As filed with the Securities and Exchange
Commission on July 29, 2010
Registration No. 333-166129
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Pre-effective
AMENDMENT NO. 4
to
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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3390
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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. (Check one):
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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 Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Offering Price
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Aggregate
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Registration
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Securities to be Registered
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Registered(1)
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Per Share
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Offering Price(2)
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Fee(3)
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Common Stock, par value $0.001 per share
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32,343,750
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$
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14.00
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$
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452,812,500
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$
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0
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(1)
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Includes 4,218,750 shares of
common stock that may be purchased by the underwriters to cover
over-allotments, if any.
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(2)
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Estimated solely for purposes of
calculating the registration fee pursuant to Rule 457(a) under
the Securities Act of 1933.
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(3)
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A registration fee of $39,204 has
been paid previously based on an estimate of the aggregate
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. We 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 July 29,
2010
PROSPECTUS
28,125,000 Shares
Molycorp, Inc.
Common Stock
This is the initial public offering of shares of our common
stock. We are offering 28,125,000 shares of common stock.
Currently, no public market exists for our common stock. We
expect the public offering price to be $14.00 per share. Our
common stock is approved for listing on The New York Stock
Exchange under the symbol MCP.
Investing in our common stock involves risk. Please read
carefully the section entitled Risk Factors
beginning on page 15 of this prospectus.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to Molycorp, Inc.
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$
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$
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The underwriters may also purchase up to an additional
4,218,750 shares from us, at the public offering price,
less the underwriting discount, within 30 days from the
date of this prospectus to cover over-allotments.
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 ,
2010.
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Morgan
Stanley |
J.P. Morgan |
CIBC Credit
Suisse
Stifel
Nicolaus
Weisel Dahlman
Rose &
Company Piper
Jaffray
Knight/Houlihan
Lokey
Griffiths McBurney
Corp.
Prospectus
dated ,
2010.
TABLE OF
CONTENTS
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Page
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1
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15
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30
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31
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32
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33
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34
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35
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36
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38
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55
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61
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84
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101
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103
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106
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112
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114
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117
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122
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123
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123
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123
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G-1
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F-1
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EX-23.1 |
We 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 have not, and
the underwriters have not, authorized any other person to
provide you with different information. Neither we nor the
underwriters take responsibility for, or can provide assurance
as to the reliability of, any other information that others may
give you. We 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 Roskill means Roskill Consulting Group Limited,
a rare-earth market consultant, 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 Roskill and IMCOA for industry reports that they
prepared for us, although such compensation is not contingent on
the success of this offering. Some of the information that we
attribute to Roskill and IMCOA in this prospectus has been
derived from those reports.
Our
Business
We are the only rare earth oxide, or REO, producer in the
Western hemisphere and 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
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 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 for individual REEs.
For the year ended December 31, 2009 and for the three
months ended March 31, 2010, we generated approximately
$7.1 million and $2.9 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
restart mining operations.
Mine-to-Oxides
We and SRK Consulting (U.S.), Inc., or SRK Consulting, estimate
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%, at our Mountain Pass mine. Based on these
estimated reserves and an expected annual production rate of
19,050 mt of REO, our expected mine life is in excess of
30 years. According to Roskill, global REO production in
2008 was approximately 119,220 mt, of which only approximately
4,220 mt originated from outside of China, with Molycorp
producing approximately 1,700 mt from its stockpiles and Russian
producers producing approximately 2,500 mt. This contrasts with
total demand outside of China in 2008 of approximately 50,000
mt, according to Roskill, with rapid growth expected by industry
analysts. Upon completion of our modernization and expansion
efforts, we will have the ability to produce 19,050 mt of REO
per year to supply this non-Chinese demand and expect to have
the capability to increase production to approximately 40,000 mt
of REO per year, if warranted by market conditions.
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
30-year mine
plan permit and an associated environmental impact report, both
of which were issued in 2004. Since our acquisition of the
Mountain Pass facility, we have been
1
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 lanthanum,
didymium and a heavy rare earth concentrate composed of
samarium, europium, gadolinium, dysprosium and terbium, or SEG
concentrate, 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 are preparing to recommence mining operations, which we
expect to occur in late 2010. Recommencement of mining
operations is expected to coincide with modernization of our
processing capabilities to efficiently produce at a rate of
19,050 mt of REO per year by the end of 2012. The
U.S. Government Accountability Office, or U.S. GAO,
April 2010 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),
stated that, for a typical exploration-stage mine, once a
company has secured the necessary capital to start a mine,
government and industry officials said 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 Molycorps Mountain Pass facility is not
an early stage rare earth project, we believe it has significant
timeline advantages as it has 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.
Our modernization and expansion plans envision adding facilities
and equipment for metal conversion and alloy production at the
Mountain Pass facility or an off-site property. In November
2009, we entered into a non-binding letter of intent to acquire
a third-party producer of rare earth metals and alloys in the
United
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States, although we have not yet been able to enter into a
definitive agreement. If we are able to enter into a definitive
agreement and complete the acquisition, instead of adding such
facilities and equipment at Mountain Pass or another site, we
would transport cerium, lanthanum, neodymium, praseodymium,
dysprosium, terbium and samarium oxide products from our
Mountain Pass facility to that off-site location, which already
possesses the technological capability to produce rare earth
metals and alloys. 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.
Magnet
Production
We are currently pursuing joint venture opportunities to
integrate downstream into NdFeB magnet manufacturing in the
United States. 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%). We have entered into a
non-binding letter of intent to form a collaborative joint
venture with a
third-party
manufacturer of NdFeB magnets. This joint venture will provide
us with access to the technology, people and facilities to
convert our rare earth materials into the high-performance
permanent 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 a joint
venture, in conjunction with our current modernization plans,
the potential acquisition of a third-party rare earth metals and
alloys producer 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 before
manufacturing them into NdFeB magnets. This downstream
integration would make us the only fully integrated producer of
NdFeB magnets outside of China, helping to secure rare earth
supply for the Rest of World.
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, 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 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 and Roskill, total demand for rare earths outside of China
is expected to increase at a compound annual growth rate, or
CAGR, of approximately 4% to 5% between 2008 and 2014. In
addition, according to Roskill, global demand for the more
important magnetic rare earths, neodymium, praseodymium and
dysprosium, is expected to grow at CAGRs of approximately 8%, 6%
and 6%, respectively, over the same period. Both IMCOA and
Roskill estimate that total global demand for rare earths is
expected to increase from 124,000 mt in 2008 to 180,000 mt in
2014, which results in a CAGR of approximately 6% for that
period.
China has dominated the global supply of REOs for the last ten
years and, according to Roskill, 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 in August
2009 when Chinas Interior Ministry 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 50,100 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 also announced a national stockpile program, as has
South Korea. Additionally, Japan has increased its national
stockpile program. The U.S. Department of Defense is
conducting a study, which is expected to be completed by
September 2010, 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 projected global REE 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 and Roskill
expect that this anticipated market dynamic will underpin strong
pricing.
Source: IMCOA.
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 to mid-June 2010, prices for rare earths have risen by
approximately 70% on average. Furthermore, over the same period,
prices for some of the most common rare earths (cerium oxide,
lanthanum oxide, neodymium oxide, didymium oxide and rare earth
carbonate) have risen by more than 80% on average.
5
Set forth below are prices for rare earth products in 2010 and
anticipated prices for future years.
Rare
Earth Product Prices(1)
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Rare Earth Product
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2010
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2014
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2020
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2030
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Lanthanum Oxide
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$
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6
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$
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6
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$
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7
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$
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10
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Cerium Oxide
|
|
|
4
|
|
|
|
2.50
|
|
|
|
2.50
|
|
|
|
3
|
|
Praseodymium Oxide
|
|
|
27
|
|
|
|
35
|
|
|
|
45
|
|
|
|
65
|
|
Neodymium Oxide
|
|
|
30
|
|
|
|
40
|
|
|
|
50
|
|
|
|
70
|
|
Samarium Oxide
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
5
|
|
|
|
8
|
|
Europium Oxide
|
|
|
500
|
|
|
|
600
|
|
|
|
700
|
|
|
|
900
|
|
Gadolinium Oxide
|
|
|
7
|
|
|
|
8
|
|
|
|
10
|
|
|
|
12
|
|
Terbium Oxide
|
|
|
500
|
|
|
|
650
|
|
|
|
850
|
|
|
|
1,200
|
|
Dysprosium Oxide
|
|
|
160
|
|
|
|
240
|
|
|
|
350
|
|
|
|
500
|
|
Yttrium Oxide
|
|
|
10
|
|
|
|
15
|
|
|
|
20
|
|
|
|
30
|
|
|
|
|
(1) |
|
Rare earth product prices in US$/kg,
free-on-board
China (+/− 20%). All prices are not adjusted for inflation
and assume that there will be no major changes to Chinas
rare earths industry strategy and no new application(s) that
will have a material impact on demand. |
Source: IMCOA. Although IMCOA and Roskill predict strong growth,
their projections with respect to certain years are slightly
different.
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 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, 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.
This program will also help to establish that our measured,
indicated and inferred resources can become proven or probable
reserves.
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 is limited by available production capacity,
which is currently concentrated in China. According to Roskill,
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
100 gigawatts with an investment expected to be above $150
billion and has also 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.
6
According to IMCOA, Chinas export quotas have decreased
from approximately 65,600 mt of REO in 2004 to approximately
50,100 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.
Given Chinas estimated consumption levels and the
limitations its government has put on exports, Roskill projects
a global deficit beginning in 2011 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 also announced a national stockpile program, as has
South Korea. Additionally, Japan has increased its national
stockpile program. The U.S. Department of Defense is
conducting a study, which is expected to be completed by
September 2010, 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 projected global REE 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 recently
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 full planned production rates for REOs in 2012, we
expect to be in a position to supply a substantial portion of
the U.S. demand and also sell to export markets.
We
have a highly experienced and qualified management
team.
Our President and Chief Executive Officer has 29 years of
experience, 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
June 1, 2010, held 18 issued and pending U.S. patents
and patent applications, and 146 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 four 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 refurbish or 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 refurbishment of existing equipment and 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.
7
Successfully
complete modernization and expansion efforts and reach full
planned production rates for REOs at the Mountain Pass facility
by the end of 2012.
After reaching full planned production rates for REOs at the
Mountain Pass facility, we expect to produce 19,050 mt of REO
per year. We operate the Mountain Pass facility pursuant to a
30-year
mining permit issued in 2004 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 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 1,500 tons of mill feed per day, thus
allowing for potential increases in annual REO production beyond
the planned 19,050 mt per year without any change in the permit
limit. These estimates are based on results we have achieved in
full scale (19,050 mt per year production rate) mill test runs
from 2001 to 2002, 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 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, we expect to produce
approximately 19,050 mt of REO per year. As of June 1,
2010, we had 19 non-binding letters of intent to sell our rare
earth products, representing approximately 138% of our
anticipated production for 2013, and our non-binding letter of
intent with Neo Material also contemplates the sale of certain
rare earth products. We are continuing to seek additional
letters of intent and, 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. In addition, we are in discussions
with multiple large, globally diversified mining companies
regarding the sale of
XSORBX®.
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.
8
The following table compares the volume under our 19 non-binding
letters of intent to our anticipated production for 2013 (in mt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume Under
|
|
|
|
|
|
Percent of
|
|
|
Letters of
|
|
Uncommitted
|
|
Anticipated 2013
|
|
Anticipated 2013
|
Product Type
|
|
Intent (1)(2)
|
|
Volume
|
|
Production(1)(2)
|
|
Production
|
|
Lanthanum oxide
|
|
|
11,427
|
|
|
|
|
|
|
|
3,104
|
|
|
|
368
|
%
|
Lanthanum metal
|
|
|
436
|
(3)
|
|
|
2,071
|
|
|
|
2,507
|
|
|
|
17
|
%
|
Cerium non-metal
|
|
|
6,914
|
(4)
|
|
|
2,770
|
|
|
|
9,684
|
|
|
|
71
|
%
|
Cerium metal
|
|
|
200
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Neodymium oxide
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neodymium metal
|
|
|
3,318
|
(5)
|
|
|
|
|
|
|
313
|
|
|
|
1,060
|
%
|
Praseodymium metal
|
|
|
1,091
|
(5)
|
|
|
|
|
|
|
116
|
|
|
|
941
|
%
|
Europium oxide
|
|
|
|
(6)
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
Samarium metal(8)
|
|
|
|
|
|
|
191
|
|
|
|
191
|
|
|
|
|
|
NdPr metal in NdFeB alloy
|
|
|
1,000
|
(7)
|
|
|
964
|
|
|
|
1,964
|
|
|
|
51
|
%
|
NdPr metal in NdFeB magnets
|
|
|
291
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
24,727
|
|
|
|
6,015
|
|
|
|
17,898
|
|
|
|
138
|
%
|
|
|
|
(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 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 not
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
17,898 mt total 2013 production rate and our anticipated full
planned production rate of 19,050 mt of REO per year. |
|
|
|
(3) |
|
Contained within mischmetal, a combination of lanthanum, cerium
and iron, for battery alloy producers. |
|
(4) |
|
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. 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. |
|
(5) |
|
We have received non-binding letters of intent for 9,700,000
pounds of Nd and/or NdPr metal (otherwise known as didymium
metal). To demonstrate the Nd and Pr breakdown, we have split
the didymium requirement to the generally accepted ratio of
75/25 Nd to Pr in the didymium metal. Some of our metal
production will be consumed internally for downstream NdFeB
alloy/magnet production. |
|
(6) |
|
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. |
|
(7) |
|
This represents the estimated NdPr metal contained in the
non-binding letter of intent volume for NdFeB alloy and magnets. |
|
(8) |
|
IMCOA predicts that there will be a surplus of samarium metal. |
9
Integrate
downstream to profitably capture the full value
chain.
We intend to utilize vertical integration through further
downstream processing of our REOs into rare earth metals, alloys
and finished magnets. Our modernization and expansion plans
envision adding facilities and equipment for metal conversion
and alloy production at our Mountain Pass facility or an
off-site property, although we have entered into a non-binding
letter of intent to acquire a third-party producer of rare earth
metals and alloys in the United States that, if consummated,
would obviate the need to add such facilities and equipment at
Mountain Pass. Additionally, we have entered into a non-binding
letter of intent to form a collaborative joint venture with a
third-party manufacturer to produce NdFeB magnets in the United
States and have 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. 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.
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 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 with higher margins. We have entered into a
non-binding letter of intent with a water filtration company to
jointly develop water treatment products. 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.
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 full planned production rates by 2012
require 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.
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;
|
10
|
|
|
|
|
our potential inability to successfully implement new processing
technologies and capabilities;
|
|
|
|
the competitive industry in which we operate; and
|
|
|
|
the establishment of new uses and markets for rare earth
products.
|
For more information regarding these and other risks that we
face, see Risk Factors elsewhere in this prospectus.
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 that is not, to date, conducting any
activities other than those incident to its formation and the
preparation of this registration statement.
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, have 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. All of the
shares of Class A common stock and Class B common
stock will convert into shares of common stock immediately prior
to the consummation of this offering. See Corporate
Reorganization for further information. Following the
corporate reorganization, Molycorp, LLC was merged with and into
Molycorp Minerals, LLC.
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.
11
The
Offering
|
|
|
Common stock offered by us |
|
28,125,000 shares (or 32,343,750 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 |
|
81,250,000 shares (or 85,468,750 shares if the
underwriters exercise their option to purchase additional shares
of common stock in this offering in full) |
|
|
|
Use of proceeds |
|
We estimate that the net proceeds to us from this offering,
after deducting underwriting discounts and commissions and
estimated offering expenses that we must pay, will be
approximately $367.8 million, based on an assumed initial
public offering price of $14.00 per share. If the underwriters
exercise their option to purchase additional shares of common
stock in this offering in full, we estimate that our net
proceeds will be approximately $423.3 million. |
|
|
|
|
|
We intend to use our net proceeds from this offering to fund a
portion of our modernization and expansion of the Mountain Pass
facility and to fund all of our cash collateral requirements as
described under the heading Use of Proceeds. |
|
Risk factors |
|
See Risk Factors beginning on page 15 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 approved for listing on The New York Stock
Exchange, or NYSE, under the symbol MCP. |
Unless otherwise indicated, all information in this prospectus
reflects and assumes:
|
|
|
|
|
no exercise by the underwriters of their option to purchase
4,218,750 additional shares of common stock;
|
|
|
|
|
|
an initial public offering price of $14.00 per share;
|
|
|
|
|
|
that we have filed our amended and restated certificate of
incorporation in connection with the consummation of this
offering;
|
|
|
|
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; and
|
|
|
|
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 of this offering as described under Corporate
Reorganization.
|
The number of shares of common stock to be outstanding
immediately after this offering does not reflect shares of
common stock authorized and reserved for future issuance under
our new stock incentive plan. See Management
Compensation Discussion and Analysis Molycorp, Inc.
2010 Equity and Performance Incentive Plan.
12
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 December 31, 2009 and 2008, for the year ended
December 31, 2009 and 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 included elsewhere in this
prospectus. The summary consolidated financial data as of
March 31, 2010, for the three months ended March 31,
2010 and 2009 and cumulatively for the period from June 12,
2008 (Inception) through March 31, 2010 has been derived
from Molycorp, LLCs unaudited condensed consolidated
financial statements and the related notes included elsewhere in
this prospectus.
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 and Molycorp
Minerals, LLC became wholly owned subsidiaries of Molycorp, Inc.
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. The unaudited pro forma as adjusted balance
sheet data as of March 31, 2010 has been prepared to give
effect to the corporate reorganization, the purchase by existing
investors of additional shares of Class A common stock for
$5.0 million on May 28, 2010, the conversion of all of
our Class A common stock and Class B common stock into
shares of common stock and the consummation of this offering, as
if such events had occurred on March 31, 2010. The
unaudited pro forma balance sheet data is for informational
purposes only and does not purport to indicate balance sheet
information as of any future date.
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 unaudited pro forma as adjusted per share data has been
computed based upon the number of shares of common stock
outstanding immediately after the corporate reorganization
applied to our historical net loss amounts and 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 this offering, as
if such events had occurred on June 12, 2008.
13
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 12, 2008
|
|
June 12, 2008
|
|
|
|
|
|
|
|
|
(Inception)
|
|
(Inception)
|
|
|
Three Months Ended
|
|
Year Ended
|
|
Through
|
|
Through
|
Statement of Operations Data
|
|
March 31, 2010
|
|
March 31, 2009
|
|
December 31, 2009
|
|
December 31, 2008
|
|
March 31, 2010
|
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,921
|
|
|
$
|
1,699
|
|
|
$
|
7,093
|
|
|
$
|
2,137
|
|
|
$
|
12,151
|
|
Cost of goods sold(1)
|
|
|
(5,853
|
)
|
|
|
(4,727
|
)
|
|
|
(21,785
|
)
|
|
|
(13,027
|
)
|
|
|
(40,665
|
)
|
Selling, general and administrative expense
|
|
|
(4,480
|
)
|
|
|
(2,322
|
)
|
|
|
(12,685
|
)
|
|
|
(2,979
|
)
|
|
|
(20,144
|
)
|
Depreciation and amortization expense
|
|
|
(95
|
)
|
|
|
(21
|
)
|
|
|
(191
|
)
|
|
|
(19
|
)
|
|
|
(305
|
)
|
Accretion expense
|
|
|
(263
|
)
|
|
|
(252
|
)
|
|
|
(1,006
|
)
|
|
|
(250
|
)
|
|
|
(1,519
|
)
|
Operating loss
|
|
|
(7,770
|
)
|
|
|
(5,623
|
)
|
|
|
(28,574
|
)
|
|
|
(14,138
|
)
|
|
|
(50,482
|
)
|
Net loss
|
|
$
|
(7,749
|
)
|
|
$
|
(5,601
|
)
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(50,410
|
)
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
47,417,780
|
|
|
|
38,234,354
|
|
|
|
38,921,015
|
|
|
|
38,234,354
|
|
|
|
39,873,836
|
|
Basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.26
|
)
|
Diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.26
|
)
|
Pro forma as adjusted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
75,542,780
|
|
|
|
66,359,354
|
|
|
|
67,046,015
|
|
|
|
66,359,354
|
|
|
|
67,998,836
|
|
Basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.74
|
)
|
Diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
as Adjusted
|
|
|
|
|
|
|
Balance Sheet Data
|
|
March 31, 2010
|
|
March 31, 2010
|
|
December 31, 2009
|
|
December 31, 2008
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
380,260
|
|
|
$
|
7,452
|
|
|
$
|
6,929
|
|
|
$
|
2,189
|
|
Total current assets
|
|
|
392,200
|
|
|
|
19,392
|
|
|
|
18,520
|
|
|
|
8,710
|
|
Total assets
|
|
|
473,834
|
|
|
|
101,026
|
|
|
|
97,666
|
|
|
|
95,355
|
|
Total non-current liabilities
|
|
|
13,847
|
|
|
|
13,847
|
|
|
|
13,509
|
|
|
|
13,196
|
|
Total liabilities
|
|
|
23,860
|
|
|
|
23,860
|
|
|
|
23,051
|
|
|
|
17,279
|
|
Members equity
|
|
|
|
|
|
|
77,166
|
|
|
|
74,615
|
|
|
|
78,076
|
|
Stockholders equity
|
|
|
449,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 12, 2008
|
|
|
|
|
|
|
|
|
June 12, 2008
|
|
(Inception)
|
|
|
Three Months Ended
|
|
Year Ended
|
|
(Inception) Through
|
|
Through
|
Other Financial Data
|
|
March 31, 2010
|
|
March 31, 2009
|
|
December 31, 2009
|
|
December 31, 2008
|
|
March 31, 2010
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures(2)
|
|
$
|
2,840
|
|
|
$
|
868
|
|
|
$
|
7,285
|
|
|
$
|
321
|
|
|
$
|
10,446
|
|
|
|
|
(1) |
|
Cost of goods sold includes write-downs of inventory to
estimated net realizable value of $0.6 million,
$2.2 million, $9.0 million, $9.5 million and
$19.1 million for the three months ended March 31,
2010 and 2009, for the year ended December 31, 2009, for
the period from June 12, 2008 (Inception) through
December 31, 2008 and cumulatively for the period from
June 12, 2008 (Inception) through March 31, 2010,
respectively. |
|
(2) |
|
Reflected in cash flows from investing activities on our
consolidated statements of cash flows. |
14
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 full planned production
rates by 2012 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 full planned production rates by 2012
require the commitment of substantial resources for operating
expenses and capital expenditures. We expect to incur
approximately $511 million in capital costs prior to the
end of 2012. 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 refurbishment or 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;
|
|
|
|
obtaining and 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 offtake 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 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 complete the expansion and modernization of the
Mountain Pass facility 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
15
additional financing will be available to us, or, if available,
that it can be obtained on a timely basis and on commercially
acceptable terms.
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 $511 million through 2012 to restart mining
operations, construct and refurbish processing facilities and
other infrastructure at the Mountain Pass facility and expand
into metals and alloys production. If the assumptions on which
we based our estimated capital expenditures of $511 million
change or are inaccurate, we may require additional funding. We
also plan to use up to approximately $27.4 million, all of
which is expected to be used in 2010, for letters of credit
and/or cash
collateral to secure surety bonds issued for the benefit of
certain regulatory agencies related to our Mountain Pass
facility closure and reclamation obligation. In addition, we may
require additional financing as part of our proposed
collaborative joint venture with a third-party manufacturer of
NdFeB magnets. Our estimated capital expenditures of
$511 million do not include corporate, selling, general and
administrative expenses, which we estimate to be an additional
$5 million to $10 million per year.
We expect to finance these capital expenditures, as well as our
working capital requirements and cash collateral requirements
related to the surety bonds described above, with proceeds from
this offering as well as traditional debt financing, project
financing, additional public or private equity offerings
and/or
federal government programs, including the U.S. Department of
Energy loan guarantee program for which we submitted an
application in June 2010. Based on an assumed offering price of
$14.00 per share, however, this offering will not be sufficient
to fully fund our business plan. Other than a commitment from
our existing stockholders that they have the ability and intent
to provide us $20.0 million of funding through
December 31, 2010, our existing stockholders are under no
obligation to provide us with funding, and 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.
We currently have limited sources of revenue from our
operations, and in order to restart mining operations and
modernize and expand the Mountain Pass facility, we will need to
complete the planned securities offering and obtain the
remainder of our financing needs or obtain alternative sources
of financing.
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 and to fund all of our cash
collateral requirements as described under the heading,
Use of Proceeds, through a public or private
offering of securities or debt financing. An equity offering
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
growth depends on the modernization and expansion of our
Mountain Pass facility, which is our only rare earth mining,
manufacturing and processing facility.
Our only rare earth mining, manufacturing and processing
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
16
and defense applications. 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 signed a
non-binding
letter of intent in November 2009 to acquire a producer of rare
earth metals and alloys that would, if consummated, provide us
with a license for certain technology related to the production
of rare earth metals and alloys, we may not be able to finalize
a definitive agreement and successfully consummate the
acquisition. 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, 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
and other planned downstream products at the Mountain Pass
facility, we expect to produce 19,050 mt of REO per year. As of
June 1, 2010, we had 19 non-binding letters of intent to
sell certain of our rare earth products, representing
approximately 138% of our total anticipated production for 2013,
and our non-binding letter of intent with Neo Material also
contemplates the sale of certain rare earth products. Prior to
reaching full planned production rates for REOs and other
planned downstream products at the Mountain Pass facility, we
intend to enter into short- and long-term sales contracts with
existing and new customers. 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. The failure to enter into such binding contracts may
have a material adverse effect on our financial position 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 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 two customers for a significant portion of our revenue
from sales of lanthanum, and the loss of either of these
customers, or significant changes in prices or other terms with
either of 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.
Sales of lanthanum accounted for 82% and 72% of our net sales
for the year ended December 31, 2009 and the period from
June 12, 2008 (Inception) to 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 from June 12, 2008 (Inception) to
December 31, 2008, respectively. Both of our contracts with
these two customers have expired and we currently sell to them
on a spot basis. We anticipate that sales of lanthanum and
didymium oxide will make up a significant percentage of
17
our net sales until we complete the modernization and expansion
of the Mountain Pass facility, at which time we will no longer
manufacture those products.
If our total sales of lanthanum to these two 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. A prolonged or significant economic
contraction in the United States or worldwide could put further
downward pressure on market prices of rare earth minerals and
products. Protracted periods of low prices 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.
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 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.
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 2011,
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.
