FWIW, the preferred stock trades as MCP-PA and is STILL trading at a premium. The 2-6-14 price was $10.86. Since it is exactly as valuable as 2 common shares, the price should be twice the common (open at $4.78) an under $10 price.
I don't know if it is possible, but the certain trade is to short the preferred and long the common. Buy 2 shares of common, and short a preferred share:
-(2 x $4.8) + (1 x $10.8) = $1.2
And then when the preferred short turns into a common short (would that happen?) cover with the common.
1. Are the shares accounted for in the outstanding, however, not the float?
I don't know if it is counted in the float or not. Certainly the shares of common stock that are used to convert the preferred stock will be in the total shares outstanding.
2. Is the debt that will be relieved on the balance sheet equal to the amount when the convertible shares were offered? If so a great amount of debt should be relived and the balance sheet should be much better.
One has to admit that not making a huge interest payment is a positive.
It wasn't debt. It was always preferred stock with a defined dividend. The difference may be small, but there is a difference. It never showed as debt on the balance sheet. Not making the dividend payment is better than making a dividend payment from a cash conservation point of view. Of course, earning cash is the best answer for cash conservation.
3. How much if any is accounted for in the short interest? This we should be able to find out the month after the shares are converted, IMO.
Since the preferred converts to about 4 million shares, no more than that could be short-against-the-box. Considering the preferred was trading, any share that was sold would no longer be "the box" that a short position was against. So you have to think that there was a small-ish short-against-the-box.
4. How many of the shares be sold shortly after they are issued? I expect only a slight downward pressure with a positive long term effect
I stopped tracking the preferred, but it should have been trading as a vehicle for common stock, with a dividend added. It always traded at a premium to the pure math trading value. There was no benefit to thinking you could buy the preferred, take advantage of the dividend and then sell the common later, you were buying the common. If you didn't want that , you shouldn't have bought the preferred. Selling should be limited.
I agree. The dividend was a cash drain that is now gone.
Everyone should always consider the tax implications of a change of ownership. Molycorp acquired Neo, and with that a sizable tax deduction that can be used in future years to lower taxes. A change of ownership would cause the IRS to strip those tax deductions. If you look in the stock offerings they always mention that the new share sales could cause a change of ownership event that would cost the company a tax advantage. Molymet in particular has to be aware that until 3 years from the Neo acquisition, acquiring shares could cause the IRS to look at the 5% owners as aggregates and a shift that creates an ownership group of a few of those is considered a change in ownership for tax purposes.
IIRC Neo came with a $100 million tax deduction. And I think that tax deduction is still valid even after Molymet and other insiders have purchased more shares. And of course a perceived bargain price would make a loss of a $100 million asset acceptable.
Then prove it. I'm saying you can't.
You know this is a matter of fact, don't you? The share count is in the SEC filings. All you have to do is reference them and show where they support your claim. I gave you SEC filing and page numbers to explain why you are wrong. At first I was interested in learning the truth that I missed. But you obviously are incorrect, or you would show the factual basis for your statement.
A "poor man's NdFeB" magnet made from cerium helps cerium demand and hurts neodymium demand. But if the cerium magnet is a proprietary Molycorp product, the net is positive (I think). Without a patent protection, a competitor making a cheaper product that substitutes into the Magnaquench demand would be a net negative.
I've no idea on this particular article. There are a lot of claims in the literature that essentially really great things from nano-scale composition of matter. Those claims are only valuable if there is a manufacturing process for a final product. Being able to make a 1 nanometer long superconducting wire is a nice lab achievement but not a useful real world wire length. Likewise there has to be a meaningful process. Making a 1 millimeter long superconducting wire is fantastic, but not if the scrap rate is 99% of the materials.
These type of literature reports are advances in knowledge, and string enough of them together and they make real progress. I just don't have a sense on whether this article is pointing to a commercialize-able end point or is at the neat lab result stage.
