Molycorp Files for Bankruptcy Protection – by John W. Miller and Anjie Zheng (Wall Street Journal – June 25, 2015)

Rare-earths miner reaches agreement with major creditors to restructure its $1.7 billion debt load

Molycorp Inc. filed for bankruptcy protection on Thursday, becoming the biggest corporate failure in a bleak year for a mining industry hit by slumping commodity prices and waning demand from its biggest customer, China.

The Greenwood Village, Colo., company, the sole U.S. miner and producer of rare earth elements, said it had secured an agreement with creditors to restructure its $1.7 billion in debt, and obtained $225 million in new financing to continue operations. It expects to have a court-approved restructuring plan by the end of the year.

The filing marks a sharp reversal of fortunes for a company that rode a boom in rare earths, amid a broader surge in commodities prices. Fueled by restrictions on exports of rare earths by China, the world’s dominant supplier, Molycorp’s market value rocketed to over $6 billion five years ago.

But China then relaxed its rules, and battery and magnet makers found alternatives to rare earths, sending Molycorp into a long slide. It hasn’t turned a profit since 2011. Molycorp’s ills, and those of the rare earths sector, are an extreme example of what is ailing mines, mills and smelters from Australia to Zambia.

Chinese demand for steel, aluminum, coal and other key materials is tapering off earlier and faster than expected. In the first five months of 2015, China’s imports of coal fell 40% compared with a year earlier; imports of aluminum declined 20% and steel, 4%.

Since China generally accounts for half the world’s consumption of these commodities, the world has been flooded with product and prices have collapsed. Iron ore prices, for example, have fallen to around $60 a ton, half their level of two years ago. And as China has consumed less, it has exported more. Its steel exports rose 32% in the first five months of the year.

China is the world’s dominant supplier of rare earths, 15 elements which serve as ingredients in magnets, batteries, catalytic converters and other high-tech products. Because rare earths are used in tiny quantities, it doesn’t take much movement in supply or demand for prices to swing wildly. So when China restricted its own exports of rare earths about a decade ago, prices rose and dozens of companies moved to boost production.

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