I ran into Yahoo's size limit ...
If you added those numbers up, you get a barely profitable business.
$270 million Mt Pass revenues
$360 million costs
$64 million magnetics profit
$30 million chemicals and oxides profits
$0 million rare metals
$4 million net profit.
Now the interest eventually gets lowered as they re-fi. If they drop the interest they add the interest payments to the bottom line.
Even at that minimal profit, they would have dominance in the RE industry sector. My own speculation is that as the only company with viable record and viable finances, they would actively pursue acquisitions and spinoffs at that point. And those would let them add in the more valuable RE amounts, and eliminate the worse segments.
It is all predicated on the proposition that they can hit the operational targets for Mt Pass. That is essential for survival. After that, you have to get sloppy with the RE price and demand predictions. I would say that the SG&A seems exorbitant, and I really haven't broken down the amount of that in the form of stock options. If there is $25 million of tat in the form of options to management each year, then that has an effect on cash flow.
This was all back-of-the-envelope and was calculated as I typed. There could be glaring errors. The bottom line in long term value is the bottom line. In a development company, value is speculative based on expectations.
A rational better would calculate the outcomes and assign odds. I think the long term value of a surviving MC would be as a company with a PE of 10-ish to 15-ish. There are a lot of things that matter in the calculation of any future profits though and that makes it difficult.
As a simple Mt Pass calculation, say they hit the operational target and say they produce 20,000 mt at $7000 per ton, each year. Baseline costs would be $140 million. Plus $100 million SG&A. Plus interest, call it $100 million. Say $350 million.
Revenues from Mt Pass could be all over though:
Neodymium, 2400 mt. @$50, $120 million. @$75, $180 million, @$100, $240 million
Praseodymium, 800 mt. @$50, $40 million. @$75, $60 million, @$100, $80 million, @$125, $100 million
Lanthanum 6600 mt. @$3, $20 million, @$4, $26 million, #$%$ $33 million, @$6, $40 million
Cerium 9800 mt. @$0, $0 million, @$1, $10 million, @$2, $20 million, @$3, $30 million
Take the $75, $75, $3, $1 prices: $180 + $60 + $20 + $10 = $270 million
Say the Magnetics and Alloys segment sells 8000 mt (that is a very reasonable expansion from the current levels).
@$30, $240 million. @$40, $320 million, @$50, $400 million, @$60, $480 million
Simply using a profit margin of 20% on that processing, and say a price of $40 per kg, forms an estimate of $64 million profits from that segment.
Chemicals and Oxides had about $220 million of revenues in 2013. The 2014 Annual report will be out soon and we can look at the 2014 numbers. Eventually that should generate some profit margin (or else sell it off). Say that long term it is $300 million with a 10% margin ... another $30 million profits. If SorbX sales ever grow, I think they show up here, and if you have optimism around that, then this number could be large estimates.
Rare metals is small and break even. I keep waiting for better results here. If they can't deliver profits from this segment then I would advocate selling the Gallium recycling operations off (pay down some debt)
If it was at 28 cents for a reason, supply that reason. If you have a firm model for that price then you can apply that valuation model to the PR from Molycorp with the updates on production. Then you can determine if the stock price increase makes sense to you.
On the other hand, if you don't have a reason why they stock was at $0.28, but only say there was a reason, then you can't really make any conclusion about the reasons for the higher prices.
So ... you say it was at 28 cents for a reason. What was that reason?
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.
The last 2 closes:
These displace #29 and #30 on the list in my first post. The 30-day moving average rises to $0.5977
"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
That is the part of MCP business that really makes it all work. Neodymium-based magnets are pretty amazingly strong. And that magnetic superiority has so many applications.
You know if you have to pay bribes all February and March, you might as well be a legitimate business. Nah.
The one that pays the lowest bribe and is least connected will get arrested. The rest will get forgotten. They do love to announce investigations into RE illegal activities though. Local party officers just don't stay bought for as long as they used to. After they take a few bribes, make a dramatic arrest and move to the capital, the next crew wants a whole 'nuther set of bribes.
But 8 ministries investigating ... that is going to be expensive.
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.
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.
For Q1: They almost always give an indication on the production levels for the current part of the quarter. And they usually give enough hints about the cost side expectations. I just went and looked in the Q4 transcript and the cost per kg in Q3 was $33. The cost was $16 per kg in Q2.
Costs had been trending downwards prior to the Q3 disaster. And they say in the PR that costs are lower than Q3 in Q4. Q3 was such a disaster ...
