Investors believe end nigh for cult stock Molycorp
Stock of Molycorp (NYSE: MCP) dropped by a third on Tuesday after fourth quarter and full year numbers from the rare earth miner provided a few nasty surprises to the Colorado company's long-suffering investors.
Molycorp, a speculators' favourite and highly volatile share which regularly featured among the NYSE top traded stocks, plunged 33.5% in heavy volumes after the release of the results which came in below expectations. The company reported a wider than expected loss loss for the quarter and a net loss of $2.70 per share for the 2014 financial year.
After briefly topping $1 a share in February – the threshold for keeping its listing on the New York Stock Exchange – Molycorp was exchanging hands for $0.49 on Tuesday, down 90% compared to this time last year for a market value of $120.5 million.
The share topped out in May 2011 at $74.22 a share and a $6.3 billion worth.
Molycorp announced fourth quarter production at its Mountain Pass, California facility rose sharply to 1,328 tonnes of rare earth oxide equivalent compared to the same period in 2013 and nearly doubled from the previous quarter. For the year the company produced 4,769 tonnes. Cash productions costs were slashed by nearly 40% to $21.02 a kilogram.
However falling sales volumes – down 6% quarter on quarter and only up 1% for the full year – and soft realized prices more than cancelled out the strong operational performance on the ground.
Fourth quarter prices achieved picked up from the previous quarter, but for the full year, Molycorp sold 13,019 tonnes at an average price of of $36.53 per kilogram compared to $43.07 per kilogram during 2013.
Molycorp is burning through cash, reporting negative cash flows from operating activities of $75.8 million during the fourth quarter and cash capex of another $23.3 million during the three months. With $211.7 million in cash and cash equivalents as of December 31, a back of an envelope calculation shows time is running out for a turnaround before a fresh cash injection is needed.
Once the largest supplier of rare earths anywhere in the world, Mountain Pass, then owned by oil major Chevron, was mothballed in 2002, ceding the market to China which today produces some 90% of the world's REEs.
Once the largest supplier of rare earths anywhere in the world, Mountain Pass was mothballed in 2002, but a surge in the price of the 17 elements following the imposition of export limits in China led to Project Phoenix to restart operations with private equity money.
Once dubbed "one of the greatest private equity deals ever" the slide in price of REEs, particularly the light variety found at Mountain Pass, since late 2012 coupled with delays in ramp-up at the mine led some to speculate the company could fall into bankruptcy.