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Observations on Events of the Past Week Posted on 11/13/2011 11:57:00 PM
President and CEO, Molycorp, Inc.
Molycorp remains on track with its accelerated Project Phoenix and posted record financial results in every category when it announced its 3Q results last week. However, our stock price went down. I would like to offer some views on this and further clarification on several points.
Consensus Earnings Estimates
Until about two weeks before we issued our 3Q earnings statement, Wall Street's consensus earnings estimate for Molycorp was $0.65 per share for the quarter. However, at that time, one of the financial institutions that follows us replaced its analyst. That new analyst revised the firm's EPS estimate from $0.60 to $0.84 per share. This single change in one analyst's estimate caused our consensus EPS number to rise to $0.70 per share. That resulted in Molycorp's missing the consensus estimate by $0.03 per share versus exceeding consensus by $0.02 per share, on an adjusted basis. Notwithstanding, Molycorp set records in every financial category, including revenue, earnings, average sales price, and margin.
Consensus Revenue Estimates
The consensus estimate for Molycorp's Q3 revenue was $160.7 million, and a few commentators suggested Molycorp missed the consensus revenue estimate as well. Our GAAP revenue for 3Q was $138.1 million; however, we also had inter-company sales of $37.2 million to our Sillamäe, Estonia and Tolleson, Arizona facility. This resulted in total shipments valued at approximately $175 million, but inter-company sales cannot be recognized as revenue under U.S. GAAP. These materials involved in our inter-company sales are upgraded to higher purity products, making them suitable for a broader list of customers, at higher prices. This is exactly why we purchased these two facilities in April 2011. We anticipate realizing additional margin on these materials over time, and believe we are doing exactly what we should be doing to maximize value for our shareholders. This is simply a timing issue.
Revised Production Guidance
During the 3Q earnings call, we also slightly lowered our production forecast for the fourth quarter. The slightly lower forecast is the result of accelerating Project Phoenix, and little to nothing else. The fact that we are accelerating Project Phoenix requires us to take certain planned shutdowns for the purpose of tying the new facilities into existing infrastructure on site. These shutdowns would be required regardless and, before the announced accelerated Project Phoenix, these same shutdowns would have been required in the first and/or second quarters of 2012. However, overall, the total production from our current commercial demonstration plant is not expected to change, other than this minor timing issue. Moreover, we do not anticipate any sales impact since we have inventories of material available for sale at this time.
Production of Separated Heavy Rare Earths
Some commentators have suggested recently we are not being as forthright as we should be about the ability to produce heavies at Mountain Pass. It is not clear how this whole issue became such an important matter and I certainly apologize for any confusion people in our company may have caused who stated things they were not in a position to talk about, due to a lack of knowledge. For the record, the senior official at Molycorp who was cited recently is not working on Project Phoenix. It is unclear to me why the commentators who wrote on this subject did not simply call me or others in the company who are much more familiar with the project, including on questions of timing and budget.
Molycorp will produce the ten rare earth elements that we have always said we will produce. Some of this will come from the bastnasite ore we have always processed; some will come from the ability to process bastnasite and monazite together and take full advantage of our whole ore body; and, some we intend to produce from new sources of ore, which we are working hard to further define. We are targeting the onset of heavy rare earth production in 2012.
Chinese Export Quota Estimates
Some commentators last week also seem to want to argue about what an apples-to-apples comparison between 2010 and 2011 Chinese export quotas really means. First, let me note for the record that Molycorp only used figures calculated and suggested by IMCOA regarding estimates of Chinese rare earth exports. Arguing about the precise apples-to-apples comparison of China's 2010 versus 2011 exports clearly misses the bigger point – there is simply not enough rare earth product available for the rest of the world, regardless of which set of numbers you choose to rely upon. Molycorp is focusing its efforts on producing as much material as possible and selling it globally, something no one outside of China is otherwise doing.
I hope this helps clarify a few points from last week.
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Safe Harbor Statement Regarding Forward-Looking Statements
This article contains forward-looking statements that represent Molycorp’s beliefs, projections and predictions about future events or Molycorp’s future performance. Forward-looking statements can be identified by terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other similar expressions or phrases. These forward-looking statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause Molycorp’s actual results, performance or achievements or industry results to differ materially from any future results, performance or achievement described in or implied by such statements.
Factors that may cause actual results to differ materially from expected results described in forward-looking statements include, but are not limited to: Molycorp’s ability to secure additional capital to implement its business plans; Molycorp’s ability to complete its initial modernization and expansion efforts, including the accelerated start-up of the Mountain Pass facility, which management refers to as Project Phoenix Phase 1, and the second phase capacity expansion plan, which management refer to as Project Phoenix Phase 2, and reach full planned production rates for REOs and other planned downstream products; the final costs of the Project Phoenix Phase 1, including with accelerated start-up of the Mountain Pass facility, and Project Phoenix Phase 2, which may differ from estimated costs; uncertainties associated with Molycorp’s reserve estimates and non-reserve deposit information; uncertainties regarding global supply and demand for rare earths materials; Molycorp’s ability to successfully integrate recently acquired businesses; Molycorp’s ability to reach definitive agreements for a joint venture to manufacture neodymium-iron-boron permanent rare earth magnets; Molycorp’s ability to maintain appropriate relations with unions and employees; Molycorp’s ability to successfully implement its “mine-to-magnets” strategy; environmental laws, regulations and permits affecting Molycorp’s business, directly and indirectly, including, among others, those relating to mine reclamation and restoration, climate change, emissions to the air and water and human exposure to hazardous substances used, released or disposed of by Molycorp; and uncertainties associated with unanticipated geological conditions related to mining.
For more information regarding these and other risks and uncertainties that Molycorp may face, see the section entitled “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011. Any forward-looking statement contained in this press release or the Annual Report on Form 10-K or the Quarterly Report on Form 10-Q reflects Molycorp’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to Molycorp’s operations, operating results, growth strategy and liquidity. You should not place undue reliance on these forward-looking statements because such statements speak only as to the date when made. Molycorp assumes no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future, except as otherwise required by applicable law.
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