Siemens wants to wrap up supply with this deal, and that is a very good customer to have. It is very good news to have a big customer. But the other part of this PR is the magnet technology side.
Neodymium magnets are made in the form of a magnetic powder. That powder has to then be oriented and locked into a larger North-South array. The primary technology is to use dysprosium as the glue that holds the magnetic domains in place. That generally is called a "fused" magnet. Molycorp has been pushing the use of epoxies and cheaper materials to hold the magnetic domains in place. These are generally called a "bonded" magnet.
Siemens wants to eliminate the dysprosium-fused magnet as the basis in their wind turbines. Fused magnets are more durable, and generally have better long term performance. If Siemans and Molycorp can demonstrate technical parity with a bonded magnet in wind turbines, those wind turbines will have a SIGNIFICANT cost advantage.
Molycorp would almost certainly be limited in supplying Siemans customers (by any deals and by any cooperative IP). But they could likely sell bonded magnets into other magnet applications. And for a while, they would be uniquely ahead of the competitors.
There are two really big things in this news:
Siemans is a great customer to have a 10 year contract with.
Siemans and Molyorp together can optimize a wind turbine bonded magnet.
You're deluded. Wind Turbines have HUGE magnets. They are a HUGE demand and growth in demand section of the rare earth magnet business. A single turbine can contain over a ton of magnet. When you see a big field of turbines, every one of those has a giant magnet in it. And wind farms are being installed all over the globe.
There is actually the potential that the demand for neodymium-magnets for wind turbines could grow to exceed the neodymium supply. That probably won't happen, but a company like Siemans has shown great foresight in locking up a 10 year supply from a major supplier.
I don't really understand terms like over bought, or over sold. The price is what it is. Currently MCP has an aggregate value of around $200 million. I think the market cap would not be excessive over $1 billion. I thought the market was wrong at $100 million. I still think it is wrong at $200 million.
Sure, it went up far further than ordinary rises. But it also was falling much faster than ordinary falls. There MANY days of 10% drops on the way down. I'm not able to make TA predictions. The price went up a lot yesterday. I don't share the idea that the price change one day is a predictor one way or the other for the next day.
No. The market is pricing Molycorp business/stock. No more no less.
The company has to make money. Losing money is not useful. They took longer and spent more building Project Phoenix and now they have to make it work. If they can't then it is an expensive piece of junk. If they can then the market will re-evaluate.
There really is no sense in saying what the market is saying. The market is a process for exchanging stock. Some sell, others buy. And they have opposite motivations.
The going concern has to be noted when you lose money in large amounts and have money in small amounts. The right business answer is not how to escape debt by screwing some people, but to stop losing money.
Yes. I thought the same thing. They didn't answer the question. "Subject to interpretation" has to be that the bondholders interpret one way and the company the other. And that was never answered. They hand waved that everything is legal mumbo-jumbo and of course a matter of interpretation. But the listing requirement is not a matter of interpretation. And bonds are not legal mumbo-jumbo, but consistent.
I wanted to know WHAT debt obligations. And WHAT is the covenant that has a difference of opinion in the interpretation. Because I generally find that the people owed the money are right, and the people that owe the money (but have some crazy interpretation) are wrong. Since I think the bondholders are probably right ... what is it they are right about? I'll email IR a follow up but I doubt I get an answer.
Perhaps it is that the debt for equity swap meets criteria that empower other bonds. That would be the kindest interpretation. Then it is a matter of determining if the swap has to be applied equitably, not just to the first in the door group. That could also be why they had a consultation with legal people recently (if the rumor is true).
Highly irritating. If there is a current issue that has an interpretation associated, then point to the covenant and say why they are taking a legal position.
I just listened to the archived CC ... late start for me.
Chlor-Alkali still looks like a small competitive advantage. But not as large as once supposed.
They target Mt Pass production of 4000 mt in Q4-15.
The Oaktree requirements are for 2 successive quarters of 4000mt production that also have $20 million positive EBITDA. The deadline is Q1-16 ... so they MUST hit the target in Q4, and then repeat in Q1-16. Or they cannot access the $150 million in additional loans.
