Molycorp Reports 4Q 2010 Results: Project Phoenix Launched Ahead of Schedule; Revenue Up 154%; Volumes Up 20%
Fourth Quarter Highlights
Revenue rose 154% from Q3 2010 to $21.7 million.
Volume sold rose 20% from Q3 2010 to 638 metric tons.
Secured all critical environmental permits to start Project Phoenix.
Mining operations resumed for first time since 2002.
Commenced construction of new processing facility ahead of schedule.
Secured supply agreements covering 100% of expected 2011 production.
Letter of intent with Hitachi Metals to pursue joint ventures to
produce rare earth alloys and magnets in the U.S. by 2012.
MOU for supply agreement with Sumitomo Corporation, which includes
$130 million in financing for Molycorp.
Full Year 2010 Highlights
Revenue rose 396% to $35.2 million.
Volume sold rose 45% to 1,883 metric tons.
Company increased the diversity of products produced and sold.
Invited by the U.S. Department of Energy (DOE) to advance to the
second round of consideration for a federal loan guarantee.
Colorado-based Molycorp, Inc. (NYSE: MCP) today announced financial and
operating performance for the fourth quarter and full year 2010.
Revenues in 4Q 2010 rose 154% to $21.7 million compared to 3Q 2010
revenues. Compared to 4Q 2009, revenues rose 885%. Both sequential and
annual growth was driven by a combination of increased sales volume and
significantly higher pricing.
Net loss in 4Q 2010 was ($7.9 million). However, excluding special items
and certain non-cash accounting charges attributable to stock-based
compensation and equipment write-offs, Molycorp generated positive
earnings of $2.2 million, or $0.03 per share, in 4Q 2010.
The Company sold approximately 638 metric tons of rare earth oxide (REO)
products in the fourth quarter 2010, a 20% increase compared to 3Q 2010,
and a 37% increase from the approximately 467 metric tons sold in 4Q
2009. The Company realized an average sales price of approximately
$34.02 per kilogram, compared to an average sales price of $16.10 per
kilogram in 3Q 2010, and an average sales price of $4.72 per kilogram
for 4Q 2009. Average sales prices have continued to increase
significantly in 1Q 2011.
'Molycorp realized significantly higher sales volumes and revenue in the
fourth quarter of 2010,? said Mark Smith, Molycorp President and Chief
Executive Officer. 'Our ability to produce 3,000 tons per year from our
current facility is allowing us to benefit from today′s dramatically
higher rare earth prices. We are in a great position to capture this
increased revenue now, even as we construct our new, state-of-the-art
processing facility and develop our integrated mine-to-magnets
manufacturing supply chain.?
'This integrated rare earth supply chain is expected to position
Molycorp to operate as one of the world′s lowest-cost producers and to
capture new markets created by rising rare earth demand and China′s
continuing restriction of rare earth exports,? Smith said.
'Rising demand and reduced Chinese exports have created extraordinarily
tight market conditions,? Smith explained. 'In 2010, China exported
approximately 30,258 metric tons, which compared to demand outside of
China in 2010 of about 55,000 tons. This gap in supply and demand is
expected to worsen in 2011, as independent forecasts predict that full
year 2011 export quotas will total less than 30,000 metric tons,
compared to total demand outside of China of about 60,000 metric tons.
That points to a high likelihood of shortages of many rare earth
products.?
Smith noted that senior government leaders in China consistently stress
China′s intent to continue to restrict rare earth exports, and the
possibility of China becoming a net rare earth importing nation by 2015.
'These dynamics are why we believe rare earth pricing will remain robust
for the foreseeable future,? Smith added. 'It also is why Molycorp
recently committed to expanding its production capacity from 19,050
metric tons per year in 2012 to 40,000 metric tons per year, which we
expect to achieve in 2013. That will position Molycorp to capture new
markets and customers, and benefit from continued strong pricing.?
Fourth Quarter 2010 Financial Results
The table below sets forth approximate volume and revenue sold in the
fourth quarter.
| Revenue (millions) | Metric Tons Sold | |||||||
| Product | Q4 2010 | Q4 2009 | Q4 2010 | Q4 2009 | ||||
Ceric Hydrate | $7.2 | -- | 151 | -- | ||||
Didymium Oxide (includes metal) | $6.3 | -- | 120 | -- | ||||
Lanthanum Products | $5.6 | $2.0 | 280 | 460 | ||||
Other | $2.6 | $0.2 | 87 | 7 | ||||
NOTE:Throughout this release, Molycorp′s adjusted, or
non-GAAP, financial performance is discussed.These measurements
reflect how the management and directors of Molycorp analyze the
business on a daily basis.The adjusted measurements segregate
certain non-cash items such as stock-based compensation and certain
special items.While management seeks to understand the business
from a cash flow perspective, these non-cash and other charges are
important to understanding the Company′s performance over the long-term.Therefore, readers are highly encouraged to review the non-GAAP to
GAAP reconciliation supplied at the end of this release.
