, 02/01/2012
An Interview with Doug Jackson, Molycorp's Senior Vice President of Sales, Marketing and Business Development
 Q: Why is the 75% volume milestone for 2011 important, Doug?
A: There are two reasons why this milestone was important to achieve. First, it gives us some certainty on sales volumes for the significantly expanded production that is to come online at Mountain Pass beginning this year. The support we have received from customers reinforces the importance they are placing on developing reliable supply alternatives.
It also is important because of the nature of historical sales in the rare earth space. Many observers don’t fully appreciate that spot transactions have been the norm for this industry. By working closely with our potential and current customers, we are successfully moving away from the spot transaction model to longer-term supply relationships. This allows us to ensure that we not only meet our customers' quality needs, but that we also provide consistent and reliable supply so that they can focus on making their end-use products.
Q: What is typically involved in the product qualification process?
A: All contracts require that we meet a customer’s product specifications. This entails not only meeting technical aspects out of the lab, but also quality assurance on a commercial scale. While qualifying an individual customer may take up to six months, the evaluation can only begin once you have finished product coming out of the production facility.
We are fortunate in that we have existing production from our two facilities -- Mountain Pass, California and Sillamäe, Estonia. Both locations have long-track records that many customers are already familiar with, and we are able to qualify multiple customers simultaneously. However, in some cases we are building new or enhanced capabilities or supply chains, which will require qualification on a rolling-forward basis.
Because of our company’s extensive knowledge of rare earth chemistry and production processes, both in the U.S. and in Estonia, we also are able to engage our technical resources to work closely with the customer’s technical personnel to make sure we fully understand their needs. This ability gives our customers a great deal of confidence in Molycorp’s ability to produce to their specs.
Q: Given the volatile pricing during 2011, how difficult has it been to secure new contracts?
A: Actually, on balance, the volatility has probably made the contracting process a bit easier. Customers understand that we can bring to them a consistent and reliable supply from multiple production locations -- all starting with a world-class ore body. They recognize that a supply relationship with us will go a long way toward reducing the volatility and uncertainty they have been experiencing over the last year or so.
Q: What type of pricing terms are you using for your rare earth contracts, and what is the typical term length?
A: The vast majority of the Agreements are linked in some way to either the traditional third-party published market price indexes or other market price indicators, as the parties mutually agree. Some of the Agreements adjust prices based on the prior-quarter index averages, while others adjust prices based on the prior month. In addition, we also have incorporated price floors and price ceilings into some of the Agreements. A small portion of volume is set at a fixed price.
As for the Terms, the Agreements range from one year to ten years, with three to five years being the most prevalent.
Q: Why are you reserving 20% of the Phase 1 production for XSORBX™ in your overall contracting strategy?
A: Our plan all along has been to develop new end-use applications for cerium, particularly in markets outside of typical rare earth markets. Given that all rare earth ore bodies around the world, with the exception of the south China ionic clays, have more cerium than any other rare earth element, this is an ideal way to ensure that the historical rare earth markets for cerium remain relatively balanced. We continue to be very impressed with customers’ responses to XSORBX™, our cerium-based water remediation products.
Our regional market seeding efforts with XSORBX™ have gained significant traction in all targeted water markets, such as industrial and municipal wastewater treatment, municipal drinking water, recreational, pool and spa water treatment, and tabletop drinking water applications. As we continue to build the pipeline of demand for XSORBX™, it is essential in our strategic planning to have enough product available to maintain that supply and demand balance. Since we are in the middle of the market development process, it is too early to predict the timing or exact long-term sales volumes. However, we think it is reasonable to expect sales of up to half of our cerium production, or possibly even more.
Q: How many customers are you currently qualifying for XSORBX™?
A: We currently have 20 customers for XSORBX™ products across various market segments.
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Factors that may cause actual results to differ materially from expected results described in forward-looking statements include, but are not limited to, uncertainties regarding our ability to successfully market and sell our products; our ability to reach executed contracts with our customers; and our customers' ability to terminate contracts with us. 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 article 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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