Here is a quote from Q2 transcript:
"In short, compared to Q1, we've produced more at Mountain Pass in the second quarter and we spent less doing it. We continue our efforts toward our goal of bringing Mountain Pass up to its full initial design capacity."
Then quite obviously, the wheels fell off the bus. I don't expect that Q4 will be back to the point they were in Q2. In Q2, it was possible to imagine you saw the light at the end of the tunnel. I'm only seeing tunnel right now.
Q4 results will be awful financially. They may have enough progress to report that it grow optimism slightly. Q1 is again going to have financial results that are bad. After Q3, I feel they are still significantly far away from the point where Mt Pass operations turn around. And that is the giant money loser.
I like that the PR indicates progress. But that progress is only relative to what was a historically bad quarter that completely de-railed the ramp up progress.
I made a conversion of my shares of MCP that I held in a taxable IRA into a taxfree Roth. I submitted the paper work Friday the 23rd after market close (at $0.28 that day). It processed at $0.39 ... I may complain about the delays. Regardless of the exact cost I will pay taxes on, I made the conversion with the idea that the 2015 tax bite I'll pay, will be made up in long term gains.
I'm not going to make any predictions. But if you are predicting large gains, then there is a tax implication for that, especially IRA vs Roth RA. The current price is higher than the price I converted at, and will pay taxes on.
With the price rapidly rising over the last couple days, and any expectation on your part (shared on my side) that the price will go higher, then there is some consideration for the tax side. I made a tax-based adjustment. I have no idea if that sort of move has any benefit for anyone else, but there is a process of "conversion" where you can transfer stock from a tax-deferred IRA, into a tax-free Roth RA, paying the taxes on the basis.
I thought it made sense for me. But I readily admit that taxes and different RA's are a bit of a mystery to me. Do your own DD, etc.
Mathwise, if you put $1000 into an IRA, that is pre-tax dollars. And you pay income taxes on withdrawals. If you put $1000 into a Roth RA, that is post-tax dollars. And withdrawals are not taxed as income. If you convert, you pay the income tax on the converted amount as you reverse the contribution tax profiles of the money. Generally, the IRA is considered advantageous if you are going to be in a much lower tax bracket after retirement. But if the gains are large enough,then the tax advantage is outweighed by that. Say the $1000 has a 33% tax bracket. IRA gets you an immediate $330 tax advantage. Then if the later tax bracket is 11%, but the investment in MCP triples, you pay 11% on $3000, $330 on withdrawal. I just ballpark estimated that in my case it might be better to convert.
Yep. I really wish they would report even more details about the output. I think the LREC is important, but the real money is in neodymium, praseodymium, and magnets.
LREC should be post HCl leaching though, which currently is a major cost problem. I don't want to go double check, but IIRC it usually goes:
1: mining the ore.
2. crushing and milling the ore
3: acid leaching the minerals
4: flotation concentration of metal ions
That generates the Rare Earth Concentrate.
The cost side of LREC is still going to be high, although lower than the purified output. They will still generate the wastewater that has had a high disposal cost. They still use HCl at high amounts.
And then the ASP gets dropped from the LREC internal sale. SO YES, the product mix is hugely important. And not in the PR. And not in enough detail in reports IMO.
I'm still not expecting much in the Q4 numbers. As I said, it gets difficult to know when to applaud and when to scream, with progress, but maddeningly SLOW progress.
I think they have two cost effects. There is the normal division of fixed costs across the production level, and also, they are trying to reduce proportional costs, which will be from optimization, and from full plant contributions.
As an exercise, here is a BS cost calculation based on made up numbers:
mt . . . . . fixed . . . . proportional . . . . net per mt
500 . . . . $20 M . . . $3500/mt . . . . . . $43,500
1000 . . . . $20 M . . . $3500/mt . . . . . . $23,500
1500 . . . . $20 M . . . $3500/mt . . . . . . $16,800
2000 . . . . $20 M . . . $3500/mt . . . . . . $13,500
2500 . . . . $20 M . . . $3500/mt . . . . . . $11,500
3000 . . . . $20 M . . . $3500/mt . . . . . . $10,200
3500 . . . . $20 M . . . $3500/mt . . . . . . $9,200
4000 . . . . $20 M . . . $3500/mt . . . . . . $8,500
4500 . . . . $20 M . . . $3500/mt . . . . . . $7,900
5000 . . . . $20 M . . . $3500/mt . . . . . . $7,500
But they are also fighting the (HCl) cost side. So the proportional costs are higher. Anything they have to do that is outside the standard operating procedure, adds to the proportional cost basis.