Actual and adjusted 4Q 2010 cost of goods sold were $16.6 million and
$13.5 million, respectively. These compare to cost of goods sold of $7.7
million in 3Q 2010 and $6.9 million in 4Q 2009. Adjusted gross margin
percentage for 4Q 2010 was 37.7%, an improvement of approximately 28
percentage points from the gross margin of 9.3% in 3Q 2010. The increase
in gross margin percentage is primarily attributable to continuing
increases in the market prices for REO. The adjusted gross margin
percentage for 4Q 2010 excludes a $3.1 million impairment charge related
to our current mill and crusher assets, due to the decision to replace
rather than refurbish those assets.
Selling, general, and administrative expense (excluding depreciation and
amortization) for 4Q 2010 was $5.9 million, compared to $4.1 million in
3Q 2010 and $4.1 million in 4Q 2009. 4Q 2010 selling, general and
administrative expenses reflect increased personnel and other expenses
associated with operating as a publicly traded company, preparation for
commencement of the Mountain Pass modernization project, and other
business development activities. The Company also recognized stock-based
compensation expense of $7.1 million in 4Q 2010.
Adjusted net income for 4Q 2010 was $2.2 million, or $0.03 per diluted
share. This compares to an adjusted net loss of ($3.6 million), or
($0.05) per share, for 3Q 2010, and a net loss of ($9.1 million), or
($0.22) per share, for 4Q 2009.
Full Year 2010 Financial Results
Sales for 2010 rose 396% to $35.2 million, compared to $7.1 million for
2009 with our diversification into sales of REO products with relatively
higher prices and higher sales volume. Growth was driven primarily by
generally higher prices for REO products.
The table below sets forth approximate volume and revenue sold for the
full year 2010.
Revenue (millions) | Metric Tons Sold | |||||||
| Product | 2010 | 2009 | 2010 | 2009 | ||||
Ceric Hydrate | $8.7 | -- | 203 | -- | ||||
Didymium Oxide (includes metal) | $9.0 | -- | 199 | -- | ||||
Lanthanum Products | $13.6 | $6.4 | 1,297 | 1,267 | ||||
Other | $3.9 | $0.7 | 184 | 35 | ||||
Actual and adjusted cost of goods sold for 2010 were $35.9 million, and
$32.8 million respectively, compared to $21.8 million in 2009. Actual
and adjusted gross margin percentages for 2010 were (2.1 %) and 6.7%
respectively, compared to actual gross margin percentage of (207.1%) in
2009. The improvement in gross margin percentage is primarily attributed
to higher market prices for REO and a reduction in lower-of-cost or
market inventory write-downs, partially offset by costs associated with
the temporary shut-down of our processing facility and the transition to
our second pilot processing campaign in the first and second quarters of
2010. In addition to the cost of processing material from inventory,
cost of goods sold includes the value allocated to inventory when the
Company purchased the Mountain Pass operation in 2008, the cost of other
purchased inventory, and write-downs of inventory to estimated net
realizable value.
Selling, general, and administrative expense (excluding depreciation and
amortization) for 2010 was $18.8 million, an increase of $6.4 million
from $12.4 million in 2009. The increase was primarily due to the hiring
of additional employees, as Molycorp grew from 116 employees to 168
employees in 2010, and higher accounting, legal, and other professional
services fees attributable to operating as a publicly traded company,
preparation for commencement of the Mountain Pass modernization project,
and other business development activities. The Company also incurred
stock-based compensation expense of $28.7 million in 2010.
Actual and adjusted net loss in 2010 were ($49.1 million) and ($17.3
million), or ($0.79) and ($0.28) per share, respectively. This compares
with an adjusted net loss of ($28.3 million), or ($0.72) per share, for
2009.
Project Phoenix Milestone Achievements
In the fourth quarter and into 2011, the Company achieved all scheduled
milestones in its development plan, in addition to several others:
The Company secured all critical government permits necessary to
proceed with construction of its new, state-of-the-art rare earth
oxide manufacturing facility at Mountain Pass, California.