I haven't seen this article. I've googled some and eventually I will find and read it. It is often a long way from a lab result to a commercial product. If Molycorp and GM patent a better magnet, then it will be a business boon when it gets manufactured. I really can't say from the excerpts I see here whether they have a better magnet, a manufacture-able magnet, or a process for experimentally formulating crystals, or what. It would be pretty crazy to assign any value to the company based on this bit of information.
Admittedly, it is tantalizing. Owning a patent for a superior, or cheaper product is a huge business advantage.
Can anyone better point to this article? I looked in the Journal of Applied Physics
Volume 115, Issue 5, 07 February 2014
I didn't see it there. I would like to skim the article in full.
Surveying the websites:
($0.32) low, ($0.25) high
($0.41) low, ($0.14) high
($0.41) low, ($0.14) high
Bloombergs has an EPS for 2013 of ($1.04) based on 6 analysts. Considering they are at ($0.78) thru Q3, that is 6 analysts with an average of ($0.26).
Most likely we see the Annual report/Quarterly results on Thursday March 13th. 5 weeks from now. Currently the lack of any news about the Chlor-Alkali facility, despite the long passed time when commissioning was expected to be announced is taking a huge toll on the share price. Dec 31st, 2013 the stock closed at $5.62. Jan 2nd the stock price jumped to $6.29, and since then has fallen pretty hard.
Earnings seem like a fairly expected repeat of the past 2 quarterly results. But the future value of the business requires a cost reduction program, which requires Chlor-Alkali benefits. It is not one-third of the way thru Q1-2014, and I expected this quarter to show some improvement on the cost side deriving from Chlor-Alkali. I want to say better late than never, but we are definitely late, and that erodes the company value.
I see nothing from the SEC to inform what they were looking at. I think the most likely thing is that they were looking at information release practices ... as they said. And since the lawsuits are claiming fraud due to information release, I still put the two together. The SEC clearance is good, and the lawsuits are still waiting on the Judges decision on Molycorp's requests for dismissal prior to a full trial.
They did issue borrowed shares at the debt issue. But not enough to fully cover the debt conversion. But if they pay the debt back in cash, the borrowed shares would be returned. Conceivably they could even re-sell the borrowed shares at the future higher price to cover the cash needed for the debt repayment. A share price of $30 in 2017, then re-selling the 13.8 million borrowed shares would raise the $414 million due. That is better than converting with 34.5 million shares.
As I've posted before, the borrowed shares were probably sold along with short shares, to effectively convert some of the debt early. Since the shares are loaned by Molycorp, with a defined return date, they are not ordinary short shares ... I would think they don't show up in the bi-monthly short count we see.
"At the same time of the issuance of the 6.00% Convertible Notes and the Primary Shares, and as further discussed in Note 14, the Company entered into a share lending agreement with MSCS, pursuant to which it has agreed to loan to MSCS 13,800,000 shares of common stock. The Company received no proceeds from the Borrowed Shares, but only a nominal lending fee from MSCS for the use of these loaned shares. The Borrowed Shares are issued and outstanding for corporate law purposes. However, based on certain contractual undertakings of MSCS in the share lending agreement that have the effect of substantially eliminating the economic dilution that otherwise would result from the issuance of the Borrowed Shares, the Borrowed Shares will not be considered outstanding for the purpose of computing and reporting Molycorp's earnings per share.
As a result of the conversion of the Debentures, as further discussed in Note 14, a portion of the Debentures tendered was converted into 99,723 shares of Molycorp common stock."
I just don't see the conversion shares in there. The loaned shares DO cover a portion of the debt conversion, and are due to be returned at the same time as the debt conversion. Feel free to point out the shares in the share count ... I would love to see I am wrong.