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
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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. For example,
cerium is, and is expected to remain, in global surplus.
Although we have developed
XSORBX®,
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®
has not yet been sold and has yet to be fully commercialized. In
addition, 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 Roskill, 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 June 1, 2010, held 18 issued
and pending U.S. patents and patent applications, and 146
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 reduce the value of
the
19
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.
20
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.
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, 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.
21
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 and sodium hydroxide from waste water
at our own chlor-alkali plant, 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 June 1, 2010, approximately 73 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
22
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.
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, 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 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. 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, including for damages to property
or injury to persons arising from our operations. Moreover,
these environmental requirements, and
23
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, 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, including a
nationwide limit on GHGs. In addition, the
U.S. Environmental Protection Agency, or EPA, has issued
vehicle emission regulations that would subject GHG emissions
from stationary sources to the Prevention of Significant
Deterioration and Title V provisions of the federal Clean
Air Act. California also may establish GHG emission regulations
pursuant to its Global Warming Solutions Act. If made effective,
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 regulation of GHG emissions, including
through a
cap-and-trade
system, technology mandate, emissions tax, reporting requirement
or other program, 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 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
failure to comply with such 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 mining 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 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. 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 pipeline. A small portion of the pipeline
extends onto the Mountain Pass facility but is part of the
pipeline removal and remediation being conducted by Chevron
Mining Inc. at its expense. 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
24
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 the Mountain Pass facility, which
could have a material adverse effect on our business, results of
operations and financial condition.
We must obtain 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 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 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 impact statements prepared
in connection therewith, and otherwise participate in the
permitting process, including challenging the issuance of
permits, validity of environmental impact statements 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, or may be issued or renewed upon conditions that restrict
our ability to conduct our operations economically. 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
mining plan. 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 mining 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 based upon our
reclamation plan, 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.
25
Risks
Related to This Offering and Ownership of Our Common
Stock
There
is no existing market for our common stock, and a trading market
that will provide our stockholders with adequate liquidity may
not develop. The price of our common stock may fluctuate
significantly, and stockholders could lose all or part of their
investment.
Prior to the offering, there has been no public market for our
common stock. An active trading market for our common stock may
never develop or be sustained, which could depress the market
price of our common stock and could affect your ability to sell
your shares of common stock. In the event that the number of
shares of our common stock to be sold in this offering is
decreased, liquidity could be adversely affected even further.
Stockholders may not be able to resell their shares at or above
the initial public offering price. Additionally, the lack of
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 initial public offering price for our common stock will be
determined by negotiations between us and the representative of
the underwriters and may bear no relationship to the price at
which our common stock will trade following the completion of
this offering. The market price of our common stock may decline
below the initial public offering price. The market price of our
common stock following this offering is likely to be highly
volatile and may be influenced by many factors, some of which
are beyond our control, including:
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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 after this
offering 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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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.
We currently expect securities research analysts, including
those affiliated with our underwriters, to establish and 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. Additionally, while
we expect securities research analyst coverage, if no securities
or industry analysts commence coverage of us, the trading price
of our stock and the trading volume could decline.
Future
sales of shares of common stock by existing stockholders could
depress the market price of our common stock.
If our existing stockholders sell, or indicate an intent to
sell, substantial amounts of our common stock in the public
market after the
180-day
contractual
lock-up
period and other legal restrictions on resale discussed in this
prospectus lapse, the trading price of our common stock could
decline significantly and could decline below the initial public
offering price. Upon completion of this offering, we will have
approximately 81,250,000 shares of common stock outstanding
(or 85,468,750 shares if the underwriters exercise their
option to purchase additional shares of common stock in this
offering in full). Morgan Stanley & Co. Incorporated
and J.P. Morgan Securities Inc. may, in their sole
discretion, permit our executive officers, directors, employees
and current stockholders to sell shares prior to the expiration
of the
lock-up
agreements.
26
After the
lock-up
agreements pertaining to this offering expire, an additional
53,125,000 shares will be eligible for sale in the public
market, 52,560,316 of which are beneficially owned by
directors, executive officers and other affiliates and will be
subject to volume limitations under Rule 144 under the
Securities Act and various vesting agreements. In addition, the
shares reserved for future issuance under our new stock
incentive plan 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
trading 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. 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. 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.
We do
not intend to pay dividends in the foreseeable
future.
For the foreseeable future, we intend to retain any earnings 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. Accordingly, investors
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 investment.
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 will also be 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 such holders will receive
dividend payments or payments upon liquidation. Such issuance
could
27
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.
You
will experience immediate and substantial
dilution.
The initial public offering price will be substantially higher
than the net tangible book value of each outstanding share of
common stock immediately after this offering. If you purchase
common stock in this offering, you will suffer immediate and
substantial dilution. The dilution will be $8.53 per share in
the net tangible book value of the common stock from the
expected initial public offering price. In addition, if
outstanding options to purchase shares of our common stock are
exercised, there could be further dilution.
Our
board of directors and management may have broad discretion over
the use of the proceeds we receive in this offering and might
not apply the proceeds in ways that increase the value of your
investment.
We presently intend to use the net proceeds from this offering
to fund a portion of our modernization and expansion costs and
to fund all of our cash collateral requirements as described
under the heading, Use of Proceeds. Because our
modernization and expansion costs will be expended through 2012,
we may choose alternative funding for our modernization and
expansion costs, including other sources from our financing
plan, in which case any remaining net proceeds from this
offering may be used for general corporate purposes, including,
without limitation, to fund our working capital requirements and
to develop new products, processes and technologies, both
through acquisitions and capital programs. Our board of
directors and management will have broad discretion to use the
remaining net proceeds from this offering, and you will be
relying on their judgment regarding the application of these
proceeds. Our board of directors and management might not apply
the net proceeds of this offering in ways that increase the
value of your investment. Until we use the net proceeds from
this offering, we plan to invest them, and these investments may
not yield a favorable rate of return. If we do not invest or
apply the net proceeds from this offering in ways that enhance
stockholder value, we may fail to achieve expected financial
results, which could cause our stock price to decline.
We
identified a material weakness in our internal control over
financial reporting which, if not satisfactorily remediated,
could result in material misstatements in our consolidated
financial statements in future periods.
During the preparation of our consolidated financial statements
as of December 31, 2009 and 2008 and for the year ended
December 31, 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, 2009, we identified deficiencies in our
internal control over financial reporting which, when considered
in the aggregate, represent a material weakness. If not
remediated, this material weakness could result in material
misstatements in our consolidated financial statements in future
periods. Specifically, we did not maintain a sufficient
complement of personnel with an appropriate level of accounting
and financial reporting knowledge, experience and training in
the application of U.S. generally accepted accounting
principles, or U.S. GAAP. We also did not maintain an
adequate system of processes and internal controls sufficient to
support our financial reporting requirements and to produce
timely and accurate consolidated financial statements in
accordance with U.S. GAAP.
A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of our financial statements will not be prevented
or detected on a timely basis. 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.
In late 2009, we commenced remediation actions which included
hiring several individuals with significant accounting, auditing
and financial reporting experience and devoting significant
resources to improving our system of processes and internal
controls. Specifically, we hired a chief financial officer, a
corporate controller and a director of financial reporting, and
in early 2010, we hired an accounting manager for the Mountain
Pass facility, all of whom are certified public accountants. We
also installed additional functionality and increased the
integration of our information technology systems to increase
automation and accuracy within our processes. If our actions are
not effective in correcting the material weakness and we
continue to experience material
28
weaknesses, investors could lose confidence in our financial
reporting, particularly if such weaknesses result in a
restatement of our financial results, and our stock price could
decline. See Managements Discussion and Analysis of
Financial Condition and Results of Operations
Internal Controls.
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 will not
complete our review until well after this offering is completed.
We cannot predict the outcome of our review at this time. During
the course of the review, we may identify additional control
deficiencies of varying degrees of severity, in addition to the
material weakness discussed above.
We have taken steps to improve our internal control over
financial reporting, including identification of deficiencies in
the knowledge and expertise of personnel required in the
accounting and finance functions of a public company. We have
incurred significant costs to remediate our material weakness
and 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, 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 will be 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. 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
controls over financial reporting. If we fail to implement the
requirements of Section 404 in a timely manner, if we or our
independent registered public accounting firm are unable to
conclude that our internal control over financial reporting are
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.
We
will incur increased costs as a result of being a publicly
traded corporation.
We have no history operating as a publicly traded corporation.
As a publicly traded corporation, we will incur additional
legal, accounting and other expenses that we did not incur as a
private company. This increase will be due to the increased
accounting support services, filing annual and quarterly reports
with the SEC, increased audit fees, investor relations,
directors fees, directors and officers
insurance, legal fees, stock exchange listing fees and registrar
and transfer agent fees, which we expect to incur after the
completion of this offering. In addition, we expect that
complying with the rules and regulations implemented by the SEC
and NYSE will increase our legal and financial compliance costs
and make activities more time-consuming and costly. For example,
as a result of becoming a publicly traded corporation, we are
required to have a board containing a majority of independent
directors, create additional board committees and adopt policies
regarding internal controls and disclosure controls and
procedures, including the preparation of reports on internal
control over financial reporting. In addition, we will incur
additional costs associated with our publicly traded corporation
reporting requirements.
29
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 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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|
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our ability to secure sufficient capital to implement our
business plans;
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|
our ability to complete our modernization and expansion efforts
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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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; and
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uncertainties associated with unanticipated geological
conditions related to mining.
|
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. 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.
30
USE OF
PROCEEDS
We estimate that we will receive net proceeds of approximately
$367.8 million from the sale of shares of our common stock
in this offering (or $423.3 million if the underwriters
exercise their option to purchase additional shares in full),
based on an assumed initial public offering price of $14.00 per
share and after deducting underwriting discounts and commissions
and estimated offering expenses that we must pay.
Under our current business plan, we intend to spend
approximately $511 million through 2012 to restart mining
operations, construct and refurbish processing facilities and
other infrastructure at the Mountain Pass facility and expand
into metals and alloys production, the costs of which we refer
to as our modernization and expansion costs. We also plan to use
up to approximately $27.4 million, all of which is expected
to be used in 2010, for letters of credit
and/or cash
collateral to secure surety bonds issued for the benefit of
certain regulatory agencies in connection with our Mountain Pass
facility closure and reclamation obligation, which we refer to
as our cash collateral requirements. Our estimated capital
expenditures of $511 million do not include corporate,
selling, general and administrative expenses, which we estimate
to be an additional $5 million to $10 million per
year. We presently intend to use the net proceeds from this
offering to fund a portion of our modernization and expansion
costs and all of our cash collateral requirements. We anticipate
that the remainder of our modernization and expansion costs will
be funded through traditional debt financing, project financing,
additional public or private equity offerings
and/or
federal government programs including the U.S. Department
of Energy loan guarantee program for which we submitted an
application in June 2010. Because our modernization and
expansion costs will be expended through 2012, we may choose
alternative funding for our modernization and expansion costs,
including other sources from our financing plan, in which case
any remaining net proceeds from this offering may be used for
general corporate purposes, including, without limitation, to
fund our working capital requirements and to develop new
products, processes and technologies, both through acquisitions
and capital programs.
Each $1.00 increase or decrease in the assumed initial public
offering price of $14.00 per share would increase or decrease,
as applicable, the net proceeds to us from this offering, after
deducting underwriting discounts and commissions but before
deducting estimated offering expenses that we must pay and
assuming that the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same, by
approximately $26.3 million, or approximately
$30.2 million assuming the underwriters exercise their
option to purchase additional shares of common stock in this
offering in full. In addition, an increase or decrease in the
number of shares of our common stock sold by us in this offering
by 10% would cause the net proceeds from this offering, after
deducting underwriting discounts and commissions but before
deducting estimated offering expenses, to increase or decrease
by approximately $36.8 million, or approximately
$42.3 million assuming the underwriters exercise their
option to purchase additional shares of common stock in this
offering in full. Any additional net proceeds would be used to
fund our modernization and expansion costs or, to the extent
that our modernization and expansion costs are funded from
alternative sources, for general corporate purposes. If the net
proceeds are less than the estimated amount, the amount of net
proceeds that we would use to fund our modernization and
expansion costs or, to the extent that our modernization and
expansion costs are funded from alternative sources, for general
corporate purposes would be reduced, and the additional amount
we need to fully fund our plans would be increased.
Pending our use of the net proceeds from this offering as
described above, we plan to invest the proceeds in a variety of
capital preservation investments, including short-term
interest-bearing obligations, investment-grade instruments,
certificates of deposit and direct guaranteed obligations of the
United States.
31
CAPITALIZATION
The following table sets forth our consolidated cash and cash
equivalents and our capitalization as of March 31, 2010:
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|
|
on an actual basis reflecting the consolidated cash and cash
equivalents and capitalization of Molycorp, LLC;
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|
|
on a pro forma basis reflecting the consolidated cash and cash
equivalents and capitalization of Molycorp, Inc. to give effect
to the corporate reorganization, the purchase by existing
investors of additional shares of Class A common stock for
$5.0 million on May 28, 2010, and the conversion of
all of our Class A common stock and Class B common
stock into shares of common stock immediately prior to the
consummation of this offering, as described in Corporate
Reorganization; and
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|
|
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on a pro forma as adjusted basis reflecting the pro forma
consolidated cash and cash equivalents and capitalization of
Molycorp, Inc. to also give effect to the issuance of
28,125,000 shares of common stock and the receipt of the
net proceeds by us in this offering, after deducting
underwriting discounts and commissions and estimated offering
expenses that we must pay.
|
The information in this table should be read in conjunction with
Use of Proceeds, 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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|
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|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
as Adjusted
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(In thousands)
|
|
|
|
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|
|
|
|
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|
Cash and cash equivalents
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|
$
|
7,452
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|
|
$
|
12,452
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|
|
$
|
380,260
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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Total debt
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|
$
|
|
|
|
$
|
|
|
|
$
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|
|
Members equity:
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|
|
|
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
127,576
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|
|
|
|
|
|
|
|
|
Stockholders equity:
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|
|
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|
|
|
|
|
|
|
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Common stock, $0.001 par value; 350,000,000 shares
authorized; 53,125,000 shares issued and outstanding pro
forma; 81,250,000 shares issued and outstanding pro forma
as adjusted
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|
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|
|
53
|
|
|
|
81
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|
Additional paid-in capital
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|
|
|
|
|
|
132,523
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|
|
|
500,303
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|
Deficit accumulated during the development stage
|
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|
(50,410
|
)
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|
|
(50,410
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)
|
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|
(50,410
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)
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|
|
|
|
|
|
|
|
|
|
|
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|
Total equity (deficit)
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|
77,166
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|
|
|
82,166
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|
|
|
449,974
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|
|
|
|
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|
|
|
|
|
|
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Total capitalization
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|
$
|
77,166
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|
|
$
|
82,166
|
|
|
$
|
449,974
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|
|
|
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32
DIVIDEND
POLICY
Since our inception, we have not paid any cash dividends. For
the foreseeable future, we intend to retain any earnings 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 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.
33
DILUTION
Dilution is the amount by which the portion of the offering
price paid by the purchasers of the common stock to be sold in
this offering exceeds the net tangible book value per share of
common stock after the offering. Net tangible book value per
share of our common stock is determined at any date by
subtracting total liabilities from our total assets less our
intangible assets and dividing the difference by the number of
shares of common stock deemed to be outstanding at that date.
Our net tangible book value as of March 31, 2010 (after
giving effect to the corporate reorganization, a
38.23435373-for-one
stock split with respect to shares of our Class A common stock
and Class B common stock and the conversion of all of our
Class A common stock and Class B common stock into
shares of common stock immediately prior to the consummation of
this offering) was approximately $76.5 million, or $1.44
per share of common stock. After giving effect to our receipt
and intended use of approximately $367.8 million of
estimated net proceeds (after deducting underwriting discounts
and commissions and estimated offering expenses that we must
pay) from our sale of common stock in this offering based on an
assumed initial public offering price of $14.00 per share of
common stock, our adjusted net tangible book value as of
March 31, 2010 would have been approximately
$444.3 million, or $5.47 per share of common stock.
This amount represents an immediate increase in net tangible
book value of $4.03 per share of common stock to existing
stockholders and an immediate dilution of $8.53 per share
of common stock to new investors purchasing shares of common
stock in this offering at the assumed initial public offering
price.
The following table illustrates this dilution on a per share
basis:
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|
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Assumed initial public offering price per share
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|
$
|
14.00
|
|
Net tangible book value per share as of March 31, 2010
(after giving effect to the corporate reorganization and stock
split)
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|
|
1.44
|
|
Increase per share attributable to cash payments made by
investors in this offering
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|
|
4.03
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|
|
|
|
|
|
Adjusted net tangible book value per share after this offering
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|
|
5.47
|
|
|
|
|
|
|
Dilution per share to new investors
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|
$
|
8.53
|
|
|
|
|
|
|
If the underwriters exercise their option to purchase additional
shares of common stock in this offering in full, the adjusted
net tangible book value as of March 31, 2010 would have
been approximately $499.8 million, or $5.85 per share
of common stock. This represents an increase in adjusted net
tangible book value of $4.41 per share to existing
stockholders and dilution in adjusted net tangible book value of
$8.15 per share to new investors.
A $1.00 increase or decrease in the assumed initial public
offering price of $14.00 per share would increase or decrease,
as applicable, our adjusted net tangible book value per share
after this offering by $0.32 per share and dilution to new
investors by $0.68 per share, assuming the number of shares of
common stock offered by us, as set forth on the cover page of
this prospectus, remains the same and after deducting the
underwriting discounts and commissions and estimated offering
expenses that we must pay.
The following table summarizes, on an as adjusted basis as of
June 30, 2010, the differences between the number of shares
of common stock purchased from us, the total consideration paid
to us and the average price per share paid by existing
stockholders and by new investors in this offering. Existing
investors purchased additional shares of Class A common
stock for $5.0 million on May 28, 2010. As the table shows,
new investors purchasing shares of common stock in this offering
will pay an average price per share substantially higher than
our existing stockholders paid. The table below assumes an
initial public offering price of $14.00 per share for shares of
common stock purchased in this offering and excludes
underwriting discounts and commissions and estimated offering
expenses that we must pay:
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|
|
Shares Purchased
|
|
Total Consideration
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|
Average Price
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
|
per Share
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
|
|
|
|
Existing investors
|
|
|
53,125
|
|
|
|
65.4
|
%
|
|
$
|
132,335
|
|
|
|
25.2
|
%
|
|
$
|
2.49
|
|
New investors
|
|
|
28,125
|
|
|
|
34.6
|
|
|
|
393,750
|
|
|
|
74.8
|
|
|
|
14.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
81,250
|
|
|
|
100.0
|
%
|
|
$
|
526,085
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
CORPORATE
REORGANIZATION
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 that has not, to date, conducted any
activities other than those incident to its formation and the
preparation of this registration statement.
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, have 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. All of the
shares of Class A common stock and Class B common
stock will convert into shares of common stock immediately prior
to the consummation of this offering. Following the corporate
reorganization, Molycorp, LLC was merged with and into Molycorp
Minerals, LLC.
The incentive shares had been issued by Molycorp, LLC to some of
its key employees, including certain of our executive officers,
and non-employee directors. These incentive shares would have
entitled the incentive shareholders to share in cash
distributions with the initial investors, who received
Class A common stock, in amounts ranging from 3.2% to 7.0%
of the distributions once the initial investors had received an
annually compounded 10% return and their initial capital
contributions. The terms of the Class A common stock and
Class B common stock generally replicate the economics of
the original incentive shares in that the shares of Class A
common stock and Class B common stock will convert into
shares of common stock in connection with the corporate
reorganization at a conversion ratio dependent on the return
that the initial investors receive. This return will be
determined on the value of the initial investors shares
based on the initial public offering price as compared to the
amount of total capital contributed by the initial investors
plus a compounded annual rate of return of 10%. Accordingly,
although the aggregate number of shares of common stock into
which the Class A common stock and Class B common
stock will convert will be fixed at 53,125,000 shares in
the aggregate (subject to minor deviations because of rounding
when converting fractional shares), the actual number of shares
of common stock that the holders of Class A common stock
and Class B common stock will receive will vary depending
on the initial public offering price and the amount of the
deemed return to the initial investors. Based on an assumed
initial offering price of $14.00 per share, we estimate that,
immediately prior to the consummation of this offering, we will
issue to the holders of Class A common stock approximately
50,892,261 shares of common stock upon conversion and to
the holders of Class B common stock approximately
2,232,739 shares of common stock upon conversion. If the
actual offering price per share is greater than $14.00 per
share, then the Class A stockholders will receive less of a
percentage, and the Class B stockholders will receive a
proportionally larger percentage, of the shares of our common
stock in the aggregate to be issued upon conversion of the
outstanding shares of our Class A common stock and
Class B common stock. Similarly, if the actual offering
price per share is less than $14.00 per share, then the
Class A stockholders will receive more of a percentage, and
the Class B stockholders will receive a proportionately
smaller percentage, of the shares of our common stock in the
aggregate to be issued upon conversion of the outstanding shares
of our Class A common stock and Class B common stock.
However, in no event will the Class B stockholders receive
more than 5.88% of the aggregate number of shares of our common
stock to be issued upon conversion of the shares of our
Class A common stock and Class B common stock
immediately prior to the consummation of this offering.
As of July 1, 2010, there were nine holders of our
Class A common stock and 13 holders of our Class B
common stock.
35
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 December 31, 2009 and 2008, and for the year
ended December 31, 2009 and 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 included elsewhere in
this prospectus. The summary consolidated financial data as of
March 31, 2010, for the three months ended March 31,
2010 and 2009 and cumulatively for the period from June 12,
2008 (Inception) through March 31, 2010. has been derived
from Molycorp, LLCs unaudited condensed consolidated
financial statements and the related notes included elsewhere in
this prospectus.
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 and Molycorp
Minerals, LLC became wholly owned subsidiaries of Molycorp, Inc.
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. The
unaudited pro forma as adjusted balance sheet data as of
March 31, 2010 has been prepared to give effect to the
corporate reorganization, the purchase by existing investors of
additional shares of Class A common stock for
$5.0 million on May 28, 2010, the conversion of all of
our Class A common stock and Class B common stock into
shares of common stock and the consummation of this offering, as
if such events had occurred on March 31, 2010. The
unaudited pro forma balance sheet data is for informational
purposes only and does not purport to indicate balance sheet
information as of any future date.
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 unaudited pro forma as adjusted per share data has been
computed based upon the number of shares of common stock
outstanding immediately after the corporate reorganization
applied to our historical net loss amounts and 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 this offering, as
if such events had occurred on June 12, 2008.
36
The selected historical 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 12, 2008
|
|
June 12, 2008
|
|
|
|
|
|
|
|
|
(Inception)
|
|
(Inception)
|
|
|
Three Months Ended
|
|
Year Ended
|
|
Through
|
|
Through
|
Statement of Operations Data
|
|
March 31, 2010
|
|
March 31, 2009
|
|
December 31, 2009
|
|
December 31, 2008
|
|
March 31, 2010
|
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,921
|
|
|
$
|
1,699
|
|
|
$
|
7,093
|
|
|
$
|
2,137
|
|
|
$
|
12,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold(1)
|
|
|
(5,853
|
)
|
|
|
(4,727
|
)
|
|
|
(21,785
|
)
|
|
|
(13,027
|
)
|
|
|
(40,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
(4,480
|
)
|
|
|
(2,322
|
)
|
|
|
(12,685
|
)
|
|
|
(2,979
|
)
|
|
|
(20,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
(95
|
)
|
|
|
(21
|
)
|
|
|
(191
|
)
|
|
|
(19
|
)
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion expense
|
|
|
(263
|
)
|
|
|
(252
|
)
|
|
|
(1,006
|
)
|
|
|
(250
|
)
|
|
|
(1,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(7,770
|
)
|
|
|
(5,623
|
)
|
|
|
(28,574
|
)
|
|
|
(14,138
|
)
|
|
|
(50,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,749
|
)
|
|
$
|
(5,601
|
)
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(50,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
47,417,780
|
|
|
|
38,234,354
|
|
|
|
38,921,015
|
|
|
|
38,234,354
|
|
|
|
39,873,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
75,542,780
|
|
|
|
66,359,354
|
|
|
|
67,046,015
|
|
|
|
66,359,354
|
|
|
|
67,998,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
as Adjusted
|
|
|
|
|
|
|
Balance Sheet Data
|
|
March 31, 2010
|
|
March 31, 2010
|
|
December 31, 2009
|
|
December 31, 2008
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
380,260
|
|
|
$
|
7,452
|
|
|
$
|
6,929
|
|
|
$
|
2,189
|
|
Total current assets
|
|
|
392,200
|
|
|
|
19,392
|
|
|
|
18,520
|
|
|
|
8,710
|
|
Total assets
|
|
|
473,834
|
|
|
|
101,026
|
|
|
|
97,666
|
|
|
|
95,355
|
|
Total non-current liabilities
|
|
|
13,847
|
|
|
|
13,847
|
|
|
|
13,509
|
|
|
|
13,196
|
|
Total liabilities
|
|
|
23,860
|
|
|
|
23,860
|
|
|
|
23,051
|
|
|
|
17,279
|
|
Members equity
|
|
|
|
|
|
|
77,166
|
|
|
|
74,615
|
|
|
|
78,076
|
|
Stockholders equity
|
|
|
449,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 12, 2008
|
|
June 12, 2008
|
|
|
Three Months Ended
|
|
Year Ended
|
|
(Inception) Through
|
|
(Inception) Through
|
Other Financial Data
|
|
March 31, 2010
|
|
March 31, 2009
|
|
December 31, 2009
|
|
December 31, 2008
|
|
March 31, 2010
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures(2)
|
|
$
|
2,840
|
|
|
$
|
868
|
|
|
$
|
7,285
|
|
|
$
|
321
|
|
|
$
|
10,446
|
|
|
|
|
(1) |
|
Cost of goods sold includes write-downs of inventory to
estimated net realizable value of $0.6 million,
$2.2 million, $9.0 million, $9.5 million and
$19.1 million for the three months ended March 31,
2010 and 2009, for the year ended December 31, 2009, for
the period from June 12, 2008 (Inception) through
December 31, 2008 and cumulatively for the period from
June 12, 2008 (Inception) through March 31, 2010,
respectively. |
|
(2) |
|
Reflected in cash flows from investing activities in our
consolidated statements of cash flows. |
37
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
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 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. We are in the process of
modernizing and expanding our production capabilities at our
Mountain Pass, California facility in order to integrate the
rare earths supply chain: mining; oxide processing; production
of metals and alloys; and, as part of our
mine-to-magnets
strategy, the production of rare earth-based magnets.
