As filed with the Securities and Exchange
Commission on May 24, 2011
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Molycorp, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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1000
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27-2301797
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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5619 Denver Tech Center
Parkway
Suite 1000
Greenwood Village, Colorado
80111
(303) 843-8040
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Mark A. Smith
President and Chief Executive
Officer
5619 Denver Tech Center
Parkway
Suite 1000
Greenwood Village, Colorado
80111
(303) 843-8040
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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John F. Ashburn, Jr., Esq.
Executive Vice President and
General Counsel
5619 Denver Tech Center Parkway
Suite 1000
Greenwood Village, Colorado 80111
Tel: (303) 843-8040
Fax: (303) 843-8082
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Christopher M. Kelly, Esq.
Michael J. Solecki, Esq.
Jones Day
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Tel: (216) 586-3939
Fax: (216) 579-0212
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Michael Kaplan, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Tel: (212) 450-4000
Fax: (212) 701-5800
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer, and smaller reporting company in
Rule 12b-2 of the Exchange Act.
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
CALCULATION
OF REGISTRATION FEE
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Proposed
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Proposed
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Maximum
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Maximum
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Number of Shares
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Offering Price
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Aggregate
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Amount of
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Title of securities to be registered
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Being Registered(1)
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per Share(2)
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Offering Price(1)(2)
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Registration Fee(3)
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Common Stock, par value $0.001 per share
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11,500,000
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$57.58
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$662,170,000
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$76,877.94
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(1)
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Includes 1,500,000 shares of
common stock issuable pursuant to an option granted to the
underwriters.
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(2)
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Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(c)
based upon the average of the high and low prices of the
companys common stock on the New York Stock Exchange on
May 17, 2011.
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(3)
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Calculated pursuant to
Rule 457(o) under the Securities Act of 1933 based on an
estimate of the proposed maximum offering price.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. The selling stockholders may not sell securities under
this registration statement until the registration statement
filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell any securities and it is
not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
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SUBJECT TO COMPLETION
Prospectus Dated May 24,
2011
10,000,000 Shares
Molycorp, Inc.
Common Stock
The selling stockholders named in this prospectus are offering
shares of our common stock. We are not selling any shares of our
common stock in this offering. We will not receive any proceeds
from the sale of common stock by the selling stockholders.
Our common stock is listed on The New York Stock Exchange under
the symbol MCP. The last sale price of our common
stock on May 23, 2011, as reported by The New York Stock
Exchange, was $57.81 per share.
Investing in our common stock
involves risk. Please read carefully the section
entitled Risk Factors beginning on page 19 of
this prospectus.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds to the selling stockholders
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$
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$
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The underwriters have been granted an option to purchase up to
an additional 1,500,000 shares of common stock from certain
of the selling stockholders, at the public offering price, less
the underwriting discount, within 30 days from the date of
this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares of common stock
against payment on or
about ,
2011.
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J.P.
Morgan |
Morgan Stanley |
Prospectus
dated ,
2011.
TABLE OF
CONTENTS
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Page
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1
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19
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37
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38
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39
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40
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67
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72
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98
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120
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122
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126
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137
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139
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142
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147
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147
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147
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147
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G-1
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F-1
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We and the selling stockholders have not, and the
underwriters have not, authorized anyone to provide any
information other than that contained in this prospectus or in
any free writing prospectus prepared by or on behalf of us or to
which we have referred you. We and the selling stockholders have
not, and the underwriters have not, authorized any other person
to provide you with different information. We, the selling
stockholders and the underwriters take no responsibility for,
and can provide no assurance as to the reliability of, any other
information that others may give you. We and the selling
stockholders are not, and the underwriters are not, making an
offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the
information appearing in this prospectus is accurate only as of
the date on the front cover of this prospectus. Our business,
financial condition, operating results and prospects may have
changed since that date.
i
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus and does not contain all of the information that
you should consider before investing in our common stock. You
should read this entire prospectus carefully, including the
sections entitled Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and our historical
consolidated financial statements and related notes included
elsewhere in this prospectus. In this prospectus, unless the
context requires otherwise, references to Molycorp,
we, our or us refer to
Molycorp, LLC and its consolidated subsidiaries prior to the
corporate reorganization (as described below) and Molycorp, Inc.
and its consolidated subsidiaries after the corporate
reorganization. As used in this prospectus, the term
ton means a ton (equal to 2,000 pounds), the term
mt means a metric tonne (equal to 2,205 pounds), the
term IMCOA means the Industrial Minerals Company of
Australia Pty Ltd, a rare-earth market consultant, and the terms
ROW and Rest of World mean the entire
world except China. For definitions of certain rare
earth-related and mining terms, see Glossary of Selected
Mining Terms. We provided compensation to IMCOA for
industry reports that it prepared for us, although such
compensation is not contingent on the success of this offering.
Some of the information that we attribute to IMCOA in this
prospectus has been derived from those reports. IMCOA data is
accurate to within 20% of the stated amounts. IMCOA data takes
into account only legal exports of rare earths, and ignores
illegal exports from China and usage thereof, which could be
significant due to the difficulties with accurately collecting
information with respect thereto.
Our
Business
We are the only rare earth oxide, or REO, producer in the
Western hemisphere, and we own one of the worlds largest,
most fully developed rare earth projects outside of China.
Furthermore, following the execution of our
mine-to-magnets
strategy and completion of our initial modernization and
expansion plan, we expect to be one of the worlds most
integrated producers of rare earth products, including oxides,
metals, alloys and magnets. In light of strong industry
fundamentals, including reduced Chinese supply and strong
pricing increases, our Board of Directors recently approved a
second-phase capacity expansion plan in addition to our initial
modernization and expansion plan, which we expect to result in
the ability to produce approximately double our REO production
capacity over the amount we will be able to produce upon
completion of our initial modernization and expansion plan.
Our rare earths are critical inputs in many existing and
emerging applications including: clean energy technologies, such
as hybrid and electric vehicles and wind power turbines;
multiple high-tech uses, including fiber optics, lasers and hard
disk drives; numerous defense applications, such as guidance and
control systems and global positioning systems; and advanced
water treatment technology for use in industrial, military and
outdoor recreation applications. Global demand for rare earth
elements, or REEs, is projected to steadily increase due to
continuing growth in existing applications and increased
innovation and development of new end uses. We have made
significant investments, and expect to continue to invest, in
developing technologically advanced applications and proprietary
applications for individual REEs.
For the three months ended March 31, 2011, and the years
ended December 31, 2010 and 2009, we generated
$26.3 million, $35.2 million and $7.1 million of
revenue, respectively, from sales of products manufactured from
stockpiled feedstocks, although these levels of revenue are not
representative of our planned level of operations after we
complete our initial modernization and expansion plan and
capacity expansion plan.
Our
Mine Process and Development Plans
We and SRK Consulting (U.S.), Inc., or SRK Consulting, estimated
total proven reserves as of February 6, 2010 of
88.0 million pounds of REO contained in 0.480 million
tons of ore, with an average ore grade of 9.38%, and probable
reserves of 2.12 billion pounds of REO contained in
13.108 million tons of ore, with an average ore grade of
8.20%, in each case using a cut-off grade of 5.0%, at our
Mountain Pass mine. Upon the completion of our initial
modernization and expansion plan, which we expect to be
completed by the end of 2012, we expect to have the ability to
produce approximately 19,050 mt of REO per year at our Mountain
Pass facility. Upon the completion of our recently approved
capacity expansion plan, by the end of 2013, we expect to have
the ability to produce up to approximately 40,000 mt of REO per
year at our Mountain Pass facility, or approximately double the
amount we will be able to produce upon completion of our initial
plan. Based on our estimated reserves and an
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expected annual production rate of approximately 19,050 mt of
REO under our initial modernization and expansion plan, our
expected mine life is in excess of 30 years (SRK Consulting
has preliminarily indicated, however, that doubling the amount
of production pursuant to the second-phase capacity expansion
plan would reduce the current mine life by half, assuming no
additional exploration, no realization of anticipated
improvements in recoveries, and all other factors such as
cut-off grade remain constant.)
Mine-to-Oxides
At our Mountain Pass facility, we have the ability to mine,
crush, mill and separate rare earth ore to produce individual
REEs. We hold a mine plan permit and an associated environmental
impact report, which currently allow continued operations of our
Mountain Pass facility through 2042. Since our acquisition of
the Mountain Pass facility, we have been producing and selling
REOs from stockpiled feedstocks to significantly improve our
solvent extraction technologies and capabilities. We are now
achieving greater than 98% recovery in our solvent extraction
units at commercial scale for cerium, lanthanum and didymium,
which we believe is one of the highest recovery rates in the
world. We have also developed the expertise to produce the
following REEs in many usable forms: bastnasite concentrate;
cerium; lanthanum; neodymium; praseodymium; europium; samarium;
gadolinium; dysprosium; and terbium. When used to describe the
current recovery rate for our solvent extraction units, the term
commercial scale means that the solvent extraction
units are operating at such a production rate that the
scale-up
factor required to achieve the desired production rate is less
than 10 times the current production rate.
Processing at our Mountain Pass facility entails mining the
bastnasite ore followed by crushing and milling it to a fine
powder. Milled bastnasite ore is then processed by flotation
whereby the bastnasite, which is a mineral containing light and
heavy rare earth elements, floats to the surface and is
separated from the waste material, which sinks in a series of
flotation cells. The resultant bastnasite concentrate is then
processed by leaching with strong acid solutions followed by a
series of solvent-extraction separation steps that produce
various individual REO minerals, generally in a high purity
(greater than 99%) oxide form. In the second quarter of 2010, we
began processing bastnasite concentrate from our stockpiles in
an effort to commercially demonstrate our new cracking
technology while at the same time continue to further optimize
our processing technologies and improve recovery rates compared
to historical operations at the Mountain Pass facility.
We recommenced mining operations in December 2010 and are
preparing to recommence milling operations, which we expect to
occur in the first quarter of 2012. Recommencement of mining and
milling operations is coincident with our initial modernization
and expansion plan, which will give us the capacity to
efficiently produce at a rate of approximately 19,050 mt of REO
per year by the end of 2012. Additionally, upon the completion
of our capacity expansion plan, we expect to have the ability to
produce up to approximately 40,000 mt of REO per year by the end
of 2013. In an April 2010 briefing to the U.S. Government
Accountability Office, or U.S. GAO, titled Rare Earth
Materials in the Defense Supply Chain, which was prepared
in accordance with the National Defense Reauthorization Act for
Fiscal Year 2010 (Pub. L.
No. 111-84),
government and industry officials stated that for a typical
exploration-stage mine, once a company has secured the necessary
capital to start a mine, it can take from seven to 15 years
to bring a property fully online, largely due to the time it
takes to comply with multiple state and federal regulations.
Since our Mountain Pass facility is not an early stage rare
earth project, we believe we have a significant timeline
advantage as we have a well-defined ore body, an existing open
pit with over 50 years of production history, an existing
mine and reclamation plan, proven reserves, substantial
permitting, and all necessary technology to successfully process
and separate the rare earth elements at a commercial scale.
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Oxides-To-Metals/Alloys
We expect to sell and transport a portion of the REOs we produce
to customers for use in their particular applications. The
remainder of the REOs will be processed into rare earth metals.
A portion of these metals will be sold to
end-users
and we expect to process the rest into rare earth alloys. These
rare earth alloys can be used in a variety of applications,
including but not limited to: electrodes for nickel metal
hydride, or NiMH, battery production; samarium cobalt magnet
production; and neodymium iron boron, or NdFeB, magnet
production. A portion of these rare earth alloys will be
manufactured into NdFeB magnets as part of our alloy and magnet
production joint ventures, described below, and we expect to
sell the rest to
end-users.
We currently produce rare earth metals outside of the United
States through a third-party tolling arrangement. Additionally,
the acquisition of our 90% owned subsidiary, Molycorp Silmet AS
(formerly known as Aktsiaselts Silmet), provides us with a
European base of operations and doubles our current rare earth
production capacity from approximately 3,000 mt per year of REO
equivalent to approximately 6,000 mt. Through our acquisitions
of Molycorp Silmet AS and Santoku America, Inc. (now known as
Molycorp Metals and Alloys, or MMA) in April 2011, we added
facilities and equipment for metal conversion and alloy
production within the Molycorp organization. We intend to
transport cerium, lanthanum, neodymium, praseodymium,
dysprosium, terbium and samarium oxide products from our
Mountain Pass facility to our Molycorp Silmet AS and MMA
facilities where we will produce rare earth metals and alloys.
In December 2010, we entered into a non-binding letter of intent
with Hitachi Metals, Ltd., or Hitachi, a leading manufacturer of
NdFeB alloys and magnets, to form joint ventures for the
production of rare earth alloys and magnets in the United States
and to acquire a license for certain technology related to the
production of rare earth metals, alloys and magnets. We have
completed a joint feasibility study with Hitachi, and we are
currently negotiating the joint venture agreements.
Additionally, we have entered into a non-binding letter of
intent with Neo Material Technologies Inc., or Neo Material,
that, among other things, contemplates a technology transfer
agreement pursuant to which Neo Material may provide us with
technical assistance and know-how with respect to the production
of rare earth metals, alloys and magnets.
Alloy
and Magnet Production Joint Ventures
NdFeB magnets, which are critical components in
green technologies and the miniaturization of
electronics, are primarily manufactured in China (approximately
80%) and Japan (approximately 20%). Our proposed joint ventures
with Hitachi would provide us with additional access to the
technology, people and facilities to convert our rare earth
materials into rare earth alloys and high-performance permanent
rare earth magnets required for production of hybrid and
electric vehicles, wind power turbines, high-tech applications
and numerous advanced defense systems on which the
U.S. economy and national security depend. The consummation
of such joint ventures, in conjunction with our current
modernization plans and the potential technology transfer
agreement with Neo Material, is expected to provide us with the
capability to mine, process, separate and alloy individual REEs
and manufacture them into NdFeB magnets. This downstream
integration, which we refer to as our
mine-to-magnets
strategy, would make us the only fully integrated producer of
NdFeB magnets outside of China, helping to secure a rare earth
supply chain for the Rest of World. In addition to the
foregoing, we continue to explore additional joint ventures or
other arrangements with third parties for the production of
NdFeB alloys
and/or
magnets.
Rare
earth
mine-to-magnets
production supply chain
Industry
Overview
The REE group includes 17 elements, namely the
15 lanthanide elements, which are cerium, lanthanum,
neodymium, praseodymium, promethium (which does not occur
naturally), samarium, europium, gadolinium,
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terbium, dysprosium, holmium, erbium, thulium, ytterbium and
lutetium, and two elements that have similar chemical properties
to the lanthanide elements yttrium and scandium. The
oxides produced from processing REEs are collectively referred
to as REOs. Light and heavy REEs are contained in all rare earth
deposits, including in our deposit at Mountain Pass. Heavy REEs
generally command higher sales prices on a per pound basis than
light REEs because heavy REEs are not as prevalent. Cerium,
lanthanum, neodymium, praseodymium and samarium are considered
light REEs that are more predominant in bastnasite,
while europium, gadolinium, terbium, dysprosium, holmium,
erbium, thulium, ytterbium and lutetium are considered
heavy REEs that are more predominant in monazite.
Our reserves are bastnasite, but there are also known monazite
occurrences on our property that we are currently examining.
REEs have unique properties that make them critical materials to
many existing applications upon which society has become
dependent as well as many emerging applications. Examples
include:
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Clean-Energy Technologies: hybrid and electric vehicles,
wind power turbines and compact fluorescent lighting;
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High-Technology Applications: miniaturization of cell
phones, personal digital assistant devices, digital music
players, hard disk drives used in computers, computing devices,
ear bud speakers and microphones, as well as fiber
optics, lasers and optical temperature sensors;
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Critical Defense Applications: guidance and control
systems, communications, global positioning systems, radar and
sonar; and
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Advanced Water Treatment: industrial, military, homeland
security and domestic and foreign aid applications.
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Global consumption of REEs is projected to steadily increase due
to continuing growth in existing applications and increased
innovation and development of new end uses. For example, the
integration of rare earth permanent magnet drives into wind
power turbines has substantially reduced the need for gearboxes,
which increases overall efficiency and reliability. According to
IMCOA, total demand for rare earths outside of China is expected
to increase at a compound annual growth rate, or CAGR, of
approximately 7% between 2010 and 2015. In addition, according
to IMCOA, global demand for rare earths used in magnets is
expected to grow at a CAGR of approximately 13% over the same
period. IMCOA estimates that total global demand for rare earths
is expected to increase from 125,000 mt in 2010 to 185,000 mt in
2015, which results in a CAGR of approximately 8% for that
period.
China has dominated the global supply of REOs for the last ten
years and, according to IMCOA, accounted for approximately 96%
of global REO production in 2008. Even with our planned
production, global supply is expected by analysts to remain
tight due to the combined effects of growing demand and actions
taken by the Chinese government to restrict exports. The Chinese
government heightened international supply concerns beginning in
August 2009 when Chinas Interior Ministry first signaled
that it would further restrict exports of Chinese rare earth
resources. Citing the importance of REE availability to internal
industries and the desire to conserve resources, the Chinese
government has announced export quotas, increased export tariffs
and introduced a mining quotas policy that, in
addition to imposing export quotas and export tariffs, also
imposes production quotas and limits the issuance of new
licenses for rare earth exploration. According to IMCOA,
Chinas export quotas have decreased from approximately
65,600 mt of REO in 2004 to approximately 50,000 mt of REO in
2009. In 2008, according to IMCOA, China imposed export taxes of
up to 25% on selected REOs (primarily heavy REOs) and up to 15%
for all other REOs (primarily light REOs). In addition,
according to IMCOA, Chinas Ministry of Industry and
Information Technology issued a plan in 2009 to reduce the
production of separated rare earths by 7% to 110,700 mt of REO
in 2009. Chinas internal consumption of rare earths is
expected to continue to grow, leaving the Rest of World with
less supply during a period of projected increasing global
demand. China also dominates the manufacture of rare earth
metals, producing substantially all of the worlds supply,
and the manufacture of NdFeB magnets, producing approximately
80% of the worlds supply. Neither capability currently
exists in the United States, as confirmed by the April 2010
U.S. GAO briefing.
China has announced a national stockpile program, as has South
Korea. Additionally, Japan has increased its national stockpile
program. In December 2010, the U.S. Department of Energy
released a study concluding
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that five rare earth metals, dysprosium, neodymium, terbium,
europium and yttrium, are critical to clean energy technologies
in the short term and medium term due to their importance to the
clean energy economy and risk of supply disruption. The report
emphasizes that diversified global supply chains for these
critical materials are essential, and calls for steps to be
taken to facilitate extraction, processing and manufacturing in
the United States. Additionally, the U.S. Department of
Defense is conducting a study to determine its rare earth
requirements and supply chain vulnerabilities and whether to
build a strategic stockpile. These stockpile programs will
likely accelerate the pace of the current and projected global
REE supply deficit.
According to the April 2010 U.S. GAO briefing:
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the Mountain Pass mine is the largest non-Chinese rare earth
deposit in the world;
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other U.S. rare earth deposits exist, but these deposits
are still in early exploratory stages of development;
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officials emphasized the significance of the widespread use of
commercial-off-the-shelf products in defense systems that
include rare earth materials, such as computer hard drives;
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heavy REEs, such as dysprosium, which provide much of the
heat-resistant qualities of permanent magnets used in many
industry and defense applications, are considered to be
important;
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government and industry officials told the U.S. GAO that
where rare earth materials are used in defense systems, the
materials are responsible for the functionality of the component
and would be difficult to replace without losing performance;
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a 2009 National Defense Stockpile configuration report
identified lanthanum, cerium, europium and gadolinium as having
already caused some kind of weapon system production delay and
recommended further study to determine the severity of the
delays; and
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defense systems will likely continue to depend on rare earth
materials, based on their life cycles and lack of effective
substitutes.
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The forecasted demand by IMCOA set forth in the graph below
assumes Mountain Pass and other rare earth projects commence
production and account for a significant portion of the
forecasted increase in supply. If these projects do not commence
production when anticipated, there will be a gap between
forecasted demand and forecasted supply. IMCOA expects that this
anticipated market dynamic will underpin continued strong
pricing.
Global
Rare Earths Supply & Demand,
2005-2020
(mt REO)
Source: IMCOA (January 2011)(1)
5
(1) Does not reflect our potential to increase production
to 40,000 mt of REO per year following the completion of our
capacity expansion plan, but instead reflects our production of
19,050 mt of REO per year beginning in 2013.
As a result of the global economic crisis, rare earth product
prices declined by approximately 50% during 2008 and through the
third quarter of 2009. According to Metal-Pages, from October
2009 through March 2011, prices for rare earths have risen by
approximately 1,500% on average. Furthermore, over the same
period, prices for some of the most common rare earths (cerium
oxide, lanthanum oxide, neodymium oxide, and praseodymium oxide)
have risen by more than 2,000% on average.
Recent
Developments
Decision
to Double Original Planned Production Capacity
We recommenced mining operations in December 2010 and are
preparing to recommence milling operations, which we expect to
occur in the first quarter of 2012. As of December 2010, we have
secured all permits necessary to allow construction to start on
the initial modernization and expansion plan. We have also
entered into a number of construction contracts associated with
our initial modernization and expansion plan.
In light of strong industry fundamentals, including reduced
Chinese supply and strong pricing increases, our Board of
Directors recently approved a second-phase capacity expansion
plan in addition to our initial modernization and expansion
plan. Upon the completion of this capacity expansion plan, by
the end of 2013, we expect to have the ability to produce up to
approximately 40,000 mt of REO per year at our Mountain Pass
facility, or approximately double the amount we will be able to
produce upon completion of our initial plan. Although our
production capacity is expected to reach 40,000 mt of REO
per year if our capacity expansion plan is successfully
completed, we intend to sell our products into the market at a
rate commensurate with customer and/or demand growth.
We will commence work on this second phase as we are working on
our initial plan. In certain cases, we will not need to add
additional equipment in connection with the second phase to
provide additional capacity, including milling, but in other
cases, including separations and power, we will need to install
additional capacity. We do not believe we will need to obtain
additional permits, other than air and building permits. We do
not expect that work on the second phase will delay completion
of our initial modernization and expansion plan, and we continue
to expect completion of our initial plan pursuant to our current
schedule, subject to obtaining full funding. We have estimated,
based on consultation with our project manager, that we will
incur approximately $250 million in additional capital
costs in connection with the capital expansion plan beyond those
budgeted for our initial plan. However, this estimate has not
been independently reviewed, and actual costs could vary
significantly. We will need to obtain additional funding for
such plan. Because we will begin expenditures on the second
phase before completion of the initial plan, any funding
insufficiency for the second phase could also impact completion
of our initial plan. Our application under Section 1705 of
the DOE loan guarantee program, or LGP, was put on hold on
May 10, 2011 due to program and resource constraints. At
that time, DOE advised us that our project may be eligible for
funding under Section 1703 of the LGP. See Risk
Factors Risks Related to Our Business We
may be unsuccessful in raising the necessary capital to execute
our current business plan.
We have not yet performed a detailed study of expected operating
costs for this proposed second phase, and we have not yet
commissioned SRK Consulting or any other expert to prepare an
external model or study of operating costs. We have not
identified any reason to believe that there will be any per unit
increase in operating costs under our capacity expansion plan as
compared to our initial modernization and expansion plan
(assuming we are able to sell all of our capacity), and in fact
believe we will realize some decrease in per unit production
costs due to economies of scale associated with the increased
production rate. However, we cannot provide any assurances as to
the actual operating costs, and such costs could be higher. For
our internal analyses to model the viability of our capacity
expansion plan, we have conservatively assumed operating costs
higher than those projected by SRK Consulting for our initial
plan. We have also not secured off-take commitments for the
incremental production from this second phase and cannot assure
you that we will secure such commitments.
6
Rare
Earths Export Limitation Actions by China
On July 8, 2010, Chinas Ministry of Industry and
Information Technology issued the export quota for the second
half of 2010, which reduced rare earth exports by 72% compared
with the same period in 2009 and 40% for the year ended
December 31, 2010 as compared to the year ended
December 31, 2009.
Subsequently, on December 28, 2010, China announced it
would further reduce export quotas of rare earth minerals by 35%
for the first half of 2011 versus the first half of 2010. The
Chinese government cited the desire to preserve Chinas
supply reserves and ensure it would meet trade requirements to
Europe in 2011. Actual exports of rare earth ores and metals
from China, however, continue to exceed export quotas mandated
by the Chinese government. In response to this trend,
Chinas Ministry of Commerce announced on May 19, 2011
that it would further tighten its control over rare earth metals
by expanding its export quota system and imposing higher taxes
on rare earth ores. Although no export quotas have been
announced for the second half of 2011, we anticipate the total
2011 quota to be down significantly from 2010. With anticipated
total consumption of rare earths outside China of 58,000 mt, the
estimated 2011 quota of 28,000 mt falls significantly short of
Rest of World demand, according to IMCOA.
The combined impact of these quota announcements, coupled with
growing demand across end-use applications for rare earths, has
resulted in significant price increases for sales of rare earth
oxides, metals and alloys, as summarized in the table below:
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Pricing ($/kg)
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3-Year
Average
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March 2010(1)
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June 2010(2)
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Mar. 2011(3)
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% change(5)
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Oxides
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Lanthanum oxide
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$
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6.05
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$
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6.60
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$
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8.40
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$
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121.00
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1,733
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%
|
Cerium
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Oxide (glass applications)
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$
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4.03
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$
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4.09
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$
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6.50
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$
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121.00
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2,858
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%
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Oxide (water filters)
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$
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13.20
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XSORBX®
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$
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9.90
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Europium oxide
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$
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442.07
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$
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473.00
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$
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525.00
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$
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940.00
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99
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%
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Metals
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Lanthanum
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$
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10.01
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$
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13.20
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$
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12.80
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$
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131.50
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896
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%
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Praseodymium
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$
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32.12
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$
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37.99
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$
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43.00
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$
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237.50
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|
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525
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%
|
Neodymium
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$
|
32.41
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|
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$
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37.99
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|
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$
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43.00
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|
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$
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255.50
|
|
|
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573
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%
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Alloy products
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NdFeB alloy
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$
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35.20
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$
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42.94
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$
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92.50
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(4)
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163
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%
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SmCo alloy
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$
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50.60
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$
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54.14
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$
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61.25
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(4)
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21
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%
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|
(1) |
|
Estimates used for SRK Consulting engineering study |
|
(2) |
|
As of June 29, 2010; Metal-Pages.com |
|
(3) |
|
As of March 31, 2011; Metal-Pages.com |
|
(4) |
|
Molycorp estimates |
|
(5) |
|
From March 2010 to March 2011 |
|
|
Note: |
3-year average refers to Metal-Pages oxide and metal prices
averaged from May 2007 May 2010, FOB China
|
Molycorp
Metals and Alloys Acquisition
On April 15, 2011, we acquired all of the issued and
outstanding capital stock of Santoku America, Inc., which is now
known as Molycorp Metals and Alloys, from Santoku Corporation,
or Santoku, in an all-cash transaction for $17.5 million.
MMA is a leading producer of high-purity rare earth alloys, with
a manufacturing and processing facility in Tolleson, Arizona.
This acquisition provides us with access to certain intellectual
properties relative to the development, processing and
manufacturing of neodymium and samarium
7
magnet alloy products. As part of this acquisition, Santoku will
provide consulting services to us for the purpose of maintaining
and enhancing the quality of our products. In connection with
the acquisition of Molycorp Metals and Alloys, we also entered
into a non-exclusive marketing and distribution agreement with
Santoku for the sale and distribution of neodymium and samarium
magnet alloy products.
Molycorp
Silmet Acquisition
On April 1, 2011, we completed the acquisition of a 90.023%
controlling stake in AS Silmet, which is now known as Molycorp
Silmet AS, one of only two rare earth processing facilities
in Europe, in a transaction valued at approximately
$89 million. We acquired 80% of the outstanding shares of
Molycorp Silmet AS from Aktsiaselts Silmet Grupp, or Silmet
Grupp, in exchange for 1,593,419 shares of our common
stock. Silmet Grupp will retain a 9.977% ownership interest in
Molycorp Silmet AS. We acquired the other 10.023% of
Molycorp Silmet AS from Treibacher Industrie AG for
$9.0 million in cash. The Molycorp Silmet AS
acquisition provides us with our first European base of
operations and doubles our current rare earth production
capacity from approximately 3,000 mt per year of REO equivalent
to approximately 6,000 mt. Following the acquisition, Molycorp
Silmet AS began sourcing rare earth feed stocks for
production of its products primarily from our Mountain Pass
mine. Molycorp Silmet ASs main focus will be on the
production of REOs and rare earth metals, including didymium
metal, a critical component in the manufacture of NdFeB magnets.
Molycorp Silmet ASs manufacturing operation is
located in Sillamäe, Estonia. Molycorp Silmet AS
currently sells products to customers in Europe, North and South
America, Asia, Russia and other former Soviet Union countries.
Sumitomo
Investment
On December 10, 2010, we entered into a memorandum of
understanding with Sumitomo Corporation, or Sumitomo. If we
execute the definitive agreements contemplated by the memorandum
of understanding, we expect to, among other things, provide
Sumitomo with approximately 1,500 mt per year (and following
completion of our initial modernization and expansion plan,
approximately 1,750 mt per year) of cerium and lanthanum-based
products and 250 mt per year of didymium oxide for a period
ending five years after the completion of our initial
modernization and expansion plan, at market-based prices subject
to a floor.
Pursuant to the transactions contemplated by the memorandum of
understanding, Sumitomo will purchase $100 million of our
common stock at a value based on a volume weighted average price
for the 20 trading day period prior to closing and arrange for a
$30 million debt financing at a low interest rate. Sumitomo
is seeking financial support from the Japan Oil, Gas and Metals
National Corporation, a Japanese government entity, in
connection with this effort. The transactions contemplated by
the memorandum of understanding are subject to finalization of
definitive agreements, various approvals and the satisfaction of
numerous conditions. There is no assurance that these agreements
will be finalized and that these transactions will be
consummated.
Hitachi
Metals Joint Venture
On December 21, 2010, we announced the intent to establish
joint ventures with Hitachi for its NdFeB magnets and alloys.
These joint ventures would provide us with access to
intellectual property needed to implement our
mine-to-magnets
strategy. We expect to sign definitive agreements, which will be
subject to the satisfaction of certain conditions, for the alloy
joint venture by the third quarter of 2011. We have completed a
joint feasibility study with Hitachi, and signing of definitive
agreements for the joint venture to produce rare earth magnets
will follow later in 2011. There is no assurance that these
joint ventures will be established.
2011
Revenue Outlook
We expect our quarterly production for the rest of 2011 to range
from approximately 40% to 50% higher than the first quarter due
to increased processing capacity from the recent acquisitions of
MMA and Molycorp Silmet AS and increased production from our
Mountain Pass facility. Substantially all of our lanthanum
production in 2011 (which accounts for approximately 60% of our
production and is expected to be
8
approximately 1,250 mt for the remainder of 2011), will be sold
pursuant to a contract under which our pricing is subject to a
price ceiling, which was set based upon market prices at the
time the contract was entered (and which is well below current
prices); production of our remaining materials will generally be
sold based on prevailing market prices. Accordingly, our ability
to realize prevailing market prices in the near term is limited
due to our sales contract for our lanthanum product, which
reverts to prevailing market pricing upon the completion of the
initial modernization and expansion plan at Mountain Pass.
Earthquake
and Resulting Tsunami in Japan
In spite of the natural catastrophes experienced by Japan in the
first quarter, we continued to see strong global demand for our
products. Market prices of REOs rose significantly in the first
quarter, helping to boost our price realizations. The recent
earthquake and tsunami in Japan may have a short-term negative
impact on market demand in the second and third quarters. We
expect, however, that market demand should fully recover by the
fourth quarter of 2011.
Our
Strengths
We believe that we possess a number of competitive strengths
that position the Mountain Pass facility to regain its role as
one of the leading global suppliers of REOs.
We
have a proven source of REOs with high-grade ore and long
reserve life.
Prior to the end of the last mining campaign at the Mountain
Pass facility in 2002, the mine had been in continuous operation
for over 50 years. Since our acquisition of the Mountain
Pass facility, we have been processing stockpiled feedstocks as
part of our ongoing effort to significantly improve our solvent
extraction technologies and other processing capabilities.
Today, based on estimated total proven reserves of
88.0 million pounds of REO contained in 0.480 million
tons of ore, with an average ore grade of 9.38%, and probable
reserves of 2.12 billion pounds of REO contained in
13.108 million tons of ore, with an average ore grade of
8.20%, in each case using a cut-off grade of 5.0%, the Mountain
Pass mine has a life in excess of 30 years at an annual
production rate of approximately 19,050 mt of REO. Our
leadership team is committed to the continuous and sustainable
manufacture of rare earth products at the Mountain Pass facility
using advanced milling and processing technologies that will
significantly increase the life of the known ore body at the
Mountain Pass facility. Additionally, in 2010, we expanded our
on-site
exploratory drilling program to confirm the existence and extent
of bastnasite, monazite and other rare earth phosphate mineral
occurrences in unexplored areas of the Mountain Pass facility.
We
expect to be well-positioned to capitalize on the tightening
balance of global supply and demand of rare earth
products.
As worldwide demand for rare earth products increases, the
supply of REOs remains limited by available production capacity,
which is currently concentrated in China. According to IMCOA,
China accounted for approximately 96% of global REO production
in 2008. China also dominates the manufacture of metals and
NdFeB magnets from rare earths, capabilities that are not
currently found in the United States.
Chinese government policies will also impact the supply and
demand of REOs and rare earth products. We believe that the
Chinese government intends to increase wind generated power to
at least 150 gigawatts by 2020. The Chinese government has
proposed a package of over $29 billion to fund hybrid and
electric vehicle production, placing additional strain on the
REE supply chain. Citing the importance of REE availability to
internal industries and the desire to conserve resources, the
Chinese government has also announced export quotas, increased
export tariffs and introduced a mining quotas policy
that, in addition to imposing export quotas and export tariffs,
also imposes production quotas and limits the issuance of new
licenses for rare earth exploration.
According to IMCOA, Chinas export quotas have decreased
from approximately 65,600 mt of REO in 2004 to approximately
50,000 mt of REO in 2009. On July 8, 2010, Chinas
Ministry of Industry and Information Technology issued the
export quota for the second half of 2010, which reduced exports
by 72%
9
compared with the second half of 2009 and 40% for the year ended
December 31, 2010 as compared to the year ended
December 31, 2009. On December 28, 2010, Chinas
Ministry of Industry and Information Technology further reduced
the export quota for the first half of 2011, reducing exports by
35% compared with the first half of 2010 and 20% for the twelve
months ended June 30, 2011 as compared to the twelve months
ended June 30, 2010. Actual exports of rare earth ores and
metals from China, however, continue to exceed export quotas
mandated by the Chinese government. In response to this trend,
Chinas Ministry of Commerce announced on May 19, 2011
that it would further tighten its control over rare earth metals
by expanding its export quota system and imposing higher taxes
on rare earth ores. In 2008, according to IMCOA, China imposed
export taxes of up to 25% on selected REOs (primarily heavy
REOs) and up to 15% for all other REOs (primarily light REOs).
In addition, according to IMCOA, Chinas Ministry of
Industry and Information Technology issued a plan in 2009 to
reduce the production of separated rare earths by 7% to 110,700
mt of REO in 2009.
IMCOA estimates there is a currently a global deficit in REO
supply, which anticipated to continue without the advent of
production from new projects, such as Mountain Pass. Limits on
rare earth exports from China and the lack of available
substitutes make the development of new sources of REEs
essential to meet the growing demand for existing and emerging
technologies, such as hybrid and electric vehicles, wind power
turbines, compact fluorescent light bulbs, hard disk drives and
dual use electronics.
China has announced a national stockpile program, as has South
Korea. Additionally, Japan has increased its national stockpile
program. In December 2010, the U.S. Department of Energy
released a study concluding that five rare earth metals,
dysprosium, neodymium, terbium, europium and yttrium, are
critical to clean energy technologies in the short term and
medium term due to their importance to the clean energy economy
and risk of supply disruption. The report emphasizes that
diversified global supply chains for these critical materials
are essential, and calls for steps to be taken to facilitate
extraction, processing and manufacturing in the United States.
Additionally, the U.S. Department of Defense is conducting
a study to determine its rare earth requirements and supply
chain vulnerabilities and whether to build a strategic
stockpile. These stockpile programs will likely accelerate the
pace of the current and projected global REE supply deficit.
U.S. federal government investments and policies may
materially increase end-market demand for our rare earth
products. For example, the U.S. federal government approved
$45 billion in grant funding and loan guarantees directed
toward wind power generation projects and hybrid and electric
vehicles. Pending energy legislation may also increase demand
for clean technology applications, which use rare earth products.
Upon reaching a full planned production rate of approximately
19,050 mt of REO per year by the end of 2012 under our initial
modernization and expansion plan, we expect to be in a position
to supply a substantial portion of the U.S. demand and also
sell to export markets. In addition, under our capacity
expansion plan, we expect to have the ability to produce up to
approximately 40,000 mt of REO per year by the end of 2013.
We
have a highly experienced and qualified management
team.
Our President and Chief Executive Officer has over 29 years
of experience, over 24 of which are associated with the Mountain
Pass facility. In addition, our Chief Technology Officer,
General Counsel and Chief Financial Officer have over
75 years of combined technical, operational, legal,
financial and management experience. Many of our key employees
have worked with the Mountain Pass facility for over
20 years each. We also have a proven technology and product
development group and as of May 13, 2011, held 75 issued
and pending U.S. patents and patent applications, and 176
issued and pending foreign patents and patent applications.
Management has also created a work environment that prioritizes
safety. Since July 2005, the Mountain Pass facility has not had
a lost-time accident and has received the coveted
Sentinels of Safety award from the Mine Safety and
Health Administration, or MSHA, for three of the last six years.
10
Our
Business Strategy
Our business strategy is to:
Build
the largest, most advanced and efficient fully integrated REO
processing facility in the world.
We intend to replace existing equipment at the Mountain Pass
facility in connection with our modernization and expansion
efforts. We also intend to build the largest, most advanced and
efficient fully integrated REO processing facility in the world
to support our anticipated production requirements. Following
the purchase, delivery, installation and
start-up of
new equipment, our fully integrated facility will allow us to
reach full production, utilizing our newly optimized and
commercially proven REO processing operations. Additionally, we
expect that our proprietary production technology and our
planned new paste tailings operation will reduce our
environmental footprint and set the standard in the industry for
environmental stewardship.
Successfully
complete modernization and expansion efforts and reach full
planned production rates for REOs at the Mountain Pass
facility.
After reaching full planned production rates for REOs at the
Mountain Pass facility under our initial modernization and
expansion plan, we expect to produce approximately 19,050 mt of
REO per year by the end of 2012. Additionally, under our
capacity expansion plan, we expect to have the ability to
produce up to approximately 40,000 mt of REO per year by the end
of 2013. We operate the Mountain Pass facility pursuant to a
conditional use permit that allows us to feed ore to the mill at
a rate of 2,400 tons per day. While the Mountain Pass facility
historically required 2,000 tons of mill feed per day to
manufacture approximately 19,050 mt of REO per year, we expect
that new proprietary technologies we developed will allow us to
extract the same 19,050 mt of REO per year while only using
approximately 1,100 to 1,200 tons of mill feed per day, thus
allowing us to increase annual REO production from our initial
plan of 19,050 mt of REO per year to up to 40,000 mt of REO per
year without any change in the permit limit. These estimates are
based on results achieved at the Mountain Pass facility in full
scale mill test runs from 2001 to 2002. In addition, we have
improved cracking technology at commercial scale (2,000 to 3,000
mt per year production rate) from 2009 to date and improved
performance of our solvent extraction at commercial scale (2,000
to 3,000 mt per year production rate) as demonstrated from 2007
to 2009.
Improve
our operating efficiencies with technically advanced
manufacturing techniques.
We intend to continue to improve the efficiency of our
operations through the creation and use of technically advanced
manufacturing processes for production of rare earth products,
which will allow us to deliver high-quality rare earth products
at globally competitive prices. We have already invested
significant resources towards perfecting our REO processing
operations and developing new and proprietary applications for
individual REEs. We expect that by advancing all of these
technologies, we will continue to lower our operating costs.
Manage
our costs to be cost competitive.
The success of our business will depend on our ability to manage
our costs. We will manage these costs through the use of new
production technologies that have been developed by our research
and development group, which will use less energy and raw
materials and will result in a reduced environmental footprint.
These production technologies will substantially reduce the
amount of water consumption and waste water generation. We plan
to use our proprietary technology to maximize our process
recoveries and maximize REO concentrate production per unit of
extracted ore. We plan to install a natural gas powered
co-generation power plant as part of our modernization and
expansion of the Mountain Pass facility to reduce energy
consumption and costs as well as minimize or eliminate our
reliance on the regional electric power grid. As part of our
modernization and expansion of the Mountain Pass facility, we
also intend to produce our own hydrochloric acid and sodium
hydroxide at the Mountain Pass facility and recycle our acid and
base, thereby reducing our
11
reliance on external sources of reagents. After completion of
our modernization and expansion efforts, we anticipate our most
significant cash operating costs will consist of natural gas and
labor.
Secure
customer commitments to provide a stable revenue
stream.
We are working to establish stable revenue streams for the rare
earth minerals and products we produce at the Mountain Pass
facility. Upon reaching full planned production rates for REOs
at the Mountain Pass facility under our initial modernization
and expansion plan, we expect to produce approximately 19,050 mt
of REO per year. Additionally, under our capacity expansion
plan, we expect to have the ability to produce up to
approximately 40,000 mt of REO per year by the end of 2013. We
have agreed to supply one of our principal customers with a
significant amount of our REOs, primarily lanthanum hydrate,
through mid-2012 at market-based prices subject to a ceiling
based on market prices at June 1, 2010 (currently in
effect), and a floor. Pursuant to our second contract with that
customer, we have agreed to supply the customer with
approximately 75% of our lanthanum product production per year
at market-based prices subject to a floor for a three-year
period commencing upon the achievement of expected annual
production rates under our initial modernization and expansion
plan, which may be extended at the customers option for an
additional three-year period. Upon execution of definitive
agreements with Sumitomo, we also expect to provide Sumitomo
with approximately 1,500 mt per year (and following completion
of our initial modernization and expansion plan, approximately
1,750 mt per year) of cerium and lanthanum-based products and
250 mt per year of didymium oxide for a period ending five years
after the completion of our initial modernization and expansion
of the Mountain Pass facility, at market-based prices subject to
a floor. As of May 13, 2011, we also had 20 non-binding
letters of intent to sell our rare earth products. These letters
of intent, together with our second contract with one of our
principal customers and memorandum of understanding with
Sumitomo, represent approximately 158% of our anticipated
production of approximately 19,050 mt of REO for 2013 under our
initial modernization and expansion plan, and our non-binding
letter of intent with Neo Material also contemplates the sale of
certain rare earth products. Prior to commencing anticipated
production of approximately 19,050 mt of REO year, we intend to
enter into short- and long-term sales contracts with existing
and new customers for amounts not in excess of our actual
planned production. In addition, we are in discussions with
multiple large, globally diversified mining companies regarding
the sale of
XSORBX®,
which will expand demand for cerium in times when it is in
surplus and low priced.
The following table compares the volume under our second
contract with one of our principal customers, our memorandum of
understanding with Sumitomo and our 20 non-binding letters of
intent to our anticipated production of approximately 19,050 mt
of REO for 2013 (in mt):
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|
|
|
|
|
|
|
|
Volume Under
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
Anticipated 2013
|
|
|
Letters of
|
|
|
Contracted
|
|
|
Uncommitted
|
|
|
Anticipated 2013
|
|
Product Type
|
|
Production(1)(2)
|
|
|
Intent(1)(2)
|
|
|
Volume(8)
|
|
|
Volume(9)
|
|
|
Production(10)
|
|
|
Lanthanum oxide or other form
|
|
|
3,098
|
|
|
|
4,641
|
|
|
|
4,535
|
|
|
|
|
|
|
|
296
|
%
|
Lanthanum metal
|
|
|
2,502
|
|
|
|
700
|
|
|
|
|
|
|
|
1,802
|
|
|
|
28
|
%
|
Cerium non-metal
|
|
|
9,663
|
|
|
|
11,265
|
(3)
|
|
|
|
|
|
|
|
|
|
|
117
|
%
|
Cerium metal
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neodymium oxide or other form
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Didymium oxide or other form
|
|
|
|
|
|
|
1,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neodymium or NdPr metal
|
|
|
312
|
|
|
|
3,806
|
(4)
|
|
|
|
|
|
|
|
|
|
|
1,220
|
%
|
Praseodymium metal
|
|
|
116
|
|
|
|
60
|
(4)
|
|
|
|
|
|
|
56
|
|
|
|
52
|
%
|
Europium oxide
|
|
|
19
|
|
|
|
7
|
(5)
|
|
|
|
|
|
|
12
|
|
|
|
37
|
%
|
Samarium oxide
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samarium metal(6)
|
|
|
191
|
|
|
|
30
|
|
|
|
|
|
|
|
161
|
|
|
|
16
|
%
|
NdPr metal in NdFeB alloy
|
|
|
1,960
|
|
|
|
1,103
|
(7)
|
|
|
|
|
|
|
857
|
|
|
|
56
|
%
|
NdPr metal in NdFeB magnets
|
|
|
|
|
|
|
290
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
17,861
|
|
|
|
23,737
|
|
|
|
4,535
|
|
|
|
2,888
|
|
|
|
158
|
%
|
12
|
|
|
(1) |
|
Alloy and magnet production and letter of intent volume are
reported on a rare earth metal basis. Three of our non-binding
letters of intent contain a volume range; these letters cover
lanthanum oxide, cerium non-metal and NdPr metal in NdFeB alloy.
With respect to these non-binding letters of intent, the table
above reflects the high end of the range provided for in each
letter. In addition, certain of our non-binding letters of
intent provide for a certain volume of rare earth metals or
alloys but do not allocate that volume among specific rare earth
metals or alloys. In those instances, we have allocated the
volume in those letters based on managements estimates of
the needs of those customers and their specific applications.
The table above includes anticipated sales of cerium and
lanthanum-based products and didymium oxide to Sumitomo, subject
to execution of definitive agreements. The table above does not
include any sales of any products under either of the agreements
we have entered into with Traxys North America LLC, which we
refer to as Traxys. See Certain Relationships and
Related-Party Transactions Inventory Financing and
Resale Agreements. Additionally, pursuant to the terms of
our non-binding letter of intent with Neo Material, Neo Material
may agree to purchase 3,000 to 5,000 mt of mixed rare earth
carbonate and 300 to 500 mt of neodymium oxide and praseodymium
oxide per year, which amounts are included in the table above. |
|
(2) |
|
With respect to our metal products, there is a 14.2% loss of
mass when REOs are converted to rare earth metal due to oxygen
evolution, which accounts for most of the difference between the
17,861 mt total 2013 production rate and our anticipated
production rate of approximately 19,050 mt of REO per year in
2013. |
|
(3) |
|
Volume shown is used in traditional glass or catalyst market
segments and represents only a very small fraction of cerium
buyers. Although IMCOA predicts that there will be a surplus of
cerium in the future, we anticipate most of our production will
serve the new, proprietary
XSORBX®
market segment if a surplus develops. At current prices, we
would seek to sell cerium for other uses instead. This segment
alone is expected to consume many times more cerium units than
we can produce. We believe the new segment negates the need for
additional letters of intent at this time. |
|
(4) |
|
We anticipate most of our metal production will be consumed
internally for downstream NdFeB alloy/magnet production. |
|
(5) |
|
We expect to receive non-binding letters of intent from a number
of phosphor producers, which will easily consume our europium
production. At this time, we are the only producer outside of
China for this element, which enables energy efficient, compact
fluorescent lights and straight tube T-8 lamps. |
|
(6) |
|
IMCOA estimates that there is a surplus of samarium metal. |
|
(7) |
|
This represents the estimated NdPr metal contained in the
non-binding letter of intent volume for NdFeB alloy and magnets. |
|
(8) |
|
Represents volume under our second contract with one of our
principal customers. |
|
(9) |
|
Represents volume not committed under contract or covered by
non-binding letters of intent. |
|
(10) |
|
Represents volume under
non-binding
letters of intent and contracted volume as a percentage of
anticipated 2013 production. Upon completion of our second phase
capacity expansion plan, our production capacity will double to
approximately 40,000 mt of REO per year, and we will need to
secure additional
off-take
agreements. |
Integrate
downstream to profitably capture the full value
chain.
We are actively evaluating and pursuing multiple downstream
acquisition or joint venture opportunities, some of which may be
material. Our downstream growth and acquisition strategy
encompasses a range of individual target sizes and spans the
full downstream rare earth value chain to targets that produce
REOs to alloys, metals and magnets and may involve the
acquisition of entities that also engage in related or
additional activities. Our strategy is to be disciplined in any
strategic action, with a focus on Molycorps core strategy
and skill set. In relation to opportunities that we deem
attractive, we anticipate use of both debt and equity
consideration to effect transactions, as appropriate. We believe
that Molycorp is uniquely positioned in the market as a rare
earth oxide, metal, and alloy producer to pair a constrained
rare earth feedstock with downstream end-market opportunities,
and expect that position to continue to contribute to the
success of our downstream integration strategy.
13
Consistent with this strategy, the acquisition of Molycorp
Silmet AS provides us with a European base of operations and
doubles our current rare earth production capacity from
approximately 3,000 mt per year of REO equivalent to
approximately 6,000 mt. Additionally, through our acquisitions
of Molycorp Silmet AS and MMA in April 2011, we added facilities
and equipment for metal conversion and alloy production within
the Molycorp organization. We intend to transport cerium,
lanthanum, neodymium, praseodymium, dysprosium, terbium and
samarium oxide products from our Mountain Pass facility to our
Molycorp Silmet AS and MMA facilities where we will produce rare
earth metals and alloys. In December 2010, we entered into a
nonbinding letter of intent with Hitachi to form downstream
joint ventures for the production of rare earth alloys and
magnets in the United States and to acquire a license for
certain technology related to the production of rare earth
metals, alloys and magnets. We have completed a joint
feasibility study with Hitachi, and we are currently negotiating
the joint venture agreements. Additionally, we have entered into
a non-binding letter of intent with Neo Material that, among
other things, contemplates a technology transfer agreement
pursuant to which Neo Material may provide us with technical
assistance and know-how with respect to the production of rare
earth metals, alloys and magnets. This
mine-to-magnets
strategy, if successfully implemented, would make us the first
fully integrated supplier of NdFeB magnets in the world and the
only producer of NdFeB magnets in the United States.
Develop
new higher margin products.
We intend to develop new higher margin products and processes
for REEs that historically have had lower demand. For example,
cerium is used primarily for glass polishing and has typically
sold at prices lower than those for other REEs. However, we have
developed
XSORBX®,
a proprietary product and process, primarily consisting of
cerium, that we have proven to be effective in removing arsenic
and other heavy metals from industrial processing streams. This
will allow our customers to more safely sequester arsenic and
increase their production. We believe this product is applicable
to a broad range of applications with higher margins than those
historically applicable to cerium products due to the minimal
increase in prices. For example, in addition to removing arsenic
and other contaminants from industrial waste water,
XSORBX®
can also be used to treat drinking water, which we believe is an
application with a higher margin as compared to cerium spot
prices. We have begun to sell
XSORBX®
for commercial use in the wastewater, recreation, pool and spa,
industrial process and other water treatment markets. We are
continuing to seek additional letters of intent and sales
contracts with existing and new customers for sales of
XSORBX®.
XSORBX®
is protected by over 100 issued and pending U.S. and
foreign patents and patent applications. We will continue to
focus on establishing proprietary markets for low-demand REEs to
provide us with an opportunity to sell these REEs as higher
margin products. Sales of
XSORBX®
generate their best cash flow when cerium is in surplus and low
priced.
Risks
That We Face
Although the Mountain Pass facility had been in continuous
operation for 50 years, mining and milling operations ended
in 2002, and our activities at the facility in recent years have
consisted of manufacturing products from stockpiled feedstocks
to improve our solvent extraction technologies and other
processing capabilities, which have resulted in minimal revenue.
Our ongoing modernization and expansion efforts at the Mountain
Pass facility to reach our planned production rate of
approximately 19,050 mt of REO per year by the end of 2012 and
40,000 mt of REO by the end of 2013 requires the commitment
of substantial resources for operating expenses and capital
expenditures. Our continued viability is based on successfully
implementing our strategy, including our modernization and
expansion plans at the Mountain Pass facility, successfully
commencing mining operations at the facility and reaching full
planned production rates in accordance with our expected
timeframe. Any unanticipated costs or delays associated with our
ongoing modernization and expansion efforts at the Mountain Pass
facility could have a material adverse effect on our financial
condition or results of operations and could require us to seek
additional capital, which may not be available on commercially
acceptable terms or at all.
14
We are subject to numerous other risks that may adversely impact
our ability to successfully implement our business strategy,
including, without limitation:
|
|
|
|
|
our potential inability to obtain any incremental funding
required to complete our modernization and expansion;
|
|
|
|
our potential inability to successfully establish or maintain
collaborative, joint venture, technology transfer and licensing
arrangements;
|
|
|
|
our potential inability to convert existing non-binding letters
of intent with customers for the sale of REO products into
binding contracts;
|
|
|
|
fluctuations in demand for, and prices of, rare earth products;
|
|
|
|
our potential inability to successfully implement new processing
technologies and capabilities;
|
|
|
|
the competitive industry in which we operate;
|
|
|
|
customers pursuing rare earth alternatives or products that do
not rely on rare earth products; and
|
|
|
|
the lack of development of new uses and markets for rare earth
products.
|
For more information regarding these and other risks that we
face, see Risk Factors beginning on page 19.
Our
Corporate History and Structure
Molycorp Minerals, LLC, a Delaware limited liability company
formerly known as Rare Earth Acquisitions LLC, was formed on
June 12, 2008 to purchase the Mountain Pass, California
rare earth deposit and associated assets from Chevron Mining
Inc., a subsidiary of Chevron Corporation. Prior to the
acquisition, the Mountain Pass facility was owned by Chevron
Mining Inc. and, before 2005, by Unocal Corporation. Molycorp,
LLC, which was the parent of Molycorp Minerals, LLC, was formed
on September 9, 2009 as a Delaware limited liability
company. Molycorp, Inc. was formed on March 4, 2010 as a
new Delaware corporation and was not, prior to the date of the
consummation of its initial public offering, conducting any
material activities.
The members of Molycorp, LLC contributed either (a) all of
their member interests in Molycorp, LLC or (b) all of their
equity interests in entities that hold member interests in
Molycorp, LLC (and no other assets or liabilities) to Molycorp,
Inc. in exchange for shares of Molycorp, Inc. Class A
common stock. Additionally, all of the holders of profits
interests in Molycorp Minerals, LLC, which were represented by
incentive shares, contributed all of their incentive shares to
Molycorp, Inc. in exchange for shares of Molycorp, Inc.
Class B common stock. Accordingly, Molycorp, LLC and
Molycorp Minerals, LLC became subsidiaries of Molycorp, Inc. We
refer to this process as the corporate
reorganization throughout this prospectus. Following the
corporate reorganization, Molycorp, LLC was merged with and into
Molycorp Minerals, LLC. Immediately prior to the consummation of
Molycorp, Inc.s initial public offering, all of the shares
of Class A common stock and Class B common stock were
converted into shares of common stock.
Company
Information
Our principal executive offices are located at 5619 Denver Tech
Center Parkway, Suite 1000, Greenwood Village, Colorado
80111, and our telephone number is
(303) 843-8040.
Our website address is www.molycorp.com. Information on or
accessible through our website is not a part of this prospectus.
15
The
Offering
|
|
|
Common stock offered by the selling stockholders |
|
10,000,000 shares (or 11,500,000 shares if the
underwriters exercise their option to purchase additional shares
of common stock in this offering in full) |
|
Common stock outstanding after this offering |
|
83,895,501 shares |
|
Use of proceeds |
|
We will not receive any proceeds from the sale of shares by the
selling stockholders in this offering. |
|
Risk factors |
|
See Risk Factors beginning on page 19 and other
information included in this prospectus for a discussion of
factors you should carefully consider before deciding whether to
invest in our common stock. |
|
NYSE symbol |
|
Our common stock is listed on The New York Stock Exchange, or
NYSE, under the symbol MCP. |
Unless otherwise indicated, all information in this prospectus
reflects or assumes:
|
|
|
|
|
no exercise of the underwriters option to purchase up to
an additional 1,500,000 shares of our common stock;
|
|
|
|
the retroactive adjustment of a 38.23435373-for-one stock split
with respect to shares of our Class A common stock and
Class B common stock effective on July 9, 2010;
|
|
|
|
the conversion of all of our Class A common stock and
Class B common stock into an aggregate of
53,125,000 shares of common stock immediately prior to the
consummation our initial public offering as described under
Managements Discussion and Analysis of Financial
Condition and Results of Operations;
|
|
|
|
the exclusion of shares of common stock expected to be issued to
Sumitomo, subject to finalization of definitive agreements,
various approvals and the satisfaction of numerous conditions;
|
|
|
|
the exclusion of 3,978,847 shares of common stock
authorized and reserved for future issuance under our stock
incentive plan. See Management Compensation
Discussion and Analysis Molycorp, Inc. 2010 Equity
and Performance Incentive Plan; and
|
|
|
|
the exclusion of between 3,450,069 and 4,140,000 shares of
common stock issuable upon conversion of our mandatory
convertible preferred stock, depending on the applicable market
value of our common stock and subject to anti-dilution
adjustments.
|
16
Summary
Consolidated Financial Data
Upon the formation of Molycorp, LLC on September 9, 2009,
all members of Molycorp Minerals, LLC contributed their member
interests to Molycorp, LLC in exchange for member interests in
Molycorp, LLC. That exchange was treated as a reorganization of
entities under common control and Molycorp Minerals, LLC is the
predecessor to Molycorp, LLC. Accordingly, all financial
information of Molycorp, LLC for periods prior to its formation
is the historical financial information of Molycorp Minerals,
LLC. Molycorp Minerals, LLC acquired the Mountain Pass,
California rare earth deposit and associated assets from Chevron
Mining Inc., a subsidiary of Chevron Corporation, on
September 30, 2008.
The summary consolidated financial data as of and for the years
ended December 31, 2010 and 2009, and for the period from
June 12, 2008 (Inception) through December 31, 2010
has been derived from Molycorp, Inc.s audited consolidated
financial statements and the related notes included elsewhere in
this prospectus. The summary consolidated financial data for the
period from June 12, 2008 (Inception) through
December 31, 2008 has been derived from Molycorp,
LLCs audited consolidated financial statements and the
related notes. The summary consolidated financial data as of
March 31, 2011 and for the three months ended
March 31, 2011 and 2010 has been derived from Molycorp,
Inc.s unaudited condensed consolidated financial
statements and the related notes included elsewhere in this
prospectus.
Molycorp, Inc. was formed on March 4, 2010 for the purpose
of continuing the business of Molycorp, LLC in corporate form.
On April 15, 2010, the members of Molycorp, LLC contributed
either (a) all of their member interests in Molycorp, LLC
or (b) all of their equity interests in entities that hold
member interests in Molycorp, LLC (and no other assets or
liabilities) to Molycorp, Inc. in exchange for shares of
Molycorp, Inc., and, as a result, Molycorp, LLC became a wholly
owned subsidiary of Molycorp, Inc. Accordingly, all financial
information of Molycorp, Inc. for periods prior to the corporate
reorganization is the historical financial information of
Molycorp, LLC.
As a limited liability company, the taxable income and losses of
Molycorp, LLC were reported on the income tax returns of its
members. Molycorp, Inc. is subject to federal and state income
taxes and will file consolidated income tax returns. If the
corporate reorganization had been effective as of
January 1, 2009, our net loss of $28.6 million for the
year ended December 31, 2009 would have generated an
unaudited pro forma deferred income tax benefit of
$11.3 million for the year ended December 31, 2009
assuming a combined federal and state statutory income tax rate.
However, as realization of such tax benefit would not have been
assured, we would have also established a valuation allowance of
$11.3 million to eliminate such pro forma tax benefit.
The summary consolidated financial data set forth below should
be read in conjunction with Selected Consolidated
Financial Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the financial statements and the notes thereto included
elsewhere in this prospectus.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
June 12, 2008
|
|
|
June 12, 2008
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
(Inception) through
|
|
|
(Inception) through
|
|
Statement of Operations Data
|
|
2011(4)
|
|
|
2010
|
|
|
2010(4)
|
|
|
2009
|
|
|
December 31, 2008
|
|
|
December 31, 2010(4)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Sales
|
|
$
|
26,261
|
|
|
$
|
3,018
|
|
|
$
|
35,157
|
|
|
$
|
7,093
|
|
|
$
|
2,137
|
|
|
$
|
44,387
|
|
Cost of goods sold(1)
|
|
|
(16,677
|
)
|
|
|
(5,950
|
)
|
|
|
(37,591
|
)
|
|
|
(21,785
|
)
|
|
|
(13,027
|
)
|
|
|
(72,403
|
)
|
Selling, general and administrative expense
|
|
|
(8,339
|
)
|
|
|
(4,480
|
)
|
|
|
(18,774
|
)
|
|
|
(12,444
|
)
|
|
|
(2,829
|
)
|
|
|
(34,047
|
)
|
Stock-based compensation
|
|
|
(2,899
|
)
|
|
|
|
|
|
|
(28,739
|
)
|
|
|
(241
|
)
|
|
|
(150
|
)
|
|
|
(29,130
|
)
|
Depreciation and amortization expense
|
|
|
(83
|
)
|
|
|
(95
|
)
|
|
|
(319
|
)
|
|
|
(191
|
)
|
|
|
(19
|
)
|
|
|
(529
|
)
|
Accretion expense
|
|
|
(234
|
)
|
|
|
(263
|
)
|
|
|
(912
|
)
|
|
|
(1,006
|
)
|
|
|
(250
|
)
|
|
|
(2,168
|
)
|
Operating loss
|
|
|
(1,971
|
)
|
|
|
(7,770
|
)
|
|
|
(51,178
|
)
|
|
|
(28,574
|
)
|
|
|
(14,138
|
)
|
|
|
(93,890
|
)
|
Net loss
|
|
$
|
(2,198
|
)
|
|
$
|
(7,749
|
)
|
|
$
|
(50,774
|
)
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(93,435
|
)
|
Weighted average shares outstanding (Common shares)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
82,253,700
|
|
|
|
48,155,533
|
|
|
|
62,332,054
|
|
|
|
39,526,568
|
|
|
|
38,829,225
|
|
|
|
48,306,760
|
|
Diluted
|
|
|
82,253,700
|
|
|
|
48,155,533
|
|
|
|
62,332,054
|
|
|
|
39,526,568
|
|
|
|
38,829,225
|
|
|
|
48,306,760
|
|
Loss per share of common stock(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(1.93
|
)
|
Diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(1.93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Balance Sheet Data
|
|
2011(4)
|
|
|
2010
|
|
|
2010(4)
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
492,495
|
|
|
$
|
7,452
|
|
|
$
|
316,430
|
|
|
$
|
6,929
|
|
Total current assets
|
|
|
534,094
|
|
|
|
19,392
|
|
|
|
353,432
|
|
|
|
18,520
|
|
Total assets
|
|
|
699,473
|
|
|
|
101,026
|
|
|
|
479,560
|
|
|
|
97,666
|
|
Total non-current liabilities
|
|
|
12,922
|
|
|
|
13,847
|
|
|
|
12,335
|
|
|
|
13,528
|
|
Total liabilities
|
|
|
52,582
|
|
|
|
23,860
|
|
|
|
33,047
|
|
|
|
23,051
|
|
Members equity
|
|
|
|
|
|
|
77,166
|
|
|
|
|
|
|
|
74,615
|
|
Stockholders equity
|
|
|
646,891
|
|
|
|
|
|
|
|
446,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
June 12, 2008
|
|
|
June 12, 2008
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
(Inception) through
|
|
|
(Inception) through
|
|
Other Financial Data
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
December 31, 2008
|
|
|
December 31, 2010
|
|
|
|
(In thousands)
|
|
|
Capital expenditures(3)
|
|
$
|
26,345
|
|
|
$
|
2,840
|
|
|
$
|
33,129
|
|
|
$
|
7,285
|
|
|
$
|
321
|
|
|
$
|
40,735
|
|
|
|
|
(1) |
|
Cost of goods sold includes write-downs of inventory to
estimated net realizable value of $0.6 million for the
three months ended March 31, 2011 and 2010. Cost of goods
sold includes write-downs of inventory to estimated net
realizable value of $2.5 million, $9.0 million,
$9.5 million and $21.0 million for the years ended
December 31, 2010 and 2009, for the period from
June 12, 2008 (Inception) through December 31, 2008
and cumulatively for the period from June 12, 2008
(Inception) through December 31, 2010, respectively. Cost
of goods sold also includes a $1.0 million write-down of
bastnasite stockpile inventory based on estimated stockpile REO
quantities at December 31, 2010 and $3.1 million
of asset impairments for the year ended December 31, 2010. |
|
(2) |
|
Weighted average shares outstanding gives retroactive effect to
the corporate reorganization, the conversion of all of our
Class A common stock and Class B common stock into
shares of common stock and the consummation of our initial
public offering, and the 38.23435373-for-one stock split
completed by Molycorp, Inc. on July 9, 2010 as if such
events had occurred on June 12, 2008. |
|
(3) |
|
Reflected in cash flows from investing activities in our
consolidated statements of cash flows. |
|
(4) |
|
As described in Note 13 to the financial statements for the
year ended December 31, 2010 and in Note 10 to the
financial statements for the three months ended March 31,
2011, these financial statements have been revised. |
18
RISK
FACTORS
An investment in our common stock involves a high degree of
risk. Accordingly, you should carefully consider the following
risk factors, together with all of the other information
contained in this prospectus, including our consolidated
financial statements and related notes, before making an
investment in our common stock. If any of the following risks
actually occurs, we may not be able to conduct our business as
currently planned, and our business, operating results and
financial condition could be harmed. In that case, the market
price of our common stock could decline, and you could lose all
or a part of your investment.
Risks
Related to Our Business
The
production of rare earth products is a capital-intensive
business and our ongoing modernization and expansion efforts at
the Mountain Pass facility to reach initial planned production
rates by the end of 2012 and to expand our capacity to produce
up to approximately 40,000 mt of REO per year by the end of 2013
will require the commitment of substantial resources. Any
unanticipated costs or delays associated with our ongoing
modernization and expansion efforts at the Mountain Pass
facility could have a material adverse effect on our financial
condition or results of operations.
Our ongoing modernization and expansion efforts at the Mountain
Pass facility to reach initial planned production rates by the
end of 2012 and to expand our capacity to produce up to
approximately 40,000 mt of REO per year by the end of 2013
require the commitment of substantial resources for operating
expenses and capital expenditures. We expect to incur
approximately $531 million in capital costs to achieve full
planned production rates under our initial modernization and
expansion plan prior to December 31, 2012. In addition, we
expect to incur approximately $250 million in additional
capital costs to build additional production capacity prior to
December 31, 2013. Our estimated expenses may increase in
subsequent years as consultants, personnel and equipment
associated with advancing development and commercial production
are added. The progress of our modernization and expansion
efforts at the Mountain Pass facility and the amounts and timing
of expenditures will depend in part on the following:
|
|
|
|
|
the replacement of a significant portion of the existing
process, plant and equipment that consists of aging or outdated
facilities and equipment, retooling and development and the
preparation of the mine pit for renewed production of ore;
|
|
|
|
maintaining required federal, state and local permits;
|
|
|
|
the results of consultants analysis and recommendations;
|
|
|
|
negotiating contracts for equipment, earthwork, construction,
equipment installation, labor and completing infrastructure and
construction work;
|
|
|
|
negotiating sales and off-take contracts for our planned
production;
|
|
|
|
the execution of any joint venture agreements or similar
arrangements with strategic partners; and
|
|
|
|
other factors, many of which are beyond our control.
|
Most of these activities require significant lead times and must
be advanced concurrently. Any unanticipated costs or delays
associated with our ongoing modernization and expansion efforts
at the Mountain Pass facility could have a material adverse
effect on our financial condition or results of operations and
could require us to seek additional capital, which may not be
available on commercially acceptable terms or at all.
The
actual amount of capital required for the expansion and
modernization of the Mountain Pass facility may vary materially
from our current estimates, in which case we would need to raise
additional funds, which may delay completion and have a material
adverse effect on our business and financial
condition.
The anticipated funding required to complete the expansion and
modernization of the Mountain Pass facility, including the
second phase capacity expansion, is based on certain estimates
and assumptions we have made about the additional facilities,
equipment, labor, permits and other factors required to complete
the project. If any of these estimates or assumptions change,
the actual timing and amount of capital required to
19
complete the initial expansion and modernization of the Mountain
Pass facility as well as the capacity expansion may vary
materially from what we anticipate. Additional funds may be
required in the event of significant departures from our current
expansion and modernization plan, unforeseen delays, cost
overruns, engineering design changes or other unanticipated
expenses. There can be no assurance that additional financing
will be available to us, or, if available, that it can be
obtained on a timely basis and on commercially acceptable terms.
There
is no assurance that we will be able to successfully implement
our capacity expansion plan within our current timetable, that
the actual costs of the capacity expansion will not exceed our
current estimated costs or that we will be able to secure
off-take agreements for the incremental production capacity, and
we cannot provide any assurance as to the actual operating costs
once we have completed the capacity expansion.
Our Board of Directors recently approved a second-phase capacity
expansion plan in addition to our initial modernization and
expansion plan. We will commence work on this second phase as we
are working on our initial plan and there is no assurance that
our work on the second phase will not interfere with our
completion of the initial modernization and expansion plan. In
certain cases, including separations and power, we will need to
install additional capacity. We do not believe we will need to
obtain additional permits for the capacity expansion, other than
air and building permits. However there is no assurance that we
will not in the future learn of permits that we will be required
to obtain or existing permits that we will be required to
modify. We have estimated, based on consultation with our
project manager, that we will incur approximately
$250 million in additional capital costs in connection with
the capital expansion plan beyond those budgeted for our initial
plan. However, this estimate has not been independently
reviewed, and actual costs could vary significantly. We have not
yet obtained this additional funding and there is no assurance
that we will be able to do so on terms acceptable to us or at
all. Because we will begin expenditures on our capacity
expansion plan before completion of our initial modernization
and expansion plan, any funding insufficiency for the capacity
expansion could also impact completion of our initial plan.
We have not yet performed a detailed study of expected operating
costs for this proposed second phase, and we have not yet
commissioned SRK Consulting or any other expert to prepare an
external model or study of operating costs. While we have not
identified any reason to believe that there will be any per unit
increase in operating costs under our capacity expansion plan as
compared to our initial modernization and expansion plan
(assuming we are able to sell all of our capacity), we cannot
provide any assurances as to the actual operating costs, and
such costs could be higher. We have also not secured off-take
commitments for the incremental production from this second
phase, and we cannot assure that we will secure such commitments.
Any failure to successfully implement our capacity expansion
plan due to insufficient funding, delays or unanticipated costs,
or to realize the anticipated benefits of our capacity expansion
plan, including securing off-take commitments for the
incremental production, could have a material adverse effect on
our business, financial condition and results of operations.
We may
be unsuccessful in raising the necessary capital to execute our
current business plan.
Under our current business plan, we intend to spend
approximately $531 million through the end of 2012 to
restart mining operations, construct and refurbish processing
facilities and other infrastructure at the Mountain Pass
facility in connection with our initial modernization and
expansion plan and expand into metal, alloy and magnet
production. In addition, we expect to spend approximately
$250 million in additional capital costs to build
additional production capacity through the end of 2013 in
connection with our capacity expansion plan, and we will need to
obtain additional funding for such plan. If the assumptions on
which we based our estimated capital expenditures of
$781 million change or are inaccurate, we may require
additional funding. We may also require additional financing as
part of our collaborative joint ventures with Hitachi for the
production of rare earth alloys and magnets in the United
States, which is not included in our estimated capital
expenditures of $781 million. Our estimated capital
expenditures of $781 million also do not include corporate,
selling, general and administrative expenses, which we estimate
to be an additional $20 million to $25 million per
year.
We expect to finance these capital expenditures, our selling,
general and administrative expenses, as well as our working
capital requirements with our cash on hand from our initial
public offering and our offering of mandatory convertible
preferred stock and anticipated cash flows from operations,
combined with traditional debt
20
financing and project financing. Additionally, on
December 10, 2010, we entered into a memorandum of
understanding with Sumitomo, pursuant to which Sumitomo agreed
to, among other things, purchase $100 million of our common
stock and arrange for a $30 million debt financing. The
consummation of these transactions with Sumitomo is subject to
the finalization of definitive agreements, various approvals and
the satisfaction of numerous conditions. There can be no
assurance that we will be successful in raising the incremental
capital needed to fully execute our business plan on terms
acceptable to us, or at all. Because we will begin expenditures
on our capacity expansion plan before completion of our initial
modernization and expansion plan, any funding insufficiency for
the capacity expansion could also impact completion of our
initial plan.
We currently have limited sources of revenue from our
operations, and in order to modernize and expand the Mountain
Pass facility, we may need to obtain additional debt
and/or
equity financing in addition to or in place of the potential
financing arrangements identified above.
Our
growth depends on the modernization and expansion of our
Mountain Pass facility, which is our only rare earth mining and
manufacturing facility.
