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Molycorp Addresses World Supply Issues

In a wide-ranging interview with Swiss publication Finanz und Wirtschaft published on Tuesday, outgoing Molycorp (MCP) CEO Constantine Karayannopoulos had some soothing words for investors in the U.S. rare earth miner.

Karayannopoulos said he expects Molycorp to turn cash flow positive on an operating basis by the end of 2014 or the beginning of 2015.

MCP Chart

MCP data by YCharts

The Colorado-based company's finances have been a worry for investors after it was forced to tap capital markets for more than $650 million this year to fund expansion of its Mountain Pass mine in California.

Karayannopoulos said Mountain Pass would cost $1.5 billion to bring up to full capacity, adding that the facility is able to produce the highest quality concentrate – with 55%–60% rare earth oxide (REO) content – outside China.

Once the largest supplier of rare earths anywhere in the world, the facility, then owned by oil major Chevron (CVX), was mothballed in 2002, ceding the market to China which today produces some 85% of the world's REEs.

A large proportion of the Mountain Pass deposit is made up of cerium, a light rare earth.

Cerium, used to polish TV screens and lenses, is one of the least valuable of the 17 elements. Cerium oxide is trading at around $8.50 per kilogram ($5.40 inside China), down from an all-time high of $118 in September 2011.

The price is now almost back to 2008 levels; before worries about China's monopoly of production sent prices for all rare earths into the stratosphere.

Those sky high prices were entirely unrealistic to begin with said Karayannopoulos adding that crucial to the success of the project was figuring out metallurgical and chemical processing and that the company is now competitive in terms of cost. Karayannopoulos and incoming CEO Geoff Bedford are former executives of Neo Material Technologies, the Canadian rare-earth processor acquired by Molycorp for $1.2 billion in June last year.

When asked how many REE producers the world needs, Karayannopoulos said for light rare earths Molycorp and Australia's Lynas and perhaps one other smaller player outside China would be enough.

As for heavy rare earths, "one or two projects" outside of China would be sufficient to meet demand according to Karayannopoulos.

Molycorp, a speculators' favourite and a closely watched stock, jumped 2.8% to $5.12 a share on Tuesday, a rare gainer in New York amid sell-off on the broader market.

MCP Revenue (TTM) Chart

MCP Revenue (TTM) data by YCharts

MCP, which regularly tops 10 million shares traded per day, peaked at a whopping $75 a share in April 2011 and despite a 10% gain over the last week remains down 45% this year. Those interested in the stock can unleash some financial advisor tools to learn more.

Molycorp announced a deal in October which would allow Chilean company Molibdenos & Metales SA to increase its current shareholding of around 17% in the company to as much as 27.5%.

Frik Els, a contributing editor at YCharts, is an editor at MINING.com. He can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.

Read more articles about: Company News  commodity prices   mining stocks   

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