The Company broke ground, ahead of schedule, on construction of its
new manufacturing facility.
The Company recommenced mining operations for the first time since
2002.
The Company secured supply agreements covering 100% of expected 2011
production of at least 4,000 metric tons.
In November 2010, the Company entered into a contract to supply W. R.
Grace & Co. with a significant amount of REOs, primarily lanthanum
concentrate, through mid-2012. The Company also entered into a second
contract to supply Grace with approximately 75% of our lanthanum
production per year (based on our initial planned capacity) for a
three-year period commencing upon the achievement of expected annual
production rates under our initial modernization and expansion plan.
The contract may be extended at Grace′s option for an additional
three-year period. Product under the long-term contract will be
supplied at market-based prices, subject to minimum pricing that
covers Molycorp′s cost of production plus a profit margin.
In December 2010, the Company entered into a Memorandum of
Understanding (MOU) with Sumitomo Corporation. If the definitive
agreements contemplated by the memorandum of understanding are
executed, the Company expects to provide Sumitomo with 1,500 to 1,750
metric tons per year of cerium and lanthanum-based products, and 250
metric tons per year of didymium oxide for a period ending five years
after the completion of our initial modernization and expansion plan.
Product will be supplied at market-based prices, subject to minimum
pricing. In addition, the MOU contemplates the purchase by Sumitomo of
$100 million of Molycorp common stock, and a $30 million long-term
loan to Molycorp.
In December 2010, the Company entered into a non-binding letter of
intent with Hitachi to form joint ventures for the production of
neodymium-iron-boron (NdFeB) rare earth alloys and magnets in the
United States and to acquire a license for certain technology related
to the production of rare earth metals, alloys, and magnets. Our
proposed joint venture with Hitachi would provide us with access to
the technology, people, and facilities to convert our rare earth
materials into alloys and high-performance NdFeB permanent rare earth
magnets in the U.S. by the end of 2012.
In January 2011, our Board of Directors approved the execution of
Phase 2 of our modernization and expansion plan. Upon the anticipated
completion of Phase 2 in 2013, the Company expects to be able to
produce up to approximately 40,000 metric tons of REO per year.
On February 7, 2011, Molycorp completed a public offering of Series A
Mandatory Convertible Preferred Stock, realizing net proceeds from the
offering of approximately $173 million.
The Company was invited by the U.S. Department of Energy (DOE) to
advance to the second round of consideration for a federal loan
guarantee administered by DOE under Title XVII of the Energy Policy
Act of 2005.
The Company announced that John Bassett, the former President of
Seadrift Coke L.P., joined the Company as a corporate officer and Vice
President of Operations. A veteran of 38 years in the operations and
manufacturing sectors, Mr. Bassett will be responsible for overseeing
all of Molycorp′s operations.
The Company announced that Doug Jackson, former President and CEO of
Dyno Nobel, joined the Company as a corporate officer and Vice
President of Business Development. Mr. Jackson brings over 19 years of
experience in establishing new business opportunities both
domestically and internationally.
Liquidity and Capital Expenditures
Under Phase 1 of Project Phoenix and its 'mine-to-magnets? project, the
Company intends to spend approximately $531 million through the end of
2012 to restart mining operations, construct and refurbish processing
facilities at the Mountain Pass facility, and expand into metal, alloy
and magnet production. Additionally, we will begin to incur expenditures
during 2011 under our Phase 2 expansion plan, which is expected to
increase our production capacity to approximately 40,000 metric tons per
year by the end of 2013. The Company expects to incur an additional $250
million in capital costs for the Phase 2 expansion, resulting in total
capital expenditures of approximately $781 million. This capital
spending plan does not include capitalized interest, or corporate,
selling, general, and administrative expenses, which the Company
estimates to be an additional $20 million to $25 million per year.
The Company has secured, or is in the process of securing, the capital
to fund the Phase 2 expansion. The July 2010 initial public offering
provided approximately $360 million, after giving effect to the use of
$18.2 million for surety bonds. The proceeds from the recently completed
offering of mandatory convertible preferred stock provided another $173
million. If consummated, the December 2010 agreement with Sumitomo will
provide another $100 million of equity financing and $30 million of debt
financing. The Company expects to fund the balance of its capital needs
with traditional debt financing, project financing, additional
offerings, and/or government programs, including the DOE loan guarantee
program.