Our only rare earth mining and manufacturing facility at this
time is the Mountain Pass facility. Our continued viability is
based on successfully implementing our strategy, including our
modernization and expansion plans at the Mountain Pass facility,
successfully commencing mining operations at the Mountain Pass
facility and reaching full planned production rates in
accordance with our expected timeframe. The deterioration or
destruction of any part of the Mountain Pass facility may
significantly hinder our ability to reach or maintain full
planned production rates within the expected time frame or at
all. If we are unsuccessful in reaching and maintaining full
planned production rates for REOs at the Mountain Pass facility,
within expected time frames or at all, we may not be able to
build a sustainable or profitable business.
We may
not successfully establish or maintain collaborative, joint
venture and licensing arrangements, or establish new ones, which
could adversely affect our ability to develop and commercialize
our rare earth products.
A key element of our business strategy is to utilize vertical
integration through further downstream processing of our REOs
into rare earth metal alloys and finished magnets for
clean-energy, high-technology and defense applications. Our
acquisitions of Molycorp Silmet AS and MMA reflect this
strategy. To implement this
mine-to-magnets
vertical integration successfully, we will need to license
certain intellectual property related to these downstream
processes and form a joint venture with an existing magnet
producer for the final production of finished rare earth
magnets. While we have entered into non-binding letters of
intent with Hitachi to form joint ventures for the production of
rare earth alloys and magnets in the United States and to
acquire a license for certain technology related to the
production of rare earth metals, alloys and magnets, we may not
be able to finalize definitive agreements and successfully
consummate these partnerships. In addition, other licenses that
may be necessary for some of these downstream processing steps
have not yet been obtained, and we are currently only in
negotiations with respect to a joint venture for the production
of finished magnets and have only entered into a non-binding
letter of intent with Neo Material that contemplates a
technology transfer agreement with respect to the production of
rare earth metals, alloys and magnets. Any failure to establish
or maintain collaborative, joint venture or licensing
arrangements for the production of downstream products on
favorable terms could adversely affect our business prospects,
financial condition or ability to develop and commercialize
downstream rare earth products.
We may
not be able to convert existing letters of intent with customers
for the sale of REO products into binding contracts, or meet the
conditions necessary for customers to commence purchasing under
existing contracts, which may have a material adverse effect on
our financial position and results of operations.
We are working to establish stable revenue streams for the rare
earth minerals and products we produce at the Mountain Pass
facility. Upon reaching full planned production rates for REOs
at the Mountain Pass facility under our initial modernization
and expansion plan, we expect to produce approximately 19,050 mt
of REO per year. Additionally, under our capacity expansion
plan, we expect to have the ability to produce up to
approximately 40,000 mt of REO per year by the end of 2013. We
have agreed to supply one of our principal customers with a
significant amount of our REOs, primarily lanthanum hydrate,
through mid-2012 at market-based prices subject to a ceiling
based on market prices at June 1, 2010 (currently in
effect), and a floor.
21
Based on current market trends we expect the ceiling to be in
effect for the remaining term of this agreement. Pursuant to our
second contract with that customer, we have agreed to supply the
customer with approximately 75% of our lanthanum product
production per year at market-based prices subject to a floor
for a three-year period commencing upon the achievement of
expected annual production rates under our initial modernization
and expansion plan, which may be extended at the customers
option for an additional three-year period. Upon execution of
definitive agreements with Sumitomo, we also expect to provide
Sumitomo with approximately 1,500 mt per year (and following
completion of our initial modernization and expansion plan,
approximately 1,750 mt per year) of cerium and lanthanum-based
products and 250 mt per year of didymium oxide for a period
ending five years after the completion of our initial
modernization and expansion of the Mountain Pass facility, at
market-based prices subject to a floor. As of May 13, 2011,
we also had 20 non-binding letters of intent to sell our rare
earth products. Prior to commencing full production, we intend
to enter into short- and long-term sales contracts with existing
and new customers for amounts not in excess of our actual
planned production under our initial modernization and expansion
plan and our capacity expansion plan, respectively. However,
there can be no assurance that these customers will enter into
binding sales contracts for the same amount of REO products as
in the letters of intent, or at all, or that we will secure
off-take
commitments for the incremental capacity provided by our
capacity expansion plan. The failure to enter into binding
contracts, or the failure to meet the conditions necessary for
customers to commence purchasing under existing agreements, may
have a material adverse effect on our financial position and
results of operations.
We
face a variety of risks associated with acquiring and
integrating new business operations that could have a
significant negative impact on our business, financial condition
and results of operations.
In April 2011, we acquired a 90.023% controlling stake in
Molycorp Silmet AS in order to increase our rare earth
production capacity and acquired MMA in order to provide us with
the capability to immediately begin manufacturing and selling
rare earth alloys for the production of NdFeB and samarium
cobalt magnets, as well as a variety of other specialty alloys
and products. We may in the future pursue other strategic
acquisitions that we believe would expand our product offerings
and capabilities or complement our business. We have limited
experience making such acquisitions. Any acquisition that we
make will be accompanied by the risks commonly encountered in
acquisitions of businesses. The process of integrating acquired
businesses, products or technologies may create unforeseen
operating difficulties and expenditures. We may have difficulty
integrating and assimilating the operations and personnel of any
acquired companies, realizing anticipated synergies and
maximizing the financial and strategic position of the combined
enterprise. We may incur costs necessary to reorganize, expand
or otherwise modify existing operations to meet future
production needs, and we may also incur closure, demolition and
carrying costs for portions of properties, for which we have no
operational uses. We may also have difficulty maintaining
uniform standards, policies and controls across the
organization. The process of integrating acquired businesses may
also result in a diversion of managements attention and
cause an interruption of, or loss of momentum in, our
activities. Additionally, any acquisition that we make may
result in the assumption of material liabilities. Businesses and
properties we acquire may be in an unexpected condition and may
subject us to increased costs and liabilities, including
environmental liabilities. The costs and liabilities associated
with known risks may be greater than expected, and we may assume
unknown liabilities, either of which could have a material
adverse effect on our business, financial condition and results
of operations. Foreign acquisitions involve risks in addition to
those mentioned above, including those related to integration of
operations across different cultures and languages, currency
risks and the particular economic, political and regulatory
risks associated with specific countries. As a result of these
risks, the anticipated benefits of these acquisitions may not be
fully realized, if at all, and the acquisitions could have a
material adverse effect on our business, financial condition and
results of operations.
We
have limited commercial production and revenues and there can be
no assurance that we will successfully reach full planned
production rates for REOs and other planned downstream products
at the Mountain Pass facility or other facilities and obtain
profitability.
We currently have limited commercial production and revenues
from the Mountain Pass facility and have carried on our business
at a loss since inception. We expect to continue to incur losses
unless and until we
22
achieve full planned production rates and generate sufficient
revenues to fund our continuing operations. We expect to incur
substantial losses for the foreseeable future related to
operating expenses, modernization and expansion activities and
other capital expenditures, which may increase in subsequent
years as needed consultants, personnel and equipment are
retained as we continue to implement our business plan. The
amounts and timing of expenditures will depend on the progress
of our ongoing modernization and expansion efforts, the results
of consultants analysis and recommendations, the rate at
which operating losses are incurred, the execution of any joint
venture agreements with strategic partners and other factors,
many of which are beyond our control. As a result, we may not
ever achieve profitability.
We
rely on a limited number of customers for a significant portion
of our revenue, and the loss of significant customers, or
significant changes in prices or other terms with significant
customers, prior to the completion of the restart of our mining
operations and modernization and expansion of the Mountain Pass
facility, could have a material adverse effect on our business,
results of operations and financial condition.
There is a limited market for certain products that we currently
produce from stockpile concentrates. We currently have six
customers that individually account for a significant portion of
our revenue. The percentage of our total sales that is
attributed to these customers is as follows for the indicated
periods.
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Mitsubishi Corporation Unimetals U.S.A.
|
|
|
24
|
%
|
|
|
0
|
%
|
W.R. Grace & Co.-Conn
|
|
|
21
|
%
|
|
|
27
|
%
|
Chuden Rare Earth Co. Ltd.
|
|
|
15
|
%
|
|
|
0
|
%
|
Shin-Etsu Chemical Co.
|
|
|
12
|
%
|
|
|
0
|
%
|
Corning Inc.
|
|
|
10
|
%
|
|
|
4
|
%
|
3M Company
|
|
|
7
|
%
|
|
|
5
|
%
|
Albemarle Corporation
|
|
|
0
|
%
|
|
|
55
|
%
|
If our total sales to these customers are reduced or if the
prices we realize from these customers are reduced before we are
able to reduce costs, our operating revenues would likely be
materially adversely affected. As a result, significant changes
in volume, prices or other terms with these customers, prior to
the completion of the restart of our mining operations and
modernization and expansion of the Mountain Pass facility could
have a material adverse effect on our business, results of
operations and financial condition.
We may
be adversely affected by fluctuations in demand for, and prices
of, rare earth products.
Because our sole source of revenue is the sale of rare earth
minerals and products, changes in demand for, and the market
price of, rare earth minerals and products could significantly
affect our profitability. The value and price of our common
stock and our financial results may be significantly adversely
affected by declines in the prices of rare earth minerals and
products. Rare earth minerals and product prices may fluctuate
and are affected by numerous factors beyond our control such as
interest rates, exchange rates, inflation or deflation,
fluctuation in the relative value of the U.S. dollar
against foreign currencies on the world market, global and
regional supply and demand for rare earth minerals and products,
and the political and economic conditions of countries that
produce rare earth minerals and products.
As a result of the global economic crisis, rare earth product
prices declined by approximately 50% during 2008 and through the
third quarter of 2009. Similarly, there can be no assurance that
the recent increase in market prices will be sustained in future
periods. Also, while we expect the recent earthquake/tsunami in
Japan and its aftermath may have a short-term negative impact on
market demand in the second and third quarters, we expect full
recovery of demand by the fourth quarter of 2011. However, there
can be no assurances that demand for and prices of rare earth
products will not be impacted by these disasters. Protracted
periods of low prices or demand for rare earth minerals and
products could significantly reduce revenues and the
availability of required development funds in the future. This
could cause substantial reductions to, or a suspension of, REO
production operations, impair asset values and reduce our proven
and probable rare earth ore reserves.
23
Demand for our products may be impacted by demand for downstream
products incorporating rare earths, including hybrid and
electric vehicles, wind power equipment and other clean
technology products, as well as demand in the general automotive
and electronic industries. Lack of growth in these markets may
adversely affect the demand for our products.
In contrast, extended periods of high commodity prices may
create economic dislocations that may be destabilizing to rare
earth minerals supply and demand and ultimately to the broader
markets. Periods of high rare earth mineral market prices
generally are beneficial to our financial performance. However,
strong rare earth mineral prices, as well as real or perceived
disruptions in the supply of rare earth minerals, also create
economic pressure to identify or create alternate technologies
that ultimately could depress future long-term demand for rare
earth minerals and products, and at the same time may
incentivize development of otherwise marginal mining properties.
For example, automobile manufacturers have recently announced
plans to develop motors for electric and hybrid cars that do not
require rare earth metals, due to concerns about the available
supply of rare earths. If the automobile industry reduces its
reliance on rare earth products, the resulting change in demand
could have a material adverse effect on our business.
Conditions
in the rare earth industry have been, and may continue to be,
extremely volatile, which could have a material impact on our
company.
Conditions in the rare earth industry have been extremely
volatile, and prices, as well as supply and demand, have been
significantly impacted by a number of factors, principally
(1) changes in economic conditions and demand for rare
earth materials and (2) changes, or perceived changes, in
Chinese quotas for export of rare earth materials. As a result
of the global economic crisis, rare earth product prices
declined by approximately 50% during 2008 and through the third
quarter of 2009. According to Metal-Pages, from October 2009
through March 2011, prices for rare earths have risen by
approximately 1,500% on average. Furthermore, over the same
period, prices for some of the most common rare earths (cerium
oxide, lanthanum oxide, neodymium oxide, and praseodymium oxide)
have risen by more than 2,000% on average. If conditions in our
industry remain volatile, our stock price may continue to
exhibit volatility as well. In particular, if prices or demand
for rare earths were to decline, our stock price would likely
decline, and this could also impair our ability to obtain
remaining capital needed for development of our property and our
ability to find purchasers for our products.
If we
finance the necessary capital to execute our current business
plan through a securities offering or debt financing, you may
experience dilution in the event of an equity financing, or we
may be highly leveraged in the event of a debt
financing.
We may finance the capital expenditures necessary for our
modernization and expansion costs, including the capacity
expansion plan, through a public or private offering of
securities or debt financing. An equity offering, including any
issuance of common stock to Sumitomo, will have the effect of
diluting the proportionate equity interest and voting power of
holders of our common stock. A debt financing may result in us
being highly leveraged, and our level of indebtedness could
restrict our ability to execute our current business plan.
Our
business will be adversely affected if we do not successfully
implement new processing technologies and
capabilities.
Our processing technologies and capabilities are key components
of our competitive strengths and are expected to contribute to
low operating costs and increasing the life of the ore body at
the Mountain Pass facility. In the second quarter of 2010, we
began to process bastnasite concentrate from our stockpiles in
an effort to significantly improve these technologies and
capabilities and optimize recovery rates. Although this effort
has been successful at pilot-scale level with over 95% recovery,
we may not be able to scale the new technology and recovery
rates to commercial levels, or may not be able to do so by the
end of 2012, as planned. We are also working to optimize other
steps in our production process. Any failure may affect our
ability to achieve the expected benefits of the new technologies
and may have a material adverse effect on our financial
condition or results of operations.
24
We
operate in a highly competitive industry.
The rare earths mining and processing markets are capital
intensive and competitive. Our Chinese competitors may have
greater financial resources, as well as other strategic
advantages to maintain, improve and possibly expand their
facilities. Additionally, the Chinese producers have
historically been able to produce at relatively low costs due to
domestic economic factors. Even upon successful implementation
of the new processing technologies and capabilities at the
Mountain Pass facility, if we are not able to achieve
anticipated costs of production, then any strategic advantages
that our competitors may have over us, such as lower labor
costs, could have a material adverse effect on our business.
The
success of our business will depend, in part, on the
establishment of new uses and markets for rare earth
products.
The success of our business will depend, in part, on the
establishment of new markets by us or third parties for certain
rare earth products that may be in low demand. Although we are
developing rare earth products for use in NdFeB magnets, which
are used in critical existing and emerging technologies, such as
hybrid and electric vehicles, wind power turbines and compact
fluorescent lighting, the success of our business depends on
creating new markets and successfully commercializing rare earth
products in existing and emerging markets. Any unexpected costs
or delays in the commercialization of any of the foregoing
products and applications could have a material adverse effect
on our financial condition or results of operations.
An
increase in the global supply of rare earth products, dumping
and predatory pricing by our competitors may materially
adversely affect our profitability.
The pricing and demand for our products is affected by a number
of factors beyond our control, including growth of economic
development and the global supply and demand for REO products.
According to IMCOA, it is estimated that China accounted for
approximately 96% of global REO production in 2008. China also
dominates the manufacture of metals and NdFeB magnets from rare
earths, a capacity that is not currently found in the United
States. Once we reach full planned production rates for REOs and
other planned downstream products, the increased competition may
lead our competitors to engage in predatory pricing behavior.
Any increase in the amount of rare earth products exported from
other nations and increased competition may result in price
reductions, reduced margins and loss of potential market share,
any of which could materially adversely affect our
profitability. As a result of these factors, we may not be able
to compete effectively against current and future competitors.
We may
not be able to adequately protect our intellectual property
rights. If we fail to adequately enforce or defend our
intellectual property rights, our business may be
harmed.
Much of the technology used in the markets in which we compete
is protected by patents and trade secrets, and our commercial
success will depend in significant part on our ability to obtain
and maintain patent and trade secret protection for our products
and methods. To compete in these markets, we rely on a
combination of trade secret protection, nondisclosure and
licensing agreements, patents and trademarks to establish and
protect our proprietary intellectual property rights, including
our proprietary rare earth production processes that are not
patented. We also have a proven technology and product
development group and as of May 13, 2011, we held 75 issued
and pending U.S. patents and patent applications, and 176
issued and pending foreign patents and patent applications. We
intend to rely on patented products, such as
XSORBX®,
and related licensing agreements to establish proprietary
markets for low demand REEs. These intellectual property rights
may be challenged or infringed upon by third parties or we may
be unable to maintain, renew or enter into new license
agreements with third-party owners of intellectual property on
reasonable terms. In addition, our intellectual property may be
subject to infringement or other unauthorized use outside of the
United States. In such case, our ability to protect our
intellectual property rights by legal recourse or otherwise may
be limited, particularly in countries where laws or enforcement
practices are undeveloped or do not recognize or protect
intellectual property rights to the same extent as the United
States. Unauthorized use of our intellectual property rights or
our inability to preserve existing intellectual property rights
could adversely impact our competitive position and results of
operations. The loss of our patents could
25
reduce the value of the related products. In addition, the cost
to litigate infringements of our patents, or the cost to defend
ourselves against patent infringement actions by others, could
be substantial.
Proprietary trade secrets and unpatented know-how are also very
important to our business. We rely on trade secrets to protect
certain aspects of our technology, especially where we do not
believe that patent protection is appropriate or obtainable.
However, trade secrets are difficult to protect. Our employees,
consultants, contractors, outside scientific collaborators and
other advisors may unintentionally or willfully disclose our
confidential information to competitors, and confidentiality
agreements may not provide an adequate remedy in the event of
unauthorized disclosure of confidential or proprietary
information. Enforcing a claim that a third party illegally
obtained and is using our trade secrets is expensive and time
consuming, and the outcome is unpredictable. Moreover, our
competitors may independently develop equivalent knowledge,
methods and know-how. Failure to obtain or maintain trade secret
protection could adversely affect our competitive business
position.
We may
not be able to obtain additional patents and the legal
protection afforded by any additional patents may not adequately
protect our rights or permit us to gain or keep any competitive
advantage.
Our ability to obtain additional patents is uncertain and the
legal protection afforded by these patents is limited and may
not adequately protect our rights or permit us to gain or keep
any competitive advantage. In addition, the specific content
required of patents and patent applications that are necessary
to support and interpret patent claims is highly uncertain due
to the complex nature of the relevant legal, scientific and
factual issues. Changes in either patent laws or interpretations
of patent laws in the United States or elsewhere may diminish
the value of our intellectual property or narrow the scope of
our patent protection. Even if patents are issued regarding our
products and processes, our competitors may challenge the
validity of those patents. Patents also will not protect our
products and processes if competitors devise ways of making
products without infringing our patents.
If we
infringe, or are accused of infringing, the intellectual
property rights of third parties, it may increase our costs or
prevent us from being able to sell our existing products or
commercialize new products.
There is a risk that we may infringe, or may be accused of
infringing, the proprietary rights of third parties under
patents and pending patent applications belonging to third
parties that may exist in the United States and elsewhere in the
world that relate to our rare earth products and processes.
Because the patent application process can take several years to
complete, there may be currently pending applications that may
later result in issued patents that cover our products and
processes. In addition, our products and processes may infringe
existing patents.
Defending ourselves against third-party claims, including
litigation in particular, would be costly and time consuming and
would divert managements attention from our business,
which could lead to delays in our expansion and modernization
efforts. If third parties are successful in their claims, we
might have to pay substantial damages or take other actions that
are adverse to our business. As a result of intellectual
property infringement claims, or to avoid potential claims, we
might:
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be prohibited from, or delayed in, selling or licensing some of
our products or using some of our processes unless the patent
holder licenses the patent to us, which it is not required to do;
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be required to pay substantial royalties or grant a cross
license to our patents to another patent holder; or
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be required to redesign a product or process so it does not
infringe a third partys patent, which may not be possible
or could require substantial funds and time.
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In addition, we could be subject to claims that our employees,
or we, have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information of third parties.
If we are unable to resolve claims that may be brought against
us by third parties related to their intellectual property
rights on terms acceptable to us, we may be precluded from
offering some of our products or using some of our processes.
26
Power
shortages at the Mountain Pass facility may temporarily delay
mining and processing operations and increase costs, which may
materially adversely impact our business.
Due to its position on the regional electric grid, the Mountain
Pass facility faces occasional power shortages during peak
periods. Instability in electrical supply in past years has
caused sporadic outages and brownouts and higher costs. Such
outages and brownouts have had a negative impact on production.
We plan to install a natural gas powered co-generation power
plant as part of our modernization and expansion of the Mountain
Pass facility to reduce energy costs at the Mountain Pass
facility as well as minimize or eliminate our reliance on the
regional electric power grid. If the co-generation power plant
is not installed, or is significantly delayed, we will remain
subject to the effects of occasional power outages and brownouts
and could experience temporary interruptions of mining and
processing operations. We then may be unable to fill customer
orders in a timely manner and may be subject to higher power
costs at the Mountain Pass facility. As a result, our revenue
could be adversely impacted and our relationships with our
customers could suffer, adversely impacting our ability to
generate future revenue. In addition, if power to the Mountain
Pass facility is disrupted during certain phases of our REO
extraction process, we may incur significant expenses that may
adversely affect our business.
Increasing
costs or limited access to raw materials may adversely affect
our profitability.
We use significant amounts of hydrochloric acid and sodium
hydroxide as reagents to process REOs. We ultimately intend to
produce our own hydrochloric acid and sodium hydroxide at the
Mountain Pass facility. While the technology used to produce
hydrochloric acid and sodium hydroxide is well developed, this
technology has not yet been implemented at the Mountain Pass
facility. Accordingly, we currently purchase hydrochloric acid
and sodium hydroxide in the open market and, as a result, we
could be subject to significant volatility in the cost or
availability of these reagents. We may not be able to pass
increased prices for these reagents through to our customers in
the form of price increases. A significant increase in the
price, or decrease in the availability, of these reagents before
we perfect our ability to produce them on site could materially
increase our operating costs and adversely affect our profit
margins from quarter to quarter.
Fluctuations
in transportation costs or disruptions in transportation
services could increase competition or impair our ability to
supply rare earth minerals or products to our customers, which
could adversely affect our results of operations.
Finding affordable and dependable transportation is important
because it allows us to supply customers around the world. Labor
disputes, derailments, adverse weather conditions or other
environmental events and changes to rail or ocean freight
systems could interrupt or limit available transport services,
which could result in customer dissatisfaction and loss of sales
potential and could materially adversely affect our results of
operations.
We
must process REOs to exacting specifications in order to provide
customers with a consistently high quality product. An inability
to perfect the mineral extraction process to meet individual
customer specifications may have a material adverse effect on
our financial condition or results of operations.
We process REOs to meet customer needs and specifications and to
provide customers with a consistently high quality product and a
purity higher than previously achieved in prior mining
operations at the Mountain Pass facility. An inability to
perfect the mineral extraction process to meet individual
customer specifications may have a material adverse effect on
our financial condition or results of operations. In addition,
customer needs and specifications may change with time. Any
delay or failure in developing processes to meet changing
customer needs and specifications may have a material adverse
effect on our financial condition or results of operations.
Diminished
access to water may adversely affect our
operations.
Currently, processing of REOs requires significant amounts of
water. The technology we are developing to significantly reduce
our need for fresh water, including proprietary production of
our own hydrochloric acid
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and sodium hydroxide from waste water at our own chlor-alkali
plant at our Mountain Pass facility, has not yet been proven at
commercial scale and has not yet been implemented. Although we
believe our existing water rights and water supply are
sufficient to meet our projected water requirements, any
decrease or disruption in our available water supply until this
technology is successfully developed may have a material adverse
effect on our operations and our financial condition or results
of operations.
Inaccuracies
in our estimates of REO reserves and resource deposits could
result in lower than expected revenues and higher than expected
costs.
We base our REO reserve and resource estimates on engineering,
economic and geological data assembled and analyzed by outside
firms, which are reviewed by our engineers and geologists. Ore
reserve estimates, however, are necessarily imprecise and depend
to some extent on statistical inferences drawn from available
drilling data, which may prove unreliable. There are numerous
uncertainties inherent in estimating quantities and qualities of
REO reserves and non-reserve REO deposits and costs to mine
recoverable reserves, including many factors beyond our control.
Estimates of economically recoverable REO reserves necessarily
depend upon a number of variable factors and assumptions, all of
which may vary considerably from actual results, such as:
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geological and mining conditions
and/or
effects from prior mining that may not be fully identified by
available data or that may differ from experience;
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assumptions concerning future prices of rare earth products,
operating costs, mining technology improvements, development
costs and reclamation costs; and
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assumptions concerning future effects of regulation, including
the issuance of required permits and taxes by governmental
agencies.
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Any inaccuracy in our estimates related to our REO reserves and
non-reserve REO deposits could result in lower than expected
revenues and higher than expected costs or a shortened estimated
life for the mine at the Mountain Pass facility.
Period-to-period
conversion of probable rare earth ore reserves to proven ore
reserves may result in increases or decreases to the total
reported amount of ore reserves. Conversion, an indicator of the
success in upgrading probable ore reserves to proven ore
reserves, is evaluated annually. Conversion rates are affected
by a number of factors, including geological variability,
applicable mining methods and changes in safe mining practices,
economic considerations and new regulatory requirements.
Work
stoppages or similar difficulties could significantly disrupt
our operations, reduce our revenues and materially adversely
affect our results of operations.
As of April 30, 2011, approximately 87 employees at
the Mountain Pass facility were covered by a collective
bargaining agreement with the United Steelworkers of America
that expires in March 2012. A work stoppage at the Mountain Pass
facility could significantly disrupt our operations, reduce our
revenues and materially adversely affect our results of
operations.
A
shortage of skilled technicians and engineers may further
increase operating costs, which may materially adversely affect
our results of operations.
Efficient production of rare earth products using modern
techniques and equipment requires skilled technicians and
engineers. In addition, our expansion efforts will significantly
increase the number of skilled technicians and engineers
required to successfully operate our business. In the event that
we are unable to hire and train the necessary number of skilled
technicians and engineers, there could be an adverse impact on
our labor costs and our ability to reach full planned production
levels in a timely manner, which could have a material adverse
effect on our results of operations.
28
We
depend on key personnel for the success of our
business.
We depend on the services of our senior management team and
other key personnel. The loss of the services of any member of
senior management or a key employee could have an adverse effect
on our business. We may not be able to locate, attract or employ
on acceptable terms qualified replacements for senior management
or other key employees if their services are no longer available.
Because
of the dangers involved in the mining of minerals and the
manufacture of mineral products, there is a risk that we may
incur liability or damages as we conduct our
business.
The mining of minerals and the manufacture of mineral products
involves numerous hazards, including:
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unusual and unexpected rock formations affecting ore or wall
rock characteristics;
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ground or slope failures;
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environmental hazards;
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industrial accidents;
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processing problems;
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periodic interruptions due to inclement or hazardous weather
conditions or other acts of God; and
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mechanical equipment failure and facility performance problems.
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Although we maintain insurance to address certain risks involved
in our business, such as coverage for pollution liability,
property damage, business interruption and workers compensation,
there can be no assurance that we will be able to maintain
insurance to cover these risks at economically feasible
premiums. Additionally, we cannot be certain that all claims we
may make under our insurance policies will be deemed to be
within the scope of, or fully covered by, our policies.
Furthermore, we do not maintain coverage for losses resulting
from acts of terrorism. We might also become subject to
liability for environmental damage or other hazards that may be
uninsurable or for which we may elect not to insure because of
premium costs or commercial impracticality. These policies
contain limits of coverage and exclusions that are typical of
such policies generally. For example, our pollution liability
policy has $20 million aggregate and per incident limits
and excludes, among other things, costs associated with closure,
post-closure and reclamation. The payment of such premiums, or
the assumption of such liabilities, may have a material adverse
effect on our financial position and results of operations.
Risks
Related to Environmental Regulation
Our
operations are subject to extensive and costly environmental
requirements; and current and future laws, regulations and
permits will impose significant costs, liabilities or
obligations or could limit or prevent our ability to continue
our current operations or to undertake new
operations.
We are subject to numerous and detailed international, national,
federal, state and local environmental laws, regulations and
permits, including those pertaining to employee health and
safety, environmental permitting and licensing, air quality
standards, greenhouse gas, or GHG, emissions, water usage and
disposal, pollution, waste management, plant and wildlife
protection, including the protection of endangered species,
handling and disposal of radioactive substances, remediation of
soil and groundwater contamination, land use, reclamation and
restoration of properties, the discharge of materials into the
environment and groundwater quality and availability. As a
result of our acquisition of Molycorp Silmet AS, we are
also subject to foreign environmental laws and regulations,
including those applicable in Estonia. These requirements may
result in significant costs, liabilities and obligations, impose
conditions that are difficult to achieve or otherwise delay,
limit or prohibit current or planned operations. Consequently,
the modernization and expansion of the Mountain Pass facility
may be delayed, limited or prevented and current operations may
be curtailed. Failure to comply with these laws, regulations and
permits may result in the assessment of administrative, civil
and criminal penalties, the issuance of injunctions to limit or
cease operations, the suspension or revocation of permits and
other sanctions. Pursuant to such requirements, we may also be
subject to third-party claims,
29
including for damages to property or injury to persons arising
from our operations. Moreover, these environmental requirements,
and the interpretation and enforcement thereof, change
frequently and have tended to become more stringent over time.
For example, GHG emission regulation is becoming more rigorous.
As a result of our planned expansion at the Mountain Pass
facility, we expect to be required to report annual GHG
emissions from our operations, and additional GHG emission
related requirements are in various stages of development. The
U.S. Congress is considering various legislative proposals
to address climate change. In addition, the
U.S. Environmental Protection Agency, or EPA, has issued
regulations, including the Tailoring Rule, that
subject GHG emissions from certain stationary sources to the
Prevention of Significant Deterioration and Title V
provisions of the federal Clean Air Act. California is also
implementing regulations pursuant to its Global Warming
Solutions Act that will establish a state-wide cap-and trade
program for GHG emissions. Our operations in Arizona and Estonia
may also be subject to GHG requirements. Any such regulations
could require us to modify existing permits or obtain new
permits, implement additional pollution control technology,
curtail operations or increase significantly our operating
costs, any of which could adversely affect our business,
financial condition, reputation, operating performance and
product demand.
Any future changes in these laws, regulations or permits (or the
interpretation or enforcement thereof) or any sanctions,
damages, costs, obligations or liabilities in respect of these
matters could have a material adverse effect on our business,
results of operations and financial condition.
We are
subject to the Occupational Safety and Health Act of 1970, the
Federal Mine Safety and Health Act of 1977 and the California
Occupational Safety and Health Program, and regulations adopted
pursuant thereto, which impose stringent health and safety
standards on numerous aspects of our operations.
Our operations at the Mountain Pass facility are subject to the
Federal Mine Safety and Health Act of 1977, as amended by the
Mine Improvement and New Emergency Response Act of 2006, and the
regulations adopted by the California Occupational Safety and
Health Administration, which impose stringent health and safety
standards on numerous aspects of mineral extraction and
processing operations, including the training of personnel,
operating procedures, operating equipment and other matters. Our
operations at the MMA and the Mountain Pass facilities are also
subject to the Occupational Safety and Health Act of 1970. Our
failure to comply with these or other applicable safety and
health standards, or changes in such standards or the
interpretation or enforcement thereof, could have a material
adverse effect on our business, financial condition or otherwise
impose significant restrictions on our ability to conduct
mineral extraction and processing operations.
Our
operations may affect the environment or cause exposure to
hazardous substances, any of which could result in material
costs, obligations or liabilities.
Our operations currently use, and in the past have used,
hazardous materials and generate, and in the past have
generated, hazardous and naturally occurring radioactive wastes.
The Molycorp Silmet AS facility in Estonia has a long history of
industrial use, including uranium ore and alum shale processing,
as a result of which its operations may have impacted the
environment. In addition, our Estonian operations require the
management and disposal of radioactive wastes. The Mountain Pass
facility has been used for mining and related purposes since
1952, and contamination is known to exist around the facility.
We may be subject to claims under environmental laws,
regulations and permits for toxic torts, natural resource
damages and other liabilities, as well as for the investigation
and remediation of soil, surface water, groundwater and other
environmental media. The Mountain Pass facility is currently
subject to an order issued by the Lahontan Regional Water
Quality Control Board pursuant to which we have conducted
various investigatory and remedial actions, primarily related to
certain onsite impoundments, including groundwater monitoring,
extraction and treatment and soil remediation. We are still in
the process of delineating the extent of groundwater
contamination at and around the facility and cannot assure you
that we will not incur material costs relating to the
remediation of such contamination. Also, prior to our
acquisition of the Mountain Pass facility, leaks in a wastewater
pipeline from the Mountain Pass facility to offsite evaporation
ponds on the Ivanpah dry lake bed caused contamination. However,
that contamination is being remediated by Chevron Mining Inc.,
who retained ownership of the ponds and the
30
pipeline. In addition to claims arising out of our current or
former properties, such claims may arise in connection with
contaminated third-party sites at which we have disposed of
waste. As a matter of law, and despite any contractual indemnity
or allocation arrangements or acquisition agreements to the
contrary, our liability for these claims may be joint and
several, so that we may be held responsible for more than our
share of any contamination, or even for the entire share. These
and similar unforeseen impacts that our operations may have on
the environment, as well as human exposure to hazardous or
radioactive materials or wastes associated with our operations,
could have a material adverse effect on our business,
reputation, results of operation and financial condition.
We may
be unable to obtain, maintain or renew permits necessary for the
development or operation of our facilities, which could have a
material adverse effect on our business, results of operations
and financial condition.
We must obtain, for all our operations, a number of permits that
impose strict conditions, requirements and obligations relating
to various environmental and health and safety matters in
connection with our current and future operations, including the
modernization and expansion of the Mountain Pass facility. To
obtain, maintain and renew certain permits, we may be required
to conduct environmental studies and collect and present data to
governmental authorities pertaining to the potential impact of
our current and future operations upon the environment,
including the potential impact on endangered species, and to
take steps to avoid or mitigate those impacts. The permitting
rules, and interpretation thereof, are complex and have tended
to become more stringent over time. In some cases, the public
(including environmental interest groups) has rights to comment
upon and submit objections to permit applications and
environmental analysis prepared in connection therewith, and
otherwise participate in the permitting process, including
challenging the issuance of permits, validity of environmental
analyses and determinations and performance of permitted
activities. Accordingly, permits required for our operations,
including the modernization and expansion of the Mountain Pass
facility, may not be issued, maintained or renewed in a timely
fashion or at all, may be issued or renewed upon conditions that
restrict our ability to conduct our operations economically, or
may be subsequently revoked. Any such failure to obtain,
maintain or renew permits, or other permitting delays or
conditions, including in connection with any environmental
impact analyses, could have a material adverse effect on our
business, results of operations and financial condition.
Our
inability to acquire, maintain or renew financial assurances
related to the reclamation and restoration of mining property
could have a material adverse effect on our business and results
of operations.
We are generally obligated to restore property after it has been
mined in accordance with regulatory standards and our approved
reclamation plan at our Mountain Pass facility. We are required
under federal, state and local laws to maintain financial
assurances, such as surety bonds, to secure such obligations.
The failure to acquire, maintain or renew such assurances, as
required by federal, state and local laws, could subject us to
fines and penalties as well as the revocation of our operating
permits. Such failure could result from a variety of factors,
including:
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the lack of availability, higher expense or unreasonable terms
of such financial assurances;
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the ability of current and future financial assurance
counterparties to increase required collateral; and
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the exercise by third-party financial assurance counterparties
of any rights to refuse to renew the financial assurance
instruments.
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Our inability to acquire or failure to maintain or renew such
financial assurances could have a material adverse effect on our
business, financial condition and results of operations.
If the
assumptions underlying our reclamation plan and mine closure
obligations are inaccurate, we could be required to expend
materially greater amounts than anticipated to reclaim mined
property, which could materially and adversely affect our
business, results of operations and financial
condition.
Federal, state and local laws and regulations establish
reclamation and closure standards applicable to our surface
mining and other operations as well. Estimates of our total
reclamation and mine closing liabilities are
31
based upon our closure and reclamation plans, third-party expert
reports, current applicable laws and regulations, certain permit
terms and our engineering expertise related to these
requirements. Any change in the underlying assumptions or other
variation between the estimated liabilities and actual costs
could materially and adversely affect our business, results of
operations and financial condition.
Risks
Related to Ownership of Our Common Stock
A
trading market that will provide our stockholders with adequate
liquidity may not be sustained. Our common stock has only been
publicly traded since July 2010, and the price of our common
stock may fluctuate significantly. Accordingly, stockholders
could lose all or part of their investment.
Our shares of common stock began trading on the New York Stock
Exchange, or NYSE, in July 2010. An active trading market for
our common stock may not be sustained, which could depress the
market price of our common stock and could affect holders
ability to sell their shares of common stock. Limited trading
volumes and liquidity may result in wide bid-ask spreads,
contribute to significant fluctuations in the market price of
our common stock and limit the number of investors who are able
to buy our common stock.
The market price of our common stock has been, and is likely to
continue to be, highly volatile and may be influenced by many
factors, some of which are beyond our control, including:
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the extremely volatile rare earth industry;
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our quarterly or annual earnings or those of other companies in
our industry;
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loss of a large customer;
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changes in accounting standards, policies, guidance,
interpretations or principles;
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general economic conditions;
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the failure of securities analysts to cover our stock or changes
in financial estimates by analysts;
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future sales of our common stock; and
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other factors described in this Risk Factors section.
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Our common stock price has been particularly affected by the
volatility in the rare earths industry, as the high and the low
sales price of our common stock in the period since we went
public in July 2010 has ranged from a low of $12.10 to a high of
$79.16. If conditions in our industry remain volatile, our
common stock price may continue to exhibit volatility as well.
In particular, if prices or demand for rare earth were to
decline, our stock price would likely decline.
Reports
published by securities or industry analysts, including
projections in those reports that exceed our actual results,
could adversely affect our stock price and trading
volume.
Research analysts publish their own quarterly projections
regarding our operating results. These projections may vary
widely from one another and may not accurately predict the
results we actually achieve. Our stock price may decline if we
fail to meet securities research analysts projections.
Similarly, if one or more of the analysts who covers us
downgrades our stock or publishes inaccurate or unfavorable
research about our business, our stock price could decline. If
one or more of these analysts ceases coverage of us or fails to
publish reports on us regularly, our stock price or trading
volume could decline.
Future
sales, or availability for sale, of shares of common stock by
stockholders could depress the market price of our common
stock.
Sales of a substantial number of shares of our common stock in
the public market following this offering, or the perception
that large sales could occur, or the conversion of shares of our
mandatory convertible preferred stock into common stock or the
perception that conversion could occur, could depress the market
price of our common stock. As of May 23, 2011, we had
83,895,501 shares of our common stock outstanding. All of
these shares are freely tradable, except for any shares held by
our affiliates as defined in Rule 144 under the
Securities Act of
32
1933 and the 1,593,419 shares of common stock issued to
Silmet Grupp in connection with our acquisition of Molycorp
Silmet AS. Following this
offering,
shares of common stock,
or
shares of common stock if the underwriters exercise their option
to purchase additional shares of common stock in this offering
in full, will be beneficially owned by our affiliates.
Additionally, up to 4,140,000 shares of our common stock,
subject to anti-dilution, make-whole and other adjustments, are
issuable upon conversion of shares of our mandatory convertible
preferred stock. All of these shares will be freely tradeable.
Holders, some of whom are selling stockholders, of
39,326,203 shares of common stock (and following this
offering, 29,326,203 shares of common stock, or
27,826,203 shares of common stock if the underwriters
exercise their option to purchase additional shares of common
stock in this offering in full) have signed
lock-up
agreements under which they have agreed, subject to certain
exceptions, including the sale of shares in this offering, not
to sell, transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities into or exercisable
or exchangeable for shares of our common stock without the prior
written consent of J.P. Morgan Securities LLC and Morgan
Stanley & Co. Incorporated for a period of
90 days, subject to a possible extension under certain
circumstances, after the date of this prospectus.
J.P. Morgan Securities LLC and Morgan Stanley &
Co. Incorporated may, in their sole discretion, permit the sale
of these shares prior to the expiration of the
lock-up
agreements. After the expiration of the
lock-up
period, these shares may be sold in the public market, subject
to prior registration or qualification for an exemption from
registration, including, in the case of shares held by
affiliates, compliance with the volume restrictions of
Rule 144. To the extent that any of these stockholders
sell, or indicate an intent to sell, substantial amounts of our
common stock in the public market after the contractual
lock-ups and
other legal restrictions on resale discussed in this prospectus
lapse, the trading price of our common stock could decline
significantly.
Silmet Grupp has signed a
lock-up
agreement that imposes certain restrictions on Silmet
Grupps ability to transfer the 1,593,419 shares of
common stock issued to it in connection with our acquisition of
Molycorp Silmet AS, including a
90-day
lock-up
period expiring on June 30, 2011 during which Silmet Grupp
is restricted from offering, selling, pledging or otherwise
transferring or disposing of such shares. Pursuant to the
lock-up
agreement, following the
90-day
lock-up
period, Silmet Grupp may not sell more than 159,341 shares
of the common stock in any single public or private sale.
Subject to compliance with the
lock-up
agreement, the 1,593,419 shares of common stock issued to
Silmet Grupp in connection with our acquisition of Molycorp
Silmet AS may be sold in the public market, subject to prior
registration or qualification for an exemption from
registration. On or before August 5, 2011, we are required
to file a registration statement registering the sale from time
to time of the 1,593,419 shares of common stock issued to
Silmet Grupp. To the extent that Silmet Grupp sells, or
indicates an intent to sell, substantial amounts of our common
stock in the public market after the registration of its shares,
the trading price of our common stock could decline
significantly.
In addition, the 3,978,847 shares reserved for future
issuance under our Molycorp, Inc. 2010 Equity and Performance
Incentive Plan, as of May 13, 2011, will become eligible
for sale in the public market in the future, subject to certain
legal and contractual limitations. If these additional shares
are sold, or if it is perceived that they will be sold, in the
public market, the price of our common stock could decline
substantially.
The
availability of shares of our common stock for sale in the
future could reduce the market price of our common
stock.
In the future, we may issue additional securities to raise
capital, including our expected issuance of $100 million of
common stock to Sumitomo, which is subject to the finalization
of definitive agreements, various approvals and the satisfaction
of numerous conditions. The number of shares of common stock
issued to Sumitomo if definitive agreements are executed will
vary depending on changes in the price of our common stock. We
may also acquire interests in other companies by using a
combination of cash and our common stock or just our common
stock. We may also issue securities convertible into our common
stock in addition to our mandatory convertible preferred stock.
Any of these events may dilute your ownership interest in our
company and have an adverse impact on the price of our common
stock. In addition, sales of a substantial amount of our common
stock in the public market, or the perception that these sales
may occur, could reduce the market price of our common stock.
This could also impair our ability to raise additional capital
through the sale of our securities.
33
We do
not intend to pay dividends on our common stock, in the
foreseeable future.
For the foreseeable future, we intend to retain any earnings,
after considering any dividends on our preferred stock, to
finance the development of our business, and we do not
anticipate paying any cash dividends on our common stock. Any
future determination to pay dividends will be at the discretion
of our board of directors and will be dependent upon
then-existing conditions, including our operating results and
financial condition, capital requirements, contractual
restrictions, business prospects and other factors that our
board of directors considers relevant. So long as any share of
our mandatory convertible preferred stock remains outstanding,
no dividend or distribution may be declared or paid on our
common stock unless all accumulated and unpaid dividends have
been paid on our mandatory convertible preferred stock, subject
to exceptions, such as dividends on our common stock payable
solely in shares of our common stock. Accordingly, holders of
our common stock must rely on sales of their common stock after
price appreciation, which may never occur, as the only way to
realize a return on their shares of common stock.
Our
ability to use our net operating loss carryforwards may be
subject to limitation due to significant changes in the
ownership of our common stock.
As of March 31, 2011, we had gross net operating loss
carryforwards of approximately $14.0 million for
U.S. federal income tax purposes. Under Section 382 of
the Internal Revenue Code of 1986, as amended, or the Code, if a
corporation undergoes an ownership change, the
corporations ability to use its pre-change net operating
loss carryforwards and other tax attributes to offset its
post-change income may be limited and may result in a partial or
full writedown of the related deferred tax assets. An ownership
change is defined generally for these purposes as a greater than
50% change in ownership over a three-year period, taking into
account shareholders that own 5% or more by value of our common
stock. Depending on the number of shares sold by the selling
stockholders in this offering, it is possible that this
offering, in combination with past and future transactions
involving our common stock, will cause an ownership change to
occur that would limit our ability to use our existing net
operating loss carryforwards. As of March 31, 2011, we have
established a full valuation allowance against our
$21.3 million net deferred tax assets.
Anti-takeover
provisions contained in our certificate of incorporation and
bylaws after the corporate reorganization, as well as provisions
of Delaware law, could impair a takeover attempt.
Our certificate of incorporation and bylaws provisions may have
the effect of delaying, deferring or discouraging a prospective
acquiror from making a tender offer for our shares or otherwise
attempting to obtain control of us. To the extent that these
provisions discourage takeover attempts, they could deprive
stockholders of opportunities to realize takeover premiums for
their shares. Moreover, these provisions could discourage
accumulations of large blocks of common stock, thus depriving
stockholders of any advantages which large accumulations of
stock might provide.
As a Delaware corporation, we are also subject to provisions of
Delaware law, including Section 203 of the General
Corporation Law of the State of Delaware. Section 203
prevents some stockholders holding more than 15% of our
outstanding common stock from engaging in certain business
combinations unless the business combination was approved in
advance by our board of directors, results in the stockholder
holding more than 85% of our outstanding common stock or is
approved by the holders of at least
662/3%
of our outstanding common stock not held by the stockholder
engaging in the transaction.
Any provision of our certificate of incorporation or our bylaws
or Delaware law that has the effect of delaying or deterring a
change in control could limit the opportunity for our
stockholders to receive a premium for their shares of our common
stock and could also affect the price that some investors are
willing to pay for our common stock.
Our
board of directors can issue, without stockholder approval,
preferred stock with voting and conversion rights that could
adversely affect the voting power of the holders of common
stock.
Our board of directors can issue, without stockholder approval,
preferred stock with voting and conversion rights that could
adversely affect the voting power of the holders of common stock
and reduce the likelihood that
34
such holders will receive dividend payments or payments upon
liquidation, including shares of our mandatory convertible
preferred stock. Such issuance could have the effect of
decreasing the market price of the common stock. The issuance of
preferred stock or even the ability to issue preferred stock
could also have the effect of delaying, deterring or preventing
a change of control or other corporate action.
Our
mandatory convertible preferred stock may adversely affect the
market price of our common stock.
The market price of our common stock is likely to be influenced
by our mandatory convertible preferred stock. For example, the
market price of our common stock could become more volatile and
could be depressed by:
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|
|
|
|
investors anticipation of the potential resale in the
market of a substantial number of additional shares of our
common stock received upon conversion of our mandatory
convertible preferred stock;
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|
|
|
possible sales of our common stock by investors who view our
mandatory convertible preferred stock as a more attractive means
of equity participation in us than owning shares of our common
stock; and
|
|
|
|
hedging or arbitrage trading activity that may develop involving
our mandatory convertible preferred stock and our common stock.
|
Our
board of directors and management have broad discretion over the
use of our cash reserves and might not apply this cash in ways
that increase the value of your investment.
We have $492.5 million of cash and cash equivalents as of
March 31, 2011, primarily from our initial public offering
and our offering of mandatory convertible preferred stock. We
presently intend to use the majority of our remaining cash
reserves and any proceeds that may be received from the sale of
our common stock to Sumitomo to restart mining operations,
construct and refurbish processing facilities and other
infrastructure at the Mountain Pass facility in connection with
our initial modernization and expansion plan and the capacity
expansion plan and expand into metal, alloy and magnet
production. Our board of directors and management have broad
discretion to use our cash reserves, and you will be relying on
their judgment regarding the application of this cash. Our board
of directors and management might not apply the cash in ways
that increase the value of your investment. Until we use the
cash, we plan to invest it, and these investments may not yield
a favorable rate of return. If we do not invest or apply the
cash in ways that enhance stockholder value, we may fail to
achieve expected financial results, which could cause our stock
price to decline.
We
will be required by Section 404 of the Sarbanes-Oxley Act
to evaluate the effectiveness of our internal controls. If we
are unable to achieve and maintain effective internal controls,
particularly in a period of anticipated rapid growth, our
operating results and financial condition could be
harmed.
We will be required to comply with Section 404 of the
Sarbanes-Oxley Act beginning with the year ending
December 31, 2011. Section 404 requires that we
evaluate our internal control over financial reporting to enable
management to report on the effectiveness of those controls.
Management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of our consolidated
financial statements in accordance with U.S. GAAP. While we
have begun the comprehensive process of evaluating our internal
controls, we are in the early phases of our review and we cannot
predict the outcome of our review at this time. During the
course of the review, we may identify control deficiencies of
varying degrees of severity and we have undertaken a process to
evaluate and improve our internal controls.
We have taken steps to improve our internal control over
financial reporting and we have incurred significant costs to
remediate identified deficiencies and improve our internal
controls, and will incur additional expense as we undertake the
modernization and expansion of the Mountain Pass facility. As we
implement this modernization and expansion, the resulting growth
in our business will require us to implement additional internal
controls. To comply with Sarbanes-Oxley requirements, especially
during this period of anticipated rapid growth, we will need to
further upgrade our systems, including information technology,
implement additional financial and management controls,
35
reporting systems and procedures and hire additional accounting,
finance and legal staff. If we are unable to upgrade our systems
and procedures or hire the necessary additional personnel in a
timely and effective fashion, we may not be able to comply with
our financial reporting requirements and other rules that apply
to public companies.
As a public company, we are required to report internal control
deficiencies that constitute material weaknesses in our internal
control over financial reporting. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Internal Controls. If we qualify as
an accelerated filer or a large accelerated
filer under
Rule 12b-2
of the Securities Exchange Act of 1934, or the Exchange Act, we
will also be required to obtain an audit report from our
independent registered public accounting firm beginning in 2011
regarding the effectiveness of our internal control over
financial reporting. If we fail to implement the requirements of
Section 404 in a timely manner, if we or, to the extent
applicable, our independent registered public accounting firm
are unable to conclude that our internal control over financial
reporting is effective, or if we fail to comply with our
financial reporting requirements, investors may lose confidence
in the accuracy and completeness of our financial reports.
36
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled
Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, Rare Earth
Industry Overview and Business, contains
forward-looking statements that represent our beliefs,
projections and predictions about future events or our future
performance. You can identify forward-looking statements by
terminology such as may, will,
would, could, should,
expect, intend, plan,
anticipate, believe,
estimate, predict,
potential, continue or the negative or
plural 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 our 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:
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our ability to secure sufficient capital to implement our
business plans;
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our ability to complete our initial modernization and expansion
plan, as well as our capacity expansion plan, and reach full
planned production rates for REOs and other planned downstream
products;
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|
|
uncertainties associated with our reserve estimates and
non-reserve deposit information;
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|
uncertainties regarding global supply and demand for rare earth
materials;
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|
our ability to maintain appropriate relations with unions and
employees;
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|
our ability to successfully implement our
mine-to-magnets
strategy;
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commercial acceptance of our new products, such as
XSORBX®;
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environmental laws, regulations and permits affecting our
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 us;
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uncertainties associated with unanticipated geological
conditions related to mining; and
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risks associated with the acquisition and integration of new
business operations, including the failure to realize
anticipated synergies and maximize the financial and strategic
position of the combined enterprise.
|
See Risk Factors for a more complete discussion of
these risks and uncertainties and for other risks and
uncertainties. Any forward-looking statement you read in this
prospectus reflects our current views with respect to future
events and is subject to these and other risks, uncertainties
and assumptions relating to our 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. We assume 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.
This prospectus also contains statistical data and estimates we
obtained from industry publications and reports generated by
third parties. Although we believe that the publications and
reports are reliable, we have not independently verified their
data.
37
USE OF
PROCEEDS
We will not receive any proceeds from the sale of shares in this
offering by the selling stockholders. See Principal and
Selling Stockholders.
38
COMMON
STOCK PRICE RANGE
Our common stock is listed on The New York Stock Exchange under
the symbol MCP. Our initial public offering was
priced at $14.00 per share on July 29, 2010. The following
table sets forth, for the periods indicated, the high and low
sales prices for our common stock as reported on The New York
Stock Exchange.
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Low
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High
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Year ending December 31, 2011
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Second Quarter (through May 23, 2011)
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$
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57.00
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|
$
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79.16
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First Quarter
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$
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40.25
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$
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62.80
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Year ended December 31, 2010
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|
|
|
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Fourth Quarter
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$
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26.02
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$
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55.22
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Third Quarter (from July 29, 2010)
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$
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12.10
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$
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30.00
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The last reported sales price for our common stock on
May 23, 2011 is set forth on the cover page of this
prospectus. As of May 23, 2011, there were approximately 90
holders of record of our common stock.
39
CAPITALIZATION
The following table sets forth our consolidated cash and cash
equivalents and our capitalization as of March 31, 2011.
The information in this table should be read in conjunction with
Selected Consolidated Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and the related notes included elsewhere in
this prospectus.
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March 31, 2011
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(In thousands,
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except share and
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per share amounts)
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Cash and cash equivalents
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$
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492,495
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Long-term debt
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$
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Stockholders equity:
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Preferred stock, $0.001 par value; 5,000,000 shares
authorized and 2,070,000 shares issued and outstanding
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2
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Common stock, $0.001 par value; 350,000,000 shares
authorized and 82,300,610 shares outstanding
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82
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Additional paid-in capital
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742,440
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Deficit accumulated during the development stage
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(95,633
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)
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|
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Total equity (deficit)
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646,891
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|
|
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Total capitalization
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$
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699,473
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|
|
|
|
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40
DIVIDEND
POLICY
Since our inception, we have not paid any cash dividends. For
the foreseeable future, we intend to retain any earnings, after
considering any dividends on our preferred stock, to finance the
development of our business. We do not anticipate paying any
cash dividends on our common stock. Any future determination to
pay dividends, including on our mandatory convertible preferred
stock, will be at the discretion of our board of directors and
will depend upon then-existing conditions, including our
operating results and our financial condition, capital
requirements, contractual restrictions, business prospects and
other factors that our board of directors may deem relevant. So
long as any share of our mandatory convertible preferred stock
remains outstanding, no dividend or distribution may be declared
or paid on our common stock unless all accrued and unpaid
dividends have been paid on our mandatory convertible preferred
stock, subject to exceptions, such as dividends on our common
stock payable solely in shares of our common stock.
41
SELECTED
CONSOLIDATED FINANCIAL DATA
Upon the formation of Molycorp, LLC on September 9, 2009,
all members of Molycorp Minerals, LLC contributed their member
interests to Molycorp, LLC in exchange for member interests in
Molycorp, LLC. That exchange was treated as a reorganization of
entities under common control and Molycorp Minerals, LLC is the
predecessor to Molycorp, LLC. Accordingly, all financial
information of Molycorp, LLC for periods prior to its formation
is the historical financial information of Molycorp Minerals,
LLC. Molycorp Minerals, LLC acquired the Mountain Pass,
California rare earth deposit and associated assets from Chevron
Mining Inc., a subsidiary of Chevron Corporation, on
September 30, 2008.
The selected consolidated financial data as of and for the years
ended December 31, 2010 and 2009, and for the period from
June 12, 2008 (Inception) through December 31, 2010
has been derived from Molycorp, Incs audited consolidated
financial statements and the related notes included elsewhere in
this prospectus. The selected consolidated financial data for
the period from June 12, 2008 (Inception) through
December 31, 2008 has been derived from Molycorp,
LLCs audited consolidated financial statements and the
related notes. The selected consolidated financial data as of
March 31, 2011 and for the three months ended March 31,
2011 and 2010 has been derived from Molycorp, Incs
unaudited condensed consolidated financial statements and the
related notes included elsewhere in this prospectus.
Molycorp, Inc. was formed on March 4, 2010 for the purpose
of continuing the business of Molycorp, LLC in corporate form.
On April 15, 2010, the members of Molycorp, LLC contributed
either (a) all of their member interests in Molycorp, LLC
or (b) all of their equity interests in entities that hold
member interests in Molycorp, LLC (and no other assets or
liabilities) to Molycorp, Inc. in exchange for shares of
Molycorp, Inc., and, as a result, Molycorp, LLC became a wholly
owned subsidiary of Molycorp, Inc. Accordingly, all financial
information of Molycorp, Inc. for periods prior to the corporate
reorganization is the historical financial information of
Molycorp, LLC.
As a limited liability company, the taxable income and losses of
Molycorp, LLC were reported on the income tax returns of its
members. Molycorp, Inc. is subject to federal and state income
taxes and will file consolidated income tax returns. If the
corporate reorganization had been effective as of
January 1, 2009, our net loss of $28.6 million for the
year ended December 31, 2009 would have generated an
unaudited pro forma deferred income tax benefit of
$11.3 million for the year ended December 31, 2009
assuming a combined federal and state statutory income tax rate.
However, as realization of such tax benefit would not have been
assured, we would have also established a valuation allowance of
$11.3 million to eliminate such pro forma tax benefit.
The selected consolidated financial data set forth below should
be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of
Operations and the financial statements and the notes
thereto included elsewhere in this prospectus.
42
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Total from
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Three Months
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Year Ended
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June 12, 2008
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June 12, 2008
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Ended March 31,
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December 31,
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December 31,
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(Inception) through
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(Inception) through
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Statement of Operations Data
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2011(4)
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2010
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|
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2010(4)
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2009
|
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December 31, 2008
|
|
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December 31, 2010(4)
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(In thousands, except share and per share data)
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Sales
|
|
$
|
26,261
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|
|
$
|
3,018
|
|
|
$
|
35,157
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|
|
$
|
7,093
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|
|
$
|
2,137
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|
|
$
|
44,387
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|
Cost of goods sold(1)
|
|
|
(16,677
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)
|
|
|
(5,950
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)
|
|
|
(37,591
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)
|
|
|
(21,785
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)
|
|
|
(13,027
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)
|
|
|
(72,403
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)
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Selling, general and administrative expense
|
|
|
(8,339
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)
|
|
|
(4,480
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)
|
|
|
(18,774
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)
|
|
|
(12,444
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)
|
|
|
(2,829
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)
|
|
|
(34,047
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)
|
Stock-based compensation
|
|
|
(2,899
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)
|
|
|
|
|
|
|
(28,739
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)
|
|
|
(241
|
)
|
|
|
(150
|
)
|
|
|
(29,130
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)
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Depreciation and amortization expense
|
|
|
(83
|
)
|
|
|
(95
|
)
|
|
|
(319
|
)
|
|
|
(191
|
)
|
|
|
(19
|
)
|
|
|
(529
|
)
|
Accretion expense
|
|
|
(234
|
)
|
|
|
(263
|
)
|
|
|
(912
|
)
|
|
|
(1,006
|
)
|
|
|
(250
|
)
|
|
|
(2,168
|
)
|
Operating loss
|
|
|
(1,971
|
)
|
|
|
(7,770
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)
|
|
|
(51,178
|
)
|
|
|
(28,574
|
)
|
|
|
(14,138
|
)
|
|
|
(93,890
|
)
|
Net loss
|
|
$
|
(2,198
|
)
|
|
$
|
(7,749
|
)
|
|
$
|
(50,774
|
)
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(93,435
|
)
|
Weighted average shares outstanding (Common shares)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
82,253,700
|
|
|
|
48,155,533
|
|
|
|
62,332,054
|
|
|
|
39,526,568
|
|
|
|
38,829,225
|
|
|
|
48,306,760
|
|
Diluted
|
|
|
82,253,700
|
|
|
|
48,155,533
|
|
|
|
62,332,054
|
|
|
|
39,526,568
|
|
|
|
38,829,225
|
|
|
|
48,306,760
|
|
Loss per share of common stock(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(1.93
|
)
|
Diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(1.93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Balance Sheet Data
|
|
2011(4)
|
|
|
2010
|
|
|
2010(4)
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
492,495
|
|
|
$
|
7,452
|
|
|
$
|
316,430
|
|
|
$
|
6,929
|
|
Total current assets
|
|
|
534,094
|
|
|
|
19,392
|
|
|
|
353,432
|
|
|
|
18,520
|
|
Total assets
|
|
|
699,473
|
|
|
|
101,026
|
|
|
|
479,560
|
|
|
|
97,666
|
|
Total non-current liabilities
|
|
|
12,922
|
|
|
|
13,847
|
|
|
|
12,335
|
|
|
|
13,528
|
|
Total liabilities
|
|
|
52,582
|
|
|
|
23,860
|
|
|
|
33,047
|
|
|
|
23,051
|
|
Members equity
|
|
|
|
|
|
|
77,166
|
|
|
|
|
|
|
|
74,615
|
|
Stockholders equity
|
|
|
646,891
|
|
|
|
|
|
|
|
446,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
June 12, 2008
|
|
|
June 12, 2008
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
(Inception) through
|
|
|
(Inception) through
|
|
Other Financial Data
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
December 31, 2008
|
|
|
December 31, 2010
|
|
|
|
(In thousands)
|
|
|
Capital expenditures(3)
|
|
$
|
26,345
|
|
|
$
|
2,840
|
|
|
$
|
33,129
|
|
|
$
|
7,285
|
|
|
$
|
321
|
|
|
$
|
40,735
|
|
|
|
|
(1) |
|
Cost of goods sold includes write-downs of inventory to
estimated net realizable value of $0.6 million for the
three months ended March 31, 2011 and 2010. Cost of goods
sold includes write-downs of inventory to estimated net
realizable value of $2.5 million, $9.0 million,
$9.5 million and $21.0 million for the years ended
December 31, 2010 and 2009, for the period from
June 12, 2008 (Inception) through December 31, 2008
and cumulatively for the period from June 12, 2008
(Inception) through December 31, 2010, respectively. Cost
of goods sold also includes a $1.0 million write-down of
bastnasite stockpile inventory based on estimated stockpile REO
quantities at December 31, 2010 and $3.1 million of
asset impairments for the year ended December 31, 2010. |
|
(2) |
|
Weighted average shares outstanding gives retroactive effect to
the corporate reorganization, the conversion of all of our
Class A common stock and Class B common stock into
shares of common stock and the consummation of our initial
public offering, and the 38.23435373-for-one stock split
completed by Molycorp, Inc. on July 9, 2010 as if such
events had occurred on June 12, 2008. |
|
(3) |
|
Reflected in cash flows from investing activities in our
consolidated statements of cash flows. |
|
(4) |
|
As described in Note 13 to the financial statements for the
year ended December 31, 2010 and in Note 10 to the
financial statements for the three months ended March 31,
2011, these financial statements have been revised. |
43
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with our consolidated financial statements and
related notes included elsewhere in this prospectus. The
following discussion and analysis contains forward-looking
statements that reflect our plans, estimates and beliefs and
involves risks and uncertainties. Our actual results could
differ materially from those discussed in these forward-looking
statements as a result of various factors, including those
discussed below, under the headings Risk Factors and
Special Note Regarding Forward-Looking Statements
and in other parts of this prospectus.
Overview
Presentation
Molycorp Minerals, LLC, a Delaware limited liability company
formerly known as Rare Earth Acquisition, LLC, was formed on
June 12, 2008 to purchase the Mountain Pass, California
rare earth deposits and associated assets, or the Mountain Pass
facility, from Chevron Mining Inc., a subsidiary of Chevron
Corporation, on September 30, 2008. Molycorp, LLC, a
Delaware limited liability company, which was the parent of
Molycorp Minerals, was formed on September 9, 2009.
Molycorp, Inc. was formed on March 4, 2010 as a new
Delaware corporation that did not, prior to the date of the
consummation of its initial public offering, conduct any
material activities.
On April 15, 2010, the members of Molycorp, LLC contributed
either (a) all of their member interests in Molycorp, LLC
or (b) all of their equity interests in entities that hold
member interests in Molycorp, LLC (and no other assets or
liabilities) to Molycorp, Inc. in exchange for shares of
Molycorp, Inc. Class A common stock. Additionally, all of
the holders of profits interests in Molycorp Minerals, which
were represented by incentive shares, contributed all of their
incentive shares to Molycorp, Inc. in exchange for shares of
Molycorp, Inc. Class B common stock. As a result, Molycorp,
LLC and Molycorp Minerals became subsidiaries of Molycorp, Inc.
On June 15, 2010, Molycorp, LLC was merged with and into
Molycorp Minerals.
On July 9, 2010, Molycorp, Inc. completed a
38.23435373-for-one stock split, which has been retroactively
reflected in the historical financial data for all periods
presented. On August 3, 2010, Molycorp, Inc. completed its
initial public offering of common stock. In connection with its
initial public offering, Molycorp, Inc. issued
29,128,700 shares of common stock at $14.00 per share.
Total net proceeds of the offering were $378.6 million
after underwriting discounts and commissions and offering
expenses payable by Molycorp, Inc. Immediately prior to the
consummation of Molycorp, Inc.s initial public offering,
all of the shares of Class A common stock and Class B
common stock were converted into shares of common stock.
In the first quarter of 2011, Molycorp, Inc. completed a public
offering of its 5.50% Series A mandatory convertible
preferred stock, $0.001 par value per share. In connection
with the offering of its Series A mandatory convertible
preferred stock, Molycorp, Inc. issued 2,070,000 shares of
Series A mandatory convertible preferred stock for $100.00
per share. Total net proceeds of the offering were
$199.6 million after underwriting discounts and commissions
and offering expenses payable by Molycorp, Inc. Each share of
the Series A mandatory convertible preferred stock will
automatically convert on March 1, 2014 into between 1.6667
and 2.0000 shares of Molycorp, Inc.s common stock,
subject to anti-dilution adjustments. At any time prior to
March 1, 2014, holders may elect to convert each share of
the Series A mandatory convertible preferred stock into
shares of common stock at the minimum conversion rate of
1.6667 shares of common stock per share of Series A
mandatory convertible preferred stock, subject to anti-dilution
adjustments. The Series A mandatory convertible preferred
stock is not redeemable.
On April 1, 2011, Molycorp Minerals, LLC completed the
acquisition of a 90.023% controlling stake in Molycorp Silmet
AS, one of only two rare earth processing facilities in Europe,
in a transaction valued at approximately $89 million.
Molycorp acquired 80% of the outstanding shares of Molycorp
Silmet AS from Silmet Grupp in exchange for
1,593,419 shares of Molycorp common stock. Silmet Grupp
will retain a 9.977% ownership interest in Molycorp Silmet AS.
Molycorp acquired the other 10.023% from Treibacher
44
Industrie AG for $9.0 million in cash. The Molycorp Silmet
AS acquisition provides Molycorp with a European base of
operations and doubles Molycorps current rare earth
production capacity from approximately 3,000 mt per year of REO
equivalent to approximately 6,000 mt. Molycorp Silmet AS will
begin sourcing rare earth feed stocks for production of its
products primarily from the Mountain Pass facility. Molycorp
Silmet ASs main focus will be on the production of rare
earth oxides and metals, including didymium metal, a critical
component in the manufacture of NdFeB magnets. Molycorp Silmet
ASs manufacturing operation is located in Sillamäe,
Estonia. Molycorp Silmet AS currently sells products to
customers in Europe, North and South America, Asia, Russia, and
other former Soviet Union countries.
On April 15, 2011, Molycorp completed the acquisition from
Santoku of all the issued and outstanding shares of capital
stock of MMA in an all-cash transaction for $17.5 million.
The acquisition provides Molycorp with access to certain
intellectual properties relative to the development, processing
and manufacturing of neodymium and samarium magnet alloy
products. As part of the stock purchase agreement, Santoku will
provide consulting services to Molycorp for the purpose of
maintaining and enhancing the quality of Molycorps
products. On the same date, Molycorp entered into a
non-exclusive marketing and distribution agreement with Santoku
for the sale and distribution of neodymium and samarium magnet
alloy products.
Our
Business
We are the only REO producer in the Western hemisphere and own
one of the worlds largest, most fully developed rare earth
projects outside of China. Following the execution of our
mine-to-magnets
strategy and completion of our modernization and expansion
efforts, we expect to be one of the worlds most integrated
producers of rare earth products, including oxides, metals,
alloys and magnets. Our rare earths are critical inputs in many
existing and emerging applications including: clean energy
technologies, such as hybrid and electric vehicles and wind
power turbines; multiple high-tech uses, including fiber optics,
lasers and hard disk drives; numerous defense applications, such
as guidance and control systems and global positioning systems;
and advanced water treatment technology for use in industrial,
military and outdoor recreation applications. Global demand for
REEs is projected to steadily increase both due to continuing
growth in existing applications and increased innovation and
development of new end uses.
Our goals are to:
|
|
|
|
|
develop innovative rare earth technologies and products vital to
green energy, high-tech, defense and industrial applications;
|
|
|
|
be commercially sustainable, globally competitive, profitable
and environmentally superior;
|
|
|
|
act as a responsible steward of our rare earth
resources; and
|
|
|
|
use our technology to improve the daily lives of people
throughout the world.
|
We have made significant investments, and expect to continue to
invest, in developing technologically advanced and proprietary
applications for individual REEs. Under our
mine-to-magnets
strategy, we plan to integrate the rare earths supply chain:
mining; oxide processing; production of metals and alloys; and
production of rare earth-based magnets. We are in the process of
modernizing and expanding our production capabilities at our
Mountain Pass facility, and our recent acquisitions of Molycorp
Silmet AS and MMA provide us with additional capacity for the
production of REOs as well as the ability to produce rare earth
metals and alloys.
Our vision is to be the rare earth products and technology
company recognized for its ETHICS
Excellence, Trust, Honesty, Integrity, Creativity
and Safety. Since July 2005, the Mountain Pass facility has not
had a lost-time accident and has received the coveted
Sentinels of Safety award from the MSHA for three of
the last six years.
45
Our
Mine Process and Development Plans
We recommenced mining operations in December 2010 and are
preparing to recommence milling operations, which we expect to
occur in the first quarter of 2012. Recommencement of mining and
milling operations is coincident with our initial modernization
and expansion plan, which will give us the capacity to
efficiently produce at a rate of approximately 19,050 mt of REO
per year by the end of 2012. Additionally, upon the completion
of our capacity expansion plan, we expect to have the ability to
produce up to approximately 40,000 mt of REO per year by the end
of 2013. Prior to the expected completion of our initial
modernization and expansion efforts, we expect to produce
approximately 3,000 mt per year in the aggregate of cerium
products, lanthanum concentrate, didymium oxide and heavy rare
earth concentrates from stockpiled feedstock.
We currently produce rare earth metals outside of the United
States through a third-party tolling arrangement. Additionally,
the acquisition of Molycorp Silmet AS provides us with a
European base of operations and doubles our current rare earth
production capacity from approximately 3,000 mt per year of REO
equivalent to approximately 6,000 mt. Through our acquisitions
of Molycorp Silmet AS and MMA in April 2011, we added facilities
and equipment for metal conversion and alloy production within
the Molycorp organization. We intend to transport cerium,
lanthanum, neodymium, praseodymium, dysprosium, terbium and
samarium oxide products from our Mountain Pass facility to our
Molycorp Silmet AS and MMA facilities where we will produce rare
earth metals and alloys.
In December 2010, we entered into a non-binding letter of intent
with Hitachi to form joint ventures for the production of rare
earth alloys and magnets in the United States and to acquire a
license for certain technology related to the production of rare
earth metals, alloys and magnets. We have completed a joint
feasibility study with Hitachi and we are currently negotiating
the joint venture agreements. Additionally, we have entered into
a non-binding letter of intent with Neo Material that, among
other things, contemplates a technology transfer agreement
pursuant to which Neo Material may provide us with technical
assistance and know-how with respect to the production of rare
earth metals, alloys and magnets.
Our proposed joint ventures with Hitachi would provide us with
additional access to the technology, people and facilities to
convert our rare earth materials into rare earth alloys and
high-performance permanent rare earth magnets required for
production of hybrid and electric vehicles, wind power turbines,
high-tech applications and numerous advanced defense systems on
which the U.S. economy and national security depend. The
consummation of such joint ventures, in conjunction with our
current modernization plans, our recent acquisitions of Molycorp
Silmet AS and MMA and the potential technology transfer
agreement with Neo Material, is expected to provide us with the
capability to mine, process, separate and alloy individual REEs
and manufacture them into neodymium iron boron, or NdFeB,
magnets. This downstream integration would make us the only
fully integrated producer of NdFeB magnets outside of China,
helping to secure a rare earth supply chain for the Rest of
World.
We anticipate the cost to restart mining operations, construct
and refurbish processing facilities and other infrastructure at
the Mountain Pass facility and expand into metal and alloy
production in connection with our initial modernization and
expansion plan to be approximately $531 million through
2012. Additionally, we estimate, based on consultation with our
project manager, that we will incur approximately
$250 million of capital costs through 2013 in connection
with the second-phase capacity expansion plan. Our estimated
capital expenditures of $781 million do not include
corporate, selling, general and administrative expenses, which
we estimate to be an additional $20 million to
$25 million per year. We expects to finance our remaining
capital expenditures under the initial modernization and
expansion and the second phase expansion plans as well as our
working capital requirements, with our available cash balances
of $492.5 million as of March 31, 2011, anticipated
revenue from operations and traditional debt financing, project
financing,
and/or
government programs, including the U.S. Department of
Energy, or DOE, loan guarantee program. We submitted a
Part I application on June 2010 for up to
$280 million. On July 21, 2010, the DOE deemed our
application eligible for submission of a Part II
application, which was submitted on December 31, 2010. Due
to program and resource constraints, our application under
Section 1705 of the DOE loan guarantee program, or LGP, was
put on hold on May 10, 2011. At that time, DOE advised us
that our project may be eligible for funding under
46
Section 1703 of the LGP. We are currently evaluating our
options under the LGP and we expect to conclude on the best
course of action in the near term. On December 10, 2010, we
entered into a memorandum of understanding with Sumitomo
pursuant to which Sumitomo agreed to, among other things,
purchase $100 million of Molycorp, Inc.s common stock
and arrange for $30 million of debt financing. Sumitomo is
currently conducting a due diligence review and the consummation
of these transactions with Sumitomo is subject to the
satisfaction of numerous conditions and finalization of
definitive agreements.
