Molycorp, Inc (MCP)

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Molycorp, Inc. (MCP)

Q2 2013 Earnings Conference Call

August 8, 2013 16:30 ET

Executives

Brian Blackman - Vice President, Investor Relations

Constantine Karayannopoulos - President and Chief Executive Officer

Michael Doolan - Executive Vice President and Chief Financial Officer

Analysts

Brian Lee - Goldman Sachs

Paul Forward - Stifel Nicolaus

Michael Gambardella – JPMorgan

Jeff Cramer - Morgan Stanley

Mike Ritzenthaler - Piper Jaffray

Avinash Kant - DA Davidson & Co.

Bruce Klein - Credit Suisse

Bo Hunt - Bank of America Merrill Lynch

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Molycorp Earnings Conference Call. My name is Philip and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today Mr. Brian Blackman, Vice President of Investor Relations of Molycorp. Please proceed sir.

Brian Blackman

Thank you, operator and good day everyone. As many of you see, we have just released an 8K and our press release announcing the second quarter results for 2013. Our press release is posted on the Investor Relations section of our website at molycorp.com. And this call is being webcast and a replay will be archived on the company’s website following this call. For those of you dialed into the call, a slideshow that accompanies our prepared remarks is available on the Investor Relations page of Molycorp’s website. And for those of you listening by webcast, the slides will be presented in your webcast player where you may advance the slides on your own.

During the course of this call, we will make forward-looking statements and I direct you to slide two for those disclaimers. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance, but involve a number of risks and assumptions. We are you to review Molycorp's SEC filings for discussion of some of the factors that could cause results material results to differ. We also will refer to non-GAAP financial measures and you can find these reconciliations to the most directly comparable GAAP financial measures in our earnings release also posted on our website.

As you can see on slide three joining us today is Molycorp's President and Chief Executive Officer, Constantine Karayannopoulos, Executive Vice President and Chief Financial Officer, Michael Doolan and Executive Vice President and Chief Operating Officer Jeff Edward.

I would now like to turn the call over to Constantine to begin today’s call.

Constantine Karayannopoulos

Thanks Brian and good day everyone. First let me make a few high level comments before Mike will provide details on our finances. I'll then speak to some of the market and technology trends we’re seeing across our business segments and finally Michael, Jeff and I will be glad to take your questions.

Let's start on slide four, we continue to see demand returning to more normalized levels as supply chain inventory destocking seems to be subsiding and we’re seeing increasingly bullish sentiment from our customers with regard to purchasing plans in the second half of the year. It has also been encouraging to see some strengthening of prices for various rare earths in recent weeks. Some of us has lived through many rare earth pricing cycles I tend to take a fairly conservative view of these trends. However, I do want to note the increasing success of the various levels of the Chinese government in their efforts to gain more control over illegal production and smuggling.

These gains are probably figured into some of the recent price movements. The progress that China is making in this area should help deliver greater stability and predictability to markets which is good for the industry as a whole. On the environmental regulatory front, China also continues to make significant progress. We have three plants in China so we see firsthand China's commitment to change in this area. These efforts benefit the entire rare earth industry; the people of China as well as the global community at large.

In the second quarter our Magnequench business delivered good results as volumes for bonded magnetic powders rose in line with expectations. Forecast by our customers continue to increase and we look forward to the second half of the year which we expect to be stronger than the first. I would also like to point out that historically Magnequench has come out of cyclical slowdowns before the rest of the rare earth industry. At Mountain Pass production continues to climb and the facility has successfully demonstrated an operating capacity in access of 15,000 metric tons per year of rare earth oxide equivalent that makes Mountain Pass one of the largest operating rare earth processing facilities in the world.

I'll provide additional detail later on the call on our progress and plans on Mountain Pass. But first let's have Michael go over the details of our second quarter financial results. Michael?

Michael Doolan

Thanks Constantine and again good afternoon to everyone. First a quick summary of the quarter on slide six. We reported net revenue of 136.9 million, a 6% decrease from the first quarter of 146.4 million. We sold more than 3,000 metric tons of product during the quarter. The gross margins was a negative 13.5% or a gross loss of 18.5 million. We reported loss before interest, tax depreciation and amortization of 32.7 million and the loss of 10.6 million on an adjusted non-GAAP basis. Our net loss attributable to common stockholders for the quarter was 74 million or a loss or $0.44 per share. On an adjusted non-GAAP basis we had a loss of $0.34 per share.

In today's press release you will note that we will be filing an amendment to our quarterly report on Form 10-Q/A for the period ended March 31, 2013 with the Securities and Exchange Commission.

A summary of reconciliation of the restatement is presented on slide seven. The Form 10-Q/A to be filed will indicate a material weakness in our internal controls at Mountain Pass in the first quarter which we have subsequently remediated and are currently testing. The Form 10-Q as filed for the first quarter understated inventory related to our resources segment by approximately 16 million. This concurrently over stated cost of sales by approximately 16 million and overstated our tax benefit by approximately 6.5 million. It also overstated our consolidated write-down of inventory by $18 million and then understated our disclosure of consolidated assessment of abnormal production cost by $17.4 million. There was no effect on the net cash used in operating activities or balance of cash at the end of first quarter 2013.

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