Second-quarter earnings season hasn’t been a picnic for most companies but Molycorp’s (MCP-N) US$67.6 million loss or US$0.71 per share in the quarter compared to a profit of US$47.8 million or US$0.53 per share in the second quarter of 2011 sent investors running for cover.
The rare earth producer’s shares on the New York Stock Exchange plunged 28.50% or US$4.58 to close at US$11.49 on Aug. 3 with trading volume in the double digits at 21 million.
According to Canaccord Wealth Management, the Street had been expecting a profit of US$0.03 per share on revenue of US$105.9 million. (The company posted revenue of US$104.6 million.) Molycorp attributed lower earnings to lower product volumes and prices, costs at the Phoenix project, and its $1.3 billion acquisition in June of Neo Materials, now called Molycorp Canada.
Molycorp says it will have to nail down additional financing for a substantial portion of its 2012 capital expenditures and other cash requirements and is negotiating with third parties for potential equipment leasing arrangements, asset-based revolving credit facilities and other debt financing arrangements.
“It has been no secret that Molycorp bought out Neo at the top of the latter’s business cycle, but the market’s harsh reaction reflects Molycorp’s indirect admission that it had counted on Neo’s cash flow to provide the capital it needs to complete the Phoenix Project expansion to 40,000 tonnes of annual rare earth output,” newsletter writer John Kaiser mused in a note.
“Project Phoenix was claimed to be fully funded last year, but it appears that Molycorp raided the cash earmarked for Project Phoenix in order to make up the cash portion of the Neo buyout not covered by the $650 million secured note sold in May 2012.” Molycorp maintains it is still on track to meet its accelerated schedule of starting Phase I production of 19,050 tonnes in the fourth quarter.
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