Our
Products and Markets
Since our acquisition of the Mountain Pass facility, we have
been producing and selling small quantities of certain rare
earth products from our pilot processes using stockpiled
feedstocks. The purpose of this effort has been to significantly
improve our solvent extraction technology and to develop other
key technologies that will be utilized in the new process. In
the first quarter of 2010, we completed our initial pilot
processing of stockpiled lanthanum rich feedstock to produce
didymium oxide (a combination of neodymium and praseodymium) and
a higher purity lanthanum concentrate than we previously
produced. Lanthanum products processed from the stockpiled
material, which we sell to customers in the fluid catalytic
cracking industry, has been our largest source of revenue to
date.
We commenced a second pilot processing campaign in the second
quarter of 2010 in an effort to commercially demonstrate our new
cracking technology and to further optimize our processing
technologies and improve recovery rates compared to historical
operations at the Mountain Pass facility. Due to the success of
this effort, we are producing cerium and lanthanum products, as
well as didymium oxide from bastnasite concentrate stockpiles.
In July 2010, we began selling our didymium oxide primarily to
customers in the magnet industry. During the third quarter of
2010, we began selling our cerium products to customers in the
automobile emissions catalyst production industry and we
completed our initial sale of
XSORBX®
to the water treatment industry. Additionally, in the fourth
quarter of 2010, we commenced production of didymium metal from
our oxide through a third-party processor and began selling this
product primarily to customers in the magnet industry during the
first quarter of 2011. Also, in the first quarter of 2011, in
anticipation of our acquisition, AS Silmet commenced contract
tolling for us of mixed rare earth carbonates into lanthanum
oxide, cerium carbonate, neodymium and praseodymium, which we
began selling in 2011. With these products, we have begun
expanding and diversifying our product mix and our customer
base. As a result of these events, our product mix has been
diversified and we are realizing revenue growth from increasing
sales volumes and higher REO pricing.
Key
Industry Factors
Demand
for Rare Earth Products
Global consumption of REEs is projected to steadily increase due
to continuing growth in existing applications and increased
innovation and development of new end uses. For example, the
integration of rare earth permanent magnet drives into wind
power turbines has substantially reduced the need for gearboxes,
which increases overall efficiency and reliability. If Mountain
Pass and other rare earth projects do not commence production
when anticipated, there will continue to be a gap between
current and forecasted demand and supply. We believe that this
anticipated market dynamic will underpin continued strong
pricing.
As a result of the global economic crisis, rare earth product
prices declined by approximately 50% during 2008 and through the
third quarter of 2009. According to Metal-Pages, from October
2009 through March 2011, prices for rare earths have risen by
approximately 1,500% on average. Furthermore, over the same
period, prices for some of the most common rare earths (cerium
oxide, lanthanum oxide, neodymium oxide and praseodymium oxide)
have risen by more than 2,000% on average.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices (USD/Kg)
|
|
|
October 1,
|
|
March 31,
|
|
|
Rare Earth Oxides
|
|
2009
|
|
2011
|
|
Change
|
|
Lanthanum
|
|
|
4.65
|
|
|
|
121
|
|
|
|
2,502
|
%
|
Cerium
|
|
|
3.75
|
|
|
|
121
|
|
|
|
3,127
|
%
|
Praseodymium
|
|
|
14
|
|
|
|
196
|
|
|
|
1,300
|
%
|
Neodymium
|
|
|
14.25
|
|
|
|
201
|
|
|
|
1,311
|
%
|
Samarium
|
|
|
4.5
|
|
|
|
106.5
|
|
|
|
2,267
|
%
|
Europium
|
|
|
480
|
|
|
|
940
|
|
|
|
96
|
%
|
Gadolinium
|
|
|
5.25
|
|
|
|
147
|
|
|
|
2,700
|
%
|
Terbium
|
|
|
350
|
|
|
|
990
|
|
|
|
183
|
%
|
Dysprosium
|
|
|
107.5
|
|
|
|
640
|
|
|
|
495
|
%
|
Yttrium
|
|
|
10.25
|
|
|
|
143
|
|
|
|
1,295
|
%
|
Supply of
Rare Earth Products
China has dominated the global supply of REOs for the last ten
years and, according to IMCOA, it is estimated that China
accounted for approximately 96% of global REO production in
2008. Even with our planned production, global supply is
expected by analysts to remain tight due to the combined effects
of growing demand and actions taken by the Chinese government to
restrict exports. The Chinese government heightened
international supply concerns beginning in August 2009 when
Chinas Interior Ministry first signaled that it would
further restrict exports of Chinese rare earth resources. Citing
the importance of REE availability to internal industries and
the desire to conserve resources, the Chinese government has
announced export quotas, increased export tariffs and introduced
a mining quotas policy that, in addition to imposing
export quotas and export tariffs, also imposes production quotas
and limits the issuance of new licenses for rare earth
exploration. On July 8, 2010, Chinas Ministry of
Industry and Information Technology issued the export quota for
the second half of 2010, which reduced exports by 72% compared
with the second half of 2009 and 40% for the year ended
December 31, 2010 as compared to the year ended
December 31, 2009. On December 28, 2010, Chinas
Ministry of Industry and Information Technology further reduced
the export quota for the first half of 2011, reducing exports by
35% compared with the first half of 2010 and 20% for the twelve
months ended June 30, 2011 as compared to the twelve months
ended June 30, 2010. Actual exports of rare earth ores and
metals from China, however, continue to exceed export quotas
mandated by the Chinese government. In response to this trend,
Chinas Ministry of Commerce announced on May 19, 2011
that it would further tighten its control over rare earth metals
by expanding its export quota system and imposing higher taxes
on rare earth ores. Chinas internal consumption of rare
earths is expected to continue to grow, leaving the Rest of
World with less supply during a period of increasing global
demand. China also dominates the manufacture of rare earth
metals, producing substantially all of the worlds supply,
and the manufacture of NdFeB magnets, producing approximately
80% of the worlds supply. Neither capability currently
exists in the United States.
China has announced a national stockpile program, as has South
Korea. Additionally, Japan has increased its national stockpile
program. In December 2010, the U.S. Department of Energy
released a study concluding that five rare earth metals,
including dysprosium, neodymium, terbium, europium and yttrium,
are critical to clean energy technologies in the short term due
to their importance to the clean energy economy and risk of
supply disruption. The report emphasizes that diversified global
supply chains for these critical materials are essential, and
calls for steps to be taken to facilitate extraction, processing
and manufacturing in the United States. Additionally, the
U.S. Department of Defense is conducting a study to
determine its rare earth requirements and supply chain
vulnerabilities and whether to build a strategic stockpile.
These stockpile programs will likely accelerate the pace of the
current and projected global REE supply deficit.
As a result of the internal industrial development, as well as
economic, environmental and regulatory factors in China, there
is uncertainty with respect to the availability of rare earth
products from China. Although Chinese production of rare earth
materials is increasing, export quotas imposed by the Chinese
government are decreasing, thus reducing the amount of rare
earth materials that China may export to the rest of the world.
This reduction is occurring at a time when the demand for REEs
is growing significantly.
48
Factors
Affecting Our Results
Modernization
and Expansion of Mountain Pass Facility
We anticipate a dramatic change in our business and results of
operations upon the completion of our planned modernization and
expansion of our Mountain Pass facility in connection with our
initial modernization and expansion plan and the commencement of
metal, alloy, and magnet production in 2012. For example, we
expect to produce and sell a significantly expanded slate of
products, including specialty cerium products for water
treatment, neodymium and praseodymium metal, neodymium iron
boron and samarium cobalt alloys for magnets, europium,
gadolinium, and terbium oxides for phosphors, and dysprosium and
terbium for magnets.
We acquired the Mountain Pass facility on September 30,
2008 from Chevron Mining Inc., which became the owner of the
Mountain Pass facility in 2005 after Unocal Corporation merged
with Chevron Corporation. Unocal Corporation had suspended most
operations at the Mountain Pass facility by 2002 and, except for
pilot processing activities, they remained suspended under
Chevron Mining Inc.s ownership. Additionally, significant
reclamation work was completed at the Mountain Pass facility
under Chevron Mining Inc.s ownership.
We plan to utilize the assets we acquired from Chevron Mining
Inc. as a foundation to build an integrated rare earth products
and technology company, which requires considerable additional
capital investment. We believe the application of improved
technologies, along with the capital investment, will allow us
to create a sustainable business by cost effectively producing
high purity rare earth products. Between now and the
start-up of
the new processing facility, we anticipate further diversifying
our product line through the production of
samarium/europium/gadolinium concentrate from bastnasite
concentrate stockpiles. Upon completion of the modernization and
expansion of the Mountain Pass facility, we expect to produce
lanthanum, cerium, praseodymium, neodymium, samarium, europium,
gadolinium, terbium, dysprosium and yttrium in various chemical
compounds
and/or metal
forms, including alloys. In addition to the modernization and
expansion of the Mountain Pass facility and our acquisitions of
Molycorp Silmet AS and MMA, we expect to significantly broaden
our operations through the addition of a number of downstream
activities and products, including rare earth metal production
and NdFeB and samarium cobalt alloys. We intend to use some of
the NdFeB alloy and dysprosium metal product in a magnet
production facility, which we anticipate developing through a
joint venture arrangement. Accordingly, upon full implementation
of our
mine-to-magnets
strategy, we expect our new products to have significantly more
applications and a broader market base than our current products.
Revenues
In the second quarter of 2010, we commenced a second pilot
processing campaign to commercially demonstrate our new cracking
technology and to further optimize our processing technologies
and improve our recovery rates compared to historical operations
at the Mountain Pass facility. Due to the success of this second
pilot processing campaign, we are producing cerium and lanthanum
products as well as didymium oxide from bastnasite concentrate
stockpiles. In the fourth quarter of 2010, we commenced
production of didymium metal from our oxide through a
third-party processor. In the first quarter of 2011, AS Silmet
commenced tolling for us of mixed rare earth carbonates into
lanthanum oxide, cerium carbonate, neodymium and praseodymium.
The addition of these new products has significantly increased
the diversity of our product mix. The following is a summary of
the percentage of revenue by significant product line for the
three months ended March 31, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Lanthanum products
|
|
|
44
|
%
|
|
|
91
|
%
|
Ceric Hydrate
|
|
|
30
|
%
|
|
|
0
|
%
|
Didymium products
|
|
|
18
|
%
|
|
|
3
|
%
|
Other cerium products
|
|
|
5
|
%
|
|
|
1
|
%
|
49
Our prices and product mix are determined by a combination of
global and regional supply and demand factors. Our revenue
increased significantly for the three months ended
March 31, 2011 as compared to the three months ended
March 31, 2010, due to the combination of a general
increase in the market prices of REOs, and higher sales volumes
of ceric hydrate and didymium products, which have significantly
higher values than the lanthanum products that comprised
substantially all of our sales in 2010. Sales for the three
months ended March 31, 2011 included 696 mt of REOs,
including purchased REOs, at an average price of $37.73 per
kilogram compared to sales of 423 mt of REO at an average price
of $7.13 per kilogram for the three months ended March 31,
2010. The quantities we sell are determined by the production
capabilities of the Mountain Pass facility and by demand for our
product, which is also influenced by the level of purity and
consistency we are able to achieve. Our revenue also includes
sales of finished products acquired as part of our acquisition
of the Mountain Pass facility.
Pursuant to a contract with one of our principal customers, we
are supplying a significant amount of our REOs, through mid-2012
at market-based prices subject to a ceiling based on market
prices at June 1, 2010 (currently in effect), and a floor.
Under a second contract, we will supply the same customer with
approximately 75% of our phase one lanthanum product production
per year at market-based prices subject to a floor for a
three-year period commencing upon the achievement of expected
annual production rates under our initial modernization and
expansion plan, which may be extended at the customers
option for an additional three-year period. Upon execution of
definitive agreements pursuant to our memorandum of
understanding with Sumitomo, we also expect to provide Sumitomo
with approximately 1,500 mt per year (and following completion
of our initial modernization and expansion plan, approximately
1,750 mt per year) of cerium and lanthanum-based products and
250 mt per year of didymium oxide for a period ending five years
after the completion of our initial modernization and expansion
of the Mountain Pass facility, at market-based prices subject to
a floor. Although prices for REOs have generally increased since
October 2009, this increase followed a period of generally lower
prices corresponding with the global financial crisis beginning
in 2008. Many factors influence the market prices for REOs and,
in the absence of established pricing in customer contracts, our
sales revenue will fluctuate based upon changes in the
prevailing prices for REOs. We use various industry sources,
including certain publications, in evaluating prevailing market
prices and establishing prices for our products because there
are no published indices for rare earth products, including
alloys or magnets.
We expect our quarterly production for the rest of 2011 to range
from approximately 40% to 50% higher than the first quarter due
to increased processing capacity from the recent acquisitions of
Molycorp Silmet AS and MMA and increased production from our
Mountain Pass facility. Substantially all of our lanthanum
production in 2011 (which accounts for approximately 60% of our
production and is expected to be approximately 1,250 mt for the
remainder of 2011), will be sold pursuant to the contract with
one of our principal customers described above under which our
pricing is subject to a price ceiling, which was set based upon
market prices at the time the contract was entered (and which is
well below current prices); production of our remaining
materials will generally be sold based on prevailing market
prices. Accordingly, our ability to realize prevailing market
prices in the near term is limited due to that sales contract
with one of our principal customers for our lanthanum product,
which reverts to prevailing market pricing upon the completion
of the initial modernization and expansion plan at Mountain Pass.
Cost
of Goods Sold
Our cost of goods sold reflects the cost allocated to our
inventory acquired as part of our acquisition of the Mountain
Pass facility and, with respect to our recent sales of lanthanum
and cerium products and didymium oxide, the subsequent
processing costs incurred to produce the product. Because many
of our costs are fixed costs as opposed to variable costs, as
our production increases or decreases, our average cost per
metric ton decreases or increases, respectively. Primary
production costs include direct labor and benefits, maintenance,
natural gas, electricity, operating supplies, chemicals,
depreciation and amortization and other plant overhead expenses.
Currently, our most significant variable costs are chemicals and
electricity. In the future, we intend to produce more of our
chemicals at a plant
on-site,
which will reduce our variable chemical costs. We also
50
intend to build a co-generation facility to provide power.
Following such steps, natural gas will substantially replace
third-party electricity costs and become one of our most
significant variable costs.
We expect our labor and benefit costs to increase through 2013
due to the addition of personnel and consultants required to
increase production to a rate of approximately 19,050 mt of REO
per year by the end of 2012 in connection with our initial
modernization and expansion plan and up to approximately 40,000
mt of REO per year by the end of 2013 in connection with our
capacity expansion plan. In addition to volume fluctuations, our
variable costs, such as electricity, operating supplies and
chemicals, are influenced by general economic conditions that
are beyond our control. Other events outside our control, such
as power outages, have in the past interrupted our operations
and increased our total production costs, and we may experience
similar events in the future.
Selling,
General and Administrative Expenses
Our selling, general and administrative expenses consist
primarily of: personnel and related costs; legal, accounting and
other professional fees; occupancy costs; and information
technology costs. We continue to experience increased selling,
general and administrative expenses as we expand our business
and operate as a publicly traded company. These expenses include
increasing our staffing as we construct our new facilities and
pursue other business development activities to execute our
mine-to-magnets
business plan. We have also experienced additional legal,
compliance and corporate governance expenses, as well as
additional accounting and audit expenses, stock exchange listing
fees, transfer agent and other stockholder-related fees and
increased premiums for certain insurance policies, among others.
We have also incurred significant professional fees and other
costs in connection with the business acquisitions that we
completed in April 2011.
Income
Taxes
Prior to our corporate reorganization, we operated entirely
within limited liability companies, which were not directly
liable for the payment of federal or state income taxes and our
taxable income or loss was included in the state and federal tax
returns of Molycorp, LLCs members. Molycorp, Inc. is
subject to U.S. federal and state income taxes. For the
three months ended March 31, 2011, we incurred
$0.2 million in income tax expenses and have placed a 100%
reserve on our deferred tax assets.
Environmental
Our operations are subject to numerous and detailed
international, national, federal, state and local environmental
laws, regulations and permits, including those pertaining to
employee health and safety, environmental permitting and
licensing, air quality standards, GHG emissions, water usage and
disposal, pollution, waste management, plant and wildlife
protection, handling and disposal of radioactive substances,
remediation of soil and groundwater contamination, land use,
reclamation and restoration of properties, the discharge of
materials into the environment and groundwater quality and
availability.
We retain, both within Molycorp and outside Molycorp, the
services of reclamation and environmental, health and safety, or
EHS, professionals to review our operations and assist with
environmental compliance, including with respect to product
management, solid and hazardous waste management and disposal,
water and air quality, asbestos abatement, drinking water
quality, reclamation requirements, radiation control and other
EHS issues.
We have spent, and anticipate that we will continue to spend,
financial and managerial resources to comply with environmental
requirements. For example, we have acquired enough air emission
offset credits for both our initial modernization and expansion
plan and our second phase capacity expansion plan at our
Mountain Pass facility. In addition, in the quarter ended
March 31, 2011 and 2010, we incurred operating expenses of
approximately $1.0 million and $1.3 million,
respectively, associated with environmental compliance
requirements at our Mountain Pass facility. The costs expected
to be incurred as part of our
on-going
remediation at our Mountain Pass facility, which is expected to
continue throughout the Mountain Pass facilitys operating,
closure and post-closure periods, are included as part of our
asset retirement obligations. See Critical
Accounting Policies and Estimates Reclamation.
We anticipate the need to
51
dispose of a portion of the wastewater in one of our evaporation
ponds in order to repair recently detected lining tears. We
estimate the wastewater transportation and disposal costs
associated with this repair to be approximately
$0.8 million in 2011. In addition, while our chlor-alkali
plant is being constructed, we intend to remove and dispose of
any wastewater generated in excess of our evaporation capability
at an off-site location as a result of which we may incur
additional significant costs.
We cannot predict the impact of new or changed laws, regulations
or permit requirements, including the matters discussed below,
or changes in the way such laws, regulations or permit
requirements are enforced, interpreted or administered.
Environmental laws and regulations are complex, change
frequently and have tended to become more stringent over time.
It is possible that greater than anticipated environmental
expenditures will be required in 2011 or in the future,
including in connection with our acquisitions of Molycorp Silmet
AS and MMA. We expect continued government and public emphasis
on environmental issues will result in increased future
investment for environmental controls at our operations.
Additionally, with increased attention paid to emissions of
GHGs, including carbon dioxide, current and future regulations
are expected to affect our operations. We will continue to
monitor developments in these various programs and assess their
potential impacts on our operations.
Violations of environmental laws, regulations and permits can
result in substantial penalties, court orders to install
pollution-control equipment, civil and criminal sanctions,
permit revocations, facility shutdowns and other sanctions. In
addition, environmental laws and regulations may impose joint
and several liability, without regard to fault, for costs
relating to environmental contamination at our facilities or
from wastes disposed of at third-party waste facilities. The
proposed expansion of our operations at the Mountain Pass
facility is also conditioned upon securing the necessary
environmental and other permits and approvals. In certain cases,
as a condition to procuring such permits and approvals, we are
required to comply with financial assurance requirements. The
purpose of these requirements is to assure the government that
sufficient company funds will be available for the ultimate
closure, post-closure care
and/or
reclamation at our facilities. We typically obtain bonds as
financial assurance for these obligations and, as of
March 31, 2011, we had placed a total of $27.4 million
of surety bonds with California state and regional agencies for
our Mountain Pass facility. These bonds are collateralized by
$18.2 million in cash, which we have placed in an escrow
account. These bonds require annual payment and renewal. The EPA
has announced its intention to establish a new financial
assurance program for hardrock mining, extraction and processing
facilities under the Federal Comprehensive Environmental
Response Compensation and Liability Act, or CERCLA, or the
Superfund law, which may require us to establish
additional bonds or other sureties. We cannot predict the effect
of any such requirements on our operations at this time.
Impact
of Inflation
The cost estimates associated with the modernization and
expansion of the Mountain Pass facility described under the
heading Liquidity and Capital Resources
have not been adjusted for inflation. In the event of
significant inflation, the funds required to execute our
business plan over the next few years could increase
proportionately. This could delay or preclude our business
expansion efforts, or require us to raise additional capital. In
addition, historical inflation rates have been used to estimate
the future liability associated with our future remediation and
reclamation obligations as reflected in the asset retirement
obligations in our consolidated financial statements included
elsewhere in this prospectus. If inflation rates significantly
exceed the historical inflation rates, our future obligations
could significantly increase.
Foreign
Currency Fluctuations
Substantially all of our product sales are denominated in
U.S. dollars, so we have minimal exposure to fluctuations
in foreign currency exchange rates. Our results are indirectly
influenced by currency fluctuations, as the relative cost of our
exports for a foreign buyer will increase as the
U.S. dollar strengthens and decrease as the
U.S. dollar softens in comparison to the applicable foreign
currency.
52
Results
of Operations
Three
Months Ended March 31, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Sales
|
|
$
|
26,261
|
|
|
$
|
3,018
|
|
|
$
|
23,243
|
|
Cost of goods sold
|
|
|
(16,677
|
)
|
|
|
(5,950
|
)
|
|
|
(10,727
|
)
|
Selling, general and administrative expenses
|
|
|
(8,339
|
)
|
|
|
(4,480
|
)
|
|
|
(3,859
|
)
|
Stock-based compensation
|
|
|
(2,899
|
)
|
|
|
|
|
|
|
(2,899
|
)
|
Depreciation and amortization expense
|
|
|
(83
|
)
|
|
|
(95
|
)
|
|
|
12
|
|
Accretion expense
|
|
|
(234
|
)
|
|
|
(263
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,971
|
)
|
|
|
(7,770
|
)
|
|
|
5,799
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
(168
|
)
|
|
|
21
|
|
|
|
(189
|
)
|
Interest income
|
|
|
140
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,999
|
)
|
|
|
(7,749
|
)
|
|
|
5,750
|
|
Provision for income taxes
|
|
|
(199
|
)
|
|
|
|
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,198
|
)
|
|
$
|
(7,749
|
)
|
|
$
|
5,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
For the three months ended March 31, 2011 and 2010, our
sales were $26.3 million and $3.0 million,
respectively. This significant increase in revenue is due to the
combination of a general increase in the price of REO products,
as well as our diversification into new products, such as ceric
hydrate and higher sales volumes of cerium and didymium
products, which have much higher sale prices per kilogram than
the lanthanum products that comprised substantially all our
sales in 2010. The following is a summary of the revenue
percentages by significant product for the three months ended
March 31, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Lanthanum products
|
|
|
44
|
%
|
|
|
91
|
%
|
Ceric Hydrate
|
|
|
30
|
%
|
|
|
0
|
%
|
Didymium products
|
|
|
18
|
%
|
|
|
3
|
%
|
Other cerium products
|
|
|
5
|
%
|
|
|
1
|
%
|
Lanthanum sales for the three months ended March 31, 2011
consisted primarily of lanthanum oxide, which has a relatively
higher sales price per kilogram compared to sales for the three
months ended March 31, 2010, which consisted primarily of
lanthanum concentrate that has a relatively lower sales price
per kilogram. Both ceric hydrate and didymium products, which
have a relatively higher sales price per kilogram as compared to
our other products, accounted for 30% and 18%, respectively, of
our total revenue for the three months ended March 31, 2011
as compared to zero and 3% for the three months ended
March 31, 2010, respectively. With the commencement of our
second pilot processing campaign, the production of lanthanum
concentrate has been replaced by lanthanum chlorohydrate, which
is a more marketable product. In total, for the three months
ended March 31, 2011, we sold 696 mt of REO products at an
average sales price of $37.73 per kilogram compared to sales of
423 mt of REO products at an average sales price of $7.13 per
kilogram for the three months ended March 31, 2010. We
anticipate cerium products, including
XSORBX®,
lanthanum products and didymium products to make up a
significant percentage of our total revenue until we complete
the modernization and expansion of the Mountain Pass facility.
53
Cost
of Goods Sold
Our cost of goods sold was $16.7 million and
$6.0 million for the three months ended March 31, 2011
and 2010, respectively. The higher costs for the three months
ended March 31, 2011, compared to the three months ended
March 31, 2010, were due to higher sales and higher
production costs. Lower of cost or market inventory write-downs
were $0.6 million for the three months ended March 31,
2011 and 2010, respectively.
Total production costs charged to inventory were
$7.9 million and $3.0 million for the three months
ended March 31, 2011 and 2010, respectively. Inventory
purchases were $6.0 million and $0.2 million for the
three months ended March 31, 2011 and 2010, respectively.
The primary products we purchased during those periods were
lanthanum oxide, cerium oxide, didymium metal and praseodymium
oxide.
The following is a summary of the production and purchased
quantities in mt by significant product for the three months
ended March 31, 2011 and the corresponding production and
purchased quantities for the three months ended March 31,
2010 (in mt).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Lanthanum products
|
|
|
415
|
|
|
|
239
|
|
Ceric Hydrate
|
|
|
170
|
|
|
|
|
|
Didymium products
|
|
|
122
|
|
|
|
69
|
|
Other cerium products
|
|
|
23
|
|
|
|
|
|
Production costs charged to inventory were higher during the
three months ended March 31, 2011 as compared to the three
months ended March 31, 2010, due to increased production
levels. We expect to attain increased production levels
throughout 2011.
Chemical costs allocated to production were $2.3 million
and $0.4 million for the three months ended March 31,
2011 and 2010, respectively. Chemical costs in the first quarter
of 2011 were higher compared to the same period in 2010 due to
higher production levels, despite improved processing techniques
that reduced chemical usage, and an increase in prices for
chemicals.
Labor costs, including related employee benefits, allocated to
production were $2.7 million and $1.9 million the
three months ended March 31, 2011 and 2010, respectively.
As of March 31, 2011 we had a total of 165 employees
compared to 114 employees at March 31, 2010, which led
to higher wage and employee related benefit expenses. During the
first quarter of 2011, we also experienced increase in labor
costs as compared to the first quarter of 2010, due to the
annual wage increase required under our union contract in March
2011.
Maintenance costs, including maintenance labor and supplies,
were $0.7 million and $0.5 million for the three months
ended March 31, 2011 and 2010, respectively. Utility
charges, which primarily include electricity, were
$0.8 million and $0.4 million for the three months
ended March 31, 2011 and 2010, respectively.
Other costs allocated to production, including depreciation,
were $4.7 million and $2.4 million for three months
ended March 31, 2011 and 2010, respectively. These costs
were higher in the first quarter of 2011 due to the significant
increase in depreciation expense from the placement of assets
into service of over $7.0 million related to the second
pilot processing campaign during the second quarter of 2010.
These assets are being depreciated over a
32-month
period as they will be decommissioned with the full restart of
the mine at the end of 2012.
In March 2010, we also began blending our existing didymium
oxide inventory, which, prior to blending, contained varying
percentages of neodymium and praseodymium, to create a more
consistent content which better meets customer specifications.
As of March 31, 2011, approximately 500 mt were blended.
Blended inventory is reclassified from work in process to
finished goods.
54
Selling,
General and Administrative Expenses
Selling, general and administrative expenses (excluding
share-based compensation) were $8.3 million and
$4.5 million for the quarters ended March 31, 2011 and
2010, respectively. Beginning in the first quarter of 2010, we
experienced a significant increase in professional fees
primarily due to increasing our staffing as we prepared to start
construction of our new facilities in January 2011 and other
business development activities to execute our
mine-to-magnets
business plan. We have also experienced increased spending for
accounting, information technology consulting and engineering
services.
In addition, we recognized $2.9 million and $0 in
share-based compensation in the three months ended
March 31, 2011 and 2010, respectively.
Net
Losses
Since our inception and our acquisition of the Mountain Pass
facility, we have incurred significant net losses. Our net
losses for the three months ended March 31, 2011 and 2010
were $2.2 million and $7.7 million, respectively.
Capital
Expenditures
Our capital expenditures, on an accrual basis, totaled
$41.3 million and $3.4 million for the three months
ended March 31, 2011 and 2010, respectively. Most of the
capitalized costs incurred during the three months ended
March 31, 2010 are related to our second pilot processing
campaign, which commenced in April 2010, and most of the
capitalized costs for the three months ended March 31, 2011
relate to our modernization and expansion project at the
Mountain Pass facility.
Outlook
for the Remainder of 2011
For the next three quarters of 2011, we anticipate China-based
producers and suppliers will continue to limit the quantity of
REOs available outside of China, supporting strong pricing for
REOs. We believe this trend will create opportunities for us to
increase sales volumes and improve pricing terms for our
products. While we expect the recent earthquake/tsunami in Japan
and its aftermath may have a short term negative impact on
market demand in the second and third quarters, we expect full
recovery of demand by the fourth quarter. While the REO products
we are currently able to produce remain limited by the
capability of our existing production facilities, we anticipate
further expanding our products and markets throughout the
remainder of the year, including market penetration of our
XSORBX®
technology into the water treatment industry. We also anticipate
supplying Molycorp Silmet AS and MMA with rare earth
concentrates and REOs from our Mountain Pass facility to utilize
their production capabilities and maximize value from these
acquisitions. We believe that our revenue for the next nine
months will be sufficient to fund our operating activities for
the remainder of the year, which includes corporate selling,
general and administrative expense.
Capital
Investments
We are incurring significant capital expenditures under our plan
to modernize and expand our Mountain Pass facility, as well as
consistent expenditures to replace assets necessary to sustain
safe and reliable production. Most of the facilities and
equipment acquired in connection with the acquisition of the
Mountain Pass facility are at least 20 years old. We are
executing an accelerated modernization plan that includes the
refurbishment of the Mountain Pass mine and related processing
facilities through 2012 in order to increase REO production. We
expect to incur approximately $531 million in property,
plant and equipment additions in connection with our initial
modernization and expansion plan prior to December 31,
2012, and up to an additional $250 million in property,
plant and equipment to build additional production capacity in
connection with our capacity expansion plan, prior to
December 31, 2013.
All of the amounts for future capital spending described above
are initial estimates that are subject to change as the projects
are further developed. Total capital spending in 2011 is
expected to be approximately $295 million.
55
Results
of Operations
Year
Ended December 31, 2010 Compared to Year Ended
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Sales
|
|
$
|
35,157
|
|
|
$
|
7,093
|
|
|
$
|
28,064
|
|
Cost of goods sold
|
|
|
(37,591
|
)
|
|
|
(21,785
|
)
|
|
|
(15,806
|
)
|
Selling, general and administrative expenses
|
|
|
(18,744
|
)
|
|
|
(12,444
|
)
|
|
|
(6,330
|
)
|
Share-based compensation
|
|
|
(28,739
|
)
|
|
|
(241
|
)
|
|
|
(28,498
|
)
|
Depreciation and amortization expense
|
|
|
(319
|
)
|
|
|
(191
|
)
|
|
|
(128
|
)
|
Accretion expense
|
|
|
(912
|
)
|
|
|
(1,006
|
)
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(51,178
|
)
|
|
|
(28,574
|
)
|
|
|
(22,604
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
155
|
|
|
|
181
|
|
|
|
(26
|
)
|
Interest (expense) income
|
|
|
249
|
|
|
|
(194
|
)
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(50,774
|
)
|
|
$
|
(28,587
|
)
|
|
$
|
(22,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
For the years ended December 31, 2010 and 2009, our
revenues were $35.2 million and $7.1 million,
respectively. This significant increase in revenue is due to the
combination of a general increase in the prices of REO products
and our diversification into new products, such as cerium
hydrate and didymium oxide, which have much higher sales prices
per pound than the lanthanum products we produced and sold in
2009. The following is a summary of the revenue percentages by
significant products for the years ended December 31, 2010
and 2009.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Lanthanum products
|
|
|
38
|
%
|
|
|
91
|
%
|
Ceric Hydrate
|
|
|
24
|
%
|
|
|
0
|
%
|
Didymium Oxide
|
|
|
23
|
%
|
|
|
0
|
%
|
Lanthanum sales in the year ended December 31, 2010
consisted primarily of lanthanum oxide, which has a relatively
higher sales price per kilogram compared to sales in the year
ended December 31, 2009, which consisted primarily of
lanthanum concentrate that has a relatively lower sales price
per kilogram. Both ceric hydrate and didymium oxide, which have
a relatively higher sales price per kilogram as compared to our
other products, accounted for 24% and 23%, respectively, of our
total revenue for the year ended December 31, 2010 as
compared to zero for the year ended December 31, 2009. With
the commencement of our second pilot processing campaign, the
production of lanthanum concentrate has been replaced by
lanthanum chlorohydrate, which is a more marketable product. In
total, for the year ended December 31, 2010, we sold 1,883
metric tons of REO products at an average sales price of $18.67
per kilogram compared to sales of approximately 1,302 metric
tons of REO products at an average sales price of $5.45 per
kilogram for the year ended December 31, 2009. We
anticipate cerium products, including
XSORBX®,
lanthanum products and didymium oxide to make up a significant
percentage of our total revenue until we complete the
modernization and expansion of the Mountain Pass facility.
Cost
of Goods Sold
Our cost of goods sold was $37.6 million and
$21.8 million for the years ended December 31, 2010
and 2009, respectively. The higher costs for the year ended
December 31, 2010, compared to the year ended
December 31, 2009, were due to higher sales and higher
production costs, including costs associated with the
56
transition to our second pilot processing campaign. These
increased costs were partially offset by a decrease in our lower
of cost or market inventory write-downs from approximately
$9.0 million for the year ended December 31, 2009 to
$2.5 million for the year ended December 31, 2010.
Lower of cost or market write-downs were higher for the year
ended December 31, 2009 as compared to the year ended
December 31, 2010, due to lower market prices for certain
products in 2009. During the fourth quarter 2010, an additional
write-down of inventory of $1.0 million was recognized due
to Bastnasite density survey results. Our processing facility
was shut down during March 2010 due to high water levels in our
evaporation ponds. In April and May 2010, operations were
limited during the
start-up
phase of our second pilot processing campaign, which decreased
production volumes during the first and second quarters of 2010.
As a result of the shut down, labor, maintenance and other
costs, such as depreciation expense, normally charged to
inventory were expensed as period costs and are reflected in our
higher cost of goods sold for the year ended December 31,
2010 compared to the same period in 2009.
Total production costs charged to inventory were
$16.9 million and $23.4 million for the year ended
December 31, 2010 and 2009, respectively. Inventory
purchases were $9.3 million and $0.2 million for year
ended December 31, 2010 and 2009. The primary products we
purchased during those periods were lanthanum oxide, cerium
oxide, didymium oxide metal and praseodymium oxide.
The following is a summary of the production and purchased
quantities in metric tons by significant product for the year
ended December 31, 2010 and the corresponding production
and purchased quantities for the year ended December 31,
2009 (in metric tons).
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Lanthanum products
|
|
|
857
|
|
|
|
1,579
|
|
Ceric Hydrate
|
|
|
248
|
|
|
|
|
|
Didymium Oxide
|
|
|
224
|
|
|
|
524
|
|
Production costs charged to inventory were lower during the year
ended December 31, 2010 as compared to the year ended
December 31, 2009, due to the plant shut-down and
start-up of
the second pilot processing campaign, as discussed above. We
expensed $11.0 million of production-related costs that
would have otherwise been charged to inventory if we maintained
normal production levels during this time period. We expect to
attain increased production levels during 2011.
Chemical costs allocated to production were $4.2 million
and $6.7 million for the year ended December 31, 2010
and 2009, respectively. Chemical costs in the year ended
December 31, 2010 were lower compared to the same period in
2009 due to lower production levels primarily during the first
and second quarters and improved processing techniques that
reduced chemical usage.
Labor costs, including related employee benefits, allocated to
production were approximately $9.0 million and
$9.2 million for the year ended December 31, 2010 and
2009, respectively. During the year ended December 31,
2009, labor costs include a bonus, which was granted to all
union employees who worked on our NFL pilot processing
development project of $1.4 million. The bonus was paid in
March 2010. In the third quarter of 2010, union workers and
other employees at our Mountain Pass facility received
additional bonuses totaling approximately $0.2 million.
Higher labor costs during the year ended December 31, 2009
were primarily attributable to the above mentioned bonus granted
to all union employees on the NFL pilot project.
Maintenance costs, including maintenance labor and supplies,
were $2.2 million and $1.9 million for the year ended
December 31, 2010 and 2009, respectively. Utility charges,
which primarily include electricity, were $2.1 million and
$2.0 million for the year ended December 31, 2010 and
2009, respectively.
Other costs allocated to production, including depreciation,
were approximately $10.5 million and $5.2 million for
the year ended December 31, 2010 and 2009, respectively.
These costs were higher in 2010 due to the significant increase
in depreciation expense from the placement of assets into
service of over $7.0 million related to the second pilot
processing campaign.
57
In March 2010, we also began blending our existing didymium
oxide inventory, which, prior to blending, contained varying
percentages of neodymium and praseodymium, to create a more
consistent content which better meets customer specifications.
As of December 31, 2010, approximately 500 metric tons were
blended. Blended inventory is reclassified from work in process
to finished goods. We began selling the blended didymium oxide
inventory in August 2010. In addition, we began shipments of
didymium oxide inventory to an off-site processing facility to
be converted into metal. Sales of didymium metal, which is
processed offsite, commenced in the fourth quarter of 2010.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses (excluding
share-based compensation) were $18.8 million and
$12.4 million for the year ended December 31, 2010 and
2009, respectively. Beginning in the first quarter of 2010, we
experienced a significant increase in professional fees
primarily due to increasing our staffing as we prepared to start
construction of our new facilities in January 2011 and other
business development activities to execute our
mine-to-magnets
business plan. We have also experienced increased spending for
accounting, information technology consulting and engineering
services.
Share-based
Compensation
Our share-based compensation expense was $28.7 million and
$0.2 million for the years ended December 31, 2010 and
2009, respectively. Share-based compensation for the year ended
December 31, 2010 is primarily associated with incentive
shares granted November 1, 2009 which, on the grant date,
were classified as a liability and valued at zero dollars using
the intrinsic value method. In connection with the corporate
reorganization and initial public offering on August 3,
2010, these shares were ultimately converted into
2,232,740 share of restricted common stock, 744,247 of
which vested immediately with an additional 744,247 shares
vesting on September 30, 2010 and the remaining shares
vesting on the six-month anniversary of the initial public
offering.
On November 4, 2010, the Compensation Committee of the
Board of Directors approved a grant of 37,500 shares of
restricted stock, with a three-year vesting period, to certain
of our executive officers and a director.
Although we anticipate additional share-based awards in 2011, we
expect share-based compensation to decrease through 2011 as the
final vesting period for the incentive shares was completed on
February 3, 2011.
Operating
Losses
Since our inception and our acquisition of the Mountain Pass
facility, we have incurred significant operating losses. Our
operating losses for the years ended December 31, 2010 and
2009 were approximately $51.2 million and
$28.6 million, respectively.
Capital
Expenditures
Our capital expenditures, on an accrual basis, totaled
$38.6 million and $7.1 million for the year ended
December 31, 2010 and 2009, respectively. Most of the
capitalized costs incurred during the year ended
December 31, 2010 are related to our second pilot
processing campaign, which commenced in April 2010, and the
startup of our modernization and expansion project at the
Mountain Pass facility. These costs were primarily associated
with engineering and consulting fees.
Related
Party Transactions
In May and July 2009, Molycorp entered into transactions with a
stockholder under which it borrowed an aggregate
$6.6 million, secured by certain product inventories.
Borrowings under this agreement required interest at a variable
rate of LIBOR plus one percent. On November 15, 2009, the
stockholder converted outstanding advances plus accrued interest
totaling $6.8 million into 2,303,033 shares of
Molycorp common
58
stock (giving effect to the Corporate Reorganization and the
conversion of Class A common stock into common stock in
connection with the IPO) in settlement of the obligation.
In June 2010, we borrowed approximately $5.0 million from
Traxys North America (Traxys), the parent of one of
our stockholders, TNA Moly Group, LLC. This borrowing was
secured by certain product inventories and it carries an initial
annual interest rate of 6%. The interest rate is based on a
three-month LIBOR plus a margin, which is subject to change
every three months. No adjustments have been made to the
interest rate since the agreement was signed. Both parties have
agreed that 50% of all didymium oxide sales will be subject to
this agreement. As such, we have made principal and interest
payments of $1.1 million and $0.2 million,
respectively for the year ended December 31, 2010. As of
December 31, 2010, the outstanding note payable to Traxys
under this agreement was $3.1 million and $1.3 million
in accounts payable related to the sales made, but not remitted
to Traxys and affiliates as of December 31, 2010.
During 2010, we have jointly marketed and sold certain lanthanum
oxide, cerium oxide and erbium oxide products with Traxys and
its affiliates. Per the terms of the arrangement gross margin is
split equally once all the costs associated with the sale are
recovered by both parties. As a result of this arrangement, we
recorded a related party receivable and a payable of $116,000
and $120,000 respectively. In addition, during 2010 we made
purchases of lanthanum oxide and cerium oxide from Traxys and
affiliates in the amount of $2.5 million. These products
were subsequently sold to our customers. We have recorded a
payable to Traxys and affiliates associated with these product
purchases of $0.3 million as of December 31, 2010.
Year
Ended December 31, 2009 Compared to Period from
June 12, 2008 (Inception) to December 31,
2008
Due to the timing of our formation on June 12, 2008 and
completion of the acquisition of the Mountain Pass, California
rare earth deposit and associated assets from Chevron Mining
Inc. on September 30, 2008, the results of our operations
for the year ended December 31, 2009 are not directly
comparable to our results of operations for the period from our
inception on June 12, 2008 to December 31, 2008, which
we refer to as the period ended December 31, 2008. We did
not have any revenue or cost of goods sold until the fourth
quarter of 2008. Accordingly, the following discussion focuses
on significant trends in our revenues, cost of sales and other
operating expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
|
|
|
June 12, 2008
|
|
|
June 12, 2008
|
|
|
|
|
|
|
(Inception)
|
|
|
(Inception)
|
|
|
|
Year Ended
|
|
|
through
|
|
|
through
|
|
(In thousands)
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2009
|
|
|
Sales
|
|
$
|
7,093
|
|
|
$
|
2,137
|
|
|
$
|
9,230
|
|
Cost of goods sold
|
|
|
(21,785
|
)
|
|
|
(13,027
|
)
|
|
|
(34,812
|
)
|
Selling, general and administrative expenses
|
|
|
(12,444
|
)
|
|
|
(2,829
|
)
|
|
|
(15,273
|
)
|
Stock-based compensation
|
|
|
(241
|
)
|
|
|
(150
|
)
|
|
|
(391
|
)
|
Depreciation and amortization expense
|
|
|
(191
|
)
|
|
|
(19
|
)
|
|
|
(210
|
)
|
Accretion expense
|
|
|
(1,006
|
)
|
|
|
(250
|
)
|
|
|
(1,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(28,574
|
)
|
|
|
(14,138
|
)
|
|
|
(42,712
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
181
|
|
|
|
54
|
|
|
|
235
|
|
Interest (expense) income
|
|
|
(194
|
)
|
|
|
10
|
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(42,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
For the year ended December 31, 2009 and for the period
ended December 31, 2008, our revenues were approximately
$7.1 million and $2.1 million, respectively. Sales of
lanthanum accounted for 91% and 72% of our sales for the year
ended December 31, 2009 and the period ended
December 31, 2008, respectively. There is a limited market
for our lanthanum and two customers together comprised 82% and
72% of our total product revenue for the year ended
December 31, 2009 and the period ended December 31,
2008, respectively.
59
We anticipate lanthanum and didymium oxide to make up a
significant percentage of our total sales until we complete the
modernization and expansion of the Mountain Pass facility, at
which time we will no longer manufacture those products. We sell
100% of our lanthanum to customers in the United States.
Upon completion of the modernization and expansion of the
Mountain Pass facility and the full implementation of our
mine-to-magnets
strategy, we expect to produce cerium, lanthanum, neodymium,
praseodymium, samarium, dysprosium and terbium oxide and metal
products, europium and gadolinium oxide products and NdFeB and
samarium cobalt alloys. We intend to use some of the NdFeB alloy
and dysprosium metal product in our magnet production plant. Our
new products are expected to have significantly more
applications than our current products, exposing us to a larger
population of potential customers.
Cost
of Goods Sold
Our cost of goods sold for the year ended December 31, 2009
and for the period ended December 31, 2008 totaled
approximately $21.8 million and $13.0 million,
respectively. Included in the cost of sales for the year ended
December 31, 2009 and the period ended December 31,
2008 are write-downs of inventory to estimated net realizable
value of $9.0 million and $9.5 million, respectively.
Our principal production costs include chemicals, direct labor
and employee benefits, maintenance labor and materials, contract
labor, operating supplies, depreciation, utilities and plant
overhead expenses.
Total production costs charged to inventory were
$23.4 million and $5.5 million for the year ended
December 31, 2009 and the period ended December 31,
2008, respectively. We produced 1,542 mt of lanthanum and
544 mt of didymium oxide in 2009 and 363 mt of
lanthanum and 45 mt of didymium oxide in the period ended
December 31, 2008. Inventory purchases were
$0.2 million and $0.7 million for the respective
periods. We primarily purchase lanthanum oxide, cerium oxide and
praseodymium oxide that undergo further processing either at our
facility or at an off-site location.
Our chemical costs were $6.7 million and $1.9 million
for the year ended December 31, 2009 and for the period
ended December 31, 2008, respectively. Unit chemical costs
do not vary significantly based on production volumes and are
primarily driven by market prices. In 2008, the most significant
chemical cost related to caustic soda, representing
approximately 57% of total reagent costs. We launched a program
in 2009 that has allowed us to lower the quantity and costs
associated with the use of caustic soda in our production
process.
Labor costs, including related employee benefits, allocated to
production were $9.2 million and $2.0 million for the
year ended December 31, 2009 and the period ended
December 31, 2008, respectively. Included in the labor
costs is a bonus, which was granted to all union employees for
working on our NFL pilot processing project, of
$1.4 million and $0.3 million for the year ended
December 31, 2009 and the period ended December 31,
2008, respectively. The bonus was paid out in March 2010.
Maintenance costs, including maintenance labor and supplies,
were $1.9 million and $0.5 million for the year ended
December 31, 2009 and the period ended December 31,
2008, respectively. Maintenance costs remained consistent
throughout this time period.
Other costs allocated to production include depreciation charges
of $3.7 million and $0.9 million for the year ended
December 31, 2009 and the period ended December 31,
2008, respectively. Depreciation allocated to products is
primarily related to buildings, equipment and machinery used in
the production process. We also accrued waste disposal charges
of $1.5 million as of December 31, 2009 for disposal
of by-products of production that are potentially hazardous.
Selling,
General and Administrative Expenses
Our selling, general and administrative expenses for the year
ended December 31, 2009 and for the period ended
December 31, 2008 totaled $12.4 million and
$2.8 million, respectively. Legal and accounting fees were
$1.8 million and $0.5 million, respectively. Other
consulting expenses, primarily related to engineering and
technical consultants were $1.6 million and
$0.5 million. These costs related primarily to engineering
and resource studies as well as process development projects.
Costs associated with research and development projects were
$1.5 million and
60
$0.4 million and primarily are attributed to labor costs
and materials and supplies. Management salaries and related
benefits not capitalizable in inventory were $2.5 million
and $0.9 million for the respective periods.
Operating
Losses
Since our inception and our acquisition of the Mountain Pass
facility, we have incurred significant operating losses. Our
operating losses for the year ended December 31, 2009 and
for the period ended December 31, 2008 were
$28.6 million and $14.1 million, respectively. We have
funded these operating losses entirely with proceeds from equity
contributions from our initial investors.
Capital
Investments
We expect to make significant capital expenditures under our
plan to modernize and expand our Mountain Pass facility, as well
as consistent expenditures to replace assets necessary to
sustain safe and reliable production. Most of the facilities and
equipment acquired in connection with the acquisition of the
Mountain Pass facility are at least 20 years old. We have
developed an accelerated modernization plan that includes the
refurbishment of the Mountain Pass mine and related processing
facilities beginning in 2010 through 2012 in order to increase
REO production. We expect to incur approximately
$531 million in property, plant and equipment additions in
connection with our initial modernization and expansion plan
prior to December 31, 2012, and up to an additional
$250 million in property, plant and equipment additions to
build additional production capacity in connection with our
capacity expansion plan, prior to December 31, 2013.
All of the amounts for future capital spending described above
are initial estimates that are subject to change as the projects
are further developed. Total capital spending in 2010 of the
Mountain Pass mine and related processing facilities was
$31.4 million, of which $1.3 million is considered a
down payment of the contract. Additional capital spending in
2010 of $7.2 million related to other capital expenditures.
For the year ended December 31, 2010, we recognized a
$3.1 million, net of depreciation, impairment expense
associated with the mill and crusher, including the associated
asset retirement cost, as a result of our decision to replace
rather than refurbish these assets.
Liquidity
and Capital Resources
Under our current business plan, we intend to spend
approximately $531 million through the end of 2012 to
restart mining operations, construct and refurbish processing
facilities and other infrastructure at the Mountain Pass
facility and expand into metal, alloy and magnet production in
connection with our initial modernization and expansion plan. In
addition, we expect to spend approximately $250 million in
capital costs to expand production capacity through the end of
2013.
We expect to finance our remaining capital expenditures under
the initial modernization and expansion and the second phase
expansion plans as well as our working capital requirements,
with our available cash balances of $492.5 million as of
March 31, 2011, anticipated revenue from operations and
traditional debt financing, project financing,
and/or
government programs, including the DOE loan guarantee program.
We submitted a Part I application on June 2010 for up to
$280 million. On July 21, 2010, the DOE deemed our
application eligible for submission of a part II
application, which was submitted on December 31, 2010. Due
to program and resource constraints, our application under
Section 1705 of the DOE loan guarantee program, or LGP, was
put on hold on May 10, 2011. At that time, DOE advised us
that our project may be eligible for funding under
Section 1703 of the LGP. We are currently evaluating our
options under the LGP and we expect to conclude on the best
course of action in the near term. On December 10, 2010, we
entered into a memorandum of understanding with Sumitomo
pursuant to which Sumitomo agreed to, among other things,
purchase $100 million of Molycorp, Inc.s common stock
and arrange for $30 million of debt financing. Sumitomo is
currently conducting a due diligence review and the consummation
of these transactions with Sumitomo is subject to the
satisfaction of numerous conditions and finalization of
definitive agreements.
Our estimated capital expenditures of $781 million do not
include corporate, selling, general and administrative expenses,
which we estimate to be an additional $20 million to
$25 million per year. We
61
currently expect that the cash acquired as part of our purchase
of the controlling stake in Molycorp Silmet AS on
April 1, 2011 and of all the issued and outstanding shares
of capital stock of MMA on April 15, 2011, will be retained
within those companies to fund their respective working capital
needs.
Contractual
Obligations
As of December 31, 2010, we had the following contractual
obligations:
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|
|
|
|
|
|
|
Payments Due by Period
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|
Contractual Obligations
|
|
Total
|
|
|
Less Than 1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
More Than 5 Years
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|
(In thousands)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations(1)
|
|
$
|
1,329
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|
|
$
|
266
|
|
|
$
|
652
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|
|
$
|
411
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|
|
$
|
|
|
Purchase obligations(2)
|
|
|
121,353
|
|
|
|
65,069
|
|
|
|
13,761
|
|
|
|
10,306
|
|
|
|
32,217
|
|
Employee bonus obligations(3)
|
|
|
554
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|
|
|
554
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|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations(4)
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|
|
21,011
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|
|
|
353
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|
|
|
6,932
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|
|
|
584
|
|
|
|
13,142
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|
|
|
|
|
|
|
|
|
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|
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|
|
|
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Total
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$
|
144,247
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|
|
$
|
66,242
|
|
|
$
|
21,345
|
|
|
$
|
11,301
|
|
|
$
|
45,359
|
|
|
|
|
(1) |
|
Represents all operating lease payments for office space, land
and office equipment. |
|
(2) |
|
Represents contractual commitments for the purchase of materials
and services from vendors. Some of the agreements Molycorp, Inc.
entered into with these vendors contain cancellation clauses
stating the amount and timing of termination charges to
Molycorp, Inc.. In total, these charges range from a minimum of
$3.1 million to a maximum of $17.4 million depending
on the timing of cancellation. |
|
(3) |
|
Represents payments due to employees for awards under our annual
incentive plan. |
|
(4) |
|
Under applicable environmental laws and regulations, we are
subject to reclamation and remediation obligations resulting
from our operations. The amounts presented above represent our
estimated future undiscounted cash flows required to satisfy the
obligations currently known to us. |
During the three months ended March 31, 2011, we made
payments for certain purchase obligations of $27 million,
and entered into additional purchase obligations for materials
and services from vendors, net of payments and accrued
liabilities, of approximately $61 million. These
obligations will be primarily paid by the first quarter of 2012.
Off-Balance
Sheet Arrangements
As of the date of this prospectus, our only off-balance sheet
arrangements are the operating leases and purchase obligations
included in Contractual Obligations
above. Prior to September 13, 2010, our only off-balance
sheet arrangement in addition to the operating leases included
in Contractual Obligations above, was
our agreement to compensate our initial investors for providing
collateral relating to our bonding obligations to various
government agencies. In February 2009, the members of Molycorp
Minerals incurred certain costs in providing letters of credit
and/or cash
collateral to secure surety bonds issued for the benefit of
certain regulatory agencies relating to our Mountain Pass
facility closure and reclamation obligations. The total amount
of collateral provided by them was $18.2 million. In
accordance with our agreement, we paid each stockholder a 5%
annual return on the amount of collateral provided resulting in
an aggregate payment of approximately $0.8 million for
interest accrued through September 13, 2010.
Critical
Accounting Policies and Estimates
Revenue
and Costs of Goods Sold
Revenue is recognized when persuasive evidence of an arrangement
exists, the risks and rewards of ownership have been transferred
to the customer, which is generally when title passes, the
selling price is fixed or determinable and collection is
reasonably assured. Title generally passes upon shipment of
product from our Mountain Pass facility. Prices are generally
set at the time of or prior to shipment. Transportation and
distribution costs are incurred only on sales for which we are
responsible for delivering the product.
62
Cost of goods sold includes the cost of production as well as
inventory write-downs caused by market price declines. Primary
production costs include labor, supplies, maintenance costs,
depreciation and plant overhead.
Reclamation
Our asset retirement obligations, or AROs, arise from our
San Bernardino County conditional use permit, approved
mining plan and federal, state and local laws and regulations,
which establish reclamation and closure standards for all
aspects of our surface mining operation. Comprehensive
environmental protection and reclamation standards require that
we, upon closure of the Mountain Pass facility, restore the
property in accordance with an approved reclamation plan issued
in conjunction with our conditional use permit.
Our AROs are recorded initially at fair value, or the amount at
which we estimate we could transfer our future reclamation
obligations to informed and willing third parties. We use
estimates of future third party costs to arrive at the AROs
because the fair value of such costs generally reflects a profit
component. It has been our practice, and we anticipate it will
continue to be our practice, to perform a substantial portion of
the reclamation work using internal resources. Hence, the
estimated costs used in determining the carrying amount of our
AROs may exceed the amounts that are eventually paid for
reclamation costs if the reclamation work were performed using
internal resources.
To determine our AROs, we calculate the present value of the
estimated future reclamation cash flows based upon our permit
requirements, which is based upon the approved mining plan,
estimates of future reclamation costs and assumptions regarding
the useful life of the asset to be remediated. These cash flow
estimates are discounted on a credit-adjusted, risk-free
interest rate based on U.S. Treasury bonds with a maturity
similar to the expected life of the asset.
The amount initially recorded as an ARO for the Mountain Pass
facility may change as a result of changes to the mine permit,
and changes in the estimated costs or timing of reclamation
activities. We periodically update estimates of cash
expenditures associated with our ARO obligations in accordance
with U.S. GAAP, which generally requires a measurement of
the present value of any increase in estimated reclamation costs
using the current credit-adjusted, risk-free interest rate.
Adjustments to the ARO for decreases in the estimated amount of
reclamation costs are measured using the credit-adjusted,
risk-free interest rate as of the date of the initial
recognition of the ARO.
At December 31, 2010, our accrued ARO obligation was
$12.5 million. Of this amount, approximately
$5.4 million is associated with the demolition and removal
of buildings and equipment, approximately $4.0 million is
associated with groundwater remediation and $3.1 million is
associated with the remediation of tailing ponds, removal of
land improvements and revegetation.
Property,
Plant and Equipment
Property, plant and equipment associated with the acquisition of
the Mountain Pass facility is stated at estimated fair value as
of the acquisition date. Expenditures for new property, plant
and equipment and improvements that extend the useful life or
functionality of the asset are capitalized. Depreciation on
plant and equipment is calculated using the straight-line method
over the estimated useful lives of the assets. Maintenance and
repair costs are expensed as incurred.
Reserves,
Mineral Properties and Development Costs
Mineral properties represent the estimated fair value of the
mineral resources associated with the Mountain Pass facility as
of the acquisition date. We will amortize such mineral
properties using the units of production basis over estimated
proven and probable reserves.
Inventory
Inventories consist of
work-in-process,
finished goods, stockpiles of bastnasite and lanthanum
concentrate and materials and supplies. Inventory cost is
determined using the lower of weighted average cost or estimated
63
net realizable value. Inventory expected to be sold in the next
12 months is classified as a current asset in the
consolidated balance sheet. Cash flows related to the sale of
inventory are classified as operating activities in the
consolidated statements of cash flows.
Write-downs to estimated net realizable value are charged to
cost of goods sold. Many factors influence the market prices for
REOs and, in the absence of established prices contained in
customer contracts, management uses Metal-Pages as an
independent pricing source to evaluate market prices for REOs at
the end of each quarter. Metal-Pages is a widely recognized
pricing source within our industry, which collects and
summarizes data from rare earth producers in China and Europe.
We make appropriate modifications to the Metal-Pages prices,
when applicable, to account for differences between the REO
grade of our inventory and the REO grade assumed in the
corresponding Metal-Pages price.
We evaluate the carrying value of finished goods and materials
and supplies inventories each quarter giving consideration to
slow-moving items, obsolescence, excessive levels and other
factors and recognize related write-downs as necessary. Finished
goods inventories that may not meet customer specifications or
current market demand, and quantities that exceed a two year
supply, generally require write-downs to estimated net
realizable value.
We evaluate our stockpiled concentrates each quarter and
recognize write-downs as necessary to adjust the carrying value
to estimated net realizable value. Our analysis utilizes current
market prices from Metal-Pages and estimated costs to complete
the processing of our concentrates to REOs. Costs associated
with the processing of concentrates through our planned
modernized facilities are based on internal and external
engineering estimates and primarily include labor and benefits,
utilities, chemicals, operating supplies, maintenance,
depreciation and amortization and plant overhead expenses. Our
estimated costs per kilogram of REO to be produced in our
modernized facilities are significantly lower than our current
production costs per kilogram, resulting in a higher carrying
value for our stockpiled concentrates. The use of new and
proprietary technologies will allow us to improve our process
recoveries and substantially reduce our water consumption. We
will reduce our energy costs through the use of a natural gas
powered co-generation power plant that will be installed as part
of our modernization project. Additionally, we intend to produce
our own hydrochloric acid and sodium hydroxide and recycle our
acid and base, thereby reducing our cost of reagents. We
estimate, based upon our current business plan and estimated
future demand for the component rare earth elements to be
recovered, that our inventory of stockpiled concentrates will be
fully utilized in the production of our rare earth products by
March 31, 2013.
Asset
Impairments
We account for asset impairment in accordance with ASC 360,
Property Plant and Equipment. Long-lived assets such as
property, plant and equipment, mineral properties and purchased
intangible assets subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Impairment is considered to exist if the total estimated future
cash flow on an undiscounted basis is less than the carrying
amount of the related assets. An impairment loss is measured and
recorded based on the discounted estimated future cash flows.
Changes in significant assumptions underlying future cash flow
estimates or fair values of assets may have a material effect on
our financial position and results of operations.
Factors we generally consider important in our evaluation and
that could trigger an impairment review of the carrying value of
long-lived assets include the following:
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significant underperformance relative to expected operating
results;
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significant changes in the way assets are used;
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underutilization of our tangible assets;
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discontinuance of certain products by us or by our customers;
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a decrease in estimated mineral reserves; and
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significant negative industry or economic trends.
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64
The recoverability of the carrying value of our mineral
properties is dependent upon the successful development,
start-up and
commercial production of our mineral deposit and the related
processing facilities. Our evaluation of mineral properties for
potential impairment primarily includes assessing the existence
or availability of required permits and evaluating changes in
our mineral reserves, or the underlying estimates and
assumptions, including estimated production costs. The
determination of our proven and probable reserves is based on
extensive drilling, sampling, mine modeling, and the economic
feasibility of accessing the reserves. Assessing the economic
feasibility requires certain estimates, including the prices of
REOs to be produced and processing recovery rates, as well as
operating and capital costs. The estimates are based on
information available at the time the reserves are calculated.
Although we believe the carrying values of our long-lived assets
were realizable as of the relevant balance sheet date, future
events could cause us to conclude otherwise.
Recent
Accounting Pronouncements
In December 2010, the FASB issued ASU
2010-29:
Disclosure of Supplementary Pro Forma Information for
Business Combinations. The amendments in this update specify
that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of
the combined entity as though the business combination(s) that
occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only.
The amendments also expand the supplemental pro forma
disclosures to include a description of the nature and amount of
material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the
reported pro forma revenue and earnings. The amendments affect
any public entity as defined by Topic 805 that enters into
business combinations that are material on an individual or
aggregate basis. Molycorp is evaluating the potential impact of
adopting this guidance on the Molycorps consolidated
financial position, results of operations and cash flows.
Quantitative
and Qualitative Disclosures about Market Risk
Our operations may be impacted by commodity prices, geographic
concentration, changes in interest rates and foreign currency
exchange rates.
Commodity
Price Risk
Our principal products, including cerium, lanthanum,
praseodymium, neodymium, europium, samarium, gadolinium,
dysprosium, and terbium, are commodities but are not traded on
any commodity exchange. As such, direct hedging of the prices
for future production cannot be undertaken. We generally do not
currently have any long-term sales contracts with customers, so
prices typically will vary with the transaction and individual
bids received. Our products are primarily marketed to
manufacturers as component materials. Prices will vary based on
the demand for the end products being produced with the mineral
resources we mine and process.
Our sales and profitability are determined principally by the
price of the rare earth products that we produce and, to a
lesser extent by the price of natural gas and other supplies
used in the production process. The prices of our rare earth
products are influenced by the price and demand of the end
products that our products support, including clean energy
technologies. A significant decrease in the global demand for
these products may have a material adverse effect on our
business. We currently have no hedging contracts in place and
intend to consider hedging strategies in future.
Our costs and capital investments are subject to market
movements in other commodities such as natural gas and
chemicals. We may enter into derivative contracts for a portion
of the expected usage of these products, but we do not currently
have any derivative contracts and we do not currently anticipate
entering into derivative agreements.
65
Interest
Rate Risk
We do not currently have any debt obligations except our
inventory financing arrangement with Traxys North America, LLC
in the amount of $2.9 million as of March 31, 2011.
Our exposure to interest rate risk as a result of this agreement
would result in a roughly $30,000 increase/decrease in interest
rate expense for every 1% increase/decrease in the underlying
interest rate. Due to our limited borrowings, we are not
significantly impacted by variations in interest rates at this
time. Our exposure to interest rate risk would increase if, for
example, we obtain and utilize debt facilities in the future.
Internal
Controls
As a public company, we are required to comply with the record
keeping, financial reporting, corporate governance and other
rules and regulations of the SEC, including the requirements of
the Sarbanes-Oxley Act, and other regulatory bodies. These
entities generally require that financial information be
reported in accordance with U.S. GAAP. As a private
company, we were not required to have, and until late 2009 did
not have, sufficient personnel with SEC and Sarbanes-Oxley
experience. In addition, we were not required to comply with the
internal control design, documentation and testing requirements
imposed by Sarbanes-Oxley. Following our initial public
offering, we became subject to these requirements.
Effective internal control over financial reporting is necessary
for us to provide reliable annual and interim financial reports
and to prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, our operating results and financial
condition could be materially misstated and our reputation could
be significantly harmed. A material weakness in internal control
over financial reporting is defined as a deficiency, or a
combination of deficiencies, such that there is a reasonable
possibility that a material misstatement of the annual or
interim financial statements will not be prevented or detected
on a timely basis. A significant deficiency is a deficiency, or
a combination of deficiencies, in internal control over
financial reporting that is less severe than a material
weakness, yet important enough to merit attention by those
responsible for oversight of a companys financial
reporting. A deficiency in internal control over financial
reporting exists when the design or operation of a control does
not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect
misstatements on a timely basis.
66
RARE
EARTH INDUSTRY OVERVIEW
The Rare
Earth Elements
The REE group includes 17 elements, namely the
15 lanthanide elements, which are cerium, lanthanum,
neodymium, praseodymium, promethium (which does not occur
naturally), samarium, europium, gadolinium, terbium, dysprosium,
holmium, erbium, thulium, ytterbium and lutetium, and two
elements that have similar chemical properties to the lanthanide
elements yttrium and scandium. The oxides produced
from processing REEs are collectively referred to as REOs. Light
and heavy REEs are contained in all rare earth deposits,
including in our deposit at Mountain Pass. Heavy REEs generally
command higher sales prices on a per pound basis than light REEs
because heavy REEs are not as prevalent. Cerium, lanthanum,
neodymium, praseodymium and samarium are considered light
REEs that are more predominant in bastnasite, while
europium, gadolinium, terbium, dysprosium, holmium, erbium,
thulium, ytterbium and lutetium are considered heavy
REEs that are more predominant in monazite. Our reserves
are bastnasite, but there are also known monazite occurrences on
our property that we are currently examining.
Global
Rare Earth Market
REEs have unique properties that make them critical materials to
many existing applications upon which society has become
dependent as well as many emerging applications. Examples
include:
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Clean-Energy Technologies: hybrid and
electric vehicles, wind power turbines and compact fluorescent
lighting;
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High-Technology Applications: miniaturization
of cell phones, personal digital assistant devices, digital
music players, hard disk drives used in computers, computing
devices, ear bud speakers and microphones, as well
as fiber optics, lasers and optical temperature sensors;
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Critical Defense Applications: guidance and
control systems, communications, global positioning systems,
radar and sonar; and
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Advanced Water Treatment: industrial,
military, homeland security and domestic and foreign aid
applications.
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Rechargeable
Batteries
One of the most effective rechargeable batteries is the nickel
metal hydride, or NiMH, battery, which is used in nearly all
hybrid and electric vehicles and many other electronic products.
A mixed rare earth metal alloy is used as the anode in the NiMH
battery. Cerium and lanthanum are the main REEs used in the NiMH
battery.
Magnets
REEs are critical elements in the worlds strongest
permanent magnets. These magnets are utilized in electric
motors, a key component of all motor vehicles, especially hybrid
and electric vehicles. A new and rapidly expanding use of rare
earth permanent magnets is in wind turbine permanent magnet
generators. Owing to the high
power-to-weight
ratio of the magnets, less material is required, permitting
engines and
67
generators to be considerably more powerful while at the same
time smaller and lighter. The powerful REE-based magnets have
made possible the miniaturization of hard disk drives used in
computers and many other electrical devices such as personal
digital assistant devices and digital music players. Neodymium,
praseodymium, samarium, and dysprosium are critical to the
permanent magnet industry due to their unique magnetic
properties. Based on estimates by IMCOA, by 2014, global demand
for rare earths used in magnets is estimated at 40,000 mt of
REO, excluding demand from the wind energy sector. The wind
energy sector could consume up to an additional 9,000 mt of REO,
1,350 mt of which is estimated solely for the United States.
According to IMCOA, the wind energy sector in the United States
alone could lead to a 3% to 4% increase in global demand for
REOs used in magnets. If China succeeds with its current target
for energy produced by wind power, then this could lead to
additional consumption of REOs used in magnets of 8% to 10% by
2014. Today, nearly all magnetic rare earth products are
produced from Chinese-sourced REOs, and there is no
U.S. domestic manufacturer of neodymium iron boron, or
NdFeB magnets, as confirmed by an April 2010 briefing to the
United States Government Accountability Office, or U.S. GAO
briefing, titled Rare Earth Materials in the Defense
Supply Chain, which was prepared in accordance with the
National Defense Reauthorization Act for Fiscal Year 2010 (Pub
L.
No. 111-84).
Catalysts
REEs are commonly used as a form of catalyst, referred to as a
fluid bed cracking catalyst. Fluid bed cracking catalysts are
being used increasingly in the oil industry because they enhance
the efficiency of separating various fractions from crude oil
during the refining process. Lanthanum is the main REE used in
fluid bed cracking catalysts.
REEs are also used in other forms of catalysts. A catalytic
converter is a device fitted to the exhaust system of a
combustion engine that reduces the toxicity of emissions. Recent
technological advances have seen the emergence of the three-way
catalytic converter. This device reduces toxic nitrogen oxides
to more benign nitrogen and oxygen, oxidizes toxic carbon
monoxide to carbon dioxide and oxidizes unburnt hydrocarbons.
Cerium is the REE used in catalytic converters, where it forms
part of the catalyst. Increasingly stringent vehicle emission
laws are being introduced throughout the world, and, according
to the Manufacturers of Emission Controls Association, 100% of
new vehicles sold in the United States are equipped with
three-way catalytic converters while many developing nations are
also mandating that new passenger cars be equipped with
three-way catalytic converters.
Water
Treatment
We have developed
XSORBX®,
a proprietary product and process, primarily consisting of
cerium, which removes arsenic and other heavy metals from
industrial processing streams and will allow our customers to
more safely sequester arsenic and increase their production.
XSORBX®
is protected by over 100 issued and pending U.S. and
foreign patents and patent applications. This product, which we
have proven to be effective in removing arsenic and other
contaminants from water, is applicable to a broad range of
applications. There are several opportunities for us to
commercialize this technology in the industrial, defense,
foreign aid and outdoor enthusiast sectors. For example, we have
applied the technology in the mining and smelting industries as
a means to improve management of arsenic-laden process streams
and have also developed a portable drinking water filtration
system for U.S. defense applications and for the outdoor
recreation industry. We have begun to sell
XSORBX®
for commercial use in the wastewater, recreation, pool and spa,
industrial process and other water treatment markets. Sales of
XSORBX®
generate their best cash flow when cerium is in surplus and low
priced.
Demand
for Rare Earth Products
The lack of available substitutes makes REEs essential for
existing and emerging technologies. According to IMCOA, global
demand in 2010 is estimated to be approximately 125,000 mt of
REO, roughly equivalent to the 2008 demand level.
68
Global
demand for rare earths by market (mt of REO): 2010E &
2015E
Source: IMCOA (January 2011)
Factors that could influence upward demand for rare earth
products include:
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the use of neodymium, praseodymium and dysprosium in
high-strength NdFeB magnets that are critical to hybrid and
electric vehicles and the increased construction of wind power
generation facilities, particularly off-shore installations;
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the use of lanthanum and cerium for NiMH batteries that are
utilized in hybrid and electric vehicles;
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the use of europium, terbium and yttrium in the production of
compact fluorescent light bulbs;
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the use of high-strength NdFeB magnets in the miniaturization of
electronic products;
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the use of lanthanum by refineries processing lower quality
crude oil that consumes greater quantities of fluid cracking
catalysts;
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the increased use of REEs in the drive to improve energy
efficiency and reduce greenhouse gas, or GHGs, by the United
States and the European Union;
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the use of cerium in advanced water filtration
applications; and
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continued research and commercialization of new applications for
rare earths products.
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Global consumption of REEs is projected to steadily increase due
to continuing growth in existing applications and increased
innovation and development of new end uses. For example, the
integration of rare earth permanent magnet drives into wind
power turbines has substantially reduced the need for gearboxes,
which increases overall efficiency and reliability. According to
IMCOA, total demand for rare earths outside of China is expected
to increase at a compound annual growth rate, or CAGR, of
approximately 7% between 2010 and 2015. In addition, according
to IMCOA, global demand for rare earths used in magnets is
expected to grow at a CAGR of approximately 13% over the same
period. IMCOA estimates that total global demand for rare earths
is expected to increase from 125,000 mt in 2010 to 185,000 mt in
2015, which results in a CAGR of approximately 8% for that
period.
