Commodities & Metals

Low Prices, Rising Costs Hit Molycorp Hard

Molycorp Inc. (NYSE: MCP) reported a second quarter adjusted EPS loss of $0.03 and $107.6 million in revenue after markets closed today. Adjusted EPS for the same period a year ago totaled $0.52, and last year’s revenue totaled $99.6 million. The results compare to the Thomson Reuters consensus estimates for EPS of $0.08 and $115.6 million in revenue.

The company completed its acquisition of Neo Materials in June, and the operations, now called Molycorp Canada, give Molycorp the ability to produce heavier, higher priced rare earth minerals.

The company’s president/CEO said:

The diversity of our vertical integration strategy is showing its value, as we have observed strengthening markets for certain downstream rare earth products, including bonded magnetic powders produced by Molycorp Magnequench. On the whole, pricing of rare earth oxides have flattened, although the floor remains soft in certain Japanese supply chains.

The company affirmed full-year production guidance of rare earth oxides totalling 8,000-10,000 metric tons, which does not include production from its Molycorp Canada operations. Molycorp did not provide additional EPS or revenue guidance. The consensus estimate for third quarter EPS is $0.23 on revenue of $270.75 million. Full-year estimates call for EPS of $1.11 on revenue of $701.1 million. Both are seriously in jeopardy given the company’s results for the second quarter.

The company attributed the EPS loss to lower product shipments, lower prices, higher production costs, and transaction costs for the Neo Materials acquisition. Molycorp also took a $30.4 million inventory write-down in the quarter.

Molycorp did say that the serious price declines seen since the beginning of the year have either stabilized or are falling at a much slower pace than earlier. The company said it believes the current pricing trend “may continue in the third and fourth quarter of 2012, although there can be no assurance.”

The company’s enthusiasm for electric cars has not flagged either:

We see motor miniaturization and the ongoing increase in hybrid electric and full electric vehicle sales, driven by the need for increased global fuel efficiency, as a key growth driver for our industry.

That may be wishful thinking, or it may be prescient. But sales of electric vehicles have been paltry and are not gaining a lot of ground. Claiming this to be the driver of Molycorp’s future is certainly risky.

Shares are down -13.5% in after-hours trading today, at $13.90. The current 52-week range is $14.35-$63.60. Thomson Reuters had a consensus analyst price target of $35.90 before today’s results were announced.

Paul Ausick