Despite loss, Molycorp hints at better days ahead

Molycorp’s third-quarter report turned out to be an exercise in deja vu: another loss with hints of better days ahead.

“In global rare-earth markets, we continue to see demand slowly but steadily returning to more normalized levels,” said Constantine Karayannopoulos, who will step down as the mining company’s president and CEO next month.

In particular, he predicted “good, long-term growth trends” for neodymium and praseodymium, the highest-value ores coming out of the company’s open-pit mine in Mountain Pass, Calif., about 15 miles south of Primm.

These rare earths bolster the performance of industrial magnets in a variety of applications; increased use is expected to come from the push to build more energy-efficient motors.

But on a conference call on Thursday, analyst Mike Ritzenthaler of the brokerage Piper Jaffray expressed surprise that magnetic ore prices had fallen for the quarter.

The third-quarter report continued a trend: a loss accompanied by comforting words from top management. Molycorp lost $66.5 million, or 43 cents a share in the three months ended Sept. 30, compared with a loss of $11.5 million, or 19 cents, a year earlier.

Following Molycorp’s first-quarter report May 9, Karayannopoulos said in a statement, “On the demand side, we are beginning to see signs of a return to more normal levels of demand as the year progresses.”

Likewise, the second quarter came with pronouncement of “increasingly bullish signals from customers across several segments for product demand” by Karayannopoulos.

Not only have industrial customers been working down their stockpiles of ores, but smuggling continues out of the mines in China despite government announcements about curtailing exports and crackdowns on nonofficial sales. China accounts for more than 90 percent of the world’s rare-earth production and the fear of constricted supplies had cause prices to soar in 2011.

The rebuilding of the mine, Molycorp reported in May, had reached the stage where all major systems were “operational and ramping up to the facility’s initial planned annual run rate of 19,050 metric tons or rare earth oxides equivalent by midyear 2013.”

One year ago, the company said it “remains on schedule” to hit the target by the end of 2012.

Now, the company says that even 15,000 tons is a struggle and currently not economically worthwhile. No timetable was given for when the mine production will approach its capacity.

Previous CEO Mark Smith regularly touted the virtues of Sorbx, a water-purification compound made from cerium, which accounts for nearly half the ore at Mountain Pass. Otherwise, cerium “is largely a waste product,” said Karayannopoulos, if Molycorp cannot find customers.

He added, “The adoption of this product takes time” given how long it takes to persuade industrial and municipal water providers to change chemical processes that have worked for years.

Several hundred employees now work full time at Mountain Pass, the large majority of them commuting from Las Vegas. Hundreds more have worked on the renovation of the mine, with a price now estimated to hit $1.6 billion.

In the third quarter, Molycorp’s revenues fell 27.3 percent to $149.1 million from $205.2 million a year earlier.

The company expects to start producing positive cash flow from operations early next year and grow enough to cover interest and other expenses in about another year.

The stock rose 9 cents, or 1.85 percent, Friday to close at $4.85 a share after hitting a record low of $4.61 during midday trading Thursday. The stock price peaked at $79.16 in May 2011, when concerns about rare-earth supplies hit a fever pitch.

Contact reporter Tim O’Reiley at toreiley@reviewjournal.com or at 702-387-5290.