Luisa Moreno on Molycorp and the Rare Earths Market

Last week, US rare earths producer Molycorp (OTCMKTS:MCPIQ) announced plans to transition its Mountain Pass facility to care-and-maintenance mode, with production to be suspended no later than October 20.
The latest Molycorp news might have been a bit unexpected for some. After all, when the company filed for Chapter 11 bankruptcy protection in June, it stressed that operations at Mountain Pass would continue as normal. Certainly, the shutdown has sparked fresh questions about the company’s future and about US rare earths production in general.
To get more insight on the news, the Investing News Network spoke with Luisa Moreno, senior analyst and managing partner at Tahuti Global, about what led to Molycorp’s latest troubles and what the suspension of production at Mountain Pass could mean for other players outside of China.
While Moreno admitted that times are still tough in the rare earths sector, she suggested there could be opportunity for other companies in the wake of Molycorp’s troubles.

Falling rare earths prices, commissioning issues

Despite earlier statements suggesting Mountain Pass would remain online, Moreno did not seem surprised that it was put on care and maintenance.
“Essentially, they have negative earnings out of that plant, so it’s not profitable at all,” she stated. “Obviously they cannot continue running it for perpetuity unless there is improvement in the market in terms of prices, or unless they can fund further the commissioning of the plant.”
Moreno noted that Molycorp’s other assets in China and Estonia are profitable, but that those operations might not necessarily be able to support Mountain Pass. 
Taking a closer look at what went wrong, Moreno noted that after spending $1.5 billion expanding Mountain Pass, Molycorp still wasn’t able to fully optimize its operations to make them cost effective. The company had issues with leaching at the front end of the plant, as well as problems with a plant meant to recycle reagents used in the recovery process.

Opportunity for juniors?

Moreno still believes that Molycorp will continue to operate in the long run. While only those at the company know its next move, Moreno suggested it might be possible to eventually split up the company, allowing Molycorp to continue with its profitable assets only.In the meantime, she still sees opportunities in the space for other rare earths players.
“I think there is an opportunity, if these players can come up with a story that is different from what Molycorp has presented,” she said. “Maybe that might be a different business model where instead of mining, they’re using stockpiles from other operations or using a by-product of different mining operations.”