I'm not trying to sugarcoat the Q4 expectations based on this PR. I think it is good news, because I was expecting the worst case: higher volume, but still higher proportional costs. It isn't good news because they are going to nail the Q4. It just means they won't suck as much as I really expected. Still bad.
The hydrochloric acid situation was reported as a bad news. And that was in November. It seemed to me that the HCl would be leading to even higher costs. Instead the statement is that HCl cost is dropping ... I'm still not a really expecting much bottom line effect. Costs were REALLY high in Q3.
If you ramp production with high costs, you just lose more money. If they can ramp and lower costs, then at least they can tread water. I expected slightly higher output, but at the same or worse costs ... that just leads to higher losses. They still may have a worse Q4 result than Q3. The PR states they produced 1328 mt, up from 691 in Q3. IIRC the costs were mid $30's ... call it $35 per kg, $35,000 per mt. They sold at an ASP of under $13 per kg. So net, they lost $22,000 per mt, for 691 mt.
Say they sold at $11,000 per mt in Q4, and it cost $25,000 per mt. Then they lost $14,000 per mt. Since production doubled, they will have a comparable loss, in net magnitude (assuming sales volume greater than production again).
It seems obvious to me that without improvement on the cost side, the Q4 numbers would have been much worse, as they ramped up the new parts of the facility.
Here is what they said at Q3:
"we placed into operation in September our expanded leach system at Mountain Pass. Once this system is fully operational and sufficient supplies of HCl are available, this unit is expected to help us increase rare earth production and lower our operating costs."
To me that said they were going to be leaching more, and processing more, and they still were dependent on higher cost HCl. And that was November 6th.
We don't know the bottom line numbers on cost or ASP. We do know that the cash costs are a little lower, and that the acid cost may not be as large a bite as I would otherwise have expected.
It will still be a bad quarter. But not as bad as if you just scaled up the Q3 loss per mt by 50% ... as if they hit 1000 mt but with the same costs.
It's true the numbers are relative to Q3. But I was expecting a worse version of Q3 repeated for Q4. To me it looked like they were likely to have a VERY bad report of a VERY bad Q result. Now I'm more expecting a bad report of a bad result. It still won't be good ... if you thought I was saying good, I'm not.
I don't guess an equity sale. I am alert to an equity-for-debt swap, that is basically an equity sale, although with the benefit of discounting debt repayment. That is not based on anything other than that rumor about debt restructuring possibly being considered.
They need to "show me the money" in results. Raising more money for more cash burn is a proposition I don't favor as a stockholder. They have enough money. The answer is to deliver results before that money is exhausted, not to raise more money for further delays.
Higher production in 2015 is something they have to deliver. And better quarterly results. They don't need to have adequate funding to last longer with losing results, they need to have winning results before the funding they have is gone.
They seem to be generating a PR prior to quarterly results now. And putting some numbers in it that allow a little targeting of expectations. Anything is possible, but somehow this doesn't seem a preamble to an equity offering.
"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.
It seems that MCP is now practicing a sort of pre-release of quarterly numbers. Once again they out out a bit of news that lets you see parts of the numbers.
"Mountain Pass completed Q4 of 2014 with 1,328 metric tons (mt) of rare earth oxide (REO) equivalent production."
It is good that production is up. But still it is a long way from the 5,000 mt per Q target. It is a rise from a really bad Q. Maybe back on track for the ramp, who knows.
"Per-unit cash production costs at Mountain Pass also declined sequentially in Q4 of 2014."
This is good. The main problem is that Q3 costs were wildly higher, primarily from high HCl acid costs and from low production. I'm not expecting a good number here ... maybe in the mid-$20's per kg.
"The Company said that its onsite Chlor-Alkali plant at Mountain Pass is performing well in producing hydrochloric acid ("HCl"), a key chemical reagent used in rare earth production at Mountain Pass. Moreover, commercial availability also has improved, such that HCl currently is no longer a significant constraint to production. Molycorp's Chlor-Alkali plant helps to lower cash production costs by generating chemical reagents onsite, reducing waste water disposal costs, and further shrinking the environmental footprint of rare earth production."
Good. This was late in coming and I wonder if it only was a cost contributor in December. We know it was not online by the Q3 report at early November.
More in Part 2 ...
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.