"For corporate law purposes, the Borrowed Shares are issued and outstanding. However, under the share lending agreement, MSCS has agreed: to pay to Molycorp an amount equal to cash dividends, if any, that Molycorp pays on the Borrowed Shares; to pay or deliver, as the case may be, to the Company any other distribution, other than in a liquidation or a reorganization in bankruptcy, that the Company makes on the Borrowed Shares; and not to vote on the Borrowed Shares on any matter submitted to a vote of Molycorp's stockholders. In view of the contractual undertakings of MSCS in the share lending agreement, which have the effect of substantially eliminating the economic dilution that otherwise would result from the issuance of the Borrowed Shares, the Borrowed Shares will not be considered outstanding for the purpose of computing and reporting Molycorp's earnings per share."
Note 16 begins on page 25:
"At September 30, 2012 and December 31, 2011, the Company had 137,957,451 and 83,896,043 shares of common stock outstanding, respectively, and 2,070,000 shares of 5.50% Series A Mandatory Convertible Preferred Stock (“Convertible Preferred Stock”) outstanding.
Concurrently with the issuance of the 6.00% Convertible Notes discussed in Note 14, the Company issued a total of 13,800,000 shares of its common stock at a price to the public of $10.00 per share (the “Primary Shares”) in a separate underwritten public offering. The underwriters received a 6.00% fee in the form of an underwriter's discount for the Primary Shares plus a $1.5 million flat fee to the representative of the underwriters of the Primary Shares. Certain officers, directors and other related parties of the Company participated in offering of the Primary Shares by purchasing 7,090,000 of the total Primary Shares issued, but no underwriting fees were charged to the Company for the purchase by the insiders."
Continued in part 3
I still don't think I see the share count. I'm looking at the Q3-2012 10Q filing from the company website. On page 6, they show the share count from 12-31-2011 and the new share count for thru 9-30-2012.
I can't reconcile the issuance of borrowed shares with the debt amount. They show 13.8 million "Issuance of Borrowed
Shares (Note 16)". And 99,723 "Issuance of shares for
conversion of Debentures (Note 14)".
Note 14 begins on page 22.
$360 million + $54 million total notes sold.
83.333 shares per $1000 conversion. That calculates to 34.5 million shares total at conversion.
"The Company separately accounts for the liability and equity components of convertible debt instruments, such as the 6.00% Convertible Notes, that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer's economic interest cost. The additional discount on the liability component is amortized to interest cost over the term of the 6.00% Convertible Notes. The effective interest rate on the liability component is 4.6%. The equity component of the 6.00% Convertible Notes is included in the additional paid-in capital section of stockholders' equity on the condensed consolidated balance sheet as of September 30, 2012, and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the 6.00% Convertible Notes."
"Concurrently with, and in order to facilitate the offering of the 6.00% Convertible Notes, the Company entered into a share lending agreement with Morgan Stanley Capital Services LLC (“MSCS”), an affiliate of Morgan Stanley & Co. LLC, under which it agreed to loan to MSCS up to a total of 13,800,000 shares of its common stock (the “Borrowed Shares”)during a period beginning on the date the Company entered into the share lending agreement and ending on or about the maturity date of the 6.00% Convertible Notes"
Continue in part 2
I would appreciate full directions. There were something like 90 SEC filings in 2012 listed on the Molycorp website. I am not concerned about the Preferred shares. I think they always contributed to the share count ownership.
I don't think the debt is so clearly established (but if you have facts, point me to them). Consider this statement from the Jan 25th 2013 PR:
"The Notes will be Molycorp's senior unsecured obligations and will bear interest at a rate of 5.50% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2013. The Notes will be convertible at any time into shares of Molycorp's common stock, cash, or a combination thereof, at Molycorp's election."
Why would the share count be increased preemptively with the debt incursion, when the debt MIGHT be paid with cash (and that is debt I very much think WILL be paid in cash, as the conversion price is lower than I expect the stock price to be).