They said a "progressive increase" in production. So if they are 1328 in Q4-14, they must add at roughly 700 mt per quarter. Q4: 1300 mt, Q1: 2000 mt, Q2: 2700mt, Q3: 3400 mt, Q4: 4100 mt.
The leaching system needed 9 tank liners. The first was done in February. 6 are done currently. So that repair should be finished quite soon at that rate. They predict higher production rates with those all in service. We will have to see if they hit the necessary 700 mt per quarter production increase in Q1, when those were still out thru most of Q1.
SG&A is being reduced. I saw the number in the report and was pleased that Q4 was significantly lower.
Magnet demand and pricing looks good for 2015.
They didn't really address the "going concern" issue. Other than to say it is what it is.
My definition of interest is always just the amount of money paid directly to service the debt financing. Not the amortization of debt costs. The deb has irregular interest ... I've mentioned that before. The debts have twice per year interest payments with the largest being the $660 million due 10% per year ... $33 million in Q2 and Q4 (IIRC). They indicated that Q4 had $41 million of total interest actually cash paid. The remainder of the $55 million interest charge is financing amortization ... (I think).
I stumbled on this post from a Month ago. Google:
"Beijing has finally turned around rare earth prices"
Beijing has a new strategy to tighten its grip on the rare earth supply chain. And it's working.
China produces nearly 90% of the world's rare earths and its downstream industry consumes 70% of the 17 elements used in a variety of hi-tech industries including renewable energy, medical devices and defence.
Customs data show export volumes grew 27.3% in 2014 to 28,000 tonnes but the average export price of REE products plummeted to only 83,000 yuan ($13,000) per tonne. That's a decrease of 47.8% from the year before and the third year in a row of sharp declines.
Following a World Trade Organization ruling, China is abolishing its decade-old export quota system for rare earths and is due to lift export tariffs of 20%-plus in May.
This liberalization should translate into further price declines, but Beijing has found other ways to tighten its grip on the industry.
Long the scourge of the industry, China is also intensifying efforts to shut down small-scale illegal REE mining and is enforcing strict new environmental policies as part of its broader war on pollution.
Details are still sketchy, but the export quota system could be replaced by production control licences based on adherence to environmental standards (so-called "green permits") while export tariffs could make way for a value added tax and export certificates.
These measures are pushing up the cost of production which is already being reflected in the price.
The Association of China Rare Earth Industry price index (a rolling 20-day average of REE prices across the industry) this week racked up gains of 13% since the end of last year.
Some light REEs including the work horses of the industry cerium and lanthumum continue to fall while terbium and dysprosium have soared recently so it's not a broad-based rally just yet.
There is a nice chart of prices.
They already received a delisting notification. They now have 6 months to return to listing eligibility. I don't know the situation on extensions currently. In the midst of the recession companies could appeal for another 12 months.
It appears that MCP will wait and see if the stock meets the eligibility price without any action on the part of the company. I believe that if they get to 5+ months and there is clearly not a market price happening, they can appeal, with a plan to reverse split at that time. So there should not be any news until June-ish.
They will certainly face questions at the CC. And the answer looks like it will be that they expect the stock price to rise again. I think that is reasonable.
"Under the NYSE's rules, the Company has a period of six months from the date of the NYSE notice to bring its 30-day average share price back above $1.00."
The 30-day moving average may be about to turn up. Here are the closing prices for the last 30 days. As you can see the price dove down about 26 days ago. Today's (11-Feb-15) close was $0.83. The 30-day moving average as of yesterday's close was $0.596. Taking away the 29-Dec-15 $0.85 close and adding the $0.83 close of today moves the 30 day average to $0.5933. Hopefully the price keeps climbing, and starts to add days over $1, and the 30 day average price climbs up over that also.
The prices immediately after the letter notification of a de-listing price fell precipitously, hitting the low close 14 market days later.