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 four
years.
Our
Mine Process and Development Plans
We are preparing to recommence mining operations, which we
expect to occur in late 2010. Recommencement of mining
operations is expected to coincide with the modernization of our
processing capabilities in order to efficiently produce at a
rate of 19,050 mt of REO per year by the end of 2012, and we
expect to have the capability to increase production to
approximately 40,000 mt of REO per year, if warranted by market
conditions. Prior to the expected completion of our
modernization and expansion efforts by the end of 2012, we
expect to produce approximately 3,000 mt in the aggregate of
cerium products, lanthanum concentrate, didymium oxide and heavy
rare earth concentrates in each of 2010 and 2011 from stockpiled
feedstock.
Our modernization and expansion plans envision adding facilities
and equipment for metal conversion and alloy production at the
Mountain Pass facility or an off-site property. In November
2009, we entered into a non-binding letter of intent to acquire
a third-party producer of rare earth metals and alloys in the
United
38
States, although we have not yet been able to enter into a
definitive agreement. If we are able to enter into a definitive
agreement and complete the acquisition, instead of adding such
facilities and equipment at Mountain Pass or another site, we
would transport cerium, lanthanum, neodymium, praseodymium,
dysprosium, terbium and samarium oxide products from our
Mountain Pass facility to that off-site location, which already
possesses the technological capability to produce rare earth
metals and alloys. 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.
We anticipate the cost of restarting mining operations, the
modernization and expansion of our Mountain Pass facility and
the addition of rare earth metal and alloy production
capabilities to be approximately $511 million. Our
estimated capital expenditures of $511 million do not
include corporate, selling, general and administrative expenses,
which we estimate to be an additional $5 million to
$10 million per year. Based on an assumed offering price of
$14.00 per share, this offering will not be sufficient to fully
fund our modernization and expansion costs. To fund the
remainder of these modernization and expansion costs, we will
seek to obtain traditional debt financing, project financing,
additional public or private equity offerings
and/or
federal government programs, including the U.S. Department of
Energy loan guarantee program for which we submitted an
application in June 2010. Other than a commitment from our
existing stockholders that they have the ability and intent to
provide us $20.0 million of funding through
December 31, 2010, our existing stockholders are under no
obligation to provide us with funding, and there can be no
assurance that we will be successful in raising additional
capital in the future on terms acceptable to us, or at all.
We have entered into a non-binding letter of intent to form a
collaborative joint venture with a third-party manufacturer of
NdFeB magnets in the United States. This joint venture will
provide us with access to the technology, people and facilities
to convert our rare earth materials into the high-performance
permanent 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 a joint
venture, in conjunction with our current modernization plans,
the potential acquisition of a third-party rare earth metal and
alloys producer 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 before
manufacturing them into NdFeB magnets. This downstream
integration would make us the only fully integrated producer of
NdFeB magnets outside of China, helping to secure rare earth
supply for the Rest of World.
Our
Products and Markets
Since our acquisition of the Mountain Pass facility, we have
been producing and selling small quantities of REOs 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. We recently completed processing
stockpiled lanthanum to recover neodymium and praseodymium and
produce didymium oxide (a combination of neodymium and
praseodymium). Additionally, the lanthanum concentrate produced
from the stockpiled material, which we sell to customers in the
catalyst industry, has been our primary source of revenue to
date. We expect sales of our didymium oxide to commence in the
third quarter of 2010, primarily to customers in the magnet
industry.
We commenced a second pilot processing campaign in the second
quarter of 2010 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.
Through this effort, we expect to recover cerium, lanthanum,
neodymium, praseodymium and a samarium/europium/gadolinium
concentrate from bastnasite concentrate stockpiles. These
additional products will significantly expand and diversify our
current customer base. For example, we expect to begin selling
our cerium products to customers in the glass polish and water
treatment industries.
39
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. According to
IMCOA and Roskill, total demand for rare earths outside of China
is expected to increase at a CAGR of approximately 4% to 5%
between 2008 and 2014. In addition, according to Roskill, global
demand for the more important magnetic rare earths, neodymium,
praseodymium and dysprosium is expected to grow at CAGRs of
approximately 8%, 6% and 6%, respectively, over the same period.
Both IMCOA and Roskill estimate that total global demand for
rare earths is expected to increase from 124,000 mt in 2008 to
180,000 mt in 2014, which results in a CAGR of approximately 6%
for that period.
The forecasted demand by IMCOA 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 and Roskill expect that this anticipated market
dynamic will underpin 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 to mid-June 2010, prices for rare earths have risen by
approximately 70% on average. Furthermore, over the same period,
prices for some of the most common rare earths (cerium oxide,
lanthanum oxide, neodymium oxide, didymium oxide and rare earth
carbonate) have risen by more than 80% on average.
Set forth below are prices for rare earth products in 2010 and
anticipated prices for future years.
Rare
Earth Product Prices(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rare Earth Product
|
|
2010
|
|
2014
|
|
2020
|
|
2030
|
|
Lanthanum Oxide
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
10
|
|
Cerium Oxide
|
|
|
4
|
|
|
|
2.50
|
|
|
|
2.50
|
|
|
|
3
|
|
Praseodymium Oxide
|
|
|
27
|
|
|
|
35
|
|
|
|
45
|
|
|
|
65
|
|
Neodymium Oxide
|
|
|
30
|
|
|
|
40
|
|
|
|
50
|
|
|
|
70
|
|
Samarium Oxide
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
5
|
|
|
|
8
|
|
Europium Oxide
|
|
|
500
|
|
|
|
600
|
|
|
|
700
|
|
|
|
900
|
|
Gadolinium Oxide
|
|
|
7
|
|
|
|
8
|
|
|
|
10
|
|
|
|
12
|
|
Terbium Oxide
|
|
|
500
|
|
|
|
650
|
|
|
|
850
|
|
|
|
1,200
|
|
Dysprosium Oxide
|
|
|
160
|
|
|
|
240
|
|
|
|
350
|
|
|
|
500
|
|
Yttrium Oxide
|
|
|
10
|
|
|
|
15
|
|
|
|
20
|
|
|
|
30
|
|
|
|
|
(1) |
|
Rare earth product prices in US$/kg,
free-on-board
China (+/− 20%). All prices are not adjusted for inflation
and assume that there will be no major changes to Chinas
rare earths industry strategy and no new application(s) that
will have a material impact on demand. |
Source: IMCOA. Although IMCOA and Roskill predict strong growth,
their projections with respect to certain years are slightly
different.
Based on customer input and market analysis, we anticipate that
our product distribution will approximate the table below after
we complete our modernization and expansion efforts. This
distribution depends upon the successful commercialization of
our cerium water treatment products.
40
Rare
Earth Products
|
|
|
|
|
|
|
|
|
|
|
Anticipated 2013
|
|
|
|
|
Production(1)
|
|
Price(1)(2)
|
|
|
(mt/year)
|
|
(US$/kg)
|
|
Non-Metal Products
|
|
|
|
|
|
|
|
|
Lanthanum oxide
|
|
|
3,097
|
|
|
$
|
6.60
|
|
Cerium oxide for glass applications
|
|
|
1,449
|
|
|
|
4.09
|
|
Cerium oxide for water filters
|
|
|
3,381
|
|
|
|
13.20
|
|
XSORBX®
|
|
|
4,831
|
|
|
|
9.90
|
|
Europium oxide
|
|
|
19
|
|
|
|
473.00
|
|
Metal Products
|
|
|
|
|
|
|
|
|
Lanthanum
|
|
|
2,501
|
|
|
|
13.20
|
|
Praseodymium
|
|
|
116
|
|
|
|
37.99
|
|
Neodymium
|
|
|
312
|
|
|
|
37.99
|
|
Metal Alloys
|
|
|
|
|
|
|
|
|
NdFeB
|
|
|
8,163
|
|
|
|
35.20
|
|
Samarium cobalt
|
|
|
756
|
|
|
|
50.60
|
|
|
|
|
(1) |
|
Source: SRK Consulting Engineering Report. |
|
|
|
(2) |
|
Prices used by SRK Consulting in the estimate of our reserves,
which 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. |
Supply
of Rare Earth Products
China has dominated the global supply of REOs for the last ten
years and, according to Roskill, 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 in August
2009 when Chinas Interior Ministry 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 65,500 mt of REO in 2004 to
approximately 50,100 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
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 also announced a national stockpile program, as has
South Korea. Additionally, Japan has increased its national
stockpile program. The U.S. Department of Defense is
conducting a study, which is expected to be completed by
September 2010, 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 projected global REE deficit.
According to Metal Pages, the price of rare earths rose
significantly in the three years before the recent financial
turmoil due to constraints placed on mining, processing and
exporting by the Chinese authorities. According to Metal Pages,
from October 2009 to mid-June 2010, prices for rare earths have
risen by approximately 70% on average. Furthermore, over the
same period, prices for some of the most common rare earths
(cerium oxide, lanthanum oxide, neodymium oxide, didymium oxide
and rare earth carbonate) have risen by more than 80% on average.
41
As a result of the internal industrial development and 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.
Factors
Affecting Our Results
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 and the commencement of
metal, alloy, and magnet production in 2012. In addition, 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. As discussed under the heading
Business Our Corporate History and
Structure The Mountain Pass Facility,
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. In addition to the
modernization and expansion of the Mountain Pass facility, we
expect to significantly broaden our operations through the
addition of a number of downstream activities and products,
including metal production, alloying and magnet production.
Accordingly, we expect our products and customer base to change
significantly upon full implementation of our
mine-to-magnets
strategy.
We processed lanthanum, which comprised 82%, 72%, 77% and 63% of
our sales for the year ended December 31, 2009, the period
ended December 31, 2008 and the three months ended
March 31, 2010 and 2009, respectively, from the stockpiled
lanthanum material held in ponds since suspension of processing
operations by Unocal Corporation in 2002. As a result of this
campaign, we were able to significantly improve our solvent
extraction technologies and capabilities.
Upon completion of the modernized extraction and separations
facilities, we will begin producing additional cerium oxide for
the glass polish market and
XSORBX®
products for water treatment. We will also package a portion of
the lanthanum oxide and all of the europium oxide products for
direct sale to our customers. If we are able to complete our
proposed acquisition of a
U.S.-based
producer of rare earth metals and alloys, we plan to transport
by truck cerium, lanthanum, neodymium, praseodymium dysprosium,
terbium and samarium oxide products from our Mountain Pass
facility to that off-site location, which possesses the
technological capability to produce rare earth metals and alloys.
Revenues
Our prices and product mix are determined by a combination of
global and regional supply and demand factors. Our revenue is
currently derived principally from the sale of lanthanum and is
based on the price and quantities of lanthanum we sell. The
percentage of our revenues from sales of lanthanum were 82%,
72%, 77% and 63% for the year ended December 31, 2009, the
period ended December 31, 2008 and the three months ended
March 31, 2010 and 2009, respectively. These revenues are
net of any transportation costs that we incur. 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 consists of sales of finished
products acquired as part of our acquisition of the Mountain
Pass facility.
42
Prices for lanthanum we sold to our two largest customers were
primarily based on fixed-price contracts. Our contract with one
of these customers expired on December 31, 2009. Our
contract with the other customer expired in April 2010. We
continue to sell lanthanum to these customers on a spot basis.
Product sales to those customers and our other customers are
based on current prevailing prices for the applicable product.
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 alloys or magnets. In
order to mitigate against the risk of fluctuations in market
prices, we will likely use fixed price contracts for short
durations, or longer term contracts that include periodic
opportunities to adjust prices.
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 lanthanum sales, 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 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.
We expect our depreciation and amortization expense to increase
as our capital expenditures increase.
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 intend to build a co-generation facility
to provide power. Following such steps, natural gas will replace
electricity as our most significant variable cost.
We expect our labor and benefit costs to increase in 2010 due to
the addition of personnel as we prepare to increase production
to a rate of 19,050 mt of REO per year by the end of 2012. 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 anticipate an increase in selling, general
and administrative expenses as we expand our business and
operate as a publicly traded company. These expenses will
include additional legal, compliance and corporate governance
expenses, additional accounting and audit expenses, stock
exchange listing fees, transfer agent and other
stockholder-related fees and increased premiums for certain
insurance coverages, among others.
Income
Taxes
Prior to the corporate reorganization completed in connection
with this offering, 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. The newly formed holding company,
Molycorp, Inc., will be subject to U.S. federal and state
income taxes.
Environmental
Our operations are subject to numerous and detailed 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 pollution, waste management,
plant and
43
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. The majority of these resources will be expended
through our capital investment budget. We expect to spend
approximately $187 million not including the costs of air
emissions offset credits, which may become necessary and, if
required, could cost up to $20 million, on
environmentally-driven capital projects between 2010 and 2012.
See Business Environmental, Health and Safety
Matters. In addition, in 2009 we incurred approximately
$3 million associated with environmental compliance
requirements, including permit fees, and on-going remediation
activities that we are required to perform. Of this amount,
$2.6 million was recognized as operating costs and
$0.4 million was recognized as settlement of asset
retirement obligations. The costs expected to be incurred as
part of our on-going remediation, 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 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 2010 or in the future. 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, new regulations could go into effect that may 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 facility or from
wastes disposed of at third-party waste facilities. The proposed
expansion of our operations 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, 2010 we had placed $27.4 million of surety
bonds with California state and regional government agencies.
These bonds are currently collateralized by letters of credit
provided by our initial investors, and we intend to replace such
collateral arrangements with collateral provided directly by us.
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, known as 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 Capital Expenditures have not been
44
adjusted for inflation. If there is a significant rate of
inflation over the near term, the funds obtained from this
offering may not be sufficient to execute our business plan over
the next few years. 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.
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. Our reported revenues
are presented net of freight and shipping costs.
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 state 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
45
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.
As of December 31, 2009, our accrued ARO obligation was
$14.2 million. Of this amount, approximately
$4.4 million is associated with the demolition and removal
of buildings and equipment, approximately $4.7 million is
associated with groundwater remediation and $5.1 million is
associated with the remediation of tailing ponds, removal of
land improvements and revegetation. As of March 31, 2010,
our accrued ARO obligation was $14.5 million. Of this
amount, approximately $4.5 million is associated with the
demolition and removal of buildings and equipment, approximately
$4.8 million is associated with groundwater remediation and
$5.2 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. We
will begin to amortize such mineral properties using the units
of production basis over estimated proven and probable reserves
once mining operations resume, which is currently expected to
occur in late 2010 or in 2011.
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
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 pound of REO to be produced in our
modernized facilities are significantly lower than our current
production costs per
46
pound, 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:
|
|
|
|
|
significant underperformance relative to expected operating
results;
|
|
|
|
significant changes in the way assets are used;
|
|
|
|
underutilization of our tangible assets;
|
|
|
|
discontinuance of certain products by us our by our customers;
|
|
|
|
a decrease in estimated mineral reserves; and
|
|
|
|
significant negative industry or economic trends.
|
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.
47
Results
of Operations
Three
Months Ended March 31, 2010 Compared to Three Months Ended
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Net sales
|
|
$
|
2,921
|
|
|
$
|
1,699
|
|
|
$
|
1,222
|
|
Cost of goods sold
|
|
|
(5,853
|
)
|
|
|
(4,727
|
)
|
|
|
(1,126
|
)
|
Selling, general and administrative expenses
|
|
|
(4,480
|
)
|
|
|
(2,322
|
)
|
|
|
(2,158
|
)
|
Depreciation and amortization expense
|
|
|
(95
|
)
|
|
|
(21
|
)
|
|
|
(74
|
)
|
Accretion expense
|
|
|
(263
|
)
|
|
|
(252
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(7,770
|
)
|
|
|
(5,623
|
)
|
|
|
(2,147
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
21
|
|
|
|
22
|
|
|
|
(1
|
)
|
Interest (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,749
|
)
|
|
$
|
(5,601
|
)
|
|
$
|
(2,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Net sales were $2.9 million and $1.7 million for the
quarters ended March 31, 2010 and 2009, respectively. We
sold 0.8 million pounds of lanthanum concentrate during the
first quarter of 2010 compared to 0.5 million pounds during
the first quarter of 2009. Sales were higher during the first
quarter of 2010 due to improved economic conditions and customer
demand. In addition, our average realized price on sales of
lanthanum concentrate was $2.70 per pound in the first quarter
of 2010 as opposed to $2.37 per pound in the first quarter of
2009. The increase in our realized average price was a result of
increases in the market price of our products generally and a
new contract with one of our largest customers. Other
significant sales during the first quarters of 2010 and 2009
included sales of 80.3 thousand pounds and 84.8 thousand
pounds of lanthanum oxide, which generated approximately
$0.4 million in product revenue for both periods.
With the start up of our second pilot processing campaign in
April 2010, we began production of cerium oxide in May 2010 and
we expect sales to commence by the end of the third quarter of
2010. We will also continue producing and selling lanthanum
concentrate to our two largest customers and didymium oxide.
Cost
of Goods Sold
Our cost of goods sold was $5.9 million and
$4.7 million for the quarters ended March 31, 2010 and
2009, respectively. The higher costs for the three months ended
March 31, 2010 were due to higher sales and costs
associated with the temporary shut down of our facility,
partially offset by a decrease in our level of lower of cost or
market write-downs. Included in our cost of goods sold are lower
of cost or market write-downs of $0.6 million and
$2.2 million for the respective quarters. Lower of cost or
market write-downs were higher during the first quarter of 2009
due to continued decline in market prices for certain products.
Our processing facility was shut down during March 2010 due to
high water levels in our evaporation ponds and in preparation
for the start up of our second pilot processing campaign, which
led to lower production volumes during the first quarter 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 sales for the three months ended March 31,
2010.
Total production costs charged to inventory were
$3.0 million and $5.3 million for the quarters ended
March 31, 2010 and 2009, respectively. Production costs for
lanthanum concentrate and didymium oxide were higher in 2009 due
to higher chemical usage and labor costs. We produced
0.5 million pounds and 1.0 million pounds of lanthanum
concentrate for the quarters ended March 31, 2010 and 2009,
respectively. We also produced 0.1 million pounds and
0.2 million pounds of didymium oxide during the respective
quarters.
Inventory purchases were $0.2 million and zero for the
quarters ended March 31, 2010 and 2009. Our primary product
purchased was lanthanum oxide.
48
Chemical costs charged to production were $0.4 million and
$0.9 million for the quarters ended March 31, 2010 and
2009, respectively. Chemical costs in the first quarter of 2010
were lower due to lower production levels and improved
processing techniques that reduced chemical usage. Labor costs
and related benefits, charged to production were
$1.9 million and $2.0 million for the quarters ended
March 31, 2010 and 2009, respectively. During the first
quarter of 2009, labor costs were higher due to the accrual of
the NFL completion bonus that was paid out in March 2010.
Although the completion bonus did not recur in the first quarter
of 2010, wage increases required under our union agreement that
took effect in March 2009 resulted in higher labor cost
during the first quarter of 2010. Another wage increase as
required by our union agreement became effective in March 2010
and will result in increased costs during the second quarter of
2010.
Other costs charged to production include maintenance expenses
of $0.5 million and $0.5 million; depreciation expense
of $0.9 million and $0.9 million; and utility charges
of $0.4 million and $0.5 million for the quarters
ended March 31, 2010 and 2009, respectively.
In March of 2010 we also began blending certain lots of our
existing didymium oxide inventory containing different
percentages of neodymium and praseodymium content to meet
customer specifications. As of April 30, 2010, over
0.8 million pounds were blended. Blended inventory is
reclassified from work in process to finished goods. We expect
to start selling the blended didymium oxide product in the third
quarter of 2010.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses were
$4.5 million and $2.3 million for the quarters ended
March 31, 2010 and 2009, respectively. During the first
quarter of 2010, we experienced a significant increase in
professional fees primarily due to business development
activities as well as increased spending for accounting, IT
consulting and engineering services. We also experienced
increased salaries due to addition of several employees at our
corporate office over the last twelve months.
Capital
Expenditures
Our capital expenditures, on an accrual basis, totaled
$3.4 million and $0.4 million in the three months
ended March 31, 2010 and 2009, respectively. Most of the
capitalized costs incurred during the first quarter of 2010 are
related to our second pilot processing campaign, which commenced
in April 2010. In addition, we capitalized certain engineering
and consulting fees related to our project to modernize and
expand our operations at the Mountain Pass facility.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 12, 2008
|
|
June 12, 2008
|
|
|
|
|
(Inception)
|
|
(Inception)
|
|
|
Year Ended
|
|
Through
|
|
Through
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2009
|
Net sales
|
|
$
|
7,093
|
|
|
$
|
2,137
|
|
|
$
|
9,230
|
|
Cost of goods sold
|
|
|
(21,785
|
)
|
|
|
(13,027
|
)
|
|
|
(34,812
|
)
|
Selling, general and administrative expenses
|
|
|
(12,685
|
)
|
|
|
(2,979
|
)
|
|
|
(15,664
|
)
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income
|
|
|
(194
|
)
|
|
|
10
|
|
|
|
(184
|
)
|
Other income
|
|
|
181
|
|
|
|
54
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(42,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
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 82% 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. 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.
We expect increased revenues in 2010, primarily attributable to
sales of additional products to be produced during our second
pilot processing campaign. 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. In addition, we estimate that
generally higher REE prices in 2010, as compared to early 2009,
will contribute to our increased revenue in 2010.
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 3.4 million pounds of
lanthanum and 1.2 million pounds of didymium oxide in 2009
and 0.8 million pounds of lanthanum and 0.1 million
pounds 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 neodymium from lanthanum, or NFL, pilot
processing project, of $0.8 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
50
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 approximately $12.7 million
and $3.0 million, respectively. Legal and accounting fees
were approximately $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 $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 our operating losses entirely with proceeds from equity
contributions from our initial investors.
Liquidity
and Capital Resources
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 our current business plan, we
intend to spend approximately $511 million through 2012 to
restart mining operations, construct and refurbish processing
facilities and other infrastructure at the Mountain Pass
facility and expand into metals and alloys production. Capital
expenditures under this plan total approximately
$53 million in 2010. We also plan to use up to
approximately $27.4 million, all of which is expected to be
used in 2010, for our cash collateral requirements. We expect to
finance these estimated total expenditures, as well as our
working capital requirements, with proceeds from this offering
as well as traditional debt financing, project financing,
additional public or private equity offerings
and/or
federal government programs. Based on an assumed offering price
of $14.00 per share, this offering will not be sufficient to
fully fund our business plan, and we do not have commitments for
the remaining funds needed to complete our plans.
If the assumptions on which we based our estimated capital
expenditures of $511 million change or are inaccurate, we
may require additional funding. Additionally, we may require
additional financing as part of our proposed collaborative joint
venture with a third-party manufacturer of NdFeB magnets.
Presently, we have not obtained commitments for financing from
any of the sources in our financing plan, and there can be no
assurance that we will be successful in the anticipated offering
or that we will be successful in raising additional capital in
the future on terms acceptable to us, or at all.
If this offering is not completed and we are unable to raise
sufficient capital, additional capital contributions from
existing members or obtain other alternative sources of
financing, management will implement a short-term business plan
in 2010. Under this plan, capital expenditures will be curtailed
at mid-year and limited operations at the Mountain Pass facility
will continue through March 31, 2011. We believe that we
will be able to fund the short-term business plan with existing
cash and cash equivalents, which totaled $7.5 million at
March 31, 2010, and funding commitments from our existing
stockholders totaling $20.0 million through
December 31, 2010.
Our financial statements have been prepared on a going concern
basis under which we are expected to be able to realize our
assets and satisfy our liabilities in the normal course of
business. To continue as a going concern beyond 2010 and in
order to continue the restart of mining operations and
modernization of the Mountain Pass facility, we will need to
complete the planned securities offering and the remainder of
our
51
financing plan or obtain alternative sources of financing.
Absent the additional financing, we will not have the resources
to execute our current business plan.
Capital
Expenditures
In 2009, we acquired equipment with a total cost of
approximately $3.5 million in preparation for our second
pilot processing campaign. Other capital expenditures totaled
$3.8 million including: purchase of an accounting
information system in the amount of $0.8 million;
production equipment of $0.5 million; as well as other
capital improvement projects at the facility.
We expect to make significant capital expenditures under our
plan to modernize and expand our operations at the 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 in 2010
through 2012 in order to increase REO production. We anticipate
the cost of this project to be approximately $511 million,
as shown in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
Total
|
|
Refurbishment of existing facility
|
|
$
|
5
|
|
|
$
|
13
|
|
|
$
|
|
|
|
$
|
18
|
|
Refurbishment and expansion of extraction plant
|
|
|
5
|
|
|
|
30
|
|
|
|
15
|
|
|
|
50
|
|
Refurbishment and expansion of separations plant(1)
|
|
|
21
|
|
|
|
128
|
|
|
|
64
|
|
|
|
213
|
|
New heating and power facility
|
|
|
|
|
|
|
31
|
|
|
|
13
|
|
|
|
44
|
|
Expansion into metal and alloy production(2)
|
|
|
10
|
|
|
|
23
|
|
|
|
|
|
|
|
33
|
|
Construction of plant infrastructure
|
|
|
12
|
|
|
|
69
|
|
|
|
35
|
|
|
|
116
|
|
Overburden removal
|
|
|
|
|
|
|
20
|
|
|
|
6
|
|
|
|
26
|
|
Mining and miscellaneous equipment
|
|
|
|
|
|
|
2
|
|
|
|
9
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
53
|
|
|
$
|
316
|
|
|
$
|
142
|
|
|
$
|
511
|
|
|
|
|
(1) |
|
Includes estimated costs of chlor-alkali plant of approximately
$60 million. |
|
(2) |
|
Includes estimated acquisition costs of potential third-party
manufacturer. |
We expect that the high levels of spending associated with the
refurbishment process to improve and modernize equipment will
decrease in the future as we complete our modernization and
expansion plans.
