Molycorp Draws S&P Downgrade
Molycorp Inc. (NYSE: MCP) was supposed to be fully funded and almost fully booked for its capacity. You would never know it if you just looked at the tape. Now we have some additional concerns being brought to light with…
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S&P said that the only commercially operation for rare earth metals and minerals in the U.S. was lowered down to ‘CCC+’ from ‘B’ and the credit ratings outlook was put on CreditWatch with developing implications. The culprit is after the rare earth’s earnings telegraphed that cash flow from operations was going to be less than expected due to lower prices and ‘de-stocking’ activities from customers. Perhaps the worst part of the downgrade is that S&P said that the company is exploring financial alternatives to ensure enough cash to fund its cap-ex, operations and financial obligations.
One issues that many investors do not take into consideration is a 5% convertible subordinated debt of $230 million of the recently purchased NeoMaterial Technologies Inc. As issue is that holders can put the debt back to the company under a change of control procedure. S&P believes that liquidity is inadequate to complete the Mountain Pass build out and to simultaneously deal with this debt issue if it is put back to the company. One caveat on the negative here is that if Molycorp obtains sufficient additional funding then the rating could be affirmed or S&P could even take a positive rating action.
Molycorp shares are down over 4% at $12.35 on the day and the 52-week trading range is $11.22 to$60.84.
JON C. OGG
Contact [email protected] for any questions or corrections.
Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. www.247wallst.com.