The Company's Chief Financial Officer, Jim Allen, stated: 'We are
pleased with the results of our offering of convertible preferred stock,
and are confident in our ability to complete our capital raising
program. Considering available net proceeds from equity offerings of
approximately $533 million, and with good visibility on another $130
million, we are confident we have sufficient alternatives to raise the
remaining capital needed to fully fund Project Phoenix. While timing is
never assured, we believe we can complete our project capital raising
initiatives in 2011.?
Business Outlook
For the remainder of 2011 and for the foreseeable future, the Company
anticipates that the Chinese government will follow through on its
announced intent to continue to limit the quantity of rare earth oxides
available outside of China. In addition to reduced export quotas, the
Company believes that the following factors and expected actions by the
Chinese government will further restrict production and supplies
available for export:
China will continue to successfully curb the illegal export of rare
earths;
China will enforce production quotas because of concerns about limited
reserves;
China will continue to coordinate pricing at the federal level in an
effort to shore up rare earth prices;
China will continue to force industry consolidation;
China will continue to increase environmental oversight and enforce
tougher environmental controls over rare earth producers; and
China′s internal consumption of rare earths will continue to increase
as it Gross Domestic Product increases.
Additionally, further restricting global supply is the diversion of
current rare earth production into strategic stockpiles. China recently
announced a national stockpile program, as did South Korea, and Japan is
increasing its national stockpile program.
Investor Conference Call
Molycorp will conduct a conference call today to discuss these results
at 4:30 p.m. EST, hosted by Mark Smith, Chief Executive Officer, and Jim
Allen, Chief Financial Officer. Investors interested in participating in
the live call from within the USA should dial +1 (888) 576-4394 and
reference confirmation number 7735109. Those calling from outside the
USA should dial +1 (719) 325-2395 and use the same confirmation number.
A telephone replay will be available approximately two hours after the
call concludes through Wednesday, March 23, 2011 by dialing +1 (877)
870-5176 from the U.S., or +1 (858) 384-5517 from international
locations, and entering passcode: 7735109. There will also be a
simultaneous live audio webcast available on the Investor Relations
section of the Company's website at www.molycorp.com.
The webcast will be archived on the website for 365 days.
About Molycorp
Colorado-based Molycorp, Inc. is the only REO producer in the Western
Hemisphere and currently produces approximately 3,000 metric tons of
commercial rare earth materials per year. Following the execution of
Molycorp's 'mine-to-magnets' strategy and the expected 2012 completion
of Phase 1 of its modernization and expansion efforts at its Mountain
Pass, California processing facility, Molycorp expects to produce at a
rate of approximately 19,050 metric tons of REO equivalent per year. The
Company expects to achieve an annual production capacity by the end of
2013 of approximately 40,000 metric tons of REO equivalent per year
after the completion of Phase 2. Molycorp intends to provide to the
market a range of rare earth products, including high-purity oxides,
metals, alloys, and permanent magnets.
| MOLYCORP, INC. | ||||||||
(A Company in the Development Stage) | ||||||||
Condensed Consolidated Balance Sheets (Audited) | ||||||||
(In thousands, except share amounts) | ||||||||
Dec 31, 2010 | Dec 31, 2009 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
Cash and cash equivalents | $ | 316,430 | $ | 6,929 | ||||
Trade accounts receivable | 16,421 | 1,221 | ||||||
Inventory | 20,511 | 8,545 | ||||||
Prepaid expenses and other | 1,759 | 1,825 | ||||||
| Total current assets | 355,121 | 18,520 | ||||||
| Non-current assets: | ||||||||
Deposits | $ | 26,200 | $ | ? | ||||
Property, plant and equipment, net | 93,966 | 66,352 | ||||||
Inventory | 5,212 | 12,090 | ||||||
Intangible asset, net | 639 | 704 | ||||||
Investments | 111 | ? | ||||||
| Total non-current assets | 126,128 | 79,146 | ||||||
Total assets | $ | 481,249 | $ | 97,666 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