Contractual
Obligations
As of December 31, 2009, we had the following contractual
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
Less Than
|
|
|
|
|
|
More Than
|
Contractual Obligations
|
|
Total
|
|
1 Year
|
|
1-3 Years
|
|
4-5 Years
|
|
5 Years
|
(In thousands)
|
|
Operating lease obligations(1)
|
|
$
|
281
|
|
|
$
|
153
|
|
|
$
|
128
|
|
|
$
|
|
|
|
$
|
|
|
Purchase obligations(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee bonus obligations(3)
|
|
|
1,400
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations(4)
|
|
|
29,247
|
|
|
|
639
|
|
|
|
4,191
|
|
|
|
1,597
|
|
|
|
22,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,928
|
|
|
$
|
2,192
|
|
|
$
|
4,319
|
|
|
$
|
1,597
|
|
|
$
|
22,820
|
|
|
|
|
(1) |
|
Represents all operating lease payments for office space, land
and office equipment. |
|
(2) |
|
Represents non-cancelable contractual commitments for the
purchase of materials and services from vendors. |
|
(3) |
|
Represents payments due to employees as a result of our NFL
pilot processing campaign. |
52
|
|
|
(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. |
Off-Balance
Sheet Arrangements
As of the date of this prospectus, our only off-balance sheet
arrangement in addition to the operating leases included in
Contractual Obligations above, is 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, LLC 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 these members at December 31,
2009 was $18.2 million. We have agreed to pay each member a
5% annual return on the amount of collateral provided. Under the
terms of the agreement, the members may receive quarterly
payments, delayed payments or
payments-in-kind.
After the completion of this offering, we intend to terminate
this agreement with these members by establishing our own cash
collateral using a portion of the net proceeds from this
offering.
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 do not currently
have any long-term sales contracts with customers, so prices
will vary with the transaction and individual bids received. Our
products are primarily marketed to manufacturer 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 net 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 anticipate entering
into derivative agreements before the end of 2010.
Interest
Rate Risk
We do not currently have any debt obligations. As a result, we
would not be directly impacted by variation 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 will be 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
53
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. In connection with this offering as a
publicly-held company, we will become 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.
During the preparation of our consolidated financial statements
as of December 31, 2009 and 2008 and for the year ended
December 31, 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, 2009, we identified deficiencies in our
internal control over financial reporting which, when considered
in the aggregate, represent a material weakness. If not
remediated, this material weakness could result in material
misstatements in our consolidated financial statements in future
periods. Specifically, we did not maintain a sufficient
complement of personnel with an appropriate level of accounting
and financial reporting knowledge, experience and training in
the application of U.S. GAAP. We also did not maintain an
adequate system of processes and internal controls sufficient to
support our financial reporting requirements and to produce
timely and accurate consolidated financial statements in
accordance with U.S. GAAP. If our efforts are not adequate
to remediate this material weakness, we could experience
material misstatements in our consolidated financial statements
in future periods.
In late 2009, we hired a chief financial officer, a corporate
controller and a director of financial reporting, and in early
2010, we hired an accounting manager for the Mountain Pass
facility as part of the actions being taken to remediate the
material weakness. All of these individuals are certified public
accountants possessing significant experience with accounting
and financial reporting matters. We also continued the process
of reviewing our existing processes and system of internal
control in order to implement related improvements where needed.
We installed additional functionality and increased the
integration of our information technology systems to increase
automation and accuracy within our processes.
Under current requirements, our independent registered public
accounting firm will not be required to evaluate and assess our
internal control over financial reporting until we file our
annual report on
Form 10-K
for the year ended December 31, 2011. Consequently, we will
not be evaluated independently in respect of our controls for a
substantial period of time after this offering is completed. As
a result, we may not become aware of other material weaknesses
or significant deficiencies in our internal controls that may be
later identified by our independent registered public accounting
firm as part of the evaluation.
The actions we have taken to date, or any future measures or
actions we will take, may not remediate the material weakness
mentioned above. See Risk Factors Risks
Related to Our Business We identified a material
weakness in our internal control over financial reporting which,
if not satisfactorily remediated, could result in material
misstatements in our consolidated financial statements in future
periods and 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 included elsewhere
in this prospectus.
54
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 emerging applications. Examples include:
|
|
|
|
|
Clean-Energy Technologies: hybrid and electric
vehicles, wind power turbines and compact fluorescent lighting;
|
|
|
|
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;
|
|
|
|
Critical Defense Applications: guidance and control
systems, communications, global positioning systems, radar and
sonar; and
|
|
|
|
Advanced Water Treatment: industrial, military,
homeland security and domestic and foreign aid applications.
|
Rechargeable
Batteries
One of the most effective rechargeable batteries is the 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
55
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 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, 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 NdFeB magnets.
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 another form of catalyst in vehicles. 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, 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. 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.
Demand
for Rare Earth Products
The lack of available substitutes makes REEs essential for
existing and emerging technologies. According to both IMCOA and
Roskill, global demand in 2010 is estimated to be approximately
124,000 mt of REO, roughly equivalent to the 2008 demand level.
56
Global demand for rare earths by market (in thousands of tons
of REO)
Source: IMCOA
Factors that could influence upward demand for rare earth
products include:
|
|
|
|
|
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;
|
|
|
|
the use of lanthanum and cerium for NiMH batteries that are
utilized in hybrid and electric vehicles;
|
|
|
|
the use of europium, terbium and yttrium in the production of
compact fluorescent light bulbs;
|
|
|
|
the use of high-strength NdFeB magnets in the miniaturization of
electronic products;
|
|
|
|
the use of lanthanum by refineries processing lower quality
crude oil that consumes greater quantities of fluid cracking
catalysts;
|
|
|
|
the increased use of REEs in the drive to improve energy
efficiency and reduce GHGs by the United States and the European
Union;
|
|
|
|
the use of cerium in advanced water filtration
applications; and
|
|
|
|
continued research and commercialization of new applications for
rare earths 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. According to
IMCOA and Roskill, total demand for rare earths outside of China
is expected to increase at a CAGR of approximately 4% to 5%
between 2008 and 2014. In addition, according to Roskill, global
demand for the more important magnetic rare earths, neodymium,
praseodymium and dysprosium, is expected to grow at CAGRs of
approximately 8%, 6% and 6%, respectively, over the same period.
Both IMCOA and Roskill estimate that total global demand for
rare earths is expected to increase from 124,000 mt in 2008 to
180,000 mt in 2014, which results in a CAGR of approximately 6%
for that period.
Supply
for Rare Earth Products
China has dominated the global supply of REOs for the last ten
years and, according to Roskill, 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 in August
2009 when Chinas Interior Ministry 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
57
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 50,100 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 also announced a national stockpile program, as has
South Korea. Additionally, Japan has increased its national
stockpile program. The U.S. Department of Defense is
conducting a study, which is expected to be completed by
September 2010, 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 projected global REE deficit.
According to the April 2010 U.S. GAO briefing:
|
|
|
|
|
the Mountain Pass mine is the largest non-Chinese rare earth
deposit in the world;
|
|
|
|
other U.S. rare earth deposits exist, but these deposits
are still in early exploratory stages of development;
|
|
|
|
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;
|
|
|
|
|
|
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;
|
|
|
|
|
|
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;
|
|
|
|
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
|
|
|
|
defense systems will likely continue to depend on rare earth
materials, based on their life cycles and lack of effective
substitutes.
|
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 and Roskill
expect that this anticipated market dynamic will underpin strong
pricing.
58
Source: IMCOA.
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 to mid-June 2010, prices for rare earths have risen by
approximately 70% on average. Furthermore, over the same period,
prices for some of the most common rare earths (cerium oxide,
lanthanum oxide, neodymium oxide, didymium oxide and rare earth
carbonate) have risen by more than 80% on average.
Set forth below are prices for rare earth products in 2010 and
anticipated prices for future years.
Rare
Earth Product Prices(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rare Earth Product
|
|
2010
|
|
2014
|
|
2020
|
|
2030
|
|
Lanthanum Oxide
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
10
|
|
Cerium Oxide
|
|
|
4
|
|
|
|
2.50
|
|
|
|
2.50
|
|
|
|
3
|
|
Praseodymium Oxide
|
|
|
27
|
|
|
|
35
|
|
|
|
45
|
|
|
|
65
|
|
Neodymium Oxide
|
|
|
30
|
|
|
|
40
|
|
|
|
50
|
|
|
|
70
|
|
Samarium Oxide
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
5
|
|
|
|
8
|
|
Europium Oxide
|
|
|
500
|
|
|
|
600
|
|
|
|
700
|
|
|
|
900
|
|
Gadolinium Oxide
|
|
|
7
|
|
|
|
8
|
|
|
|
10
|
|
|
|
12
|
|
Terbium Oxide
|
|
|
500
|
|
|
|
650
|
|
|
|
850
|
|
|
|
1,200
|
|
Dysprosium Oxide
|
|
|
160
|
|
|
|
240
|
|
|
|
350
|
|
|
|
500
|
|
Yttrium Oxide
|
|
|
10
|
|
|
|
15
|
|
|
|
20
|
|
|
|
30
|
|
|
|
|
(1) |
|
Rare earth product prices in US$/kg,
free-on-board
China (+/− 20%). All prices are not adjusted for inflation
and assume that there will be no major changes to Chinas
rare earths industry strategy and no new application(s) that
will have a material impact on demand. |
Source: IMCOA. Although IMCOA and Roskill predict strong growth,
their projections with respect to certain years are slightly
different.
In 2008, global production of rare earths was estimated at
approximately 119,220 mt of REO according to Roskill. 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 is
occurring at a time when the demand for REEs is growing
significantly.
59
In expectation of increasing demand, there are a limited number
of rare earth projects outside of China that are in various
stages of development. None of these deposits are currently in
production. The success of any other rare earth projects depends
on a number of factors, including:
|
|
|
|
|
REO grade;
|
|
|
|
obtaining and maintaining operating and environmental permits;
|
|
|
|
acceptance in the marketplace as a long-term viable alternative
to Chinese production;
|
|
|
|
the amount of recoverable high-value REEs contained in ore (such
as neodymium, praseodymium, europium and dysprosium);
|
|
|
|
reserve life;
|
|
|
|
the ability to separate and concentrate rare earth minerals;
|
|
|
|
the ability to economically crack rare earth mineral
concentrates and produce high yields;
|
|
|
|
the ability to separate REEs and manufacture finished products;
|
|
|
|
natural radioactive material content of the ore and the ability
to responsibly and economically manage radioactive waste;
|
|
|
|
the cost of bringing the property into production; and
|
|
|
|
access to critical infrastructure, including electricity, fuel
and transportation.
|
60
BUSINESS
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. Furthermore, 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 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 for individual REEs.
For the year ended December 31, 2009 and for the three
months ended March 31, 2010, we generated approximately
$7.1 million and $2.9 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
restart mining operations.
Mine-to-Oxides
We and SRK Consulting estimate 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%, at our
Mountain Pass mine. Based on these estimated reserves and an
expected annual production rate of 19,050 mt of REO, our
expected mine life is in excess of 30 years. According to
Roskill, global REO production in 2008 was approximately 119,220
mt, of which only approximately 4,220 mt originated from
outside of China, with Molycorp producing approximately 1,700 mt
from its stockpiles and Russian producers producing
approximately 2,500 mt. This contrasts with total demand outside
of China in 2008 of approximately 50,000 mt, according to
Roskill, with rapid growth expected by industry analysts. Upon
completion of our modernization and expansion efforts, we will
have the ability to produce 19,050 mt of REO per year to supply
this non-Chinese demand and expect to have the capability to
increase production to approximately 40,000 mt of REO per year,
if warranted by market conditions.
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
30-year mine
plan permit and an associated environmental impact report, both
of which were issued in 2004. 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 lanthanum, didymium and SEG concentrate,
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.
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.
61
We are preparing to recommence mining operations, which we
expect to occur in late 2010. Recommencement of mining
operations is expected to coincide with modernization of our
processing capabilities to efficiently produce at a rate of
19,050 mt of REO per year by the end of 2012. The April
2010 U.S. GAO briefing stated that, for a typical
exploration-stage mine, once a company has secured the necessary
capital to start a mine, government and industry officials said
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 Molycorps
Mountain Pass facility is not an early stage rare earth project,
we believe it has significant timeline advantages as it has 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 NiMH battery production;
samarium cobalt magnet production; and NdFeB magnet production.
Our modernization and expansion plans envision adding facilities
and equipment for metal conversion and alloy production at the
Mountain Pass facility or an off-site property. In November
2009, we entered into a non-binding letter of intent to acquire
a third-party producer of rare earth metals and alloys in the
United States, although we have not yet been able to enter into
a definitive agreement. If we are able to enter into a
definitive agreement and complete the acquisition, instead of
adding such facilities and equipment at Mountain Pass or another
site, we would transport cerium, lanthanum, neodymium,
praseodymium, dysprosium, terbium and samarium oxide products
from our Mountain Pass facility to that off-site location, which
already possesses the technological capability to produce rare
earth metals and alloys. 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.
Magnet
Production
We are currently pursuing joint venture opportunities to
integrate downstream into NdFeB magnet manufacturing in the
United States. 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%). We have entered into a
non-binding letter of intent to form a collaborative joint
venture with a
third-party
manufacturer of NdFeB magnets. This joint venture will provide
us with access to the technology, people and facilities to
convert our rare earth materials into the high-performance
permanent 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 a joint
venture, in conjunction with our current modernization plans,
the potential acquisition of a third-party rare earth metals and
alloys producer and the potential technology transfer agreement
with Neo Material, is expected to provide us with the capability
to mine, process, separate and
62
alloy individual REEs before manufacturing them into NdFeB
magnets. This downstream integration would make us the only
fully integrated producer of NdFeB magnets outside of China,
helping to secure rare earth supply for the Rest of World.
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 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, 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.
This program will also help to establish that our measured,
indicated and inferred resources can become proven or probable
reserves.
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 is limited by available production capacity,
which is currently concentrated in China. According to Roskill,
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
100 gigawatts with an investment expected to be above
$150 billion and has also 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 50,100 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.
63
Given Chinas estimated consumption levels and the
limitations its government has put on exports, Roskill projects
a global deficit beginning in 2011 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 also announced a national stockpile program, as has
South Korea. Additionally, Japan has increased its national
stockpile program. The U.S. Department of Defense is
conducting a study, which is expected to be completed by
September 2010, 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 projected global REE 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 recently
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 full planned production rates for REOs in 2012, we
expect to be in a position to supply a substantial portion of
the U.S. demand and also sell to export markets.
We
have a highly experienced and qualified management
team.
Our President and Chief Executive Officer has 29 years of
experience, 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
June 1, 2010, held 18 issued and pending U.S. patents
and patent applications, and 146 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 MSHA for three of the last four 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 refurbish or 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 refurbishment of existing equipment and 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
by the end of 2012.
After reaching full planned production rates for REOs at the
Mountain Pass facility, we expect to produce 19,050 mt of
REO per year. We operate the Mountain Pass facility pursuant to
a 30-year
mining permit issued in 2004 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 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
64
while only using approximately 1,100 to 1,500 tons of mill feed
per day, thus allowing for potential increases in annual REO
production beyond the planned 19,050 mt per year without
any change in the permit limit. These estimates are based on
results we have achieved in full scale (19,050 mt per year
production rate) mill test runs from 2001 to 2002, 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 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, we expect to produce
approximately 19,050 mt of REO per year. As of June 1,
2010, we had 19 non-binding letters of intent to sell our rare
earth products, representing approximately 138% of our
anticipated production for 2013, and our non-binding letter of
intent with Neo Material also contemplates the sale of certain
rare earth products. We are continuing to seek additional
letters of intent and, 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. In addition, we are in discussions
with multiple large, globally diversified mining companies
regarding the sale of
XSORBX®.
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.
65
The following table compares the volume under our 19 non-binding
letters of intent to our anticipated production for 2013 (in mt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume Under
|
|
|
|
Anticipated
|
|
Percent of
|
|
|
Letters of
|
|
Uncommitted
|
|
2013
|
|
Anticipated 2013
|
Product Type
|
|
Intent (1)(2)
|
|
Volume
|
|
Production(1)(2)
|
|
Production
|
|
Lanthanum oxide
|
|
|
11,427
|
|
|
|
|
|
|
|
3,104
|
|
|
|
368
|
%
|
Lanthanum metal
|
|
|
436
|
(3)
|
|
|
2,071
|
|
|
|
2,507
|
|
|
|
17
|
%
|
Cerium non-metal
|
|
|
6,914
|
(4)
|
|
|
2,770
|
|
|
|
9,684
|
|
|
|
71
|
%
|
Cerium metal
|
|
|
200
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Neodymium oxide
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neodymium metal
|
|
|
3,318
|
(5)
|
|
|
|
|
|
|
313
|
|
|
|
1,060
|
%
|
Praseodymium metal
|
|
|
1,091
|
(5)
|
|
|
|
|
|
|
116
|
|
|
|
941
|
%
|
Europium oxide
|
|
|
|
(6)
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
Samarium metal(8)
|
|
|
|
|
|
|
191
|
|
|
|
191
|
|
|
|
|
|
NdPr metal in NdFeB alloy
|
|
|
1,000
|
(7)
|
|
|
964
|
|
|
|
1,964
|
|
|
|
51
|
%
|
NdPr metal in NdFeB magnets
|
|
|
291
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
24,727
|
|
|
|
6,015
|
|
|
|
17,898
|
|
|
|
138
|
%
|
|
|
|
(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 does not include any sales of any products under
either of the agreements we have entered into with 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 not 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
17,898 mt total 2013 production rate and our anticipated full
planned production rate of 19,050 mt of REO per year. |
|
|
|
(3) |
|
Contained within mischmetal, a combination of lanthanum, cerium
and iron, for battery alloy producers. |
|
(4) |
|
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. 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. |
|
(5) |
|
We have received non-binding letters of intent for 9,700,000
pounds of Nd and/or NdPr metal (otherwise known as didymium
metal). To demonstrate the Nd and Pr breakdown, we have split
the didymium requirement to the generally accepted ratio of
75/25 Nd to Pr in the didymium metal. Some of our metal
production will be consumed internally for downstream NdFeB
alloy/magnet production. |
|
(6) |
|
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. |
|
(7) |
|
This represents the estimated NdPr metal contained in the
non-binding letter of intent volume for NdFeB alloy and magnets. |
|
(8) |
|
IMCOA predicts that there will be a surplus of samarium metal. |
Integrate
downstream to profitably capture the full value
chain.
We intend to utilize vertical integration through further
downstream processing of our REOs into rare earth metals, alloys
and finished magnets. Our modernization and expansion plans
envision adding facilities
66
and equipment for metal conversion and alloy production at our
Mountain Pass facility or an off-site property, although we have
entered into a non-binding letter of intent to acquire a
third-party producer of rare earth metals and alloys in the
United States that, if consummated, would obviate the need to
add such facilities and equipment at Mountain Pass.
Additionally, we have entered into a non-binding letter of
intent to form a collaborative joint venture with a third-party
manufacturer to produce NdFeB magnets in the United States and
have 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. This mine-to-magnets strategy, if
successfully implemented, 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.
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 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 with higher margins. We have entered into a
non-binding letter of intent with a water filtration company to
jointly develop water treatment products. 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.
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 that is not, to date, conducting any
activities other than those incident to its formation and the
preparation of this registration statement.
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, have 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. All
of the shares of Class A common stock and Class B
common stock will convert into shares of common stock
immediately prior to the consummation of this offering.
Following the corporate reorganization, Molycorp, LLC was merged
with and into Molycorp Minerals, LLC.
67
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 mining 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.
The Mountain Pass facility represents the only developed
commercial source of rare earth material in the Western
hemisphere. 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. The
leaks resulted in the release of wastewater containing elevated
levels of sodium chloride, along with minor concentrations of
dissolved rare earths and radionuclides. We did not acquire the
wastewater pipeline or the evaporation ponds in the acquisition
of the Mountain Pass facility from Chevron Mining Inc. in 2008,
and Chevron Mining Inc. is currently obligated to remove the
remaining pipeline and remediate the impacted soils. We believe
Chevron Mining Inc. is expected to complete that work in 2010.
See Business Environmental, Health and Safety
Matters. 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
68
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 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.
As part of the acquisition, we also acquired the services of
approximately 100 employees from Chevron Mining, including
43 non-union employees and 57 union employees. Under the terms
of the asset purchase agreement, we agreed to maintain all
acquired employees salaries at their previous levels for a
period of 12 months, provide comparable 401(k) and health
benefits and to honor all vacation days accrued prior to the
asset purchase.
We currently hold a
30-year mine
plan permit and associated environmental impact report, which
were issued in 2004. Since our acquisition of the Mountain Pass
facility in 2008, we have been processing stockpiled lanthanum
in an effort to significantly improve our solvent extraction
technologies and capabilities. This effort has been successful
and we are now achieving greater than 98% recovery in our
solvent extraction units at commercial scale for lanthanum,
didymium and SEG concentrate, which we believe is one of the
highest recovery rates in the world.
We are preparing to recommence mining operations, which we
expect to occur in late 2010. Recommencement of mining
operations is expected to coincide with modernization of our
processing capabilities in order to efficiently produce 19,050
mt of REO per year by the end of 2012. In the second quarter of
2010, we began processing bastnasite concentrate from our
stockpiles in an effort to optimize our processing technologies
to further improve recovery rates. This new technology is
expected to be scaled up to commercial levels through 2011. We
are also positioning our company to move further downstream into
metals, alloy and magnet production through our
mine-to-magnets
strategy. In addition, we are exploring new downstream markets
for rare earths and rare earth products.
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 or refurbished 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
69
storage facilities. We plan to add facilities and equipment for
metal conversion and alloy production. However, we have entered
into a non-binding letter of intent to acquire a producer of
rare earth metals and alloys located off-site, which, if
consummated, would obviate the need for such facilities and
equipment at the Mountain Pass facility. 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 refurbishment and
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.
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 disposed of waste salt water in evaporation ponds
on the Ivanpah dry lake bed by using a pipeline. 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. This process would avoid the need
for disposal of waste salt water in evaporation ponds.
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 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 1,100 to 1,500
tons of rare earth ore per day to meet our production goals. In
addition, as part of our
mine-to-magnets
strategy, we have entered into a non-binding letter of intent to
acquire a third-party producer of rare earth metals and alloys
in the United States, which acquisition would provide us with a
license to the technology required to process and manufacture
rare earth metals, compositions containing rare earth metals and
rare earth alloys, including the rare earth alloys used in NdFeB
and samarium cobalt magnet production. We also expect to build a
magnet production and finishing facility as part of a joint
venture with an existing magnet producer to produce finished
NdFeB magnets in the United States and plan to begin producing
finished NdFeB magnets by the end of 2012. We are working to
identify and develop new downstream opportunities for the REOs
and rare earth alloys we produce.
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 modernization and expansion
efforts at the Mountain Pass facility, we expect to build a new
22 megawatt co-generation power plant that will use natural gas
to provide reliable electricity and steam to our facilities. 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. Following the
completion of the co-generation power plant, we expect it to
provide 100% of our production power requirements and 95% of our
overall power requirements.
Numerous other governmental permits and approvals are required
in order for us to proceed with our modernization and expansion
efforts. These include a conditional use permit and reclamation
plan approval,
70
air permits, water usage permits, an agreement and permit to
alter the streambeds affected by our new plant site or a natural
gas pipeline, various building permits and permits related to
the use and storage of radioactive or hazardous materials. See
Environmental, Health and Safety Matters
for a detailed discussion of certain of the permits, licenses
and approvals we will be required to obtain or maintain.
The bastnasite ore body at the Mountain Pass facility has been
mined as a principal source of REEs for over 50 years. 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 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
|
%
|
71
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,
estimates 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 cut-off grade of 5.0%
REO.
SEC
Guidelines
The SEC has established guidelines contained in Industry Guide
No. 7 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:
|
|
|
|
|
Proven reserves are reserves for which:
|
|
|
|
|
|
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
|
|
|
|
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.
|
|
|
|
|
|
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.
|
Methodology
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
drillhole database from prior drilling at the Mountain Pass site
that includes a total of 137 drillholes with a cumulative length
of 79,453.3 feet. Individual drillholes 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 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.
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.
72
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. SRK Consulting generated a resource estimate based on
composites derived from drillhole sample assay results. Grade
interpolation was based on the geology, drillhole spacing and
geo-statistical analysis of the data. The resources were
classified by their proximity to the sample locations and number
of drillholes. SRK Consulting considers the resource model and
resource classification to be consistent with Canadian Institute
of Mining and Metallurgy guidelines.
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
February 6, 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. 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,
on-site
assay records and databases and geologic cross-sections. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Ore
|
|
Ore
|
|
Contained REO
|
Category of Reserves
|
|
Grade (%)
|
|
(Millions of Tons)
|
|
(Millions of Pounds)
|
|
Proven
|
|
|
9.38
|
%
|
|
|
0.480
|
|
|
|
88
|
|
Probable
|
|
|
8.20
|
%
|
|
|
13.108
|
|
|
|
2,122
|
|
In making the estimate above, SRK Consulting:
|
|
|
|
|
assumed we have a 100% working interest in the Mountain Pass
facility;
|
|
|
|
assumed full mining recovery;
|
|
|
|
assumed that mine reserves are fully diluted;
|
|
|
|
assumed a historic cut-off grade of 5.0% REO within the pit
design;
|
|
|
|
assumed a metallurgical recovery factor of 65%;
|
|
|
|
used the 1997 surface topography for volume control of reserves;
|
|
|
|
used the historic three-year average commodity prices set forth
in table below; and
|
|
|
|
rounded values to the nearest significant number.
|
73
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.
|
|
|
|
|
|
|
Price
|
|
Rare Earth Products
|
|
(US$/kg)
|
|
|
Non-Metal Products
|
|
|
|
|
Lanthanum oxide
|
|
$
|
6.60
|
|
Cerium oxide for glass applications
|
|
|
4.09
|
|
Cerium oxide for water filters
|
|
|
13.20
|
|
XSORBX®
|
|
|
9.90
|
|
Europium oxide
|
|
|
473.00
|
|
Metal Products
|
|
|
|
|
Lanthanum
|
|
|
13.20
|
|
Praseodymium
|
|
|
37.99
|
|
Neodymium
|
|
|
37.99
|
|
Metal Alloys
|
|
|
|
|
NdFeB
|
|
|
35.20
|
|
Samarium cobalt
|
|
|
50.60
|
|
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.
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:
|
|
|
|
|
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;
|
|
|
|
assumptions concerning future prices of rare earth products,
operating costs, mining technology improvements, development
costs and reclamation costs; and
|
|
|
|
assumptions concerning future effects of regulation, including
the issuance of required permits and taxes by governmental
agencies.
|
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.
Additionally, 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.
This program will also help to establish that our measured,
indicated and inferred resources can become proven or probable
reserves.
74
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. As originally
envisioned, the restart plan includes integrated off-site
facilities for production of metals and rare earth magnet
alloys. Below is a summary of some of the information from the
engineering study. SRK Consulting designed the mine plan and all
associated facilities and infrastructure to ensure an annual
production rate of 19,050 mt of REO. The assumptions regarding
efficiencies and recoveries are reflected in the table below.