1 10-Feb-15 0.77
2 9-Feb-15 0.73
3 6-Feb-15 0.69
4 5-Feb-15 0.72
5 4-Feb-15 0.72
6 3-Feb-15 0.8
7 2-Feb-15 0.48
8 30-Jan-15 0.33
9 29-Jan-15 0.39
10 28-Jan-15 0.41
11 27-Jan-15 0.36
12 26-Jan-15 0.35
13 23-Jan-15 0.28
14 22-Jan-15 0.38
15 21-Jan-15 0.46
16 20-Jan-15 0.46
17 16-Jan-15 0.51
18 15-Jan-15 0.5
19 14-Jan-15 0.54
20 13-Jan-15 0.56
21 12-Jan-15 0.6
22 9-Jan-15 0.6
23 8-Jan-15 0.65
24 7-Jan-15 0.69
25 6-Jan-15 0.69
26 5-Jan-15 0.76
27 2-Jan-15 0.86
28 31-Dec-14 0.88
29 30-Dec-14 0.86
30 29-Dec-14 0.85
The only Panasonic battery investment I am familiar with is with Tesla. Pretty much any new battery plants should be lithium ion rechargeable or lithium ion disposable batteries. That is the current best chemistry set. And that chemistry set has no rare earths in it.
The previous best rechargeable battery, and still a very important battery in a lot of applications is the nickle-metal hydride chemistry, which uses rare earths in the "metal hydride" (primarily lanthanum, sometimes lanthanum-cerium mix).
I'm a huge fan of the compact size and power densities of the lithium ion batteries. I would think that there is not only going to be decreasing demand for rare earths from battery use.
There may be a need for a "couple tons" of RE in the Tesla battery plant. Robots with RE magnets, etc. But not a need for a continuous supply as a chemical in the electrolyte.
"Company officials said that the higher production volumes they expect at Mountain Pass in 2015 should coincide with relatively strong demand the Company is seeing for products such as the magnetic rare earth material Neodymium/Praseodymium, Lanthanum, and Light Rare Earth Concentrate ("LREC")."
"Company officials reported that repairs of construction-related issues with the facility's newly expanded Leach system are ongoing. Once fully operational, that system is expected to increase rare earth production and lower operating costs."
We basically still are waiting for the Mt Pass plant to be functional at the targets. The Leach is critical to getting the ore into a processable solution, from the rock minerals. The finely ground ore (they expanded the crushing and milling), is soaked with hydrochloric acid converting the insoluble minerals to chloride salts. The acid component sounds to be on track to generating cheaper acid, and leaching is such old school tech that it is just a matter of time and scale. Build a big enough big reservoirs and wait long enough and you generate a steady state stream of soluble RE's.
This is the usual Molycorp announcement. Progress, but at a snail's pace. I'm torn between clapping and screaming at them.
Generally, it is good news though. I think that it imples the quarter may not be as bad as I was expecting, which was a quarter of miserable failure in money results. Q3 was awful. I thought they would match or exced that awfulness in Q4. The Q3 report didn't say anything but that Mt Pass was stuck. At that time high costs and low production were the only expectation. December may actually show a decent improvement in the Mt Pass facility. And leach ... that often is just a matter of time ... if you have to soak more ore for longer.
They made an announcement on February 2nd. The stock close on January 30th was $0.33. I think we can attribute that as the only news that most corresponds to the run.
And to be clear, they did announce the Q4 production amounts, and added some clarification about the hydrochloric acid reagent costs, and the overall costs. Q4 will still be terrible, but it had the potential to be cataclysmically awful. The announcement puts the range of expected results back into expecting merely terrible.
And there is a chance that they are on track towards the business plan that makes sense. Probably not, but you have to at least allow for that chance now. Was the PR concrete evidence of improvement? Surely an increase in production, and a decrease in critical costs counts as concrete evidence?
I was more astounded by the 2 month drop, say from November 20th's $1.20 to January 23rd's $0.28. That was irrational.
I would advise you to look at the company PR for February 2nd before saying there is not any concrete evidence. And to look at the drop to $0.28, and the news that preceded that. Determine the value of the company, not the relative magnitude of recent stock price swings. It isn't over-priced because the price is higher than the ALL-TIME lows.
They have to take listing seriously. Some of the convertible debt requires that the stock be listed on the NYSE, or they debt is immediately due. So yes, they would implement a reverse split if they must in order to remain listed.
