Molycorp reports loss of $450m

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Molycorp, the largest producer of rare earth minerals outside China, does not expect a recovery in prices this year, its chief executive said as it reported a $450m post-tax loss for 2012.

The loss was principally caused by a $258m writedown on last year’s acquisition of Neo Materials, a rare earths processing company.

Constantine Karayannopoulos, Neo’s former chief executive who has been serving as interim CEO of Molycorp since December, said it had been hit by falling prices and by the aftermath of the 2011 price spike, which had encouraged customers to cut their use of rare earths. “We enjoyed the high prices while we’d got them, but they really weren’t good for the industry long-term.”

Molycorp’s problems reflect the difficulty of building a business in the volatile markets for minerals such as cerium, lanthanum and neodymium.

The minerals are used for a variety of industrial applications, including magnets for electrical and electronic equipment from tumble dryers to smartphones.

China has built a dominant position, accounting for about 95 per cent of world output, and when it tightened supply in 2010, suspending shipments to Japan, prices began to soar.

In 2011 Molycorp made an $118m profit. Since then, prices have slumped. Last year Molycorp’s average selling price for rare earth concentrates fell from $82 per kilogramme to about $36. The average price of its magnetic materials and alloys fell from about $98 per kg to about $58.

The shares have lost 92 per cent of their value from a peak above $79 in 2011 to a closing price of $5.99 on Thursday.

The writedown on the Neo deal is 20 per cent of the $1.3bn cost of the acquisition, reflecting a reduced assessment of the value of its intellectual property, technology and contracts.

Molycorp had to delay the release of its results to give auditors time to work through the revaluation.

Mr Karayannopoulos said a share issue in January had left the company with enough cash to finance the remainder of its $1.45bn investment in its Mountain Pass mine in California.

Molycorp was not planning for any recovery in rare earths prices this year. “I really don’t see any major catalysts in the near future for prices to go either way.” Beijing was trying to tighten environmental regulations on rare earth producers, which would raise prices, he said, “but China is a big place”.

Mr Karayannopoulos, who took over when Mark Smith, previous CEO was fired, said Molycorp was in the process of recruiting a permanent replacement.

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