Key
project data
|
|
|
Mine type
|
|
Open pit
|
Process description
|
|
Crushing, milling, flotation, leaching, extraction, separation
|
Open pit mine life
|
|
30 years
|
Mill throughput
|
|
1,300 average tons per day
|
Initial capital costs(1)
|
|
$511 million
|
Sustaining capital costs
|
|
$138 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Ore
|
|
Ore
|
|
Contained REO
|
|
|
Grade (%)
|
|
(Millions of Tons)
|
|
(Millions of Pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contained minerals
|
|
|
|
|
|
|
|
|
|
|
|
|
Proven
|
|
|
9.38
|
%
|
|
|
0.480
|
|
|
|
88
|
|
Probable
|
|
|
8.20
|
%
|
|
|
13.108
|
|
|
|
2,122
|
|
|
|
|
(1) |
|
SRK Consulting assumes capital expenditures of $550 million,
which includes extra stripping costs for 2013 and 2014. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
|
|
|
1-5
|
|
|
6-10
|
|
|
11-30
|
|
|
Life-of-Mine
|
|
|
Average annual payable minerals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore milled (kilotons)
|
|
|
427
|
|
|
|
368
|
|
|
|
424
|
|
|
|
13,692
|
|
Average ore grade, as a percentage of REO
|
|
|
7.9
|
%
|
|
|
9.3
|
%
|
|
|
8.2
|
%
|
|
|
8.2
|
%
|
Mill REO recovery percentage
|
|
|
65
|
%
|
|
|
65
|
%
|
|
|
65
|
%
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recovered REO (in thousands of pounds)
|
|
|
43,775
|
|
|
|
44,404
|
|
|
|
44,776
|
|
|
|
1,464,272
|
|
Chemical plant recovery percentage
|
|
|
90
|
%
|
|
|
95
|
%
|
|
|
94
|
%
|
|
|
94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total REO production (in thousands of pounds)
|
|
|
39,532
|
|
|
|
42,044
|
|
|
|
42,044
|
|
|
|
1,372,650
|
|
Average operating cost per pound of REO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining
|
|
$
|
0.10
|
|
|
$
|
0.06
|
|
|
$
|
0.12
|
|
|
$
|
0.11
|
|
Oxides
|
|
|
1.16
|
|
|
|
1.13
|
|
|
|
1.14
|
|
|
|
1.14
|
|
Oxides-to-metals
|
|
|
0.80
|
|
|
|
0.80
|
|
|
|
0.80
|
|
|
|
0.80
|
|
Metals-to-alloys
|
|
|
3.71
|
|
|
|
3.75
|
|
|
|
3.75
|
|
|
|
3.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total REO
|
|
$
|
5.78
|
|
|
$
|
5.74
|
|
|
$
|
5.81
|
|
|
$
|
5.80
|
|
Price assumptions (Weighted average pricing of different
products)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxides
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.55
|
|
Metals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7.64
|
|
Alloys
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total REO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11.97
|
|
After tax project internal rate of return
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
After tax net present value 8% discount (dollars in millions)(1)
|
|
$
|
1,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
(1) |
|
As of June 15, 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
June 15, 2010 prices set forth in the following table,
which are 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 43% and the after tax net present value (8%
discount) to $2.02 billion: |
|
|
|
|
|
|
|
|
June 15, 2010 Price
|
Product
|
|
(US$/kg)
|
|
Lanthanum Oxide
|
|
$
|
8
|
.4
|
|
Cerium Oxide (Glass Products)
|
|
|
6
|
.5
|
|
Cerium Water Filters
|
|
|
|
|
|
Cerium Hexahydrate
|
|
|
|
|
|
Europium Oxide
|
|
|
515
|
|
|
Lanthanum Metal
|
|
|
12
|
.8
|
|
Neodymium/Praseodymium Metal
|
|
|
42
|
|
|
Nd-Iron-Boron Alloy
|
|
|
42
|
.9
|
|
Samarium Cobalt Alloy
|
|
|
53
|
.1
|
|
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 $5 million to
$10 million per year.
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
and other planned downstream products at the Mountain Pass
facility, we expect to produce 19,050 mt of REO per year.
As of June 1, 2010, we had 19 non-binding letters of
intent to sell our rare earth products, representing
approximately 138% of our anticipated production for 2013, and
our non-binding letter of intent with Neo Material also
contemplates the sale of certain rare earth products. Over the
next two years, we intend to enter into short- and long-term
sales contracts with existing and new customers. 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. 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.
There is a limited market for our lanthanum and our two largest
customers, Albemarle Corporation and W.R. Grace & Co.-Conn.
Davison Direct Materials, comprised 82% (55% of the total
corresponds to Albemarle Corporation and 27% of the total
corresponds to W.R. Grace & Co.-Conn. Davison Direct
Materials) and 72% (57% of the total corresponds to Albemarle
Corporation and 15% of the total corresponds to W.R. Grace
& Co.-Conn. Davison Direct Materials) of our total product
revenue for the year ended December 31, 2009 and the period
ended December 31, 2008, respectively.
Additionally, we have developed
XSORBX®,
a patented, proprietary product, and process, primarily
consisting of cerium, to remove arsenic and other heavy metals
from industrial processing streams that will allow our customers
to more safely sequester arsenic and increase their production
of metal products. We are in discussions with multiple large,
globally diversified mining companies for the sale of
XSORBX®.
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.
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
76
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 June 1, 2010, held 18 issued and pending
U.S. patents and patent applications, and 146 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 119,220 mt of REO in 2008. 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, the April 2010 U.S. GAO briefing stated that, for a
typical exploration-stage mine, once a company has secured the
necessary capital to start a mine, government and industry
officials said 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 March 31, 2010, our
product development group consisted of 17 scientists and
engineers. In addition, we spent $0.3 million for the three
months ended March 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.
Environmental,
Health and Safety Matters
We are subject to numerous and detailed, federal, state and
local laws, regulations and permits affecting the mining and
mineral processing industry, including those pertaining to
employee health and safety,
77
environmental permitting and licensing, air quality standards,
GHG emissions, water 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. 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 and employees 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 expect to incur approximately $3 million per year in
2010 and 2011 for ongoing operating environmental expenditures,
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. 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
invest approximately $187 million in these capital projects
from 2010 to 2012, in addition to the costs of air emissions
offset credits, which may become necessary.
Permits
and Approvals
Numerous governmental permits and approvals are required for our
current and future operations. We hold a 30 year mine plan
permit and an associated environmental impact report, both of
which were issued in 2004 in connection with our conditional use
permit from San Bernardino County. We hold numerous other
permits and approvals, 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 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 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.
The following table presents the material permits that we have
already obtained, as well as those we have yet to obtain and our
proposed filing date for such permits. Other permits are also
required. We cannot predict with certainty the grant date for
any permit or if we will obtain such permit.
78
Material
Permits Not Yet Obtained
|
|
|
|
|
Permit
|
|
Agency
|
|
Proposed Filing Date
|
|
Land Use Approval
|
|
|
|
|
(Reclamation Plan Approval)
|
|
San Bernardino County, California
|
|
Third quarter of 2010
|
Air Quality Permit
|
|
Mojave Desert California AQMD
|
|
Third quarter of 2010
|
Wastewater Discharge Permits
|
|
Lahontan Regional Water Quality Control Board
|
|
Submitted March 2, 2010, pending approval
|
Streambed Alteration Agreement
|
|
California Department of Fish and Game
|
|
Submitted June 30, 2010, pending approval
|
Building, Electrical and Plumbing Permits
|
|
San Bernardino County, California
|
|
Fourth quarter of 2010
|
Hazardous Materials Business Plan
|
|
San Bernardino County, California
|
|
Fourth quarter of 2010
|
Material
Permits Already Obtained
|
|
|
|
|
Permit
|
|
Agency
|
|
Approval Date
|
|
Right of Way for the Shadow Valley Fresh Water Pipeline
|
|
Bureau of Land Management
|
|
August 23, 1982
|
San Bernardino County Domestic Water Supply Permit #36000172
|
|
San Bernardino County, California Department of Public
Health
|
|
December 8, 2004
|
EPA Identification Number CAD009539321
|
|
United States Environmental Protection Agency
|
|
October 30, 2008
|
Hazardous Materials Certificate of Registration
|
|
United States Department of Transportation
|
|
June 23, 2010
|
NRC Export Licenses
|
|
United States Nuclear Regulatory Commission
|
|
November 10, 2008
|
Conditional Use Permit 07533SM2/DN953-681N
|
|
San Bernardino County, California Land Use Services
Department
|
|
July 20, 2004
|
Annual Building, Electrical and Plumbing Permit
|
|
San Bernardino County, California
|
|
July 23, 2009
|
CUPA Annual Permit FA0004811
|
|
San Bernardino County, California Fire Protection District
|
|
August 1, 2009
|
LRWQCB Order 6-01-18 Domestic Wastewater System
|
|
Lahontan Regional Water Quality Control Board
|
|
April 11, 2001
|
LRWQCB Order 6-91-836 Mine and Mill Site
|
|
Lahontan Regional Water Quality Control Board
|
|
June 13, 1991
|
LRWQCB Order R6V-2005-0011 On Site Evaporation Ponds
|
|
Lahontan Regional Water Quality Control Board
|
|
April 14, 2005
|
Mojave Desert Air Quality Management District
Permits to Operate
|
|
Mojave Desert AQMD
|
|
March 9, 2010
|
Industrial Stormwater Pollution Prevention Plan
|
|
California State Water Resources Control Board
|
|
February 28, 2006
|
Right-Of-Way Lease 6375.2
|
|
California State Lands Commission
|
|
January 20, 1983
|
Radioactive Materials License #3229-36
|
|
California Department of Public Health Radiologic
Health Branch
|
|
June 17, 2010
|
Streambed Alteration Agreement R6-N-011-2000
|
|
California Department of Fish and Game
|
|
August 25, 2000
|
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. As a
result of increasing scrutiny surrounding mine safety, federal
and state
79
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 July 6, 2010, stood at 1,820 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 year ended December 31, 2009
and the three months ended March 31, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
Year Ended
|
|
Months Ended
|
|
|
December 31,
|
|
March 31,
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Molycorp Operations
|
|
|
0
|
|
|
|
0
|
|
|
|
1.01
|
|
|
|
0.86
|
|
|
|
0.86
|
|
MSHA Rates for Operators
|
|
|
2.79
|
|
|
|
2.83
|
|
|
|
2.83
|
|
|
|
2.30
|
|
|
|
1.88
|
|
Within the last six 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.
Workers
Compensation
Although, as of April 1, 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.
80
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 March 31, 2010, there was approximately
$27.4 million in surety bonds to secure the performance of
our reclamation obligations.
Water
Usage and Pollution Control
The federal Clean Water Act and similar 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 of the United States.
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 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.
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 90% reduction of fresh water
consumption as compared to water consumption in the
mid-1990s,
when the mine was producing 20,000 mt of REO per year.
Air
Pollution Control
The federal Clean Air Act and similar 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).
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, including a nationwide
limit on GHGs. In addition, the EPA has issued vehicle emissions
regulations that would subject GHG emissions from stationary
sources to the Prevention of Significant Deterioration and
Title V provisions of the federal Clean Air Act. California
also may establish GHG emission regulations pursuant to its
Global Warming Solutions Act. If made effective, any such
regulations could require us to modify existing permits or
81
obtain new permits, implement additional pollution control
technology, curtail operations or increase significantly our
operating costs. Any regulation of GHG emissions, including
through a
cap-and-trade
system, technology mandate, emissions tax, reporting requirement
or other program, 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.
The Mountain Pass facility consumes significant amounts of
energy and, accordingly, is 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
CERCLA and analogous 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 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 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. A small
portion of the pipeline extends onto the Mountain Pass facility
but is part of the pipeline removal and remediation being
conducted by Chevron Mining Inc. at its expense. 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 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 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.
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, we will incur additional costs to handle, store and
dispose of such wastes.
82
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 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 and the California Accidental Release Prevention Program.
Facilities
and Employees
We own the Mountain Pass facility. We also lease our executive
office space at 5619 Denver Tech Center Parkway,
Suite 1000, Greenwood Village, Colorado, which lease
expires November 2011, subject to a renewal option.
As of June 1, 2010, we had 130 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 June 1, 2010, 73 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 good.
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 legal proceedings.
83
MANAGEMENT
Executive
Officers and Directors
The following table sets forth certain information regarding our
executive officers and directors as of July 1, 2010.
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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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51
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President, Chief Executive Officer and Director
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James S. Allen
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43
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Chief Financial Officer and Treasurer
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John L. Burba, PhD
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58
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Executive Vice President and Chief Technology Officer
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John F. Ashburn, Jr.
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55
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Executive Vice President and General Counsel
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Ksenia A. Adams
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29
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Corporate Controller
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Russell D. Ball
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42
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Director
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Ross R. Bhappu
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50
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Chairman of the Board
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Brian T. Dolan
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69
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Director
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Charles R. Henry
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72
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Director
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Mark S. Kristoff
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49
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Director
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Alec Machiels
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37
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Director
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Jack E. Thompson
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60
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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, that 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.
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 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.
84
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.
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 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
85
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. 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. Mr. Kristoff
graduated from Cornell University with a BA in Economics in 1984.
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, KS, 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 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 will provide that our board of
directors will consist of no less than seven or more than eleven
persons. The exact number of members on our board of directors
will be determined from time to time by resolution of a majority
of our full board of directors. Upon consummation of this
offering, our board of directors will be 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 will initially be divided
among the three classes as follows:
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Messrs. Ball, Henry and Thompson will serve initially as
Class I directors (with a term expiring in 2011);
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Messrs. Dolan and Smith will serve initially as Class II
directors (with a term expiring in 2012); and
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Messrs. Bhappu, Kristoff and Machiels will serve initially 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 will consist of Messrs. Ball,
Thompson, Machiels and Henry as of the consummation of this
offering. The Audit and Ethics Committee, among other things,
will oversee our accounting practices and processes, system of
internal controls, independent auditor relationships, financial
86
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 of the committee members 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.
Our board of directors has adopted a written charter for our
Audit and Ethics Committee that will become effective upon
completion of this offering. A complete copy of the Audit and
Ethics Committee charter will be available prior to the
consummation of this offering on our website at www.molycorp.com.
Compensation
Committee
Our Compensation Committee will consist of Messrs. Thompson,
Kristoff and Dolan as of the consummation of this offering. The
Compensation Committee will establish and administer our
policies, programs and procedures for compensating our executive
officers and directors. The Compensation Committees duties
will 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.
Our board of directors has adopted a written charter for our
Compensation Committee that will become effective upon
completion of this offering. A complete copy of the Compensation
Committee charter will be available prior to the consummation of
this offering on our website at www.molycorp.com.
Nominating
and Corporate Governance Committee
Our Nominating and Corporate Governance Committee will consist
of Messrs. Kristoff, Bhappu and Machiels as of the consummation
of this offering. The Nominating and Corporate Governance
Committee will identify individuals qualified to become board
members, recommend director nominees, recommend board members
for committee membership, develop and recommend corporate
governance principles and practices, oversee the evaluation of
our board of directors and its committees and formulate 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.
Our board of directors has adopted a written charter for our
Nominating and Corporate Governance Committee that will become
effective upon completion of this offering. A complete copy of
the Nominating and Corporate Governance Committee charter will
be available prior to the consummation of this offering on our
website at www.molycorp.com.
Health,
Safety and Environment Committee
Our Health, Safety and Environment Committee will consist of
Messrs. Henry, Dolan and Smith as of the consummation of this
offering. The Health, Safety and Environment Committee will
establish and oversee administration of our policies, programs
and procedures for ensuring that we continue to provide a safe
working environment for our employees. The Health, Safety and
Environment Committee will also establish and oversee
administration of our policies, programs and procedures for
ensuring our continued commitment to protecting the environment.
Our board of directors has adopted a written charter for our
Health, Safety and Environment Committee that will become
effective upon completion of this offering. A complete copy of
the Health, Safety and Environment Committee charter will be
available prior to the consummation of this offering on our
website at www.molycorp.com.
Executive
Committee
Our Executive Committee will consist of Messrs. Bhappu, Kristoff
and Smith as of the consummation of this offering. The Executive
Committee will act, 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 will be authorized and
87
empowered to act as if it were the full board of directors in
overseeing our business and affairs, except that it will not be
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 our 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 our 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 will consist of Messrs. Thompson,
Kristoff and Dolan as of the consummation of this offering. None
of these individuals has ever been an officer or employee of
Molycorp or any of our subsidiaries. None of our executive
officers serves or have served as a member of the compensation
committee or other board committee performing equivalent
functions of any entity that has one or more executive officers
serving as one of our directors 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 that will become effective upon completion of this
offering. We intend to post the full text of our Code of
Business Conduct and Ethics on our website at www.molycorp.com
promptly following the completion of this offering. 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 will be
available prior to the consummation of this offering on our
website at www.molycorp.com. 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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88
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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
Following the consummation of this offering, our Audit and
Ethics Committee will be responsible for the review and approval
of all related-party transactions required to be disclosed to
the public under SEC rules. This procedure will be contained in
the written charter of our Audit and Ethics Committee. In
addition, we will maintain a written Code of Ethics that will
require 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 will
be 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 programs help 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
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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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Between the time when Molycorp Minerals, LLC acquired the
Mountain Pass California rare earth deposit and associated
assets from Chevron Mining Inc. in September 2008 and the
formation of Molycorp, LLC in September 2009, the board of
directors of Molycorp Minerals, LLC, our subsidiary,
historically had the overall responsibility for monitoring and
approving our executive compensation programs and making
decisions regarding compensation to be paid or awarded to our
executive officers. Since September 2009, our board of directors
has had responsibility for monitoring executive compensation.
Going forward, our Compensation Committee will administer our
compensation plans, policies and programs for the named
executive officers.
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 2010 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 our
company and to motivate them to pursue our long-term business
objectives. In 2009, our compensation program consisted of a mix
of cash and equity-based components. This mix provided an
attractive total compensation package that rewarded individual
and company performance.
89
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 Molycorp;
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recognizing and rewarding individuals for work that helps
increase the value of Molycorp; 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 behavior with
our mission, business strategy, values and culture.
We have not engaged third-party consultants to assist in the
formation of our compensation packages. However, going forward,
our Compensation Committee may retain third-party executive
compensation specialists in connection with determining cash and
equity-based compensation and related compensation policies in
the future.
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.
Allocation
of Compensation Components
Our compensation program consists of the following components:
base salary, annual cash bonus, annual discretionary company
contributions under the Management Incentive Plan,
equity-based
awards, health and welfare benefits and retirement benefits.
Compensation
Administration and Consulting
Role of the Board of Directors of Molycorp Minerals, LLC
Prior to This Offering. Until September 10,
2009, the board of directors of Molycorp Minerals, LLC
historically had the overall responsibility for monitoring and
approving our compensation program. After September 10,
2009, our board of directors has responsibility for monitoring
executive compensation. The compensation we paid our named
executive officers for fiscal year 2009 is disclosed in detail
in the tables and narratives that follow under the heading
Executive Compensation. We describe and
discuss the particular compensation decisions made by the board
of directors of Molycorp Minerals, LLC regarding the 2009
compensation of our named executive officers below under
Primary Components of Executive
Compensation.
Role of Compensation Consultant. Neither the
board of Molycorp Minerals, LLC nor our board of directors
employed a compensation consultant in 2009.
Role of Executive Officers. Since the
acquisition by Molycorp Minerals, LLC from Chevron Mining Inc.
in September 2008, our President and Chief Executive Officer has
taken the lead in providing our board of directors, and before
that, the board of directors of Molycorp Minerals, LLC, with
recommendations regarding our compensation program and the
compensation of our named executive officers other than himself.
Role of Compensation Committee after Completion of This
Offering. In connection with this offering, we
will to form a Compensation Committee that will oversee our
compensation program for the named executive officers. Under the
rules of the NYSE, our Compensation Committee will be required
to be composed entirely of independent directors. In addition,
all members of the Compensation Committee will be
(i) non-employee directors within the meaning
of
Rule 16b-3
promulgated under the Exchange Act and (ii) outside
directors within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended, or the Code.
90
After completion of this offering, the Compensation Committee
will have the primary responsibility under its charter for:
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determining, or recommending to our board of directors, our
President and Chief Executive Officers compensation and
compensation for our other executive officers; and
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administering the equity and incentive compensation plans in
which our executive officers and other employees participate.
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Our Compensation Committee will also generally be 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.
Each year, our Compensation Committee will review base salaries,
determine and make annual cash incentive awards, approve payout
amounts earned for the past years annual cash incentive
awards, and determine and make equity incentive awards under the
Molycorp, Inc. 2010 Equity and Performance Incentive Plan. In
fulfilling its duties and responsibilities, the Compensation
Committee will receive input in the form of:
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reports and updates from our executive officers on company and
individual executive performance that will be measured against
quantitative and qualitative performance goals established to
help determine individual performance and business
success; and
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recommendations from our President and Chief Executive Officer
regarding the compensation for our executive officers.
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The Compensation Committee will not be bound by the input it
receives from our President and Chief Executive Officer or any
other executive officer. Instead, the Compensation Committee
will exercise independent discretion when making executive
compensation decisions.
91
Compensation
Program Overview
We believe our compensation program, when judged 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 2009:
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Component
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Primary Purpose
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Base Salary
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Base salary rewards an individual for his or her positions
responsibilities, skills, experience and performance.
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Base salaries are intended to provide a level of compensation
sufficient to attract and retain an effective management team,
when considered in combination with the other components of our
compensation program. The relative levels of base salary for our
named executive officers are designed to reflect each executive
officers scope of responsibility and accountability with
us.
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Discretionary Company Contributions under Management Incentive
Plan
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Discretionary company contributions under the Management
Incentive Plan are used to reward named executive officers for
our achievement of superior operating performance. From time to
time, our board of directors may determine to make discretionary
contributions to the account of a participant. Participants are
always fully vested in any discretionary contribution credited
to the participants account.
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Long-Term Equity-Based Awards
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Equity-based awards motivate individuals to help achieve an
increase in stockholder value and promote retention.
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Amount realized by the individual depends on appreciation in our
value.
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Awarded based on individual responsibilities and the
positions organizational value to us.
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Health and Welfare Benefits
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Health and welfare benefits provide for basic health, life and
income security needs.
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Retirement Benefits
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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.
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Our nonqualified deferred compensation plan provides a
tax-efficient vehicle to accumulate retirement savings.
Participation in our nonqualified deferred compensation plan is
limited to a select group of other highly compensated
individuals, including our executive officers
|
Primary
Components of Executive Compensation
2009 Base Salaries. For 2009, none of our
executive officers received an increase in base salary compared
to 2008. The salaries for Mr. Allen and Ms. Adams, who were
hired in 2009, were determined by our board of directors based
on the recommendation of our President and Chief Executive
Officer. These salaries were set at levels designed to attract
Mr. Allen and Ms. Adams to Molycorp.
Annual Cash Bonuses. Based on the
recommendation of management, our board of directors elected not
to pay any cash bonuses in 2009.
Discretionary Company Contributions under the Management
Incentive Plan. We maintain a Management
Incentive Plan for our key employees, including our named
executive officers, pursuant to which we award discretionary
company contributions based on company performance.
Additionally, participants can defer a portion of their salaries
pursuant to the Management Incentive Plan. Bonuses under the
Management Incentive Plan are purely at the discretion of our
board of directors. For 2009, our board of directors determined
that participants were entitled to discretionary company
contributions equal to 2% of their respective salaries based on
our performance.
92
Long-Term Equity-Based Awards. In September
2009, the board of directors of Molycorp Minerals, LLC made
discretionary grants to each of Messrs. Smith, Ashburn and
Burba of profits interests in Molycorp Minerals, LLC, which we
refer to as incentive shares, pursuant to Molycorp Minerals,
LLCs Second Amended and Restated Operating Agreement that
were designed to provide an opportunity for compensation after
our initial investors receive their annually compounded return
and their initial capital contribution. These incentive shares
represented an indirect ownership interest in Molycorp Minerals,
LLC, providing the holder with a specified percentage of cash
distributions from of Molycorp Minerals, LLC from the date of
grant. The incentive shares were structured as one-time grants
that we believe immediately aligned the interests of the
recipients, including Messrs. Smith, Ashburn and Burba,
with the investors in Molycorp Minerals, LLC and with each
other. The number of incentive shares awarded to each executive
officer was determined by the board of directors of Molycorp
Minerals, LLC commensurate with the executive officers
position and responsibilities.
The incentive shares provide the named executive officers who
received them rights that were parallel to those of other
indirect owners with respect to future profits of Molycorp
Minerals, LLC, thereby motivating and rewarding those named
executive officers for our profitability. In addition, these
awards provided a retention tool because they were scheduled to
vest ratably over a three-year period, subject to the applicable
named executive officers continued employment on each
annual vesting date. See the 2009 Grants of Plan-Based
Awards table below for more information regarding the
vesting schedule of the incentive shares held by certain of our
named executive officers.
All outstanding incentive shares were converted into restricted
shares of Class B common stock of Molycorp, Inc. in the
corporate reorganization.
Pursuant to his employment agreement, Mr. Smith, our President
and Chief Executive Officer, was granted an option to purchase
3,798 of our shares, which was immediately exercisable. In
granting Mr. Smith the option, we believe that we were
aligning his interests with those of our other investors.
In connection with this offering, we intend to adopt the
Molycorp, Inc. 2010 Equity and Performance Incentive Plan so
that we can continue to provide our named executive officers and
other employees with equity-based compensation. For details on
the 2010 Equity and Performance Incentive Plan, see
Molycorp, Inc. 2010 Equity and Performance Incentive Plan.
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 provides a
tax-efficient vehicle to accumulate retirement savings. For more
information on our nonqualified deferred compensation plan,
please see Executive Compensation
Nonqualified Deferred Compensation.
93
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, 2009.
2009
SUMMARY COMPENSATION TABLE
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Non-Equity
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Stock
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Option
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Incentive Plan
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All Other
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Salary
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Bonus
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Awards
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Awards
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Compensation
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)(3)
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($)
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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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2009
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400,000
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(4
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)
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241,000
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(5)
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38,245
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(6)
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679,245
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President and Chief Executive Officer
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James S. Allen
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2009
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12,179
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77
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(7)
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12,256
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Chief Financial Officer and Treasurer(1)
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Ksenia A. Adams
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2009
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52,308
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946
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(8)
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53,254
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Corporate Controller(2)
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John F. Ashburn
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2009
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215,000
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30,000
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(4
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)
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14,700
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(9)
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259,700
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Executive Vice President and General Counsel
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John L. Burba
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2009
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213,701
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(4
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)
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29,918
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(10)
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243,619
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Executive Vice President and Chief Technology Officer
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(1) |
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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. |
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(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. |
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(4) |
|
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 (based on an assumed offering price of $14.00 per share).