I don't like the numbers but they do indicate that they are going to run out of cash. They have operating losses. Not just depreciation and Goodwill writedowns ... real operating losses. Conceivably with a very optimistic assumption for X, Y, & Z they have a very narrow margin, but I don't see that as realistic.
And that is still 2 quarters before they can access the Oaktree second financing.
I don't know any way to interpret that other than they have going concern problems. They cannot survive the year, if the situation is not changed.
They could conceivably do equity-for-debt swaps. That would eliminate some interest. They could sell off a piece, if they can find a buyer. They can do a reverse split and equity sale.
I would love it if someone sees something I am missing. It would seem they either have a miraculous operational turnaround or they have to again raise money.
And I don't see why they deserve money without a better presentation of the operational picture. If the best operational result is to make less than they pay in interest and write off in depreciation ... that is obviously not good enough.
I'm not worried about "them". That post was facetious because yours was insincere. I find conspiracy theories about big market manipulators unnecessary. If you like to think there is a secret cabal of stock price manipulators working the MCP price around ... I won't bother to share that theory. "They" can do what "they" want.
I'm feeling pessimistic right now. I don't really have a good sense at odds. I see the situation as too complex to reduce to a meaningful set of percentages.
I don't like the numbers I see for the cash burn and the future. I had not really set them down like I did in another post, but when I do, I see a bad cash crunch. They set the target as 4000 mt in Q4 with a positive $20 million EBITDA. Depreciation is about $45 million in Q4. Taxes would be neutral at that EBITDA. Interest would seem to be about $40 million then.
So with $20 million EBITDA, they still deplete cash on hand. The interest is larger than the EBITDA, and the tax credit for the post-ITDA won't help. There is still projected CapEX (which is non-earnings as it buys an asset of equal value to the money spent).
4000 mt is less than the Project Phoenix target. And Q4 is way later than every promise ever. And they will be using LREC to pad the numbers for the production.
At this point, it doesn't seem all that possible that they can survive (I am feeling pessimistic right now!). They simply don't have a plan that leads to profits. They have a plan to get to LREC enhanced low level production, with cash losses at a lower level. At no point did they say they were going to get Project Phoenix to full production, and hit the cost targets.
The company could be saved by a sudden RE price inflation. An emergency at a major mine interrupting supply. But right now, they seem to have a 1-year plan that is to get to 4000 mt per quarter (well off the original target) at a slightly positive EBITDA, and negative cash flow. If they were targeting cash flow positive by Q3 then they would at least be presenting a plan with a long shot.
I don't know what the right investment decision is. I did not sell, but I have to say the news was bad enough to make the money offered per share seem as valuable as any possible future value.
Not really an option. Chloe Alkali as semi-spun off to Oaktree already.
The Oaktree financing is structured as a sale-leaseback of plant equipment. Specifically the Co-gen power and the Chlor alkali facility.
"Oaktree has funded the company with $250 million and entered into a sale leaseback transaction where $139.833 million was paid for equipment including, but not limited to, parts of Molycorp’s natural gas powered co-generation plant, chloralkali facility and water treatment plant."
The senior debt also has claims against collateral. The collateral is difficult to sell, when there is a claim against it.
I don't see a PR linked on the Yahoo page ... but there is a PR out:
GREENWOOD VILLAGE, Colo. (March 11, 2015) -- Molycorp, Inc. (NYSE: MCP) today announced that it will release financial results for the fourth quarter and full year ended December 31, 2014 after the market closes on Monday, March 16, 2015. Release of Molycorp's financial results will be followed by an investor conference call on Tuesday, March 17, 2015 at 9:00 a.m. Eastern, hosted by Geoff Bedford, President and Chief Executive Officer, and Michael Doolan, Executive Vice President and Chief Financial Officer.
That's not really a business plan. That is called screwing everything up and being irresponsible. Merely having the power to do stupid things is not generally a reason to do them.
Here's an idea: make money as a business. Re-arranging deck chairs on the Titanic is not really a plan. Sure, they can re-arrange them. But all that does is make the ship sink with a different chair arrangement. If they want to survive as a business, the plan has to be to earn money. Not ... sell everything not nailed down and head out the door.