Trade accounts payable | $ | 13,009 | $ | 2,886 | ||||
Accrued expenses | 4,225 | 5,944 | ||||||
Short-term borrowing - related party | 3,085 | ? | ||||||
Current portion of asset retirement obligation | 393 | 693 | ||||||
| Total current liabilities | 20,712 | 9,523 | ||||||
| Non-current liabilities: | ||||||||
Asset retirement obligation | $ | 12,078 | $ | 13,509 | ||||
Other non-current liabilities | 257 | 19 | ||||||
| Total non-current liabilities | 12,335 | 13,528 | ||||||
Total liabilities | $ | 33,047 | $ | 23,051 | ||||
| Stockholders' equity: | ||||||||
Common stock, $0.001 par value; 350,000,000 shares authorized at December 31, 2010; 82,291,200 and 0 shares outstanding | 82 | ? | ||||||
Class A common stock, $0.001 par value; 0 and 60,000,000 shares authorized at December 31, 2010 and December 31, 2009, respectively; 0 and 44,998,185 shares outstanding at December 31, 2010 and December 31, 2009, respectively | ? | 45 | ||||||
| ? | ? | ||||||
Additional paid-in capital | 539,866 | 117,231 | ||||||
Deficit accumulated during the development stage | (91,746 | ) | (42,661 | ) | ||||
| Total stockholders' equity | 448,202 | 74,615 | ||||||
Total liabilities and stockholders' equity | $ | 481,249 | $ | 97,666 | ||||
| MOLYCORP, INC. | ||||||||||||||||
(A Company in the Development Stage) | ||||||||||||||||
Condensed Consolidated Statements of Operations (Unaudited) | ||||||||||||||||
(In thousands, except share and per share amounts) | ||||||||||||||||
Unaudited | Audited | |||||||||||||||
|
| |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
| Net sales | $ | 21,702 | $ | 2,204 | $ | 35,157 | $ | 7,093 | ||||||||
| Operating costs and expenses: | ||||||||||||||||
Cost of goods sold | (16,634 | ) | (6,889 | ) | (35,902 | ) | (21,785 | ) | ||||||||
Selling, general and administrative | (5,923 | ) | (4,064 | ) | (18,774 | ) | (12,444 | ) | ||||||||
Stock-based compensation | (7,079 | ) | ? | (28,739 | ) | (241 | ) | |||||||||
Depreciation and amortization | (80 | ) | (68 | ) | (319 | ) | (191 | ) | ||||||||
Accretion expense | (217 | ) | (251 | ) | (912 | ) | (1,006 | ) | ||||||||
Operating loss | (8,231 | ) | (9,068 | ) | (49,489 | ) | (28,574 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
Other income | 75 | 57 | 155 | 181 | ||||||||||||
Interest income (expense) | 256 | (84 | ) | 249 | (194 | ) | ||||||||||
Net loss | $ | (7,900 | ) | $ | (9,095 | ) | $ | (49,085 | ) | $ | (28,587 | ) | ||||
| Weighted average shares outstanding (Common shares) (1) | ||||||||||||||||
Basic | 81,509,452 | 41,589,904 | 62,332,054 | 39,526,568 | ||||||||||||
Diluted | 81,509,452 | 41,589,904 | 62,332,054 | 39,526,568 | ||||||||||||
Loss per share of common stock: | ||||||||||||||||
Basic | $ | (0.10 | ) | $ | (0.22 | ) | $ | (0.79 | ) | $ | (0.72 | ) | ||||
Diluted | $ | (0.10 | ) | $ | (0.22 | ) | $ | (0.79 | ) | $ | (0.72 | ) | ||||
| (1) Weighted average shares outstanding include the retroactive treatment of exchange ratios for conversion of Class A common shares and Class B common shares to common stock in conjunction with the IPO. | ||||||||||||||||
Supplemental Information ? Non-GAAP Financial Measures
In addition to disclosing financial results that are determined in
accordance with U.S. generally accepted accounting principles (GAAP),
Molycorp also discloses the total and per share amounts of adjusted net
income (loss) before income tax, as well as adjusted cost of goods sold
and gross margin percentage. These non-GAAP measures are provided for
additional information only and they should not be considered in
isolation or as a substitute for any financial measures under GAAP.
Other companies may define similar measures differently.
Adjusted net income (loss), including the related per share amount, and
adjusted gross margin percentage are determined by adjusting the
corresponding GAAP measure for certain significant non-cash or special
items. Molycorp′s management believes the use of these non-GAAP measures
provides investors and analysts with useful additional information for
the analysis of the Company′s fundamental operations on a recurring
basis.
| Adjusted Net Income (Loss) | Three months | |||||||||||||||||||||||
(in thousands, except per share data) | Three months ended | ended | Years ended | |||||||||||||||||||||
December 31, | September 30, | December 31, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2010 | 2009 | ||||||||||||||||||||
GAAP net loss | ||||||||||||||||||||||||