Additional information regarding the incentive shares, which are
intended to constitute profits interests under IRS
Revenue Procedures
93-27 and
2001-43, is
included in Note 8 to the consolidated financial statements
included elsewhere in this prospectus. |
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(5) |
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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. |
|
(6) |
|
Includes $29,400 for employer contributions to our 401(k) plan
on behalf of Mr. Smith for 2009, $8,000 in 2009 for a
discretionary company contribution for 2009 and $845 in 2009 for
the premiums paid on a term life insurance policy for the
benefit of Mr. Smith. |
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(7) |
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Represents $77 in 2009 for a discretionary company contribution
for 2009. |
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(8) |
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Represents $946 in 2009 for a discretionary company contribution
for 2009. |
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(9) |
|
Represents employer contributions to our 401(k) plan on behalf
of Mr. Ashburn for 2009 and $4,900 in 2009 for a
discretionary company contribution for 2009. |
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(10) |
|
Represents employer contributions to our 401(k) plan on behalf
of Mr. Burba for 2009 and $4,274 in 2009 for a
discretionary company contribution for 2009. |
94
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.
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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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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.
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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.
Other
Executive Officer Employment Agreements
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.
|
95
Each of the employment agreements expires by its terms on
June 1, 2013, unless renewed in writing by the 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 2009. The Summary Compensation Table
above provides information regarding the actual dollar amounts
earned under our incentive plans.
2009
GRANTS OF PLAN-BASED AWARDS
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Other
|
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Exercise
|
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Stock Awards:
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Price of
|
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Grant Date
|
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Grant
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|
|
Incentive Share
|
|
Option Awards
|
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Fair Value
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Name
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Grant Type
|
|
Date
|
|
Stock Options(1)
|
|
Awards(2)
|
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($/Sh)
|
|
of Awards($)
|
|
Mark A. Smith
|
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option
|
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4/10/09
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145,214
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2.41
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240,843
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incentive shares
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9/10/09
|
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2,310,000
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James S. Allen
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|
Ksenia A. Adams
|
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John F. Ashburn
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incentive shares
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9/10/09
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700,000
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John L. Burba
|
|
incentive shares
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|
|
9/10/09
|
|
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|
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875,000
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|
(1) |
|
Options for member interests in Molycorp Minerals, LLC, which
were assumed by Molycorp, LLC, were immediately vested and
exercisable on the grant date. Mr. Smith has exercised all
of his options. |
|
|
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(2) |
|
Each incentive share is effectively equivalent to approximately
0.379718 of a share of our common stock (based on an assumed
offering price of $14.00 per share). |
OUTSTANDING
EQUITY AWARDS AT DECEMBER 31, 2009
The following table provides information about the options held
as of December 31, 2009 by Mr. Smith, who is the only
named executive officer who had any outstanding equity awards as
of December 31, 2009.
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Number of
|
|
Number of
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|
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|
|
Securities
|
|
Securities
|
|
|
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Underlying
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Underlying
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Unexercised
|
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Unexercised
|
|
Option
|
|
Option
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Expiration
|
Name
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(#) Exercisable
|
|
(#) Unexercisable
|
|
Price
|
|
Date
|
|
Mark A. Smith
|
|
|
124,468(1
|
)
|
|
|
|
|
|
$
|
2.41
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|
|
|
2/1/12
|
|
|
|
|
(1) |
|
Options for member interests in Molycorp Minerals, LLC, which
were assumed by Molycorp, LLC, were immediately vested and
exercisable on the grant date. Mr. Smith subsequently
exercised all remaining options. |
The following table provides information about the incentive
shares issued to each of our named executive officers as of
December 31, 2009.
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|
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Market Value of
|
|
|
|
Number of Shares or
|
|
|
Shares or Units of
|
|
|
|
Units of Stock That
|
|
|
Stock That Have Not
|
|
|
|
Have Not Vested
|
|
|
Vested
|
|
Name
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|
(#)(1)
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|
|
($)(2)
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|
|
Mark A. Smith
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|
|
1,540,000
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10,744,272
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|
James S. Allen
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|
Ksenia A. Adams
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|
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John F. Ashburn
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|
466,667
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|
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3,255,842
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|
John L. Burba
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|
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583,333
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|
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4,069,798
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|
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(1) |
|
Each incentive share is effectively equivalent to approximately
0.379718 of a share of our common stock (based on an assumed
offering price of $14.00 per share). |
|
|
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(2) |
|
Based on an assumed offering price of $14.00 per share and
assumes that each incentive share has been converted into
approximately 0.379718 of a share of our common stock. |
96
2009
OPTION EXERCISES AND STOCK VESTED
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Option Awards(1)
|
|
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Number of
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|
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|
|
Shares Acquired on
|
|
Value Realized on
|
|
|
Exercise (#)
|
|
Exercise ($)
|
|
Mark A. Smith
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20,746
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|
|
34,432
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|
|
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|
|
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|
|
|
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|
|
(1) |
|
Options for member interests in Molycorp Minerals, LLC, which
were assumed by Molycorp, LLC, were immediately vested and
exercisable on the grant date. |
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. We make safe harbor
contributions to this plan equal to 100% of each
participants own elective deferrals of up to 3% of each
participants salary and 50% of each participants own
elective deferrals of the next 2% of the participants
salary. We also have the discretion to make annual profit
sharing contributions that are allocated among all eligible
participants in proportion to their respective 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 plans.
2009
NONQUALIFIED DEFERRED COMPENSATION
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|
Executive
|
|
Registrant
|
|
Aggregate
|
|
|
|
Aggregate
|
|
|
Contributions
|
|
Contributions
|
|
Earnings
|
|
Aggregate
|
|
Balance at
|
|
|
in Last
|
|
in Last
|
|
in Last
|
|
Withdrawals/
|
|
Last
|
|
|
Fiscal Year
|
|
Fiscal Year
|
|
Fiscal Year
|
|
Distributions
|
|
Fiscal Year End
|
Name
|
|
($)(1)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Mark A. Smith
|
|
|
12,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James S. Allen
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ksenia A. Adams
|
|
|
946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Ashburn
|
|
|
4,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John L. Burba
|
|
|
4,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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
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. Under the
Management Incentive Plan, participants can defer their 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. In addition, from time to time, our
board of directors may determine to make discretionary
contributions to the account of a participant, which are used to
reward named executive officers for achievement of superior
operating performance. Participants are always fully vested in
any discretionary contribution credited to the
participants account. It is intended that the Management
Incentive Plan constitute an unfunded plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended.
Pursuant to the Management Incentive Plan, a deferred
compensation account is established for each participant, as
determined by the plans administrative committee. The
amounts of compensation or awards deferred with respect to each
deferred compensation account are credited to such account and
are deemed invested in a hypothetical investment as of the date
of deferral.
97
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.
Director
Compensation
The following table sets forth information with respect to the
compensation paid by the Company to each of our non-employee
directors during 2009.
|
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|
|
Fees Paid
|
|
Stock
|
|
|
|
|
in Cash
|
|
Awards
|
|
|
Name
|
|
($)
|
|
($)
|
|
Total
|
|
Russell D. Ball
|
|
|
|
|
|
|
|
|
|
|
|
|
Ross R. Bhappu
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian T. Dolan
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles R. Henry
|
|
|
25,000
|
|
|
|
|
(1)
|
|
|
25,000
|
|
Mark S. Kristoff
|
|
|
|
|
|
|
|
|
|
|
|
|
Alec Machiels
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack E. Thompson
|
|
|
25,000
|
|
|
|
|
(1)
|
|
|
25,000
|
|
|
|
|
(1) |
|
On September 10, 2009, our board of directors awarded
350,000 incentive shares of Molycorp Minerals, LLC to each of
Mr. Thompson and Mr. Henry. Each incentive share is
effectively equivalent to approximately 0.379718 of a share of
our common stock (based on an assumed offering price of $14.00
per share). Additional information regarding the incentive
shares, which are intended to constitute profits
interests under IRS Revenue Procedures
93-27 and
2001-43, is
included in Note 8 to the consolidated financial statements
included elsewhere in the prospectus. |
Our non-employee directors, other than those directors currently
serving on our board of directors that were nominated by our
stockholders (Messrs. Bhappu, Dolan, Kristoff and Machiels),
receive an annual cash retainer in the amount of $25,000. We
anticipate that after the consummation of this offering, all
non-employee directors will receive an annual cash retainer in
the amount of $25,000 and will 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 will receive an additional cash retainer of
$10,000.
Molycorp,
Inc. 2010 Equity and Performance Incentive Plan
Our board of directors adopted the Molycorp, Inc. 2010 Equity
and Performance Incentive Plan on June 9, 2010, which we
refer to as the Plan. Our existing stockholders approved the
Plan on June 9, 2010. The Plan provides for the grant of
incentive stock options and nonqualified stock options, the
grant or sale of restricted shares of common stock and
restricted stock units, the grant of appreciation rights and the
grant of performance shares and performance units to our
non-employee directors, officers and other employees. Under the
Plan, our board of directors may provide for the payment of
dividend equivalents on a current, deferred or contingent basis,
on restricted stock units granted or sold under the Plan. Our
board of directors may condition the grant of any award under
the Plan on a participants surrender or deferral of his or
her right to receive a cash bonus or other compensation payable
by us, so long as such surrender or deferral would not result in
negative tax consequences under Section 409A of the Code.
Options. Incentive and nonqualified stock
options have an exercise price of 100% or more of the market
value of our common stock on the date of grant. No stock option
will be exercisable more than ten years from its date of grant.
Appreciation Rights. Participants who are
awarded stock options may also be granted tandem appreciation
rights, which may be used as an alternative to exercising the
stock option. Participants may also be granted free-standing
appreciation rights, which will entitle them to payments equal
to a percentage, not to exceed 100%, of the difference of the
market value per share on the exercise date minus the base
price, which base price will to be equal to or greater than the
market value per share on the date of grant.
Restricted Stock. Restricted stock may be
granted or sold to participants in consideration of the
performance of services or payments by a participant that may be
less than the market value of our common
98
stock on the date of grant. Each grant or sale constitutes an
immediate transfer of the ownership of common stock to the
participants. The restricted shares are subject to a substantial
risk of forfeiture for a period to be determined by our board of
directors at the time of grant and such other terms and
restrictions as provided for by our board of directors.
Restricted Stock Units. Restricted stock units
granted or sold to a participant constitute an agreement between
the participant and us that we will deliver shares of common
stock or cash to the participant in the future in consideration
of the performance of services by the participant. The
restricted stock units are subject to the fulfillment of the
conditions that the board of directors sets forth in its grant
of the award.
Performance Shares and Performance
Units. Performance shares and performance units
granted to a participant set forth certain management objectives
to be achieved during a specified performance period. A
performance share is a bookkeeping entry that represents the
equivalent of one share of common stock. A performance unit is a
bookkeeping entry that represents the equivalent of $1.00 or
other such value as determined by the board of directors. The
participant will receive full payment upon satisfaction of the
management objectives or, short of meeting the management
objectives, partial payment upon reaching a minimum acceptable
level of performance.
Shares Reserved; Plan Limits. We expect
to reserve a number of shares equal to 5% of the total
outstanding shares of our common stock (including the shares
sold in this offering), which is expected to be approximately
4,062,500 shares (or 4,273,437 shares if the
underwriters exercise their option to purchase additional shares
in full), for issuance under the Plan, subject to adjustment to
prevent dilution or enlargement of the rights of participants.
The aggregate number of shares that may be issued upon the
exercise of incentive stock options is not expected to exceed
the maximum number of common shares available under the Plan.
The number of shares that may be issued as full-value awards is
not expected to exceed the maximum number of common shares
available under the Plan.
Eligibility. Officers, employees and
non-employee directors of us and any of our subsidiaries may be
selected by the board of directors to receive benefits under the
Plan. Non-employee directors are expected to be subject to
additional terms and conditions regarding equity awards under
the Plan. Our board of directors may provide for special terms
for awards to participants who are foreign nationals or who are
employed by us outside the United States as our board of
directors may deem necessary or appropriate to accommodate
differences in local law, tax policy or custom.
Administration. Our board of directors is
expected to administer the Plan and may delegate its authority
to our Compensation Committee. Our board of directors or the
Compensation Committee may delegate certain administrative
powers to one or more of our officers, agents or advisors.
Delegated officers who are authorized to administer the plan may
designate employees to be recipients of awards and determine the
size of the awards so long as this responsibility is not
delegated for awards granted to officers,
directors or 10% beneficial owners as
defined by
Rule 16a-1(f)
of the Exchange Act. Such delegation will also be contingent
upon an authorizing resolution that sets forth the number of
shares that such officers may grant and periodic reporting by
such officers to our board of directors or our Compensation
Committee regarding the nature and scope of the awards granted
pursuant to the authority delegated.
Adjustments. The number and kind of shares
covered by outstanding awards, certain other provisions
contained in outstanding awards, the number of shares reserved
for issuance under the Plan and the other share limits contained
in the Plan will be subject to adjustment in certain
transactions or events as provided in the Plan. Moreover, in the
event of any such transaction or event or in the event of a
change of control, our board of directors may provide in
substitution for any or all outstanding awards under the Plan
such alternative consideration (including cash), if any, as it
may determine to be equitable in the circumstances. Our board of
directors may require in connection with such substitution the
surrender of all awards that are replaced in a manner that
complies with Section 409A of the Code. In addition, for
each stock option or stock appreciation right with an option
price or base price greater than the consideration offered in
connection with any such transaction or event or change of
control, our board of directors may elect to cancel such stock
option or stock appreciation right without any payment to the
person holding such stock option or stock appreciation right.
99
Amendments. Our board of directors may at any
time amend the Plan in whole or in part. However, an amendment
to the Plan will be subject to stockholder approval if such
amendment:
|
|
|
|
|
would materially increase the benefits accruing to participants
under the Plan;
|
|
|
|
would materially increase the number of securities that may be
issued under the Plan;
|
|
|
|
would materially modify the requirements for participation in
the Plan; or
|
|
|
|
must otherwise be approved by our stockholders in order to
comply with applicable law or the rules of the NYSE or, if our
common shares are not traded on the NYSE, the principal national
securities exchange upon which our common shares are traded or
quoted.
|
Except in connection with a corporate transaction or event
described in the Plan, the terms of outstanding awards may not
be amended to reduce the exercise price of outstanding stock
options or the base price of outstanding stock appreciation
rights, or cancel outstanding stock options or stock
appreciation rights in exchange for cash, other awards or stock
options or stock appreciation rights with an exercise price or
base price, as applicable, that is less than the exercise price
of the original stock options or base price of the original
stock appreciation rights, as applicable, without stockholder
approval.
If permitted by Section 409A of the Code, in the case of a
change of control or in case of termination of employment by
reason of death, disability or normal or early retirement, in
the case of unforeseeable emergency or other special
circumstances of a participant who holds an unvested or
unexercisable award, our board of directors may accelerate the
time at which:
|
|
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|
|
such award may be exercised;
|
|
|
|
the substantial risk of forfeiture or prohibition or restriction
on transfer of such award will lapse;
|
|
|
|
the restriction period of such award will end;
|
|
|
|
such award will be deemed to have been fully earned; or
|
|
|
|
such awards transfer restriction will terminate.
|
Likewise, our board of directors may waive any other limitation
or requirement under any such unvested or unexercisable award.
Our board of directors may amend the terms of any award granted
under the Plan prospectively or retroactively. No such amendment
may impair the rights of any participant without his or her
consent. Our board of directors may terminate the Plan at any
time. Termination of the Plan will not affect the rights of
participants or their successors under any awards outstanding
under the Plan and not exercised in full on the date of
termination.
Effective Date; Termination. The Plan became
effective on June 9, 2010. However, no grants may be made
under the Plan prior to consummation of this offering. No grant
may be made under the Plan after the ten-year anniversary of the
effective date of the Plan but all grants made on or prior to
such ten-year anniversary will continue in effect subject to the
terms of their award agreements and the terms of the Plan.
100
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
consummance of this offering, based on an offering price of
$14.00 per share) 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. See
Principal 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, 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 have registration rights beginning six
months after completion of this offering with respect to the
shares of capital stock that
101
they will hold after giving effect to the corporate
reorganization. For a description of these registration rights,
see Description of Capital Stock Registration
Rights.
Letters
of Credit
In February 2009, the members of Molycorp Minerals, LLC 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 these members at March 31, 2010
was $18.2 million. We have agreed to pay each member a 5%
annual return on the amount of collateral provided. Under the
terms of the agreement, the members may receive quarterly
payments, delayed payments or
payments-in-kind.
After the completion of this offering, we intend to terminate
this agreement with these members by establishing our own cash
collateral using a portion of the net proceeds from this
offering.
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.
102
PRINCIPAL
STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of shares of common stock as of
July 1, 2010, as adjusted to reflect the corporate
reorganization and the sale of common stock offered by us in
this offering, for:
|
|
|
|
|
each person who we know beneficially owns more than 5% of our
common stock;
|
|
|
|
each of our directors;
|
|
|
|
each of our named executive officers; and
|
|
|
|
all of our directors and our executive officers as a group.
|
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 information shown in the table with respect to the
percentage of shares of common stock beneficially owned before
the offering is based on 53,125,000 shares of common stock
outstanding at July 1, 2010 (after giving effect to the
corporate reorganization, a
38.23435373-for-one
stock split with respect to shares of our Class A common stock
and Class B common stock and the conversion of our Class A
common stock and Class B common stock into shares of common
stock immediately prior to the consummation of this offering
based on an assumed offering price of $14.00 per share). The
information shown in the table with respect to the percentage of
shares of common stock beneficially owned after the offering is
based on 81,250,000 shares of common stock outstanding at July
1, 2010 (after also giving effect to the issuance of 28,125,000
shares of common stock by us in this offering). TNA Moly Group
LLC, Resource Capital Fund IV, L.P. and Resource Capital
Fund V, L.P. have indicated an interest in purchasing
1,000,000, 357,143 and 1,142,857 shares of our common
stock, respectively, in this offering. The information shown in
the table assumes these shares of common stock are not purchased
in the offering and assumes no shares of common stock are
sold in this offering to the directors, executive officers and
stockholders listed in the table pursuant to the directed share
program. 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
July 1, 2010. 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 *. The percentage
ownership information shown in the table assumes no exercise of
the underwriters option to purchase additional shares.
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.
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
|
Shares Beneficially
|
|
|
|
Owned
|
|
|
Owned
|
|
|
|
Prior to This Offering(7)
|
|
|
After This Offering(7)
|
|
Name and Address of Beneficial Owner
|
|
Number
|
|
|
Percentage
|
|
|
Number
|
|
|
Percentage
|
|
|
Resource Capital Funds(1)
|
|
|
26,113,182
|
|
|
|
49.2
|
%
|
|
|
26,113,182
|
|
|
|
32.1
|
%
|
PP IV Mountain Pass II, LLC(2)
|
|
|
8,516,558
|
|
|
|
16.0
|
%
|
|
|
8,516,558
|
|
|
|
10.5
|
%
|
PP IV MP AIV 1, LLC(2)
|
|
|
4,125,266
|
|
|
|
7.8
|
%
|
|
|
4,125,266
|
|
|
|
5.1
|
%
|
PP IV MP AIV 2, LLC(2)
|
|
|
1,506,806
|
|
|
|
2.8
|
%
|
|
|
1,506,806
|
|
|
|
1.9
|
%
|
PP IV MP AIV 3, LLC(2)
|
|
|
1,506,806
|
|
|
|
2.8
|
%
|
|
|
1,506,806
|
|
|
|
1.9
|
%
|
TNA Moly Group LLC(3)
|
|
|
7,820,000
|
|
|
|
14.7
|
%
|
|
|
7,820,000
|
|
|
|
9.6
|
%
|
Russell D. Ball
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ross R. Bhappu(4)
|
|
|
26,113,182
|
|
|
|
49.2
|
%
|
|
|
26,113,182
|
|
|
|
32.1
|
%
|
Brian T. Dolan(4)
|
|
|
26,113,182
|
|
|
|
49.2
|
%
|
|
|
26,113,182
|
|
|
|
32.1
|
%
|
Charles R. Henry
|
|
|
132,901
|
|
|
|
*
|
|
|
|
132,901
|
|
|
|
*
|
|
Mark Kristoff(5)
|
|
|
8,821,909
|
|
|
|
16.6
|
%
|
|
|
8,821,909
|
|
|
|
10.9
|
%
|
Alec Machiels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Smith(6)
|
|
|
1,178,882
|
|
|
|
2.2
|
%
|
|
|
1,178,882
|
|
|
|
1.5
|
%
|
Jack E. Thompson
|
|
|
132,901
|
|
|
|
*
|
|
|
|
132,901
|
|
|
|
*
|
|
James S. Allen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ksenia A. Adams
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Ashburn
|
|
|
265,802
|
|
|
|
*
|
|
|
|
265,802
|
|
|
|
*
|
|
John L. Burba
|
|
|
332,253
|
|
|
|
*
|
|
|
|
332,253
|
|
|
|
*
|
|
All executive officers and directors as a group
(12 individuals)
|
|
|
36,977,830
|
|
|
|
69.6
|
%
|
|
|
36,977,830
|
|
|
|
45.5
|
%
|
|
|
|
(1) |
|
Includes (a) 21,358,622 shares of 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) 4,754,560 shares of 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 the
directors of RCA IV GP L.L.C. and RCA V GP Ltd.,
respectively, who currently consist of Hank Tuten, James
McClements, Ryan Bennett, Russ Cranswick, Mr. Bhappu and
Mr. Dolan. The directors of each of RCA IV GP L.L.C.
and RCA V GP Ltd. have shared voting and investment power
with respect to the shares of 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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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 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 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. Mr. Cogut disclaims beneficial
ownership of any of our securities held by the Pegasus Entities,
except to the extent of any pecuniary |
104
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interest therein. 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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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 common stock owned by such entity.
As a result, the board of directors of Traxys, of which Mr.
Kristoff is a member, has voting and investment control with
respect to the shares of common stock held by TNA Moly Group
LLC. 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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Includes (a) 21,358,622 shares of 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) 4,754,560 shares of 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
shareholders and directors of each of RCA IV GP L.L.C. and
RCA V GP Ltd., which exercise voting and dispositive power
over the shares held by Resource Capital Fund IV, L.P. and
Resource Capital Fund V, L.P., respectively, and represent
two of the six directors of each such entity. Each of
Mr. Bhappu and Mr. Dolan disclaims beneficial
ownership of the shares of 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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(5) |
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Includes 7,820,000 shares of common stock held by TNA Moly
Group LLC and 1,001,909 shares of common stock held by MP
Rare Company LLC. Mr. Kristoff is the Chief Executive
Officer of Traxys and TNA Moly Group LLC and is a Manager of MP
Rare Company LLC. Mr. Kristoff disclaims beneficial
ownership of the shares of common stock held by TNA Moly Group
LLC and MP Rare Company LLC, except to the extent of his
pecuniary interest therein, if any. |
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(6) |
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Includes 301,734 shares of 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 common stock
held by KMSMITH LLC. |
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(7) |
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The shares of common stock beneficially owned by Resource
Capital Funds, 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 and Messrs. Bhappu, Dolan, Kristoff
and Smith (only with respect to those shares owned by KMSMITH
LLC), whom we collectively refer to as our Class A
stockholders, include shares of common stock that each will
receive upon conversion of our Class A common stock into
shares of our common stock immediately prior to the consummation
of this offering based on an assumed offering price of $14.00
per share. The shares of common stock beneficially owned by
Messrs. Henry, Smith (other than those owned by KMSMITH
LLC), Thompson, Ashburn and Burba, whom we collectively refer to
as our Class B stockholders, include shares of common stock
that each will receive upon conversion of our Class B
common stock into shares of our common stock immediately prior
to the consummation of this offering based on an assumed
offering price of $14.00 per share. If the actual offering price
per share is greater than $14.00 per share, then the
Class A stockholders will receive less of a percentage, and
the Class B stockholders will receive a proportionally
larger percentage, of the shares of our common stock in the
aggregate to be issued upon conversion of the outstanding shares
of our Class A common stock and Class B common stock.
Similarly, if the actual offering price per share is less than
$14.00 per share, then the Class A stockholders will
receive more of a percentage, and the Class B stockholders
will receive a proportionately smaller percentage, of the shares
of our common stock in the aggregate to be issued upon
conversion of the outstanding shares of our Class A common
stock and Class B common stock. However, in no event will
the Class B stockholders receive more than 5.88% of the
aggregate number of shares of our common stock to be issued upon
conversion of the shares of our Class A common stock and
Class B common stock immediately prior to the consummation
of this offering. |
105
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 that will be effective upon the completion of this
offering, and certain provisions of applicable law. For more
detailed information, please see the form of our certificate of
incorporation and bylaws, which are filed as exhibits to the
registration statement of which this prospectus is a part.
Authorized
Capitalization
Immediately following the completion of this offering, our
authorized capital stock will consist of shares, with a par
value of $0.001 per share, of which:
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350,000,000 shares will be designated as common stock; and
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5,000,000 shares will be designated as preferred stock.
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Common
Stock
Following the completion of this offering, each outstanding
share of common stock will be entitled to one vote on all
matters submitted to a vote of stockholders. Pursuant to our
certificate of incorporation, holders of our common stock will
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 will be
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 will be 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 will have no preemptive, conversion or
subscription rights. No redemption or sinking fund provisions
will apply to our common stock. All shares of common stock to be
outstanding upon completion of this offering will be 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. Immediately after the completion of this
offering, no shares of preferred stock will be outstanding, and
we currently have no plans to issue any shares of preferred
stock.
Registration
Rights
After giving effect to the corporate reorganization, a
38.23435373-for-one
stock split with respect to shares of our Class A common stock
and Class B common stock and the conversion of all of our Class
A common stock and Class B common stock into shares of common
stock, the holders of 50,892,261 shares of our common stock
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 members of Molycorp, LLC
in connection with our corporate reorganization. See
Certain Relationships and Related-Party
Transactions Registration Rights. The
following description of the terms of the Registration Rights
Agreement 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.
106
Form S-1
Demand Registration Rights
At any time following six months after the completion of this
offering, 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 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 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.