Supply
for Rare Earth Products
China has dominated the global supply of REOs for the last ten
years and, according to IMCOA, accounted for approximately 96%
of global REO production in 2008. Even with our planned
production, global supply is expected by analysts to remain
tight due to the combined effects of growing demand and actions
taken by the Chinese government to restrict exports. The Chinese
government heightened international supply concerns beginning in
August 2009 when Chinas Interior Ministry first signaled
that it would further restrict exports of Chinese rare earth
resources. Citing the importance of REE availability to internal
industries and the desire to conserve resources, the Chinese
government has announced export quotas, increased export tariffs
and introduced a mining quotas policy that, in
addition to imposing export quotas and export tariffs, also
imposes production quotas and limits the issuance of new
licenses for rare earth exploration. According to IMCOA,
Chinas export quotas have decreased from approximately
65,600 mt of REO in 2004 to approximately 50,000 mt of REO in
2009. On July 8, 2010, Chinas Ministry of Industry
and Information Technology issued the export quota for the
second half of 2010, which reduced exports by 72% compared with
the second half of 2009 and 40% for the year ended
December 31, 2010 as compared to the year ended
69
December 31, 2009. On December 28, 2010, Chinas
Ministry of Industry and Information Technology further reduced
the export quota for the first half of 2011, reducing exports by
35% compared with the first half of 2010 and 20% for the twelve
months ended June 30, 2011 as compared to the twelve months
ended June 30, 2010. Actual exports of rare earth ores and
metals from China, however, continue to exceed export quotas
mandated by the Chinese government. In response to this trend,
Chinas Ministry of Commerce announced on May 19, 2011
that it would further tighten its control over rare earth metals
by expanding its export quota system and imposing higher taxes
on rare earth ores. In 2008, according to IMCOA, China imposed
export taxes of up to 25% on selected REOs (primarily heavy
REOs) and up to 15% for all other REOs (primarily light REOs).
In addition, according to IMCOA, Chinas Ministry of
Industry and Information Technology issued a plan in 2009 to
reduce the production of separated rare earths by 7% to 110,700
mt of REO in 2009.
Chinas internal consumption of rare earths is expected to
continue to grow, leaving the Rest of World with less supply
during a period of projected increasing global demand. China
also dominates the manufacture of rare earth metals, producing
substantially all of the worlds supply, and the
manufacture of NdFeB magnets, producing approximately 80% of the
worlds supply. Neither capability currently exists in the
United States, as confirmed by the April 2010 U.S. GAO
briefing.
China has announced a national stockpile program, as has South
Korea. Additionally, Japan has increased its national stockpile
program. In December 2010, the U.S. Department of Energy
released a study concluding that five rare earth metals,
dysprosium, neodymium, terbium, europium and yttrium, are
critical to clean energy technologies in the short term and
medium term due to their importance to the clean energy economy
and risk of supply disruption. The report emphasizes that
diversified global supply chains for these critical materials
are essential, and calls for steps to be taken to facilitate
extraction, processing and manufacturing in the United States.
Additionally, the U.S. Department of Defense is conducting
a study to determine its rare earth requirements and supply
chain vulnerabilities and whether to build a strategic
stockpile. These stockpile programs will likely accelerate the
pace of the current and projected global REE supply deficit.
According to the April 2010 U.S. GAO briefing:
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the Mountain Pass mine is the largest non-Chinese rare earth
deposit in the world;
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other U.S. rare earth deposits exist, but these deposits
are still in early exploratory stages of development;
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officials emphasized the significance of the widespread use of
commercial-off-the-shelf products in defense systems that
include rare earth materials, such as computer hard drives;
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heavy REEs, such as dysprosium, which provide much of the
heat-resistant qualities of permanent magnets used in many
industry and defense applications, are considered to be
important;
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government and industry officials told the U.S. GAO that
where rare earth materials are used in defense systems, the
materials are responsible for the functionality of the component
and would be difficult to replace without losing performance;
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a 2009 National Defense Stockpile configuration report
identified lanthanum, cerium, europium and gadolinium as having
already caused some kind of weapon system production delay and
recommended further study to determine the severity of the
delays; and
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defense systems will likely continue to depend on rare earth
materials, based on their life cycles and lack of effective
substitutes.
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The forecasted demand by IMCOA set forth in the graph below
assumes Mountain Pass and other rare earth projects commence
production and account for a significant portion of the
forecasted increase in supply. If these projects do not commence
production when anticipated, there will be a gap between
forecasted demand and forecasted supply. IMCOA expects that this
anticipated market dynamic will underpin continued strong
pricing.
70
Global
Rare Earths Supply & Demand,
2005-2020
(mt REO)
Source: IMCOA (January 2011)(1)
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(1)
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Does not reflect our potential to increase production to 40,000
mt of REO per year following the completion of our capacity
expansion plan, but instead reflects our production of 19,050 mt
of REO per year beginning in 2013.
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As a result of the global economic crisis, rare earth product
prices declined by approximately 50% during 2008 and through the
third quarter of 2009. According to Metal-Pages, from October
2009 through March 2011, prices for rare earths have risen by
approximately 1,500% on average. Furthermore, over the same
period, prices for some of the most common rare earths (cerium
oxide, lanthanum oxide, neodymium oxide, and praseodymium oxide)
have risen by more than 2,000% on average.
In 2008, global production of rare earths was estimated at
approximately 129,000 mt of REO according to Roskill. According
to IMCOA, China accounted for approximately 96% of this total.
As a result of economic, environmental and regulatory factors in
China, as well as internal industrial development, there is
uncertainty with respect to the availability of rare earth
products from China. Although Chinese production of rare earth
materials is increasing, export quotas imposed by the Chinese
government are decreasing, thus reducing the amount of rare
earth materials that China may export for the rest of the world.
This reduction is occurring at a time when the demand for REEs
is growing significantly.
In anticipation of increasing demand, there are a limited number
of rare earth projects outside of China, which are at various
stages in the development phase. The success of any other rare
earth projects depends on a number of factors, including:
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REO grade;
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obtaining and maintaining operating and environmental permits;
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acceptance in the marketplace as a long-term viable alternative
to Chinese production;
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the amount of recoverable high-value REEs contained in ore (such
as neodymium, praseodymium, europium and dysprosium);
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reserve life;
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the ability to separate and concentrate rare earth minerals;
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the ability to economically crack rare earth mineral
concentrates and produce high yields;
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the ability to separate REEs and manufacture finished products;
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natural radioactive material content of the ore and the ability
to responsibly and economically manage radioactive waste;
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the cost of bringing the property into production; and
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access to critical infrastructure, including electricity, fuel
and transportation.
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71
BUSINESS
Our
Business
We are the only REO producer in the Western hemisphere, and we
own one of the worlds largest, most fully developed rare
earth projects outside of China. Furthermore, following the
execution of our
mine-to-magnets
strategy and completion of our initial modernization and
expansion plan, we expect to be one of the worlds most
integrated producers of rare earth products, including oxides,
metals, alloys and magnets. In light of strong industry
fundamentals, including reduced Chinese supply and strong
pricing increases, our Board of Directors recently approved a
second-phase capacity expansion plan in addition to our initial
modernization and expansion plan, which we expect to result in
the ability to produce approximately double our REO production
capacity over the amount we will be able to produce upon
completion of our initial modernization and expansion plan.
Our rare earths are critical inputs in many existing and
emerging applications including: clean energy technologies, such
as hybrid and electric vehicles and wind power turbines;
multiple high-tech uses, including fiber optics, lasers and hard
disk drives; numerous defense applications, such as guidance and
control systems and global positioning systems; and advanced
water treatment technology for use in industrial, military and
outdoor recreation applications. Global demand for REEs is
projected to steadily increase due to continuing growth in
existing applications and increased innovation and development
of new end uses. We have made significant investments, and
expect to continue to invest, in developing technologically
advanced applications and proprietary applications for
individual REEs.
For the three months ended March 31, 2011, and the years
ended December 31, 2010 and 2009, we generated
$26.3 million, $35.2 million and $7.1 million of
revenue, respectively, from sales of products manufactured from
stockpiled feedstocks, although these levels of revenue are not
representative of our planned level of operations after we
complete our initial modernization and expansion plan and
capacity expansion plan.
Our
Mine Process and Development Plans
We and SRK Consulting estimated total proven reserves as of
February 6, 2010 of 88.0 million pounds of REO
contained in 0.480 million tons of ore, with an average ore
grade of 9.38%, and probable reserves of 2.12 billion
pounds of REO contained in 13.108 million tons of ore, with
an average ore grade of 8.20%, in each case using a cut-off
grade of 5.0%, at our Mountain Pass mine. Upon the completion of
our initial modernization and expansion plan, which we expect to
be completed by the end of 2012, we expect to have the ability
to produce approximately 19,050 mt of REO per year at our
Mountain Pass facility. Upon the completion of our recently
approved capacity expansion plan, by the end of 2013, we expect
to have the ability to produce up to approximately 40,000 mt of
REO per year at our Mountain Pass facility, or approximately
double the amount we will be able to produce upon completion of
our initial plan. Based on our estimated reserves and an
expected annual production rate of approximately 19,050 mt of
REO under our initial modernization and expansion plan, our
expected mine life is in excess of 30 years (SRK Consulting
has preliminarily indicated, however, that doubling the amount
of production pursuant to the second-phase capacity expansion
plan would reduce the current mine life by half, assuming no
additional exploration, no realization of anticipated
improvements in recoveries, and all other factors such as
cut-off grade remain constant.)
Mine-to-Oxides
At our Mountain Pass facility, we have the ability to mine,
crush, mill and separate rare earth ore to produce individual
REEs. We hold a mine plan permit and an associated environmental
impact report, which currently allow continued operations of our
Mountain Pass facility through 2042. Since our acquisition of
the Mountain Pass facility, we have been producing and selling
REOs from stockpiled feedstocks to significantly improve our
solvent extraction technologies and capabilities. We are now
achieving greater than 98% recovery in our solvent extraction
units at commercial scale for cerium, lanthanum and didymium,
which we believe is one of the highest recovery rates in the
world. We have also developed the expertise to produce the
following REEs in many usable forms: bastnasite concentrate;
cerium; lanthanum; neodymium; praseodymium;
72
europium; samarium; gadolinium; dysprosium; and terbium. When
used to describe the current recovery rate for our solvent
extraction units, the term commercial scale means
that the solvent extraction units are operating at such a
production rate that the
scale-up
factor required to achieve the desired production rate is less
than 10 times the current production rate.
Processing at our Mountain Pass facility entails mining the
bastnasite ore followed by crushing and milling it to a fine
powder. Milled bastnasite ore is then processed by flotation
whereby the bastnasite, which is a mineral containing light and
heavy rare earth elements, floats to the surface and is
separated from the waste material, which sinks in a series of
flotation cells. The resultant bastnasite concentrate is then
processed by leaching with strong acid solutions followed by a
series of solvent-extraction separation steps that produce
various individual REO minerals, generally in a high purity
(greater than 99%) oxide form. In the second quarter of 2010, we
began processing bastnasite concentrate from our stockpiles in
an effort to commercially demonstrate our new cracking
technology while at the same time continue to further optimize
our processing technologies and improve recovery rates compared
to historical operations at the Mountain Pass facility.
We recommenced mining operations in December 2010 and are
preparing to recommence milling operations, which we expect to
occur in the first quarter of 2012. Recommencement of mining and
milling operations is coincident with our initial modernization
and expansion plan, which will give us the capacity to
efficiently produce at a rate of approximately 19,050 mt of REO
per year by the end of 2012. Additionally, upon the completion
of our capacity expansion plan, we expect to have the ability to
produce up to approximately 40,000 mt of REO per year by the end
of 2013. In the April 2010 U.S. GAO briefing, government
and industry officials stated that, for a typical
exploration-stage mine, once a company has secured the necessary
capital to start a mine, it can take from seven to 15 years
to bring a property fully online, largely due to the time it
takes to comply with multiple state and federal regulations.
Since our Mountain Pass facility is not an early stage rare
earth project, we believe we have a significant timeline
advantage as we have a well-defined ore body, an existing open
pit with over 50 years of production history, an existing
mine and reclamation plan, proven reserves, substantial
permitting, and all necessary technology to successfully process
and separate the rare earth elements at a commercial scale.
Oxides-To-Metals/Alloys
We expect to sell and transport a portion of the REOs we produce
to customers for use in their particular applications. The
remainder of the REOs will be processed into rare earth metals.
A portion of these metals will be sold to
end-users
and we expect to process the rest into rare earth alloys. These
rare earth alloys can be used in a variety of applications,
including but not limited to: electrodes for nickel metal
hydride, or NiMH, battery production; samarium cobalt magnet
production; and neodymium iron boron, or NdFeB, magnet
production. A portion of these rare earth alloys will be
manufactured into NdFeB magnets as part of our alloy and magnet
production joint ventures, described below, and we expect to
sell the rest to
end-users.
We currently produce rare earth metals outside of the United
States through a third-party tolling arrangement. Additionally,
the acquisition of Molycorp Silmet AS provides us with a
European base of operations and doubles our current rare earth
production capacity from approximately 3,000 mt per year of REO
equivalent to approximately 6,000 mt. Through our acquisitions
of Molycorp Silmet AS and MMA in April 2011, we added
facilities and equipment for metal conversion and alloy
production within the Molycorp organization. We intend to
transport cerium, lanthanum, neodymium, praseodymium,
dysprosium, terbium and samarium oxide products from our
Mountain Pass facility to our Molycorp Silmet AS and MMA
facilities where we will produce rare earth metals and alloys.
In December 2010, we entered into a non-binding letter of
73
intent with Hitachi, a leading manufacturer of NdFeB alloys and
magnets, to form joint ventures for the production of rare earth
alloys and magnets in the United States and to acquire a license
for certain technology related to the production of rare earth
metals, alloys and magnets. We have completed a joint
feasibility study with Hitachi, and we are currently negotiating
the joint venture agreements. Additionally, we have entered into
a non-binding letter of intent with Neo Material that, among
other things, contemplates a technology transfer agreement
pursuant to which Neo Material may provide us with technical
assistance and know-how with respect to the production of rare
earth metals, alloys and magnets.
Alloy
and Magnet Production Joint Ventures
NdFeB magnets, which are critical components in
green technologies and the miniaturization of
electronics, are primarily manufactured in China (approximately
80%) and Japan (approximately 20%). Our proposed joint ventures
with Hitachi would provide us with additional access to the
technology, people and facilities to convert our rare earth
materials into rare earth alloys and high-performance permanent
rare earth magnets required for production of hybrid and
electric vehicles, wind power turbines, high-tech applications
and numerous advanced defense systems on which the
U.S. economy and national security depend. The consummation
of such joint ventures, in conjunction with our current
modernization plans and the potential technology transfer
agreement with Neo Material, is expected to provide us with the
capability to mine, process, separate and alloy individual REEs
and manufacture them into NdFeB magnets. This downstream
integration, which we refer to as our
mine-to-magnets
strategy, would make us the only fully integrated producer of
NdFeB magnets outside of China, helping to secure a rare earth
supply chain for the Rest of World. In addition to the
foregoing, we continue to explore additional joint ventures or
other arrangements with third parties for the production of
NdFeB alloys
and/or
magnets.
Rare
earth
mine-to-magnets
production supply chain
Our
Strengths
We believe that we possess a number of competitive strengths
that position the Mountain Pass facility to regain its role as
one of the leading global suppliers of REOs.
We
have a proven source of REOs with high-grade ore and long
reserve life.
Prior to the end of the last mining campaign at the Mountain
Pass facility in 2002, the mine had been in continuous operation
for over 50 years. Since our acquisition of the Mountain
Pass facility, we have been processing stockpiled feedstocks as
part of our ongoing effort to significantly improve our solvent
extraction technologies and other processing capabilities.
Today, based on estimated total proven reserves of
88.0 million pounds of REO contained in 0.480 million
tons of ore, with an average ore grade of 9.38%, and probable
reserves of 2.12 billion pounds of REO contained in
13.108 million tons of ore, with an average ore grade of
8.20%, in each case using a cut-off grade of 5.0%, the Mountain
Pass mine has a life in excess of 30 years at an annual
production rate of approximately 19,050 mt of REO. Our
leadership team is committed to the continuous and sustainable
manufacture of rare earth products at the Mountain Pass facility
using advanced milling and processing technologies that will
significantly increase the life of the known ore body at the
Mountain Pass facility. Additionally, in 2010, we expanded our
on-site
exploratory drilling program to confirm the existence and extent
of bastnasite, monazite and other rare earth phosphate mineral
occurrences in unexplored areas of the Mountain Pass facility.
We
expect to be well-positioned to capitalize on the tightening
balance of global supply and demand of rare earth
products.
As worldwide demand for rare earth products increases, the
supply of REOs remains limited by available production capacity,
which is currently concentrated in China. According to IMCOA,
China accounted for
74
approximately 96% of global REO production in 2008. China also
dominates the manufacture of metals and NdFeB magnets from rare
earths, capabilities that are not currently found in the United
States.
Chinese government policies will also impact the supply and
demand of REOs and rare earth products. We believe that the
Chinese government intends to increase wind generated power to
at least 150 gigawatts by 2020. The Chinese government has
proposed a package of over $29 billion to fund hybrid and
electric vehicle production, placing additional strain on the
REE supply chain. Citing the importance of REE availability to
internal industries and the desire to conserve resources, the
Chinese government has also announced export quotas, increased
export tariffs and introduced a mining quotas policy
that, in addition to imposing export quotas and export tariffs,
also imposes production quotas and limits the issuance of new
licenses for rare earth exploration.
According to IMCOA, Chinas export quotas have decreased
from approximately 65,600 mt of REO in 2004 to approximately
50,000 mt of REO in 2009. On July 8, 2010, Chinas
Ministry of Industry and Information Technology issued the
export quota for the second half of 2010, which reduced exports
by 72% compared with the second half of 2009 and 40% for the
year ended December 31, 2010 as compared to the year ended
December 31, 2009. On December 28, 2010, Chinas
Ministry of Industry and Information Technology further reduced
the export quota for the first half of 2011, reducing exports by
35% compared with the first half of 2010 and 20% for the twelve
months ended June 30, 2011 as compared to the twelve months
ended June 30, 2010. Actual exports of rare earth ores and
metals from China, however, continue to exceed export quotas
mandated by the Chinese government. In response to this trend,
Chinas Ministry of Commerce announced on May 19, 2011
that it would further tighten its control over rare earth metals
by expanding its export quota system and imposing higher taxes
on rare earth ores. In 2008, according to IMCOA, China imposed
export taxes of up to 25% on selected REOs (primarily heavy
REOs) and up to 15% for all other REOs (primarily light REOs).
In addition, according to IMCOA, Chinas Ministry of
Industry and Information Technology issued a plan in 2009 to
reduce the production of separated rare earths by 7% to 110,700
mt of REO in 2009.
IMCOA estimates there is a currently a global deficit in REO
supply, which anticipated to continue without the advent of
production from new projects, such as Mountain Pass. Limits on
rare earth exports from China and the lack of available
substitutes make the development of new sources of REEs
essential to meet the growing demand for existing and emerging
technologies, such as hybrid and electric vehicles, wind power
turbines, compact fluorescent light bulbs, hard disk drives and
dual use electronics.
China has announced a national stockpile program, as has South
Korea. Additionally, Japan has increased its national stockpile
program. In December 2010, the U.S. Department of Energy
released a study concluding that five rare earth metals,
dysprosium, neodymium, terbium, europium and yttrium, are
critical to clean energy technologies in the short term and
medium term due to their importance to the clean energy economy
and risk of supply disruption. The report emphasizes that
diversified global supply chains for these critical materials
are essential, and calls for steps to be taken to facilitate
extraction, processing and manufacturing in the United States.
Additionally, the U.S. Department of Defense is conducting
a study to determine its rare earth requirements and supply
chain vulnerabilities and whether to build a strategic
stockpile. These stockpile programs will likely accelerate the
pace of the current and projected global REE supply deficit.
U.S. federal government investments and policies may
materially increase end-market demand for our rare earth
products. For example, the U.S. federal government approved
$45 billion in grant funding and loan guarantees directed
toward wind power generation projects and hybrid and electric
vehicles. Pending energy legislation may also increase demand
for clean technology applications, which use rare earth products.
Upon reaching a full planned production rate of approximately
19,050 mt of REO per year by the end of 2012 under our initial
modernization and expansion plan, we expect to be in a position
to supply a substantial portion of the U.S. demand and also
sell to export markets. In addition, under our capacity
expansion plan, we expect to have the ability to produce up to
approximately 40,000 mt of REO per year by the end of 2013.
We
have a highly experienced and qualified management
team.
Our President and Chief Executive Officer has over 29 years
of experience, over 24 of which are associated with the Mountain
Pass facility. In addition, our Chief Technology Officer,
General Counsel and Chief Financial Officer have over
75 years of combined technical, operational, legal,
financial and
75
management experience. Many of our key employees have worked
with the Mountain Pass facility for over 20 years each. We
also have a proven technology and product development group and
as of May 13, 2011, held 75 issued and pending
U.S. patents and patent applications, and 176 issued and
pending foreign patents and patent applications. Management has
also created a work environment that prioritizes safety. Since
July 2005, the Mountain Pass facility has not had a lost-time
accident and has received the coveted Sentinels of
Safety award from the Mine Safety and Health
Administration, or MSHA, for three of the last six years.
Our
Business Strategy
Our business strategy is to:
Build
the largest, most advanced and efficient fully integrated REO
processing facility in the world.
We intend to replace existing equipment at the Mountain Pass
facility in connection with our modernization and expansion
efforts. We also intend to build the largest, most advanced and
efficient fully integrated REO processing facility in the world
to support our anticipated production requirements. Following
the purchase, delivery, installation and
start-up of
new equipment, our fully integrated facility will allow us to
reach full production, utilizing our newly optimized and
commercially proven REO processing operations. Additionally, we
expect that our proprietary production technology and our
planned new paste tailings operation will reduce our
environmental footprint and set the standard in the industry for
environmental stewardship.
Successfully
complete modernization and expansion efforts and reach full
planned production rates for REOs at the Mountain Pass
facility.
After reaching full planned production rates for REOs at the
Mountain Pass facility under our initial modernization and
expansion plan, we expect to produce approximately 19,050 mt of
REO per year by the end of 2012. Additionally, under our
capacity expansion plan, we expect to have the ability to
produce up to approximately 40,000 mt of REO per year by the end
of 2013. We operate the Mountain Pass facility pursuant to a
conditional use permit that allows us to feed ore to the mill at
a rate of 2,400 tons per day. While the Mountain Pass facility
historically required 2,000 tons of mill feed per day to
manufacture approximately 19,050 mt of REO per year, we expect
that new proprietary technologies we developed will allow us to
extract the same 19,050 mt of REO per year while only using
approximately 1,100 to 1,200 tons of mill feed per day, thus
allowing us to increase annual REO production from our initial
plan of 19,050 mt of REO per year to up to 40,000 mt of REO per
year without any change in the permit limit. These estimates are
based on results achieved at the Mountain Pass facility in full
scale mill test runs from 2001 to 2002. In addition, we have
improved cracking technology at commercial scale (2,000 to 3,000
mt per year production rate) from 2009 to date and improved
performance of our solvent extraction at commercial scale (2,000
to 3,000 mt per year production rate) as demonstrated from 2007
to 2009.
Improve
our operating efficiencies with technically advanced
manufacturing techniques.
We intend to continue to improve the efficiency of our
operations through the creation and use of technically advanced
manufacturing processes for production of rare earth products,
which will allow us to deliver high-quality rare earth products
at globally competitive prices. We have already invested
significant resources towards perfecting our REO processing
operations and developing new and proprietary applications for
individual REEs. We expect that by advancing all of these
technologies, we will continue to lower our operating costs.
Manage
our costs to be cost competitive.
The success of our business will depend on our ability to manage
our costs. We will manage these costs through the use of new
production technologies that have been developed by our research
and development group, which will use less energy and raw
materials and will result in a reduced environmental footprint.
These production technologies will substantially reduce the
amount of water consumption and waste water generation. We plan
to use our proprietary technology to maximize our process
recoveries and maximize REO concentrate production per unit of
extracted ore. We plan to install a natural gas powered
co-generation power plant as part of our modernization and
expansion of the Mountain Pass facility to reduce energy
consumption and costs as well as minimize or eliminate our
reliance on the regional electric power grid. As part of our
modernization and expansion of the Mountain Pass facility, we
also intend to produce our own hydrochloric
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acid and sodium hydroxide at the Mountain Pass facility and
recycle our acid and base, thereby reducing our reliance on
external sources of reagents. After completion of our
modernization and expansion efforts, we anticipate our most
significant cash operating costs will consist of natural gas and
labor.
Secure
customer commitments to provide a stable revenue
stream.
We are working to establish stable revenue streams for the rare
earth minerals and products we produce at the Mountain Pass
facility. Upon reaching full planned production rates for REOs
at the Mountain Pass facility under our initial modernization
and expansion plan, we expect to produce approximately 19,050 mt
of REO per year. Additionally, under our capacity expansion
plan, we expect to have the ability to produce up to
approximately 40,000 mt of REO per year by the end of 2013. We
have agreed to supply one of our principal customers with a
significant amount of our REOs, primarily lanthanum hydrate,
through mid-2012 at market-based prices subject to a ceiling
based on market prices at June 1, 2010 (currently in
effect), and a floor. Pursuant to our second contract with that
customer, we have agreed to supply the customer with
approximately 75% of our lanthanum product production per year
at market-based prices subject to a floor for a three-year
period commencing upon the achievement of expected annual
production rates under our initial modernization and expansion
plan, which may be extended at the customers option for an
additional three-year period. Upon execution of definitive
agreements with Sumitomo, we also expect to provide Sumitomo
with approximately 1,500 mt per year (and following completion
of our initial modernization and expansion plan, approximately
1,750 mt per year) of cerium and lanthanum-based products and
250 mt per year of didymium oxide for a period ending five years
after the completion of our initial modernization and expansion
of the Mountain Pass facility, at market-based prices subject to
a floor. As of May 13, 2011, we also had 20 non-binding
letters of intent to sell our rare earth products. These letters
of intent, together with our second contract with one of our
principal customers and memorandum of understanding with
Sumitomo, represent approximately 158% of our anticipated
production of approximately 19,050 mt of REO for 2013 under our
initial modernization and expansion plan, and our non-binding
letter of intent with Neo Material also contemplates the sale of
certain rare earth products. Prior to commencing anticipated
production of approximately 19,050 mt of REO year, we intend to
enter into short- and long-term sales contracts with existing
and new customers for amounts not in excess of our actual
planned production. In addition, we are in discussions with
multiple large, globally diversified mining companies regarding
the sale of
XSORBX®,
which will expand demand for cerium in times when it is in
surplus and low priced.
XSORBX®
is a proprietary product and process, primarily consisting of
cerium, that removes arsenic and other heavy metals from
industrial processing streams and will allow our customers to
more safely sequester arsenic and increase their production.
XSORBX®
is protected by over 100 issued and pending U.S. and
foreign patents and patent applications. We have begun to sell
XSORBX®
for commercial use in the wastewater, recreation, pool and spa,
industrial process and other water treatment markets.
The following table compares the volume under our second
contract with one of our principal customers, our memorandum of
understanding with Sumitomo and our 20 non-binding letters of
intent to our anticipated production of approximately 19,050 mt
of REO for 2013 (in mt):
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Percent of
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Anticipated
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Volume Under
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Anticipated
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2013
|
|
|
Letters of
|
|
|
Contracted
|
|
|
Uncommitted
|
|
|
2013
|
|
Product Type
|
|
Production(1)(2)
|
|
|
Intent(1)(2)
|
|
|
Volume(8)
|
|
|
Volume(9)
|
|
|
Production(10)
|
|
|
Lanthanum oxide or other form
|
|
|
3,098
|
|
|
|
4,641
|
|
|
|
4,535
|
|
|
|
|
|
|
|
296
|
%
|
Lanthanum metal
|
|
|
2,502
|
|
|
|
700
|
|
|
|
|
|
|
|
1,802
|
|
|
|
28
|
%
|
Cerium non-metal
|
|
|
9,663
|
|
|
|
11,265
|
(3)
|
|
|
|
|
|
|
|
|
|
|
117
|
%
|
Cerium metal
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neodymium oxide or other form
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Didymium oxide or other form
|
|
|
|
|
|
|
1,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neodymium or NdPr metal
|
|
|
312
|
|
|
|
3,806
|
(4)
|
|
|
|
|
|
|
|
|
|
|
1,220
|
%
|
Praseodymium metal
|
|
|
116
|
|
|
|
60
|
(4)
|
|
|
|
|
|
|
56
|
|
|
|
52
|
%
|
Europium oxide
|
|
|
19
|
|
|
|
7
|
(5)
|
|
|
|
|
|
|
12
|
|
|
|
37
|
%
|
Samarium oxide
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samarium metal(6)
|
|
|
191
|
|
|
|
30
|
|
|
|
|
|
|
|
161
|
|
|
|
16
|
%
|
NdPr metal in NdFeB alloy
|
|
|
1,960
|
|
|
|
1,103
|
(7)
|
|
|
|
|
|
|
857
|
|
|
|
56
|
%
|
NdPr metal in NdFeB magnets
|
|
|
|
|
|
|
290
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
17,861
|
|
|
|
23,737
|
|
|
|
4,535
|
|
|
|
2,888
|
|
|
|
158
|
%
|
77
|
|
|
(1) |
|
Alloy and magnet production and letter of intent volume are
reported on a rare earth metal basis. Three of our non-binding
letters of intent contain a volume range; these letters cover
lanthanum oxide, cerium non-metal and NdPr metal in NdFeB alloy.
With respect to these non-binding letters of intent, the table
above reflects the high end of the range provided for in each
letter. In addition, certain of our non-binding letters of
intent provide for a certain volume of rare earth metals or
alloys but do not allocate that volume among specific rare earth
metals or alloys. In those instances, we have allocated the
volume in those letters based on managements estimates of
the needs of those customers and their specific applications.
The table above includes anticipated sales of cerium and
lanthanum-based products and didymium oxide to Sumitomo, subject
to execution of definitive agreements. The table above does not
include any sales of any products under either of the agreements
we have entered into with Traxys North America LLC, which we
refer to as Traxys. See Certain Relationships and
Related-Party Transactions Inventory Financing and
Resale Agreements. Additionally, pursuant to the terms of
our non-binding letter of intent with Neo Material, Neo Material
may agree to purchase 3,000 to 5,000 mt of mixed rare earth
carbonate and 300 to 500 mt of neodymium oxide and praseodymium
oxide per year, which amounts are included in the table above. |
|
(2) |
|
With respect to our metal products, there is a 14.2% loss of
mass when REOs are converted to rare earth metal due to oxygen
evolution, which accounts for most of the difference between the
17,861 mt total 2013 production rate and our anticipated
production rate of approximately 19,050 mt of REO per year in
2013. |
|
(3) |
|
Volume shown is used in traditional glass or catalyst market
segments and represents only a very small fraction of cerium
buyers. Although IMCOA predicts that there will be a surplus of
cerium in the future, we anticipate most of our production will
serve the new, proprietary
XSORBX®
market segment if a surplus develops. At current prices, we
would seek to sell cerium for other uses instead. This segment
alone is expected to consume many times more cerium units than
we can produce. We believe the new segment negates the need for
additional letters of intent at this time. |
|
(4) |
|
We anticipate most of our metal production will be consumed
internally for downstream NdFeB alloy/magnet production. |
|
(5) |
|
We expect to receive non-binding letters of intent from a number
of phosphor producers, which will easily consume our europium
production. At this time, we are the only producer outside of
China for this element, which enables energy efficient, compact
fluorescent lights and straight tube T-8 lamps. |
|
(6) |
|
IMCOA estimates that there is a surplus of samarium metal. |
|
(7) |
|
This represents the estimated NdPr metal contained in the
non-binding letter of intent volume for NdFeB alloy and magnets. |
|
(8) |
|
Represents volume under our second contract with one of our
principal customers. |
|
(9) |
|
Represents volume not committed under contract or covered by
non-binding letters of intent. |
|
(10) |
|
Represents volume under non-binding letters of intent and
contracted volume as a percentage of anticipated 2013
production. Upon completion of our second phase capacity
expansion plan, our production capacity will double to
approximately 40,000 mt of REO per year, and we will need to
secure additional
off-take
agreements. |
Integrate
downstream to profitably capture the full value
chain.
We are actively evaluating and pursuing multiple downstream
acquisition or joint venture opportunities, some of which may be
material. Our downstream growth and acquisition strategy
encompasses a range of individual target sizes and spans the
full downstream rare earth value chain to targets that produce
REOs to alloys, metals and magnets and may involve the
acquisition of entities that also engage in related or
additional activities. Our strategy is to be disciplined in any
strategic action, with a focus on Molycorps core strategy
and skill set. In relation to opportunities that we deem
attractive, we anticipate use of both debt and equity
consideration to effect transactions, as appropriate. We believe
that Molycorp is uniquely positioned in the market as a rare
earth oxide, metal, and alloy producer to pair a constrained
rare earth feedstock with downstream end-market opportunities,
and expect that position to continue to contribute to the
success of our downstream integration strategy.
78
Consistent with this strategy, the acquisition of Molycorp
Silmet AS provides us with a European base of operations and
doubles our current rare earth production capacity from
approximately 3,000 mt per year of REO equivalent to
approximately 6,000 mt. Additionally, through our acquisitions
of Molycorp Silmet AS and MMA in April 2011, we added facilities
and equipment for metal conversion and alloy production within
the Molycorp organization. We intend to transport cerium,
lanthanum, neodymium, praseodymium, dysprosium, terbium and
samarium oxide products from our Mountain Pass facility to our
Molycorp Silmet AS and MMA facilities where we will produce rare
earth metals and alloys. In December 2010, we entered into a
nonbinding letter of intent with Hitachi to form downstream
joint ventures for the production of rare earth alloys and
magnets in the United States and to acquire a license for
certain technology related to the production of rare earth
metals, alloys and magnets. We have completed a joint
feasibility study with Hitachi, and we are currently negotiating
the joint venture agreements. Additionally, we have entered into
a non-binding letter of intent with Neo Material that, among
other things, contemplates a technology transfer agreement
pursuant to which Neo Material may provide us with technical
assistance and know-how with respect to the production of rare
earth metals, alloys and magnets. This
mine-to-magnets
strategy, if successfully implemented, would make us the first
fully integrated supplier of NdFeB magnets in the world and the
only producer of NdFeB magnets in the United States.
Develop
new higher margin products.
We intend to develop new higher margin products and processes
for REEs that historically have had lower demand. For example,
cerium is used primarily for glass polishing and has typically
sold at prices lower than those for other REEs. However, we have
developed
XSORBX®,
a proprietary product and process, primarily consisting of
cerium, that we have proven to be effective in removing arsenic
and other heavy metals from industrial processing streams. This
will allow our customers to more safely sequester arsenic and
increase their production. We believe this product is applicable
to a broad range of applications with higher margins than those
historically applicable to cerium products due to the minimal
increase in prices. For example, in addition to removing arsenic
and other contaminants from industrial waste water,
XSORBX®
can also be used to treat drinking water, which we believe is an
application with a higher margin as compared to cerium spot
prices. We have begun to sell
XSORBX®
for commercial use in the wastewater, recreation, pool and spa,
industrial process and other water treatment markets. We are
continuing to seek additional letters of intent and sales
contracts with existing and new customers for sales of
XSORBX®.
XSORBX®
is protected by over 100 issued and pending U.S. and
foreign patents and patent applications. We will continue to
focus on establishing proprietary markets for low-demand REEs to
provide us with an opportunity to sell these REEs as higher
margin products. Sales of
XSORBX®
generate their best cash flow when cerium is in surplus and low
priced.
Our
Corporate History and Structure
Molycorp Minerals, LLC, a Delaware limited liability company
formerly known as Rare Earth Acquisitions LLC, was formed on
June 12, 2008 to purchase the Mountain Pass, California
rare earth deposit and associated assets from Chevron Mining
Inc., a subsidiary of Chevron Corporation. Prior to the
acquisition, the Mountain Pass facility was owned by Chevron
Mining Inc. and, before 2005, by Unocal Corporation. Molycorp,
LLC, which was the parent of Molycorp Minerals, LLC, was formed
on September 9, 2009 as a Delaware limited liability
company. Molycorp, Inc. was formed on March 4, 2010 as a
new Delaware corporation and was not, prior to the date of the
consummation of its initial public offering, conducting any
material activities.
The members of Molycorp, LLC contributed either (a) all of
their member interests in Molycorp, LLC or (b) all of their
equity interests in entities that hold member interests in
Molycorp, LLC (and no other assets or liabilities) to Molycorp,
Inc. in exchange for shares of Molycorp, Inc. Class A
common stock. Additionally, all of the holders of profits
interests in Molycorp Minerals, LLC, which were represented by
incentive shares, contributed all of their incentive shares to
Molycorp, Inc. in exchange for shares of Molycorp, Inc.
Class B common stock. Accordingly, Molycorp, LLC and
Molycorp Minerals, LLC became subsidiaries of Molycorp, Inc.
Following the corporate reorganization, Molycorp, LLC was merged
with and into Molycorp Minerals, LLC. Immediately prior to the
consummation of Molycorp, Inc.s initial public offering,
all of the shares of Class A common stock and Class B
common stock were converted into shares of common stock.
79
The
Mountain Pass Facility
At the Mountain Pass facility, we own an open-pit mine
containing one of the worlds most fully developed rare
earth deposits outside of China. In addition to the mine, the
Mountain Pass facility includes associated crushing, milling,
flotation and separation facilities. These facilities are not
currently in full operation, and will need to be modernized or
refurbished before we can recommence full operations. The
Mountain Pass facility is located approximately 60 miles
southwest of Las Vegas, Nevada near Mountain Pass,
San Bernardino County, California. The Mountain Pass
facility straddles Interstate 15 and may be accessed by existing
hard-surface roads, which we use to transport products from the
Mountain Pass facility to our customers using commercial
vehicles.
Molybdenum Corporation of America began REO mining operations at
the Mountain Pass facility in 1952. REO production at the
Mountain Pass facility, as well as milling and separation
processes, continued under Unocal Corporation, which purchased
Molybdenum Corporation of America in 1977, until 1998. In 1998,
all chemical processing operations were suspended, primarily due
to leaks in a wastewater pipeline that transported waste salt
water to evaporation ponds on the Ivanpah dry lake bed. Mining
and milling operations continued until 2002 when those
operations were also placed on standby due to softening prices
for REOs, a lack of additional tailings disposal capacity and
delays in obtaining permits required for the new paste tailings
storage facility. Unocal Corporation thereafter sold or
otherwise disposed of substantially all of the mining equipment
at the Mountain Pass facility (e.g., shovels, haul trucks, etc.)
prior to being acquired by Chevron Corporation in 2005.
Operations at the Mountain Pass facility remained suspended
until September 2007 when Chevron Mining Inc., a wholly-owned
subsidiary of Chevron Corporation, commenced a NFL pilot
processing campaign. Under the NFL campaign, lanthanum, which
was produced prior to suspending activities in 1998 and held in
lanthanum pond stockpiles at the Mountain Pass facility, was
processed in order to recover the related neodymium and
praseodymium. The NFL campaign did not constitute the restart of
fully integrated operations at the Mountain Pass facility and
was used as an opportunity to improve processing technologies
and generate very modest revenue. On September 30, 2008, we
acquired the Mountain Pass, California rare earth deposit and
associated assets from Chevron Mining Inc. through Rare Earth
Acquisitions LLC (which
80
was later renamed Molycorp Minerals, LLC). The acquisition by us
excluded certain assets and liabilities, including certain
liabilities related to environmental and employment matters,
that were retained by Chevron Corporation.
We currently hold a mine plan permit and an associated
environmental impact report, which currently allow continued
operations of our Mountain Pass facility through 2042. Since our
acquisition of the Mountain Pass facility, we have been
processing and selling REOs from stockpiled feedstocks to
significantly improve our solvent extraction technologies and
capabilities.
We recommenced mining operations in December 2010 and are
preparing to recommence milling operations, which we expect to
occur in the first quarter of 2012. Prior to the expected
completion of our initial modernization and expansion efforts,
we expect to produce approximately 3,000 mt per year in the
aggregate of cerium products, lanthanum concentrate, didymium
oxide and heavy rare earth concentrates from stockpiled
feedstock. Recommencement of mining and milling operations is
coincident with modernization of our processing capabilities in
order to efficiently produce approximately 19,050 mt of REO per
year by the end of 2012. In addition, upon completion of our
capacity expansion plan, we expect to have the ability to
produce up to approximately 40,000 mt of REO per year by the end
of 2013.
The Mountain Pass facility consists of approximately
2,222 acres of fee land, of which approximately
770 acres are currently in use (e.g., existing buildings,
infrastructure or active disturbance). The lands surrounding the
Mountain Pass facility are mostly public lands managed by the
Bureau of Land Management and the National Park Service. In
addition to the 2,222 acres we hold in fee, we also hold 55
patented claims that are 100% owned by Molycorp and 489
unpatented lode and mineral mining claims and mill sites under
the provisions of The Mining Law of 1872. We acquired our
mineral rights at the Mountain Pass facility with the purchase
of the Mountain Pass, California rare earth deposit and
associated assets from Chevron Mining Inc. in 2008. Our mineral
rights, surface rights and mining claims are not subject to
royalties or encumbrances, although we are responsible for
making annual maintenance and tax payments on our unpatented
mill sites. These mining claims and mill sites provide land for
mining, ancillary facilities and expansion capacity around the
Mountain Pass facility.
The Mountain Pass facility includes an open-pit mine, overburden
stockpiles, a crusher and mill/flotation plant, a separation
plant, a mineral recovery plant tailings storage areas and
on-site
evaporation ponds, as well as laboratory facilities to support
research and development activities, offices, warehouses and
support buildings. The majority of the physical plant and
equipment at the Mountain Pass facility is over 20 years
old, substantially all of which will be replaced as part of our
modernization effort. We expect to expand the open-pit mine both
laterally to the west, southwest and north as well as deepening
vertically. In addition to the existing overburden stockpile
located west of the pit, which will serve as the initial
overburden stockpile when mining recommences, we will need to
construct additional overburden stockpiles to the north or east
of the pit to provide additional storage capacity sufficient to
accommodate the remaining overburden material for the existing
permitted life of the mine.
In connection with our modernization and expansion efforts at
the Mountain Pass facility, we expect to build new facilities,
including the construction of a control lab, additional
warehousing and raw material storage facilities. We also have
decided to build a new mill instead of refurbishing our existing
mill. The new mill will be sized for daily production of up to
2,000 mt. All the new design changes are allowed under our
current operating permits. We currently produce rare earth
metals outside of the United States through a third-party
tolling arrangement. Additionally, the acquisition of Molycorp
Silmet AS provides us with a European base of operations and
doubles our current rare earth production capacity from
approximately 3,000 mt per year of REO equivalent to
approximately 6,000 mt.
We also expect to build a new paste tailings operation and new
roads at the Mountain Pass facility. The construction of the
paste tailings operation, which consists of a paste tailings
filter plant and paste tailings storage facility, is authorized
by our San Bernardino County conditional use permit, and we
began its construction during the second quarter of 2010. The
capital cost for the paste tailings operation, which is included
in the estimated capital expenditure for the expansion of the
separation plant, is estimated to be $10 million. Although
the operating cost of the paste tailings operation is expected
to be greater than it would be for a tailings pond, which is the
method prior owners used at the Mountain Pass facility, we
expect that the increased water recycling and reduced
environmental risks associated with the paste tailings facility
will ultimately mitigate that additional cost.
81
In addition, we intend to produce hydrochloric acid and sodium
hydroxide at our own chlor-alkali plant at the Mountain Pass
facility, thereby reducing our reliance on external sources of
reagents. While the production of our own hydrochloric acid and
sodium hydroxide will utilize proven technologies, these
technologies have not yet been implemented in the rare earth
industry. Not only would the chlor-alkali plant reduce our need
for external sources of reagents, but it would also reduce our
production of waste salt water. Previous owners of the Mountain
Pass facility used a waste water pipeline to dispose of waste
salt water in evaporation ponds on the Ivanpah dry lake bed.
When we acquired the Mountain Pass facility from Chevron Mining
Inc. in 2008, we did not acquire the ponds or the wastewater
pipeline that ran from the Mountain Pass facility to the Ivanpah
lake bed. Because of this decision, and Chevron Mining
Inc.s ongoing removal of the wastewater pipeline, use of
these ponds is no longer an available option for the Mountain
Pass facility. Accordingly, wastewater must be dealt with in a
different manner. We intend to utilize our chlor-alkali plant to
convert waste salt water to hydrochloric acid and sodium
hydroxide, which will be recycled into the process. Through this
process, approximately 913 million pounds of water and
101 million pounds of salt would be recycled back to the
chlor-alkali plant per year in order to achieve the annual
production rate of 19,050 mt of REO anticipated following the
completion of our initial modernization and expansion plan. We
expect these amounts to double if our annual production rate is
increased to 40,000 mt of REO per year in connection with our
capacity expansion plan. This process would avoid the need for
disposal of waste salt water in evaporation ponds. Until our
chlor-alkali plant is operational, we intend to dispose of
wastewater via our existing evaporation ponds and, as needed due
to increased production, via off-site disposal. Additionally,
because the water is internally recycled, the need for fresh
water from our two water supply well fields to run the Mountain
Pass processing facilities would be dramatically reduced.
Following the completion of our initial modernization and
expansion efforts, we expect to have the ability to mine, crush,
mill and separate 2,000 tons of rare earth ore per day to
produce individual REOs that meet or exceed industry standards
for purity. However, we will only need to process up to
approximately 1,100 to 1,200 tons of rare earth ore per day to
meet the annual production goal of 19,050 mt of REO under our
initial modernization and expansion plan. If we increase our
annual production rate to 40,000 mt of REO in connection with
our capacity expansion plan, we will need to process
approximately up to 2,200 to 2,400 tons of rare earth ore per
day. We currently produce rare earth metals outside of the
United States through a third-party tolling arrangement.
Additionally, the acquisition of Molycorp Silmet AS provides us
with a European base of operations and doubles our current rare
earth production capacity from approximately 3,000 mt per year
of REO equivalent to approximately 6,000 mt. Through our
acquisitions of Molycorp Silmet AS and MMA in April 2011,
we added facilities and equipment for metal conversion and alloy
production within the Molycorp organization. We intend to
transport cerium, lanthanum, neodymium, praseodymium,
dysprosium, terbium and samarium oxide products from our
Mountain Pass facility to our Molycorp Silmet AS and MMA
facilities where we will produce rare earth metals and alloys.
In December 2010, we entered into a non-binding letter of intent
with Hitachi to form joint ventures for the production of rare
earth alloys and magnets in the United States and to acquire a
license for certain technology related to the production of rare
earth metals, alloys and magnets. We have completed a joint
feasibility study with Hitachi, and we are currently negotiating
the joint venture agreements. Additionally, we have entered into
a non-binding letter of intent with Neo Material that, among
other things, contemplates a technology transfer agreement
pursuant to which Neo Material may provide us with technical
assistance and know-how with respect to the production of rare
earth metals, alloys and magnets. This
mine-to-magnets
strategy, if successfully implemented, would make us the first
fully integrated supplier of NdFeB magnets in the world and the
only producer of NdFeB magnets in the United States. In
addition, we are working to identify and develop new downstream
opportunities for the REOs, rare earth metals and alloys and
rare earth products we will manufacture. Our proposed joint
ventures with Hitachi would provide us with additional access to
the technology, people and facilities to convert our rare earth
materials into rare earth alloys and high-performance permanent
rare earth magnets required for production of hybrid and
electric vehicles, wind power turbines, high-tech applications
and numerous advanced defense systems on which the
U.S. economy and national security depend. The consummation
of such joint ventures, in conjunction with our current
modernization plans and the potential technology transfer
agreement with Neo Material, is expected to provide us with the
capability to mine, process, separate and alloy individual REEs
and manufacture them into NdFeB magnets.
82
Our facilities currently rely on electricity provided by
Southern California Edison. Due to its position on the regional
electric grid, the Mountain Pass facility can experience power
shortages during peak periods. Instability in electrical supply
in past years has caused sporadic outages and brownouts. Such
outages and brownouts have had a negative impact on our
production. In connection with our initial modernization and
expansion efforts at the Mountain Pass facility, we expect to
build a new 24 megawatt co-generation power plant that will use
natural gas to provide reliable electricity and steam to our
facilities to allow us to achieve our anticipated annual
production rate of approximately 19,050 mt of REO. The
completion of the co-generation power plant is dependent on
several factors, including obtaining the permits required to
build and operate the co-generation power plant. All air permits
for the co-generation power plant were issued in April 2011.
Following the completion of the co-generation power plant, we
expect it to provide 100% of our production power requirements
to achieve an annual production rate of 19,050 mt of REO and 83%
of our overall power requirements. In connection with our
capacity expansion plan, we will add two additional turbines to
the co-generation power plan to increase the plants
capacity to 49 megawatts, which will allow us to achieve an
annual production rate of approximately 40,000 mt of REO. At an
annual production rate of 40,000 mt of REO per year, we expect
the co-generation power plant to provide 100% of our production
power requirements and 91% of our overall power requirements.
We have secured all permits necessary to allow construction to
start on the Mountain Pass facility modernization and expansion
project. Numerous other government permits and approvals are
required in order for us to proceed with our modernization and
expansion efforts. These include certain air permits, various
building permits and permits related to the use and storage of
hazardous materials, which we will apply for as the project
progresses.
The Mountain Pass REE deposit is located within an uplifted
block of Precambrian metamorphic and igneous rocks that are
bounded to the south and east by basin-fill deposits in
Californias Ivanpah Valley. The
83
two main groups of rocks in the Mountain Pass area are Early
Proterozoic high-grade metamorphic rocks and Middle Proterozoic
ultrapotassic rocks and monazitic carbonatites, which
carbonatites are associated with higher levels of REEs. The
currently defined zone of REE mineralization exhibits a strike
length of approximately 2,750 feet in a north-northwest
direction and extends for approximately 7,000 feet down dip
from surface. The true thickness of the greater than 3.0% REO
zone ranges from 15 feet to 250 feet. The percentage
of each rare earth material contained in the Mountain Pass
facility bastnasite ore is estimated to be as follows:
|
|
|
|
|
|
|
Estimated
|
|
|
|
Percentage of
|
|
Element
|
|
Bastnasite Ore
|
|
|
Cerium
|
|
|
48.8
|
%
|
Lanthanum
|
|
|
34.0
|
%
|
Neodymium
|
|
|
11.7
|
%
|
Praseodymium
|
|
|
4.2
|
%
|
Samarium
|
|
|
0.79
|
%
|
Gadolinium
|
|
|
0.21
|
%
|
Europium
|
|
|
0.13
|
%
|
Dysprosium
|
|
|
0.05
|
%
|
Other REE (including Terbium)
|
|
|
0.12
|
%
|
Rare
Earth Reserves and Non-Reserve Deposits
As of February 6, 2010, SRK Consulting, an independent
consulting firm that we have retained to assess our reserves,
estimated total proven reserves of 88.0 million pounds of
REO contained in 0.480 million tons of ore, with an average
ore grade of 9.38%, and probable reserves based on historic and
estimated recoveries of 2.12 billion pounds of REO
contained in 13.108 million tons or ore, with an average
ore grade of 8.20%, in each case using a cutoff grade of 5.0%
REO.
SEC
Guidelines
The SEC has established guidelines contained in Industry Guide
to assist registered companies as they estimate ore reserves.
These guidelines set forth technical, legal and economic
criteria for determining whether our ore reserves can be
classified as proven and probable.
Reserves are defined by the SEC Industry Guide 7 as
that part of a mineral deposit that could be economically and
legally extracted or produced at the time of the reserve
determination. SEC Industry Guide 7 divides reserves between
proven reserves and probable reserves,
which are defined as follows:
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proven reserves are reserves for which:
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quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes; grade
and/or
quality are computed from the results of detailed
sampling; and
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the sites for inspection sampling and measurement are spaced so
closely and the geologic character is so well defined that size,
shape, depth and mineral content of reserves are
well-established.
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probable reserves are reserves for which quantity
and grade
and/or
quality are computed from information similar to that used for
proven reserves, but the sites for inspection, sampling, and
measurement are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for
proven reserves, is high enough to assume continuity between
points of observation.
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Methodology
The Mountain Pass facility has been subject to extensive
drilling since the beginning of mining operations in 1952,
including drilling data for 152 holes totaling 83,216 feet.
We also maintain detailed geologic logs,
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on-site
assay records and databases and geologic cross-sections. In
addition, we have recently expanded our
on-site
exploratory drilling program to confirm the existence and extent
of bastnasite, monazite and other rare earth phosphate mineral
occurrences in unexplored areas of the Mountain Pass facility.
When estimating proven and probable reserves, however, we
currently rely on the interpretations made during prior mining
campaigns at our Mountain Pass facility, the
U.S. Geological Survey and various consulting companies,
including SRK Consulting, to identify the regional and mine area
geology and hydrogeology, regional and local structure, deposit
geology, current pit slope stability conditions and REE
recoveries.
Proven Reserves. SRK Consulting compiled a
drill hole database from prior drilling at the Mountain Pass
site that includes a total of 137 drill holes with a cumulative
length of 79,453 feet. Individual drill holes range in
length from 56 feet to 2,012 feet, and averaged
580 feet. The majority of core samples in the deposit area
analyzed by SRK Consulting range from 50 feet to
250 feet along the strike of the ore body and 150 feet
to 350 feet down dip. The sample data for proven ore
reserves consists of survey data, lithologic data and assay
results.
Probable Reserves. Probable ore reserves are
based on longer projections and the maximum distance between
drill holes is 200 feet. Statistical modeling and the
established continuity of the bastnasite ore body as determined
from results of over 50 years of mining activity to date
support our technical confidence in estimates of tonnage and
grade over this projection distance. Where appropriate,
projections for the probable ore reserve determination are
constrained by any known or anticipated restrictive geologic
features.
Based on the review of historic sample preparation and
analytical procedures, SRK Consulting initiated a sample check
assay program of 1% of the assay database. The material
remaining from previous drilling programs consisted of split
core stored at the Mountain Pass facility. SRK Consulting
examined the existing split core using third-party preparation
and analytical laboratories. SRK Consulting determined that the
overall results of the sample check assay program indicated that
our historic data was acceptable for use in preparing their
report. While we believe that a cut off grade below 5.0% is
economically viable, SRK Consulting decided to base the mining
cut-off calculation on a grade of 5.0% REO given historical
performance at the Mountain Pass mine.
The proven and probable ore reserves are then modeled as a
long-term mine plan and additional factors including recoveries,
metal prices, mine operating costs and capital estimates are
applied to determine the overall economics of the ore reserves.
Results
Proven and probable reserves at the Mountain Pass facility as of
December 31, 2010 are estimated to be approximately
88.0 million pounds of REO contained in 0.480 million
tons of ore, with an average ore grade of 9.38%, and
2.12 billion pounds of REO contained in 13.108 million
tons of ore, with an average ore grade of 8.20%, respectively,
in each case, using a cut-off grade of 5.0%. We base our REO
reserve estimates and non-reserve REO deposit information on
engineering, economic and geological data assembled and analyzed
by SRK Consulting, which includes various engineers and
geologists. Our estimates of REO reserves and non-reserve REO
deposits as to both quantity and quality will be regularly
updated to reflect new drilling or other data received.
The following table provides information as of February 6,
2010 on the amount of our proven and probable REO reserves,
which was used to calculate our estimated proven and probable
reserves as of December 31, 2010.
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Average Ore
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Ore
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Contained REO
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Category of Reserves
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Grade (%)
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(Millions of Tons)
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(Millions of Pounds)
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Proven
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9.38
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%
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0.480
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88
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Probable
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8.20
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%
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13.108
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2,122
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In making the estimate above, SRK Consulting:
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assumed we have a 100% working interest in the Mountain Pass
facility;
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assumed full mining recovery;
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assumed that mine reserves are fully diluted;
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assumed a historic cut-off grade of 5.0% REO within the pit
design;
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assumed a metallurgical recovery factor of 65% for the mill
facility and 93% for the extraction and separation facilities;
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used the 1997 surface topography for volume control of reserves;
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used the historic three-year average commodity prices set forth
in table below; and
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rounded values to the nearest significant number.
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Pricing values shown in the following table were used by SRK
Consulting in the estimate of our reserves. The prices reflect a
combination of three-year averages for REOs and metals based on
information from (i) Metal-Pages, (ii) IMCOA and
Roskill market studies from 2009 and (iii) alloy pricing
formulas.
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Rare Earth Products
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Price(1)
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($/kg)
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Non-Metal Products
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Lanthanum oxide
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$
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6.60
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Cerium oxide for glass applications
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4.09
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Cerium oxide for water filters
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13.20
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XSORBX®
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9.90
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Europium oxide
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473.00
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Metal Products
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Lanthanum
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13.20
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Praseodymium
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37.99
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Neodymium
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37.99
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Metal Alloys
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NdFeB
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35.20
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Samarium cobalt
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50.60
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(1) |
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Prices for certain rare earth products have increased from those
used by SRK Consulting in its engineering study. The prices set
forth in the following table, are primarily based on information
from Metal-Pages and alloy pricing formulas as of March 31,
2011 (except as noted below). |
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Product
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March 31, 2011 Price
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($/kg)
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Lanthanum Oxide
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$
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121.00
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Cerium Oxide (glass products)
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121.00
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Europium Oxide
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940.00
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Lanthanum Metal
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131.50
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Praseodymium Metal
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237.50
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Neodymium Metal
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255.50
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Nd-Iron-Boron Alloy
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92.50
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(a)
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Samarium Cobalt Alloy
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61.25
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(a)
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(a) |
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Molycorp market price estimates |
Although SRK Consulting assumed pricing levels consistent with
those estimated by Roskill, a 38% decrease in average REE prices
from such levels, holding all other variables constant, would
not materially reduce reserve estimates.
86
There are numerous uncertainties inherent in estimating
quantities and qualities of REO reserves and non-reserve REO
deposits and costs to mine recoverable reserves, including many
factors beyond our control. We will regularly evaluate our REO
reserve and non-reserve REO estimates. This will typically be
done in conjunction with expanded, phased drilling programs.
Cores are analyzed by geologists to determine mineral types and
to identify geological anomalies. Samples along the length of
the core are logged and analyzed for total rare earth content,
rare earth distribution and mineralogy. This data is entered
into a master database and statistically analyzed. The resulting
information is used to enhance the mine plan. We also gain
information from blast hole cuttings. The estimates of REO
reserves and non-reserve REO deposits as to both quantity and
quality will also be updated to reflect new drilling or other
data received. Estimates of economically recoverable REO
reserves, however, necessarily depend upon a number of variable
factors and assumptions, all of which may vary considerably from
actual results, such as:
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geological and mining conditions
and/or
effects from prior mining that may not be fully identified by
available data or that may differ from experience;
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assumptions concerning future prices of rare earth products,
operating costs, mining technology improvements, development
costs and reclamation costs; and
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assumptions concerning future effects of regulation, including
the issuance of required permits and taxes by governmental
agencies.
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Actual REO tonnage recovered from identified REO reserve and
non-reserve REO deposit areas and revenues and expenditures with
respect to the same may vary materially from estimates. These
estimates may not accurately reflect our actual REO reserves or
non-reserve REO deposits. Any inaccuracy in our estimates
related to our REO reserves and non-reserve REO deposits could
result in lower than expected revenues and higher than expected
costs.
Engineering
Study
SRK Consulting prepared an engineering study to determine, among
other things, the size of the underlying ore body and a mine
plan for the restart of the Mountain Pass mine and the
refurbishment of the processing facilities in connection with
our initial modernization and expansion plan. As originally
envisioned, the restart plan includes integrated off-site
facilities for production of metals and rare earth magnet
alloys. SRK Consulting designed the mine plan to ensure an
annual production rate of approximately 19,050 mt of REO. The
assumptions regarding efficiencies and recoveries are reflected
in the table below.
Key
project data
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Mine type
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Open pit
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Process description
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Crushing, milling, flotation, leaching, extraction, separation
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Open pit mine life
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30 years
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Mill throughput
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1,300 average tons per day
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Initial capital costs(1)
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$531 million
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Sustaining capital costs
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$138 million
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Average Ore
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Ore
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Contained REO
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Grade (%)
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(Millions of Tons)
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(Millions of Pounds)
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Contained minerals
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Proven
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9.38
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%
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0.480
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88
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Probable
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8.20
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%
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13.108
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2,122
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(1) |
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SRK Consulting assumes capital expenditures of
$550 million, which includes extra stripping costs for 2013
and 2014. |
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Years
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Years
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Years
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1-5
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6-10
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11-30
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Life-of-Mine
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Average annual payable minerals
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Ore milled (kilotons)
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427
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368
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424
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13,692
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Average ore grade, as a percentage of REO
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7.9
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%
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9.3
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%
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8.2
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%
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8.2
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%
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Mill REO recovery percentage
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65
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%
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65
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%
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65
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%
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65
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%
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Total recovered REO (in thousands of pounds)
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43,775
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44,404
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44,776
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1,464,272
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Chemical plant recovery percentage
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90
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%
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95
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%
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94
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%
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94
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%
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Total REO production (in thousands of pounds)
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39,532
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42,044
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42,044
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1,372,650
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Average operating cost per pound of REO
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Mining
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$
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0.10
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$
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0.06
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$
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0.12
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$
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0.11
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Oxides
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1.16
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1.13
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1.14
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1.14
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Oxides-to-metals
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0.80
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0.80
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0.80
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0.80
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Metals-to-alloys
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3.71
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3.75
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3.75
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3.76
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Total REO
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$
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5.77
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$
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5.74
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$
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5.81
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$
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5.81
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Price assumptions (Weighted average pricing of different
products)
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Oxides
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$
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4.55
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Metals
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$
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7.64
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Alloys
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$
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16.59
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Total REO
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$
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11.97
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After tax project internal rate of return
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34
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%
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After tax net present value 8% discount (dollars in millions)(1)
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$
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1,460
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(1) |
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As of October 28, 2010, prices for certain rare earth
products had increased from those used by SRK Consulting in its
engineering study. According to SRK Consulting, using the
October 28, 2010 prices set forth in the following table,
which are primarily based on information from Metal-Pages and
alloy pricing formulas, instead of those used in SRK
Consultings original model would increase the after tax
project internal rate of return to 115% and the after tax net
present value (8% discount) to $6.76 billion: |
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Product
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October 28, 2010 Price
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($/kg)
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Lanthanum Oxide
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$
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44.54
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Cerium Oxide (glass products)
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43.04
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Europium Oxide
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630.52
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Lanthanum Metal
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43.66
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Neodymium/Praseodymium Metal
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84.54
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Nd-Iron-Boron Alloy
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78.32
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(a)
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Samarium Cobalt Alloy
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66.15
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(a)
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(a) |
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Molycorp market price estimates |
The engineering study, as prepared by SRK Consulting, includes
all mine-level capital and operational costs, but does not
include corporate, selling, general and administrative expenses
which we estimate to be an additional $20 million to
$25 million per year.
Subsequent to the original engineering study, we proceeded with
additional detailed engineering and process testwork for the
project. While substantive elements of the engineering design
remain fixed in terms
88
of function, our ongoing testing effort through the first
quarter of 2011 will finalize the operating cost estimate for
oxide production. Following completion of the operating cost
review, updated process costs and recoveries will be reflected
in the proven and probable reserve statement. At the present
time, as a result of increased REE prices, the estimated
economic cut-off grade for the deposit is less than the 5%
cut-off grade applied by SRK Consulting. Due to the differential
between the estimated economic cut-off grade and 5.0%
hard cut-off grade, there is a margin for operating
cost variation without a material adjustment in the proven and
probable reserve estimate.
We approved the following changes to the original engineering
study. These changes are provided for clarity and do not have a
material impact on the proven and probable reserve estimate:
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We conducted additional drilling and exploration work between
December 2009 and April 2010 with a primary focus on in-fill
drilling and a secondary focus on condemnation. We plan to
conduct additional drilling and exploration work in 2011.
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We will construct a new mill rather than refurbish the existing
mill prior to the start of full-scale production. With this
change, SRK Consulting revised the mine plan to reflect improved
access to ore in the southwest and south portion of the open
pit. Fundamental production criteria remained unchanged (e.g.,
5.0% REO cut-off grade, 19,050 mt REO per year, and overall
recovery of 60%); therefore, there is no material change in the
mine production schedule. However, the pit layouts over time
shown in the original engineering study (e.g., Figures 6.2
through 6.7) will not match the current pit layouts.
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We changed the location of the extraction and separations
facilities, as well as related infrastructure, from the
northwest portion of our property to immediately southeast of
the existing process facilities. While the location of these
facilities has changed, the production process has not.
Accordingly, Figure 7.8 General Facilities Arrangement for the
Extraction and Separation Facilities in the original engineering
study is no longer valid.
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Updated project capital costs are within 10% of the estimated
capital costs in the original engineering study.
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Project planning during the development phase will be performed
by us and Eichleay Engineers of California, a consulting firm
specializing in project delivery.
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We will authorize SRK Consulting to revise the engineering study
and to make material adjustments, if any, to the reserve
statement following completion of the updated operating cost
review and testwork related to process recoveries.
In light of strong industry fundamentals, including reduced
Chinese supply and strong pricing increases, our Board of
Directors has approved a second-phase capacity expansion plan in
addition to our initial modernization plan. Upon the completion
of this expansion plan, by the end of 2013, we expect to have
the ability to produce up to approximately 40,000 mt of REO per
year at our Mountain Pass facility, or approximately double the
amount we will be able to produce upon completion of our initial
modernization and expansion plan.
SRK Consulting prepared its engineering study in connection with
our initial modernization and expansion plan, but has not yet
reviewed the second-phase capacity expansion plan or prepared a
revised engineering study to reflect and potential impact of the
second-phase capacity expansion on capital costs, operating
expenses, mine life or reserve estimates. SRK Consulting has
preliminarily indicated, however, that doubling the amount of
production pursuant to the second-phase capacity expansion plan
would reduce the current mine life by half, assuming no
additional exploration, no realization of anticipated
improvements in recoveries, and all other factors such as
cut-off grade remain constant.
Customers
We are working to establish stable revenue streams for the rare
earth minerals and products we produce at the Mountain Pass
facility. Upon reaching full planned production rates for REOs
at the Mountain Pass facility under our initial modernization
and expansion plan, we expect to produce approximately 19,050 mt
of REO per year by
89
the end of 2012. Additionally, under our capacity expansion
plan, we expect to have the ability to produce up to
approximately 40,000 mt of REO per year by the end of 2013. We
have agreed to supply one of our principal customers with a
significant amount of our REOs, primarily lanthanum hydrate,
through mid-2012 at market-based prices subject to a ceiling
based on market prices at June 1, 2010 (currently in
effect), and a floor. Pursuant to our second contract with that
customer, we have agreed to supply the customer with
approximately 75% of our lanthanum product production per year
at market-based prices subject to a floor for a three-year
period commencing upon the achievement of expected annual
production rates under our initial modernization and expansion
plan, which may be extended at the customers option for an
additional three-year period. Upon execution of definitive
agreements with Sumitomo, we also expect to provide Sumitomo
with approximately 1,500 mt per year (and following completion
of our initial modernization and expansion plan, approximately
1,750 mt per year) of cerium and lanthanum-based products and
250 mt per year of didymium oxide for a period ending five years
after the completion of our initial modernization and expansion
of the Mountain Pass facility, at market-based prices subject to
a floor. As of May 13, 2011, we also had 20 non-binding
letters of intent to sell our rare earth products. These letters
of intent, together with our second contract with one of our
principal customers and memorandum of understanding with
Sumitomo, represent approximately 158% of our anticipated
production for 2013 under our initial modernization and
expansion plan, and our non-binding letter of intent with Neo
Material also contemplates the sale of certain rare earth
products. See BusinessOur Business
StrategySecure customer commitments to provide a stable
revenue stream. for additional detail regarding our
contracts, non-binding letters of intent and off-take
commitments. Prior to commencing full production, we intend to
enter into short- and long-term sales contracts with existing
and new customers for amounts not in excess of our actual
planned production under our initial modernization and expansion
plan and our capacity expansion plan, respectively. For certain
REEs where the market demand is high, such as europium, we do
not expect to enter into letters of intent or contracts, given
that these REEs can be easily sold. None of our existing
customer relationships are from contracts we assumed from
Chevron Mining Inc.
The letter of intent with Neo Material also contemplates the
possibility of Neo Material acting as our non-exclusive sales
agent and providing sales, marketing, warehousing and
distribution services for some of our products. The memorandum
of understanding with Sumitomo also contemplates Sumitomo acting
as our non-exclusive sales agent for some of our products until
the completion of our modernization and expansion of the
Mountain Pass facility.
There is a limited market for our lanthanum. Two of our largest
customers, Albemarle Corporation and W.R. Grace & Co.
- Conn., comprised 82% (55% of the total corresponding to
Albemarle and 27% of the total corresponding to Grace) and 72%
(57% of the total corresponding to Albemarle and 15% of the
total corresponding to Grace) of our total product revenue for
the year ended December 31, 2009 and the period ended
December 31, 2008, respectively. Six of our largest
customers, Mitsubishi Corporation Unimetals U.S.A., Grace,
Chuden Rare Earth Co. Ltd., Shin-Etsu Chemical Co., Corning Inc.
and 3M Company comprised 89% (24% of the total corresponding to
Mitsubishi, 21% corresponding to Grace, 15% corresponding to
Chuden Rare Earth Co. Ltd., 12% corresponding to Shin-Etsu, 10%
corresponding to Corning Inc. and 7% corresponding to 3M) of our
total product revenue for the year ended December 31, 2010.
In addition, we are in discussions with multiple large, globally
diversified mining companies regarding the sale of
XSORBX®,
which will expand demand for cerium in times when it is in
surplus and low priced.
XSORBX®
is a proprietary product and process, primarily consisting of
cerium that removes arsenic and other heavy metals from
industrial processing streams and will allow our customers to
more safely sequester arsenic and increase their production.
XSORBX®
is protected by over 100 issued and pending U.S. and
foreign patents and patent applications. We have begun to sell
XSORBX®
for commercial use in the wastewater, recreation, pool and spa,
industrial process and other water treatment markets.
We anticipate that the location of the Mountain Pass facility,
just off the Interstate 15 and along the train route leading to
the Los Angeles port, will be an advantage in the transportation
and delivery of our rare earth products to our customers as
compared to other rare earth mining and development projects.
90
Suppliers
We use significant amounts of hydrochloric acid and sodium
hydroxide as reagents to process REOs. We ultimately intend to
produce and recycle our own hydrochloric acid and sodium
hydroxide at the Mountain Pass facility, however, the technology
we are developing to internally produce these reagents to
significantly reduce our dependence on external supplies has not
yet been implemented. Accordingly, we currently purchase
hydrochloric acid and sodium hydroxide in the open market
through multiple suppliers and, as a result, could be subject to
significant volatility in the cost or availability of these
reagents, although they are currently in ample supply. We may
not be able to pass increased prices for these reagents through
to our customers in the form of price increases. A significant
increase in the price of these reagents, or limited availability
of such materials, could materially increase our operating costs
and adversely affect our profit margins from quarter to quarter.
Patents,
Trademarks and Licenses
We rely on a combination of trade secret protection,
nondisclosure and licensing agreements, patents and trademarks
to establish and protect our proprietary intellectual property
rights. We utilize trade secret protection and nondisclosure
agreements to protect our proprietary rare earth technology. We
also have a proven technology and product development group and
as of May 13, 2011, held 75 issued and pending
U.S. patents and patent applications, and 176 issued and
pending foreign patents and patent applications. We intend to
rely on patented products, such as
XSORBX®,
and related licensing agreements to establish proprietary
markets for low demand REEs. These intellectual property rights
may be challenged or infringed upon by third parties or we may
be unable to maintain, renew or enter into new license
agreements with third-party owners of intellectual property on
reasonable terms. In addition, our intellectual property will be
subject to infringement or other unauthorized use outside of the
United States. In such case, our ability to protect our
intellectual property rights by legal recourse or otherwise may
be limited, particularly in countries where laws or enforcement
practices are undeveloped or do not recognize or protect
intellectual property rights to the same extent as the United
States. Unauthorized use of our intellectual property rights or
inability to preserve existing intellectual property rights
could adversely impact our competitive position and results of
operations.
Competition
According to Roskill, global production of rare earth products
was approximately 129,000 mt of REO in 2008. According to IMCOA,
China accounted for approximately 96% of this total. The
majority of the remaining production in 2008 was from Mountain
Pass and Russia. Although exploration programs for REEs exist
outside of China, Russia, Mountain Pass and Australia, none of
the deposits that are the subject of these programs is currently
in production. In addition, at the April 2010 U.S. GAO
briefing government and industry officials stated that, for a
typical exploration-stage mine, once a company has secured the
necessary capital to start a mine, it can take from seven to
15 years to bring a property fully online, largely due to
the time it takes to comply with multiple state and federal
regulations.
Once we reach full planned production rates for REOs and other
planned downstream products, the increased competition may lead
our competitors to engage in predatory pricing behavior. Any
increase in the amount of rare earth products exported from
other nations, and increased competition, whether legal or
illegal, may result in price reductions, reduced margins and
loss of potential market share, any of which could materially
adversely affect our profitability. As a result of these
factors, we may not be able to compete effectively against
current and future competitors.
Research
and Development
We have invested significant resources to improve the efficiency
of our REO processing operations and the development of new
applications for individual REEs. As of December, 31, 2010, our
product development group consisted of 22 scientists and
engineers. In addition, we spent $2.4 million for the year
ended December 31, 2010, $1.5 million for the year
ended December 31, 2009 and $0.4 million for the
period ended December 31, 2008 on research and development.
