Growth as Rare for Molycorp as the Minerals It Mines

Mountain Pass mine. Source: Molycorp.

Despite all the happy talk of getting to breakeven status, investors didn't need a crystal ball to see that Molycorp (NYSE: MCP  ) would have a tough go of trying to achieve that goal. The miner's earnings the other day show it remains as elusive as ever.

The rare earths minerals miner reported its first-quarter revenues plunged 19% from last year even though analysts had anticipated they would tick up slightly. Although sales volumes were 10% higher than the year-ago period, pricing tumbled 13% continuing their long, steady decline.

The problem for Molycorp is that its Mountain Pass mine in California is replete with cerium and lanthanum, two of the most abundant but least valuable of all 17 rare earth elements. As a result, even though it sold more of them, their prices tumbled 45% and 49% year over year, respectively, so that even while neodymium/praseodymium was up 18% in price, it wasn't anywhere near enough to offset the drop.

Unfortunately, that's a situation not about to change anytime soon. As I pointed out last month, although China is trying to prop up the rare earths industry by encouraging its miners to merger so there is less competition, the largest and favored of them, the state-owned Inner Mongolia Baotou Steel Rare Earth Group, reported its own sales tumbled 53% and its profits were slashed by 72%. It tried to blame its tariffs being overturned by the World Trade Organization for the shortfall, but as the ruling occurred at the end of the quarter, it likely had just a negligible (if any) impact.The loss of tariffs, though, suggests prices will continue to fall in the months ahead, which doesn't bode well for Molycorp.

The miner is also facing operational issues as it continues to optimize performance at the mine causing production to come in lower than expected in the quarter. Although it's trying to strengthen the system down the road through "debottlenecking," it's having an impact now.

Source: Molycorp.

Revenues from its largest segment, magnetic materials and alloys, which produces magnets for use in micro and precision motors and which accounts for 45% of total revenues, managed to creep just 4% higher. Everything else fell, including chemicals and oxides, which comprises sales of cerium products -- such as SorbX, its water-purifying compound -- and accounts for 10% of total sales, plunged 27% year over year due to the previously discussed pricing issues. In both its resources and rare metals segments, Molycorp had no significant sales to customers, but last year had sales of tantalum in the latter segment that totaled 16% of revenues.

Molycorp has projected Mountain Pass will be capable of producing 19,000 metric tons of rare earth oxides annually once it fully optimizes its operations, but that always seems to be just around the next corner. Last quarter management didn't think 2014 would be the year to achieve that goal since it anticipated interruptions over the first six months, a situation that certainly seems to be playing out as it produced just 1,100 metric tons in the first quarter, the same as it did in the fourth quarter. Previously, it said it wanted to exit the year at a run rate of 23,000 tonnes, which at this point would appear an equally dubious goal as breaking even considering the weak pricing environment.  

Molycorp will be an important player in this key industry that will only grow in the future, and its cerium-based SorbX product ought to find an outlet among municipal and industrial wastewater treatment facility customers, but there's no need for investors to jump into the pool just yet, at least not until it straightens out if operational issues and pricing of rare earth elements finally stabilize.

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  • Report this Comment On May 11, 2014, at 1:28 PM, bellbell63 wrote:

    Witness the start of a death spiral. Missed schedule, missed goals, cash burn, financing at ever and ever lower stock prices. Then if somehow they do start to show a profit there will be so many shares outstanding that the EPS will support very little PPS.

  • Report this Comment On May 14, 2014, at 4:50 PM, Hansen wrote:

    Molycorp's stock shed 32% of its value in last twelve months http://bit.ly/1jgHDTb

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