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The company incurred a net loss of $102 million for Q1. Meanwhile, it’s facing delisting from the NYSE and is concerned about repaying convertible notes maturing in June. Overall, if Molycorp is “unable to execute [its] business plan and restructure [its] debt, [it] may not be able to continue.”
Last time Resource Investing News checked in with Molycorp (NYSE:MCP), its share price was up an impressive 77 percent. The company had just signed a 10-year rare earths supply deal with Siemens (FRA:SIE), and investors had reacted well to the news.
Unfortunately, Thursday was a markedly different story for the US-based company, whose share price was down 12.49 percent, at $0.586, by the end of the day. The drop was spurred by the release of its financial and operating results for the first quarter of 2015.
Though the report includes some positive results — Molycorp’s rare earths facility in Mountain Pass, California produced 1,479 metric tons (MT) of rare earth oxide during the quarter, up 11 percent from Q4 2014, while product sales rose 9 percent over 2014′s fourth quarter — they weren’t enough to offset a slew of negative numbers.
For instance, the company incurred a net loss of $102 million, or $0.42 per share, for Q1. While its net loss on an adjusted non-GAAP basis was lower, at $0.28 per share, that amount “does not reflect charges for impairment of inventory at Mountain Pass, out-of-ordinary business expenses, and certain other non-cash items.”
Molycorp also reported a fairly substantial decline in average selling price during 2015′s first quarter — it came in at $30.97 per kilogram, down 16 percent from $36.91 in the fourth quarter of 2014. With sales of 3,436 MT of product in Q1 2015, the company recorded a gross loss of $25 million.
Meanwhile, Molycorp said it was hit by negative cash flows from operating activities of $73 million during Q1, with cash and cash equivalents sitting at $134 million at the end of the period. Capital expenditures for the quarter came to $6 million on a cash basis.
Cash needed
Molycorp’s Form 10-Q, which it filed with the US Securities and Exchange Commission (SEC) on Thursday, provides some insight into just what those numbers mean for the company.
In it, the company states, “[a]s a result of continuing softness in the prices for our products, as well as inconsistent or depressed demand for certain of our products and the delayed ramp-up of operations at our Mountain Pass facility, we have incurred, and continue to incur, operating losses. While certain of our business units currently generate positive cash flow from operations, we have not yet achieved break-even cash flow from operations (excluding interest) on a consolidated basis as we continue the ramp-up and optimize production at our Mountain Pass facility.”
That’s fairly negative, but what’s even more damning is the fact that the total principal balance of Molycorp’s outstanding debt sits at about $1.7 billion, including around $206.5 million of its 3.25-percent convertible notes. Given that those notes mature on June 15, 2016, the company fears it “may not have sufficient funds available to repay those convertible notes at maturity.”
Furthermore, the company is at risk for being delisted from the NYSE. And though it’s currently seeking shareholder approval for a reverse stock split to rectify that situation, there’s no guarantee that the proposition will go through. If it does not, it “will be obligated to offer to repurchase all of our outstanding convertible notes at a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest.”
Combined, those circumstances and others have placed Molycorp in dire straits, and at the moment it’s uncertain whether the company will be able to dig its way out. The upshot is that if it is “unable to execute [its] business plan and restructure [its] debt, [it] may not be able to continue.”
Overall, Molycorp is down 33.45 percent year-to-date and 87.69 percent in the last year. It will certainly be interesting to see where its volatile share price goes next and whether the company will be able to get the cash injection it needs to survive.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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