91
Environmental,
Health and Safety Matters
We are subject to numerous and detailed international, national,
federal, state and local laws, regulations and permits affecting
the mining and mineral processing industry, including those
pertaining to employee health and safety, environmental
permitting and licensing, air quality standards, GHG emissions,
water usage and disposal, pollution, waste management, plant and
wildlife protection, handling and disposal of radioactive
substances, remediation of soil and groundwater contamination,
land use, reclamation and restoration of properties, the
discharge of materials into the environment and groundwater
quality and availability. Our Molycorp Silmet AS operations are
also subject to the environmental laws, regulations and permits
applicable in Estonia, which requirements are shaped by
Estonias membership in the European Union. These laws,
regulations and permits have had, and will continue to have, a
significant effect on our results of operations and competitive
position and have tended to become increasingly stringent over
time. Future laws, regulations or permits, as well as the
interpretation or enforcement of existing requirements, may
require substantial increases in capital or operating costs or
otherwise delay, limit or prohibit our current or future
operations. Our management team, employees and consultants have
a significant amount of experience working with various federal,
state and local authorities to address compliance with such
laws, regulations and permits. However, we cannot assure you
that we have been or will be at all times in compliance with
such requirements.
We incurred approximately $2.1 million in 2010, and we
expect to incur approximately $3 million in 2011, for
ongoing operating environmental expenditures at the Mountain
Pass facility, including salaries, monitoring, compliance,
reporting and permits. In addition, we plan to invest
significant capital in certain infrastructure, including iron
and lead removal equipment in our processing facilities, a
chlor-alkali plant, a co-generation power plant and a paste
tailings plant and related storage facility. Our planned
chlor-alkali plant is expected to reduce the amount of waste
salt water that otherwise would be produced by our processing
facilities and eliminate the need for evaporation ponds to
dispose of this waste water. We anticipate the need to dispose
of a portion of the wastewater in one of our evaporation ponds
in order to repair recently detected lining tears. We estimate
the wastewater transportation and disposal costs associated with
this repair to be approximately $0.8 million in 2011. In
addition, while our chlor-alkali plant is being constructed, we
intend to remove and dispose of any wastewater generated in
excess of our evaporation capability at an off-site location as
a result of which we may incur additional significant costs. Our
planned co-generation power plant is expected to increase the
energy efficiency of our Mountain Pass facility by generating
steam with waste heat from the power generation process. Our
planned paste tailings plant and related storage facility are
expected to increase the extent of our water recycling and
present lower environmental risks than storing tailings in
ponds. We expect to spend approximately $187 million during
2011 and 2012 related to environmentally-driven capital projects
on our modernization and expansion project at the Mountain Pass
facility. We have acquired air emission offset credits at a cost
of $3.1 million, which we believe to be sufficient to
operate under our initial modernization and expansion plan and
our capacity expansion plan. In addition, we may have to incur
environmental capital and operating costs in the future relating
to our acquisitions of Molycorp Silmet AS and MMA.
Permits
and Approvals
Numerous governmental permits and approvals are required for our
current and future operations. Molycorp Silmet AS has an
Integrated Environmental Permit, which controls its operations
in general, and Radiation Practice Licenses for the management
of radioactive materials. We hold a mine plan permit and an
associated environmental impact report, which currently allow
continued operations of our Mountain Pass facility through 2042.
We have secured all permits necessary to allow construction to
start on the Mountain Pass facility modernization and expansion
plan, including permits to operate from the Lahontan Regional
Water Quality Control Board and orders for wastewater treatment
and other facilities. Our ability to build
state-of-the-art
processing facilities at Mountain Pass depends upon obtaining
the necessary installation and operation permits from a variety
of governmental entities. In connection with our planned
expansion, we will be required to obtain permit modifications
and additional permits for new and replacement processing
facilities and utilities, including a chlor-alkali plant and
co-generation power plant, and also may be required to prepare a
risk management plan in connection with the storage of ammonia
for use at the planned co-generation power plant. To obtain,
maintain and renew these and other environmental permits, we may
be required to conduct environmental studies and
92
collect and present to governmental authorities data pertaining
to the potential impact that our current or future operations
may have upon the environment.
We may be unable to obtain additional permits unless we are able
to avoid or mitigate those impacts, particularly impacts to
desert flora and fauna. The permitting processes and development
of supporting materials, including any environmental impact
statements, may be costly and time consuming. Any failure to
obtain, maintain or renew required permits, or other permitting
delays or conditions, may delay, limit or prohibit current or
future operations. Consequently, the expansion and modernization
of the Mountain Pass facility may be delayed, curtailed or
prevented, particularly in the event any environmental impact
statement is required in connection therewith. These permit
processes and requirements, and the interpretation and
enforcement thereof, change frequently, and any such future
changes could materially adversely affect our mining operations
and results of operations.
Mine
Health and Safety Laws
The Federal Mine Safety and Health Act of 1977, as amended by
the Mine Improvement and New Emergency Response Act of 2006, and
the regulations adopted by the California Occupational Safety
and Health Administration, impose stringent health and safety
standards on numerous aspects of mining operations, including
training of mine personnel, mining procedures, blasting, the
equipment used in mining operations and other matters at our
Mountain Pass facility. As a result of increasing scrutiny
surrounding mine safety, federal and state legislatures and
other regulatory authorities have imposed more stringent
regulatory requirements on mining operations. In 2006, the MSHA
promulgated new emergency rules on mine safety that address mine
safety equipment, training and emergency reporting requirements.
The U.S. Congress enacted the Mine Improvement and New
Emergency Response Act of 2006, which significantly amended the
Federal Mine Safety and Health Act of 1977, requiring
improvements in mine safety practices, increasing criminal
penalties and establishing a maximum civil penalty for
non-compliance, and expanding the scope of federal oversight,
inspection and enforcement activities. The MSHA published final
rules implementing the Mine Improvement and New Emergency
Response Act to revise both the emergency rules and the
MSHAs existing civil penalty assessment regulations, which
resulted in an
across-the-board
increase in penalties from the existing regulations.
The Mountain Pass facility maintains a rigorous safety program.
Our employees and contractors are required to complete
24 hours of initial training sessions, as well as annual
refresher sessions, which cover all of the potential hazards
that may be present at the facility. During the training, our
commitment to a safe work environment is reinforced through our
Stop Work Authority program, which allows any employee or
contractor at the facility to stop work that they deem to be
unsafe. As a direct result of this commitment to safety, the
Mountain Pass facility has an exceptional safety record, which
as of December 31, 2010, stood at 1999 days worked
without a lost-time or restricted work accident. Lost-time
incidence rate is an industry standard used to describe
occupational injuries that result in loss of one or more days
from an employees scheduled work. Our lost-time incidence
rate for all operations for each of the years ended
December 31, 2009 and 2010 was zero, as compared to the
national average of 1.78 and 1.88 as reported by the MSHA for
the respective periods.
The exceptional safety performance record of the Mountain Pass
facility is further reflected in the following table, which
compares rates for all lost time, restricted work and medical
treatment incidents per 200,000 hours worked with average
rates for mining operations, as determined by MSHA:
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Year Ended December 31,
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2006
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2007
|
|
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2008
|
|
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2009
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2010
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Molycorp Operations
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0
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0
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1.01
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0.86
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1.33
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MSHA Rates for Operators
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2.79
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|
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3.73
|
|
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3.48
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2.95
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2.83
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|
Within the last several years, the Mountain Pass facility has
received numerous awards for safety, including: the MSHA
Sentinels of Safety Award (2008, 2006 and 2004); the National
Safety Council Awards Perfect Record (2008, 2007,
2006, 2004); and the National Safety Council Awards
Occupational Excellence achievement award (2009, 2007 and 2004).
We believe that our commitment to a safe working environment at
the Mountain Pass facility provides us with a competitive
advantage in attracting and retaining employees.
93
Workers
Compensation
Although, as of December 31, 2010, the Mountain Pass
Facility has not experienced a lost-time workplace injury since
July 11, 2005, we are required to compensate employees for
work-related injuries. The states in which we operate consider
changes in workers compensation laws from time to time. We
are insured under various state workers compensation
programs for our operations at the Mountain Pass facility, our
offices in Greenwood Village, Colorado and the State of
Washington.
Surface
Mining Control and Reclamation
Our San Bernardino County conditional use permit, approved
mining plan and state laws and regulations establish
operational, reclamation and closure standards for all aspects
of our surface mining operations. Comprehensive environmental
protection and reclamation standards must be met during the
course of and upon completion of mining activities, and our
failure to meet such standards may subject us to fines,
penalties or other sanctions.
Although we expect the Mountain Pass facility to remain open for
significantly longer than 30 years, our
30-year mine
plan requires that we restore the surface area upon completion
of mining. Financial assurances are generally required to secure
the performance of these reclamation obligations. To satisfy
these financial assurance requirements, we typically obtain
surety bonds, which are renewable on a yearly basis. Although we
expect to continue to obtain and renew such bonds, it has become
increasingly difficult for mining companies to secure new or
renew existing surety bonds without the posting of partial or
full collateral. In addition, surety bond costs have increased
while the market terms of surety bonds have generally become
less favorable. It is possible that surety bond issuers may
refuse to provide or renew bonds or may demand additional
collateral upon those issuances or renewals. Our inability to
obtain or failure to maintain or renew these bonds could have a
material adverse effect on our business and results of
operations.
As of December 31, 2010, we had financial assurance
requirements of $27.4 million that were satisfied with
surety bonds secured by cash held in escrow, which we have
placed with California state and regional agencies for our
Mountain Pass facility.
Water
Usage and Pollution Control
The federal Clean Water Act and similar national, state and
local laws and regulations affect surface mining and processing
operations by imposing restrictions on the discharge of
pollutants, including tailings and other material, into waters.
These requirements are complex and subject to amendments, legal
challenges and changes in implementation. Recent court
decisions, regulatory actions and proposed legislation have
created uncertainty over the jurisdiction and permitting
requirements of the federal Clean Water Act. Individual or
general permits under Section 404 of the Clean Water Act
are required if we discharge dredged or fill materials into
jurisdictional waters of the United States. In addition, our
Lahontan Regional Water Quality Control Board permit for our
Mountain Pass facility establishes treatment standards for
wastewater discharges to evaporation ponds. Regular monitoring
by the Lahontan Regional Water Quality Control Board, as well as
compliance with reporting requirements and performance
standards, are preconditions for the issuance and renewal of our
permits. Until our chlor-alkali plant is operational, we intend
to dispose of wastewater via our existing evaporation ponds and,
as needed, via off-site disposal. The discharge of wastewater by
Molycorp Silmet ASs operations are governed by its
Integrated Environmental Permit.
Our operations require significant quantities of water to
process REOs. As part of the modernization and expansion of the
Mountain Pass facility, we expect to significantly reduce our
need for fresh water by recycling available water resources.
Current design specifications for our modernization project
indicate an approximately 50% reduction of fresh water
consumption as compared to water consumption in the
mid-1990s, when the mine was producing approximately
19,050 mt of REO per year.
94
Air
Pollution Control
The federal Clean Air Act and similar national, state and local
laws and regulations affect our surface mining and processing
operations both directly and indirectly. We currently operate
and maintain numerous air pollution control devices under
permits from the California Mojave Desert Air Quality Management
District. We generally must obtain permits before we install new
sources of air pollution, which may require us to do air quality
studies and obtain emission offset credits, which can be costly
and time consuming to procure. We expect that our new and
expanded facilities will require us to obtain emission credits
or offsets for nitrogen oxides, particulate matter (10 microns),
sulfur oxide and volatile organic compounds. The increased
emissions from these facilities may trigger permitting under
Title V of the Clean Air Act. In addition, the regulations
of the California Air Resources Board will require us to
retrofit or replace off-road, on-road and forklift vehicles to
achieve emission standards for nitrogen oxides and particulate
matter (10 microns). The Integrated Environmental Permit issued
to Molycorp Silmet AS regulates the discharge of air pollution
in accordance with the requirements of Estonian laws and
regulations.
Our operations also emit GHGs. Pursuant to
existing GHG requirements, we expect that following the
expansion of the Mountain Pass facility we will be required to
report annual GHG emissions from our operations. Additional GHG
emission related requirements are in various stages of
development. For example, the U.S. Congress is considering
various legislative proposals to address climate change. In
addition, the United States Environmental Protection
Agency, or EPA, has issued regulations, including the
Tailoring Rule, that subject GHG emissions from
stationary sources to the Prevention of Significant
Deterioration and Title V provisions of the federal Clean
Air Act. California is also implementing regulations pursuant to
its Global Warming Solutions Act that will establish a
state-wide
cap-and-trade
program for GHG emissions. Our operations in Arizona and Estonia
may also be subject to GHG requirements. Any such regulations
could require us to modify existing permits or obtain new
permits, implement additional pollution control technology,
curtail operations or increase significantly our operating
costs, any of which could adversely affect our business,
financial condition, reputation, operating performance and
product demand. However, such regulations might also present
opportunities for our industry to the extent they increase the
demand for rare earth products used in clean-technology
applications, such as hybrid and electric vehicles and wind
power turbines.
Our operations consume significant amounts of energy and,
accordingly, are subject to fluctuations in energy costs. These
costs may increase significantly in part as an indirect result
of GHG and other air emission regulations applicable to
third-party power suppliers.
Hazardous
and Radioactive Substances and Wastes
The federal Comprehensive Environmental Response Compensation
and Liability Act, known as CERCLA, and analogous foreign and
state laws impose liability, without regard to fault or the
legality of the original conduct, on certain classes of persons
that are considered to have contributed to the actual or
threatened release of a hazardous substance into the
environment. Persons who are or were responsible for such
releases of hazardous substances under CERCLA, which can include
waste generators, site owners, lessees and others, may be
subject to joint and several liability for the costs of
remediating such hazardous substances and for damages to natural
resources. Accordingly, we may be subject to liability under
CERCLA and similar foreign and state laws for properties that we
currently own, lease or operate or that we or our predecessors
have previously owned, leased or operated, and sites to which we
or our predecessors sent waste materials. Pursuant to a 1998
clean up and abatement order issued by the Lahontan Regional
Water Quality Control Board, we have conducted and are
continuing to conduct various investigatory, monitoring and
remedial activities related to contamination at and around the
Mountain Pass facility. These activities include soil
remediation and the operation of groundwater monitoring and
recovery wells, water treatment systems and evaporation ponds.
Also, prior to our acquisition of the Mountain Pass facility,
leaks in a wastewater pipeline from the Mountain Pass facility
to offsite evaporation ponds on the Ivanpah dry lake bed caused
contamination. However, that contamination is being remediated
by Chevron Mining Inc., who retained ownership of the ponds and
the pipeline. Although Chevron Mining Inc. is obligated to
indemnify us for certain potential environmental losses
associated with activities that occurred prior to our purchase
of the
95
Mountain Pass facility, the amount of such indemnity is limited
and may not be sufficient to cover such losses. See
Business The Mountain Pass Facility. In
addition, the long history of industrial operations at the
Molycorp Silmet AS facility in Estonia may have caused soil,
surface water and groundwater contamination at and around the
facility. The facility was constructed in 1948 and has since
been used for, among other industrial purposes, the processing
of uranium ore and alum shale.
In 2009, the EPA announced that it is developing financial
responsibility requirements under CERCLA for certain facilities
within the hardrock mining industry. If applicable to our
current or future operations, these requirements could impose on
us significant additional costs or obligations.
REOs contain naturally occurring radioactive substances, such as
thorium and uranium. The mining and processing of REOs involves
the handling and disposal of such substances, and accordingly we
are subject to extensive safety, health and environmental laws,
regulations and permits regarding radioactive substances.
Significant costs, obligations or liabilities may be incurred
with respect to such requirements, and any future changes in
such requirements (or the interpretation or enforcement thereof)
may have a material adverse effect on our business or results of
operations. One such permit pursuant to which we currently
operate is a Radioactive Materials License issued and
administered by the California Department of Health Services
Radiologic Health Branch. The license applies to the use of
sealed radioactive sources used for gauging volumes of
materials, as well as certain other activities. A failure to
maintain or renew this license could materially adversely affect
our business or results of operations. The storage and disposal
of low-level radioactive wastes by Molycorp Silmet AS are
governed by its Radioactive Practice Licenses. Radioactive
materials are present at the Molycorp Silmet AS facility, and we
incur costs to manage and dispose of such materials.
We generate, manage and dispose of solid and hazardous waste.
Demolition of structures in connection with facility expansion
and modernization generates waste in addition to that associated
with processing and remediation activities. In connection with
our modernization and expansion effort at the Mountain Pass
facility and elsewhere, we will incur additional costs to
handle, store and dispose of such wastes.
Endangered
Species Act
The federal Endangered Species Act and counterpart state
legislation protect species threatened with possible extinction.
Such laws and related regulations may have the effect of
prohibiting or delaying us from obtaining mining permits and may
impose restrictions on pipeline or road building and other
mining or construction activities in areas containing the
affected species or their habitats. Several species indigenous
to Mountain Pass, California, including the desert tortoise, are
protected under the Endangered Species Act and California
Endangered Species Act.
Use of
Explosives
In connection with our surface mining activities, we use
explosives, which are subject to regulation, including under the
federal Safe Explosives Act. Violation of these regulatory
requirements may result in fines, imprisonment, revocation of
permits
and/or
seizure or forfeiture of explosive materials.
Other
Environmental Laws
We are required to comply with numerous other international,
national, federal, state and local environmental laws and
regulations in addition to those previously discussed. These
additional laws include, for example, the California
Environmental Quality Act, the National Environmental Policy
Act, the Emergency Planning and Community
Right-to-Know
Act, the California Accidental Release Prevention Program and
various Estonian and European Union requirements.
96
Facilities
and Employees
We own the Mountain Pass facility. We also lease our executive
office space at 5619 Denver Tech Center Parkway, Greenwood
Village, Colorado. The leases for Suite 1000 and
Suite 1005 expire November 2016 and February 2012,
respectively, subject to renewal options.
As of April 30, 2011, we had 766 employees. In connection
with our ongoing modernization and expansion efforts at the
Mountain Pass facility, we expect to hire additional employees
by the end of 2012. As of April 30, 2011, 87 of our
employees were represented by the United Steelworkers of
America. Our contract with the United Steelworkers of America
expires in 2012. We have not experienced any work stoppages and
consider our employee relations to be excellent.
Legal
Proceedings
From time to time, we may become subject to various legal
proceedings that are incidental to the ordinary conduct of our
business. We are not currently party to any material legal
proceedings.
97
MANAGEMENT
Executive
Officers and Directors
The following table sets forth certain information regarding our
executive officers and directors as of May 23, 2011.
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Name
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Age
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Position
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Mark A. Smith
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52
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President, Chief Executive Officer and Director
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James S. Allen
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44
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Chief Financial Officer and Treasurer
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John L. Burba, PhD
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59
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Executive Vice President and Chief Technology Officer
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John F. Ashburn, Jr.
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56
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Executive Vice President and General Counsel
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Ksenia A. Adams
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30
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|
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Corporate Controller
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Douglas J. Jackson
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50
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Vice President, Business Development
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John K. Bassett
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61
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Vice President, Operations
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Russell D. Ball
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43
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|
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Director
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Ross R. Bhappu
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51
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|
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Chairman of the Board
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Brian T. Dolan
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70
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|
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Director
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Charles R. Henry
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73
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|
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Director
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Mark S. Kristoff
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50
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Director
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Alec Machiels
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38
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Director
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Jack E. Thompson
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61
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Director
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Executive
Officers
Mark A. Smith has been our Chief Executive Officer and
has served as a director since October 2008 and our President
since March 2010. From April 2006 until October 2008,
Mr. Smith was president and chief executive officer of
Chevron Mining Inc., a wholly-owned subsidiary of Chevron
Corporation, and from August 2005 until April 2006 he was vice
president of Chevron Mining Inc. In his positions at Chevron
Mining Inc., Mr. Smith was responsible for
1,500 employees, approximately $500 million in
revenue, three coal mines, one molybdenum mine and the Mountain
Pass rare earth mine. From June 2000 until August 2005,
Mr. Smith was a vice president for Unocal Corporation, an
oil and gas exploration and production company, which previously
owned the Mountain Pass facility, where he was responsible for
managing all real estate, remediation, mining and carbon groups.
Mr. Smith has served on the board of directors of Avanti
Mining Inc., a molybdenum mining company, since November 2009
and on the board of directors of Talison Lithium Limited, a
global producer of Lithium, since August 2010. Mr. Smith
received his B.S. degree in agricultural engineering from
Colorado State University in 1981 and his J.D., cum laude, from
Western State University College of Law in 1990.
Mr. Smiths broad experience in the rare earths mining
industry and deep understanding of the operations at our
Mountain Pass facility make him a valuable member of our
management and board of directors.
James S. Allen has been our Chief Financial Officer since
December 2009 and Treasurer since March 2010. From October 2005
until April 2009, Mr. Allen was an audit partner at KPMG
LLP, a public accounting firm, and from June 2002 until
September 2005, Mr. Allen was an audit senior manager at
KPMG. During his time at KPMG, Mr. Allen was responsible
for the professional development of managers and staff, the
execution of audit engagements and other projects in accordance
with firm and professional standards, as well as various other
business development and administrative matters including
maintenance of client relationships. A certified public
accountant, Mr. Allen received his B.S. degree in business
administration accounting from Colorado State
University in 1989.
John L. Burba, PhD has been our Chief Technology Officer
since October 2008, and was promoted to the position of
Executive Vice President and Chief Technology Officer in
September of 2009. From August 2005 until
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October 2008, Mr. Burba was vice president of technology at
Chevron Mining Inc., where he was involved in identifying and
developing technologies for Chevron Minings businesses,
including coal, molybdenum and rare earths. From July 2002 until
August 2005, Mr. Burba was vice president of technology at
Molycorp Inc., a subsidiary of Unocal Corporation.
Mr. Burba received his B.S. degree in chemistry in 1974,
his M.S. in physical chemistry in 1976 and his PhD in physical
chemistry from Baylor University in 1979.
John F. Ashburn, Jr. has been our General Counsel
and Executive Vice President since December 2008, and served as
our Secretary from December 2008 until April 2010. From August
2005 until November 2008, Mr. Ashburn was senior counsel of
Chevron Mining Inc. From April 1990 until August 2005,
Mr. Ashburn was senior counsel of Unocal Corporation, an
oil and gas exploration and production company. Mr. Ashburn
received his B.S. degree in psychology from Northern Illinois
University in 1976 and his J.D. from Northern Illinois
University School of Law in 1980.
Ksenia A. Adams has been our Corporate Controller since
July 2009. From May 2007 until July 2009, Ms. Adams was an
audit manager with KPMG LLP. From October 2002 until May 2007,
Ms. Adams was a senior member of the audit staff of KPMG.
Ms. Adams is a certified public accountant and received her
B.S. degree in accounting from Colorado State University in 2002.
Douglas J. Jackson has been our Vice President, Business
Development since November 1, 2010. From 2002 to 2010, he
was a private investor and in 2010 he founded and is the
principal of Optimal Solutions SV LLC, a management consulting
company. From 1988 to 2002, he was with Dyno Nobel, Inc., or
Dyno, the largest operating subsidiary of Dyno Nobel ASA, a
global commercial explosive supplier. While with Dyno,
Mr. Jackson held a variety of positions, including serving
as President and Chief Executive Officer, where he had the
responsibility for operations in North America and South
America, Dynos largest market, while establishing new
operations in the high growth markets of Latin America.
Mr. Jackson started his career at Unocal Corporation, where
his roles included Engineer-Chemical Sales/Service and District
Sales Manager Industrial Chemical Marketing.
Mr. Jackson received his B.S. degree in engineering from
Washington State University in 1983 and his MBA from California
State University in 1988.
John K. Bassett has been our Vice President, Operations
since January 2011. From 2005 to 2011, he was President of
Seadrift Coke L.P., or Seadrift, a manufacturer of petroleum
needle coke. As President of Seadrift, Mr. Bassett had
profit and loss responsibility, including sales and safety
performance. Mr. Bassett started his career in petroleum
refining and was refinery general manager of two refineries. He
received his degree in Chemical Engineering from the University
of Illinois in 1972.
Directors
Russell D. Ball has been a director since March 2010.
Since July 2007, Mr. Ball has been the chief financial
officer and since October 2008, he has been the executive vice
president of Newmont Mining Corporation, a gold mining and
production company. Before becoming chief financial officer,
Mr. Ball held a variety of senior positions with the
Newmont Mining Corporation, including vice president and
controller from 2004 until 2007. Mr. Ball is both a
chartered accountant in South Africa and a certified public
accountant in the United States. Mr. Ball brings a unique
and important understanding of finance and accounting in the
international mining industry to our board of directors.
Ross R. Bhappu has been the Chairman of our board of
directors since September 2008. Since 2005, Mr. Bhappu has
been a partner with Resource Capital Funds, a series of private
equity funds investing exclusively in the mining and minerals
industry, and from 2001 until 2005 Mr. Bhappu was vice
president/principal of Resource Capital Funds. Mr. Bhappu
has served on the board directors of EMED Mining Public Ltd., a
copper mining company, since October 2008, and he has been a
director of Traxys S.A., a metal trading and distribution
company, since January 2007. Previously, Mr. Bhappu served
on the board of directors of Constellation Copper Corporation, a
copper mining company, from July 2002 until November 2007 and
Anglo Asian Mining, a gold mining company, from November 2005
until September 2006. Mr. Bhappu has prior experience
constructing and operating complex mining and processing
operations as well as mining related merger and acquisition
activities. He was previously employed by Newmont Mining
Corporation, GTN
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Copper Corporation and Cyprus Minerals Company. With his
comprehensive knowledge of the mining industry and his extensive
board experience, Mr. Bhappu is a key member of our board
of directors.
Brian T. Dolan has been a director since September 2008.
Mr. Dolan has been a partner of Resource Capital Funds and
RCF Management, L.L.C., a company that provides management
services to the several Resource Capital Funds, since January
2002. Mr. Dolan is currently serving as a member of the
board of directors of the following companies: Connors Drilling
LLC; Dampier International; Dampier Master Fund; RCF IV
Speedwagon Inc.; and Rolling Rock Minerals, Inc. Mr. Dolan
is also currently serving in the following executive officer
positions: vice president and assistant secretary of NYCO
Minerals LLC; vice president and secretary of RCF IV Speedwagon,
Inc.; and vice president and secretary of Rolling Rock Minerals,
Inc. From 1970 to 2001, Mr. Dolan practiced law with Davis
Graham & Stubbs LLP of Denver, Colorado, specializing
in natural resources law. Mr. Dolans extensive and
ongoing experience as director of a wide spectrum of companies
makes him a vital part of our board of directors.
Charles R. Henry has been a director since August 2009.
Mr. Henry is currently the president of CRH, Inc., a
consulting firm specializing in defense acquisition issues, and
has been associated with CRH since its formation in 1993. From
2005 to 2007, Mr. Henry was the chief operating officer of
CEG Company, a leading producer of wiring harnesses for military
vehicles. He has served on the board of directors of Gaming
Partners International, a gaming products company, since June
2006. Mr. Henry is a retired two-star general who served
32 years in the U.S. Army. With his strong background
in management, Mr. Henry brings significant organizational
acumen to our board of directors.
Mark S. Kristoff has been a Director since September
2008. Since April 2005, Mr. Kristoff has been the chief
executive officer of the Traxys Group, a global metal trading,
marketing and distribution company with annual revenues of
approximately $4 billion. Before becoming chief executive
officer, Mr. Kristoff was the chief operating officer of
the Traxys Group from its founding in January 2003 until April
2005. Prior to the formation of the Traxys Group,
Mr. Kristoff was the president of Considar Inc. from 1991
until 2003. Mr. Kristoff graduated from Cornell University
with a BA in Economics in 1984. Mr. Kristoffs
experience in global trading, financing, supply chain
management, and distribution of metals and REEs provides
valuable insight to our board of directors regarding existing
and potential opportunities in the rare earths markets.
Alec Machiels has been a Director since September 2008.
Mr. Machiels has served as a partner at Pegasus Capital
Advisors, L.P., a private equity fund manager, since May 2006.
Prior to becoming a partner at Pegasus, Mr. Machiels was as
vice president from June 2004 until May 2006 and an associate
from August 2002 until June 2004. Mr. Machiels served as a
member of the board of directors of Coffeyville Resources, LLC,
an oil refinery and ammonia plant in Coffeyville, Kansas, from
2003 until 2005 as well as a member of the board of directors of
Merisant Company, a manufacturer and distributor of sugar
substitute sweeteners, from 2005 until 2008. He has served on
the board of directors of Traxys S.A., a global metal trading
and distribution company, since January 2006. He started his
career as a financial analyst in the Financial Services Group at
Goldman Sachs International in London and in the Private Equity
Group at Goldman, Sachs & Co. in New York from July
1996 until June 1999. From July 2001 to July 2002,
Mr. Machiels served as chief executive officer and chairman
of Potentia Pharmaceuticals, Inc. Mr. Machiels attended
Harvard Business School from August 1999 to June 2001 and
received an MBA. Mr. Machiels also received a masters in
law from KU Leuven Law School in Belgium and a masters in
international economics from Konstanz University in Germany. His
strong background in financial management and investment in
commodity-related businesses provides our board of directors
with a valuable perspective on strategic, financial and capital
raising matters.
Jack E. Thompson has been a Director since August 2009.
From December 2001 until April 2005 he was the vice chairman of
Barrick Gold Corporation, a gold mining company.
Mr. Thompson has served as a member of the boards of
directors of Tidewater, Inc., an offshore oil services company,
and Century Aluminum Co., an aluminum smelting company, since
February 2005. He has also served as a member of the board of
directors of Anglo American, a mining company, since November
2009. Previously, Mr. Thompson served as a member of the
board of directors of: Stillwater Mining Co., a palladium and
platinum mining company, from March 2003 until July 2007; Rinker
Group Limited, a sand and gravel company, from May 2006 until
April 2007; Centerra Gold Inc., a gold mining company, from May
2009 until May 2010; and
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Phelps Dodge Corporation, a copper mining company, from January
2003 until March 2007. Mr. Thompson brings extensive
knowledge of the mining industry and broad management experience
to our board of directors.
Board
Composition
Our certificate of incorporation provides that our board of
directors must consist of no less than seven or more than eleven
persons. The exact number of members on our board of directors
is determined from time to time by resolution of a majority of
our full board of directors. Our board of directors is divided
into three classes, with each director serving a three-year term
and one class being elected at each years annual meeting
of stockholders. Our directors are divided among the three
classes as follows:
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Messrs. Ball, Henry and Thompson serve as Class I
directors (with a term expiring in 2011);
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Messrs. Dolan and Smith serve as Class II directors
(with a term expiring in 2012); and
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Messrs. Bhappu, Kristoff and Machiels serve as
Class III directors (with a term expiring in 2013).
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Committees
of Our Board of Directors
Audit
and Ethics Committee
Our Audit and Ethics Committee consists of Messrs. Ball,
Thompson, Machiels and Henry. The Audit and Ethics Committee,
among other things, oversees our accounting practices and
processes, system of internal controls, independent auditor
relationships, financial statement audits and audit and
financial reporting processes. All of the members of our Audit
and Ethics Committee are independent under the rules of the NYSE
and Messrs. Ball, Thompson and Henry are independent under
Rule 10A-3
under the Exchange Act. Each committee member is financially
literate within the requirements of the NYSE and Mr. Ball
is an audit committee financial expert within the applicable
rules of the SEC and the NYSE.
Compensation
Committee
Our Compensation Committee consists of Messrs. Thompson,
Kristoff and Dolan. The Compensation Committee establishes and
administers our policies, programs and procedures for
compensating our executive officers and directors. The
Compensation Committees duties include, among other
things, reviewing and approving executive officer compensation
and recommending incentive compensation plans and equity-based
plans. All of the members of our Compensation Committee are
independent under the rules of the NYSE.
Nominating
and Corporate Governance Committee
Our Nominating and Corporate Governance Committee consists of
Messrs. Kristoff, Bhappu and Machiels. The Nominating and
Corporate Governance Committee identifies individuals qualified
to become board members, recommends director nominees,
recommends board members for committee membership, develops and
recommends corporate governance principles and practices,
oversees the evaluation of our board of directors and its
committees and formulates a description of the skills and
attributes of desirable board members. All of the members of our
Nominating and Corporate Governance Committee are independent
under the rules of the NYSE.
Health,
Safety and Environment Committee
Our Health, Safety and Environment Committee consists of
Messrs. Henry, Dolan and Smith. The Health, Safety and
Environment Committee establishes and oversees the
administration of our policies, programs and procedures for
ensuring that we continue to provide a safe working environment
for our employees. The
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Health, Safety and Environment Committee also establishes and
oversees the administration of our policies, programs and
procedures for ensuring our continued commitment to protecting
the environment.
Executive
Committee
Our Executive Committee consists of Messrs. Bhappu,
Kristoff and Smith. The Executive Committee acts, when
necessary, in place of our full board of directors during
periods in which our board of directors is not in session. The
Executive Committee is authorized and empowered to act as if it
were the full board of directors in overseeing our business and
affairs, except that it is not authorized or empowered to take
actions that have been specifically delegated to other board
committees or to take actions with respect to:
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the declaration of distributions on our capital stock;
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a merger or consolidation of the Company with or into another
entity;
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a sale, lease or exchange of all or substantially all of our
assets;
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a liquidation or dissolution of the Company;
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any action that must be submitted to a vote of our
stockholders; or
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any action that may not be delegated to a board committee under
our certificate of incorporation or the General Corporation Law
of the State of Delaware.
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Compensation
Committee Interlocks and Insider Participation
Our Compensation Committee consists of Messrs. Thompson,
Dolan and Kristoff. None of the members of our Compensation
Committee is or has been an officer or employee of the Company.
No executive officer of the Company served in the last year as a
director or member of the Compensation Committee of another
entity one of whose executive officers served as a member of our
Board or on our Compensation Committee.
Code of
Ethics
Our board of directors has adopted a Code of Business Conduct
and Ethics applicable to all officers, other employees and
directors. We have posted the full text of our Code of Business
Conduct and Ethics on our website at www.molycorp.com. We intend
to disclose future amendments to certain provisions of our Code
of Business Conduct and Ethics or waivers of such provisions
applicable to any director, principal executive officer,
principal financial officer, principal accounting officer or
controller, or persons performing similar functions, on our
website identified above. The information on or accessible
through our website is not a part of this prospectus.
Corporate
Governance Guidelines
Our board of directors has adopted Corporate Governance
Guidelines to assist us with the proper management and
governance of the activities of our board of directors. A
complete copy of the Corporate Governance Guidelines is
available on our website at www.molycorp.com. The information on
or accessible through our website is not a part of this
prospectus. Our Corporate Governance Guidelines cover, among
other topics:
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director independence;
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board structure and composition;
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board member nomination and eligibility requirements;
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board leadership and executive sessions;
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limitations on other board and committee service;
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committees of the board;
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director responsibilities;
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board and committee resources, including access to officers and
employees;
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director compensation;
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director orientation and ongoing education;
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succession planning; and
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board and committee self evaluations.
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Review
and Approval of Related-Party Transactions
Our Audit and Ethics Committee is responsible for the review and
approval of all related-party transactions required to be
disclosed to the public under SEC rules. This procedure is
contained in the written charter of our Audit and Ethics
Committee. In addition, we maintain a written Code of Ethics
that requires all employees, including our officers, to disclose
to the Audit and Ethics Committee any material relationship or
transaction that could reasonably be expected to give rise to a
personal conflict of interest. Related-party transactions are
reviewed and approved by the Audit and Ethics Committee on a
case-by-case
basis.
Compensation
Discussion and Analysis
Executive
Summary
As further discussed in this section, our compensation and
benefit program helps us attract, retain and motivate
individuals who will maximize our business results by working to
meet or exceed established company or individual objectives.
This section focuses on our compensation programs for executive
officers, including the following officers whom we refer to as
our named executive officers:
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Name
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Title
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Mark A. Smith
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President and Chief Executive Officer
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James S. Allen
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Chief Financial Officer and Treasurer
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Ksenia A. Adams
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Corporate Controller
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John F. Ashburn, Jr.
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Executive Vice President and General Counsel
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John L. Burba
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Executive Vice President and Chief Technology Officer
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In 2010, we implemented several key changes to our compensation
program to correspond with compensation practices typically
found in public companies. Our key changes included:
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developing a framework for benchmarking our executives
salaries to the salaries of executives with comparable positions
in our peer group;
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creating an annual bonus program based on the achievement of
essential corporate objectives;
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creating a long-term equity-based award program, which we refer
to as our Long-Term Incentive Program, under which our
executives may receive equity awards to align their interests
with our stockholders interests and encourage them to work
toward the long-term success of the Company;
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entering into new employment agreements with our executives in
anticipation of becoming a public company;
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amending and restating our nonqualified deferred compensation
plan to give participants the ability to defer the receipt of
shares subject to restricted stock units granted under the
Long-Term Incentive Program, to convert all or a portion of
their cash bonus into additional restricted stock units and to
be eligible to receive matching restricted stock units, each of
which promotes share ownership in our executives; and
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instituting a stock ownership policy for our directors and
officers, which promotes a long-term view of our performance.
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The following discussion and analysis of our compensation and
benefit programs should be read together with the compensation
tables and related disclosures that follow this section. This
discussion includes forward-looking statements based on our
current plans, considerations, expectations and determinations
about our compensation program. Actual compensation decisions
that we may make for 2011 and beyond may differ materially from
those made in our recent past.
Overview,
Philosophy and Objectives
Our compensation and benefit program seeks to attract and retain
talented and qualified individuals to manage and lead the
Company and to motivate them to pursue our long-term business
objectives. In 2010, our compensation program consisted of a mix
of cash and equity-based components. This mix provided a
competitive total compensation package that rewarded individual
and company performance.
We compete with a variety of companies and organizations to hire
and retain individual talent. As a result, the primary goal of
our compensation program is to help us attract, motivate and
retain the best people possible. We implement this philosophy by:
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encouraging, recognizing and rewarding outstanding performance;
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recognizing and rewarding individuals for their experience,
expertise, level of responsibility, leadership, individual
accomplishment and other contributions to us;
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recognizing and rewarding individuals for work that helps
increase our value; and
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providing compensation packages that are competitive with those
offered by companies with whom we compete in hiring and
retaining talented individuals.
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Executive compensation is a management tool that we use to
provide reasonable financial security for our executive officers
in exchange for their service. We also use executive
compensation to align our executive officers goals with
our mission, business strategy, values and culture.
This Compensation Discussion and Analysis provides you with a
description of the material factors underpinning our
compensation policies and decisions for our named executive
officers. We refer to these policies and decisions as our
compensation program.
Compensation
Administration and Consulting
Role of the Board of Directors and the Compensation
Committee. Prior to our initial public offering,
the board of directors of Molycorp, LLC was responsible for
administering our compensation programs and policies. Since our
initial public offering, the Board has delegated to the
Compensation Committee the overall responsibility of overseeing
the compensation and benefit programs of our executive officers.
The Board has retained the final approval of certain key
matters, such as the adoption of, or any material amendment to,
any equity plan. In compliance with the rules of the NYSE, our
Compensation Committee is composed entirely of independent
directors. In addition, all members of the Compensation
Committee are:
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non-employee directors within the meaning of
Rule 16b-3
promulgated under the Exchange Act; and
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outside directors within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as
amended, or the Code.
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Under its charter, the Compensation Committee has the primary
responsibility for, among other things:
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determining our President and Chief Executive Officers
compensation and compensation for our other executive officers;
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working with members of our management to report our executive
compensation practices and policies to our stockholders; and
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administering the equity and incentive compensation plans in
which our executive officers participate.
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Our Compensation Committee is also responsible for evaluating
and administering our compensation program to ensure that it
properly motivates our executive officers and appropriately
drives our operational and financial performance.
Our Compensation Committee reviews base salaries, determines and
makes annual cash incentive awards, approves payout amounts
earned for the past years annual cash incentive awards,
and grants equity incentive awards under the Molycorp, Inc. 2010
Equity and Performance Incentive Plan. In fulfilling its duties
and responsibilities, the Compensation Committee receives input
in the form of:
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reports and updates from our executive officers on company and
individual executive performance that is measured against
quantitative and qualitative performance goals established to
help determine individual performance and business success;
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recommendations from our President and Chief Executive Officer
regarding the compensation for our executive officers; and
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advice from its independent compensation consultant, Towers
Watson & Co., which we refer to as Towers Watson.
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The Compensation Committee is not bound by the input it receives
from our President and Chief Executive Officer or any other
executive officer or consultant. Instead, the Compensation
Committee exercises independent discretion when making executive
compensation decisions.
The Board has the power to change, at any time, the size and
membership of the Compensation Committee, to remove Compensation
Committee members and to fill vacancies on the Compensation
Committee, so long as any new member satisfies the requirements
of the Compensation Committees charter and any other
applicable requirements.
Role of Compensation Consultants. Our
management engaged Mountain States Employers Council, Inc.,
which we refer to as MSEC, to assist us in developing the
compensation program for our executive officers. MSEC provided
salary surveys and assisted with establishing pay grades and job
descriptions.
Our management also engaged Buck Consultants, LLC, which we
refer to as Buck Consultants, to assist in the development of
compensation programs for our executive officers. In adopting
our 2010 annual bonus program and the Long-Term Incentive
Program, the Compensation Committee reviewed and considered data
provided by and recommendations made by Buck Consultants.
The Compensation Committee engaged Towers Watson as its
independent compensation consultant. During the year, Towers
Watson reviewed the proposals of MSEC, reviewed the
recommendations of Buck Consultants, selected the peer group
members used in developing our compensation practices, performed
our peer group benchmarking analysis, assisted with establishing
our annual bonus program and the Long-Term Incentive Program,
reviewed award agreements related to our 2010 Equity and
Performance Incentive Plan, reviewed employment agreements for
our executive officers and assisted with other issues in which
independent advice was sought by the Compensation Committee.
Other than the services provided to the Compensation Committee,
Towers Watson did not provide any other services to Molycorp.
Role of Executive Officers. Our President and
Chief Executive Officer provides the Compensation Committee, and
before that, he provided the board of directors of Molycorp
Minerals, LLC, recommendations
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regarding our compensation program and the compensation of our
named executive officers other than himself. He has been
assisted in this by our Director of Human Resources, Terry
Gleason, and James Sillery of Buck Consultants.
Peer
Group Analysis
In 2010, the Compensation Committee, with the assistance of
Towers Watson, developed a framework for benchmarking our
executives salaries to the salaries of executives with
comparable positions in our peer group. Establishing a peer
group was difficult, because we were in a developmental stage
with low earnings and revenues, but expected to become a larger
enterprise within a short time frame. Therefore, in establishing
our executive officers salaries, the Compensation
Committee reviewed data from both larger, well-established firms
as well as smaller, newly public companies.
The Compensation Committee created a Steady Run Rate
Group, the members of which were selected from metals and
mining companies and chemical companies with revenues ranging
from half to double our near-term expected earnings and revenues
based on prevailing metals prices. Outliers with total asset
values of more than $1.5 billion or a book value of more
than $1.2 billion were removed from the group. Each member
of the peer group had a ratio of revenues to assets of less than
1.2. Our analysis resulted in the following list of peer group
members:
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Minerals Technologies Inc.
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RTI International Metals Inc.
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OM Group Inc.
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Stillwater Mining Co.
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Titanium Metals Corp.
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Thompson Creek Metals Company Inc.
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Brush Engineered Materials Inc.
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Hecla Mining Co.
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Amcol International Corp.
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Intrepid Potash Inc.
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Innospec Inc.
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STR Holdings Inc.
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Terra Nova Royalty Corporation
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American Vanguard Corp.
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Calgon Corporation
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NL Industries Inc.
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The median 2009 revenue for the peer group was
$412 million. The median value of total assets for the peer
group was $734 million. The median market capitalization
for the peer group was $890 million. These median values
were viewed as appropriate long-term estimates of
Molycorps projected revenue, value of total assets and
market capitalization at the time the group was developed, which
preceded our initial public offering.
As an additional reference, the Compensation Committee created a
supplemental Developmental Stage Reference Group by
reviewing U.S. and Canadian companies that made an initial
public offering in 2007 or 2008. The Compensation Committee
limited its search to companies in the materials and energy
industries and with 2009 revenues of less than $200 million
and a ratio of revenues to assets of less than 1.5. A total of
six companies met these criteria and formed our second reference
group:
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Fortress Paper Ltd.
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B2gold Corporation
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Orbit Garant Drilling Inc.
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Quicksilver Gas Services LP
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Angle Energy Inc.
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Vanguard Natural Resources LLC
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As expected, this group had a lower median 2009 revenue equal to
$74 million. The 2009 median value of total assets for this
group was $223 million and median market capitalization for
the group was $457 million.
In addition, Towers Watson provided the Compensation Committee
with access to its proprietary market information. This database
covers a wide range of industries but excludes financial
services companies. The data were size-adjusted using one of two
methods:
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using a linear regression to estimate salaries for a company
with $400 million in revenue; and
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considering salaries for companies with $200 million to
$1 billion in revenue.
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The overall salary levels for this group were similar to those
in the Steady Run Rate Group.
The Compensation Committee used data from all three groups to
guide its decisions on the base salary levels for our executive
officers. On the one hand, the Compensation Committee did not
want to set base salaries at the levels found in the Steady Run
Rate Group, because we had not yet achieved earnings and
revenues that were comparable to that group. On the other hand,
the Compensation Committee did not want to align base salaries
to the Developmental Stage Reference Group, because our expected
earnings and revenues in the short term were expected to exceed
the companies in this group. Therefore, the Compensation
Committee set our executives salaries to levels that were
lower than the Steady Run Rate median, but higher than the
Developmental Stage Reference Group median.
In addition to using these data to determine the salaries for
our executive officers, the Compensation Committee also used
these data to determine the annual bonus opportunity for our
President and Chief Executive Officer.
Allocation
of Compensation Components
In 2010, our compensation program consisted of the following
components:
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base salaries;
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annual bonuses paid in a mix of cash and equity;
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discretionary cash bonuses related to the achievement of our
initial public offering;
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equity-based awards under our Long-Term Incentive Program;
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health and welfare benefits; and
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retirement benefits.
|
We believe that a substantial portion of the total compensation
of our executive officers should be variable and tied to our
performance to align compensation with the achievement of our
business objectives. At the same time, we strive to attract and
retain high-caliber executives with competitive fixed
compensation. We, therefore, offer both fixed and at-risk
compensation, the levels and the mix of which are set at rates
that are intended to be competitive within our industry.
107
Compensation
Program Overview
We believe our compensation program, when evaluated on a
component-by-component
basis and in total, effectively achieves our compensation
philosophy and objectives described above. The following chart
summarizes the primary components of our compensation program
for 2010:
|
|
|
Component
|
|
Primary Purpose
|
|
Base Salary
|
|
Base salary compensates an individual for his or her
positions responsibilities, skills, experience and
performance. The levels of base salaries are intended to
attract and retain a high-quality management team, especially
when considered with the other components of our compensation
program. The levels of base salary for our named executive
officers are designed to reflect each executive officers
scope of responsibility and accountability.
|
Annual Bonus Payments
|
|
Our annual bonus payments are used to align our executive
officers with our overall business objectives and reward them
for superior performance. Specific goals are determined at the
beginning of the year (other than for 2010, which were
determined after our initial public offering) and performance is
evaluated at year end. Payments are made in a combination of
cash and restricted stock.
|
Equity Awards
|
|
Equity awards under our 2010 Equity and Performance Incentive
Plan align our executives with the interests of our stockholders
and promote retention.
|
Health and Welfare Benefits
|
|
Health and welfare benefits provide for basic health, life and
income security needs of our executive officers and their
dependents.
|
Retirement Benefits
|
|
Our 401(k) plan encourages and rewards long-term service by
providing market-based benefits upon retirement. All employees
are eligible to participate in our 401(k) plan. Our nonqualified
deferred compensation plan provides a tax-efficient vehicle to
accumulate retirement savings. In addition, the plan promotes
share ownership by allowing participants to convert all or a
portion of their cash bonus into restricted stock units and
receive additional matching restricted stock units. The plan
also promotes retention, because the matching restricted stock
units vest over a three-year term.
|
Primary
Components of Executive Compensation
2010 Base Salaries. In 2010, the Compensation
Committee focused on approving the job descriptions and the
assignment of pay grades for our employees as proposed by
management and its consultants. After our initial public
offering, we targeted the salary levels for our executive
officers to above the median of the Developmental Stage
Reference Group, because our expected earnings and revenues in
the short term were expected to exceed the companies in this
group. However, the Compensation Committee set the base salaries
lower than the median of the Steady Run Rate Group, because our
earnings and revenues were not yet comparable to companies in
this group. The Compensation Committee believes that salaries at
these levels, together with our total benefits package, will
make us highly competitive in the market place and help to
attract and retain high-quality executives. Based on the results
of our peer group analysis, the Compensation Committee raised
the base salaries for each of Mr. Allen, Mr. Ashburn
and Mr. Burba from $200,000, $215,000, $213,700,
respectively, to $250,000 for each executive.
In May 2011, the Compensation Committee of the Board of
Directors reviewed the base salaries of our named executive
officers. Following an analysis of certain benchmarking data,
the Compensation Committee, in consultation with our President
and Chief Executive Officer (with respect to the salaries of our
other named executive officers), determined that an increase in
the base salaries of our named executive officers was necessary
in order for us to remain competitive and retain our executive
officers. Based on the recommendation of the Compensation
Committee, the Board of Directors approved an increase in our
named
108
executive officers base salaries. The initial 2011 base
salaries of our named executive officers, the revised 2011 base
salaries and the percentage increase of each named executive
officers 2011 base salary are set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial 2011
|
|
|
Revised 2011
|
|
|
Percentage
|
|
Executive
|
|
Base Salary
|
|
|
Base Salary
|
|
|
Increase
|
|
|
Mr. Smith
|
|
$
|
410,000
|
|
|
$
|
687,000
|
|
|
|
67.6
|
%
|
Mr. Allen
|
|
$
|
256,000
|
|
|
$
|
360,000
|
|
|
|
40.6
|
%
|
Ms. Adams
|
|
$
|
130,000
|
|
|
$
|
150,000
|
|
|
|
15.4
|
%
|
Mr. Ashburn
|
|
$
|
256,000
|
|
|
$
|
360,000
|
|
|
|
40.6
|
%
|
Mr. Burba
|
|
$
|
256,000
|
|
|
$
|
360,000
|
|
|
|
40.6
|
%
|
Discretionary Cash Bonuses. In connection with
the completion of our initial public offering, the Compensation
Committee granted each of our executive officers a discretionary
cash bonus as a reward for his or her exemplary performance in
successfully completing our initial public offering. The amount
of each officers award corresponded with his or her level
of responsibility in overseeing the completion of our initial
public offering. Mr. Smith received a bonus of $100,000,
each of Mr. Allen, Mr. Ashburn and Mr. Burba
received a bonus of $50,000, and Ms. Adams received a bonus
of $30,000.
Annual Bonus Payments. After the completion of
our initial public offering, the Board established company
performance objectives in five categories, which included both
qualitative and quantitative criteria. On November 4, 2010,
to align our executive officers performance with our
overall business objectives, the Compensation Committee
established bonus opportunities for each of our executive
officers that were discretionary in nature, but based upon the
successful achievement of our objectives. In determining our
executive officers annual bonuses, the Compensation
Committee evaluated our performance in the following areas:
|
|
|
|
|
Financial this category included achieving
various financial objectives, such as the completion of our
initial public offering and securing financing for the
modernization and expansion of our Mountain Pass facility.
|
|
|
|
Mountain Pass Project this category included
successful completion of various project milestones related to
the modernization and expansion of our Mountain Pass facility,
such as completing the construction schedule and capital
estimate, obtaining permits required to begin construction,
submitting pre-orders for equipment and starting construction.
|
|
|
|
Business Plan this category included
execution of our 2010 business plan and an operating income of
$180,177.
|
|
|
|
Safety this category included strong progress
in various safety targets, such as engaging an outside firm to
perform an independent safety audit and a 10% improvement in our
recordable injury rate.
|
|
|
|
Other this category included achieving
various strategic business development goals in our
mine-to-magnets
plan as well as obtaining sales contracts for our products after
the completion of our modernization and expansion of our
Mountain Pass facility.
|
In determining our executive officers annual bonus
opportunities, the Compensation Committee established the
following discretionary guidelines for each of our executive
officers other than Mr. Smith:
|
|
|
|
|
if our overall level of achievement was 80% of target, his or
her bonus would be 20% of his or her 2010 base salary;
|
|
|
|
if our overall level of achievement was 100% of target, his or
her bonus would be 40% of his or her 2010 base salary; and
|
|
|
|
if our overall level of achievement was 120% of target, his or
her bonus would be 80% of his or her 2010 base salary.
|
109
After the close of 2010, the Compensation Committee assessed our
2010 performance relative to our established corporate
objectives. The Compensation Committee used its discretion to
determine the levels of achievement for each of the criteria
described above, which resulted in the following:
|
|
|
|
|
|
|
|
|
Category
|
|
Weighting
|
|
|
Level of Achievement
|
|
|
Financial
|
|
|
20
|
%
|
|
|
113%
|
|
Mountain Pass Project
|
|
|
30
|
%
|
|
|
120%
|
|
Business Plan
|
|
|
20
|
%
|
|
|
75%
|
|
Safety
|
|
|
20
|
%
|
|
|
100%
|
|
Other
|
|
|
10
|
%
|
|
|
150%
|
|
Based on the levels of achievement for each of the five criteria
and their respective weightings, the Compensation Committee
determined that the overall level of achievement for all of the
corporate objectives was 109%. Using the bonus opportunity
guidelines, the Compensation Committee awarded
Messrs. Allen, Ashburn and Burba annual bonuses equal to
58% of their 2010 base salaries, and Ms. Adams was awarded
an annual bonus of 44% of her base salary. In addition, the
Compensation Committee recognized Mr. Smiths efforts
in overseeing our achievement of our 2010 corporate objectives
as described above and awarded an annual bonus to Mr. Smith
equal to 116% of his base salary based on a target level set at
80% of his 2010 base salary, which was at the median of the
Steady State Run Group in our peer group analysis. Because the
bonus amounts were based on our performance during the period
following our initial public offering, we prorated each
executives bonus based on the number of days from our
initial public offering to the end of the year. Therefore, based
on the Compensation Committees assessment of the overall
level of achievement of our corporate objectives, the bonus
amounts earned by each executive were as follows:
|
|
|
|
|
Executive
|
|
Bonus Amount
|
|
|
Mr. Smith
|
|
$
|
198,312
|
|
Mr. Allen
|
|
$
|
61,973
|
|
Ms. Adams
|
|
$
|
22,310
|
|
Mr. Ashburn
|
|
$
|
61,973
|
|
Mr. Burba
|
|
$
|
61,973
|
|
Half of the value of each executives annual bonus was paid
to the executive in cash and the remaining half was paid in
shares of restricted stock. The restricted stock will vest on
the third anniversary of the date of grant. We believe the
allocation of cash and restricted stock helps promote various
objectives under our compensation philosophy. On the one hand,
we provide immediate rewards to our executives in the form of
cash payments for their strong performance in achieving our
corporate goals, which is a practice that is competitive with
our peers. On the other hand, we promote retention and a
long-term view of our success by granting half of the award in
restricted stock with a three-year vesting period.
On January 13, 2011, the Compensation Committee approved
the 2011 Annual Incentive Plan, which will provide
incentive-based bonus opportunities to our executive officers
upon the successful achievement of our corporate goals for 2011.
Bonus amounts paid under the 2011 Annual Incentive Plan will be
based on a percentage of each executive officers 2011 base
salary. As was the case with our executive officers 2010
bonuses, the payments under the 2011 Annual Incentive Plan will
also be made in equal amounts of cash and shares of restricted
stock.
Equity Awards. In an effort to promote share
ownership, which aligns our executives financial interests
with those of our stockholders, and to encourage our executives
to have a long-term view of our success, the Board approved the
2010 Equity and Performance Incentive Plan, for which the Board
delegated administrative authority to the Compensation
Committee. In 2010, as part of the Long-Term Incentive
110
Program, the Compensation Committee granted shares of restricted
stock to our executive officers, other than Ms. Adams, as
follows:
|
|
|
|
|
Executive
|
|
Number of Shares of Restricted Stock
|
|
|
Mr. Smith
|
|
|
6,000
|
|
Mr. Allen
|
|
|
18,000
|
|
Mr. Ashburn
|
|
|
3,000
|
|
Mr. Burba
|
|
|
3,000
|
|
The restricted stock vests on the third anniversary of the date
of grant. Each executive must remain in our continuous employ
for his shares to vest on the vesting date, unless his
employment terminates by reason of retirement, death or
disability or in connection with a change of control of the
Company. The restricted stock was granted under and pursuant to
the terms and conditions of our 2010 Equity and Performance
Incentive Plan.
The number of shares granted to Mr. Allen was significantly
higher than the number of shares granted to the other executive
officers due to the fact that, unlike the other executive
officers, Mr. Allen did not receive incentive shares prior
to our initial public offering (see
Compensation Discussion and
Analysis Molycorp, LLC Incentive Shares and Stock
Options) and therefore owned fewer shares of common stock
than the other executive officers. As an acknowledgement that
Mr. Allen was not granted incentive shares prior to our
initial public offering, the Compensation Committee granted
Mr. Allen a larger number of shares of restricted stock as
compared to the number of shares received by the other executive
officers.
On January 13, 2011, as part of our Long-Term Incentive
Program, the Compensation Committee made grants to our executive
officers of restricted stock units and stock options pursuant to
the terms and conditions of our 2010 Equity and Performance
Incentive Plan. The restricted stock units vest on the third
anniversary of the date of grant and the stock options vest
ratably over the three-year period following the date of grant.
Health and Welfare Benefits. Each of our named
executive officers is entitled to participate in our employee
benefit plans (including medical, dental, and life insurance
benefits) on the same basis as other employees.
Retirement Benefits. We have established a
401(k) plan for our employees that encourages and rewards
long-term service by providing market-based benefits upon
retirement. Each of our named executive officers is entitled to
participate in our 401(k) plan on the same basis as other
employees. For more information on our 401(k) plan, please see
Executive Compensation Retirement
Plans.
Our nonqualified deferred compensation plan, which we refer to
as the Management Incentive Compensation Plan, provides a
tax-efficient vehicle to accumulate retirement savings. In 2010,
we amended and restated the plan to allow participants to defer
the receipt of shares subject to restricted stock units granted
under our Long-Term Incentive Program. In addition, if a
participant elects to defer any of the cash portion of the bonus
he or she earns under the 2011 Annual Incentive Plan, he or she
may convert a percentage of that cash portion into restricted
stock units, which are credited to his or her account under the
plan. If a participant converts any of his or her cash bonus
into restricted stock units, then we will credit his or her
account with matching restricted stock units at an amount equal
to 25% of the number of restricted stock units the participant
received after converting his or her cash bonus into restricted
stock units. We added these new conversion and matching features
to promote share ownership in our executive officers and to
align their interests with our stockholders interests and
our long-term success. For more information on our nonqualified
deferred compensation plan, please see
Executive Compensation
Nonqualified Deferred Compensation.
Employment
Agreements
In May 2010, we entered into new employment agreements with
Messrs. Smith, Allen, Ashburn and Burba. The employment
agreement for Mr. Smith was based on his previous
employment agreement we entered into in 2009. However, in
anticipation of our initial public offering, we amended some of
the sections
111
of Mr. Smiths agreement to make it more suitable for
an executive of a public company. For example, we added a
provision in which Mr. Smith would be entitled to severance
payments if he were to terminate his employment for good
reason (as defined in the employment agreement) following
a change of control of the Company, because an unsolicited
change of control is more of a possibility for a public company.
In addition, we made changes to the restrictive covenants
section of his employment agreement to bring them in line with
covenants for executives of public companies. For a description
of the employment agreements with our executive officers, see
Executive Compensation Employment
Agreements.
In November 2010, the Compensation Committee amended the
employment agreements for each of our executive officers to
change the definition of change of control to match
the definition used in the form equity-award agreements approved
at that time by the Compensation Committee. The new definition
of change of control is more typical for a public company than
the prior definition had been. In addition, we believe that
maintaining consistent change of control definitions across
agreements is desirable for our overall compensation program.
Molycorp,
LLC Incentive Shares and Stock Options
In 2009, prior to our initial public offering, the board of
directors of Molycorp, LLC granted equity-based awards to
Messrs. Smith, Ashburn and Burba, which we refer to as
incentive shares. The incentive shares provided the
recipients rights that were parallel to those of other indirect
owners with respect to future profits of Molycorp, LLC. The
incentive shares vested ratably in one-third increments
beginning on the date of the grant and on the first and second
anniversaries of the date of the grant, with vesting
accelerating on the six-month anniversary of a change of control
or our initial public offering. Prior to our initial public
offering, each holder of the incentive shares exchanged their
incentive shares for shares of Class B common stock of
Molycorp, Inc. in the corporate reorganization with a similar
vesting schedule as the incentive shares. In connection with our
initial public offering, all shares of Class B common
stock, including those issued to the executive officers in
connection with their incentive shares, were converted into
restricted shares of our common stock.
In 2009, Mr. Smith was granted an option to purchase
3,798 shares of Molycorp Minerals, LLC equity (subsequently
assumed by Molycorp, LLC), which was immediately exercisable.
Mr. Smith exercised his option in 2009 and 2010 for
interests in Molycorp, LLC, which were exchanged for shares of
our Class A common stock in the corporate reorganization.
In connection with our initial public offering, all shares of
Class A common stock, including those acquired by
Mr. Smith, were immediately converted into shares of our
common stock.
Tax
and Accounting Considerations
The Board and the Compensation Committee have considered the
potential future effects of Section 162(m) of the Code on
the compensation paid to our executive officers.
Section 162(m) disallows a tax deduction for any publicly
held corporation for individual compensation exceeding
$1 million in any taxable year for our President and Chief
Executive Officer and each of the other named executive officers
(other than our chief financial officer), unless compensation is
performance-based. Prior to our initial public offering, the
Board did not take the deductibility limit imposed by
Section 162(m) into consideration in setting compensation.
We expect that the Compensation Committee will, where reasonably
practicable, seek to qualify the variable compensation paid to
our executive officers for an exemption from the deductibility
limitations of Section 162(m). As such, in approving the
amount and form of compensation for our executive officers in
the future, the Compensation Committee will consider all
elements of the cost to the Company of providing such
compensation, including the potential impact of
Section 162(m). However, the Compensation Committee may, in
its judgment, authorize compensation payments that do not comply
with the exemptions in Section 162(m) when it believes that
such payments are appropriate to attract, retain and motivate
executive talent.
112
Stock
Ownership Guidelines
In an effort to align the interests of our directors and
executives with those of our stockholders, the Board adopted
stock ownership guidelines for our directors and officers. Under
the stock ownership guidelines, our directors and officers are
required to hold the following values in the form of company
stock within five years of becoming a director or officer:
|
|
|
|
|
Directors four times the value of their annual cash
retainer;
|
|
|
|
President and Chief Executive Officer three times
his annual base salary; and
|
|
|
|
Chief Financial Officer and Executive Vice
Presidents two times their annual base salaries.
|
If an officers ownership requirement increases because of
a change in title or if a new officer or director is added, the
five-year period to achieve the stock ownership requirement
begins in January of the year following the year in which the
officers title changed or the new officer or director
began service.
Executive
Compensation
The following table sets forth compensation information
regarding our President and Chief Executive Officer, Chief
Financial Officer and Treasurer and each of our three other most
highly compensated executive officers serving as of
December 31, 2010.
2010
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
Name and
|
|
|
|
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
|
Principal Position
|
|
Year
|
|
Salary ($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Total ($)
|
|
Mark A. Smith
|
|
|
2010
|
|
|
|
400,000
|
|
|
|
199,156
|
|
|
|
219,060
|
(4)
|
|
|
|
|
|
|
|
|
|
|
30,245
|
(7)
|
|
|
848,461
|
|
President and Chief Executive Officer
|
|
|
2009
|
|
|
|
400,000
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
241,000
|
(6)
|
|
|
|
|
|
|
38,245
|
|
|
|
679,245
|
|
James S. Allen
|
|
|
2010
|
|
|
|
214,583
|
|
|
|
80,987
|
|
|
|
657,180
|
(4)
|
|
|
|
|
|
|
|
|
|
|
29,400
|
(8)
|
|
|
982,150
|
|
Chief Financial Officer and Treasurer(1)
|
|
|
2009
|
|
|
|
12,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
12,256
|
|
Ksenia A. Adams
|
|
|
2010
|
|
|
|
120,000
|
|
|
|
41,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,400
|
(9)
|
|
|
178,555
|
|
Corporate Controller(2)
|
|
|
2009
|
|
|
|
52,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
946
|
|
|
|
53,254
|
|
John F. Ashburn, Jr.
|
|
|
2010
|
|
|
|
225,208
|
|
|
|
80,987
|
|
|
|
109,530
|
(4)
|
|
|
|
|
|
|
|
|
|
|
9,800
|
(10)
|
|
|
425,525
|
|
Executive Vice President and General Counsel
|
|
|
2009
|
|
|
|
215,000
|
|
|
|
30,000
|
(3)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
14,700
|
|
|
|
259,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John L. Burba
|
|
|
2010
|
|
|
|
224,288
|
|
|
|
80,987
|
|
|
|
109,530
|
(4)
|
|
|
|
|
|
|
|
|
|
|
29,400
|
(11)
|
|
|
444,205
|
|
Executive Vice President and Chief Technology Officer
|
|
|
2009
|
|
|
|
213,701
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
29,918
|
|
|
|
243,619
|
|
|
|
|
(1) |
|
Mr. Allen was hired on December 9, 2009 as our Chief
Financial Officer and was appointed Treasurer in March 2010. |
|
(2) |
|
Ms. Adams was hired on July 27, 2009. |
|
(3) |
|
Represents $30,000 paid to Mr. Ashburn, which consisted of
the remaining portion of his signing bonus that was contingent
upon his employment continuing in 2009. |
|
(4) |
|
Represents the aggregate grant date fair value computed in
accordance with FASB ASC 718. |
|
(5) |
|
On September 10, 2009, our board of directors awarded
incentive shares of Molycorp Minerals, LLC to certain employees,
including 2,310,000 shares to Mr. Smith,
700,000 shares to Mr. Ashburn and 875,000 shares
to Mr. Burba. Each incentive share is effectively
equivalent to approximately 0.379718 of a share of our common
stock. The incentive shares are intended to constitute
profits interests under IRS Revenue Procedures
93-27 and
2001-43. For
the year ended December 31, 2010, we recognized |
113
|
|
|
|
|
share-based compensation totaling $11,262,558 for Mr. Smith,
$3,412,895 for Mr. Ashburn and $4,266,119 for Mr. Burba
related to the incentive shares that were exchanged for shares
of Class B common stock and later converted into shares of
common stock in connection with our initial public offering. The
incentive shares were originally classified as a liability and
valued at zero under the intrinsic value method and the
Class B shares were valued at fair value in connection with
the corporate reorganization on April 15, 2010. |
|
(6) |
|
Options for member interests in Molycorp Minerals, LLC, which
were assumed by Molycorp, LLC, were immediately vested and
exercisable on the grant date. The value of this option award
represents the amount of compensation recognized for financial
statement purposes. Additional information regarding the
determination of the grant date fair value of this award and the
underlying assumption is included in Note 8 to the
consolidated financial statements included elsewhere in this
prospectus. |
|
(7) |
|
Includes $29,400 for employer contributions to our 401(k) plan
on behalf of Mr. Smith for 2010 and $845 in 2010 for the
premiums paid on a term life insurance policy for the benefit of
Mr. Smith. |
|
(8) |
|
Represents $29,400 for employer contributions to our 401(k) plan
on behalf of Mr. Allen for 2010. |
|
(9) |
|
Represents $17,400 for employer contributions to our 401(k) plan
on behalf of Ms. Adams for 2010. |
|
(10) |
|
Represents employer contributions to our 401(k) plan on behalf
of Mr. Ashburn for 2010. |
|
(11) |
|
Represents employer contributions to our 401(k) plan on behalf
of Mr. Burba for 2010. |
Employment
Agreements
We have entered into employment agreements with
Messrs. Smith, Allen, Ashburn and Burba.
Mark A.
Smith 2009 Employment Agreement
We entered into an executive employment agreement with
Mr. Smith, our President and Chief Executive Officer, on
November 1, 2009, which we refer to as the 2009 agreement.
The 2009 agreement provided for, among other things:
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an annual base salary of $400,000, subject to increases at our
discretion;
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eligibility to participate in our employee benefit plans;
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eligibility to participate in our annual bonus plan for officers
and directors;
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eligibility to participate in our executive nonqualified
deferred compensation plan; and
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a term life insurance policy in the amount of $1,000,000 for the
benefit of Mr. Smith.
|
The 2009 agreement was terminated and replaced by a new
employment agreement in May 2010, as described below.
Mark A.
Smith 2010 Employment Agreement
On May 21, 2010, we entered into a new employment agreement
with Mr. Smith. The employment agreement terminates under
its own terms on June 1, 2013, but it can be renewed upon
our mutual agreement with Mr. Smith. Mr. Smiths
employment agreement provides for, among other things:
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an annual base salary of $400,000, subject to increases at our
discretion;
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eligibility to participate in our employee benefit plans;
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eligibility to participate in any bonus plan or long-term equity
or cash incentive compensation plan for officers and directors
established by our board of directors;
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114
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eligibility to participate in our executive nonqualified
deferred compensation plan; and
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a term life insurance policy in the amount of $1,000,000 for the
benefit of Mr. Smith.
|
If we terminate Mr. Smiths employment without
cause, or if Mr. Smith terminates his
employment for good reason, as each term is defined
in his employment agreement, Mr. Smith would be entitled to
receive any accrued salary and vacation pay up to and including
the date of termination and severance payments in an amount
equal to one year of his base salary.
Under his employment agreement, Mr. Smith is subject to a
two-year prohibition on competitive conduct, as
defined in his employment agreement, anywhere in the world
following the termination of his employment for any reason.
Employment
Agreements with Certain Named Executive Officers
On May 21, 2010, we entered into an employment agreement
with each of Messrs. Allen, Ashburn and Burba that provides
such named executive officers a specified annual base salary of
$200,000, $215,000 and $213,700, respectively, subject to
increases at our discretion.
The employment agreements also provide for, among other things:
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eligibility to participate in our employee benefit plans;
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eligibility to participate in any bonus plan or long-term equity
or cash incentive compensation plan for officers and directors
established by our board of directors; and
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eligibility to participate in our executive nonqualified
deferred compensation plan.
|
Each of the employment agreements expires by its terms on
June 1, 2013, unless renewed in writing by the named
executive officer and us. If, prior to such date, we terminate
the executives employment without cause, or if
the executive terminates his employment for good
reason, as each term is defined in his employment
agreement, he would be entitled to receive any accrued salary
and vacation pay up to and including the date of termination and
severance payments in an amount equal to one year of his base
salary.
In addition, each of Messrs. Allen, Ashburn and Burba is
subject to a two-year prohibition on competitive
conduct, as defined in his employment agreement, anywhere
in the world following the termination of his employment for any
reason.
The following table sets forth information with respect to
non-equity and equity incentive plan awards granted to our named
executive officers during 2010. The Summary Compensation Table
above provides information regarding the actual dollar amounts
earned under our incentive plans.
2010
GRANTS OF PLAN-BASED AWARDS
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All Stock
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Grant Date Fair
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Grant
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Awards: Number of Shares
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Value of Awards
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Name
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Date
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of Stock or Units
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($)
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Mark A. Smith
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11/4/2010
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6,000
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219,060
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James S. Allen
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11/4/2010
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18,000
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657,180
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Ksenia A. Adams
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John F. Ashburn, Jr.
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11/4/2010
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3,000
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109,530
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John L. Burba
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11/4/2010
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3,000
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109,530
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115
OUTSTANDING
EQUITY AWARDS AT DECEMBER 31, 2010
The following table provides information about outstanding
equity awards of each of our named executive officers as of
December 31, 2010.
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Number of
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Market Value
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Shares or Units
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of Shares or
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of Stock that
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Units of Stock
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Have Not
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that Have Not
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Name
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Vested (#)
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Vested ($)(3)
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Mark A. Smith
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292,383
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(1)
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14,589,912
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6,000
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(2)
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299,400
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James S. Allen
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18,000
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(2)
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898,200
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Ksenia A. Adams
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John F. Ashburn, Jr.
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88,601
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(1)
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4,421,190
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3,000
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(2)
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149,700
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John L. Burba
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110,751
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(1)
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5,526,475
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3,000
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(2)
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149,700
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(1) |
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Represents restricted shares ultimately received in exchange for
the executive officers incentive shares in connection with
the corporate reorganization and the conversion of shares of
Class B common stock immediately prior to the consummation of
our initial public offering. These shares vested on
February 3, 2011. |
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(2) |
|
Represents restricted shares granted on November 4, 2010.
These shares will vest in full on the third anniversary of the
grant date, subject to continued employment by the recipient
other than in the case of normal retirement during the
three-year period following the grant date. |
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(3) |
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Based on $49.90 per share, which was the closing price of our
common stock on December 31, 2010. |
2010
OPTION EXERCISES AND STOCK VESTED
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Stock Awards
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Number of Shares
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Acquired on
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Value Realized on
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Vesting (#)
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Vesting ($)(1)
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Mark A. Smith
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292,383
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8,271,505
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John F. Ashburn, Jr.