The 8-17-2012 PR has similar language:
"The Notes will be Molycorp’s senior unsecured obligations and will bear interest at a rate of 6.00% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on March 1, 2013. The Notes will mature on September 1, 2017, unless earlier repurchased, redeemed or converted in accordance with their terms. The Notes will be convertible at any time prior to 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date into shares of Common Stock, cash, or a combination thereof, at Molycorp’s election. "
Currently it is cash denominated debt. It might always be cash denominated. The Preferred shares were always going to convert to common shares.
You can settle this easily if it is a fact. I would like to know. Just point to the fact basis/source.
I noticed on the Molycorp website that they have a trademark on the product PhosFIX, which is a pool treatment product. I looked around and it is not big in the market yet. PhosFree is a lanthanum based treatment that has very good reviews. I can see how it will be difficult to convert pool owners who have a product they like already.
If they were already accounted in the share count, then it is not dilution. If they weren't then it is new shares. I really don't take your posts as dependable for settling facts though. I would think the Preferred shares were in the share count already, but I don't know the facts on that. To me those were shares of ownership, identical to 4 million common shares, and should have been included already.
The debt would seem a different matter to me ... the shares should not be counted in the share count until they are spent on the debt repayment. Otherwise it seems like double counting to me. If the shares are in the share count, then the debt should not be on the books. Either there is debt on the books, and unissued shares, or there are shares on the book, and no debt balance. I would account it that the shares are "sold" for the amount of debt being paid. And that they are "sold" at the time the debt is converted. And that the sale at that time increases the share count, "diluting" the existing shareholders. Since it is all completely forecast-able, the market should completely price it in whether it is a dilution event or not.
That is just how it seems to me. I don't know the facts on how the convertible debt is accounted within the share count. One of these days I would like to see a reliable source for that accounting trick. If you know where to find that info, let me know.
I don't know ... probably just timing. Tankers would indicate delivery of acid to me, or haul away of wastewater. Those are the two things Chlor-Alkali is going to cut costs for.
Say they are making 500 metric-ton-per-year now. Selling magnets for $100 per kg, that is $50 million revenues. If they get to a 20% margin, that is $10 million profits. MCP also should be in a supplier position for the Neodymium needed. My calculation says they need about 150 metric tons of Nd.
I am not sure of the price on Nd2Fe14B magnets on a per kg basis. I think those prices were falling along with neodymium prices. Magnaquench powder is selling at $45 per kg ... perhaps doubling that is too high ... just don't know. It seems the most important part of this partnership is the potential to become the almost exclusive supplier of neodymium.
You know I wouldn't mind an update on the Intermetallics Japan partnership:
"The joint venture will manufacture sintered NdFeB permanent rare earth magnets with technology licensed from Intermetallics, Inc., a partnership between Mitsubishi, Daido, and Dr. Masato Sagawa, co-inventor of the NdFeB magnet. The capital contribution ratio of the newly formed company will be 30.0% by Molycorp, 35.5% by Daido, and 34.5% by Mitsubishi. The joint venture will be financed by the three shareholders and by a government subsidy sponsored by Japan’s Ministry of Economy, Trade, and Industry (METI).
The joint venture plans to construct an initial 500 metric-ton-per-year magnet manufacturing facility in Nakatsugawa, Japan (Gifu Prefecture), with operations expected to commence by January 2013."
The plant was completed in November 2012, and has been building the customer base for high performance magnets. Japan is a high volume magnet center and being in the Intermetallics partnership is a big entry wedge there.
Google: Rare Earth Elements: The Global Supply Chain
The PDF is dated December 16th 2013.
"As world demand continues to climb, U.S. demand for rare earth elements is also projected to
rise, according to the USGS.11 For example, permanent magnet demand is expected to grow by
10%-16% per year over the next several years. Demand for rare earths in auto catalysts and
petroleum cracking catalysts is expected to increase between 6% and 8% each year over the same
period. Demand increases are also expected for rare earths in flat panel displays, hybrid vehicle
engines, and defense and medical applications"
There is quite a lot of Molycorp coverage in it.