Molycorp Inc at risk of financial collapse, signalling fall of rare earth industry – by Peter Koven (National Post – March 18, 2015)

The National Post is Canada’s second largest national paper.

North America’s flagship rare earth mining company is at risk of collapse, a symbol of how far the entire industry has fallen from its highs a few years ago.

Molycorp Inc. warned on Monday night that it may not be able to continue as a going concern if it can’t fix its balance sheet. The Colorado-based company has US$1.7 billion of debt, including US$206.5 million of convertible notes that mature in June of 2016. It is bleeding cash from operations and is not in a position to meet its future obligations. Its cash position was down to US$212 million at the end of December.

“We are focused on this issue and have retained financial and other advisers to assist us in strengthening our current financial position,” chief financial officer Michael Doolan said on a conference call.

The stock plunged 35% on Tuesday to close at just US48¢, giving Molycorp a market value of US$117 million. It is a stunning fall for a company that was worth almost US$80 a share at its peak in 2011, and acquired Canadian firm Neo Material Technologies Inc. for US$1.3 billion.

Molycorp went public in 2010, a period when prices for rare earth metals like dysprosium and neodymium were sky high. China, which controlled nearly all rare earth production, slapped massive export quotas on the metals that year and created supply disruptions worldwide. Rare earths have a number of important uses in sectors such as automobiles, green energy and consumer electronics, and limiting supply gave Chinese firms a potential advantage.

However, the jump in prices was short-lived. China removed the export quotas — which never worked particularly well — after the World Trade Organization deemed them illegal, and production from China and other parts of the world has expanded over the last few years.

Demand has also been soft for some rare earth products, and prices have dropped well over 50% for many of the metals.

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