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88,601
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2,506,516
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John L. Burba
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110,751
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3,133,145
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(1) |
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The value realized shown in this column is computed by
multiplying the number of restricted shares vesting by the
closing price of a share of our common stock on the date of
vesting. All awards vested on September 30, 2010. The
closing price of a share of our common stock on
September 30, 2010 was $28.29. These restricted shares were
received in exchange for the executive officers incentive
shares in the corporate reorganization. |
Retirement
Plans
Our named executive officers are eligible to participate in our
tax-qualified Molycorp Minerals, LLC 401(k) Plan on the same
basis as other employees under the plan. Each year, we may make
three types of contributions to each participants account.
First, we make nonelective contributions in which we contribute
to a participants account an amount equal to 4% of the
participants eligible compensation. Second, we make
matching contributions to a participants account in which
we contribute an amount equal to 100% of a participants
contributions during the plan year, limited to 3% of the
participants eligible compensation, plus 50% of the
participants contributions during the plan year between 3%
and 5% of the participants eligible compensation.
116
Finally, we may make discretionary matching contributions in
which we may contribute to a participants account an
amount equal to a percentage of the participants eligible
compensation that we determine each year up to 4% of the
participants eligible compensation. The Summary
Compensation Table above reflects the actual dollar amounts
contributed to our 401(k) plan on each named executive
officers behalf.
Nonqualified
Deferred Compensation
The following table reflects the amounts credited under our
Management Incentive Plan on behalf of our named executive
officers. We do not maintain any other nonqualified deferred
compensation plan.
2010
NONQUALIFIED DEFERRED COMPENSATION
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Aggregate
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Executive
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Registrant
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Earnings in
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Aggregate
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Aggregate
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Contributions
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Contributions
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Last Fiscal
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Withdrawals/
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Balance at Last
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in Last Fiscal Year
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in Last Fiscal Year
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Year
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Distributions
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Fiscal Year End
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Name
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($)(1)
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($)
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($)
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($)
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($)
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Mark A. Smith
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17,667
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1,590
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30,333
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James S. Allen
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4,936
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370
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4,843
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Ksenia A. Adams
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155
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1,100
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John F. Ashburn, Jr.
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802
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5,702
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John L. Burba
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700
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4,974
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(1) |
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The amounts reported are fully reported as part of the
Salary and All Other Compensation
columns of the Summary Compensation Table. |
On April 1, 2009, we established the Management Incentive
Compensation Plan, which is a nonqualified deferred compensation
plan for the purpose of providing deferred compensation benefits
for a select group of management or highly compensated
employees. We amended and restated the Management Incentive
Compensation Plan in December 2010. Under the Amended and
Restated Management Incentive Compensation Plan, a participant
may defer his or her base salary and any bonus, commission or
other extraordinary compensation that is supplemental to the
participants base salary and is dependent upon achievement
of individual or company performance goals. Participants may
also defer the receipt of any shares subject to restricted stock
units granted under our Long-Term Incentive Program. In
addition, if a participant elects to defer any of the cash
portion of the bonus he or she earns under the 2011 Annual
Incentive Plan, he or she may convert a percentage of that cash
portion into restricted stock units, which are credited to his
or her account under the plan. If a participant converts any of
his or her cash bonus into restricted stock units, then we will
credit his or her account with matching restricted stock units
at an amount equal to 25% of the number of restricted stock
units the participant received after converting his or her cash
bonus into restricted stock units. Restricted stock units
credited to a participants account based on his or her
converting cash into additional restricted stock units are
immediately vested. However, any matching restricted stock unit
credited to a participants account will vest on the third
anniversary of the date on which the matching restricted stock
unit is credited to the account, so long as the participant
remains in our continuous employ or retires prior to the vesting
date.
Under the Amended and Restated Management Incentive Compensation
Plan, we establish for each participant a cash account, to which
we credit any cash deferrals the participant elects, a
restricted stock units account, to which we credit any deferrals
elected with respect to restricted stock units, and a matching
restricted stock units account, to which we credit any matching
restricted stock units credited to the participant. Participants
may elect to have their cash accounts paid in a lump-sum or over
a fixed schedule. Participants may also elect to have their
accounts paid on a specified future date, upon their separation
from service or upon the earlier of the two. Accounts are
automatically paid out, or begin paying out, upon the
participants death or disability, or upon a change of
control of the Company.
117
From time to time, the Compensation Committee may make
discretionary contributions to a participants account,
which are used to reward the participant for achievement of
superior operating performance. Participants are always fully
vested in any discretionary contribution credited to his or her
account. We intend for the Amended and Restated Management
Incentive Compensation Plan to constitute an unfunded plan for
purposes of the Employee Retirement Income Security Act of 1974,
as amended.
Potential
Payments upon Termination or Change in Control
Pursuant to his employment agreement, each of
Messrs. Smith, Allen, Ashburn and Burba is entitled to
certain payments upon termination of employment as described
under Employment Agreements above.
Under the award agreements for the shares of restricted stock
granted to Messrs. Smith, Allen, Ashburn and Burba, any
unvested share of restricted stock will immediately vest upon an
executives termination of employment due to his
retirement, death or disability. In addition, in the event a
change in control of Molycorp occurs and the successor
corporation does not assume the restricted stock awards or
provide a substitute award of equivalent value, any unvested
share of restricted stock will immediately vest upon such change
in control. If a successor corporation does assume the
restricted stock awards or provides a substitute award of
equivalent value and an executives employment with the
successor corporation is terminated without cause or for good
reason (as each term is defined in the award agreements) within
the two-period following the change in control, then any
unvested share of restricted stock held by the executive will
immediately vest upon such termination.
Director
Compensation
The following table sets forth information with respect to the
compensation paid by us to each of our non-employee directors
during 2010.
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Fees Paid in Cash
|
|
|
Stock Awards
|
|
|
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
Total
|
|
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Russell D. Ball
|
|
|
17,500
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|
|
|
273,825
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|
|
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291,325
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Ross R. Bhappu
|
|
|
17,500
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|
|
|
|
|
|
|
17,500
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|
Brian T. Dolan
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|
|
17,500
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|
|
|
|
|
|
|
17,500
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|
Charles R. Henry
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|
|
30,000
|
|
|
|
|
|
|
|
30,000
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|
Mark S. Kristoff
|
|
|
20,000
|
|
|
|
|
|
|
|
20,000
|
|
Alec Machiels
|
|
|
17,500
|
|
|
|
|
|
|
|
17,500
|
|
Jack E. Thompson
|
|
|
30,000
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|
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30,000
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(1) |
|
Represents cash retainers earned by our non-employee directors
for service on our board of directors and committees.
Messrs. Bhappu, Dolan and Machiels may elect to forgo such
cash payments. |
|
(2) |
|
Represents the aggregate grant date fair value computed in
accordance with FASB ASC 718. |
Prior to our initial public offering, our non-employee
directors, other than those directors serving on our board of
directors that were nominated by our stockholders
(Messrs. Bhappu, Dolan, Kristoff and Machiels), received an
annual cash retainer in the amount of $25,000. Beginning after
the consummation of our initial public offering, all
non-employee directors receive an annual cash retainer in the
amount of $25,000 and also receive an annual cash retainer of
$5,000 for each committee on which the director serves, other
than the chairman of the Audit and Ethics Committee, who
receives an additional cash retainer of $10,000.
On January 13, 2011, our Board of Directors, upon
recommendation by the Compensation Committee, adopted the
Molycorp, Inc. Nonemployee Director Deferred Compensation Plan,
which is a nonqualified deferred compensation plan for the
purpose of providing deferred compensation benefits to members
of our Board of Directors who are not our employees. Under the
Nonemployee Director Deferred Compensation Plan, a participant
may defer his or her annual fees and the receipt of any shares
subject to restricted stock units granted under our 2010 Equity
and Performance Incentive Plan. In addition, if a participant
elects to defer any of the cash portion of his or her annual
fees, he or she may convert a percentage of those fees into
118
restricted stock units, which are credited to his or her account
under the plan. If a participant converts any of his or her
annual fees into restricted stock units, then we will credit his
or her account with matching restricted stock units at an amount
equal to 25% of the number of restricted stock units the
participant received after converting a portion of his or her
annual fees into restricted stock units. Restricted stock units
credited to a participants account based on his or her
converting cash into additional restricted stock units are
immediately vested. However, any matching restricted stock unit
credited to a participants account will vest on the third
anniversary of the date on which the matching restricted stock
unit is credited to the account, so long as the participant
provides continuous service to us or retires prior to the
vesting date.
Under the Nonemployee Director Deferred Compensation Plan, we
establish for each participant a cash account, to which we
credit any cash deferrals the participant elects, a restricted
stock units account, to which we credit any deferrals elected
with respect to restricted stock units, and a matching
restricted stock units account, to which we credit any matching
restricted stock units credited to the participant. Participants
may elect to have their cash accounts paid in a lump-sum or over
a fixed schedule. Participants may also elect to have their
accounts paid on a specified future date, upon their separation
from service or upon the earlier of the two. Accounts are
automatically paid out, or begin paying out, upon the
participants death or disability, or upon a change of
control of the Company.
119
CERTAIN
RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Inventory
Financing and Resale Agreements
Molycorp Minerals, LLC entered into an inventory financing and
resale agreement with Traxys, dated as of May 15, 2009.
Traxys, through its subsidiary, TNA Moly Group LLC, owns more
than 5% of our outstanding Class A Common Stock. Pursuant
to this agreement, Traxys agreed to purchase, and Molycorp
Minerals, LLC agreed to sell, approximately one million pounds
of didymium oxide and up to 18 million pounds of bastnasite
at fixed prices. The purchase price paid by Traxys was treated
as an advance, on which Molycorp Minerals, LLC paid finance
charges, until the products were ultimately resold by Traxys to
third-party purchasers. The net revenue from sales to such
third-party purchasers was then allocated between Traxys and
Molycorp Minerals, LLC according to a fixed schedule. Pursuant
to this agreement, Molycorp Minerals, LLC was obligated to
repurchase from Traxys any unsold didymium oxide and any unsold
bastnasite at May 15, 2010 and May 15, 2011,
respectively. At certain periods during the term of the
agreement, Traxys also had the right to convert any amounts
advanced by it (along with applicable finance charges) into
member interests in Molycorp, LLC in the form of shares at a
fixed price. On November 15, 2009, we issued
59,311 shares of Molycorp, LLC (which equates to
approximately 2,303,000 shares of our common stock after
giving effect to the corporate reorganization, the
38.23435373-for-one stock split and the conversion of our
Class A common stock into common stock immediately prior to
the consummation of our initial public offering) to Traxys in
exchange for all outstanding advances and finance charges
totaling $6.8 million. This agreement was replaced by a new
inventory financing and resale agreement on June 1, 2010,
as discussed below, and was terminated pursuant to a termination
and mutual release agreement dated as of June 16, 2010 by
and between Molycorp Minerals, LLC and Traxys.
On April 16, 2010, Molycorp Minerals, LLC executed an
agreement under which Traxys agreed to purchase up to
$5 million of didymium oxide from us from time to time
through December 31, 2010. These purchases by Traxys under
the agreement will occur at our request at a price per pound
based on published index pricing. The net revenue from the sales
by Traxys to third-party purchases of such didymium oxide will
be allocated between Traxys and Molycorp Minerals, LLC according
to a fixed schedule.
On June 1, 2010, Molycorp Minerals, LLC entered into a new
inventory financing and resale agreement with Traxys. Pursuant
to this new agreement, Traxys purchased, and Molycorp Minerals,
LLC sold, approximately 513,677 pounds of didymium oxide at
$11.50 per pound, subject to adjustment. A portion of the
purchase price paid by Traxys will be treated as an advance, on
which Molycorp Minerals, LLC will pay finance charges, until
Traxys resells the didymium oxide to third-party purchasers. The
net revenue from sales by Traxys to such third-party purchasers
will be allocated between Traxys and Molycorp Minerals, LLC
according to a fixed schedule. Pursuant to this new agreement,
Molycorp Minerals, LLC is obligated to repurchase from Traxys
any unsold didymium oxide at June 1, 2011.
Contribution
Agreement
Each of Resource Capital Fund IV L.P., Resource Capital
Fund V L.P., PP IV Mountain Pass II, LLC,
PP IV MP AIV 1, LLC PP IV MP AIV 2, LLC, PP IV MP
AIV 3, LLC, TNA Moly Group LLC, MP Rare Company LLC and
KMSMITH LLC were members of Molycorp, LLC. In connection with
our corporate reorganization and pursuant to a contribution
agreement, these parties contributed either (a) all of
their member interests in Molycorp, LLC or (b) all of their
equity interests in entities that hold member interests in
Molycorp, LLC (and no other assets or liabilities) to Molycorp,
Inc. in exchange for shares of Class A common stock of
Molycorp, Inc., which were subsequently converted to common
stock immediately prior to the consummation of our initial
public offering. See Principal and Selling
Stockholders.
Registration
Rights
Resource Capital Fund IV L.P., Resource Capital Fund V
LP, PP IV MP AIV 1, LLC, PP IV MP AIV 2, LLC, PP IV MP
AIV 3, LLC, TNA Moly Group LLC and KMSMITH LLC have certain
demand and
120
piggyback registration rights. The demand registration rights
may be exercised beginning February 3, 2011. For a
description of these registration rights, see Description
of Capital Stock Registration Rights. This
offering is pursuant to a demand under these registration rights.
Letters
of Credit
In February 2009, certain of our stockholders incurred certain
costs in providing letters of credit
and/or cash
collateral to secure the surety bonds issued for the benefit of
certain regulatory agencies relating to our Mountain Pass
facilitys closure and reclamation obligations. The total
amount of collateral provided by stockholders was
$18.2 million. Under the terms of an agreement with these
stockholders, we agreed to pay each such stockholder a 5% annual
return on the amount of collateral provided, and such
stockholders were entitled to receive quarterly payments,
delayed payments or
payments-in-kind.
In September 2010, we issued our own cash collateral in the
amount of $18.2 million in replacement of the letters of
credit and cash collateral provided by such stockholders and
terminated the agreement with such stockholders.
Mountain
Pass Acquisition
In connection with our acquisition of the Mountain Pass,
California rare earth deposit and associated land, facilities,
rare earth processing facilities and intellectual property from
Chevron Mining Inc., a subsidiary of Chevron Corporation,
certain members of Molycorp Minerals, LLC incurred acquisition
costs that were subsequently reimbursed by Molycorp Minerals,
LLC. At December 31, 2008, accrued expenses included
approximately $0.2 million related to this reimbursement
obligation.
121
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of shares of common stock as of
May 23, 2011 for:
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each of the selling stockholders;
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each person who we know beneficially owns more than 5% of our
common stock;
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each of our directors;
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each of our named executive officers; and
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all of our directors and our executive officers as a group.
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We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the
persons and entities named in the table below have sole voting
and investment power with respect to all shares of common stock
that they beneficially own, subject to applicable community
property laws. The table below is based upon information
supplied by our officers, directors, principal stockholders and
selling stockholders and Schedules 13Gs and 13Ds filed with the
SEC through May 23, 2011.
The information shown in the table with respect to the
percentage of shares of common stock beneficially owned after
the offering of common stock is based on 83,895,501 shares
of common stock outstanding at May 23, 2011. The
information shown in the table does not reflect any shares of
our mandatory convertible preferred stock or shares of common
stock that would be issuable upon conversion of shares of
mandatory convertible preferred stock. In computing the number
of shares of common stock beneficially owned by a person and the
percentage ownership of that person, we deemed to be outstanding
all shares of common stock subject to options or warrants held
by that person that are currently exercisable or exercisable
within 60 days of May 23, 2011. We did not deem these
shares outstanding, however, for the purpose of computing the
percentage ownership of any other person. Beneficial ownership
representing less than 1% is denoted with an
asterisk *.
122
Unless otherwise noted below, the address of the persons and
entities listed on the table is
c/o Molycorp,
Inc., 5619 Denver Tech Center Parkway, Suite 1000,
Greenwood Village, Colorado 80111.
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Shares
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Beneficially
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Number of Shares
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Owned After
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Shares
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to be Sold
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Offering if
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Shares Beneficially
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Beneficially
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if Underwriters
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Underwriters
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Owned Prior
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Number
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Owned After
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Option is
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Option is
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Name and Address of
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to Offering
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of Shares
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Offering
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Exercised in Full
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Exercised in Full
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Beneficial Owner
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Number
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Percentage
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Offered
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Number
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Percentage
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Number
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Number
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Percentage
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Resource Capital Funds(1)
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19,591,746
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23.4
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%
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Pegasus Entities(2)
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11,279,199
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13.4
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%
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TNA Moly Group LLC(3)
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6,152,774
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7.3
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%
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KMSMITH, LLC
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217,389
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*
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*
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*
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Baron Capital Group, Inc.(4)
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4,576,594
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5.5
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%
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Russell D. Ball
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9,500
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*
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*
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*
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Ross R. Bhappu(5)
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19,592,346
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23.4
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%
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Brian T. Dolan(5)
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19,591,746
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23.4
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%
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Charles R. Henry
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134,401
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*
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*
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*
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Mark S. Kristoff(6)
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6,339,890
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7.6
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%
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Alec Machiels
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*
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*
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*
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Mark A. Smith(7)
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1,102,666
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1.3
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%
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Jack E. Thompson
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97,018
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*
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*
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*
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James S. Allen
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19,234
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*
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*
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*
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Ksenia A. Adams
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528
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*
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*
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*
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John F. Ashburn, Jr.(8)
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252,956
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*
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*
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*
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John L. Burba
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309,262
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*
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*
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*
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Alan Docter(9)
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6,341,890
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7.6
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%
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All executive officers and directors as a group (14 individuals)
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27,857,988
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33.2
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%
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(1) |
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As reported on Schedule 13D/A filed on March 21, 2011,
includes (a) 15,627,423 shares of our common stock
held by Resource Capital Fund IV L.P., of which Resource
Capital Associates IV L.P. is the general partner (RCA IV
GP L.L.C. is the general partner of Resource Capital
Associates IV L.P.) and (b) 3,964,323 shares of
our common stock held by Resource Capital Fund V L.P., of
which Resource Capital Associates V L.P. is the general partner
(RCA V GP Ltd. is the general partner of Resource Capital
Associates V L.P.). The manner in which the investments of
Resource Capital Fund IV L.P. and Resource Capital
Fund V L.P. are held, and any decisions concerning their
ultimate disposition, are subject to the control of an
investment committee consisting of certain partners of Resource
Capital Funds: Hank Tuten, James McClements, Ryan Bennett, Russ
Cranswick, Mr. Bhappu and Mr. Dolan. The investment
committee is appointed by each of RCA IV GP L.L.C. and RCA V GP
Ltd. The investment committee has voting and investment power
with respect to the shares of our common stock owned by Resource
Capital Fund IV L.P. and Resource Capital Fund V L.P.
The address of Resource Capital Fund IV L.P. and Resource
Capital Fund V L.P. is 1400 Sixteenth Street,
Suite 200, Denver, Colorado 80202. |
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(2) |
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As reported on Schedule 13D/A filed on March 29, 2011,
includes (a) 6,135,886 shares of our common stock held
by PP IV Mountain Pass II, LLC,
(b) 2,972,111 shares of our common stock held by PP IV
MP AIV 1, LLC, (c) 1,085,601 shares of our common
stock held by PP IV MP AIV 2, LLC and
(d) 1,085,601 shares of our common stock held by PP IV
MP AIV 3, LLC. Pegasus Partners IV, L.P. controls PP
IV Mountain Pass II, LLC and the general partner of
Pegasus Partners IV, L.P. is Pegasus Investors IV,
L.P. Pegasus Partners IV (AIV), L.P. controls PP IV MP
AIV 1, LLC and the general partner of Pegasus
Partners IV (AIV), L.P. is Pegasus Investors IV, L.P.
The general partner of Pegasus Investors IV, L.P. is
Pegasus Investors IV GP, LLC, of which Pegasus Capital LLC
is the managing member. Craig Cogut is the managing member of
Pegasus Capital LLC. MP IH Holdings 1 LLC controls PP IV MP
AIV 2, LLC. MP IH Holdings 2 LLC controls 96.4% of PP
IV MP AIV 3, LLC. The non-member manager of each of MP IH
Holdings 1 LLC and MP IH Holdings 2 LLC is Pegasus
Capital Advisors IV, L.P., the general partner of which is
Pegasus Capital Advisors IV GP, LLC, and the sole |
123
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member of Pegasus Capital Advisors IV GP, LLC is
Mr. Cogut. As a result of the foregoing, Mr. Cogut may
be deemed to share voting and investment power of the shares of
our common stock owned by each of PP IV Mountain
Pass II, LLC, PP IV MP AIV 1, LLC, PP IV MP
AIV 2, LLC and PP IV MP AIV 3, LLC, which we refer to
collectively as the Pegasus Entities. Pursuant to a Pledge and
Security Agreement, dated as of January 21, 2011, among PP
IV Mountain Pass II, LLC, PP IV MP AIV 1, LLC, PP
IV MP AIV 2, LLC and PP IV MP AIV 3, LLC, Pegasus
Partners IV, L.P. and Bank of Montreal, an aggregate of
4,000,000 shares of our common stock have been pledged by
the Pegasus Entities to the Bank of Montreal. Mr. Cogut
disclaims beneficial ownership of any of our securities held by
the Pegasus Entities, and this disclosure shall not be deemed to
be an admission that Craig Cogut is the beneficial owner of such
securities for purposes of Section 13(d) or any other
purpose. The address of each of the Pegasus Entities is
505 Park Avenue, 22nd Floor, New York, New York 10022. |
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(3) |
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TNA Moly Group LLC has sole voting and dispositive power over
6,152,774 shares of our common stock. Traxys is the sole
voting member of TNA Moly Group LLC, appoints all of the
managers and has shared voting and investment power with respect
to the shares of our common stock owned by such entity. Traxys
is indirectly controlled by Pegasus Capital LLC through T-II
Holdings LLC, an Anguilla limited liability company.
Mr. Cogut is the managing member of Pegasus Capital LLC.
Mr. Cogut disclaims beneficial ownership of any of our
securities held by TNA Moly Group LLC, and this disclosure shall
not be deemed to be an admission that Craig Cogut is the
beneficial owner of such securities for purposes of
Section 13(d) or any other purpose. The address of TNA Moly
Group LLC is 825 Third Avenue, New York, New York 10022. |
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(4) |
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As reported on Schedule 13G filed on February 14,
2011, Baron Capital Group, Inc., an investment adviser, reported
having shared voting power with respect to 3,979,142 shares
of our common stock and shared dispositive power with respect to
4,576,594 shares of our common stock. Baron Capital Group,
Inc.s power to vote and dispose of the shares is shared
with BAMCO, Inc. and Baron Capital Management, Inc., which are
subsidiaries of Baron Capital Group, Inc., and Ronald Baron, a
control person of Baron Capital Group, Inc. BAMCO, Inc. reported
having shared voting power with respect to 3,661,494 shares
of our common stock and shared dispositive power with respect to
4,251,471 shares of our common stock. Baron Capital
Management, Inc. reported having shared voting power with
respect to 317,648 shares of our common stock and shared
dispositive power with respect to 325,123 shares of our
common stock. Ronald Baron reported having shared voting power
with respect to 3,979,142 shares of our common stock and
shared dispositive power with respect to 4,576,594 shares
of our common stock. The advisory clients of BAMCO, Inc. and
Baron Capital Management, Inc. have the right to receive or the
power to direct the receipt of dividends from, or the proceeds
from the sale of, the shares of our common stock in their
accounts. To the best of Baron Capital Group, Inc.s
knowledge, no such person has such interest relating to more
than 5% of our outstanding common stock. The address of Baron
Capital Group, Inc. is 767 Fifth Avenue, 49th Floor,
New York, New York 10153. |
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(5) |
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Includes (a) 15,627,423 shares of our common stock
held by Resource Capital Fund IV L.P., of which Resource
Capital Associates IV L.P. is the general partner (RCA IV
GP L.L.C. is the general partner of Resource Capital
Associates IV L.P.) and (b) 3,964,323 shares of
our common stock held by Resource Capital Fund V L.P., of
which Resource Capital Associates V L.P. is the general partner
(RCA V GP Ltd. is the general partner of Resource Capital
Associates V L.P.). Mr. Bhappu and Mr. Dolan are
members and shareholders and directors, respectively, of each of
RCA IV GP L.L.C. and RCA V GP Ltd. and represent two of the
seven members and shareholders and directors, respectively, of
RCA IV GP L.L.C. and RCA V GP Ltd. As indicated in footnote
(6) below, each of such entities has delegated to an
investment committee consisting of certain partners of Resource
Capital Funds, the voting and dispositive power over the shares
held by Resource Capital Fund IV L.P. and Resource Capital
Fund V L.P. Each of Mr. Bhappu and Mr. Dolan
disclaims beneficial ownership of the shares of our common stock
held by Resource Capital Fund IV L.P. and Resource Capital
Fund V. L.P., except to the extent of his pecuniary
interest therein. |
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(6) |
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Includes 6,152,774 shares of our common stock held by TNA
Moly Group LLC. Mr. Kristoff is the Chief Executive Officer
of Traxys and TNA Moly Group LLC. Mr. Kristoff disclaims
beneficial ownership of |
124
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the shares of our common stock held by TNA Moly Group LLC,
except to the extent of his pecuniary interest therein, if any. |
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(7) |
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Includes 217,389 shares of our common stock held by KMSMITH
LLC. Kimberly Smith, the wife of Mr. Smith, has sole voting
and investment power with respect to the shares of our common
stock held by KMSMITH LLC. Mr. Smith disclaims beneficial
ownership of the shares of our common stock held by KMSMITH LLC,
except to the extent of his pecuniary interest therein, if any. |
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(8) |
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Includes 100 shares of our common stock held as custodian
for his minor son. Mr. Ashburn disclaims beneficial
ownership of the shares of our common stock held as custodian
for his minor son, except to the extent of his pecuniary
interest therein, if any. |
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(9) |
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Includes 2,000 shares of common stock beneficially held by
the wife of Mr. Docter and 6,152,774 shares of common
stock held by TNA Moly Group LLC. Mr. Docter is the
Chairman of Traxys and a Manager of TNA Moly Group LLC.
Mr. Docter disclaims beneficial ownership of the shares of
common stock held by his wife and TNA Moly Group LLC, except to
the extent of his pecuniary interest therein, if any. |
125
DESCRIPTION
OF CAPITAL STOCK
General
The following is a summary of the rights of our capital stock,
certain provisions of our certificate of incorporation and our
bylaws, and certain provisions of applicable law. For more
detailed information, please see our certificate of
incorporation and bylaws, which are filed as exhibits to the
registration statement of which this prospectus is a part.
Authorized
Capitalization
Our authorized capital stock consists of shares, with a par
value of $0.001 per share, of which:
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350,000,000 shares are designated as common stock; and
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5,000,000 shares are designated as preferred stock.
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Common
Stock
As of May 23, 2011, we had outstanding
83,895,501 shares of common stock and we had approximately
90 record holders of our common stock. Each outstanding
share of common stock is entitled to one vote on all matters
submitted to a vote of stockholders. Pursuant to our certificate
of incorporation, holders of our common stock do not have the
right to cumulate votes in elections of directors. Subject to
preferences that may be applicable to any outstanding shares of
preferred stock, holders of our common stock are entitled to
receive ratably such dividends as may be declared from time to
time by our board of directors out of legally available funds.
For additional information, see Dividend Policy. In
the event of our liquidation, dissolution or winding up, holders
of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and any amounts due to
the holders of preferred stock. Holders of our common stock have
no preemptive, conversion or subscription rights. No redemption
or sinking fund provisions apply to our common stock. All of our
outstanding shares of common stock are fully paid and
non-assessable.
Preferred
Stock
Our certificate of incorporation authorizes our board of
directors, without stockholder approval, to designate and issue
up to 5,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon each such series of
preferred stock, including voting rights, dividend rights,
conversion rights, terms of redemption, liquidation preference,
sinking fund terms, subscription rights and the number of shares
constituting any series or the designation of a series. Our
board of directors can issue, without stockholder approval,
preferred stock with voting and conversion rights that could
adversely affect the voting power of the holders of common stock
and reduce the likelihood that such holders will receive
dividend payments or payments upon liquidation. Such issuance
could have the effect of decreasing the market price of the
common stock. The issuance of preferred stock or even the
ability to issue preferred stock could also have the effect of
delaying, deterring or preventing a change of control or other
corporate action. As of May 23, 2011, we had
2,070,000 shares of Series A mandatory convertible
preferred stock outstanding.
Ranking
The Series A mandatory convertible preferred stock, with
respect to dividend rights and rights upon our liquidation,
winding-up
or dissolution, ranks:
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senior to (i) our common stock and (ii) each other
class of capital stock and series of preferred stock established
after the first original issue date of the Series A
mandatory convertible preferred stock (which we refer to as the
initial issue date) the terms of which do not
expressly provide that such
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126
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class or series ranks senior to or on a parity with the
Series A mandatory convertible preferred stock as to
dividend rights and rights upon our liquidation,
winding-up
or dissolution (which we refer to collectively as junior
stock);
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on parity with any class of capital stock or series of preferred
stock established after the initial issue date the terms of
which expressly provide that such class or series will rank on a
parity with the Series A mandatory convertible preferred
stock as to dividend rights and rights upon our liquidation,
winding-up
or dissolution (which we refer to collectively as parity
stock);
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junior to each class of capital stock or series of preferred
stock established after the initial issue date the terms of
which expressly provide that such class or series will rank
senior to the Series A mandatory convertible preferred
stock as to dividend rights and rights upon our liquidation,
winding-up
or dissolution (which we refer to collectively as senior
stock); and
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junior to our existing and future indebtedness.
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In addition, the Series A mandatory convertible preferred
stock, with respect to dividend rights and rights upon our
liquidation,
winding-up
or dissolution, is structurally subordinated to existing and
future indebtedness of our subsidiaries as well as the capital
stock of our subsidiaries held by third parties.
Dividends
Subject to the rights of holders of any class of capital stock
ranking senior to the Series A mandatory convertible
preferred stock with respect to dividends, holders of shares of
Series A mandatory convertible preferred stock will
receive, when, as and if declared by our Board of Directors, out
of funds legally available for payment, cumulative dividends at
the rate per annum of 5.50% on the liquidation preference of
$100.00 per share of Series A mandatory convertible
preferred stock (equivalent to $5.50 per annum per share),
payable in cash, by delivery of shares of our common stock or
through any combination of cash and shares of our common stock,
as determined by us in our sole discretion (subject to certain
limitations). Any shares delivered in the payment of dividends
will be valued for such purpose at the average volume weighted
average price per share of our common stock over the five
consecutive trading day period ending on the second trading day
immediately preceding the applicable dividend payment date, or
the five day average price, multiplied by 97%.
Declared dividends on the Series A mandatory convertible
preferred stock will be payable quarterly on March 1,
June 1, September 1 and December 1 of each year to and
including the mandatory conversion date (as defined below),
commencing June 1, 2011 (each of which we refer to as a
dividend payment date), at such annual rate, and
dividends shall accumulate from the most recent date as to which
dividends shall have been paid or, if no dividends have been
paid, from the initial issue date of the Series A mandatory
convertible preferred stock, whether or not in any dividend
period or periods there have been funds legally available for
the payment of such dividends.
Declared dividends will be payable on the relevant dividend
payment date to holders of record as they appear on our stock
register at 5:00 p.m., New York City time, on the
immediately preceding February 15, May 15, August 15
and November 15 (each, a record date), whether or
not such holders convert their shares, or such shares are
automatically converted, after a record date and on or prior to
the immediately succeeding dividend payment date. These record
dates will apply regardless of whether a particular record date
is a business day. A business day means any day
other than a Saturday or Sunday or other day on which commercial
banks in New York City are authorized or required by law or
executive order to close. If a dividend payment date is not a
business day, payment will be made on the next succeeding
business day, without any interest or other payment in lieu of
interest accruing with respect to this delay.
So long as any shares of our Series A mandatory convertible
preferred stock remain outstanding, no dividend or distribution
may be declared or paid on our common stock unless all
accumulated and unpaid dividends have been paid on our
Series A mandatory convertible preferred stock, subject to
certain exceptions, such as dividends paid on our common stock
in shares of our common stock.
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Our ability to declare and pay cash dividends and make other
distributions with respect to our capital stock, including the
Series A mandatory convertible preferred stock, may be
limited by the terms of any existing and future indebtedness. In
addition, our ability to declare and pay dividends may be
limited by applicable Delaware law.
Redemption
The Series A mandatory convertible preferred stock is not
redeemable.
Liquidation
Preference
In the event of our voluntary or involuntary liquidation,
winding-up
or dissolution, each holder of Series A mandatory
convertible preferred stock will receive a liquidation
preference in the amount of $100.00 per share of the
Series A mandatory convertible preferred stock (the
liquidation preference), plus an amount equal to
accumulated and unpaid dividends on the shares to (but
excluding) the date fixed for liquidation,
winding-up
or dissolution to be paid out of our assets available for
distribution to our stockholders, after satisfaction of
liabilities to our creditors and holders of any senior stock and
before any payment or distribution is made to holders of junior
stock (including our common stock). If, upon our voluntary or
involuntary liquidation,
winding-up
or dissolution, the amounts payable with respect to the
liquidation preference plus an amount equal to accumulated and
unpaid dividends of the Series A mandatory convertible
preferred stock and all parity stock are not paid in full, the
holders of the Series A mandatory convertible preferred
stock and any parity stock will share equally and ratably in any
distribution of our assets in proportion to the respective
liquidation preferences and amounts equal to accumulated and
unpaid dividends to which they are entitled. After payment of
the full amount of the liquidation preference and an amount
equal to accumulated and unpaid dividends to which they are
entitled, the holders of the Series A mandatory convertible
preferred stock will have no right or claim to any of our
remaining assets.
Voting
Rights
The holders of the Series A mandatory convertible preferred
stock do not have voting rights other than those described
below, except as specifically required by Delaware law.
Whenever dividends on any shares of Series A mandatory
convertible preferred stock have not been declared and paid for
the equivalent of six or more dividend periods, whether or not
for consecutive dividend periods, the holders of such shares of
Series A mandatory convertible preferred stock, voting
together as a single class with holders of any and all other
series of parity stock with similar voting rights then
outstanding, will be entitled at our next special or annual
meeting of stockholders to vote for the election of a total of
two additional members of our Board of Directors, subject to
certain limitations.
So long as any shares of Series A mandatory convertible
preferred stock remain outstanding, we will not, without the
affirmative vote or consent of the holders of at least
two-thirds of the outstanding shares of Series A mandatory
convertible preferred stock and all other series of voting
preferred stock entitled to vote thereon, voting together as a
single class, given in person or by proxy, either in writing or
at a meeting:
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amend or alter the provisions of our Amended and Restated
Certificate of Incorporation or the certificate of designations
for the shares of Series A mandatory convertible preferred
stock so as to authorize or create, or increase the authorized
amount of, any specific class or series of stock ranking senior
to the Series A mandatory convertible preferred stock with
respect to payment of dividends or the distribution of our
assets upon our liquidation, dissolution or winding up; or
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amend, alter or repeal the provisions of our Amended and
Restated Certificate of Incorporation or the certificate of
designations for the shares of Series A mandatory
convertible preferred stock so as to adversely affect the
special rights, preferences, privileges or voting powers of the
shares of Series A mandatory convertible preferred
stock; or
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consummate a binding share exchange or reclassification
involving the shares of Series A mandatory convertible
preferred stock or a merger or consolidation of us with another
entity, unless in each case: (i) shares of Series A
mandatory convertible preferred stock remain outstanding and are
not amended in any respect or, in the case of any such merger or
consolidation with respect to which we are not the surviving or
resulting entity, are converted into or exchanged for preference
securities of the surviving or resulting entity or its ultimate
parent; and (ii) such shares of Series A mandatory
convertible preferred stock remaining outstanding or such
preference securities, as the case may be, have such rights,
preferences, privileges and voting powers, taken as a whole, as
are not materially less favorable to the holders thereof than
the rights, preferences, privileges and voting powers of the
Series A mandatory convertible preferred stock immediately
prior to such consummation, taken as a whole.
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Mandatory
Conversion
Each share of the Series A mandatory convertible preferred
stock, unless previously converted, will automatically convert
on March 1, 2014 (the mandatory conversion
date), into a number of shares of common stock equal to
the conversion rate described below. If we declare a dividend
for the dividend period ending on the mandatory conversion date,
we will pay such dividend to the holders of record on the
applicable record date, as described above under
Dividends. If on or prior to the record
date immediately preceding the mandatory conversion date we have
not declared all or any portion of the accumulated and unpaid
dividends on the Series A mandatory convertible preferred
stock, the conversion rate will be adjusted so that holders
receive an additional number of shares of common stock equal to
the amount of accumulated and unpaid dividends that have not
been declared (the additional conversion amount)
divided by the greater of the floor price and 97% of the five
day average price. To the extent that the additional conversion
amount exceeds the product of the number of additional shares
and 97% of the
five-day
average price, we will, if we are legally able to do so, declare
and pay such excess amount in cash pro rata to the holders of
the Series A mandatory convertible preferred stock.
The conversion rate, which is the number of shares of common
stock issuable upon conversion of each share of Series A
mandatory convertible preferred stock on the mandatory
conversion date, will, subject to adjustment as described in the
section of this prospectus entitled
Anti-dilution Adjustments below and the
preceding paragraph, be as follows:
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if the applicable market value of our common stock is greater
than $60.00, which we call the threshold appreciation
price, then the conversion rate will be 1.6667 shares
of common stock per share of Series A mandatory convertible
preferred stock (the minimum conversion rate), which
is equal to $100 divided by the threshold appreciation price;
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if the applicable market value of our common stock is less than
or equal to the threshold appreciation price but equal to or
greater than $50.00 (the initial price, which equals
the price at which our common stock is being offered in this
offering), then the conversion rate will be equal to $100
divided by the applicable market value of our common stock,
which will be between 1.6667 and 2.0000 shares of common
stock per share of Series A mandatory convertible preferred
stock; or
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if the applicable market value of our common stock is less than
the initial price, then the conversion rate will be
2.0000 shares of common stock per share of Series A
mandatory convertible preferred stock (the maximum
conversion rate), which is equal to $100 divided by the
initial price.
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Applicable market value means the average
volume-weighted average price per share of our common stock over
the 20 consecutive trading day period ending on, and including,
the third trading day immediately preceding the mandatory
conversion date.
Conversion
at the Option of the Holder
Holders of the Series A mandatory convertible preferred
stock have the right to convert their shares of Series A
mandatory convertible preferred stock, in whole or in part (but
in no event less than one share of
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Series A mandatory convertible preferred stock), at any
time prior to the Series A mandatory conversion date, into
shares of our common stock at the minimum conversion rate of
1.6667 shares of common stock per share of Series A
mandatory convertible preferred stock, subject to certain
anti-dilution and other adjustments.
Conversion
at the Option of the Holder upon Fundamental Change; Fundamental
Change Dividend Make-whole Amount
If certain fundamental changes occur, on or prior to the
mandatory conversion date, holders of the Series A
mandatory convertible preferred stock will have the right to:
(i) convert their shares of Series A mandatory
convertible preferred stock, in whole or in part (but in no
event less than one share of Series A mandatory convertible
preferred stock), into shares of common stock at the fundamental
change conversion rate, which will be based on the effective
date of the fundamental change and the price paid (or deemed
paid) per share of our common stock in the fundamental change;
(ii) with respect to such converted shares, receive an
amount equal to the present value, calculated using a discount
rate of 5.50% per annum, of all dividend payments on such shares
for all the remaining dividend periods (excluding any
accumulated and unpaid dividends as of the effective date of the
fundamental change) from such effective date to but excluding
the mandatory conversion date; and (iii) with respect to
such converted shares receive the amount of any accumulated and
unpaid dividends as of the effective date, subject to certain
exceptions.
Anti-dilution
Adjustments
The formula for determining the conversion rate on the mandatory
conversion date and the number of shares of our common stock to
be delivered upon an early conversion event may be adjusted if
certain events occur, including if:
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We issue common stock to all or substantially all holders of our
common stock as a dividend or other distribution.
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We issue to all or substantially all holders of our common stock
rights or warrants (other than rights or warrants issued
pursuant to a dividend reinvestment plan or share purchase plan
or other similar plans) entitling them, for a period of up to 45
calendar days from the date of issuance of such rights or
warrants, to subscribe for or purchase our shares of common
stock at less than the current market price of our common stock.
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We subdivide or combine our common stock.
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We distribute to all or substantially all holders of our common
stock evidences of our indebtedness, shares of capital stock,
securities, rights to acquire our capital stock, cash or other
assets, excluding any dividend, distribution, rights or warrants
referred to in the bullets above and any dividend, distribution
or spin-off referred to in the bullets below.
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We make a distribution consisting exclusively of cash to all or
substantially all holders of our common stock, subject to
limited exceptions.
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We or any of our subsidiaries successfully complete a tender or
exchange offer pursuant to a Schedule TO or registration
statement on
Form S-4
for our common stock (excluding any securities convertible or
exchangeable for our common stock), where the cash and the value
of any other consideration included in the payment per share of
our common stock exceeds the current market price of our common
stock.
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Registration
Rights
The holders of 38,834,527 shares of our common stock,
including certain of the selling stockholders, are entitled to
rights with respect to the registration under the Securities Act
of such shares of common stock. These registration rights are
contained in the Registration Rights Agreement entered into with
the former
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members of Molycorp, LLC in connection with our corporate
reorganization. See Certain Relationships and
Related-Party Transactions Registration
Rights. Additionally, we are obligated to file on or
before August 5, 2011 a registration statement registering
the sale from time to time of the 1,593,419 shares of
common stock issued to Silmet Grupp in connection with our
acquisition of Molycorp Silmet AS.
Registration
Rights of Former Members of Molycorp, LLC
The following description of the terms of the Registration
Rights Agreement entered into with former members of Molycorp,
LLC in connection with our corporate reorganization is intended
as a summary only and is qualified entirely by reference to the
Registration Rights Agreement filed as an exhibit to the
registration statement of which this prospectus forms a part.
Form S-1
Demand Registration Rights
The holders of shares of our common stock having demand
registration rights under the Registration Rights Agreement have
the right to require that we register their shares of common
stock on
Form S-1,
provided such holders hold least 10% or 5% (depending on the
stockholder) of the shares of our common stock outstanding
immediately after giving effect to the corporate reorganization
and the aggregate offering price to the public exceeds
$10,000,000. In the event that such demand registration rights
are exercised, stockholders party to the Registration Rights
Agreement have the right to participate in such offering. We are
only obligated to effect one registration on
Form S-1
for each holder of our common stock possessing such demand
registration rights. We may postpone the filing of a
registration statement for up to 90 days once in any
12-month
period if our board of directors determines in good faith that
the filing would be materially detrimental to our stockholders
or us. In an underwritten offering, the holders of shares of our
common stock having demand registration rights or the right to
participate in such offering will have priority over us in
including such shares in a registration statement filed in
response to the exercise of these demand registration rights. We
must pay all expenses, except for underwriters discounts,
selling commissions and the fees and expenses of each selling
stockholders own counsel, incurred in connection with the
exercise of these demand registration rights.
Form S-3
Demand Registration Rights
If we are eligible to file a registration statement on
Form S-3,
the stockholders with
Form S-3
registration rights under the Registration Rights Agreement can
request that we register their shares, provided that the total
price of the shares of common stock offered to the public
exceeds $5,000,000. In the event that such demand registration
rights are exercised, stockholders party to the Registration
Rights Agreement have the right to participate in such offering.
These
Form S-3
registration rights are wholly distinct from the
Form S-1
demand registration rights and piggyback registration rights
described in this section. We are obligated to effect an
unlimited number of registrations on
Form S-3
for each holder of our common stock possessing such demand
registration rights. A holder of
Form S-3
registration rights may not require us to file a registration
statement on
Form S-3
if we have already effected two registrations on
Form S-3
at the request of such holder in the last
12-month
period. We may postpone the filing of a
Form S-3
registration statement for up to 90 days once in any
12-month
period if our board of directors determines in good faith that
the filing would be materially detrimental to our stockholders
or us. In an underwritten offering, the holders of shares of our
common stock having demand registration rights or the right to
participate in such offering will have priority over us in
including such shares in a registration statement filed in
response to the exercise of these demand registration rights. We
must pay all expenses, except for underwriters discounts,
selling commissions and the fees and expenses of each selling
stockholders own counsel, incurred in connection with the
exercise of these demand registration rights.
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Piggyback
Registration Rights
If we register any equity securities for public sale, other than
a registration statement filed on
Form S-1
or
Form S-3
pursuant to the stockholder demand registration rights described
above, the stockholders with piggyback registration rights under
the Registration Rights Agreement have the right to include
their shares in the registration, subject to specified
exceptions. In an underwritten offering, certain holders of
shares of our common stock having piggyback registration rights
will have priority over us in including such shares in the
applicable registration statement. We must pay all expenses,
except for underwriters discounts, selling commissions and
the fees and expenses of each selling stockholders own
counsel, incurred in connection with the exercise of these
piggyback registration rights.
Registration
Rights of Silmet Grupp
The following description of the registration rights included in
the Stock Purchase Agreement we entered into with Silmet Grupp
in connection with the acquisition of Molycorp Silmet AS is
intended to be a summary only and is qualified entirely by
reference to the Stock Purchase Agreement filed as an exhibit to
the registration statement of which this prospectus is a part.
On or before August 5, 2011, we are required to file a
registration statement on
Form S-3
covering the resale from time to time of the
1,593,419 shares of common stock issued to Silmet Grupp in
connection with our acquisition of Molycorp Silmet AS. If we
fail to timely file such
Form S-3
registration statement, then within 30 days after receiving
written demand from Silmet Grupp, we are required to file a
registration statement on
Form S-1
covering the shares. We are required to use our commercially
reasonable efforts to cause such registration statement to
become effective as soon as reasonably practicable and remain
effective for at least six months or until April 1, 2011.
If we are eligible, we are obligated to file an automatic shelf
registration statement on
Form S-3.
We may postpone the filing of, or toll the effectiveness of, a
registration statement for up to 90 days once in any
12-month
period if our board of directors and counsel determine in good
faith that it would be materially detrimental to our
stockholders or us for such registration statement either to
become effective or to remain effective. We must pay all
expenses, except for underwriters discounts, selling
commissions and the fees and expenses of Silmet Grupps
counsel, incurred in connection with registering the shares.
Anti-Takeover
Effects of Delaware Law and Our Certificate of Incorporation and
Bylaw Provisions
Our certificate of incorporation and bylaws contain several
provisions that may make it more difficult to acquire us by
means of a tender offer, open market purchase, proxy fight or
otherwise. These provisions and certain provisions of Delaware
law are expected to discourage coercive takeover practices and
inadequate takeover bids.
These provisions of our certificate of incorporation and bylaws
are designed to encourage persons seeking to acquire control of
us to negotiate with our board of directors. We believe that, as
a general rule, our interests and the interests of our
stockholders would be served best if any change in control
results from negotiations with our board of directors based upon
careful consideration of the proposed terms, such as the price
to be paid to stockholders, the form of consideration to be paid
and the anticipated tax effects of the transaction.
Our certificate of incorporation and bylaws provisions could,
however, have the effect of delaying, deferring or discouraging
a prospective acquiror from making a tender offer for our shares
or otherwise attempting to obtain control of us. To the extent
that these provisions discourage takeover attempts, they could
deprive stockholders of opportunities to realize takeover
premiums for their shares. Moreover, these provisions could
discourage accumulations of large blocks of common stock, thus
depriving stockholders of any advantages which large
accumulations of stock might provide.
Set forth below is a summary of the relevant provisions of our
certificate of incorporation and bylaws and certain applicable
sections of the General Corporation Law of the State of
Delaware. For additional
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information we refer you to the provisions of our certificate of
incorporation, our bylaws and the sections of the General
Corporation Law of the State of Delaware.
Delaware
Anti-Takeover Statute
We are subject to the provisions of Section 203 of the
General Corporation Law of the State of Delaware regulating
corporate takeovers. In general, Section 203, subject to
certain exceptions, prohibits a publicly-held Delaware
corporation from engaging in any business combination with any
interested stockholder for a period of three years following the
date that such person or entity became an interested
stockholder, unless:
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prior to such date, the board of directors of the corporation
approved either the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder;
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upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding specified shares; or
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at or subsequent to such date of the transaction that resulted
in a person or entity becoming an interested stockholder, the
business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
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The application of Section 203 may limit the ability of
stockholders to approve a transaction that they may deem to be
in their best interests. In addition, Section 203 makes it
more difficult for an interested stockholder to effect various
business combinations with a corporation for a three-year
period, although the stockholders may, by adopting an amendment
to our certificate of incorporation or bylaws, elect not to be
governed by this section, effective 12 months after
adoption.
In general, Section 203 defines business
combination as:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10% or more of the assets of the corporation to
or with the interested stockholder;
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subject to certain exceptions, any transaction which results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested
stockholder as any person that is:
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the owner of 15% or more of the outstanding voting stock of the
corporation;
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an affiliate or associate of the corporation and was the owner
of 15% or more of the outstanding voting stock of the
corporation at any time within three years immediately prior to
the relevant date; or
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an affiliate or associate of the above.
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Our certificate of incorporation and bylaws do not exclude us
from the restrictions imposed under Section 203. We
anticipate that the provisions of Section 203 may encourage
companies interested in
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acquiring us to negotiate in advance with our board of directors
because the stockholder approval requirement would be avoided if
a majority of the directors then in office approve either the
business combination or the transaction that resulted in the
stockholder becoming an interested stockholder.
Classified
Board of Directors
Our certificate of incorporation provides for our board of
directors to be divided into three classes of directors, as
nearly equal in number as possible, serving staggered terms.
Approximately one-third of our board of directors are elected
each year. Under Section 141 of the General Corporation Law
of the State of Delaware, unless the certificate of
incorporation provides otherwise, directors serving on a
classified board can only be removed for cause. Accordingly, our
directors may only be removed for cause. The provision for our
classified board of directors may be amended, altered or
repealed only upon the affirmative vote of the holders of
662/3%
of our outstanding voting stock.
The provision for a classified board of directors could prevent
a party that acquires control of a majority of the outstanding
voting stock from obtaining control of our board of directors
until the second annual stockholders meeting following the date
the acquiror obtains the controlling stock interest. The
classified board of directors provision could have the effect of
discouraging a potential acquiror from making a tender offer for
shares of common stock or otherwise attempting to obtain control
of us and could increase the likelihood that our incumbent
directors will retain their positions.
We believe that a classified board of directors helps to assure
the continuity and stability of our board and our business
strategies and policies as determined by our board of directors
because a majority of the directors at any given time will have
prior experience on our board. The classified board of directors
provision should also help to ensure that our board of
directors, if confronted with an unsolicited proposal from a
third party that has acquired a block of our voting stock, will
have sufficient time to review the proposal and appropriate
alternatives and to seek the best available result for all
stockholders.
Number
of Directors; Removal; Vacancies
Our certificate of incorporation and bylaws provide that the
number of directors shall be fixed by the affirmative vote of
our board of directors or by the affirmative vote of holders of
at least
662/3%
of our outstanding voting stock. The size of our board of
directors is currently fixed at eight directors.
Pursuant to our certificate of incorporation, each director will
serve until his or her successor is duly elected and qualified,
unless he or she resigns, dies, becomes disqualified or is
removed. Our certificate of incorporation also provides that,
subject to the rights of the holders of any series of preferred
stock, directors may be removed, but only for cause.
Our certificate of incorporation further provides that
generally, vacancies or newly created directorships in our board
may only be filled by a resolution approved by a majority of our
board of directors and any director so chosen will hold office
until the next election of the class for which such director was
chosen.
Stockholder
Action; Special Meetings
Our certificate of incorporation provides that stockholder
action can be taken only at an annual or special meeting of
stockholders and cannot be taken by written consent in lieu of a
meeting. Our certificate of incorporation and bylaws provide
that, except as otherwise required by law, special meetings of
the stockholders can only be called by the Chairman of our board
of directors, our Chief Executive Officer or our Secretary at
the written request of a majority of the number of directors
that we would have if there were no vacancies on our board of
directors. Unless our board of directors determines otherwise,
the Chairman or another designated officer has sole discretion
to determine the order of business and procedure at annual and
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special meetings of stockholders. In addition, stockholders are
not permitted to call a special meeting or to require our board
of directors to call a special meeting. Stockholders also may
not bring business before a special meeting of stockholders.
Stockholder
Proposals and Nominations
Our bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders or to nominate
candidates for election as directors at an annual meeting of
stockholders must provide timely notice of such proposed
business in writing. To be timely, a stockholders notice
generally must be delivered to or mailed and received at our
principal executive office not less than 90 days or more
than 120 days prior to the first anniversary of the
preceding years annual meeting.
Our bylaws also provide certain requirements as to the form and
content of a stockholders notice. These provisions may
preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors
at an annual meeting of stockholders. A stockholders
notice must set forth, among other things, as to each business
matter or nomination the stockholder proposes to bring before
the meeting:
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the name and address of the stockholder and the beneficial
owner, if any, on whose behalf the proposal or nomination is
made;
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the class and number of shares that are owned of record and
beneficially by the stockholder proposing the business or
nominating the nominee;
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a representation that the stockholder giving the notice is a
holder of record of shares of our voting stock entitled to vote
at such annual meeting and intends to appear in person or by
proxy at the annual meeting to propose the business or nominate
the person or persons specified in the notice, as
applicable; and
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whether such stockholder or beneficial owner intends to deliver
a proxy statement and forms of proxy to holders of at least the
percentage of shares of our voting stock required to approve
such proposal or nominate such nominee or nominees.
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If the stockholder is nominating a candidate for director, the
stockholders notice must also include the name, age,
business address, residence address and occupation of the
nominee proposed by the stockholder and the signed consent of
the nominee to serve as a director on our board of directors if
so elected. The candidate may also be required to present
certain information and make certain representations and
agreements at our request.
In addition, a stockholder must also comply with all applicable
requirements of the Exchange Act and the rules and regulations
under the Exchange Act with respect to matters relating to
nomination of candidates for directors.
Amendment
of Certificate of Incorporation
Except as otherwise provided by law or our certificate of
incorporation, our certificate of incorporation may be amended,
altered or repealed at a meeting of the stockholders provided
that such amendment has been described or referred to in the
notice of such meeting or a meeting of our board of directors.
Amendment
of Bylaws
Except as otherwise provided by law, our certificate of
incorporation or our bylaws, our bylaws may be amended, altered
or repealed at a meeting of the stockholders provided that such
amendment has been
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described or referred to in the notice of such meeting or a
meeting of our board of directors, provided that no amendment
adopted by the board of directors may vary or conflict with any
amendment adopted by the stockholders in accordance with our
certificate of incorporation or bylaws.
Transfer
Agent and Registrar
Computershare Trust Company, N.A., a wholly owned
subsidiary of Computershare Inc., is the transfer agent and
registrar for our common stock.
Listing
Our common stock is listed on the NYSE under the symbol
MCP.
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SHARES ELIGIBLE
FOR FUTURE SALE
Future sales of substantial amounts of our common stock in the
public market, or the perception that substantial sales may
occur, could adversely affect the prevailing market price of our
common stock or impair our ability to raise equity capital in
the future. Upon the completion of this offering, we will have
83,895,501 shares of our common stock outstanding. All of
these shares are freely tradable, except for any shares
held by our affiliates as defined in Rule 144
under the Securities Act of 1933 and the 1,593,419 shares
of common stock issued to Silmet Grupp in connection with our
acquisition of Molycorp Silmet AS.
Following this
offering, shares
of common stock,
or shares
of common stock if the underwriters exercise their option to
purchase additional shares of common stock in this offering in
full, will be beneficially owned by our affiliates. Holders,
some of whom are selling stockholders, of 39,326,203 shares
of common stock (and following this offering,
29,326,203 shares of common stock, or
27,826,203 shares of common stock if the underwriters
exercise their option to purchase additional shares of common
stock in this offering in full) have signed
lock-up
agreements under which they have agreed, subject to certain
exceptions, including the sale of shares in this offering, not
to sell, transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities into or exercisable
or exchangeable for shares of our common stock without the prior
written consent of J.P. Morgan Securities LLC and Morgan
Stanley & Co. Incorporated for a period of
90 days, subject to a possible extension under certain
circumstances, after the date of this prospectus. After the
expiration of the
lock-up
period, these shares may be sold in the public market, subject
to prior registration or qualification for an exemption from
registration, including, in the case of shares held by
affiliates, compliance with the volume restrictions of
Rule 144 described below.
Silmet Grupp has signed a
lock-up
agreement that imposes certain restrictions on Silmet
Grupps ability to transfer the 1,593,419 shares of
common stock issued to it in connection with our acquisition of
Molycorp Silmet AS, including a
90-day
lock-up
period expiring on June 30, 2011 during which Silmet Grupp
is restricted from offering, selling, pledging or otherwise
transferring or disposing of such shares. Pursuant to the
lock-up
agreement, following the
90-day
lock-up
period, Silmet Grupp may not sell more than 159,341 shares
of the common stock in any single public or private sale.
Subject to compliance with the
lock-up
agreement, the 1,593,419 shares of common stock issued to
Silmet Grupp in connection with our acquisition of Molycorp
Silmet AS may be sold in the public market, subject to prior
registration or qualification for an exemption from
registration. On or before August 5, 2011, we are required
to file a registration statement registering the sale from time
to time of the 1,593,419 shares of common stock issued to
Silmet Grupp. To the extent that Silmet Grupp sells, or
indicates an intent to sell, substantial amounts of our common
stock in the public market after the registration of its shares,
the trading price of our common stock could decline
significantly.
Additional shares of common stock will be issuable upon
conversion of the shares of mandatory convertible preferred
stock issued in our offering of mandatory convertible preferred
stock. All of such shares of common stock will be available for
immediate resale in the public market upon conversion, except
for any such shares issued to persons who are subject to the
lock-up
arrangements described below, which shares will be subject to
the terms of such
lock-up
arrangements.
Rule 144
In general, under Rule 144 as in effect on the date of this
prospectus, a person who is not one of our affiliates at any
time during the three months preceding a sale, and who has
beneficially owned shares of our common stock for at least six
months, would be entitled to sell an unlimited number of shares
of our common stock provided that current public information
about us is available and, after owning such shares for at least
one year, would be entitled to sell an unlimited number of
shares of our common stock without restriction. Our affiliates
who have beneficially owned restricted shares of common stock
for at least six months are entitled to sell within any
three-month period a number of restricted shares that does not
exceed the greater of:
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1.0% of the number of shares of common stock then
outstanding; or
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137
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the average weekly trading volume of our common stock on the
NYSE during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
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Sales of restricted stock under Rule 144 by our affiliates
are also subject to manner of sale provisions, notice
requirements and the availability of current public information
about us.
Lock-Up
Agreements
We, all of our executive officers and directors and all of the
selling stockholders have agreed that, without the prior written
consent of J.P. Morgan Securities LLC and Morgan
Stanley & Co. Incorporated on behalf of the
underwriters, we and they will not, directly or indirectly,
during the period ending 90 days after the date of this
prospectus:
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offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any
shares of common stock or mandatory convertible preferred stock
or any securities convertible into or exercisable or
exchangeable for shares of common stock or mandatory convertible
preferred stock;
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file any registration statement with the SEC relating to the
offering of any shares of common stock or mandatory convertible
preferred stock or any securities convertible into or
exercisable or exchangeable for common stock or mandatory
convertible preferred stock; or
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enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the common stock or mandatory convertible
preferred stock or such other securities
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whether any such transaction described above is to be settled by
delivery of common stock or mandatory convertible preferred
stock or such other securities, in cash or otherwise. In
addition, we and each such person agrees that, without the prior
written consent of J.P. Morgan Securities LLC and Morgan
Stanley & Co. Incorporated on behalf of the
underwriters, we or such person will not, during the period
ending 90 days after the date of this prospectus, make any
demand for, or exercise any right with respect to, the
registration of any shares of common stock or mandatory
convertible preferred stock or any security convertible into or
exercisable or exchangeable for common stock or mandatory
convertible preferred stock.
This agreement is subject to certain exceptions and is also
subject to extension for up to an additional 34 days, as
set forth in Underwriting.
Stock
Options and Other Equity Awards
On September 9, 2010, we filed a registration statement on
Form S-8
under the Securities Act covering the shares of common stock to
be issued pursuant to options and other equity awards granted
under our equity compensation plan. The registration statement
became effective upon filing. Accordingly, shares registered
under the registration statement on
Form S-8
are available for sale in the open market, after complying with
Rule 144 volume limitations applicable to affiliates and
with applicable
90-day
lock-up
agreements.
Registration
Rights
The holders of approximately 40,427,946 shares of common
stock, including certain of the selling stockholders, or their
transferees will be entitled to various rights with respect to
the registration of these shares under the Securities Act.
Registration of these shares under the Securities Act would
result in these shares becoming fully tradable without
restriction under the Securities Act immediately upon the
effectiveness of the registration, except for shares purchased
by affiliates. See Description of Capital
Stock Registration Rights for additional
information. Shares covered by a registration statement will be
eligible for sale in the public market upon the expiration or
release from the terms of any applicable
lock-up
agreement.
138
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES TO
NON-U.S.
HOLDERS
General
The following is a discussion of the material U.S. federal
income tax consequences of the acquisition, ownership, and
disposition of our common stock by a
non-U.S. holder,
as defined below, that acquires our common stock pursuant to
this offering. This discussion assumes that a
non-U.S. holder
will hold our common stock issued pursuant to this offering as a
capital asset within the meaning of Section 1221 of the
Code. This discussion does not address all aspects of
U.S. federal income taxation that may be relevant to a
particular investor in light of the investors individual
circumstances. In addition, this discussion does not address
(i) U.S. federal non-income tax laws, such as gift or
estate tax laws, (ii) state, local or
non-U.S. tax
consequences, (iii) the special tax rules that may apply to
certain investors, including, without limitation, banks,
insurance companies, financial institutions, controlled foreign
corporations, passive foreign investment companies,
broker-dealers, grantor trusts, personal holding companies,
taxpayers who have elected
mark-to-market
accounting, tax-exempt entities, regulated investment companies,
real estate investment trusts, a partnership or other entity or
arrangement classified as a partnership for United States
federal income tax purposes or other pass-through entities, or
an investor in such entities or arrangements, or
U.S. expatriates or former long-term residents of the
United States, (iv) the special tax rules that may apply to
an investor that acquires, holds, or disposes of our common
stock as part of a straddle, hedge, constructive sale,
conversion or other integrated transaction, or (v) the
impact, if any, of the alternative minimum tax.
This discussion is based on current provisions of the Code,
applicable U.S. Treasury Regulations promulgated
thereunder, judicial opinions, and published rulings of the
Internal Revenue Service, or the IRS, all as in effect on the
date of this prospectus and all of which are subject to
differing interpretations or change, possibly with retroactive
effect. We have not sought, and will not seek, any ruling from
the IRS or any opinion of counsel with respect to the tax
consequences discussed herein, and there can be no assurance
that the IRS will not take a position contrary to the tax
consequences discussed below or that any position taken by the
IRS would not be sustained.
As used in this discussion, the term
U.S. person means a person that is, for
U.S. federal income tax purposes, (i) a citizen or
individual resident of the United States, (ii) a
corporation (or other entity taxed as a corporation) created or
organized (or treated as created or organized) in the United
States or under the laws of the United States or any state
thereof or the District of Columbia, (iii) an estate the
income of which is subject to U.S. federal income taxation
regardless of its source, or (iv) a trust if (A) a
court within the United States is able to exercise primary
supervision over the administration of the trust and one or more
U.S. persons have the authority to control all substantial
decisions of the trust, or (B) it has in effect a valid
election under applicable U.S. Treasury Regulations to be
treated as a U.S. person. As used in this discussion, the
term
non-U.S. holder
means a beneficial owner of our common stock (other than a
partnership or other entity treated as a partnership or as a
disregarded entity for U.S. federal income tax purposes)
that is not a U.S. person.
The tax treatment of a partnership and each partner thereof will
generally depend upon the status and activities of the
partnership and such partner. A holder that is treated as a
partnership for U.S. federal income tax purposes or a
partner in such partnership should consult its own tax advisor
regarding the U.S. federal income tax consequences
applicable to it and its partners of the acquisition, ownership
and disposition of our common stock.
THIS DISCUSSION IS ONLY A SUMMARY OF MATERIAL U.S. FEDERAL
INCOME TAX CONSEQUENCES TO
NON-U.S. HOLDERS
OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON
STOCK. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
OUR COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL, AND
NON-U.S. TAX
LAWS, AS WELL AS U.S. FEDERAL ESTATE AND GIFT TAX LAWS, AND
ANY APPLICABLE TAX TREATY.
139
Income
Tax Consequences of an Investment in Common Stock
Distributions
on Common Stock
As discussed under Dividend Policy, we do not
anticipate paying dividends. If we pay cash or distribute
property to holders of shares of common stock, such
distributions generally will constitute dividends for
U.S. federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles. Distributions in
excess of current and accumulated earnings and profits will
constitute a return of capital that will be applied against and
reduce (but not below zero) the holders adjusted tax basis
in our common stock. Any remaining excess will be treated as
gain from the sale or exchange of the common stock and will be
treated as described under Gain or Loss on
Sale, Exchange or Other Taxable Disposition of Common
Stock below.
Dividends paid to a
non-U.S. holder
that are not effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States generally
will be subject to withholding of U.S. federal income tax
at a rate of 30% or such lower rate as may be specified by an
applicable income tax treaty. A
non-U.S. holder
that wishes to claim the benefit of an applicable tax treaty
withholding rate generally will be required to (i) complete
IRS
Form W-8BEN
(or other applicable form) and certify under penalties of
perjury that such holder is not a U.S. person and is
eligible for the benefits of the applicable tax treaty or
(ii) if our common stock is held through certain foreign
intermediaries, satisfy the relevant certification requirements
of applicable U.S. Treasury Regulations. These forms may
need to be periodically updated.
A
non-U.S. holder
eligible for a reduced rate of withholding of U.S. federal
income tax pursuant to an income tax treaty may obtain a refund
of any excess amounts withheld by timely filing an appropriate
claim for refund with the IRS.
Non-U.S. holders
should consult their own tax advisors regarding their
entitlement to benefits under an applicable income tax treaty
and the manner of claiming the benefits of such treaty
(including, without limitation, the need to obtain a
U.S. taxpayer identification number).
Dividends that are effectively connected with a
non-U.S. holders
conduct of a trade or business in the United States, and, if
required by an applicable income tax treaty, attributable to a
permanent establishment or fixed base maintained by the
non-U.S. holder
in the United States, are subject to U.S. federal income
tax on a net income basis at the U.S. federal income tax
rates generally applicable to a U.S. holder and are not
subject to withholding of U.S. federal income tax, provided
that the
non-U.S. holder
establishes an exemption from such withholding by complying with
certain certification and disclosure requirements. Any such
effectively connected dividends (and, if required, dividends
attributable to a U.S. permanent establishment or fixed
base) received by a
non-U.S. holder
that is treated as a foreign corporation for U.S. federal
income tax purposes may be subject to an additional branch
profits tax at a 30% rate, or such lower rate as may be
specified by an applicable income tax treaty.
Gain
or Loss on Sale, Exchange or Other Taxable Disposition of Common
Stock
Any gain recognized by a
non-U.S. holder
on a sale or other taxable disposition of our common stock
generally will not be subject to U.S. federal income tax,
unless:
(i) The gain is effectively connected with a trade or
business of the
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, is attributable to a U.S. permanent
establishment or fixed base of the
non-U.S. holder);
(ii) The
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
(iii) We are or have been a U.S. real property
holding corporation (USRPHC) for
U.S. federal income tax purposes and the
non-U.S. holder
is not eligible for any treaty exemption. However, the
non-U.S. holder
generally will not be subject to U.S. federal income tax if
(i) our common stock is regularly traded on an established
securities market and (ii) the
non-U.S. holder
held, directly or indirectly, at any time during the five-year
period ending on the date of disposition, 5% or less of our
common stock. A corporation is generally a USRPHC if the fair
market value of its U.S. real property
140
interests equals or exceeds 50% of the sum of the fair market
value of its worldwide real property interests plus its other
assets used or held for use in a trade or business. We believe
that we currently are a USRPHC, and we expect to remain a
USRPHC. Our common stock is currently listed on the NYSE and we
believe that, for as long as we continue to be so listed, our
common stock will be treated as regularly traded on
an established market.
Any gain recognized by a
non-U.S. holder
that is described in clause (i) or (iii) of the
preceding paragraph generally will be subject to tax at the
U.S. federal income tax rates generally applicable to a
U.S. person and be required to file a U.S. tax return.
Such
non-U.S. holders
are urged to consult their tax advisors regarding the possible
application of these rules. Any gain of a corporate
non-U.S. holder
that is described in clause (i) above may also be subject
to an additional branch profits tax at a 30% rate, or such lower
rate as may be specified by an applicable income tax treaty. An
individual
non-U.S. holder
that is described in clause (ii) of such paragraph
generally will be subject to a flat 30% tax (or a lower
applicable tax treaty rate) on the U.S. source capital gain
derived from the disposition, which may be offset by
U.S. source capital losses during the taxable year of the
disposition.
Information
Reporting and Backup Withholding
We generally must report annually to the IRS and to each
non-U.S. holder
of our common stock the amount of dividends paid to such holder
on our common stock and the tax, if any, withheld with respect
to those dividends. Copies of the information returns reporting
those dividends and withholding may also be made available to
the tax authorities in the country in which the
non-U.S. holder
is a resident under the provisions of an applicable income tax
treaty or agreement. Information reporting also is generally
required with respect to the proceeds from sales and other
dispositions of our common stock to or through the
U.S. office (and in certain cases, the foreign office) of a
broker.
Under some circumstances, U.S. Treasury Regulations require
backup withholding of U.S. federal income tax, currently at
a rate of 28%, on reportable payments with respect to our common
stock. A
non-U.S. holder
generally may eliminate the requirement for information
reporting (other than in respect to dividends, as described
above) and backup withholding by providing certification of its
foreign status, under penalties of perjury, on a duly executed
applicable IRS
Form W-8
or by otherwise establishing an exemption. Notwithstanding the
foregoing, backup withholding and information reporting may
apply if either we or our paying agent has actual knowledge, or
reason to know, that a holder is a U.S. person.
Backup withholding is not a tax. Rather, the amount of any
backup withholding will be allowed as a credit against a
non-U.S. holders
U.S. federal income tax liability, if any, and may entitle
such
non-U.S. holder
to a refund, provided that certain required information is
timely furnished to the IRS.
Non-U.S. holders
should consult their own tax advisors regarding the application
of backup withholding and the availability of and procedure for
obtaining an exemption from backup withholding in their
particular circumstances.
Additional
Withholding for Certain Payments to
Non-U.S.
Entities
Recently enacted legislation imposes, effective for payments
after December 31, 2012, a new 30% withholding tax on
certain dividends and proceeds from sale of stock for a
foreign financial institution unless such
institution enters into an agreement with the
U.S. government to collect and provide to the U.S. tax
authorities substantial information regarding U.S. account
holders of such institution (which would include certain account
holders that are foreign entities with U.S. owners). The
legislation would also generally impose a withholding tax of 30%
on such dividends and proceeds paid to a
non-U.S. entity
that is not a foreign financial institution unless
such entity provides the withholding agent with a certification
identifying the direct and indirect U.S. owners of the
entity. Under certain circumstances, a
non-U.S. Holder
may be eligible for refunds or credits of such taxes.
Prospective investors are urged to consult with their tax
advisors regarding the possible implications of this legislation
on their investment in shares of our stock.
141
UNDERWRITING
Under the terms and subject to the conditions in an underwriting
agreement dated the date of this prospectus, the underwriters
named below, for whom J.P. Morgan Securities LLC and Morgan
Stanley & Co. Incorporated are acting as
representatives, have severally agreed to purchase, and the
selling stockholders have agreed to sell to them, severally, the
number of shares of common stock indicated below:
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Number of
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Name
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Shares
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J.P. Morgan Securities LLC
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Morgan Stanley & Co. Incorporated
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Total
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10,000,000
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The underwriters and the representatives are collectively
referred to as the underwriters and the
representatives, respectively. The underwriters are
offering the shares of common stock subject to their acceptance
of the shares from the selling stockholders and subject to prior
sale. The obligations of the several underwriters to pay for and
accept delivery of the shares of common stock offered by this
prospectus are subject to the approval of certain legal matters
by their counsel and to certain other customary conditions. The
underwriting agreement provides for a firm commitment
underwriting, and the underwriters are obligated to take and pay
for all of the shares of common stock offered by this prospectus
if any such shares are taken. However, the underwriters are not
required to take or pay for the shares covered by the
underwriters option to purchase additional shares
described below.
The underwriters initially propose to offer part of the shares
of common stock directly to the public at the offering price
listed on the cover page of this prospectus and part to certain
dealers at a price that represents a concession not in excess of
$ a share under the public offering
price. After the initial offering of the shares of common stock,
the offering price and other selling terms may from time to time
be varied by the representatives.
