Molycorp shares trading lower by 10% in pre-market trade; co disclosed would need additional capital to complete the modernization and expansion efforts; co is anticipating significantly lower than expected revenue and cash flow have therefore determined that it would be prudent to raise additional financing
Co disclosed the following: •'In January 2013, we determined that we would need additional capital to complete the modernization and expansion efforts and certain other capital projects at our Molycorp Mountain Pass facility, to fund our operations and to fund our working capital needs, and we raised an aggregate of ~$414 mln of net proceeds from a common stock offering and a convertible notes offering. We believed, based on the assumptions set forth in the prospectus supplements for such offerings, that the proceeds of such offerings would, together with anticipated cash flows from operations and potential proceeds from equipment and revolver financings, be sufficient to fund such operating and capital expenditure needs. Subsequent to January 2013, a number of developments have occurred that have reduced our cash cushion to a level below what we view as sufficient to ensure we will have no substantial concern about our ability to finance ourselves and led us to seek to raise additional financing: The ramp-up has taken longer than expected, which has led to lower than expected production volumes, revenues and cash flows during the first nine months of 2013, and delayed our realization of the benefits of our vertical integration strategy while our other operations continued to purchase raw materials from third parties rather than accepting delivery of products from our Molycorp Mountain Pass facility. •'Production volumes of REO in the first, second and third quarter of 2013 totaled 606 mt, 756 mt and an estimated 1,139 mt at our Molycorp Mountain Pass facility, respectively. While we believe that our Molycorp Mountain Pass facility is capable of producing 19,050 mt of REO per year, to date, we have demonstrated an annualized production rate of 15,000 mt of REO over brief periods of time, but have not been able to sustain such production rates over prolonged periods of time as we work to optimize our production and operations and remedy mechanical problems that we identify during operations.' •'We are currently producing at an annualized production rate of ~10,600 mt of REO, as we continue to work on optimizing production. We are currently targeting to gradually increase our production capacity during 2014 to an annualized production rate of REO (including LREC) of ~23,000 mt during the fourth quarter of 2014, although actual production during the first half of the year is expected to be below the design capacity of 19,050 mt on an annualized basis but more than the demonstrated annualized production rate of 15,000 mt of REO (including LREC). •On October 14, 2013, we entered into an agreement with Molibdenos y Metales S.A., or Molymet, pursuant to which Molymet agreed that, at our request during the term of the agreement, Molymet would purchase $50 mln of our common stock. However, if our proposed offering of common stock is successful, we currently expect that we would not request Molymet to purchase our common stock pursuant to such agreement. As of September 30, 2013, we had ~$160 mln of cash and we estimated that we will need to spend ~$50 to $70 mln in cash to fund remaining capital expenditures at our Molycorp Mountain Pass facility, as well as $5 to $8 mln on other maintenance and expansion capital expenditures in the remainder of 2013 across all operating segments and $70 mln in 2014 for our Molycorp Mountain Pass facility, including $30 mln of maintenance capital (excluding ~$80 mln of discretionary capital expenditures) and $20 mln for capital needs across our other operating segments. •Given the current pricing environment of REEs and the other factors set forth above, we are anticipating significantly lower than expected revenue and cash flow have therefore determined that it would be prudent to raise additional financing to ensure we have adequate funding for our needs, including the capital needs outlined above, debt service and other working capital needs. Our budget reflects an assumption that will be able to sell a substantial portion of our cerium beginning in the first quarter of 2014 once our current SorbXTM testing for various uses is completed and as we qualify our cerium for use in other products. However, we continue to expect that we will be unable to sell a substantial portion of our cerium production during 2014. Accordingly, our margins, EBITDA and 2 cash flow will be negatively impacted until our sales of cerium products manufactured at our Molycorp Mountain Pass facility increase.
• Note: Related Rare Earth names include: REE, MCP, SHZ, AVL, GSM