Molycorp, Inc (MCP)

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Molycorp Inc. (MCP)

Q4 2013 Results Earnings Conference Call

March 4, 2014, 9:00 ET

Executives

Brian Blackman – VP, Investor Relations

Geoffrey Bedford – President and CEO

Michael Doolan – CFO

Analysts

Brian Lee - Goldman Sachs

Ben Kallo - Robert W. Baird

Avinash Kant - D.A. Davidson

Michael Gambardella - JPMorgan

Brett Levy - Jefferies

Paul Forward - Stifel

Alex Fridlyand - PMB Paribas

Paratesh Mirza - Morgan Stanley

Owen Douglas - Robert W. Baird

Zach Zolnierz - GMP Securities

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q4 and full year 2013 Molycorp Incorporated earnings conference call. [Operator instructions.] Now, I would like to turn the call over to Mr. Brian Blackman, vice president of investor relations. Please proceed, sir.

Brian Blackman

Thank you, operator, and good morning to everyone. As many of you saw, we issued our operating and financial results for the fourth quarter and full year of 2013 last evening. Our press release is posted on the investor relations section of our website at molycorp.com.

This call is being webcast and a replay and transcript will be available on the company’s website shortly thereafter. For those of you dialed into the call, the slideshow that accompanies our prepared remarks is available on the investor page of Molycorp’s website. For those of you listening by webcast, the slides will be presented in your webcast player, where you can advance the slides on your own?

During the course of this call, we will make forward looking statements and I direct you to slide number two for our disclaimers. All statements that address the expectations or projections about the future of our 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 urge you to review Molycorp’s SEC filings for a discussion of some of the factors that could cause actual results to differ.

We also refer to non-GAAP financial measures and you can find reconciliation 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, Mr. Geoff Bedford, and executive vice president and chief financial officer, Mr. Michael Doolan.

I’d like to now turn the call over to Geoff.

Geoff Bedford

Thank you, Brian, and good morning everyone. First, let me make a few high level comments before Michael provides details on our financial performance for the quarter and year. Let’s start on slide four.

As we have seen over the past several quarters, demand appears to be returning to more normalized levels, albeit at a subdued pace, as customers have been reducing inventories and adjusting their purchasing plans accordingly.

We were encouraged to see our chemicals and oxide segment increase its shipments slightly in the fourth quarter. This was particularly encouraging given that Q4 volumes in our industry are typically lighter than Q3 volumes.

Our magnetics business continues to show signs of strengthening, as shipments over the back half of 2013 were stronger than the first half. Look forward, we expect that magnetics will continue to be robust.

Overall, in the rare earth market, we’re starting to see less price volatility, which is positive as it brings confidence back to the market and encourages customers to increase their use of rare earths. It can also lead to new application growth across our supply chain.

At Mountain Pass, we reported in the fourth quarter the completion and commissioning of our retail multistage cracking plant. Today, I am pleased to announce that our chloralkali plant has exited commissioning, and is in operation. In addition to this milestone, we achieved NSF certification for the bleach produced by this facility, and I’ll discuss the importance of that later in the call.

As many of you know, Mountain Pass is actually a collection of 12 separate operating systems. After more than three years of construction and commissioning of these complex and interconnected systems, all these major systems are now in operation. That alone is a major accomplishment, and one of which everyone at Mountain Pass and across the company are very proud.

Our focus at Mountain Pass is now on optimizing and debottlenecking our process. For example, this December we’ve been working on reducing cycle times in our multistage cracking plant. We’ve successfully improved this process by about 40%, with an objective to improve it further.

However, in the fourth quarter we were impacted by process interruptions and bottlenecks. These took a toll on production and slowed our production ramp in Q4, more than we would have liked. This is reflected in resources segment volume.

We continue to believe that achieving operating cash breakeven before interest is attainable in 2014. We are encouraged in terms of customer interest, in increased output of Mountain Pass, and the revenue we can generate from converting Mountain Pass products into higher value specialty and engineered rare earth materials in our downstream business.

I will provide additional detail on our business segment operations later in the call. First, let me have Michael review the details of our fourth quarter financials. Michael?

Michael Doolan

Thanks, Geoff, and again, good day to everyone. I would like to start with an overview the quarter before we touch on some highlights for the full year. I will then move into the status of our balance sheet and financial plans for 2014.

First, a quick summary of the quarter, on slide six. We reported net revenue of $124 million, a 17% decrease as compared to the third quarter revenues of $149 million. The decrease was largely driven by lower volumes in our magnetics segment, which typically experiences a seasonal high during the third quarter.

Overall product volumes were 3,200 metric tons, a 12% decrease as compared to the third quarter. On a year over year comparison, revenues were down 8% versus the fourth quarter of 2012, largely due to lower realized pricing, offset by a slight increase in volumes year over year.

Our gross margin was negative 21.8% or a gross loss of $27 million for the quarter. We reported a loss before interest, tax, depreciation, and amortization, EBITDA, in Q4 of $163 million. This loss included noncash impairment charges of $119 million related to goodwill, long-lived assets, and intangible assets.

Further details are available in the MD&A section of our 10-K filing for the year ended 2013. However, the bulk of these write downs affected the valuation of our Chinese export quotas, which we have determined are less valuable in today’s market environment.

Read the rest of this transcript for free on seekingalpha.com