Certain of the selling stockholders have granted to the
underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase up to 1,500,000 additional
shares of our common stock at the public offering price listed
on the cover page of this prospectus, less underwriting
discounts and commissions. To the extent the option is
exercised, each underwriter will become obligated, subject to
certain conditions, to purchase about the same percentage of the
additional shares of common stock as the number listed next to
the underwriters name in the preceding table bears to the
total number of shares of common stock listed next to the names
of all underwriters in the preceding table.
The following table shows the per share and total public
offering price, underwriting discounts and commissions, and
proceeds before expenses to the selling stockholders. These
amounts are shown assuming both no exercise and full exercise of
the underwriters option to purchase up to an additional
1,500,000 shares of our common stock.
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Per Share
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No Exercise
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Full Exercise
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Public offering price
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$
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$
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$
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Underwriting discounts and commissions to be paid by selling
stockholders
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$
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$
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$
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Proceeds, before expenses, to selling stockholders
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$
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$
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$
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The estimated offering expenses payable by us for this offering
and the offering are approximately
$ .
The underwriters have informed us that they do not intend sales
to discretionary accounts to exceed 5% of the total number of
shares of common stock offered by them.
Our common stock is listed on the NYSE under the symbol
MCP.
142
We, all of our executive officers and directors and all of the
selling stockholders have agreed that, without the prior written
consent of J.P. Morgan Securities LLC and Morgan
Stanley & Co. Incorporated on behalf of the
underwriters, we and they will not, during the period ending
90 days after the date of this prospectus (the
restricted period):
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offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any
shares of common stock or mandatory convertible preferred stock
or any securities convertible into or exercisable or
exchangeable for shares of common stock or mandatory convertible
preferred stock;
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file any registration statement with the SEC relating to the
offering of any shares of common stock or mandatory convertible
preferred stock or any securities convertible into or
exercisable or exchangeable for common stock or mandatory
convertible preferred stock; or
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enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the common stock or mandatory convertible
preferred stock or such other securities,
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whether any such transaction described above is to be settled by
delivery of common stock or mandatory convertible preferred
stock or such other securities, in cash or otherwise.
In addition, we and each such person agrees that, without the
prior written consent of J.P. Morgan Securities LLC and
Morgan Stanley & Co. Incorporated on behalf of the
underwriters, we or such person will not, during the restricted
period, make any demand for, or exercise any right with respect
to, the registration of any shares of common stock or mandatory
convertible preferred stock or any security convertible into or
exercisable or exchangeable for common stock or mandatory
convertible preferred stock.
The restrictions described in the immediately preceding
paragraph do not apply to the sale of shares of common stock or
mandatory convertible preferred stock to the underwriters.
With respect to us, the restrictions described above do not
apply to:
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issuances of shares of our common stock, options, warrants or
other equity awards relating to our common stock pursuant to our
stock incentive plan, provided that such shares, options,
warrants or other equity awards are restricted through the
restricted period;
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issuances of shares of common stock upon conversion of, or in
connection with a dividend on, our mandatory convertible
preferred stock;
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in the case of any existing warrant or option to purchase, or
other equity award for, shares of our common stock that is
disclosed in this prospectus, the issuance by us of shares of
common stock upon the exercise or vesting of such warrant,
option or equity award, as the case may be, provided that no
filing under Section 16(a) of the Exchange Act shall
be required or shall be voluntarily made in connection with any
such issuance by us during the restricted period;
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the filing of a registration statement on
Form S-8
or other appropriate forms as required by the Securities Act,
and any amendments thereto, relating to our common stock or
other equity-based securities issuable pursuant to the Plan;
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the filing of a registration statement on
Form S-3,
Form S-1
or other appropriate forms as required by the Securities Act,
and any amendments thereto, no earlier than August 5, 2011,
registering the sale of shares of common stock by Silmet Grupp;
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the filing of a registration statement on
Form S-4
or other appropriate forms as required by the Securities Act,
and any amendments to such forms, related to our common stock or
other of our equity securities issuable in connection with any
merger, acquisition or other business combination, provided that
three days advance notice of such filing is provided to
J.P. Morgan Securities LLC and Morgan Stanley &
Co. Incorporated;
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143
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the issuance of shares of our common stock pursuant to the
transaction contemplated under the terms of our memorandum of
understanding with Sumitomo, provided that the recipient of such
shares of common stock shall agree to be bound by the
restrictions described above for the balance of the restricted
period;
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any offer or entry into a contract to sell any shares of our
common stock, options, warrants or other convertible securities
relating to our common stock in connection with any bona fide
merger, acquisition, business combination, joint venture or
strategic or commercial relationship, to a third party or group
of third parties (each an M&A transaction), and
any public announcement relating to any such offer or entry into
a contract, provided that three days advance notice of
such announcement is provided to J.P. Morgan Securities LLC
and Morgan Stanley & Co. Incorporated; or
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any issuance of shares of our common stock, options, warrants or
other convertible securities relating to our common stock, in
connection with any M&A transaction of which
J.P. Morgan Securities LLC and Morgan Stanley &
Co. Incorporated have been advised three days in advance,
provided that the recipient of such shares of common stock shall
agree to be bound by the restrictions described above for the
balance of the restricted period, and provided that the amount
of shares of our common stock, options, warrants or other
convertible securities relating to our common stock issued in
each such M&A transaction does not exceed an amount greater
than 15% of our common stock outstanding on the date of such
M&A transaction.
|
With respect to our directors, officers and the other holders of
our outstanding stock, the restrictions described above do not
apply to:
|
|
|
|
|
the exercise of a warrant or an option to purchase, or other
equity award for, shares of our common stock (provided that any
shares of common stock received pursuant to such exercise are
subject to the same restrictions as those described above);
|
|
|
|
in the case of an option expiring during the restricted period,
the sale or transfer of shares of our common stock to satisfy
any payment or withholding obligations in connection with the
exercise of an option to purchase, or other equity award for,
shares of our common stock, or in connection with any cashless
exercise of a warrant to purchase shares of our common stock;
|
|
|
|
the conversion of mandatory convertible preferred stock or other
equity interests into shares of our common stock;
|
|
|
|
transactions relating to shares of our common stock or mandatory
convertible preferred stock or other securities acquired in open
market transactions after the completion of this offering
(provided that no filing under Section 16(a) of the
Exchange Act shall be required or shall be voluntarily made in
connection with subsequent sales of common stock or mandatory
convertible preferred stock or other securities acquired in such
open market transactions);
|
|
|
|
transfers of shares of our common stock or mandatory convertible
preferred stock or any security convertible into our common
stock or mandatory convertible preferred stock (a) as a
bona fide gift, (b) to any affiliate of the director,
officer, or other holder of our outstanding common stock,
(c) to any trust for the direct or indirect benefit of the
director, officer or such other holder of our outstanding stock
or an immediate family member of such individual or (d) to
any immediate family member of the director, officer or such
other holder of our outstanding stock, except that (c) and
(d) do not apply to our stockholders that are not
individuals;
|
|
|
|
transfers of shares of our common stock or mandatory convertible
preferred stock or any security convertible into our common
stock or mandatory convertible preferred stock pursuant to the
laws of descent or distribution, except that this exception does
not apply to our stockholders that are not individuals;
|
|
|
|
in the case of our stockholders that are not individuals only,
distributions of shares of our common stock or mandatory
convertible preferred stock or any security convertible into
shares of our common
|
144
|
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|
|
stock or mandatory convertible preferred stock by a stockholder
to any partner, member or stockholders of such
stockholder; and
|
|
|
|
|
|
the establishment of a trading plan pursuant to
Rule 10b5-1
under the Exchange Act for the transfer of shares of our common
stock or mandatory convertible preferred stock (provided that
such plan does not provide for the transfer of shares of our
common stock or mandatory convertible preferred stock during the
restricted period and no public announcement or filing under the
Exchange Act regarding the establishment of such plan shall be
required of or voluntarily made by or on behalf of the director
of officer or us during the restricted period);
|
provided that, in the case of any transfer or distribution
pursuant to the fifth, sixth or seventh bullet above,
(x) each transferee shall sign and deliver a
lock-up
letter substantially in the form of the
lock-up
letter signed by the director or officer and (y) no filing
under Section 16(a) of the Exchange Act, reporting a
reduction in beneficial ownership of shares of our common stock
or mandatory convertible preferred stock, shall be required or
shall be voluntarily made during the restricted period.
The restricted period described in the preceding paragraph will
be extended if:
|
|
|
|
|
during the last 17 days of the restricted period we issue
an earnings release or material news event relating to us
occurs, or
|
|
|
|
prior to the expiration of the restricted period, we announce
that we will release earnings results during the 16- day period
beginning on the last day of the restricted period, in which
case the restrictions described in the preceding paragraph will
continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
|
In order to facilitate this offering of the common stock, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the common stock. Specifically,
the underwriters may sell more shares than they are obligated to
purchase under the underwriting agreement, creating a short
position. A short sale is covered if the short position is no
greater than the number of shares available for purchase by the
underwriters under the option. The underwriters can close out a
covered short sale by exercising the option or purchasing shares
in the open market. In determining the source of shares to close
out a covered short sale, the underwriters will consider, among
other things, the open market price of shares compared to the
price available under the option. The underwriters may also sell
shares in excess of the option, creating a naked short position.
The underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect
investors who purchase in this offering. As an additional means
of facilitating this offering, the underwriters may bid for, and
purchase, shares of common stock in the open market to stabilize
the price of the common stock. These activities may raise or
maintain the market price of the common stock above independent
market levels or prevent or retard a decline in the market price
of the common stock. The underwriters are not required to engage
in these activities and may end any of these activities at any
time.
We and the selling stockholders on the one hand, and the
underwriters on the other hand, have agreed to indemnify each
other against certain liabilities, including liabilities under
the Securities Act.
A prospectus in electronic format may be made available on
websites maintained by one or more underwriters, or selling
group members, if any, participating in this offering. The
representatives may agree to allocate a number of shares of
common stock to underwriters for sale to their online brokerage
account holders. Internet distributions will be allocated by the
representatives to underwriters that may make Internet
distributions on the same basis as other allocations.
145
Other
Relationships
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory and investment banking
services for us, for which they received or will receive
customary fees and expenses.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive, each underwriter
has represented and agreed that with effect from and including
the date on which the Prospectus Directive is implemented in
that Member State it has not made and will not make an offer of
Shares to the public in that Member State, except that it may,
with effect from and including such date, make an offer of
Shares to the public in that Member State:
(a) at any time to legal entities which are authorized or
regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to
invest in securities;
(b) at any time to any legal entity which has two or more
of (1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts; or
(c) at any time in any other circumstances which do not
require the publication by us of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of the above, the expression an offer of
Shares to the public in relation to any Shares in any
Member State means the communication in any form and by any
means of sufficient information on the terms of the offer and
the Shares to be offered so as to enable an investor to decide
to purchase or subscribe the Shares, as the same may be varied
in that Member State by any measure implementing the Prospectus
Directive in that Member State and the expression Prospectus
Directive means Directive 2003/71/EC and includes any relevant
implementing measure in that Member State.
United
Kingdom
Each underwriter has represented and agreed that it has only
communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the Financial Services and Markets Act
2000) in connection with the issue or sale of the shares of
our common stock in circumstances in which Section 21(1) of
such Act does not apply to us and it has complied and will
comply with all applicable provisions of such Act with respect
to anything done by it in relation to any Shares in, from or
otherwise involving the United Kingdom.
146
CHANGE IN
ACCOUNTANTS
On January 14, 2010, Molycorp, LLCs board of
directors approved the appointment of PricewaterhouseCoopers LLP
as our independent registered public accounting firm for the
period from June 12, 2008 (Inception) through
December 31, 2008 and for the year ended December 31,
2009. Prior to their engagement on January 14, 2010,
neither we nor anyone on our behalf consulted with
PricewaterhouseCoopers LLP regarding: (i) the application
of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might
be rendered on our financial statements, and neither a written
report was provided to us nor oral advice was provided that
PricewaterhouseCoopers LLP concluded was an important factor
considered by us in reaching a decision as to any accounting,
auditing or financial reporting issue; or (ii) any matter
that was either the subject of a disagreement (as that term is
defined in Item 304(a)(1)(iv) of
Regulation S-K
and the related instructions to Item 304 of
Regulation S-K)
or a reportable event (as that term is defined in
Item 304(a)(1)(v) of
Regulation S-K).
LEGAL
MATTERS
The validity of the issuance of our securities offered by this
prospectus will be passed upon for us by Jones Day. Certain
legal matters relating to this offering will be passed on for
the underwriters by Davis Polk & Wardwell LLP, New
York, New York.
EXPERTS
The consolidated financial statements as of and for the years
ended December 31, 2010 and 2009, the period from
June 12, 2008 (Inception) through December 31, 2008,
and cumulatively for the period from June 12, 2008
(Inception) through December 31, 2010 included in this
prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of such firm as experts
in auditing and accounting.
The information appearing in this prospectus concerning
estimates of our proven and probable REO reserves and
non-reserve REO deposits for the Mountain Pass facility was
derived from the report of SRK Consulting, independent mining
consultants, and has been included herein upon the authority of
SRK Consulting as experts with respect to the matters covered by
such report and in giving such report.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act to register our securities being
offered in this prospectus. This prospectus, which constitutes a
part of the registration statement, does not contain all the
information set forth in the registration statement or the
exhibits and schedules filed thereto. For further information
about us and the securities offered by this prospectus, we refer
you to the registration statement and the exhibits and schedules
filed with the registration statement. Any statement contained
in this prospectus regarding the contents of any contract or any
other document that is filed as an exhibit to the registration
statement is not necessarily complete and each such statement is
qualified in all respects by reference to the full text of such
contract or other document filed as an exhibit to the
registration statement.
You may read and copy any materials we file with the SEC,
including the registration statement, at the SECs Public
Reference Room at 100 F Street, NE,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet website that contains
reports, proxy statements and other information about issuers,
like us, that file electronically with the SEC. The address of
that website is
http://www.sec.gov.
Information on or accessible through the SECs website is
not a part of this prospectus.
We are subject to the information reporting requirements of the
Exchange Act, as amended, and file reports, proxy statements and
other information with the SEC. These reports, proxy statements
and other information are available for inspection and copying
at the public reference room and website of the SEC referred to
above.
147
GLOSSARY
OF SELECTED MINING TERMS
The following is a glossary of selected mining terms used in
this quarterly report that may be technical in nature:
|
|
|
Assay |
|
The analysis of the proportions of metals in ore, or the testing
of an ore or mineral for composition, purity, weight, or other
properties of commercial interest. |
|
Bastnasite |
|
Bastnasite is a mixed Lanthanide fluoro-carbonate mineral (Ln F
CO3) that currently provides the bulk of the worlds supply
of the light REEs. Bastnasite and monazite are the two most
common sources of cerium and other REEs. Bastnasite is found in
carbonatites, igneous carbonate rocks that melt at unusually low
temperatures. |
|
Cerium |
|
Cerium (Ce) is a soft, silvery, ductile metal which easily
oxidizes in air. Cerium is the most abundant of the REEs, and is
found in a number of minerals, including monazite and
bastnasite. Cerium has two relatively stable oxidation states,
enabling both the storage of oxygen and its widespread use in
catalytic converters. Cerium is also widely used in glass polish. |
|
Ceric Hydrate |
|
Ceric hydrate is a form of cerium that is precipitated during
the separation process and can be dried to produce cerium oxide. |
|
Concentrate |
|
A mineral processing product that generally describes the
material that is produced after crushing and grinding ore
effecting significant separation of gangue (waste) minerals from
the desired metal and/or metal minerals, and discarding the
waste minerals. The resulting concentrate of
minerals typically has an order of magnitude higher content of
minerals than the beginning ore material. |
|
Cut-off grade |
|
The lowest grade of mineralized material that qualifies as ore
in a given deposit. The grade above which minerals are
considered economically mineable considering the following
parameters: |
|
|
|
estimates over the relevant period of mining costs, ore
treatment costs, general and administrative costs, refining
costs, royalty expenses, by-product credits, process and
refining recovery rates and price. |
|
Didymium |
|
Didymium is a combination of neodymium and praseodymium,
approximately 75% neodymium and approximately 25% praseodymium. |
|
Dysprosium |
|
Dysprosium (Dy) is used in high power neodymium iron boron
magnets to enhance thermal stability. |
|
Europium |
|
Europium (Eu) is desirable due to its photon emission.
Excitation of the europium atom, by absorption of electrons or
by UV radiation, results in changes in energy levels that create
a visible emission. Almost all practical uses of europium
utilize this luminescent behavior. |
|
Gadolinium |
|
Gadolinium (Gd) absorbs neutrons and therefore is used for
shielding in neutron radiography and in nuclear reactors.
Because of its paramagnetic properties, solutions of organic
gadolinium complexes and gadolinium compounds are the most
popular intravenous medical magnetic resonance imaging contrast
agents in MRI. |
|
Grade |
|
The average REE content, as determined by assay of a metric ton
of ore. |
|
Lanthanum |
|
Lanthanum (La) is the first member of the Lanthanide series.
Lanthanum is a strategically important rare earth element due to
its use in fluid bed cracking catalysts, FCCs, which are used in
the production of transportation and aircraft fuel. Lanthanum is
also used in fuel cells and batteries. |
|
Mill |
|
A processing plant that produces a concentrate of the valuable
minerals contained in an ore. |
|
Mineralization |
|
The extent and form of metal atom deposition as found in rocks
or ore or the process by which the metals came to be deposited
there. |
G-1
|
|
|
Monazite |
|
Monazite is a reddish-brown phosphate mineral. Monazite minerals
are typically accompanied by concentrations of uranium and
thorium. This has historically limited the processing of
Monazite, however this mineral is becoming more attractive
because it typically has elevated concentrations of heavy rare
earths. |
|
Neodymium |
|
Neodymium (Nd) is used in the production of NdFeB permanent
magnets. These permanent magnets, which maximize the power/cost
ratio, are used in a large variety of motors and mechanical
systems. Cellular phones, vehicle systems and certain lasers
contain both neodymium magnets and capacitors, which produce
powerful electronic generation and boost the power of these
devices. |
|
Ore |
|
That part of a mineral deposit which could be economically and
legally extracted or produced at the time of reserve
determination. |
|
Overburden |
|
In surface mining, overburden is the material that overlays an
ore deposit. Overburden is removed prior to mining. |
|
Praseodymium |
|
Praseodymium (Pr) comprising about 4% of the lanthanide content
of bastnasite, is a common coloring pigment. Along with
neodymium, praseodymium is used to filter certain wavelengths of
light. Praseodymium is used in photographic filters, airport
signal lenses, and welders glasses. As part of an alloy,
praseodymium is used in permanent magnet systems designed to
make smaller and lighter motors. Praseodymium is also used in
automobile and other internal combustion engine pollution
control catalysts. |
|
Probable reserves |
|
Reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven
reserves, but the sites for inspection, sampling, and
measurement are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for
proven reserves, is high enough to assume continuity between
points of observation. |
|
Proven reserves |
|
Reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes; grade
and/or quality are computed from the results of detailed
sampling; and (b) the sites for inspection, sampling and
measurement are spaced so closely and the geologic character is
so well defined that size, shape, depth and mineral content of
reserves are well established. |
|
Recovery |
|
The percentage of contained metal actually extracted from ore in
the course of processing such ore. |
|
Reserves |
|
That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve
determination. Same definition as ore |
|
Samarium |
|
Samarium (Sm) is predominantly used to produce high temperature,
high power samarium cobalt magnets. Although these magnets are
less powerful than NdFeB magnets, they can be used over a wider
range of conditions. |
|
Strike |
|
The direction of the line of intersection of a mineral deposit
with the horizontal plane of the ground. The strike of a deposit
is the direction of a straight line that connects two points of
equal elevation on the deposit. |
|
Tailings |
|
That portion of the mined material that remains after the
valuable minerals have been extracted. |
|
Terbium |
|
Terbium (Tb) is a lanthanide series element used in x-ray and
color television tubes as well as high grade rare earth magnets. |
|
Yttrium |
|
Yttrium (Y), although not a lanthanide series element, is often
considered to be a rare earth element and its behavior is
similar to heavy rare earth elements. It is predominantly
utilized in lighting applications and ceramics. Other uses
include resonators, lasers, microwave communication devices and
other electronic devices. |
G-2
INDEX TO
FINANCIAL STATEMENTS
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|
|
|
|
Page
|
|
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
MOLYCORP, LLC
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-24
|
|
|
|
|
F-25
|
|
|
|
|
F-26
|
|
|
|
|
F-27
|
|
|
|
|
F-28
|
|
F-1
Report of
Independent Registered Public Accounting Firm
To the Shareholders of Molycorp, Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
stockholders equity and of cash flows present fairly, in
all material respects, the financial position of Molycorp, Inc.
and its wholly-owned subsidiaries (a development stage company)
at December 31, 2010 and 2009, and the results of their
operations and their cash flows for the years ended
December 31, 2010 and 2009, the period from June 12,
2008 (Inception) through December 31, 2008 and cumulatively
for the period from June 12, 2008 (Inception) through
December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers
LLP
Denver, Colorado
March 9, 2011
F-2
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(In thousands, except share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
316,430
|
|
|
$
|
6,929
|
|
Trade accounts receivable
|
|
|
16,421
|
|
|
|
1,221
|
|
Inventory (Note 4e)
|
|
|
18,822
|
|
|
|
8,545
|
|
Prepaid expenses and other
|
|
|
1,759
|
|
|
|
1,825
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
353,432
|
|
|
|
18,520
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
26,200
|
|
|
$
|
|
|
Property, plant and equipment, net (Note 4f)
|
|
|
93,966
|
|
|
|
66,352
|
|
Inventory (Note 4e)
|
|
|
5,212
|
|
|
|
12,090
|
|
Intangible asset, net
|
|
|
639
|
|
|
|
704
|
|
Investments
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
126,128
|
|
|
|
79,146
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
479,560
|
|
|
$
|
97,666
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
13,009
|
|
|
$
|
2,886
|
|
Accrued expenses (Note 4k)
|
|
|
4,225
|
|
|
|
5,944
|
|
Short-term borrowing related party (Note 10)
|
|
|
3,085
|
|
|
|
|
|
Current portion of asset retirement obligation (Note 4l)
|
|
|
393
|
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
20,712
|
|
|
|
9,523
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Asset retirement obligation (Note 4l)
|
|
$
|
12,078
|
|
|
$
|
13,509
|
|
Other non-current liabilities
|
|
|
257
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
12,335
|
|
|
|
13,528
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
33,047
|
|
|
$
|
23,051
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 350,000,000 shares
authorized at December 31, 2010; 82,291,200 and
0 shares outstanding at December 31, 2010 and 2009,
respectively
|
|
|
82
|
|
|
|
|
|
Class A common stock, $0.001 par value; 0 and
60,000,000 shares authorized at December 31, 2010 and
2009, respectively; 0 and 44,998,185 shares outstanding at
December 31, 2010 and 2009, respectively
|
|
|
|
|
|
|
45
|
|
Class B common stock, $0.001 par value; 0 and
4,000,000 shares authorized at December 31, 2010 and
2009, respectively; 0 and 0 shares outstanding at
December 31, 2010 and 2009, respectively
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
539,866
|
|
|
|
117,231
|
|
Deficit accumulated during the development stage
|
|
|
(93,435
|
)
|
|
|
(42,661
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
446,513
|
|
|
|
74,615
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
479,560
|
|
|
$
|
97,666
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
Year Ended
|
|
|
June 12, 2008
|
|
|
June 12, 2008
|
|
|
|
December 31,
|
|
|
(Inception) Through
|
|
|
(Inception) Through
|
|
|
|
2010
|
|
|
2009
|
|
|
December 31, 2008
|
|
|
December 31, 2010
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
Sales
|
|
$
|
35,157
|
|
|
$
|
7,093
|
|
|
$
|
2,137
|
|
|
$
|
44,387
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(37,591
|
)
|
|
|
(21,785
|
)
|
|
|
(13,027
|
)
|
|
|
(72,403
|
)
|
Selling, general and administrative
|
|
|
(18,774
|
)
|
|
|
(12,444
|
)
|
|
|
(2,829
|
)
|
|
|
(34,047
|
)
|
Stock-based compensation
|
|
|
(28,739
|
)
|
|
|
(241
|
)
|
|
|
(150
|
)
|
|
|
(29,130
|
)
|
Depreciation and amortization
|
|
|
(319
|
)
|
|
|
(191
|
)
|
|
|
(19
|
)
|
|
|
(529
|
)
|
Accretion expense
|
|
|
(912
|
)
|
|
|
(1,006
|
)
|
|
|
(250
|
)
|
|
|
(2,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(51,178
|
)
|
|
|
(28,574
|
)
|
|
|
(14,138
|
)
|
|
|
(93,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
155
|
|
|
|
181
|
|
|
|
54
|
|
|
|
390
|
|
Interest income (expense), net of amount capitalized
|
|
|
249
|
|
|
|
(194
|
)
|
|
|
10
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(50,774
|
)
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(93,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (Common shares)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
62,332,054
|
|
|
|
39,526,568
|
|
|
|
38,829,225
|
|
|
|
48,306,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
62,332,054
|
|
|
|
39,526,568
|
|
|
|
38,829,225
|
|
|
|
48,306,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.81
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(1.93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.81
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(1.93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Weighted average shares outstanding include the retroactive
treatment of exchange ratios for conversion of Class A
common shares and Class B common shares to common stock in
conjunction with the initial public offering. |
See accompanying notes to the consolidated financial statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During the
|
|
|
Total
|
|
|
|
Class A Common Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance at June 12, 2008 (Inception)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Issuance of shares
|
|
|
38,762,268
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
91,961
|
|
|
|
|
|
|
|
92,000
|
|
Share based compensation
|
|
|
66,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,074
|
)
|
|
|
(14,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
38,829,225
|
|
|
$
|
39
|
|
|
|
|
|
|
$
|
|
|
|
$
|
92,111
|
|
|
$
|
(14,074
|
)
|
|
$
|
78,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares
|
|
|
3,844,858
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
|
|
|
|
|
|
|
18,004
|
|
Conversion of short term borrowings from member plus related
accrued interest in common shares
|
|
|
2,303,033
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
6,829
|
|
|
|
|
|
|
|
6,831
|
|
Exercise of employee options
|
|
|
21,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Share based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
241
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,587
|
)
|
|
|
(28,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
44,998,185
|
|
|
$
|
45
|
|
|
|
|
|
|
$
|
|
|
|
$
|
117,231
|
|
|
$
|
(42,661
|
)
|
|
$
|
74,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares
|
|
|
5,767,670
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
14,994
|
|
|
|
|
|
|
|
15,000
|
|
Exercise of employee options
|
|
|
126,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
Conversion of Class A common stock to common stock in
conjunction with the initial public offering
|
|
|
(50,892,260
|
)
|
|
|
(51
|
)
|
|
|
50,892,260
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of shares of common stock at $14.00 per share in initial
public offering, net of underwriting fees and other offering
costs of $29.2 million
|
|
|
|
|
|
|
|
|
|
|
29,128,700
|
|
|
|
29
|
|
|
|
378,604
|
|
|
|
|
|
|
|
378,633
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
2,270,240
|
|
|
|
2
|
|
|
|
28,737
|
|
|
|
|
|
|
|
28,739
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,774
|
)
|
|
|
(50,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
82,291,200
|
|
|
$
|
82
|
|
|
$
|
539,866
|
|
|
$
|
(93,435
|
)
|
|
$
|
446,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
Year Ended
|
|
|
June 12, 2008
|
|
|
June 12, 2008
|
|
|
|
December 31,
|
|
|
(Inception) through
|
|
|
(Inception) through
|
|
|
|
2010
|
|
|
2009
|
|
|
December 31, 2008
|
|
|
December 31, 2010
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(50,774
|
)
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(93,435
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,015
|
|
|
|
3,896
|
|
|
|
936
|
|
|
|
10,847
|
|
Accretion of asset retirement obligation
|
|
|
912
|
|
|
|
1,006
|
|
|
|
250
|
|
|
|
2,168
|
|
Non-cash inventory write-downs
|
|
|
3,473
|
|
|
|
9,035
|
|
|
|
9,509
|
|
|
|
22,017
|
|
Non-cash share-based compensation expense
|
|
|
28,739
|
|
|
|
241
|
|
|
|
150
|
|
|
|
29,130
|
|
Impairment of fixed assets
|
|
|
3,114
|
|
|
|
|
|
|
|
|
|
|
|
3,114
|
|
(Gain)/loss on sale of assets and settlement of ARO
|
|
|
(59
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(57
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(15,200
|
)
|
|
|
125
|
|
|
|
(1,897
|
)
|
|
|
(16,972
|
)
|
Inventory
|
|
|
(6,872
|
)
|
|
|
(13,557
|
)
|
|
|
(3,440
|
)
|
|
|
(23,869
|
)
|
Prepaid expenses and other
|
|
|
251
|
|
|
|
360
|
|
|
|
(1,634
|
)
|
|
|
(1,023
|
)
|
Accounts payable
|
|
|
3,797
|
|
|
|
(254
|
)
|
|
|
642
|
|
|
|
4,185
|
|
Asset retirement obligation
|
|
|
(632
|
)
|
|
|
(387
|
)
|
|
|
|
|
|
|
(1,019
|
)
|
Accrued expenses
|
|
|
(1,481
|
)
|
|
|
5,749
|
|
|
|
2,218
|
|
|
|
6,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(28,717
|
)
|
|
|
(22,371
|
)
|
|
|
(7,340
|
)
|
|
|
(58,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of the Mountain Pass facility
|
|
|
|
|
|
|
|
|
|
|
(82,150
|
)
|
|
|
(82,150
|
)
|
Proceeds from sale of investment in joint venture
|
|
|
|
|
|
|
9,700
|
|
|
|
|
|
|
|
9,700
|
|
Deposits
|
|
|
(26,200
|
)
|
|
|
|
|
|
|
|
|
|
|
(26,200
|
)
|
Capital expenditures
|
|
|
(33,129
|
)
|
|
|
(7,285
|
)
|
|
|
(321
|
)
|
|
|
(40,735
|
)
|
Investments
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
Proceeds from sale of assets
|
|
|
9
|
|
|
|
5
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(59,431
|
)
|
|
|
2,420
|
|
|
|
(82,471
|
)
|
|
|
(139,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from original stockholders
|
|
|
15,000
|
|
|
|
18,004
|
|
|
|
92,000
|
|
|
|
125,004
|
|
Repayments of short-term borrowings related party
(Note 10)
|
|
|
(1,107
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,107
|
)
|
Net proceeds from sale of common stock in conjunction with the
initial public offering
|
|
|
378,633
|
|
|
|
|
|
|
|
|
|
|
|
378,633
|
|
Payments of deferred financing costs
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
(185
|
)
|
Proceeds from exercise of options
|
|
|
300
|
|
|
|
50
|
|
|
|
|
|
|
|
350
|
|
Proceeds from short-term borrowings related party
(Note 10)
|
|
|
5,008
|
|
|
|
6,637
|
|
|
|
|
|
|
|
11,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
397,649
|
|
|
|
24,691
|
|
|
|
92,000
|
|
|
|
514,340
|
|
Net change in cash and cash equivalents
|
|
|
309,501
|
|
|
|
4,740
|
|
|
|
2,189
|
|
|
|
316,430
|
|
Cash and cash equivalents at beginning of the period
|
|
|
6,929
|
|
|
|
2,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
316,430
|
|
|
$
|
6,929
|
|
|
|
2,189
|
|
|
$
|
316,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of short-term borrowings from member plus accrued
interest, into common shares
|
|
$
|
|
|
|
$
|
6,831
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in accrued capital expenditures
|
|
$
|
5,510
|
|
|
$
|
(150
|
)
|
|
$
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-6
Molycorp, Inc. was formed on March 4, 2010 for the purpose
of continuing the business of Molycorp, LLC in corporate form.
On April 15, 2010, the members of Molycorp, LLC contributed
either (a) all of their member interests in Molycorp, LLC
or (b) all of their equity interest in entities that held
member interests in Molycorp, LLC (and no other assets or
liabilities) to Molycorp, Inc. in exchange for Molycorp, Inc.
Class A common stock. Accordingly, Molycorp, LLC and
Molycorp Minerals, LLC became subsidiaries of Molycorp, Inc.
(the Corporate Reorganization). On June 15,
2010, Molycorp LLC was merged with and into Molycorp Minerals,
LLC. On July 9, 2010, Molycorp, Inc. completed a
38.23435373-for-one stock split, which has been retroactively
reflected in the historical financial data for all periods
presented. On August 3, 2010, Molycorp, Inc. completed its
initial public offering (IPO) of common stock. In
connection with its IPO, Molycorp Inc. issued
29,128,700 shares of common stock at $14.00 per share
(including 1,003,700 shares issued in connection with the
underwriters option to purchase additional shares). Total
net proceeds of the offering were approximately
$378.6 million after underwriting discounts and commissions
and offering expenses payable to Molycorp, Inc. Immediately
prior to the consummation of the IPO, all of the shares of
Class A common stock and Class B common stock were
converted into shares of common stock. The conversion ratios for
the Class A common stock and the Class B common stock
have been retroactively reflected in the historical financial
information for all periods presented. Molycorp, Inc., together
with its subsidiaries is referred to herein as the
Company or Molycorp.
Molycorp Minerals, previously known as Rare Earth Acquisition
LLC (which was formed on June 12, 2008), acquired the
Mountain Pass, California rare earth deposit and associated
assets (the Mountain Pass facility) and assumed
certain liabilities from Chevron Mining, Inc.
(Chevron) on September 30, 2008.
The Mountain Pass facility is located in San Bernardino
County, California and is the only significant developed rare
earth resource in the western world. Rare earth elements
(REEs) are a group of specialty elements with unique
properties that make them critical to many existing and emerging
applications including:
|
|
|
|
|
Clean-energy technologies such as hybrid and electric vehicles,
wind turbines and compact florescent lighting;
|
|
|
|
High-technology applications including cell phones, personal
digital assistant devices, digital music players, hard disk
drives used in computers, computing devices, ear bud
speakers and microphones, as well as fiber optics, lasers and
optical temperature sensors;
|
|
|
|
Critical defense applications such as guidance and control
systems, communications, global positioning systems, radar and
sonar; and
|
|
|
|
Advanced water treatment applications including those for
industrial, military, homeland security, domestic and foreign
aid use.
|
The REE group includes 17 elements, namely the
15 lanthanide elements, which are lanthanum, cerium,
praseodymium, promethium (which does not occur naturally),
neodymium, samarium, europium, gadolinium, terbium, dysprosium,
holmium, erbium, thulium, ytterbium, and lutetium, and two
elements that have similar chemical properties to the lanthanide
elements yttrium and scandium. The oxides produced
from processing REEs are collectively referred to as rare earth
oxides (REOs). Bastnasite is a mineral that contains
REEs.
Operations at the Mountain Pass facility began in 1952 under
Molybdenum Corporation of America (MCA). MCA was
purchased by Union Oil of California (Unocal) in
1977. In 2002, mining operations were suspended at the Mountain
Pass facility primarily due to softening prices for REOs and a
lack of additional tailings disposal capacity. Chevron
Corporation purchased Unocal in 2005.
F-7
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
Prior to the acquisition, operations at the Mountain Pass
facility had been suspended with the exception of a pilot
processing project to recover neodymium from lanthanum
stockpiles produced prior to Chevrons ownership of the
Mountain Pass facility. The neodymium from lanthanum
(NFL) pilot processing project was undertaken to
improve the facilitys REE processing techniques. Since
June 12, 2008 (Inception) through March 31, 2010,
revenue was generated primarily from the sale of products
associated with the NFL pilot processing project, which
concluded in February 2010. In April 2010, the Company commenced
the second pilot processing campaign to recover cerium,
lanthanum, neodymium, praseodymium and
samarium/europium/gadolinium concentrate from bastnasite
concentrate stockpiles.
|
|
(2)
|
Basis of
Presentation
|
The Companys acquisition of the Mountain Pass facility has
been accounted for as an acquisition of net assets and not a
business combination. As described below, the Companys
current business plan includes investing substantial capital to
restart mining operations, construct and refurbish processing
facilities and other infrastructure, and to expand into metal
and alloy production. Molycorp will continue as a development
stage company until these activities have been completed which
is currently expected to be by the end of 2012.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All
intercompany balances and transactions have been eliminated in
consolidation.
We have revised our consolidated financial statements for an
overstatement of Work in Process (WIP) inventory. See
Note (13) Revision of Financial Statements for
December 31, 2010.
Most of the facilities and equipment acquired with the Mountain
Pass facility are at least 20 years old and must be
modernized or replaced. Under its current business plan, the
Company intends to spend approximately $531 million through
2012 to restart mining operations, construct and refurbish
processing facilities and other infrastructure at the Mountain
Pass facility and expand into metal and alloy production.
Capital expenditures, on an accrual basis, under this plan
totaled approximately $31.4 million in 2010. The Company
expects to finance these expenditures, the second phase
expansion plan (see Note 12) as well as its working
capital requirements, with the $360.4 million of net
proceeds from its IPO (after giving effect to the use of
$18.2 million of net proceeds for surety bonds),
approximately $173.1 million of net proceeds from its
offering of mandatory convertible preferred stock (see
Note 12), anticipated revenue from operations and
traditional debt financing, project financing,
and/or
government programs, including the U.S. Department of
Energy (DOE) loan guarantee program. The Company
submitted a Part I application on June 2010. On
July 21, 2010, the U.S. DOE deemed the Companys
application eligible for submission of a part II
application. Our Part II application was submitted on
December 31, 2010. On December 31, 2010, we entered
into a memorandum of understanding with Sumitomo Corporation
(Sumitomo), pursuant to which Sumitomo agreed to,
among other things, purchase $100 million of the
Companys common stock and arrange for $30 million of
debt financing. The consummation of these transactions with
Sumitomo is subject to numerous conditions and finalization of a
definitive agreement.
|
|
(4)
|
Summary
of Significant Accounting Policies
|
The preparation of the financial statements, in accordance with
generally accepted accounting principles in the United States of
America, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period.
F-8
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
Management bases its estimates on the Companys historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances. Actual results may differ
significantly from these estimates under different assumptions
and conditions.
Significant estimates made by management in the accompanying
financial statements include the collectability of accounts
receivable, the recoverability of inventory, the useful lives
and recoverability of long-lived assets such as property, plant
and equipment, and the adequacy of the Companys asset
retirement obligations.
|
|
(b)
|
Revenue
and Cost of Goods Sold
|
Revenue is recognized when persuasive evidence of an arrangement
exists, the risks and rewards of ownership have been transferred
to the customer, which is generally when title passes, the
selling price is fixed or determinable, and collection is
reasonably assured. Title generally passes upon shipment of
product from the Mountain Pass facility. Prices are generally
set at the time of, or prior to, shipment. Transportation and
distribution costs are incurred only on sales for which the
Company is responsible for delivering the product. We recognized
revenue of $3.2 million for inventory which had not been
shipped as of December 31, 2010 under a bill and hold
agreement.
Cost of goods sold includes the cost of production as well as
write-downs to the extent of inventory costs in excess of market
values. Primary production costs include labor, supplies,
maintenance costs, depreciation, and plant overhead.
|
|
(c)
|
Cash
and Cash Equivalents
|
Cash and cash equivalents consist of cash and liquid investments
with an original maturity of three months or less. At
December 31, 2010, cash and cash equivalents consisted of
$316.4 million (2009: $6.9 million) of funds held
in money market accounts.
|
|
(d)
|
Trade
Accounts Receivable
|
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. The Company reviews its allowance for
doubtful accounts on a quarterly basis. As of December 31,
2010 and 2009, an allowance for doubtful accounts was not
required.
Inventories consist of
work-in-process,
finished goods, stockpiles of bastnasite and lanthanum
concentrate, and materials and supplies. Inventory cost is
determined using the lower of weighted average cost or estimated
net realizable value. Inventory expected to be sold in the next
12 months is classified as a current asset in the
consolidated balance sheet.
Molycorp evaluates its production levels and costs to determine
if any should be deemed abnormal, and therefore excluded from
inventory costs. For the years ended December 31, 2010,
2009, the period from June 12, 2008 (Inception) through
December 31, 2008 and the period from June 12, 2008
(Inception) through December 31, 2010, Molycorp determined
that approximately $11.0 million, $2.5 million, $0.0
million and $13.5 million, respectively, of production
costs would have been allocated to additional tons produced,
assuming Molycorp had been operating at normal production rates.
As a result, these costs were excluded from inventory and
instead expensed during the applicable periods. The assessment
of normal production levels is judgmental and is unique to each
quarter. Molycorp models normal production levels and evaluates
historical ranges of production in assessing what is deemed to
be normal.
F-9
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
Write-downs to estimated net realizable value are charged to
cost of goods sold. Many factors influence the market prices for
REOs and, in the absence of established prices contained in
customer contracts, management uses an independent pricing
source to evaluate market prices for REOs at the end of each
quarter. For the years ended December 31, 2010 and 2009,
the period from June 12, 2008 (Inception) through
December 31, 2008 and cumulatively for the period from
June 12, 2008 (Inception) through December 31, 2010,
the Company recognized write-downs of $2.5 million
$9.0 million, $9.5 million and $21.0 million,
respectively, as a result of production costs in excess of
certain REO market prices. In addition, Molycorp recognized a
$1.0 million write-down of bastnasite stockpile inventory
based on estimated stockpile REO quantities at December 31,
2010.
The Company evaluates the carrying value of materials and supply
inventories each quarter giving consideration to slow-moving
items, obsolescence, excessive levels, and other factors and
recognizes related write-downs as necessary.
At December 31, 2010 and 2009, inventory consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Concentrate stockpiles
|
|
$
|
4,206
|
|
|
$
|
20
|
|
Work in process
|
|
|
3,582
|
|
|
|
4,777
|
|
Finished goods
|
|
|
9,307
|
|
|
|
2,685
|
|
Materials and supplies
|
|
|
1,727
|
|
|
|
1,063
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
18,822
|
|
|
$
|
8,545
|
|
|
|
|
|
|
|
|
|
|
Long term:
|
|
|
|
|
|
|
|
|
Concentrate stockpiles
|
|
$
|
5,108
|
|
|
$
|
11,844
|
|
Work in process
|
|
|
|
|
|
|
|
|
Finished goods
|
|
|
104
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
Total long term
|
|
$
|
5,212
|
|
|
$
|
12,090
|
|
|
|
|
|
|
|
|
|
|
|
|
(f)
|
Property,
Plant and Equipment, net
|
Property, plant and equipment associated with the acquisition of
the Mountain Pass facility was recorded at estimated fair value
as of the acquisition date. Expenditures for new property, plant
and equipment and improvements that extend the useful life or
functionality of the asset are capitalized. The Company incurred
$31.4 million and $0.1 million in plant modernization costs
for the years ended December 31, 2010 and 2009,
respectively. In addition the Company incurred $7.2 million
and $7.0 million in other capital expenditures for the
years ended December 31, 2010 and 2009, respectively. Our
anticipated project cost through 2012 to restart the mining
operations, construct and refurbish processing facilities and to
expand into the production of metals and alloys is
$531 million, which includes a $20 million increase
over our previous estimate. The increase is due to the increased
scope of the project including the acceleration of the
construction of the new crushing and milling facility and other
design changes to allow a faster conversion to 40,000 tons per
year than would otherwise be possible. Depreciation on plant and
equipment is calculated using the straight-line method over the
estimated useful lives of the assets. Depreciation expense for
the years ended December 31, 2010 and 2009, the period from
June 12, 2008 (Inception) through December 2008, and
cumulatively for the period from June 12, 2008 (Inception)
through December 31, 2010 was $6.0 million, $3.9
million, $0.9 million and $10.8 million, respectively.
Maintenance costs are expensed as incurred.
F-10
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
Mineral properties at December 31, 2010 and 2009, represent
the purchase price allocated to mineral resources associated
with the Mountain Pass facility and mineral property development
costs (see Note 4(g) below).
At December 31, 2010 and 2009, property, plant and
equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
800
|
|
|
$
|
800
|
|
Land improvements (15 years)
|
|
|
15,415
|
|
|
|
17,954
|
|
Buildings and improvements (4 to 27 years)
|
|
|
6,892
|
|
|
|
8,458
|
|
Plant and equipment (2 to 12 years)
|
|
|
19,560
|
|
|
|
12,065
|
|
Vehicles (7 years)
|
|
|
1,049
|
|
|
|
1,023
|
|
Computer software (5 years)
|
|
|
1,563
|
|
|
|
1,116
|
|
Furniture and fixtures (5 years)
|
|
|
170
|
|
|
|
41
|
|
Construction in progress
|
|
|
34,809
|
|
|
|
6,506
|
|
Mineral properties
|
|
|
23,968
|
|
|
|
23,138
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment at cost
|
|
|
104,226
|
|
|
|
71,101
|
|
Less accumulated depreciation
|
|
|
(10,260
|
)
|
|
|
(4,749
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
93,966
|
|
|
$
|
66,352
|
|
|
|
|
|
|
|
|
|
|
In accordance with ASC 360, Property Plant and
Equipment, long-lived assets such as property, plant, and
equipment, mineral properties and purchased intangible assets
subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company
recognized a $3.1 million net of depreciation, impairment
expense associated with the mill and crusher, including the
associated asset retirement cost, which is included in cost of
goods sold in the consolidated statement of operations as of the
year ended December 31, 2010, as a result of
managements decision to replace rather than refurbish
these assets.
|
|
(g)
|
Mineral
Properties and Development Costs
|
Mineral properties and development costs, which are referred to
collectively as mineral properties, include acquisition costs,
drilling costs, and the cost of other development work, all of
which are capitalized. The Company amortizes mineral properties
using the units of production method over estimated proven and
probable reserves. Molycorps proven and probable reserves
are based on extensive drilling, sampling, mine modeling, and
mineral recovery from which economic feasibility has been
determined. The reserves are estimated based on information
available at the time the reserves are calculated. Proven and
probable reserves are based on estimates, and no assurance can
be given that the indicated levels of recovery of REOs will be
realized or that production costs and estimated future
development costs will not exceed the net realizable value of
the products. Reserve estimates may require revisions based on
actual production experience. Market price fluctuations of REOs,
as well as increased production costs or reduced recovery rates,
could render proven and probable reserves containing relatively
lower grades of mineralization uneconomic to exploit and might
result in a reduction of reserves.
|
|
(h)
|
Research
and Development
|
The Company has invested significant resources to improve the
efficiency of our REO processing operations and the development
of new applications for individual REEs. For the period ending
December 31,
F-11
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
2010, 2009 and 2008 the Company spent $2.4 million,
$1.5 million and $0.4 million respectively. Research
and development costs are recognized under the Selling,
general and administrative line on the income statement.
The Company acquired its trade name in connection with the
Mountain Pass facility acquisition. Amortization is provided
using the straight-line method based on an estimated useful life
of 12 years. Amortization expense for the years ended
December 31, 2010 and 2009, the period from June 12,
2008 (Inception) through December 31, 2008, and
cumulatively for the period from June 12, 2008 (Inception)
through December 31, 2010 was $65,000, $65,000, $17,000 and
$147,000, respectively. Amortization expense is estimated to be
$65,000 annually for the following five years.
|
|
(j)
|
Investment
in Joint Venture
|
In connection with the Mountain Pass facility acquisition, the
Company acquired a one third interest in a joint venture with
Sumitomo Metals Industries, Ltd. of Japan (Sumitomo
Metals) called Sumikin Molycorp (SMO). The
Company sold its interest in the joint venture to Sumitomo
Metals on July 9, 2009 for cash consideration of
$9.7 million and recognized no gain.
Accrued expenses as of December 31, 2010 and 2009 consisted
of the following: (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Waste disposal accrual
|
|
$
|
326
|
|
|
$
|
1,500
|
|
Accrued bonus
|
|
|
554
|
|
|
|
1,445
|
|
Defined contribution plan
|
|
|
1,199
|
|
|
|
988
|
|
Other accrued expenses
|
|
|
2,146
|
|
|
|
2,011
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
4,225
|
|
|
$
|
5,944
|
|
|
|
|
|
|
|
|
|
|
|
|
(l)
|
Asset
Retirement Obligation
|
The Company accounts for reclamation costs, along with other
costs related to the closure of the Mountain Pass facility, in
accordance with
ASC 410-20,
Asset Retirement Obligations. This standard requires the
Company to recognize asset retirement obligations at estimated
fair value in the period in which the obligation is incurred.
The Company recognized an asset retirement obligation and
corresponding asset retirement cost of $13.3 million in
connection with the Mountain Pass facility acquisition. The
liability was initially measured at fair value and is
subsequently adjusted for accretion expense and changes in the
amount or timing of the estimated cash flows. The asset
retirement cost was capitalized as part of the carrying amount
of the related long-lived assets and is being depreciated over
the assets remaining useful lives.
In connection with an updated asset retirement obligation
analysis prepared as of June 30, 2010, the Company
determined that its asset retirement obligation was overstated
by approximately $2.5 million as a result of not reducing
its prior estimate for costs of soil remediation performed prior
to the Companys acquisition of the Mountain Pass Facility.
Because the depreciation of the overstated asset retirement
costs and accretion of the asset retirement obligation had an
immaterial impact on the Companys net loss for all periods
previously presented and cumulatively since inception, the
Company reduced its asset retirement cost asset and asset
retirement obligation by approximately $2.5 million
effective April 1, 2010. On November 4, 2010,
F-12
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
Molycorps Board of Directors approved an expanded budget
which accelerated the removal of the crusher and milling
facility which resulted in a $0.6 million increase in the
asset retirement obligation. Depreciation expense associated
with the asset retirement cost was $1.1 million,
$1.2 million $0.3 million and $2.6 million for
the years ended December 31, 2010 and 2009, the period from
June 12, 2008 (Inception) through December 31, 2008,
and cumulatively for the period from June 12, 2008
(Inception) through December 31, 2010, respectively. The
following table presents the activity in our asset retirement
obligation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Balance at beginning of period
|
|
$
|
14,202
|
|
|
$
|
13,583
|
|
Obligations settled
|
|
|
(632
|
)
|
|
|
(387
|
)
|
Accretion expense
|
|
|
912
|
|
|
|
1,006
|
|
Revisions in estimated cash flows
|
|
|
(1,939
|
)
|
|
|
|
|
Gain on settlement
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
12,471
|
|
|
$
|
14,202
|
|
|
|
|
|
|
|
|
|
|
The Company is required to provide the applicable governmental
agencies with financial assurances relating to its closure and
reclamation obligations. As of December 31, 2008, the
Company had financial assurance requirements of
$26.3 million which were satisfied by instruments obtained
by Chevron. In March 2009, the Company replaced these
instruments with surety bonds secured by letters of credit or
cash collateral provided by the individual members. As of
December 31, 2010, the Company had financial assurance
requirements of $27.4 million which were satisfied with
surety bonds placed with the California state and regional
agencies.
Prior to the Corporate Reorganization, the taxable income and
losses of Molycorp, LLC were reported on the income tax returns
of its members. Molycorp, Inc. is subject to federal and state
income taxes and will file consolidated income tax returns.
Molycorp recognizes income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to difference
between the financial statement carrying amounts of assets and
the liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the periods in which the
deferred tax liability or asset is expected to be settled or
recognized. Molycorp records a valuation allowance if, based on
available information, it is deemed more likely than not that
its deferred income tax asset will not be realized in full. As
of December 31, 2010, the Companys net loss of
$41.3 million since the Corporate Reorganization included
$28.7 million in stock-based compensation expense, which is
the Companys only significant permanent difference between
its losses for financial reporting and income tax purposes.
Molycorp has generated net deferred income tax assets of
$22.7 million as of December 31, 2010. However, as
realization of these tax assets is not assured, we have
established a full valuation allowance against these assets. A
significant portion of the net operating losses of
$18.0 million will expire in the year 2030.
F-13
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
A summary of the components of the net deferred income tax
assets as of December 31, 2010 is as follows:
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
(in thousands)
|
|
|
Deferred income tax assets:
|
|
|
|
|
Vacation accrual
|
|
$
|
106
|
|
Inventory
|
|
|
1,133
|
|
Asset retirement obligation
|
|
|
656
|
|
Mineral resources
|
|
|
16,516
|
|
Net operating losses
|
|
|
6,750
|
|
Other
|
|
|
62
|
|
|
|
|
|
|
|
|
$
|
25,223
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Development costs
|
|
$
|
(96
|
)
|
Property, plant and equipment
|
|
|
(2,397
|
)
|
|
|
|
|
|
|
|
$
|
(2,493
|
)
|
|
|
|
|
|
Net deferred income tax assets:
|
|
$
|
22,730
|
|
Valuation allowance
|
|
|
(22,730
|
)
|
|
|
|
|
|
Total net deferred income tax assets:
|
|
$
|
|
|
|
|
|
|
|
Stockholders interests are represented by 82,291,200 and
44,998,185 shares of the Companys common stock and
Class A common stock at December 31, 2010 and 2009,
respectively. Paid-in capital in the consolidated balance
sheets, represents amounts paid by stockholders or interests
earned under certain stock compensation agreements. For the year
ended December 31, 2010, the Company received contributions
from its stockholders totaling $15.0 million in exchange
for 5,767,670 shares of Class A common stock prior to
the completion of the IPO. At the time of the IPO, an aggregate
of 50,892,260 shares of Class A common stock were
automatically converted into an aggregate of
50,892,260 shares of common stock. The Company also
received net proceeds of $378.6 million after underwriter
discounts and commissions and offering expenses paid by
Molycorp, Inc. in exchange for 29,128,700 shares of common
stock. An additional 2,232,740 common shares were issued in
exchange for shares of Class B common stock held by certain
employees and independent directors pursuant to incentive awards
effective November 1, 2009. On November 4, 2010, the
Compensation Committee of the Board of Directors of the Company
approved the grant of 37,500 shares of restricted stock,
with a three-year vesting period, to certain executive officers
and a director of the Company. For the year ended
December 31, 2010, the Company recognized
$28.7 million in stock based compensation expense related
to the former Class B common stock and the November 2010
restricted stock awards.
|
|
(o)
|
Earnings
(loss) per Share
|
Basic earnings (loss) per share is computed by dividing the
Companys net income (loss) by the weighted average number
of common shares outstanding during the year. Diluted (loss) per
share reflects the dilutive impact of potential common stock
(see note 7) and unvested restricted shares of common
stock in the weighted average number of common shares
outstanding during the period, if dilutive. For this purpose,
the treasury stock method, as applicable, is used
for the assumed proceeds upon the exercise of common stock
F-14
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
equivalents at the weighted average selling prices of the shares
during the year. As of December 31, 2010, there were
781,747 unvested shares of common stock outstanding. As of
December 31, 2009, there were vested options outstanding
for the purchase of 124,468 shares of Class A common
stock. All potential common stock were antidilutive in nature as
of December 31, 2010 and 2009, respectively; consequently,
the Company does not have any adjustments between earnings per
share and diluted earnings per share.
|
|
(p)
|
Comprehensive
income (loss)
|
The Company does not have any items entering into the
determination of comprehensive income (loss) other than net
income (loss) for the period.
|
|
(5)
|
Employee
Benefit Plans
|
The Company maintains a defined contribution plan for all
employees who have completed 90 days of services with the
Company. The Company currently makes a non-elective contribution
equal to 4% of compensation for each employee who performed at
least 1,000 hours of service and is employed on the last
day of the year. In addition, the Company currently matches 100%
of the first 3% contributed and 50% of the next 2% contributed
by each eligible employee as well as an additional contribution
of up to 4% which can be made at the Companys discretion.
Employees vest in Company contributions after three years of
service. Expenses related to this plan totaled
$1.2 million, $1.0 million, $0.2 million and
$2.4 million for the years ended December 31, 2010 and
2009, the period from June 12, 2008 (Inception) through
December 31, 2008, and cumulatively for the period from
June 12, 2008 (Inception) through December 31, 2010,
respectively. Additionally, accrued expenses at
December 31, 2010 and 2009 included $1.2 million and
$1.0 million related to this plan, respectively.
On April, 1 2009, the Company established the Management
Incentive Plan (MIP), which is a nonqualified
deferred compensation plan for the purpose of providing deferred
compensation benefits for certain members of management. Under
the MIP, participants can defer their base salary and other
compensation that is supplemental to his or her base salary and
is dependent upon achievement of individual or Company
performance goals. It is intended that the MIP constitute an
unfunded plan for purposes of the Employee Retirement Income
Securities Act of 1974, as amended. The amount of compensation
or awards deferred are deemed to be invested in a hypothetical
investment as of the date of deferral. During the year ended
December 31, 2010 and 2009, the Company funded discretionary
contributions to the MIP totaling $47,000 and zero,
respectively. In addition, total accrued amount including
employee deferrals, discretionary contributions and related
earnings was approximately $116,000 and $65,000 as of December
31, 2010 and 2009, respectively.
On November 4, 2010, the Compensation Committee established
an annual incentive (bonus plan) for all employees
that is discretionary in nature. The bonus program is
performance based and includes both qualitative and quantitative
criteria. Half of the value of each executives annual
bonus is paid in cash and the remaining half is paid in shares
of restricted stock which vest on the third anniversary of the
date of grant. For the year ended December 31, 2010, the
company accrued $0.6 million for cash portion of this bonus
program.
|
|
(6)
|
Commitments
and Contingencies
|
|
|
(a)
|
Future
Operating Lease Commitments
|
The Company has certain operating leases for office space and
certain equipment. Remaining annual minimum payments under these
leases at December 31, 2010 was $0.3 million in 2011,
$0.2 million in 2012, $0.2 million in 2013, $0.2 million in
2014, $0.2 million in 2015 and $0.2 million thereafter, totaling
$1.3 million.
F-15
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
On September 30, 2010, the Company entered into a natural
gas transportation lease agreement with Kern River Gas
Transmission Company (Kern River) under which
Molycorp agreed, subject to certain conditions, to make payments
totaling $5.2 million per year ($0.43 million per
month) for 10 years beginning April 2012 to Kern River in
exchange for the designing, permitting, constructing, operating,
and maintaining of facilities necessary to provide natural gas
to the power generation facility to be constructed at the
Mountain Pass facility. Beginning on the date of commencement of
the natural gas transportation service and continuing through
the agreement termination, the Company will be entitled to
receive a Transportation Maximum Daily Quantity (TMDQ) of 24,270
Dth per day.
|
|
(b)
|
Plant
Modernization and Expansion Commitments
|
In connection with the Mountain Pass facility modernization and
expansion and future operations, the Company entered into
contractual commitments for the purchase of materials and
services from various vendors. Future payments due for these
commitments are $65.0 million in 2011, $8.6 million in
2012, $5.2 million in 2013, $5.2 million in 2014, $5.2 million
in 2015 and $32.2 million thereafter, totaling $121.4 million.
Some of the agreements the Company entered into with these
vendors contain cancellation clauses stating the amount and
timing of termination charges to the Company. In total, these
charges range from a minimum of $3.1 million to a maximum
of $17.4 million depending on the timing of cancellation.
In connection with the Mountain Pass facility acquisition, the
Company assumed a $0.4 million obligation related to a
completion bonus payable to union employees who worked on the
NFL pilot processing development project. Under the terms of the
related labor agreement, eligible employees were entitled to a
bonus of 40 hours of pay at the employees base rate
for every month spent on the project, regardless of the number
of hours worked. The Company recognized additional costs
associated with this bonus as employees worked on the project.
As of December 31, 2009, the accrued completion bonus was
$1.4 million. The completion bonus was paid in March 2010.
Certain Mountain Pass facility employees are covered by a
collective bargaining agreement with the United Steelworkers of
America which expires on March 15, 2012. At
December 31, 2010, 72 employees, or approximately 50%
of the Companys workforce, were covered by this collective
bargaining agreement.
|
|
(e)
|
Reclamation
Surety Bonds
|
At December 31, 2010, Molycorp had placed
$27.4 million of surety bonds with California state and
regional agencies to secure its Mountain Pass facility closure
and reclamation obligations.
The Company is subject to numerous and detailed federal, state
and local environmental laws, regulations and permits including
health and safety, environmental, and air quality. The Company
is subject to strict conditions, requirements and obligations
relating to various environmental and health and safety matters
in connection with the current permits, and the Company may be
subject to additional conditions, requirements and obligations
associated with its permits and future operations. Certain
conditions could be imposed in order to maintain the required
permits including requirements to conduct additional
environmental studies and collect and present data to government
authorities pertaining to the potential impact of current and
future operations upon the environment. Accordingly, the
required permits may not be maintained or renewed in a timely
fashion if at all, or may be renewed upon conditions that
restrict the Companys ability to conduct its
F-16
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
operations economically. Any failure, significant delay or
significant change in conditions that is required to maintain or
renew permits, could have a material adverse effect on the
Companys business, results of operations and financial
condition.
|
|
(7)
|
Stock-Based
Compensation
|
Molycorp accounts for stock-based compensation based upon the
fair value of the awards at the time of grant. The expense
associated with such awards is recognized over the service
period associated with the issuance. There are no performance
conditions associated with these awards.
The Company issued an option to its Chief Executive Officer on
April 10, 2009 for the purchase of 147,474 shares of
Company common stock (giving effect to the Corporate
Reorganization and the conversion of Class A common stock
into common stock in connection with the IPO). The option
vested, and the related expense of $241,000 was recognized, on
the date of grant. At December 31, 2009, there were vested
options outstanding for the purchase of 126,405 shares of
common stock with a stated exercise price of $2.37 per share. On
February 1, 2010, the remaining options were exercised.
Proceeds from exercise of stock options were $300,000 and
$50,000 for 2010 and 2009, respectively.
Effective November 1, 2009, Molycorp LLC issued 5,880,000
incentive shares to certain employees and independent directors
of the Company. At the time of issuance, due to Molycorp
Minerals, LLCs option to repurchase vested shares of
terminated participants at a price other than fair value, these
incentive shares were classified as liabilities and were valued
at zero using the intrinsic value method. On April 15,
2010, all holders of incentive shares contributed their
incentive shares to Molycorp, Inc. in exchange for
3,012,420 shares of Class B common stock of Molycorp,
Inc., 1,004,140 shares of which vested immediately with an
additional 1,004,140 shares vesting on September 30,
2010 and the remaining 1,004,140 shares vesting on
September 30, 2011. The shares of Class B common stock
were non-transferable and the Company had the right to
repurchase vested shares upon the termination of employment for
any reason.
The shares of Class B common stock automatically converted
into shares of common stock, based on a conversion factor,
immediately prior to completion of the IPO. On August 3,
2010, Molycorp completed an IPO of common stock at an offering
price of $14.00 per share. At that time, the shares of
Class B common stock were converted into
2,232,740 shares of common stock, 744,247 of which remained
vested with the remaining 1,488,493 vesting over a period of six
months following the IPO. Stock-based compensation associated
with these shares was approximately $28.7 million for the
year ended December 31, 2010. The number and
weighted-average grant-date fair value of unvested shares of
common stock at the end of the year was 744,247 and $14.00,
respectively. At December 31, 2010 there was $2.6 million of
unrecognized compensation cost related to these unvested shares
of common stocks. This cost is expected to be recognized during
the first quarter of 2011.
On November 4, 2010, the Compensation Committee of the
Board of Directors of the Company approved the grant of shares
of restricted stock, with a three-year vesting period, to
certain executive officers and a director of the Company. The
$1.4 million fair value of the awards was determined using
the stock price on
F-17
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
the date of grant and is recognized straight-line over the three
year vesting period. The following table sets forth the number
of shares of restricted stock granted to these officers and the
director.
|
|
|
|
|
|
|
Number of Shares of
|
|
|
Restricted Stock
|
|
Russell D. Ball Director
|
|
|
7,500
|
|
Mark A. Smith President and CEO
|
|
|
6,000
|
|
James S. Allen CFO and Treasurer
|
|
|
18,000
|
|
John F. Ashburn, Jr. EVP and General Counsel
|
|
|
3,000
|
|
John L. Burba EVP and Chief Technology Officer
|
|
|
3,000
|
|
The number and weighted-average grant-date fair value of
unvested restricted stock at the end of the year was 37,500 and
$36.51, respectively. At December 31, 2010 there was $1.3
million of unrecognized compensation cost related to these
unvested shares of restricted stock. This cost is expected to be
recognized over a period of approximately three years.
The remaining number of shares authorized for awards of equity
share options or other equity instruments was 4,075,185 at
December 31, 2010.
The Company currently has $26.2 million in deposits
reported as Non-current assets on the Consolidated Balance Sheet
as of December 31, 2010. Of this, $18.2 million is due
to collateral used to secure surety bonds placed with the
California state and regional agencies relating to our Mountain
Pass facility closure and reclamation obligations. The remaining
$8.0 million is due to a required escrow arrangement for
the Companys facilities agreement with Kern River Gas
Transmission Company.
|
|
(a)
|
Limited
Number of Products
|
The Companys current operations are primarily limited to
the production and sale of REOs from stockpiled concentrates and
purchasing and reselling REOs from other producers. The Company
does not have and will not have the capability to significantly
alter its product mix prior to completing the modernization and
expansion of the Mountain Pass facility and the restart of
mining operations. Sales for our most significant products for
the years ended December 31, 2010 and 2009, in millions,
were approximately as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
Didymium Oxide
|
|
$
|
9.0
|
|
|
|
|
|
Ceric Hydrate
|
|
$
|
8.7
|
|
|
|
|
|
Lanthanum products
|
|
$
|
13.6
|
|
|
$
|
6.4
|
|
Other
|
|
$
|
3.9
|
|
|
$
|
0.7
|
|
F-18
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
|
|
(b)
|
Limited
Number of Customers
|
There is a limited market for the lanthanum products currently
produced by the Company from stockpiled concentrate. Sales to
the Companys largest customers, for the years ended
December 31, 2010 and 2009, in millions, were approximately
as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
Mitsubishi Unimetals USA
|
|
$
|
8.5
|
|
|
|
|
|
W.R. Grace & Co. Conn.
|
|
$
|
7.4
|
|
|
$
|
1.9
|
|
Chuden Rare Earth Co. Ltd.
|
|
$
|
5.4
|
|
|
|
|
|
Shin-Etsu Chemical Co.
|
|
$
|
4.1
|
|
|
|
|
|
Corning Inc.
|
|
$
|
3.5
|
|
|
$
|
0.3
|
|
3M Company
|
|
$
|
2.5
|
|
|
$
|
0.4
|
|
Albemarle Corporation
|
|
|
|
|
|
$
|
3.9
|
|
|
|
(c)
|
Single
Geographic Location
|
Currently, the Companys only mining and production
facility is the Mountain Pass facility and the Companys
viability is based on the successful modernization and expansion
of its operations. The deterioration or destruction of any part
of the Mountain Pass facility, or legal restrictions related to
current or anticipated operations at the Mountain Pass facility,
may significantly hinder the Companys ability to reach or
maintain full planned production rates within the expected time
frame, if at all.
|
|
(10)
|
Related
Party Transactions
|
In February 2009, certain of the Companys stockholders
incurred certain costs in providing letters of credit
and/or cash
collateral to secure the surety bonds issued for the benefit of
certain regulatory agencies related to the Companys
Mountain Pass facility closure and reclamation obligations. The
total amount of collateral provided by stockholders was
$18.2 million. Under the terms of the agreement with its
stockholders, the Company agreed to pay each such stockholder a
5% annual return on the amount of collateral provided, and the
stockholders were entitled to receive quarterly payments, delay
payments, or receive
payments-in-kind.
In September 2010, the Company issued its own collateral in the
amount of $18.2 million in replacement of the letters of
credit and cash collateral provided by the stockholders. The
Company paid fees due to stockholders in the amount of
$0.8 million in September 2010. During each of the years
ended December 31, 2010 and 2009, the Company recognized
approximately $0.4 million and $0.8 million,
respectively in compensation to the stockholders under this
agreement, which is included in selling, general and
administrative expenses in the consolidated statement of
operations. Accrued expenses in the consolidated balance sheet
included payables to stockholders totaling zero and
$0.6 million at December 31, 2010 and 2009,
respectively, related to those agreements.
In May and July 2009, Molycorp entered into transactions with a
stockholder under which it borrowed an aggregate $6.6 million,
secured by certain product inventories. Borrowings under this
agreement required interest at a variable rate of LIBOR plus one
percent. On November 15, 2009, the stockholder converted
outstanding advances plus accrued interest totaling
$6.8 million into 2,303,033 shares of Molycorp common
stock (giving effect to the Corporate Reorganization and the
conversion of Class A common stock into common stock in
connection with the IPO) in settlement of the obligation.
In June 2010, the Company entered into a transaction with Traxys
North America LLC (Traxys), the parent of one of our
stockholders, TNA Moly Group, LLC, under which it borrowed
approximately $5.0 million, secured by certain product
inventories. Borrowings under this agreement required an initial
F-19
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
interest rate of 6% based on three-month LIBOR plus a margin,
which is subject to adjustment every three months. No
adjustments have been made to the interest rate since the
agreement was signed. At December 31, 2010, interest
payable associated with the agreement totaled approximately
$9,000. Principal and interest under this agreement are payable
from revenue generated from sales of the product inventories.
During the third quarter of 2010, both parties agreed that 50%
of all didymium oxide sales will be subject to this agreement.
The Company made principal and interest payments of
$1.1 million and $0.2 million, respectively for the
year ended December 31, 2010. As of December 31, 2010,
the outstanding note payable to Traxys under this agreement was
$3.1 million and $1.3 million in accounts payable
related to the sales made, but not remitted to Traxys and
affiliates as of December 31, 2010.
During the year ended December 31, 2010, the Company and
Traxys and affiliates jointly marketed and sold certain
lanthanum oxide, cerium oxide and erbium oxide products. Per the
terms of this arrangement, the Company and Traxys split gross
margin equally once all costs associated with the sale are
recovered by both parties. As a result of this arrangement, we
recorded revenue and a related receivable from Traxys and
affiliates of $116,000. We also recorded an expense and a
related payable to Traxys and affiliates in the amount of
$120,000. Revenues and expenses related to these settlements are
presented on a net basis in Other Income on the Statement of
Operations. In addition, for the year ended December 31,
2010, the Company made purchases of lanthanum oxide and cerium
oxide from Traxys and affiliates in the amount of
$2.5 million. Related party payable associated with the
product purchases was $0.3 million as of December 31,
2010.
|
|
(11)
|
Unaudited
Supplementary Data
|
The following is a summary of the selected quarterly financial
information (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Three Months Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
(In thousands, except share and per share data)
|
|
Sales
|
|
$
|
3,018
|
|
|
$
|
1,904
|
|
|
$
|
8,533
|
|
|
$
|
21,702
|
|
Cost of goods sold
|
|
|
(5,950
|
)
|
|
|
(5,576
|
)
|
|
|
(7,742
|
)
|
|
|
(18,323
|
)
|
Selling, general and administrative expense
|
|
|
(4,480
|
)
|
|
|
(4,254
|
)
|
|
|
(4,117
|
)
|
|
|
(5,923
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
(15,133
|
)
|
|
|
(6,527
|
)
|
|
|
(7,079
|
)
|
Depreciation and amortization expense
|
|
|
(95
|
)
|
|
|
(61
|
)
|
|
|
(83
|
)
|
|
|
(80
|
)
|
Accretion expense
|
|
|
(263
|
)
|
|
|
(216
|
)
|
|
|
(216
|
)
|
|
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(7,770
|
)
|
|
|
(23,336
|
)
|
|
|
(10,152
|
)
|
|
|
(9,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
21
|
|
|
|
45
|
|
|
|
14
|
|
|
|
75
|
|
Interest income (expense), net of capitalized amount
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,749
|
)
|
|
$
|
(23,291
|
)
|
|
$
|
(10,145
|
)
|
|
$
|
(9,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (Common shares)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,155,533
|
|
|
|
49,666,732
|
|
|
|
69,550,649
|
|
|
|
81,509,452
|
|
Diluted
|
|
|
48,155,533
|
|
|
|
49,666,732
|
|
|
|
69,550,649
|
|
|
|
81,509,452
|
|
Loss per share of common stock(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.12
|
)
|
Diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.12
|
)
|
F-20
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Three Months Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
(In thousands, except share and per share data)
|
|
Sales
|
|
$
|
1,699
|
|
|
$
|
1,230
|
|
|
$
|
1,960
|
|
|
$
|
2,204
|
|
Cost of goods sold
|
|
|
(4,727
|
)
|
|
|
(4,897
|
)
|
|
|
(5,272
|
)
|
|
|
(6,889
|
)
|
Selling, general and administrative expense
|
|
|
(2,322
|
)
|
|
|
(2,886
|
)
|
|
|
(3,172
|
)
|
|
|
(4,064
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
(241
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
(21
|
)
|
|
|
(42
|
)
|
|
|
(60
|
)
|
|
|
(68
|
)
|
Accretion expense
|
|
|
(252
|
)
|
|
|
(251
|
)
|
|
|
(252
|
)
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,623
|
)
|
|
|
(7,087
|
)
|
|
|
(6,796
|
)
|
|
|
(9,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
22
|
|
|
|
83
|
|
|
|
19
|
|
|
|
57
|
|
Interest income (expense), net of capitalized amount
|
|
|
|
|
|
|
16
|
|
|
|
(126
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,601
|
)
|
|
$
|
(6,988
|
)
|
|
$
|
(6,903
|
)
|
|
$
|
(9,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (Common shares)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
38,829,225
|
|
|
|
38,829,225
|
|
|
|
38,835,179
|
|
|
|
41,589,904
|
|
Diluted
|
|
|
38,829,225
|
|
|
|
38,829,225
|
|
|
|
38,835,179
|
|
|
|
41,589,904
|
|
Loss per share of common stock(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.14
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.22
|
)
|
Diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
(1) |
|
Weighted average shares outstanding include the retroactive
treatment of exchange ratios for conversion of Class A common
stock and Class B common stock to common stock in conjunction
with the initial public offering. |
In January 2011, our Board of Directors approved a second-phase
capacity expansion plan in addition to our initial modernization
and expansion plan. Upon the completion of this capacity
expansion plan, by the end of 2013, we expect to have the
ability to produce up to approximately 40,000 mt of REO per year
at our Mountain Pass facility, or approximately double the
amount we will be able to produce upon completion of our initial
expansion and modernization plan. We have estimated, based on
consultation with our project manager, that we will incur
approximately $250 million in additional capital costs in
connection with the second-phase capital expansion plan in
addition to the $531 million estimated for the initial
modernization and expansion effort.
