Molycorp Struggles to Survive Rare-Earths Bubble – by John W. Miller (Wall Street Journal – May 31, 2015)

U.S. rare-earths miner is expected to skip loan payment, which could lead to bankruptcy filing

MOUNTAIN PASS, Calif.—In the dusty mountains of the California-Nevada border, 4,800 feet above sea level, the U.S.’s only miner and processor of rare-earths elements is struggling to squeeze a profit out of its small open-pit mine and plant.

On Monday, Molycorp Inc. said it would skip a $32.5 million loan payment, triggering a 30-day grace period that could lead to a bankruptcy filing before the end of June.

The company is trying to survive one of the biggest commodity bubbles in economic history. Five years ago, export restrictions by China, the world’s dominant supplier, and a global political spat inflated the value of rare earths—15 elements used as niche ingredients in magnets, batteries, catalytic converters and other high-tech products—and propelled Molycorp’s stock-market value to over $6 billion.

Since then, rare-earths prices have been on a long slide downward. Now with a market capitalization of around $150 million, Molycorp is indebted and unprofitable. Customers are putting in orders, but the company hasn’t met production targets at Mountain Pass, and is in restructuring talks with firms representing its creditors.

The rise and fall of rare earths, and that of Molycorp, illustrate the fragility of betting on materials, which, unlike the core industrial materials—copper, iron ore and aluminum—are essential but required in minuscule quantities and can often be replaced. It also echoes risks for investors that have lurked beneath any buildup of artificial demand, from tulips in the 1630s to railways in the 1840s to Internet firms in the 1990s.

In 2010, shortly after Molycorp—formerly a unit of Chevron Corp. sold to private-equity firms in 2008 for $80 million—raised $394 million in a public offering. Around that time, China tightened existing quotas on rare-earths exports in a bid to rein in overproduction and keep more supply available for domestic manufacturers.

An unrelated political spat with Japan, China’s biggest rare-earths customer, and U.S. lawmakers casting rare-earths supply as a matter of national security poured more fuel on the fire.

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