Piggyback
Registration Rights
If we register any 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.
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.
107
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 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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108
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 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 will be
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 will help 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. Upon consummation of this
offering, the size of our board of directors will be 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.
109
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
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 occupancy 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
110
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., will be the transfer agent and registrar for
our common stock.
Listing
Our common stock is approved for listing on the NYSE under the
symbol MCP.
111
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock. 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,
there will be 81,250,000 shares of common stock
outstanding, assuming no exercise of the underwriters
option to purchase additional shares of common stock in this
offering. Of these shares, the 28,125,000 shares sold in
this offering by us will be freely tradable in the public market
without restriction or further registration under the Securities
Act.
The remaining 53,125,000 shares of common stock will be
restricted securities, as that term is defined in
Rule 144 under the Securities Act. These restricted
securities are eligible for public sale only if they are
registered under the Securities Act or if they qualify for an
exemption from registration under Rules 144 or 701 under
the Securities Act, which are summarized below.
Subject to the
lock-up
agreements described below, the provisions of Rules 144 and
701 under the Securities Act and the vesting provisions under
restricted stock agreements, these restricted securities will be
available for sale in the public market as follows:
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Number of
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Date
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Shares
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On the date of this prospectus
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0
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Between 90 and 180 days after the date of this prospectus
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53,125,000
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At various times beginning more than 180 days after the
date of this prospectus
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0
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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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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.
Rule 701
In general, under Rule 701 of the Securities Act, any of
our directors, officers, employees, consultants or advisors who
purchase shares of common stock from us in connection with a
compensatory stock plan or other written agreement before the
effective date of this offering, to the extent not subject to a
lock-up
agreement, is eligible to resell those shares 90 days after
the effective date of this offering in reliance on
Rule 144, but without compliance with some of the
restrictions, including the holding period, contained in
Rule 144.
Lock-Up
Agreements
We, all of our executive officers and directors and all of our
stockholders have agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated and J.P. Morgan
Securities Inc. on behalf of the
112
underwriters, we and they will not, directly or indirectly,
during the period ending 180 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 any securities convertible into or
exercisable or exchangeable for shares of common stock;
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file any registration statement with the SEC relating to the
offering of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common
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
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whether any such transaction described above is to be settled by
delivery of common stock or such other securities, in cash or
otherwise. In addition, we and each such person agrees that,
without the prior written consent of Morgan Stanley &
Co. Incorporated and J.P. Morgan Securities Inc. on behalf
of the underwriters, we or such person will not, during the
period ending 180 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 any security
convertible into or exercisable or exchangeable for common 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
Upon the completion of this offering, we intend to file 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
will become effective upon filing. Accordingly, shares
registered under the registration statement on
Form S-8
will be available for sale in the open market immediately
thereafter, after complying with Rule 144 volume
limitations applicable to affiliates and with applicable 180-day
lock-up
agreements.
Registration
Rights
The holders of approximately 50,892,261 shares of common
stock 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 the
lock-up
agreement.
113
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.
114
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 United States real property
holding corporation, or a USRPHC, for U.S. federal income
tax purposes at any time during the shorter of the five-year
period ending on the date of disposition or the period that the
non-U.S. holder
held the common stock, and, in the case where the shares of our
common stock are regularly traded on an established securities
market, the
non-U.S. holder
holds or held (at any time during the shorter of the five-year
period ending on the date of disposition or the
non-U.S. holders
holding period) more than 5% of our common stock. A corporation
generally is a
115
USRPHC if the fair market value of its U.S. real property
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.
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.
116
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 Morgan Stanley & Co.
Incorporated and J.P. Morgan Securities Inc. are acting as
representatives, have severally agreed to purchase, and we have
agreed to sell to them, severally, the number of shares
indicated below:
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Number of
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Name
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Shares
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Morgan Stanley & Co. Incorporated
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J.P. Morgan Securities Inc.
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CIBC World Markets Corp.
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Credit Suisse Securities (USA) LLC
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Stifel, Nicolaus & Company, Incorporated
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Dahlman Rose & Company, LLC
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Piper Jaffray & Co.
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Knight Capital Markets LLC
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Houlihan, Lokey, Howard & Zukin Capital, Inc.
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GMP Securities L.P.
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Total
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28,125,000
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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 us 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.
We have granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to
4,218,750 additional shares of common stock at the public
offering price listed on the cover page of this prospectus, less
underwriting discounts and commissions. The underwriters may
exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of
the shares of common stock offered by this prospectus. 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 us. These amounts are shown assuming
both no exercise and full exercise of the underwriters
option to purchase up to an additional 4,218,750 shares of
common stock.
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Total 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
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$
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$
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$
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Proceeds, before expenses
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$
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$
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$
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117
The estimated offering expenses payable by us, exclusive of the
underwriting discounts and commissions, are approximately $2.3
million. The underwriters have agreed to reimburse us for a
portion of the total out-of-pocket expenses related to this
offering payable by us, excluding underwriting discounts and
commissions.
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 approved for listing on the NYSE under the
symbol MCP.
We, all of our executive officers and directors and all of our
stockholders have agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated and
J.P. Morgan Securities Inc. on behalf of the underwriters,
we and they will not, during the period ending 180 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 any securities convertible into or
exercisable or exchangeable for shares of common stock;
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file any registration statement with the SEC relating to the
offering of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common
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
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whether any such transaction described above is to be settled by
delivery of common stock or such other securities, in cash or
otherwise. In addition, we and each such person agrees that,
without the prior written consent of Morgan Stanley &
Co. Incorporated and J.P. Morgan Securities Inc. on behalf
of the underwriters, we or such person will not, during the
period ending 180 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 any security
convertible into or exercisable or exchangeable for common stock.
The restrictions described in the immediately preceding
paragraph do not apply to the sale of shares 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
new stock incentive plan, provided that such shares, options,
warrants or other equity awards are restricted through the
restricted period;
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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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issuances of 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, of
which issuances the underwriters have been advised in advance,
provided that the amount of securities issued is not
equal to greater than 10% of the number of shares of our common
stock outstanding at the time of any such issuance and the
recipient of such securities shall agree to be bound by the
restrictions described above;
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the conversion of outstanding shares of our Class A common
stock and Class B common stock into shares of our common
stock; or
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118
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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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With respect to our directors, officers and the other holders of
our outstanding stock, the restrictions described above do not
apply to:
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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);
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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;
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the conversion of any preferred stock, Class A common
stock, Class B common stock or other equity interest of Molycorp
into shares of our common stock;
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transactions relating to shares of our common 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 other securities acquired in such open market
transactions);
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transfers of shares of our common stock or any security
convertible into our common 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;
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transfers of shares of our common stock or any security
convertible into our common stock pursuant to the laws of
descent or distribution, except that this exception does not
apply to our stockholders that are not individuals;
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in the case of our stockholders that are not individuals only,
distributions of shares of our common stock or any security
convertible into shares of our common stock by a stockholder to
any partner, member or stockholders of such stockholder; and
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the establishment of a trading plan pursuant to
Rule 10b5-1
under the Exchange Act for the transfer of shares of our common
stock (provided that such plan does not provide for the transfer
of shares of our common 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);
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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,
shall be required or shall be voluntarily made during the
restricted period.
The restricted period described in the preceding paragraph will
be extended if:
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during the last 17 days of the restricted period we issue
an earnings release or material news event relating to us
occurs, or
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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,
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119
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 the 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 over-allotment option. The underwriters
can close out a covered short sale by exercising the
over-allotment 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 over-allotment option. The underwriters may also sell
shares in excess of the over-allotment 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 underwriters 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.
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.
Pricing
of the Offering
Prior to this offering, there has been no public market for our
common stock. The initial public offering price was determined
by negotiations between us and the representatives. Among the
factors considered in determining the initial public offering
price were our future prospects and those of our industry in
general, our sales, earnings and certain other financial and
operating information in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities, and
certain financial and operating information of companies engaged
in activities similar to ours.
Directed
Share Program; Stockholders
At our request, the underwriters have reserved 5% of the shares
of common stock to be issued by us and offered by this
prospectus for sale, at the initial public offering price, to
directors, officers, employees, business associates and related
persons of Molycorp, Inc. The number of shares of common stock
available for sale to the general public will be reduced to the
extent these individuals purchase such reserved shares. Any
reserved shares that are not so purchased will be offered by the
underwriters to the general public on the same basis as the
other shares offered by this prospectus.
In addition, TNA Moly Group LLC, Resource Capital Fund IV,
L.P. and Resource Capital Fund V, L.P. have indicated an
interest in purchasing 1,000,000, 357,143 and
1,142,857 shares of our common stock,
120
respectively, in this offering. These shares, if purchased,
would be subject to the
lock-up
restrictions described above.
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.
121
CHANGE IN
ACCOUNTANTS
On January 14, 2010, the board of directors of Molycorp,
LLC dismissed KPMG LLP as its independent registered public
accounting firm.
The report of KPMG LLP on Molycorp Minerals, LLCs
financial statements as of December 31, 2008 and for the
period from June 12, 2008 (Inception) through
December 31, 2008 (not included in this prospectus) did not
contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope or
accounting principles.
During the period from June 12, 2008 (Inception) through
January 14, 2010, there were: (i) no disagreements (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)
with KPMG LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the
satisfaction of KPMG LLP, would have caused KPMG LLP to make
reference to the subject matter of the disagreements in its
reports on the consolidated financial statements for such years;
or (ii) reportable events.
We provided KPMG LLP with a copy of the above disclosures, and
requested that KPMG LLP furnish us with a letter addressed to
the SEC stating that KPMG LLP agrees with the above statements.
A copy of KPMG LLPs letter is filed as an exhibit to this
registration statement.
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).
122
LEGAL
MATTERS
The validity of the issuance of the shares of common stock
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 December 31,
2009 and 2008, and for the year ended December 31, 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, 2009
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 common stock 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 common stock 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. A copy of the registration
statement and the exhibits and schedules to the registration
statement may be inspected without charge at the SECs
Public Reference Room, 100 F Street, N.E.,
Room 1580, 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 site at www.sec.gov that
contains reports, proxy and information statement and other
information regarding issuers who file electronically with the
SEC. You may also inspect our SEC reports and other information
at our website at www.molycorp.com. Information on or accessible
through our website is not a part of this prospectus.
Upon completion of this offering, we will be subject to the
information reporting requirements of the Exchange Act and we
intend to file reports, proxy statements and other information
with the SEC.
123
GLOSSARY
OF SELECTED MINING TERMS
The following is a glossary of selected mining terms used in
this prospectus 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. |
|
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 metal and/or metal minerals, and discarding the waste and
minor amounts of metal and/or metal 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) is a silvery-white, malleable and ductile
rare-earth metal. Gadolinium has exceptionally high absorption
of 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 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. |
G-1
|
|
|
Mineralization |
|
The concentration of metals and their compounds in rocks, and
the processes involved therein. |
|
Monazite |
|
Monazite is a reddish-brown phosphate mineral. Monazite minerals
are typically accompanied by concentrations of uranium and
thorium. Because of this, there is no significant rare earth
production from monazite today. Monazite 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. |
|
REO cut-off |
|
Cut-off grade is the percentage of REO that defines the minimum
economically recoverable concentration in an ore body. |
|
Samarium |
|
Samarium (Sm) is a silvery-white metallic element that is
predominantly used to produce high temperature, high power
samarium cobalt. |
|
Strike |
|
The direction of the line of intersection of a REE 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. |
G-2
|
|
|
Tailings |
|
That portion of the mined material that remains after the
valuable minerals have been extracted. |
|
Terbium |
|
Terbium (Tb) is a soft, malleable, silvery-grey element of the
lanthanide series, used in x-ray and color television tubes. |
|
Tolling |
|
Processing of material owned by others for a fee without taking
title to the material. |
|
Yttrium |
|
Yttrium (Y) is predominantly utilized in auto-catalysts. Other
uses include resonators, microwave communication devices and
other electronic devices. |
G-3
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
|
|
|
|
|
|
|
|
F-20
|
|
|
|
|
F-21
|
|
|
|
|
F-22
|
|
|
|
|
F-23
|
|
|
|
|
F-24
|
|
F-1
Report of
Independent Registered Public Accounting Firm
To the Members of Molycorp, LLC:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
members equity and of cash flows present fairly, in all
material respects, the financial position of Molycorp, LLC and
its wholly-owned subsidiary (a development stage company) at
December 31, 2009 and 2008, and the results of their
operations and their cash flows for the year ended
December 31, 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, 2009, 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.
PricewaterhouseCoopers LLP
Phoenix, Arizona
April 16, 2010, except for
Note 12(c) for which the
date is as of July 9, 2010
F-2
MOLYCORP,
LLC
(A
Company in the Development Stage)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,929
|
|
|
$
|
2,189
|
|
Trade accounts receivable
|
|
|
1,221
|
|
|
|
1,346
|
|
Inventory
|
|
|
8,545
|
|
|
|
2,990
|
|
Prepaid expenses and other
|
|
|
1,825
|
|
|
|
2,185
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18,520
|
|
|
|
8,710
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
66,352
|
|
|
$
|
63,053
|
|
Inventory
|
|
|
12,090
|
|
|
|
13,122
|
|
Investment in joint venture
|
|
|
|
|
|
|
9,700
|
|
Intangible asset, net
|
|
|
704
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
79,146
|
|
|
|
86,645
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
97,666
|
|
|
$
|
95,355
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
2,886
|
|
|
$
|
2,250
|
|
Accrued expenses
|
|
|
5,963
|
|
|
|
1,446
|
|
Current portion of asset retirement obligation
|
|
|
693
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9,542
|
|
|
|
4,083
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Asset retirement obligation
|
|
$
|
13,509
|
|
|
$
|
13,196
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
23,051
|
|
|
|
17,279
|
|
|
|
|
|
|
|
|
|
|
Members equity:
|
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
117,276
|
|
|
|
92,150
|
|
Deficit accumulated during the development stage
|
|
|
(42,661
|
)
|
|
|
(14,074
|
)
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
74,615
|
|
|
|
78,076
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
97,666
|
|
|
$
|
95,355
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
MOLYCORP,
LLC
(A
Company in the Development Stage)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 12, 2008
|
|
|
June 12, 2008
|
|
|
|
|
|
|
(Inception)
|
|
|
(Inception)
|
|
|
|
Year Ended
|
|
|
Through
|
|
|
Through
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2009
|
|
|
Net sales
|
|
$
|
7,093
|
|
|
$
|
2,137
|
|
|
$
|
9,230
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(21,785
|
)
|
|
|
(13,027
|
)
|
|
|
(34,812
|
)
|
Selling, general, and administrative
|
|
|
(12,685
|
)
|
|
|
(2,979
|
)
|
|
|
(15,664
|
)
|
Depreciation and amortization
|
|
|
(191
|
)
|
|
|
(19
|
)
|
|
|
(210
|
)
|
Accretion expense
|
|
|
(1,006
|
)
|
|
|
(250
|
)
|
|
|
(1,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(28,574
|
)
|
|
|
(14,138
|
)
|
|
|
(42,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
181
|
|
|
|
54
|
|
|
|
235
|
|
Interest income (expense)
|
|
|
(194
|
)
|
|
|
10
|
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(42,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
38,921,015
|
|
|
|
38,234,354
|
|
|
|
38,676,385
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.73
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.10
|
)
|
Diluted
|
|
$
|
(0.73
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.10
|
)
|
See accompanying notes to consolidated financial statements.
F-4
MOLYCORP,
LLC
(A
Company in the Development Stage)
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
During the
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Development
|
|
|
Members
|
|
|
|
Shares
|
|
|
Capital
|
|
|
Stage
|
|
|
Equity
|
|
|
Balance at June 12, 2008 (Inception)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Issuance of common shares
|
|
|
38,168,423
|
|
|
|
92,000
|
|
|
|
|
|
|
|
92,000
|
|
Employee compensation agreement
|
|
|
65,931
|
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(14,074
|
)
|
|
|
(14,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
38,234,354
|
|
|
|
92,150
|
|
|
|
(14,074
|
)
|
|
|
78,076
|
|
Issuance of shares
|
|
|
3,785,954
|
|
|
|
18,004
|
|
|
|
|
|
|
|
18,004
|
|
Conversion of short-term borrowings from member plus related
accrued interest into common shares
|
|
|
2,267,750
|
|
|
|
6,831
|
|
|
|
|
|
|
|
6,831
|
|
Exercise of employee options
|
|
|
20,746
|
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Employee compensation agreement
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
241
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(28,587
|
)
|
|
|
(28,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
44,308,804
|
|
|
$
|
117,276
|
|
|
$
|
(42,661
|
)
|
|
$
|
74,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
MOLYCORP,
LLC
(A
Company in the Development Stage)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 12, 2008
|
|
|
June 12, 2008
|
|
|
|
|
|
|
(Inception)
|
|
|
(Inception)
|
|
|
|
Year Ended
|
|
|
Through
|
|
|
Through
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,587
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(42,661
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,896
|
|
|
|
936
|
|
|
|
4,832
|
|
Accretion of asset retirement obligation
|
|
|
1,006
|
|
|
|
250
|
|
|
|
1,256
|
|
Non-cash inventory write-downs
|
|
|
9,035
|
|
|
|
9,509
|
|
|
|
18,544
|
|
Non-cash stock compensation expense
|
|
|
241
|
|
|
|
150
|
|
|
|
391
|
|
Loss on sale of assets
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
125
|
|
|
|
(1,897
|
)
|
|
|
(1,772
|
)
|
Other current assets
|
|
|
345
|
|
|
|
|
|
|
|
345
|
|
Inventory
|
|
|
(13,557
|
)
|
|
|
(3,440
|
)
|
|
|
(16,997
|
)
|
Prepaid expenses
|
|
|
15
|
|
|
|
(1,634
|
)
|
|
|
(1,619
|
)
|
Accounts payable
|
|
|
(254
|
)
|
|
|
642
|
|
|
|
388
|
|
Asset retirement obligation
|
|
|
(387
|
)
|
|
|
|
|
|
|
(387
|
)
|
Accrued expenses
|
|
|
5,749
|
|
|
|
2,218
|
|
|
|
7,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(22,371
|
)
|
|
|
(7,340
|
)
|
|
|
(29,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Capital expenditures
|
|
|
(7,285
|
)
|
|
|
(321
|
)
|
|
|
(7,606
|
)
|
Proceeds from sale of assets
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
2,420
|
|
|
|
(82,471
|
)
|
|
|
(80,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from members
|
|
|
18,004
|
|
|
|
92,000
|
|
|
|
110,004
|
|
Proceeds from exercise of options
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Short-term borrowings from member
|
|
|
6,637
|
|
|
|
|
|
|
|
6,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
24,691
|
|
|
|
92,000
|
|
|
|
116,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
4,740
|
|
|
|
2,189
|
|
|
|
6,929
|
|
Cash and cash equivalents at beginning of the year
|
|
|
2,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
6,929
|
|
|
$
|
2,189
|
|
|
$
|
6,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of short-term borrowings from member plus accrued
interest, into common shares
|
|
$
|
6,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
Molycorp, LLC (the Company or Molycorp)
was formed on September 9, 2009, as a Delaware limited
liability company. Upon such formation, the members of Molycorp
Minerals, LLC (Molycorp Minerals) exchanged their
ownership interests for ownership interests in Molycorp. These
transactions were accounted for as a reorganization of entities
under common control at historical cost. Accordingly, the
accompanying financial information for periods prior to
Molycorps formation is the historical financial
information of Molycorp Minerals.
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.
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. For the
year ended December 31, 2009 and the period from
June 12, 2008 (Inception) through December 31, 2008,
revenue was generated primarily from the sale of products
associated with the NFL pilot processing project.
|
|
(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
F-7
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
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
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.
The Company has evaluated subsequent events through
April 16, 2010, which is the date the accompanying
financial statements were available to be issued.
|
|
(3)
|
Liquidity
and Capital Requirements
|
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 $511 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 under this plan total approximately
$53 million in 2010. The Company expects to finance these
expenditures, as well as its working capital requirements, with
proceeds from planned public
and/or
private offerings of its securities or project financing. There
can be no assurance that the Company will be successful in the
anticipated offerings or that it will be successful in raising
additional capital in the future on terms acceptable to the
Company, or at all.
If the Company is unable to raise sufficient capital through the
planned securities offerings, additional capital contributions
from existing members or other alternative sources of financing,
management will implement a short-term business plan in 2010.
Under this plan, capital expenditures will be curtailed at
mid-year and
limited operations at the Mountain Pass facility will continue
through December 31, 2010. The Company believes that it
will be able to fund the short-term business plan with existing
cash and cash equivalents, which totaled $6.9 million at
December 31, 2009, and funding commitments from its members
totaling $20.0 million.
The accompanying financial statements have been prepared on a
going concern basis under which the Company is expected to be
able to realize its assets and satisfy its liabilities in the
normal course of business. To continue as a going concern beyond
2010 and in order to continue the restart of mining operations
and modernization of the Mountain Pass facility, the Company
will need to complete the planned securities offerings or obtain
alternative sources of financing. Absent additional financing,
the Company will not have the resources to execute its current
business plan.
|
|
(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. 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 allocation of the purchase
price for the Mountain Pass facility to the assets acquired and
liabilities assumed, 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 intangible asset, and the adequacy of the
F-8
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
Companys asset retirement obligations. The current
economic environment has increased the degree of uncertainty
inherent in these estimates and the underlying assumptions.
|
|
(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. Our reported
revenues are presented net of freight and shipping costs.
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.
The Company considers cash and all highly liquid investments
with an original maturity of three months or less to be cash
equivalents.
|
|
(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,
2009 and 2008, 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.
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 year ended December 31, 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, 2009, the Company
recognized write-downs of $9.0 million, $9.5 million
and $18.5 million, respectively, as a result of declines in
REO market prices.
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.
F-9
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
At December 31, 2009 and 2008, inventory consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Work in process
|
|
$
|
4,797
|
|
|
$
|
52
|
|
Finished goods
|
|
|
2,685
|
|
|
|
1,635
|
|
Materials and supplies
|
|
|
1,063
|
|
|
|
1,303
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
8,545
|
|
|
|
2,990
|
|
|
|
|
|
|
|
|
|
|
Long term:
|
|
|
|
|
|
|
|
|
Concentrate stockpiles
|
|
$
|
11,844
|
|
|
$
|
11,862
|
|
Work in process
|
|
|
|
|
|
|
681
|
|
Finished goods
|
|
|
246
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
Total long term
|
|
$
|
12,090
|
|
|
$
|
13,122
|
|
|
|
|
|
|
|
|
|
|
|
|
(f)
|
Property,
Plant and Equipment, net
|
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. The Company incurred
$7.1 million in plant modernization costs in 2009, and
anticipates incurring approximately $474 million in plant
modernization costs from 2010 through 2012. Depreciation on
plant and equipment is calculated using the straight-line method
over the estimated useful lives of the assets. Depreciation
expense for the year ended December 31, 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, 2009, was
$3.9 million, $0.9 million and $4.8 million,
respectively. Maintenance and repair costs are expensed as
incurred.
Mineral properties at December 31, 2009 and 2008, represent
the estimated fair value of the mineral resources associated
with the Mountain Pass facility. The Company will begin to
amortize such mineral properties using the units of production
method over estimated proven and probable reserves once mining
operations resume, which is currently expected to occur in late
2010.
At December 31, 2009 and 2008, property, plant and
equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
800
|
|
|
$
|
800
|
|
Land improvements (15 years)
|
|
|
17,954
|
|
|
|
17,923
|
|
Buildings and improvements (4 to 27 years)
|
|
|
8,458
|
|
|
|
8,335
|
|
Plant and equipment (2 to 12 years)
|
|
|
12,065
|
|
|
|
11,692
|
|
Vehicles (7 years)
|
|
|
1,023
|
|
|
|
1,031
|
|
Computer software (5 years)
|
|
|
1,116
|
|
|
|
164
|
|
Furniture and fixtures (5 years)
|
|
|
41
|
|
|
|
39
|
|
Construction in progress
|
|
|
6,506
|
|
|
|
851
|
|
Mineral properties
|
|
|
23,138
|
|
|
|
23,138
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment at cost
|
|
|
71,101
|
|
|
|
63,973
|
|
Less accumulated depreciation
|
|
|
(4,749
|
)
|
|
|
(920
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
66,352
|
|
|
$
|
63,053
|
|
|
|
|
|
|
|
|
|
|
F-10
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
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 did not
recognize any impairment for the year ended December 31,
2009 or the period from June 12, 2008 (Inception) through
December 31, 2008.
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 year ended
December 31, 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, 2009 was $65,000, $17,000, and $82,000,
respectively. Amortization expense is estimated to be $65,000
annually for the following five years.
|
|
(h)
|
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) called
Sumikin Molycorp (SMO). The Company sold its interest in the
joint venture to Sumitomo on July 9, 2009 for cash
consideration of $9.7 million and recognized no gain.
Accrued expenses as of December 31, 2009 and 2008 consisted
of the following: (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Waste disposal accrual
|
|
$
|
1,500
|
|
|
$
|
|
|
Completion bonus
|
|
|
1,445
|
|
|
|
650
|
|
Defined contribution plan
|
|
|
988
|
|
|
|
192
|
|
Other accrued expenses
|
|
|
2,030
|
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
5,963
|
|
|
$
|
1,446
|
|
|
|
|
|
|
|
|
|
|
|
|
(j)
|
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. Depreciation expense
associated with the asset retirement cost was $1.2 million,
$0.3 million and $1.5 million for the year ended
December 31, 2009, the period from June 12, 2008
(Inception) through December 31, 2008, and
F-11
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
cumulatively for the period from June 12, 2008 (Inception)
through December 31, 2009, respectively. The following
table presents the activity in our asset retirement obligation
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
Year Ended
|
|
Through
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
Balance at beginning of period
|
|
$
|
13,583
|
|
|
$
|
13,333
|
|
Obligations settled
|
|
|
(387
|
)
|
|
|
|
|
Accretion expense
|
|
|
1,006
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
14,202
|
|
|
$
|
13,583
|
|
|
|
|
|
|
|
|
|
|
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, 2009, the Company had financial assurance
requirements of $27.4 million, which were satisfied with
surety bonds placed with the California state and regional
agencies.
As a limited liability company, the Company does not incur or
pay federal or state income taxes. Rather, taxable income and
losses of the Company are reported on the income tax returns of
the Companys members. As a result, a provision for incomes
taxes has not been included in the consolidated statements of
operations. See note 12(a) for a discussion regarding the
income tax effects of the April 15, 2010 Corporate
Reorganization.
