The big news in rare earths this week and month was that Molycorp Inc., the sole US-based RE miner and processor, missed a $32.5 million loan payment on Monday, triggering a 30-day grace period that will likely end with either a Molycorp debt restructuring or an outright bankruptcy.
Molycorp released a statement that read, “[the company] has elected to take advantage of the 30-day grace period with respect to the $32.5 million semi-annual interest payment due June 1, 2015 on its 10% senior secured notes due 2020, as provided for in the indenture governing the notes. This election by the company will not trigger any cross-default provisions in other outstanding company debt prior to the end of the grace period and should not affect current operations. As previously disclosed, the company has retained financial and legal advisors to assist the company to restructure its debt.”
Meanwhile, MetalMiner’s monthly Rare Earths MMI® registered a value of 26 in June, a decrease of 3.7% from 27 in May.
Already weak prices have fallen further this month as Chinese REs, now free of export taxes, are flooding foreign markets. So what’s the relationship between Molycorp and RE prices?
Molycorp’s major concentration in the light RE market – the metals that customers have been finding substitutions for over the last three years, causing prices to fall – likely had as much to do with its missed payment as the structure of the company’s outstanding debt.
“Bankruptcy for Molycorp is definitely a possibility, but I think at least as many people think it’s more likely to come in the form of restructuring and a temporary shutdown rather than a clean sweep,” said Zachary Schumacher, market research analyst, tech metals & rare earth elements with Asian Metal, Ltd. “As for customers, I think there’s a few timeframes to look at it. In the short term, I think the effect will be mostly small. Molycorp’s play is heavily in the lanthanum and cerium markets with some noticeable market shares in NdFeB and some heavies. At the moment, with the current resource tax changes in effect in China, prices have if anything softened when compared with the prior export tariff system, so pricing is quite affordable.”
That affordability of light REs has been readily apparent in our MetalMiner IndX ever since we started tracking RE prices in 2012. This is why we were skeptical when 60 Minutes and other national media seemed to discover Chinese dominance of the RE market and Molycorp’s Mountain Pass, Calif., mine briefly became a bit of a cause célébre in Washington a few months ago.
That’s not to say that conceding rare earth production to other nations would not be bad for national security, as the elements have many defense industry uses as magnets, batteries and other high-tech applications.
“Consumers still want a non-Chinese producer in the market,” Schumacher said. “Consumers are definitely wary about the type of price spikes that were seen in 2010-2011. While smuggled material is definitely a significant part of the market, and goes a long way in undercutting any potential oligopoly that either exists or could exist, I think consumers want to feel there’s a profitable non-Chinese producer in the sphere. What they’re willing to do for that still is apparently limited. Outside of a few notable/key joint-venture agreements or off-take agreements, they’re mostly just hoping a current in-development mine comes online in the near future to fill the need.”
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