking the current government is a favorable change, from a puppet state of Russia to one that wants to move towards Europe.
But he is also claiming to speak for Crimea, which is completely incorrect. They want to be part of Russia.
Thank god you aren't setting policy. There is a chance that allying with the enemy of Russia would perhaps be regarded as entering the war, as the enemy of Russia. And it may have eluded your notice, but Russia still has ample nukes to destroy the US. And in a war next door to Russia, they are likely to win, not lose.
Ukraine had a revolution and deposed the President. The prior Ukraine President sold there allegiance to the highest bidder which was Russia. He was tossed out. But Crimea really is allied with Russia. It wasn't the money for them. Of course they want Russia to come in and liberate them from the new Ukrainian government. They WANTED Russia as the partner of the Ukraine, not Europe.
The thing is that Russia wants the Ukraine firmly in their empire. And Ukraine is next door. I just don't see the EU doing more than offering more money. Which will certainly raise the unrest, but won't stop the tanks.
I'm not seeing an obvious answer. It is easy to say oppose Putin and Russia. But that opposition is really not as important as the Ukraine. World sanctions and keep Ukraine is a bargain they take. And I don't see a winnable war.
I don't know the answer. Ukraine is a failed state. A bankrupt kleptocracy. It isn't the place you hand out advanced weaponry like candy and expect an army to form that can take on Russia.