On February 16, 2011, Molycorp completed a public offering
of its Series A mandatory convertible preferred stock. In
connection with this offering, Molycorp, Inc. issued
1,800,000 shares of Series A mandatory convertible
preferred stock for $100.00 per share. Total net proceeds from
the offering were
F-21
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
approximately $173.1 million after underwriter discounts
and commissions and estimated offering expenses payable by
Molycorp, Inc. The following table sets forth our balance sheet
as of December 31, 2010:
|
|
|
|
|
on an actual basis; and
|
|
|
|
on a pro-forma basis to give effect to the proceeds from the
Series A mandatory convertible preferred stock offering,
resulting in a $173.1 million increase in current assets
and a corresponding increase in equity.
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
Total current assets
|
|
$
|
353,432
|
|
|
$
|
526,532
|
|
Total non-current assets
|
|
|
126,128
|
|
|
|
126,128
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
479,560
|
|
|
|
652,660
|
|
Total current liabilities
|
|
|
20,712
|
|
|
|
20,712
|
|
Total non-current liabilities
|
|
|
12,335
|
|
|
|
12,335
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
33,047
|
|
|
|
33,047
|
|
Total stockholders equity
|
|
|
446,513
|
|
|
|
619,613
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
479,560
|
|
|
$
|
652,660
|
|
|
|
|
|
|
|
|
|
|
|
|
(13)
|
Revision
of Financial Statements for December 31, 2010
|
We have revised our consolidated financial statements as of and
for the year ended December 31, 2010, and cumulatively for
the period from June 12, 2008 (Inception) through
December 31, 2010, for an overstatement of Work in Process
(WIP) inventory.
In May 2011, we determined that our WIP inventory of ceric
hydrate was overstated by approximately $1.7 million as of
December 31, 2010. We have assessed the materiality of this
misstatement in accordance with the SECs Staff Accounting
Bulletin (SAB) No. 99 and concluded that this
error is not material to our previously issued consolidated
financial statements. Accordingly, by reference to
SAB No. 108, our previously issued consolidated
financial statements have been revised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended and as of
|
|
|
|
December 31, 2010
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Revision
|
|
|
As Revised
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Cost of goods sold
|
|
$
|
(35,902
|
)
|
|
$
|
(1,689
|
)
|
|
$
|
(37,591
|
)
|
Net loss
|
|
|
(49,085
|
)
|
|
|
(1,689
|
)
|
|
|
(50,774
|
)
|
Loss per basic/diluted common share
|
|
|
(0.79
|
)
|
|
|
(0.02
|
)
|
|
|
(0.81
|
)
|
Current inventory
|
|
|
20,511
|
|
|
|
(1,689
|
)
|
|
|
18,822
|
|
Current assets
|
|
|
355,121
|
|
|
|
(1,689
|
)
|
|
|
353,432
|
|
Total assets
|
|
|
481,249
|
|
|
|
(1,689
|
)
|
|
|
479,560
|
|
Total stockholders equity
|
|
|
448,202
|
|
|
|
(1,689
|
)
|
|
|
446,513
|
|
F-22
MOLYCORP,
INC
(A Company in the Development Stage)
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from June 12, 2008
|
|
|
|
(Inception) through
|
|
|
|
December 31, 2010
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Revision
|
|
|
As Revised
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Cost of goods sold
|
|
$
|
(70,714
|
)
|
|
$
|
(1,689
|
)
|
|
$
|
(72,403
|
)
|
Net loss
|
|
|
(91,746
|
)
|
|
|
(1,689
|
)
|
|
|
(93,435
|
)
|
Net loss per basic/diluted common share
|
|
|
(1.90
|
)
|
|
|
(0.03
|
)
|
|
|
(1.93
|
)
|
F-23
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
(In thousands, except share and
|
|
|
|
per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
492,495
|
|
|
$
|
316,430
|
|
Trade accounts receivable
|
|
|
17,581
|
|
|
|
16,421
|
|
Inventory (Note 4e)
|
|
|
21,385
|
|
|
|
18,822
|
|
Prepaid expenses and other
|
|
|
2,633
|
|
|
|
1,759
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
534,094
|
|
|
|
353,432
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
27,700
|
|
|
$
|
26,200
|
|
Property, plant and equipment, net (Note 4g)
|
|
|
133,752
|
|
|
|
93,966
|
|
Inventory (Note 4e)
|
|
|
3,194
|
|
|
|
5,212
|
|
Intangible asset, net
|
|
|
622
|
|
|
|
639
|
|
Other assets
|
|
|
111
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
165,379
|
|
|
|
126,128
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
699,473
|
|
|
$
|
479,560
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
29,988
|
|
|
$
|
13,009
|
|
Accrued expenses (Note 4j)
|
|
|
6,408
|
|
|
|
4,225
|
|
Short-term borrowing related party (Note 8)
|
|
|
2,870
|
|
|
|
3,085
|
|
Current portion of asset retirement obligation (Note 4k)
|
|
|
394
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
39,660
|
|
|
|
20,712
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Asset retirement obligation (Note 4k)
|
|
$
|
12,774
|
|
|
$
|
12,078
|
|
Other non-current liabilities
|
|
|
148
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
12,922
|
|
|
|
12,335
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
52,582
|
|
|
$
|
33,047
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 5)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 350,000,000 shares
authorized at March 31, 2011 (Note 4m)
|
|
|
82
|
|
|
|
82
|
|
Preferred stock, $0.001 par value; 5,000,000 shares
authorized at March 31, 2011 (Note 4m)
|
|
|
2
|
|
|
|
|
|
Additional paid-in capital
|
|
|
742,440
|
|
|
|
539,866
|
|
Deficit accumulated during the development stage
|
|
|
(95,633
|
)
|
|
|
(93,435
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
646,891
|
|
|
|
446,513
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
699,473
|
|
|
$
|
479,560
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
Three Months Ended
|
|
|
June 12, 2008
|
|
|
|
March 31,
|
|
|
(Inception) Through
|
|
|
|
2011
|
|
|
2010
|
|
|
March 31, 2011
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
Sales
|
|
$
|
26,261
|
|
|
$
|
3,018
|
|
|
$
|
70,648
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(16,677
|
)
|
|
|
(5,950
|
)
|
|
|
(89,080
|
)
|
Selling, general and administrative
|
|
|
(8,339
|
)
|
|
|
(4,480
|
)
|
|
|
(42,386
|
)
|
Stock-based compensation
|
|
|
(2,899
|
)
|
|
|
|
|
|
|
(32,029
|
)
|
Depreciation and amortization
|
|
|
(83
|
)
|
|
|
(95
|
)
|
|
|
(612
|
)
|
Accretion expense
|
|
|
(234
|
)
|
|
|
(263
|
)
|
|
|
(2,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,971
|
)
|
|
|
(7,770
|
)
|
|
|
(95,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(168
|
)
|
|
|
21
|
|
|
|
222
|
|
Interest income, net of amount capitalized
|
|
|
140
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
21
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,999
|
)
|
|
|
(7,749
|
)
|
|
|
(95,434
|
)
|
Provision for income taxes
|
|
|
(199
|
)
|
|
|
|
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,198
|
)
|
|
$
|
(7,749
|
)
|
|
$
|
(95,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
(Common shares)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
82,253,700
|
|
|
|
48,155,533
|
|
|
|
51,296,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
82,253,700
|
|
|
|
48,155,533
|
|
|
|
51,296,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(1.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(1.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Weighted average shares outstanding include the retroactive
treatment of exchange ratios for conversion of Class A
common stock and Class B common stock to common stock in
conjunction with the initial public offering. |
See accompanying notes to the condensed consolidated financial
statements.
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatory
|
|
|
Additional
|
|
|
During the
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Convertible Preferred Stock
|
|
|
Paid-In
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Equity
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
Balance at December 31, 2010
|
|
|
82,291,200
|
|
|
$
|
82
|
|
|
|
|
|
|
$
|
|
|
|
$
|
539,866
|
|
|
$
|
(93,435
|
)
|
|
$
|
446,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of Series A mandatory convertible preferred stock at
$100.00 per share, net of underwriting fees and other offering
costs
|
|
|
|
|
|
|
|
|
|
|
2,070,000
|
|
|
|
2
|
|
|
|
199,640
|
|
|
|
|
|
|
|
199,642
|
|
Stock-based compensation expense
|
|
|
9,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,934
|
|
|
|
|
|
|
|
2,934
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,198
|
)
|
|
|
(2,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
|
82,300,610
|
|
|
$
|
82
|
|
|
|
2,070,000
|
|
|
$
|
2
|
|
|
$
|
742,440
|
|
|
$
|
(95,633
|
)
|
|
$
|
646,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
Period Ended
|
|
|
June 12, 2008
|
|
|
|
March 31,
|
|
|
(Inception) through
|
|
|
|
2011
|
|
|
2010
|
|
|
March 31, 2011
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,198
|
)
|
|
$
|
(7,749
|
)
|
|
$
|
(95,633
|
)
|
Adjustments to reconcile net loss to net cash provided by/ (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,100
|
|
|
|
1,004
|
|
|
|
12,947
|
|
Accretion of asset retirement obligation
|
|
|
234
|
|
|
|
263
|
|
|
|
2,402
|
|
Non-cash inventory write-downs
|
|
|
630
|
|
|
|
574
|
|
|
|
22,647
|
|
Non-cash share-based compensation expense
|
|
|
2,934
|
|
|
|
|
|
|
|
32,064
|
|
Impairment of fixed assets
|
|
|
|
|
|
|
|
|
|
|
3,114
|
|
(Gain) loss on sale of assets and settlement of ARO
|
|
|
|
|
|
|
13
|
|
|
|
(57
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,160
|
)
|
|
|
(202
|
)
|
|
|
(18,132
|
)
|
Inventory
|
|
|
(1,175
|
)
|
|
|
(32
|
)
|
|
|
(25,044
|
)
|
Prepaid expenses and other
|
|
|
(874
|
)
|
|
|
(733
|
)
|
|
|
(1,897
|
)
|
Accounts payable
|
|
|
2,803
|
|
|
|
2,086
|
|
|
|
6,988
|
|
Asset retirement obligation
|
|
|
(165
|
)
|
|
|
|
|
|
|
(1,184
|
)
|
Accrued expenses
|
|
|
2,074
|
|
|
|
(2,170
|
)
|
|
|
8,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/ (used in) operating activities
|
|
|
5,203
|
|
|
|
(6,946
|
)
|
|
|
(53,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of the Mountain Pass facility
|
|
|
|
|
|
|
|
|
|
|
(82,150
|
)
|
Proceeds from sale of investment in joint venture
|
|
|
|
|
|
|
|
|
|
|
9,700
|
|
Deposits
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
(27,700
|
)
|
Capital expenditures
|
|
|
(26,345
|
)
|
|
|
(2,840
|
)
|
|
|
(67,080
|
)
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
9
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(27,845
|
)
|
|
|
(2,831
|
)
|
|
|
(167,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from original stockholders
|
|
|
|
|
|
|
10,000
|
|
|
|
125,004
|
|
Repayments of short-term borrowings related party
|
|
|
(935
|
)
|
|
|
|
|
|
|
(2,042
|
)
|
Net proceeds from sale of common stock in conjunction with the
initial public offering
|
|
|
|
|
|
|
|
|
|
|
378,633
|
|
Net proceeds from sale of preferred stock
|
|
|
199,642
|
|
|
|
|
|
|
|
199,642
|
|
Payment of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
(185
|
)
|
Proceeds from exercise of options
|
|
|
|
|
|
|
300
|
|
|
|
350
|
|
Proceeds from short-term borrowings related party
|
|
|
|
|
|
|
|
|
|
|
11,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
198,707
|
|
|
|
10,300
|
|
|
|
713,047
|
|
Net change in cash and cash equivalents
|
|
|
176,065
|
|
|
|
523
|
|
|
|
492,495
|
|
Cash and cash equivalents at beginning of the period
|
|
|
316,430
|
|
|
|
6,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
492,495
|
|
|
$
|
7,452
|
|
|
$
|
492,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in accrued capital expenditures
|
|
$
|
14,896
|
|
|
$
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-27
Molycorp, Inc. was formed on March 4, 2010 for the purpose
of continuing the business of Molycorp, LLC in corporate form.
On April 15, 2010, the members of Molycorp, LLC contributed
either (a) all of their member interests in Molycorp, LLC
or (b) all of their equity interest in entities that held
member interests in Molycorp, LLC (and no other assets or
liabilities) to Molycorp, Inc. in exchange for Molycorp, Inc.
Class A common stock. Accordingly, Molycorp, LLC and
Molycorp Minerals, LLC became subsidiaries of Molycorp, Inc.
(the Corporate Reorganization). On June 15,
2010, Molycorp LLC was merged with and into Molycorp Minerals,
LLC. On July 9, 2010, Molycorp, Inc. completed a
38.23435373-for-one stock split, which has been retroactively
reflected in the historical financial data for all periods
presented. On August 3, 2010, Molycorp, Inc. completed its
initial public offering (IPO) of common stock. In
connection with its IPO, Molycorp Inc. issued
29,128,700 shares of common stock at $14.00 per share
(including 1,003,700 shares issued in connection with the
underwriters option to purchase additional shares). Total
net proceeds of the offering were $378.6 million after
underwriting discounts and commissions and offering expenses
payable to Molycorp, Inc. Immediately prior to the consummation
of the IPO, all of the shares of Class A common stock and
Class B common stock were converted into shares of common
stock. The conversion ratios for the Class A common stock
and the Class B common stock have been retroactively
reflected in the historical financial information for all
periods presented. Molycorp, Inc., together with its
subsidiaries is referred to herein as the Company or
Molycorp.
Molycorp Minerals, previously known as Rare Earth Acquisition
LLC (which was formed on June 12, 2008), acquired the
Mountain Pass, California rare earth deposit and associated
assets (the Mountain Pass facility) and assumed
certain liabilities from Chevron Mining, Inc.
(Chevron) on September 30, 2008.
The Mountain Pass facility is located in San Bernardino
County, California and is the only significant developed rare
earth resource in the western world. Rare earth elements
(REEs) are a group of specialty elements with unique
properties that make them critical to many existing and emerging
applications including:
|
|
|
|
|
Clean-energy technologies such as hybrid and electric vehicles,
wind turbines and compact florescent lighting;
|
|
|
|
High-technology applications including cell phones, personal
digital assistant devices, digital music players, hard disk
drives used in computers, computing devices, ear bud
speakers and microphones, as well as fiber optics, lasers and
optical temperature sensors;
|
|
|
|
Critical defense applications such as guidance and control
systems, communications, global positioning systems, radar and
sonar; and
|
|
|
|
Advanced water treatment applications including those for
industrial, military, homeland security, domestic and foreign
aid use.
|
The REE group includes 17 elements, namely the
15 lanthanide elements, which are lanthanum, cerium,
praseodymium, promethium (which does not occur naturally),
neodymium, samarium, europium, gadolinium, terbium, dysprosium,
holmium, erbium, thulium, ytterbium, and lutetium, and two
elements that have similar chemical properties to the lanthanide
elements yttrium and scandium. The oxides produced
from processing REEs are collectively referred to as rare earth
oxides (REOs). Bastnasite is a mineral that contains
REEs.
Operations at the Mountain Pass facility began in 1952 under
Molybdenum Corporation of America (MCA). MCA was
purchased by Union Oil of California (Unocal) in
1977. In 2002, mining operations were suspended at the Mountain
Pass facility primarily due to softening prices for REOs and a
lack of additional tailings disposal capacity. Chevron
Corporation purchased Unocal in 2005.
F-28
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
Prior to the acquisition, operations at the Mountain Pass
facility had been suspended with the exception of a pilot
processing project to recover neodymium from lanthanum
stockpiles produced prior to Chevrons ownership of the
Mountain Pass facility. The neodymium from lanthanum
(NFL) pilot processing project was undertaken to
improve the facilitys REE processing techniques. Since
June 12, 2008 (Inception) through March 31, 2010,
revenue was generated primarily from the sale of products
associated with the NFL pilot processing project, which
concluded in February 2010. In April 2010, the Company commenced
the second pilot processing campaign to recover cerium,
lanthanum, neodymium, praseodymium and
samarium/europium/gadolinium concentrate from bastnasite
concentrate stockpiles.
|
|
(2)
|
Basis of
Presentation
|
The Companys acquisition of the Mountain Pass facility has
been accounted for as an acquisition of net assets and not a
business combination. As described below, the Companys
current business plan includes investing substantial capital to
restart mining operations, construct and refurbish processing
facilities and other infrastructure, and to expand into metal
and alloy production. Molycorp will continue as a development
stage company until these activities have been completed, which
is currently expected to be by the end of 2012.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(GAAP) for interim financial information and
Regulation S-X
promulgated under the Securities Exchange Act of 1934. While the
December 31, 2010 balance sheet information was derived
from the Companys audited financial statements, for
interim periods, GAAP and
Regulation S-X
do not require all information and notes that are required in
the annual financial statements, and all disclosures required by
GAAP for annual financial statements have not been included.
Therefore, the accompanying unaudited condensed consolidated
financial statements should be read in conjunction with
Molycorps consolidated financial statements and related
notes for the year ended December 31, 2010, and the period
from June 12, 2008 (Inception) through December 31,
2010, included in Molycorps
Form 10-K
for the fiscal year ended December 31, 2010. The
accompanying unaudited condensed consolidated financial
statements reflect all adjustments, which are normal and
recurring in nature, and which, in the opinion of management,
are necessary for the fair presentation of Molycorps
financial position, results of operations and cash flows at
March 31, 2011, and for all periods presented. The
accompanying unaudited condensed consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
We have revised our consolidated financial statements for an
overstatement of Work in Process (WIP) inventory. See
Note (10) Revision of Financial Statements for
March 31, 2011.
Most of the facilities and equipment acquired with the Mountain
Pass facility are at least 20 years old and must be
modernized or replaced. Under its initial modernization and
expansion plan, the Company intends to spend approximately
$531 million through 2012 to restart mining operations,
construct and refurbish processing facilities and other
infrastructure at the Mountain Pass facility and expand into
metal and alloy production. Capital expenditures, on an accrual
basis, under this plan totaled $31.4 million in 2010 and
$39.6 million during the three months ended March 31,
2011. In January 2011, the Companys Board of Directors
approved a second-phase capacity expansion plan. Upon the
completion of this capacity expansion plan, by the end of 2013,
we expect to have the ability to produce up to approximately
40,000 mt of REO per year at our Mountain Pass facility, or
approximately double the amount we will be able to produce upon
completion of our initial expansion and modernization plan. We
have estimated, based on consultation with our project manager,
that we will incur approximately $250 million of capital
costs in connection with the
F-29
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
second-phase capital expansion plan in addition to the
$531 million estimated for the initial modernization and
expansion effort.
The Company expects to finance its remaining capital
expenditures under the initial modernization and expansion and
the second phase expansion plans as well as its working capital
requirements, with its available cash balances of
$492.5 million as of March 31, 2011, anticipated
revenue from operations and traditional debt financing, project
financing,
and/or
government programs, including the U.S. Department of
Energy (DOE) loan guarantee program. The Company
submitted a Part I application on June 2010 for up to
$280 million. On July 21, 2010, the DOE deemed the
Companys application eligible for submission of a
part II application, which was submitted on
December 31, 2010. The DOE is currently conducting a due
diligence review and has provided the Company with a preliminary
term sheet. On December 10, 2010, we entered into a
memorandum of understanding with Sumitomo Corporation
(Sumitomo), pursuant to which Sumitomo agreed to,
among other things, purchase $100 million of the
Companys common stock and arrange for $30 million of
debt financing. Sumitomo is currently conducting a due diligence
review and the consummation of these transactions with Sumitomo
is subject to the satisfaction of numerous conditions and
finalization of definitive agreements.
|
|
(4)
|
Summary
of Significant Accounting Policies
|
The preparation of the financial statements, in accordance with
GAAP, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Management bases its
estimates on the Companys historical experience and on
various other assumptions that are believed to be reasonable
under the circumstances. Actual results may differ significantly
from these estimates under different assumptions and conditions.
Significant estimates made by management in the accompanying
financial statements include the collectability of accounts
receivable, the recoverability of inventory, the useful lives
and recoverability of long-lived assets such as property, plant
and equipment, and the adequacy of the Companys asset
retirement obligations.
|
|
(b)
|
Revenue
and Cost of Goods Sold
|
Revenue is recognized when persuasive evidence of an arrangement
exists, the risks and rewards of ownership have been transferred
to the customer, which is generally when title passes, the
selling price is fixed or determinable, and collection is
reasonably assured. Title generally passes upon shipment of
product from the Mountain Pass facility. Prices are generally
set at the time of, or prior to, shipment. Transportation and
distribution costs are incurred only on sales for which the
Company is responsible for delivering the product.
Cost of goods sold includes the cost of production as well as
write-downs to the extent of inventory costs in excess of market
values. Primary production costs include labor, supplies,
maintenance costs, depreciation, and plant overhead.
|
|
(c)
|
Cash
and Cash Equivalents
|
Cash and cash equivalents consist of cash and liquid investments
with an original maturity of three months or less. At
March 31, 2011 cash and cash equivalents included
$469 million of funds held in money market accounts.
F-30
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
|
|
(d)
|
Trade
Accounts Receivable
|
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. The Company reviews its allowance for
doubtful accounts on a quarterly basis. As of March 31,
2011 and December 31, 2010, an allowance for doubtful
accounts was not required.
Inventories consist of
work-in-process,
finished goods, stockpiles of bastnasite and lanthanum
concentrate, and materials and supplies. Inventory cost is
determined using the lower of weighted average cost or estimated
net realizable value. Inventory expected to be sold in the next
12 months is classified as a current asset in the
consolidated balance sheets.
Molycorp evaluates its production levels and costs to determine
if any should be deemed abnormal, and therefore excluded from
inventory costs. For the three months ended March 31, 2011
and 2010, and cumulatively for the period from June 12,
2008 (Inception) through March 31, 2011, Molycorp
determined that $2.6 million, $2.4 million and
$16.1 million, respectively, of production costs would have
been allocated to additional metric tons produced, assuming
Molycorp had been operating at normal production rates. As a
result, these costs were excluded from inventory and instead
expensed during the applicable periods. The assessment of normal
production levels is judgmental and is unique to each quarter.
Molycorp models normal production levels and evaluates
historical ranges of production in assessing what is deemed to
be normal.
Write-downs to estimated net realizable value are charged to
cost of goods sold. Many factors influence the market prices for
REOs and, in the absence of established prices contained in
customer contracts, management uses an independent pricing
source to evaluate market prices for REOs at the end of each
quarter. For the three months ended March 31, 2011 and
2010, and cumulatively for the period from June 12, 2008
(Inception) through March 31, 2011, the Company recognized
write-downs of $0.6 million and $0.6 million, and
$21.6 million, respectively, as a result of production
costs in excess of certain REO market prices.
The Company evaluates the carrying value of materials and
supplies inventories each quarter giving consideration to
slow-moving items, obsolescence, excessive levels, and other
factors and recognizes related write-downs as necessary.
At March 31, 2011 and December 31, 2010, inventory
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Concentrate stockpiles
|
|
$
|
5,252
|
|
|
$
|
4,206
|
|
Work in process
|
|
|
5,041
|
|
|
|
3,582
|
|
Finished goods
|
|
|
9,096
|
|
|
|
9,307
|
|
Materials and supplies
|
|
|
1,996
|
|
|
|
1,727
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
21,385
|
|
|
$
|
18,822
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Concentrate stockpiles
|
|
$
|
3,126
|
|
|
$
|
5,108
|
|
Finished goods
|
|
|
68
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
Total long-term
|
|
$
|
3,194
|
|
|
$
|
5,212
|
|
|
|
|
|
|
|
|
|
|
F-31
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
The Company currently has $27.7 million in deposits
reported as Non-current assets on the condensed consolidated
Balance Sheet as of March 31, 2011. Of this amount,
$18.2 million is due to collateral used to secure surety
bonds placed with the California state and regional agencies
relating to our Mountain Pass facility closure and reclamation
obligations. The remaining deposits consist of $8.0 million
under an escrow arrangement for the Companys facilities
agreement with Kern River Gas Transmission Company and
$1.5 million related to the Companys construction
insurance program.
|
|
(g)
|
Property,
Plant and Equipment, net
|
Property, plant and equipment associated with the acquisition of
the Mountain Pass facility was recorded at estimated fair value
as of the acquisition date. Expenditures for new property, plant
and equipment and improvements that extend the useful life or
functionality of the asset are capitalized. The Company
capitalized $41.3 million and $3.4 million in plant
modernization costs for the three months ended March 31,
2011 and 2010, respectively. Our anticipated project cost
through 2012 to restart the mining operations, construct and
refurbish processing facilities and to expand into the
production of metals and alloys is $531 million, which
includes a $20 million increase over our previous estimate.
The increase is due to the increased scope of the project
including the acceleration of the construction of the new
crushing and milling facility and other design changes to allow
a faster conversion to 40,000 metric tons per year than would
otherwise be possible.
Mineral properties at March 31, 2011 and December 31,
2010, represent the purchase price allocated to mineral
resources associated with the Mountain Pass facility and mineral
property development costs.
At March 31, 2011 and December 31, 2010, property,
plant and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Land
|
|
$
|
800
|
|
|
$
|
800
|
|
Land improvements (15 years)
|
|
|
15,748
|
|
|
|
15,415
|
|
Buildings and improvements (4 to 27 years)
|
|
|
7,241
|
|
|
|
6,892
|
|
Plant and equipment (2 to 12 years)
|
|
|
21,338
|
|
|
|
19,560
|
|
Vehicles (7 years)
|
|
|
1,127
|
|
|
|
1,049
|
|
Computer software (5 years)
|
|
|
1,871
|
|
|
|
1,563
|
|
Furniture and fixtures (3 years)
|
|
|
193
|
|
|
|
170
|
|
Construction in progress
|
|
|
73,810
|
|
|
|
34,809
|
|
Mineral properties
|
|
|
23,968
|
|
|
|
23,968
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment at cost
|
|
|
146,096
|
|
|
|
104,226
|
|
Less accumulated depreciation
|
|
|
(12,344
|
)
|
|
|
(10,260
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
133,752
|
|
|
$
|
93,966
|
|
|
|
|
|
|
|
|
|
|
In accordance with ASC 360, Property Plant and
Equipment, long-lived assets such as property, plant, and
equipment, mineral properties and purchased intangible assets
subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. There were no events
or changes in circumstances indicating that the carrying amount
of the Companys long-lived assets as of March 31,
2011 may not be recoverable.
F-32
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
In connection with an update of the asset retirement obligation
as of March 31, 2011, the Company recognized additional
asset retirement costs of $0.6 million.
|
|
(h)
|
Mineral
Properties and Development Costs
|
Mineral properties and development costs, which are referred to
collectively as mineral properties, include acquisition costs,
drilling costs, and the cost of other development work, all of
which are capitalized. The Company amortizes mineral properties
using the units of production method over estimated proven and
probable reserves. Molycorps proven and probable reserves
are based on extensive drilling, sampling, mine modeling, and
mineral recovery from which economic feasibility has been
determined. The reserves are estimated based on information
available at the time the reserves are calculated. Proven and
probable reserves are based on estimates, and no assurance can
be given that the indicated levels of recovery of REOs will be
realized or that production costs and estimated future
development costs will not exceed the net realizable value of
the products. Reserve estimates may require revisions based on
actual production experience. Market price fluctuations of REOs,
as well as increased production costs or reduced recovery rates,
could render proven and probable reserves containing relatively
lower grades of mineralization uneconomic to exploit and might
result in a reduction of reserves.
The Company acquired its trade name in connection with the
Mountain Pass facility acquisition. Amortization is provided
using the straight-line method based on an estimated useful life
of 12 years. Amortization expense for the three months
ended March 31, 2011 and 2010, and cumulatively for the
period from June 12, 2008 (Inception) through
March 31, 2011 was $16,370, $16,250 and $163,734,
respectively. Amortization expense is estimated to be $65,000
annually for the following five years.
Accrued expenses at March 31, 2011 and December 31,
2010 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Defined contribution plan
|
|
$
|
1,433
|
|
|
$
|
1,199
|
|
Accrued tolling fees
|
|
|
1,580
|
|
|
|
404
|
|
Other accrued expenses
|
|
|
3,395
|
|
|
|
2,622
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
6,408
|
|
|
$
|
4,225
|
|
|
|
|
|
|
|
|
|
|
|
|
(k)
|
Asset
Retirement Obligation
|
The Company accounts for reclamation costs, along with other
costs related to the closure of the Mountain Pass facility, in
accordance with
ASC 410-20,
Asset Retirement Obligations. This standard requires the
Company to recognize asset retirement obligations at estimated
fair value in the period in which the obligation is incurred.
The Company recognized an asset retirement obligation and
corresponding asset retirement cost of $13.3 million in
connection with the Mountain Pass facility acquisition. The
liability was initially measured at fair value and is
subsequently adjusted for accretion expense and changes in the
amount or timing of the estimated cash flows. The asset
retirement cost was capitalized as part of the carrying amount
of the related long-lived assets and is being depreciated over
the assets remaining useful lives.
During the first quarter of 2011, the Company recognized
additional asset retirement obligations of $0.6 million
related to additional disturbances that occurred during the
first quarter of 2011. Depreciation
F-33
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
expense associated with the asset retirement cost was
$0.3 million, $0.3 million and $2.9 million for
the three months ended March 31, 2011 and 2010, and
cumulatively for the period from June 12, 2008 (Inception)
through March 31, 2011, respectively. The following table
presents the activity in our asset retirement obligation (in
thousands):
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31, 2011
|
|
|
Balance at beginning of period
|
|
$
|
12,471
|
|
Obligations settled
|
|
|
(165
|
)
|
Accretion expense
|
|
|
234
|
|
Revisions in estimated cash flows
|
|
|
628
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
13,168
|
|
|
|
|
|
|
The Company is required to provide the applicable governmental
agencies with financial assurances relating to its closure and
reclamation obligations. As of March 31, 2011, the Company
had financial assurance requirements of $27.4 million which
were satisfied with surety bonds placed with the California
state and regional agencies.
Prior to the Corporate Reorganization, the taxable income and
losses of Molycorp, LLC were reported on the income tax returns
of its members. Molycorp, Inc. is subject to federal and state
income taxes and files consolidated income tax returns. Molycorp
recognizes income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to difference
between the financial statement carrying amounts of assets and
liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the periods in which the
deferred tax liability or asset is expected to be settled or
recognized. Molycorp records a valuation allowance if, based on
available information, it is deemed more likely than not that
its deferred income tax asset will not be realized in full. As
of March 31, 2011, the Companys net loss of
$42.2 million since the Corporate Reorganization included
$31.6 million in stock-based compensation expense, which is
a permanent difference between its losses for financial
reporting and income tax purposes. Other permanent differences
include legal and due diligence fees related to the acquisitions
that were completed in April 2011 as well as costs related to
the registration of common stock sold by certain stockholders in
a secondary offering during the first quarter of 2011. Molycorp
has generated net deferred income tax assets of
$21.3 million as of March 31, 2011. However, as
realization of these tax assets is not assured, we have
established a full valuation allowance against these assets. A
significant portion of the net operating losses
(NOLs) of $14 million will expire in the year
2030. Molycorp recorded income tax expenses of
$81 thousand, as a result of federal alternative minimum
tax, and California state income tax of $118 thousand, as a
result of the use of NOLs being temporally disallowed in
California.
As of March 31, 2011 and December 31, 2011, the
Company had 82,300,610 and 82,291,200 shares of common
stock outstanding, respectively.
On February 16, 2011, Molycorp completed a public offering
of its 5.50% Series A mandatory convertible preferred
stock, $0.001 par value per share. In connection with this
offering, the Company issued 1,800,000 shares of
Series A mandatory convertible preferred stock for $100.00
per share. In addition, Molycorp granted the underwriters an
option to purchase up to 270,000 additional shares of
Series A
F-34
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
mandatory convertible preferred stock to cover over-allotments.
The underwriters exercised their option to purchase the
additional shares of Series A mandatory convertible
preferred stock on March 16, 2011. Each share of the
Series A mandatory convertible preferred stock will
automatically convert on March 1, 2014 into between 1.6667
and 2.0000 shares of Molycorps common stock, subject
to anti-dilution adjustments. At any time prior to March 1,
2014, holders may elect to convert each share of the
Series A mandatory convertible preferred stock into shares
of common stock at the minimum conversion rate of
1.6667 shares of common stock per share of Series A
mandatory convertible preferred stock, subject to anti-dilution
adjustments. Dividends on the Series A mandatory
convertible preferred stock are payable on a cumulative basis
when, as and if declared by the Companys Board of
Directors or an authorized committee of such Board, at an annual
rate of 5.50% on the liquidation preference of $100.00 per
share. The Company may pay declared dividends in cash, common
stock or any combination of cash and common stock, subject to
certain limitations, on March 1, June 1, September 1
and December 1 of each year, starting on June 1, 2011 and
to, and including, March 1, 2014. The Series A
mandatory convertible preferred stock is not redeemable.
Paid-in capital in the consolidated balance sheets represents
amounts paid by stockholders or interests earned under certain
stock compensation agreements. For the three months ended
March 31, 2011, Molycorp received net proceeds from the
Series A mandatory convertible preferred stock offering
totaling $199.6 million after underwriter discounts and
commissions and offering expenses paid by Molycorp, Inc.
|
|
(n)
|
Earnings
(loss) per Share
|
Basic loss per share is computed by dividing the Companys
net loss by the weighted average number of shares of common
stock outstanding during the period. For the three months ended
March 31, 2011, the cumulative undeclared dividend on the
Series A mandatory convertible preferred stock was added to
the net loss in the period for the purpose of computing the
basic loss per share.
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2011
|
|
|
|
(In thousands, except share and
|
|
|
|
per share amounts)
|
|
|
Net loss
|
|
$
|
(2,198
|
)
|
Cumulative undeclared dividends on preferred stock
|
|
|
(1,245
|
)
|
|
|
|
|
|
Loss attributed to common stockholders basic
|
|
|
(3,443
|
)
|
Weighted average common shares outstanding
|
|
|
82,253,700
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
Diluted loss per share reflects the dilutive impact of potential
common stock and unvested restricted shares of common stock in
the weighted average number of common shares outstanding during
the period, if dilutive. For this purpose, the treasury
stock method and if converted method, as
applicable, are used for the assumed proceeds upon the exercise
of common stock equivalents at the average selling prices of the
shares during the period. All potential common stock as of
March 31, 2011 and December 31, 2010 were antidilutive
in nature; consequently, the Company does not have any
adjustments between earnings per share and diluted earnings per
share.
|
|
(o)
|
Comprehensive
Income (Loss)
|
The Company does not have any items entering into the
determination of comprehensive income (loss) other than net loss
for the three-month ended March 31, 2011 and 2010.
F-35
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
|
|
(5)
|
Commitments
and Contingencies
|
|
|
(a)
|
Future
Operating Lease Commitments
|
The Company has certain operating leases for office space and
certain equipment. Remaining annual minimum payments under these
leases at March 31, 2011 were $0.3 million in 2011,
$0.2 million in 2012, $0.2 million in 2013,
$0.2 million in 2014, $0.2 million in 2015 and
$0.2 million thereafter, totaling $1.3 million.
Certain Mountain Pass facility employees are covered by a
collective bargaining agreement with the United Steelworkers of
America which expires on March 15, 2012. At March 31,
2011, 81 employees, or approximately 40% of the
Companys workforce, were covered by this collective
bargaining agreement.
|
|
(c)
|
Reclamation
Surety Bonds
|
At March 31, 2011, Molycorp had placed $27.4 million
of surety bonds with California state and regional agencies to
secure its Mountain Pass facility closure and reclamation
obligations.
The Company is subject to numerous and detailed federal, state
and local environmental laws, regulations and permits including
health and safety, environmental, and air quality. The Company
is subject to strict conditions, requirements and obligations
relating to various environmental and health and safety matters
in connection with the current permits, and the Company may be
subject to additional conditions, requirements and obligations
associated with its permits and future operations. Certain
conditions could be imposed in order to maintain the required
permits including requirements to conduct additional
environmental studies and collect and present data to government
authorities pertaining to the potential impact of current and
future operations upon the environment. Accordingly, the
required permits may not be maintained or renewed in a timely
fashion if at all, or may be renewed upon conditions that
restrict the Companys ability to conduct its operations
economically. Any failure, significant delay or significant
change in conditions that is required to maintain or renew
permits, could have a material adverse effect on the
Companys business, results of operations and financial
condition.
|
|
(6)
|
Stock-Based
Compensation
|
Molycorp accounts for stock-based compensation based upon the
fair value of the awards at the time of grant. The expense
associated with such awards is recognized over the service
period associated with the issuance. There are no performance
conditions associated with these awards.
Effective November 1, 2009, Molycorp LLC issued 5,880,000
incentive shares to certain employees and independent directors
of the Company. At the time of issuance, due to Molycorp
Minerals, LLCs option to repurchase vested shares of
terminated participants at a price other than fair value, these
incentive shares were classified as liabilities and were valued
at zero using the intrinsic value method. On April 15,
2010, all holders of incentive shares contributed their
incentive shares to Molycorp, Inc. in exchange for an aggregate
of 3,012,420 shares of Class B common stock of
Molycorp, Inc., 1,004,140 shares of which vested
immediately with an additional 1,004,140 shares vesting on
September 30, 2010 and the remaining 1,004,140 shares
vesting on September 30, 2011. The shares of Class B
common stock were non-transferable and the Company had the right
to repurchase vested shares upon the termination of employment
for any reason.
F-36
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
The shares of Class B common stock automatically converted
into shares of common stock, based on a conversion factor,
immediately prior to completion of the IPO. On August 3,
2010, Molycorp completed an IPO of common stock at an offering
price of $14.00 per share. At that time, the shares of
Class B common stock were converted into an aggregate of
2,232,740 shares of common stock, 744,247 of which remained
vested with the remaining 1,488,493 vesting over a period of six
months following the IPO. Stock-based compensation associated
with these shares was $2.6 million for the three months
ended March 31, 2011 and $28.7 million for the year
ended December 31, 2010.
On November 4, 2010, the Compensation Committee of the
Board of Directors of the Company approved the grant of
37,500 shares of restricted stock with a three-year cliff
vesting period to certain executive officers and a director of
the Company. The $1.4 million fair value of the awards was
determined using the stock price on the date of grant and is
recognized straight-line over the three-year vesting period. The
stock-based compensation associated with these awards was
$0.1 million for the three months ended March 31, 2011.
On January 13, 2011, the Company granted 9,557 shares
of restricted stock and 32,637 restricted stock units with a
three-year cliff vesting period to certain employees and
executive officers of the Company. The total $1.9 million
fair value of the restricted stock and restricted stock units
was determined using the Companys stock price on the date
of grant and is recognized straight-line over the three-year
vesting period. On the same day, the Company granted 52,819
stock options that vest in equal installments annually over a
three-year period to certain employees and executive officers of
the Company. The $1.4 million fair value of the stock
options was determined using the Black Scholes option valuation
model and the Companys stock price on the date of grant
and is recognized straight-line over the three year vesting
period. The total stock-based compensation associated with the
awards granted on January 13, 2011 was $0.2 million
for the three months ended March 31, 2011. Approximately
$35,000 of the stock-based compensation associated with these
equity awards was allocated to cost of goods sold for the three
months ended March 31, 2011.
|
|
(a)
|
Limited
Number of Products
|
The Companys current operations are primarily limited to
the production and sale of REOs from stockpiled concentrates and
purchasing and reselling REOs from other producers. The Company
does not have and will not have the capability to significantly
alter its product mix prior to completing the modernization and
expansion of the Mountain Pass facility and the restart of
mining operations. Sales for the Companys most significant
products for the three months ended March 31, 2011 and
2010, in (thousands), were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Three Months
|
|
|
Ended
|
|
Ended
|
|
|
March 31, 2011
|
|
March 31, 2010
|
|
Lanthanum products
|
|
$
|
11,466
|
|
|
$
|
2,751
|
|
Ceric Hydrate
|
|
$
|
7,868
|
|
|
|
|
|
Didymium products
|
|
$
|
4,693
|
|
|
$
|
105
|
|
Cerium products
|
|
$
|
1,185
|
|
|
$
|
14
|
|
Other
|
|
$
|
1,049
|
|
|
$
|
148
|
|
F-37
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
|
|
(b)
|
Limited
Number of Customers
|
There is a limited market for the lanthanum products currently
produced by the Company from stockpiled concentrate. Sales to
the Companys largest customers, for the three months ended
March 31, 2011 and 2010, in (thousands), were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Three Months
|
|
|
Ended
|
|
Ended
|
|
|
March 31, 2011
|
|
March 31, 2010
|
|
Mitsubishi Unimetals USA
|
|
$
|
7,767
|
|
|
|
|
|
W.R. Grace & Co. Conn.
|
|
$
|
6,196
|
|
|
$
|
2,308
|
|
Hitachi Metals, Ltd.
|
|
$
|
5,785
|
|
|
|
|
|
Toyota Tsusho Corporation
|
|
$
|
2,600
|
|
|
|
|
|
Treibacher Industrie AG
|
|
$
|
1,184
|
|
|
|
|
|
|
|
(c)
|
Single
Geographic Location
|
Currently, the Companys only mining and production
facility is the Mountain Pass facility and the Companys
viability is based on the successful modernization and expansion
of its operations. The deterioration or destruction of any part
of the Mountain Pass facility, or legal restrictions related to
current or anticipated operations at the Mountain Pass facility,
may significantly hinder the Companys ability to reach or
maintain full planned production rates within the expected time
frame, if at all.
|
|
(8)
|
Related-Party
Transactions
|
In February 2009, certain of the Companys stockholders
incurred certain costs in providing letters of credit
and/or cash
collateral to secure the surety bonds issued for the benefit of
certain regulatory agencies related to the Companys
Mountain Pass facility closure and reclamation obligations. The
total amount of collateral provided by stockholders was
$18.2 million. Under the terms of the agreement with its
stockholders, the Company agreed to pay each such stockholder a
5% annual return on the amount of collateral provided, and the
stockholders were entitled to receive quarterly payments, delay
payments, or receive
payments-in-kind.
In September 2010, the Company issued its own collateral in the
amount of $18.2 million in replacement of the letters of
credit and cash collateral provided by the stockholders. The
Company paid fees due to stockholders in the amount of
$0.8 million in September 2010.
In June 2010, the Company entered into an inventory financing
arrangement with Traxys North America LLC (Traxys),
the parent of one of its stockholders, TNA Moly Group, LLC,
under which it borrowed approximately $5.0 million, secured
by certain product inventories. Borrowings under this
arrangement required an initial interest rate of 6% based on
three-month LIBOR plus a margin, which is subject to adjustment
every three months. No adjustments have been made to the
interest rate since the agreement was signed. At March 31,
2011 and December 31, 2010 interest payable associated with
the arrangement totaled $71,200 and $9,000, respectively.
Principal and interest under this arrangement are payable from
revenue generated from sales of the product inventories. During
the third quarter of 2010, both parties agreed that 50% of all
didymium oxide sales will be subject to this arrangement. The
Company made principal payments of $0.9 million for the
three months ended March 31, 2011. The outstanding amounts
payable to Traxys under this arrangement were $2.9 million
reported on the Condensed Consolidated Balance Sheet as
Short-term borrowing related party and
$0.6 million in Trade accounts payable related to the sales
made, but not remitted to Traxys and affiliates as of
March 31, 2011.
The Company and Traxys and affiliates jointly market and sell
certain lanthanum oxide, cerium oxide and erbium oxide products.
Per the terms of this arrangement, the Company and Traxys split
gross margin equally
F-38
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
once all costs associated with the sale are recovered by both
parties. As a result of this arrangement ending March 31,
2011, we have recorded a related party receivable from Traxys
and affiliates of $116,000. The Company recorded an expense of
$176,000 during the first quarter of 2011 and had an outstanding
related payable to Traxys and affiliates in the amount of
$297,000 as of March, 31, 2011. Revenues and expenses related to
these settlements are presented on a net basis in Other Income
on the Statement of Operations. In addition, for the three
months ended March 31, 2011, the Company made purchases of
lanthanum oxide from Traxys and affiliates in the amount of
$4.3 million. The related-party payable associated with
product purchases was $0.3 million as of March 31,
2011.
On April 1, 2011, Molycorp completed the acquisition of a
90.023% controlling stake in AS Silmet, one of only two rare
earth processing facilities in Europe, in a transaction valued
at approximately $89 million. Molycorp acquired 80% of the
outstanding shares of AS Silmet (now Molycorp Silmet AS) from AS
Silmet Grupp in exchange for 1,593,419 shares of Molycorp
common stock. AG Silmet Grupp will retain a 9.977% ownership
interest in Molycorp Silmet AS. Molycorp acquired the other
10.023% from Treibacher Industrie AG for $9.0 million in
cash. The Molycorp Silmet AS acquisition provides Molycorp with
a European base of operations and doubles the Companys
current rare earth production capacity from approximately 3,000
mt per year of REO equivalent to approximately 6,000 mt. AS
Silmet will begin sourcing rare earth feed stocks for production
of its products from Molycorps Mountain Pass, California
rare earth mine and processing facility. The facilitys
main focus will be on the production of rare earth oxides and
metals, including didymium metal, a critical component in the
manufacture of neodymium-iron-boron permanent rare earth
magnets. AS Silmets manufacturing operation is located in
Sillamäe, Estonia. The company currently sells products to
customers in Europe, North and South America, Asia, Russia, and
other former Soviet Union countries.
On April 15, 2011, Molycorp completed the acquisition from
Santoku Corporation (Santoku) of all the issued and
outstanding shares of capital stock of Santoku America, Inc., an
Arizona-based corporation, in an all-cash transaction for
$17.5 million. The acquisition provides Molycorp with
access to certain intellectual properties relative to the
development, processing and manufacturing of Neodymium and
Samarium magnet alloy products. As part of the stock purchase
agreement, Santoku will provide consulting services to Molycorp
for the purpose of maintaining and enhancing the quality of
Molycorps products. On the same date, Molycorp entered
into a non-exclusive marketing and distribution agreement with
Santoku for the sale and distribution of neodymium and samarium
magnet alloy products.
The allocation of the purchase price for both acquisitions will
be completed later in 2011.
On May 4, 2011, the Company declared a cash dividend of
$1.604 per share on the Series A mandatory convertible
preferred stock. The dividend will be paid on June 1, 2011
for holders of record at the close of business on May 15,
2011. The Company elected to pay the $3.3 million dividend
in cash given its current cash balance and its anticipated
revenue and earnings.
|
|
(10)
|
Revision
of Financial Statements for March 31, 2011
|
We have revised our consolidated financial statements as of and
for the three months ended March 31, 2011, and cumulatively
for the period from June 12, 2008 (Inception) through
March 31, 2011, for an overstatement of Work in Process
(WIP) inventory.
F-39
MOLYCORP,
INC.
(A Company in the Development Stage)
Notes to Condensed Consolidated Financial
Statements (Continued)
In May 2011, we determined that our WIP inventory of ceric
hydrate was overstated by approximately $3.0 million as of
March 31, 2011, $1.3 million of which related to the
three months ended March 31, 2011 and $1.7 million
related to the fourth quarter of 2010, which was also revised.
We have assessed the materiality of this misstatement in
accordance with the SECs Staff Accounting Bulletin
(SAB) No. 99 and concluded that this error is
not material to our previously issued consolidated financial
statements. Accordingly, by reference to SAB No. 108,
our previously issued consolidated financial statements have
been revised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended and as of
|
|
|
|
March 31, 2011
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Revision
|
|
|
As Revised
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Cost of goods sold
|
|
$
|
(15,388
|
)
|
|
$
|
(1,289
|
)
|
|
$
|
(16,677
|
)
|
Loss before income taxes
|
|
|
(710
|
)
|
|
|
(1,289
|
)
|
|
|
(1,999
|
)
|
Net loss
|
|
|
(909
|
)
|
|
|
(1,289
|
)
|
|
|
(2,198
|
)
|
Loss per basic/diluted common share
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
|
|
(0.04
|
)
|
Current inventory
|
|
|
24,363
|
|
|
|
(2,978
|
)
|
|
|
21,385
|
|
Current assets
|
|
|
537,072
|
|
|
|
(2,978
|
)
|
|
|
534,094
|
|
Total assets
|
|
|
702,451
|
|
|
|
(2,978
|
)
|
|
|
699,473
|
|
Total stockholders equity
|
|
|
649,869
|
|
|
|
(2,978
|
)
|
|
|
646,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from June 12, 2008
|
|
|
|
(Inception) through
|
|
|
|
March 31, 2011
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Revision
|
|
|
As Revised
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Cost of goods sold
|
|
$
|
(86,102
|
)
|
|
$
|
(2,978
|
)
|
|
$
|
(89,080
|
)
|
Loss before income taxes
|
|
|
(92,456
|
)
|
|
|
(2,978
|
)
|
|
|
(95,434
|
)
|
Net loss
|
|
|
(92,655
|
)
|
|
|
(2,978
|
)
|
|
|
(95,633
|
)
|
Loss per basic/diluted common share
|
|
|
(1.81
|
)
|
|
|
(0.05
|
)
|
|
|
(1.86
|
)
|
F-40
10,000,000 Shares
Molycorp, Inc.
Common Stock
PROSPECTUS
Joint Book-Running Managers
J.P. Morgan
Morgan Stanley
PART II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The following table shows the costs and expenses, other than
underwriting discounts and commissions, to be paid by the
registrant in connection with this offering. All amounts shown
except the SEC registration fee and the New York Stock Exchange
listing fee are estimates.
|
|
|
|
|
|
|
Amount
|
|
|
SEC Registration Fee
|
|
$
|
76,878
|
|
FINRA Filing Fee
|
|
|
66,717
|
|
Accounting Fees and Expenses
|
|
|
*
|
|
Legal Fees and Expenses
|
|
|
*
|
|
Printing and Engraving Expenses
|
|
|
*
|
|
Blue Sky Fees and Expenses
|
|
|
*
|
|
Transfer Agent and Registrar Fees and Expenses
|
|
|
*
|
|
Miscellaneous Expenses
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
* |
|
To be provided by amendment. |
|
|
Item 14.
|
Indemnification
of Officers and Directors.
|
Section 102(b)(7) of the General Corporation Law of the
State of Delaware allows a corporation to include in its
certificate of incorporation a provision that limits or
eliminates the personal liability of directors of a corporation
or its stockholders for monetary damages for a breach of a
fiduciary duty as a director, except where the director breached
his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized
the payment of a dividend or approved a stock repurchase or
redemption in violation of Delaware corporate law or obtained an
improper personal benefit.
Section 145 of the General Corporation Law of the State of
Delaware allows a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation) by reason
of the fact that such person is or was a director, officer,
employee or agent of such corporation, or is or was serving at
the request of such corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise. The indemnity may include expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding,
provided that such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe such persons conduct was unlawful. A Delaware
corporation may indemnify directors, officers, employees and
other agents of such corporation in an action by or in the right
of a corporation to procure a judgment in its favor under the
same conditions against expenses (including attorneys
fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or
suit, except that no indemnification is permitted without
judicial approval if the person to be indemnified has been
adjudged to be liable to the corporation with respect to such
claim, issue or matter. Where a present or former director or
officer of the corporation is successful on the merits or
otherwise in the defense of any action, suit or proceeding
referred to above or in defense of any claim, issue or matter
therein, the corporation must indemnify such person against the
expenses (including attorneys fees) which he or she
actually and reasonably incurred in connection therewith.
Section 174 of the General Corporation Law of the State of
Delaware provides, among other things, that a director who
willfully or negligently approves of an unlawful payment of
dividends or an unlawful stock purchase or redemption, may be
held liable for such actions. A director who was either absent
when the
II-1
unlawful actions were approved or dissented at the time, may
avoid liability by causing his or her dissent to such actions to
be entered into the books containing the minutes of the meetings
of the board of directors at the time such action occurred or
immediately after such absent director receives notice of the
unlawful acts.
Our certificate of incorporation contains a provision that
provides that each person who was or is a party or is threatened
to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, or a
proceeding, by reason of the fact that the person is or was a
director or an officer of our company, or is or was serving at
our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, including service with respect to an employee
benefit plan, or an indemnitee, whether the basis of such
proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall
be indemnified and held harmless by us to the fullest extent
permitted or required by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the
extent that such amendment permits us to provide broader
indemnification rights than such law permitted us to provide
prior to such amendment), against all expense, liability and
loss (including attorneys fees, judgments, fines, the
Employment Retirement Income Security Act of 1974 excise taxes
or penalties and amounts paid in settlement) reasonably incurred
or suffered by such indemnitee in connection therewith;
provided, however, that, with limited exceptions relating to
rights to indemnification, we shall indemnify any such
indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by our board of directors.
Our policy is to enter into separate indemnification agreements
with each of our directors and officers that provide the maximum
indemnity allowed to directors and executive officers by
Section 145 of the General Corporation Law of the State of
Delaware and also provides for certain additional procedural
protections.
In addition, our certificate of incorporation states that we may
maintain insurance to protect ourselves and any person who is or
was a director, officer, employee or agent of our company, or is
or was serving at our request as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or
arising out of such persons status as such, whether or not
we would have the power to indemnify such person against such
liability under the General Corporation Law of the State of
Delaware. We have and intend to maintain director and officer
liability insurance, if available on reasonable terms.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
During the past two years, Molycorp, Inc.s predecessors,
Molycorp, LLC and Molycorp Minerals, LLC, issued unregistered
securities to funds affiliated with Resource Capital Funds,
Pegasus Capital Advisors, LP, GS Power Holdings LLC, Traxys
North America LLC, MP Rare Company LLC and KMSMITH LLC in
connection with capital contributions. Prior to February 4,
2009, no additional securities were issued to members; rather,
the percentage ownership of each member, and such members
capital account, was adjusted accordingly. Molycorp, LLC also
granted an option to its Chief Executive Officer to purchase
member interests, and Molycorp Minerals, LLC awarded profits
interests to certain employee and non-employee directors of
Molycorp, LLC. The recipients of the securities in these
transactions represented their intention to acquire the
securities for investment only and not with a view to or for
sale in connection with any distribution thereof. The
information presented below regarding issuances prior to April
15, 2010 does not give effect to our corporate reorganization as
described in the prospectus.
From July 30, 2008 through February 4, 2009 the
members of Molycorp Minerals, LLC contributed an aggregate of
$100,154,300 to Molycorp Minerals, LLC.
From February 5, 2009 through September 8, 2009, the
members of Molycorp Minerals, LLC contributed an aggregate of
$50,000 to Molycorp Minerals, LLC in exchange for
542.59 shares.
On September 9, 2009, the members of Molycorp Minerals, LLC
exchanged all of their member interests in Molycorp Minerals,
LLC in exchange for all of the member interests of Molycorp,
LLC. On September 10,
II-2
2009, Molycorp Minerals, LLC granted profits interests
represented by an aggregate of 5,880,000 incentive shares to
certain employees and non-employee directors.
From September 10, 2009 through April 14, 2010, the
members of Molycorp, LLC contributed an aggregate of $27,130,946
to Molycorp, LLC in exchange for 260,606.66 shares.
On May 28, 2010, Molycorp, Inc. issued and sold an
aggregate of 49,519.69 shares of its Class A common
stock, which were converted into to approximately
1,922,812 shares of common stock of Molycorp, Inc. in
connection with our initial public offering, to existing holders
of its Class A common stock at $100.97 per share of
Class A common stock (or $2.60 per share of common stock of
Molycorp, Inc. based on our initial public offering price of
$14.00 per share), for aggregate proceeds of $5,000,000.
On April 1, 2011, we completed the acquisition of a 90.023%
controlling stake in Molycorp Silmet AS, one of only two
rare earth processing facilities in Europe, in a transaction
valued at approximately $89 million. We acquired 80% of the
outstanding shares of Molycorp Silmet AS from AS Silmet
Grupp in exchange for 1,593,419 shares of our common stock.
None of these transactions involved any underwriters or any
public offerings, and we believe that they were exempt from the
registration requirements pursuant to Section 4(2) of the
Securities Act of 1933.
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules.
|
|
|
|
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement.
|
|
2
|
.1
|
|
Stock Purchase Agreement, dated April 1, 2011, by and among
Molycorp, Inc., Molycorp Minerals, LLC and Aktsiaselts Silmet
Grupp (incorporated by reference to Exhibit 2.1 of Molycorp
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
April 7, 2011).
|
|
2
|
.2
|
|
Stock Purchase Agreement, dated April 1, 2011, by and
between Molycorp Minerals, LLC and Treibacher Industrie AG
(incorporated by reference to Exhibit 2.1 of Molycorp
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
April 7, 2011).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Molycorp,
Inc. (incorporated by reference to Exhibit 3.1 to Molycorp,
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
August 6, 2010).
|
|
3
|
.2
|
|
Bylaws of Molycorp, Inc. (incorporated by reference to
Exhibit 3.2 to Molycorp, Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
August 6, 2010).
|
|
3
|
.3
|
|
Form of Certificate of Designations of Series A Mandatory
Convertible Preferred Stock of Molycorp, Inc. (including Form of
Certificate of Molycorp, Inc. Series A Mandatory
Convertible Preferred Stock) (incorporated by reference to
Exhibit 4.1 to Molycorp, Inc.s Registration Statement
on
Form S-1
(File
No. 333-171827)
filed with the Securities and Exchange Commission on
February 7, 2011).
|
|
4
|
.1
|
|
Form of Certificate of Molycorp, Inc. Common Stock (incorporated
by reference to Exhibit 4.1 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
July 13, 2010).
|
|
5
|
.1
|
|
Opinion of Jones Day.
|
|
10
|
.1
|
|
Sales/Buy-Back Agreement, dated May 15, 2009, between
Molycorp Minerals, LLC and Traxys North America LLC
(incorporated by reference to Exhibit 10.1 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.2
|
|
Letter Agreement, dated April 16, 2010, between Molycorp
Minerals, LLC and Traxys North America, LLC (incorporated by
reference to Exhibit 10.2 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
|
10
|
.3
|
|
Contribution Agreement, dated April 15, 2010, by and among
Molycorp, Inc., Molycorp, LLC, Molycorp Minerals, LLC and the
parties listed therein (incorporated by reference to
Exhibit 10.4 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
II-3
|
|
|
|
|
|
10
|
.4
|
|
Stockholders Agreement, dated April 15, 2010, by and among
Molycorp, Inc. and the parties listed therein (incorporated by
reference to Exhibit 10.5 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
|
10
|
.5
|
|
Registration Rights Agreement, dated April 15, 2010, by and
among Molycorp, Inc. and the parties listed therein
(incorporated by reference to Exhibit 10.6 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
|
10
|
.6
|
|
Form of Restricted Stock Agreement (incorporated by reference to
Exhibit 10.7 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
|
10
|
.7
|
|
Molycorp, Inc. Amended and Restated Management Incentive
Compensation Plan, effective as of December 20, 2010
(incorporated by reference to Exhibit 10.1 to Molycorp,
Inc.s Current Report on
Form 8-K
(Registration
No. 001-34827)
filed with the Securities and Exchange Commission on
December 21, 2010).
|
|
10
|
.8
|
|
Termination and Mutual Release Agreement, dated June 16,
2010, between Molycorp Minerals, LLC and Traxys North America,
LLC (incorporated by reference to Exhibit 10.9 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.9
|
|
Sales/Buy-Back Agreement, dated June 1, 2010, between
Molycorp Minerals, LLC and Traxys North America, LLC
(incorporated by reference to Exhibit 10.10 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.10
|
|
Purchase Agreement, dated as of December 15, 2010, between
Molycorp Minerals, LLC and Quinn Process Equipment Co.
(incorporated by reference to Exhibit 10.22 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-171827)
filed with the Securities and Exchange Commission on
January 24, 2011).
|
|
10
|
.11
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and Mark A. Smith (incorporated by reference to
Exhibit 10.11 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.12
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and James S. Allen (incorporated by reference to
Exhibit 10.12 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.13
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and John F. Ashburn, Jr. (incorporated by
reference to Exhibit 10.13 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.14
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and John L. Burba (incorporated by reference to
Exhibit 10.14 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.15
|
|
Molycorp, Inc. 2010 Equity and Performance Incentive Plan
(incorporated by reference to Exhibit 10.15 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.16
|
|
Letter Agreement, dated April 15, 2010, among Resource
Capital Fund IV, L.P., Resource Capital Fund V, L.P.,
PP IV Mountain Pass II, LLC, PP IV MP AIV 1, LLC, PP IV MP AIV
2, LLC, PP IV MP AIV 3, LLC, TNA Moly Group, LLC, MP Rare
Company, LLC and KMSmith, LLC (incorporated by reference to
Exhibit 10.16 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.17
|
|
Summary of Collateral Arrangement for Surety Bonds (incorporated
by reference to Exhibit 10.17 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
July 13, 2010).
|
|
10
|
.18
|
|
Form of Director and Officer Indemnification Agreement
(incorporated by reference to Exhibit 10.18 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
July 13, 2010).
|
II-4
|
|
|
|
|
|
10
|
.19
|
|
Form of Nonqualified Stock Option Agreement (incorporated by
reference to Exhibit 10.1 to Molycorp, Inc.s Current
Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
November 8, 2010).
|
|
10
|
.20
|
|
Form of Restricted Stock Agreement (incorporated by reference to
Exhibit 10.2 to Molycorp, Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
November 8, 2010).
|
|
10
|
.21
|
|
Form of Restricted Stock Units Agreement (incorporated by
reference to Exhibit 10.3 to Molycorp, Inc.s Current
Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
November 8, 2010).
|
|
10
|
.22
|
|
Executive Employment Agreement, dated November 1, 2010,
between Molycorp, Inc. and Douglas J. Jackson (incorporated by
reference to Exhibit 10.22 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-171827)
filed with the Securities and Exchange Commission on
January 24, 2011).
|
|
10
|
.23
|
|
Molycorp, Inc. Nonemployee Director Deferred Compensation Plan
(incorporated by reference to Exhibit 10.23 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-171827)
filed with the Securities and Exchange Commission on
January 24, 2011).
|
|
10
|
.24
|
|
Molycorp, Inc. Amended and Restated Management Incentive Plan
(incorporated by reference to Exhibit 10.1 to Molycorp,
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
December 21, 2010).
|
|
10
|
.25
|
|
Summary of Molycorp, Inc. 2011 Annual Incentive Plan
(incorporated by reference to Exhibit 10.1 to Molycorp,
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
January 19, 2011).
|
|
10
|
.26
|
|
Executive Employment Agreement, dated January 24, 2011,
between Molycorp, Inc. and John K. Bassett (incorporated by
reference to Exhibit 10.26 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-171827)
filed with the Securities and Exchange Commission on
February 7, 2011).
|
|
10
|
.27
|
|
Change Order to Purchase Agreement, dated as of
February 28, 2011, between Molycorp Minerals, LLC and Quinn
Process Equipment Co. (incorporated by reference to
Exhibit 10.27 of Molycorp Inc.s Annual Report on
Form 10-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
March 9, 2011).
|
|
21
|
.1
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
23
|
.2
|
|
Consent of Jones Day (included in Exhibit 5.1).
|
|
23
|
.3*
|
|
Consent of SRK Consulting (U.S.), Inc.
|
|
23
|
.4*
|
|
Consent of Industrial Minerals Company of Australia Pty Ltd.
|
|
24
|
.1
|
|
Power of Attorney.
|
|
|
|
* |
|
To be filed by amendment. |
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-5
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Greenwood Village, Colorado, on the
24th day of May, 2011.
MOLYCORP, INC.
Mark A. Smith
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Mark
A. Smith
Mark
A. Smith
|
|
President and Chief Executive Officer and Director (Principal
Executive Officer)
|
|
May 24, 2011
|
|
|
|
|
|
*
James
S. Allen
|
|
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
|
|
May 24, 2011
|
|
|
|
|
|
*
Russell
D. Ball
|
|
Director
|
|
May 24, 2011
|
|
|
|
|
|
*
Ross
R. Bhappu
|
|
Director
|
|
May 24, 2011
|
|
|
|
|
|
*
Brian
T. Dolan
|
|
Director
|
|
May 24, 2011
|
|
|
|
|
|
*
Charles
R. Henry
|
|
Director
|
|
May 24, 2011
|
|
|
|
|
|
*
Mark
S. Kristoff
|
|
Director
|
|
May 24, 2011
|
|
|
|
|
|
*
Alec
Machiels
|
|
Director
|
|
May 24, 2011
|
|
|
|
|
|
*
Jack
E. Thompson
|
|
Director
|
|
May 24, 2011
|
|
|
|
* |
|
The undersigned by signing his name hereto does sign and execute
this registration statement on
Form S-1
pursuant to the Power of Attorney executed by the above-named
directors and officers of the registrant, which is being filed
herewith on behalf of such directors and officers. |
Attorney-in-Fact
II-7
EXHIBIT INDEX
|
|
|
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement.
|
|
2
|
.1
|
|
Stock Purchase Agreement, dated April 1, 2011, by and among
Molycorp, Inc., Molycorp Minerals, LLC and Aktsiaselts Silmet
Grupp (incorporated by reference to Exhibit 2.1 of Molycorp
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
April 7, 2011).
|
|
2
|
.2
|
|
Stock Purchase Agreement, dated April 1, 2011, by and
between Molycorp Minerals, LLC and Treibacher Industrie AG
(incorporated by reference to Exhibit 2.1 of Molycorp
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
April 7, 2011).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Molycorp,
Inc. (incorporated by reference to Exhibit 3.1 to Molycorp,
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
August 6, 2010).
|
|
3
|
.2
|
|
Bylaws of Molycorp, Inc. (incorporated by reference to
Exhibit 3.2 to Molycorp, Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
August 6, 2010).
|
|
3
|
.3
|
|
Form of Certificate of Designations of Series A Mandatory
Convertible Preferred Stock of Molycorp, Inc. (including Form of
Certificate of Molycorp, Inc. Series A Mandatory
Convertible Preferred Stock) (incorporated by reference to
Exhibit 4.1 to Molycorp, Inc.s Registration Statement on
Form S-1
(File No. 333-171827)
filed with the Securities and Exchange Commission on
February 7, 2011).
|
|
4
|
.1
|
|
Form of Certificate of Molycorp, Inc. Common Stock (incorporated
by reference to Exhibit 4.1 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
July 13, 2010).
|
|
5
|
.1
|
|
Opinion of Jones Day.
|
|
10
|
.1
|
|
Sales/Buy-Back Agreement, dated May 15, 2009, between
Molycorp Minerals, LLC and Traxys North America LLC
(incorporated by reference to Exhibit 10.1 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.2
|
|
Letter Agreement, dated April 16, 2010, between Molycorp
Minerals, LLC and Traxys North America, LLC (incorporated by
reference to Exhibit 10.2 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
|
10
|
.3
|
|
Contribution Agreement, dated April 15, 2010, by and among
Molycorp, Inc., Molycorp, LLC, Molycorp Minerals, LLC and the
parties listed therein (incorporated by reference to
Exhibit 10.4 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
|
10
|
.4
|
|
Stockholders Agreement, dated April 15, 2010, by and among
Molycorp, Inc. and the parties listed therein (incorporated by
reference to Exhibit 10.5 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
|
10
|
.5
|
|
Registration Rights Agreement, dated April 15, 2010, by and
among Molycorp, Inc. and the parties listed therein
(incorporated by reference to Exhibit 10.6 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
|
10
|
.6
|
|
Form of Restricted Stock Agreement (incorporated by reference to
Exhibit 10.7 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
May 25, 2010).
|
|
10
|
.7
|
|
Molycorp, Inc. Amended and Restated Management Incentive
Compensation Plan, effective as of December 20, 2010.
(incorporated by reference to Exhibit 10.1 to Molycorp,
Inc.s Current Report on
Form 8-K
(Registration
No. 001-34827)
filed with the Securities and Exchange Commission on
December 21, 2010).
|
|
10
|
.8
|
|
Termination and Mutual Release Agreement, dated June 16,
2010, between Molycorp Minerals, LLC and Traxys North America,
LLC (incorporated by reference to Exhibit 10.9 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
|
|
|
|
|
10
|
.9
|
|
Sales/Buy-Back Agreement, dated June 1, 2010, between
Molycorp Minerals, LLC and Traxys North America, LLC
(incorporated by reference to Exhibit 10.10 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.10
|
|
Purchase Agreement, dated as of December 15, 2010, between
Molycorp Minerals, LLC and Quinn Process Equipment Co.
(incorporated by reference to Exhibit 10.22 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-171827)
filed with the Securities and Exchange Commission on
January 24, 2011).
|
|
10
|
.11
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and Mark A. Smith (incorporated by reference to
Exhibit 10.11 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.12
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and James S. Allen (incorporated by reference to
Exhibit 10.12 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.13
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and John F. Ashburn, Jr. (incorporated by
reference to Exhibit 10.13 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.14
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and John L. Burba (incorporated by reference to
Exhibit 10.14 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.15
|
|
Molycorp, Inc. 2010 Equity and Performance Incentive Plan
(incorporated by reference to Exhibit 10.15 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.16
|
|
Letter Agreement, dated April 15, 2010, among Resource
Capital Fund IV, L.P., Resource Capital Fund V, L.P.,
PP IV Mountain Pass II, LLC, PP IV MP AIV 1, LLC, PP IV MP AIV
2, LLC, PP IV MP AIV 3, LLC, TNA Moly Group, LLC, MP Rare
Company, LLC and KMSmith, LLC (incorporated by reference to
Exhibit 10.16 to Molycorp, Inc.s Registration
Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
June 21, 2010).
|
|
10
|
.17
|
|
Summary of Collateral Arrangement for Surety Bonds (incorporated
by reference to Exhibit 10.17 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
July 13, 2010).
|
|
10
|
.18
|
|
Form of Director and Officer Indemnification Agreement
(incorporated by reference to Exhibit 10.18 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-166129)
filed with the Securities and Exchange Commission on
July 13, 2010).
|
|
10
|
.19
|
|
Form of Nonqualified Stock Option Agreement (incorporated by
reference to Exhibit 10.1 to Molycorp, Inc.s Current
Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
November 8, 2010).
|
|
10
|
.20
|
|
Form of Restricted Stock Agreement (incorporated by reference to
Exhibit 10.2 to Molycorp, Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
November 8, 2010).
|
|
10
|
.21
|
|
Form of Restricted Stock Units Agreement (incorporated by
reference to Exhibit 10.3 to Molycorp, Inc.s Current
Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
November 8, 2010).
|
|
10
|
.22
|
|
Executive Employment Agreement, dated November 1, 2010,
between Molycorp, Inc. and Douglas J. Jackson (incorporated by
reference to Exhibit 10.22 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-171827)
filed with the Securities and Exchange Commission on
January 24, 2011).
|
|
10
|
.23
|
|
Molycorp, Inc. Nonemployee Director Deferred Compensation Plan
(incorporated by reference to Exhibit 10.23 to Molycorp,
Inc.s Registration Statement on
Form S-1
(Registration
No. 333-171827)
filed with the Securities and Exchange Commission on
January 24, 2011).
|
|
10
|
.24
|
|
Molycorp, Inc. Amended and Restated Management Incentive Plan
(incorporated by reference to Exhibit 10.1 to Molycorp,
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
December 21, 2010).
|
|
|
|
|
|
|
10
|
.25
|
|
Summary of Molycorp, Inc. 2011 Annual Incentive Plan
(incorporated by reference to Exhibit 10.1 to Molycorp,
Inc.s Current Report on
Form 8-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
January 19, 2011).
|
|
10
|
.26
|
|
Executive Employment Agreement, dated January 24, 2011,
between Molycorp, Inc. and John K. Bassett (incorporated by
reference to Exhibit 10.26 to Molycorp, Inc.s
Registration Statement on
Form S-1
(Registration
No. 333-171827)
filed with the Securities and Exchange Commission on
February 7, 2011).
|
|
10
|
.27
|
|
Change Order to Purchase Agreement, dated as of
February 28, 2011, between Molycorp Minerals, LLC and Quinn
Process Equipment Co. (incorporated by reference to
Exhibit 10.27 of Molycorp Inc.s Annual Report on
Form 10-K
(File
No. 001-34827)
filed with the Securities and Exchange Commission on
March 9, 2011).
|
|
21
|
.1
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
23
|
.2
|
|
Consent of Jones Day (included in Exhibit 5.1).
|
|
23
|
.3*
|
|
Consent of SRK Consulting (U.S.), Inc.
|
|
23
|
.4*
|
|
Consent of Industrial Minerals Company of Australia Pty Ltd.
|
|
24
|
.1
|
|
Power of Attorney.
|
|
|
|
* |
|
To be filed by amendment. |