Molycorp, the sole US-based maker of rare earth oxides, is preparing to file for bankruptcy, according to a report in the Wall Street Journal. The company had $1.7 billion in debt and $134 million in cash at the end of the third-quarter. It has reported losses of most of the past three years, including a full-year 2014 loss – $607.8 million – which eclipsed the company’s $475.6 million in revenues.
Earlier this week, Molycorp said it will miss a $32.5 million semi-annual interest payment that was due June 1. “As previously disclosed, the company has retained financial and legal advisors to assist [it] on restructuring its debt,” Molycorp says. “The company will use the grace period to continue to evaluate different options related to such debt restructuring.” While the missed payment will not trigger a default or impact day-to-day operations, such issues are often the first salvo in a bankruptcy filing.
The Wall Street Journal report, citing sources familiar with the matter, says Molycorp is considering handing ownership of the company to senior bondholders, including distressed-debt firm Oaktree Capital Management (Los Angeles), to cut down on debt. The company is also considering equity sales to junior bondholders and shareholders, as well as an offer from Oaktree for bankruptcy funding, the report says.
The US operations of coatings and composites maker Reichhold completed a similar deal in April. The company filed for Chapter 11 bankruptcy protection last year, and emerged after completing a debt-for equity exchange under which a group of bondholders assumed ownership of the company.
In March, Molycorp’s quarterly earnings filing with the US SEC contained a “going concern” note, which said “if we are unable to execute our business plan and restructure our debt, we may not be able to continue as a going concern.” The company reported negative cash flows for the first quarter, with losses widening from the prior year’s first quarter. At the time, Molycorp said it was continuing to evaluate options restructure its debt, including debt-for-equity swaps and modifying the terms of existing debt.
Last year, Molycorp received a warning from the New York Stock Exchange (NYSE) due to its trading price being below minimum listing requirements. Molycorp shares were trading at 86 cts/share on 30 December, the date of the notice. The company’s stock closed at 35 cts/share on 4 June, after the bankruptcy reports appeared, although the stock remains listed on the NYSE.
Molycorp has been hammered recently by softening prices for rare earth oxides (REOs), a group of 17 elements used in a variety of electronics, military and clean-energy applications. The company’s stock reached over $70/share in 2011, as tight production and export quotas from China – which has a near-monopoly on global rare earths production – sent rare-earth prices skyrocketing. However, in recent years, China has cut quotas, leading to a sharp decline in prices. Earlier this year, China halted export quotas for rare earths in response to a World Trade Organization (WTO; Geneva) ruling. Production quotas remain in place.
Molycorp has also been hindered by operational issues at its rare-earths facility at Mountain Pass, CA. While the facility is in production, it has experienced issues ramping up to full production. The facility produced 4,785 m.t. of REOs in 2014, up from 3,473 m.t. in 2013. However, the facility’s full “phase one” capacity is expected to total 19,050 m.t./year of REOs. In January 2013, Molycorp said it expected that rate of production to be achieved by mid-year 2013.
By Vincent Valk