Members interests are represented by 44,308,804 and
38,234,354 shares of the Companys common stock at
December 31, 2009 and 2008, respectively. Paid-in capital
in the consolidated balance sheets represents amounts paid by
members or interests earned under certain stock compensation
agreements. The Companys profits, losses and cash
distributions are allocated to shareholders generally in
accordance with their respective ownership interests, with
certain adjustments for tax matters as described in the
Companys Operating Agreement. Certain significant actions
of the Company described in the Companys Operating
Agreement require the approval of shareholders holding aggregate
ownership interests in the Company of 51% or 76%.
|
|
(m)
|
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 income
(loss) per share reflects the dilution of potential common
shares in the weighted average number of common shares
outstanding during the year, 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 share equivalents at the average
selling prices of the shares during the year. For the year ended
December 31, 2009, potential shares associated with
124,468 outstanding stock options were excluded from the
calculation of diluted earnings per share as their effect would
have been anti-dilutive due to the Companys net loss for
the year.
F-12
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
|
|
(n)
|
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)
|
Acquisition
of Mountain Pass Facility
|
On September 30, 2008, Molycorp completed the acquisition
of the Mountain Pass facility for approximately
$82.1 million, consisting of $80.0 million in cash
paid to Chevron and $2.1 million in related transaction
costs. The acquisition has been accounted as an acquisition of
net assets. The following table summarizes the allocation of the
purchase price to the assets acquired and liabilities assumed
(in thousands):
|
|
|
|
|
Acquired assets:
|
|
|
|
|
Inventory concentrate stockpiles
|
|
$
|
19,201
|
|
Inventory finished goods
|
|
|
1,506
|
|
Inventory work in process
|
|
|
572
|
|
Inventory material and supply
|
|
|
902
|
|
Mineral properties
|
|
|
23,138
|
|
Land and land improvements
|
|
|
18,723
|
|
Property, plant, and equipment
|
|
|
21,354
|
|
Trade name
|
|
|
786
|
|
Investment in joint venture
|
|
|
9,700
|
|
|
|
|
|
|
Total assets
|
|
|
95,882
|
|
Asset retirement obligation
|
|
|
13,333
|
|
Completion bonus
|
|
|
399
|
|
|
|
|
|
|
Net purchase price
|
|
$
|
82,150
|
|
|
|
|
|
|
As part of the purchase agreement, the Company also retained the
services of approximately 100 employees from Chevron,
including 43 non-union employees and 57 union employees. Under
the terms of the purchase agreement, the Company agreed to
continue to provide all retained employees salaries at
their previous levels for a period of 12 months; provide
comparable 401(k) and health benefits, and to honor all vacation
days accrued prior to the purchase.
|
|
(6)
|
Employee
Benefit Plans
|
The Company maintains a defined contribution plan for all
employees who meet the related eligibility requirements. All
former Chevron employees became eligible to participate in the
plan on the date of the acquisition while all new employees
become eligible to participate after 90 days of service.
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. Employees vest in Company contributions after
three years of service. Expense related to this plan totaled
$1.0 million, $0.2 million and $1.2 million for
the year ended December 31, 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, 2009, respectively.
Additionally, accrued expenses at December 31, 2009 and
2008, included $1.0 million and $0.2 million related
to this plan, respectively.
F-13
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
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
Security Act of 1974, as amended. The amounts of compensation or
awards deferred are deemed to be invested in a hypothetical
investment as of the date of deferral. For the year ended
December 31, 2009, the Company elected to make
discretionary contributions to the MIP totaling approximately
$47,000. In addition, participants in the MIP program elected to
defer approximately $19,000 of their compensation, which is
included in other accrued expenses at December 31, 2009.
|
|
(7)
|
Commitments
and Contingencies
|
The Company is self-insured for employee healthcare costs,
subject to a related stop-loss agreement with an insurance
company. The Company recorded a liability of $0.1 million
associated with this obligation as of December 31, 2009.
|
|
(b)
|
Future
Operating Lease Commitments
|
The Company has certain operating leases for office space, land,
and certain equipment. Remaining annual minimum payments under
these leases at December 31, 2009 were $0.2 million in
2010 and $0.1 million in 2011.
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 the related costs
associated with this bonus as employees worked on the project.
As of December 31, 2009 and 2008, the accrued completion
bonus was $1.4 million and $0.7 million, respectively.
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, 2009, 60 employees, or approximately 50%
of the Companys workforce, were covered by this collective
bargaining agreement.
|
|
(e)
|
Reclamation
Surety Bonds
|
As of December 31, 2009, 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.
|
|
(f)
|
Insurance
Premium Financing Agreement
|
As of December 31, 2009, Molycorp was a party to a
short-term premium financing agreement related to its property
insurance policies. The unpaid principal balance of
$0.4 million is included in accrued expenses in the
consolidated balance sheet. The agreement requires monthly
principal and interest payments of $41,592 through November 2010.
F-14
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
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
must obtain a number of additional permits in order to complete
the plant modernization and expansion. 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 anticipates
additional conditions, requirements and obligations associated
with the additional permits required for future operations,
including the modernization and expansion of the Mountain Pass
facility. Certain conditions could be imposed in order to obtain
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 issued, maintained or renewed in
a timely fashion if at all, or may be issued or 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 obtain,
maintain or renew permits, could have a material adverse effect
on the Companys business, results of operations and
financial condition.
|
|
(8)
|
Stock
Based Compensation
|
The Companys Chief Executive Officer received a signing
bonus, of which $350,000 was paid in cash and $150,000 was paid
through the issuance of 65,931 shares of common stock. The
per share value of the common stock at the date of issuance
approximates the per share amount contributed by other members.
These shares vested immediately and the related expense was
recognized during the period from June 12, 2008 (Inception)
through December 31, 2008.
The Company issued an option to its Chief Executive Officer for
the purchase of 145,214 shares of Company stock on
April 10, 2009. The option vested on the date of grant and
had a stated exercise price of $2.41 per share. The fair value
of the stock at the time of issuance was estimated to be $3.01
per share based on the share price established in a related
party financing agreement executed shortly after the issuance of
the option. In measuring compensation expense, the Company
estimated the fair value of the award on the grant date using
the Black-Scholes-Merton option valuation model. Option
valuation models require the input of highly subjective
assumptions, including the expected volatility of the price of
the underlying stock.
The following assumptions were used to compute the fair value of
the option grant:
|
|
|
|
|
Risk free interest rate
|
|
|
0.60
|
%
|
Dividend yield
|
|
|
|
|
Estimated volatility
|
|
|
146
|
%
|
Expected option life
|
|
|
10 months
|
|
The Companys computation of the estimated volatility was
based on the historical volatility of a group of peer
companies common stock over the expected option life. The
peer information was used because Molycorp is not publicly
traded and therefore does not have the market trading history
required to calculate a meaningful volatility factor. The
computation of expected option life was determined based on a
reasonable expectation of the option life prior to being
exercised or forfeited. The risk-free interest rate assumption
was based on the U.S. Treasury constant maturity yield at
the date of grant over the expected life of the option.
For the year ended December 31, 2009, the Company
recognized stock-based compensation related to this option grant
of $241,000.
F-15
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
A summary of Molycorps stock option activity for the year
ended December 31, 2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Exercise
|
|
Grant-Date
|
|
Remaining
|
|
|
Shares
|
|
Price
|
|
Fair Value
|
|
Life
|
|
Outstanding options at beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted and vested
|
|
|
145,214
|
|
|
|
2.41
|
|
|
|
1.66
|
|
|
|
10 months
|
|
Exercised
|
|
|
20,746
|
|
|
|
2.41
|
|
|
|
1.66
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested options outstanding end of period
|
|
|
124,468
|
|
|
|
2.41
|
|
|
|
1.66
|
|
|
|
2 months
|
|
Effective November 1, 2009, the Company issued 5,880,000
incentive shares of Molycorp Minerals to certain employees and
independent directors. Pursuant to the terms of Molycorp
Minerals Second Amendment and Restated Operating Agreement
dated September 10, 2009, the incentive shares have no
voting rights and are intended to constitute a profits
interests as defined under Internal Revenue Service
regulations. Holders of incentive shares have no capital
accounts, but are entitled to receive cash distributions from
the Company in amounts ranging from 3.2% to 7.0% of excess
distributions after common shareholders have received an
annually compounded 10% return of their capital contributions.
The distribution percentage applied is based on the cumulative
return on investment received by the common shareholders.
The incentive shares vest at a rate of one-third per year on the
anniversary date of the award, subject to acceleration at the
Companys discretion or six months after a change in
control or a public offering of equity interest in the Company.
Upon termination, unvested shares are forfeited and vested
shares may be repurchased by the Companys at its
discretion. The purchase price of vested shares is based upon an
assumed liquidation of the Companys assets at book value
and is subject to the same distribution terms as the cash
distribution described above. Due to the Companys option
to repurchase vested shares of terminated participants at a
price other than fair value, the incentive shares are classified
as liabilities measured using the intrinsic value method. These
liabilities will be remeasured at each reporting date until the
shares are forfeited or repurchased. As of December 31,
2009, the intrinsic value of the incentive shares was zero.
|
|
(a)
|
Limited
Number of Products
|
The Companys current operations are limited to the
production and sale of REOs from stockpiled concentrates and it
does 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 of lanthanum concentrate accounted for 82% and 72% of our
sales for the year ended December 31, 2009 and for the
period from June 12, 2008 (Inception) through
December 31, 2008, respectively.
|
|
(b)
|
Limited
Number of Customers
|
There is a limited market for the Companys lanthanum
concentrate and its two largest customers comprised 82% (55% of
the total corresponds to the Companys largest customer and
27% of the total corresponds to the Companys second
largest customer) and 72% (57% of the total corresponds to the
Companys largest customer and 15% of the total corresponds
to the Companys second largest customer) of the
Companys total product revenue for the year ended
December 31, 2009 and for the period from June 12,
2008 (Inception) through December 31, 2008, respectively.
F-16
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
|
|
(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 connection with the Mountain Pass facility acquisition,
certain members incurred acquisition costs that were
subsequently reimbursed by Molycorp. At December 31, 2008,
accrued expenses included approximately $0.2 million
related to this reimbursement obligation.
In February 2009, the Companys members provided letters of
credit
and/or cash
collateral totaling $18.2 million to secure the surety
bonds issued for the benefit of certain regulatory agencies
relating to the Companys Mountain Pass facility closure
and reclamation obligations. The Company has agreed to pay each
member a 5% annual return on the amount of collateral provided.
Under the terms of the agreement, the members may receive
quarterly payments, delayed payments, or
payments-in-kind
of common shares at a price of $100.99 per share. During
the year ended December 31, 2009, the Company recognized
approximately $0.8 million in compensation to the members
under this agreement which is included in selling, general and
administrative expense in the consolidated statement of
operations. At December 31, 2009, accrued expenses in the
consolidated balance sheet included $0.6 million payable to
members.
In May and July 2009, Molycorp entered into transactions with a
member 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 member converted
outstanding advances plus accrued interest totaling
$6.8 million into 2,267,750 shares of Molycorp common
stock in settlement of the obligation.
|
|
(11)
|
Recently
Issued Accounting Pronouncements
|
Variable
Interest Entities
In June 2009, the ASC guidance for consolidation accounting was
updated to require an entity to perform a qualitative analysis
to determine whether the enterprises variable interest
gives it a controlling financial interest in the variable
interest entity (VIE). This analysis identifies a
primary beneficiary of a VIE as the entity that has both of the
following characteristics: (i) the power to direct the
activities of a VIE that most significantly impact the
entitys economic performance and (ii) the obligation
to absorb losses or receive benefits from the entity that could
potentially be significant to the VIE. The updated guidance also
requires ongoing reassessments of the primary beneficiary of a
VIE. The updated guidance is effective for the Companys
fiscal year beginning January 1, 2010. The Company is
evaluating the potential impact of adopting this guidance on the
Companys consolidated financial position, results of
operations and cash flows.
Fair
Value Accounting
In January 2010, the ASC guidance for fair value measurements
and disclosure was updated to require additional disclosures
related to: i) transfers in and out of level 1 and 2 fair
value measurements and ii) enhanced detail in the level 3
reconciliation. The guidance was amended to provide clarity
about: i) the level of disaggregation required for assets
and liabilities and ii) the disclosures required for inputs
and valuation techniques used to measure fair value for both
recurring and nonrecurring measurements that fall in either
level 2 or level 3. The updated guidance is effective for the
Companys fiscal year beginning January 1,
F-17
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Consolidated Financial
Statements (Continued)
2010, with the exception of the level 3 disaggregation which is
effective for the Companys fiscal year beginning
January 1, 2011. The Company is evaluating the potential
impact of adopting this guidance on the Companys
consolidated financial position, results of operations and cash
flows.
|
|
(a)
|
Corporate
Reorganization
|
Molycorp, Inc. was formed on March 4, 2010, and 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
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. All of the shares of Class A common stock and
Class B common stock will convert into shares of common
stock immediately prior to the consummation of an initial public
offering of Molycorp, Inc. common stock.
Molycorp, Inc.s authorized capital stock consists of
common stock, Class A common stock and Class B common
stock, and holders of all such stock vote together as one class.
Holders of common stock and Class A common stock are
entitled to one vote per share and holders of Class B
common stock are entitled to such number of votes as shall equal
the number of shares of common stock into which the shares of
Class B common stock would be convertible at the record
date upon approval by the Board of Directors pursuant to the
terms of the Companys Certificate of Incorporation. The
terms of the Class B common stock with respect to
dividends, liquidation and conversion, generally replicate the
economics of the original incentive shares of Molycorp Minerals
described in note 8.
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 would have generated an
unaudited pro forma deferred income tax benefit of
$11.3 million, 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.
|
|
(b)
|
Related
Party Transaction
|
On April 16, 2010, Molycorp Minerals, LLC executed an
agreement under which an affiliate of one of Molycorp,
Inc.s stockholders agreed to purchase up to
$5 million of product from Molycorp, Inc. through
December 31, 2010. Purchases under the agreement would
occur at Molycorp, Inc.s request at a price per pound
based on published index pricing. Upon the resale of any
acquired product, Molycorp, Inc. is entitled to receive 50% of
the sales price that exceeds a specified level.
(c) Stock
Split
On July 9, 2010, Molycorp, Inc. completed a
38.23435373-for-one stock split with respect to its Class A
common stock and Class B common stock, which has been
retroactively reflected for all periods presented in the
accompanying financial statements.
F-18
Molycorp,
LLC Unaudited Condensed Consolidated Financial Statements
March 31, 2010
F-19
MOLYCORP,
LLC
(A
Company in the Development Stage)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,452
|
|
|
$
|
6,929
|
|
Trade accounts receivable
|
|
|
1,423
|
|
|
|
1,221
|
|
Inventory
|
|
|
7,959
|
|
|
|
8,545
|
|
Prepaid expenses and other
|
|
|
2,558
|
|
|
|
1,825
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
19,392
|
|
|
|
18,520
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
68,813
|
|
|
$
|
66,352
|
|
Inventory
|
|
|
12,133
|
|
|
|
12,090
|
|
Intangible asset, net
|
|
|
688
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
81,634
|
|
|
|
79,146
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
101,026
|
|
|
$
|
97,666
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
5,024
|
|
|
$
|
2,886
|
|
Accrued expenses
|
|
|
4,371
|
|
|
|
5,963
|
|
Current portion of asset retirement obligation
|
|
|
618
|
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,013
|
|
|
|
9,542
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Asset retirement obligation
|
|
$
|
13,847
|
|
|
$
|
13,509
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
13,847
|
|
|
|
13,509
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
23,860
|
|
|
|
23,051
|
|
|
|
|
|
|
|
|
|
|
Members equity:
|
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
127,576
|
|
|
|
117,276
|
|
Deficit accumulated during the development stage
|
|
|
(50,410
|
)
|
|
|
(42,661
|
)
|
|
|
|
|
|
|
|
|
|
Total Members equity
|
|
|
77,166
|
|
|
|
74,615
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
101,026
|
|
|
$
|
97,666
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
|
|
|
|
|
|
June 12, 2008
|
|
|
|
Three Months Ended
|
|
|
(Inception) Through
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
March 31, 2010
|
|
|
Net sales
|
|
$
|
2,921
|
|
|
$
|
1,699
|
|
|
$
|
12,151
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(5,853
|
)
|
|
|
(4,727
|
)
|
|
|
(40,665
|
)
|
Selling, general, and administrative
|
|
|
(4,480
|
)
|
|
|
(2,322
|
)
|
|
|
(20,144
|
)
|
Depreciation and amortization
|
|
|
(95
|
)
|
|
|
(21
|
)
|
|
|
(305
|
)
|
Accretion expense
|
|
|
(263
|
)
|
|
|
(252
|
)
|
|
|
(1,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(7,770
|
)
|
|
|
(5,623
|
)
|
|
|
(50,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
21
|
|
|
|
22
|
|
|
|
256
|
|
Interest income (expense)
|
|
|
|
|
|
|
|
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,749
|
)
|
|
$
|
(5,601
|
)
|
|
$
|
(50,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
47,417,780
|
|
|
|
38,234,354
|
|
|
|
39,873,836
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(1.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(1.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
During the
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Development
|
|
|
Members
|
|
|
|
Shares
|
|
|
Capital
|
|
|
Stage
|
|
|
Equity
|
|
|
Balance at December 31, 2009
|
|
|
44,308,804
|
|
|
$
|
117,276
|
|
|
$
|
(42,661
|
)
|
|
$
|
74,615
|
|
Issuance of common shares
|
|
|
3,785,945
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
Exercise of employee options
|
|
|
124,468
|
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(7,749
|
)
|
|
|
(7,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
48,219,217
|
|
|
$
|
127,576
|
|
|
$
|
(50,410
|
)
|
|
$
|
77,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from
|
|
|
|
|
|
|
June 12, 2008
|
|
|
Three Months Ended
|
|
(Inception) Through
|
|
|
March 31, 2010
|
|
March 31, 2009
|
|
March 31, 2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,749
|
)
|
|
$
|
(5,601
|
)
|
|
$
|
(50,410
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,004
|
|
|
|
939
|
|
|
|
5,836
|
|
Accretion of asset retirement obligation
|
|
|
263
|
|
|
|
252
|
|
|
|
1,519
|
|
Non-cash inventory write-downs
|
|
|
574
|
|
|
|
2,161
|
|
|
|
19,118
|
|
Non-cash stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
391
|
|
Loss on sale of assets
|
|
|
13
|
|
|
|
|
|
|
|
15
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(202
|
)
|
|
|
425
|
|
|
|
(1,974
|
)
|
Other current assets
|
|
|
(322
|
)
|
|
|
211
|
|
|
|
23
|
|
Inventory
|
|
|
(32
|
)
|
|
|
(3,655
|
)
|
|
|
(17,029
|
)
|
Prepaid expenses
|
|
|
(411
|
)
|
|
|
(148
|
)
|
|
|
(2,030
|
)
|
Accounts payable
|
|
|
2,086
|
|
|
|
(1,303
|
)
|
|
|
2,474
|
|
Asset retirement obligation
|
|
|
|
|
|
|
(6
|
)
|
|
|
(387
|
)
|
Accrued expenses
|
|
|
(2,170
|
)
|
|
|
604
|
|
|
|
5,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(6,946
|
)
|
|
|
(6,121
|
)
|
|
|
(36,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of the Mountain Pass facility
|
|
|
|
|
|
|
|
|
|
|
(82,150
|
)
|
Proceeds from sale of investment in joint venture
|
|
|
|
|
|
|
|
|
|
|
9,700
|
|
Capital expenditures
|
|
|
(2,840
|
)
|
|
|
(868
|
)
|
|
|
(10,446
|
)
|
Proceeds from sale of assets
|
|
|
9
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,831
|
)
|
|
|
(868
|
)
|
|
|
(82,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from members
|
|
|
10,000
|
|
|
|
7,949
|
|
|
|
120,004
|
|
Proceeds from exercise of options
|
|
|
300
|
|
|
|
|
|
|
|
350
|
|
Short-term borrowings from member
|
|
|
|
|
|
|
|
|
|
|
6,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
10,300
|
|
|
|
7,949
|
|
|
|
126,991
|
|
Net increase in cash and cash equivalents
|
|
|
523
|
|
|
|
960
|
|
|
|
7,452
|
|
Cash and cash equivalents at beginning of the period
|
|
|
6,929
|
|
|
|
2,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
7,452
|
|
|
$
|
3,149
|
|
|
$
|
7,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-23
Molycorp, LLC (the Company or Molycorp)
was formed on September 9, 2009, as a Delaware limited
liability company. Upon such formation, the members of Molycorp
Minerals, LLC (Molycorp Minerals) exchanged their
ownership interests for ownership interests in Molycorp. These
transactions were accounted for as a reorganization of entities
under common control at historical cost. Accordingly, the
accompanying financial information for periods prior to
Molycorps formation is the historical financial
information of Molycorp Minerals.
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.
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.
F-24
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
(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 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
of the Securities and Exchange Commission. As interim financial
statements, they do not include all information and notes
required by GAAP for complete financial statements. 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, 2010, and for all periods presented. These
unaudited consolidated financial statements and related notes
should be read in conjunction Molycorps audited
consolidated financial statements and related notes for the year
ended December 31, 2009, and the period from June 12,
2008 (Inception) through December 31, 2008. 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.
|
|
(3)
|
Liquidity
and Capital Requirements
|
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 $511 million through
2012 to restart mining operations, construct and refurbish
processing facilities and other infrastructure at the Mountain
Pass facility and expand into metals and alloys production.
Capital expenditures under this plan total approximately
$53 million in 2010. The Company expects to finance these
expenditures, as well as its working capital requirements, with
proceeds from planned public
and/or
private offerings of its securities, traditional debt financing,
project financing and/or federal government programs. There can
be no assurance that the Company will be successful in the
anticipated offerings or that it will be successful in raising
additional capital in the future on terms acceptable to the
Company, or at all.
If the Company is unable to raise sufficient capital through the
planned securities offerings, additional capital contributions
from existing members or other alternative sources of financing,
management will implement a short-term business plan in 2010.
Under this plan, capital expenditures will be curtailed at
mid-year and limited operations at the Mountain Pass facility
will continue through March 31, 2011. The Company believes
that it will be able to fund the short-term business plan with
existing cash and cash equivalents, which totaled
$7.5 million at March 31, 2010, and funding
commitments from its members totaling $20.0 million.
The accompanying financial statements have been prepared on a
going concern basis under which the Company is expected to be
able to realize its assets and satisfy its liabilities in the
normal course of business. To continue as a going concern beyond
March 31, 2011 and in order to continue the restart of
mining operations and modernization of the Mountain Pass
facility, the Company will need to complete the planned
securities offerings or obtain alternative sources of financing.
Absent additional financing, the Company will not have the
resources to execute its current business plan.
F-25
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
(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. 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 intangible asset, and the adequacy of the
Companys asset retirement obligations. The current
economic environment has increased the degree of uncertainty
inherent in these estimates and the underlying assumptions.
|
|
(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. Our reported
revenues are presented net of freight and shipping costs.
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.
The Company considers cash and all highly liquid investments
with an original maturity of three months or less to be cash
equivalents.
|
|
(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,
2010 and December 31, 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.
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, 2010 and
2009, and cumulatively for the period from June 12, 2008
F-26
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Condensed Consolidated Financial
Statements (Continued)
(Inception) through March 31, 2010, the Company recognized
write-downs of $0.6 million $2.2 million, and
$19.1 million, respectively, as a result of declines in
certain REO market prices.
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 March 31, 2010 and December 31, 2009, inventory
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Work in process
|
|
$
|
4,863
|
|
|
$
|
4,797
|
|
Finished goods
|
|
|
1,917
|
|
|
|
2,685
|
|
Materials and supplies
|
|
|
1,179
|
|
|
|
1,063
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
7,959
|
|
|
$
|
8,545
|
|
|
|
|
|
|
|
|
|
|
Long term:
|
|
|
|
|
|
|
|
|
Concentrate stockpiles
|
|
$
|
11,840
|
|
|
$
|
11,844
|
|
Work in process
|
|
|
94
|
|
|
|
|
|
Finished goods
|
|
|
199
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
Total long term
|
|
$
|
12,133
|
|
|
$
|
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
$3.4 million and $0.4 million in plant modernization
costs in the three months ended March 31, 2010 and 2009,
respectively.
Mineral properties at March 31, 2010 and December 31,
2009, represent the purchase price allocated to mineral
resources associated with the Mountain Pass facility. The
Company will begin to amortize such mineral properties using the
units of production method over estimated proven and probable
reserves once mining operations resume, which is currently
expected to occur in late 2010.
F-27
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Condensed Consolidated Financial
Statements (Continued)
At March 31, 2010 and December 31, 2009, property,
plant and equipment consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
800
|
|
|
$
|
800
|
|
Land improvements (15 years)
|
|
|
17,954
|
|
|
|
17,954
|
|
Buildings and improvements (4 to 27 years)
|
|
|
8,458
|
|
|
|
8,458
|
|
Plant and equipment (2 to 12 years)
|
|
|
12,006
|
|
|
|
12,065
|
|
Vehicles (7 years)
|
|
|
1,055
|
|
|
|
1,023
|
|
Computer software (5 years)
|
|
|
1,147
|
|
|
|
1,116
|
|
Furniture and fixtures (5 years)
|
|
|
39
|
|
|
|
41
|
|
Construction in progress
|
|
|
9,947
|
|
|
|
6,506
|
|
Mineral properties
|
|
|
23,138
|
|
|
|
23,138
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment at cost
|
|
|
74,544
|
|
|
|
71,101
|
|
Less accumulated depreciation
|
|
|
(5,731
|
)
|
|
|
(4,749
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
68,813
|
|
|
$
|
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 did not
recognize any impairment for the three months ended
March 31, 2010 or 2009.
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, 2010 and 2009, and cumulatively for the
period from June 12, 2008 (Inception) through
March 31, 2010 was $16,250, $16,250, and $98,250,
respectively. Amortization expense is estimated to be $65,000
annually for the following five years.
|
|
(h)
|
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) called
Sumikin Molycorp (SMO). The Company sold its interest in the
joint venture to Sumitomo on July 9, 2009 for cash
consideration of $9.7 million and recognized no gain.
F-28
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Condensed Consolidated Financial
Statements (Continued)
Accrued expenses as of March 31, 2010 and December 31,
2009 consisted of the following: (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
Waste disposal accrual
|
|
$
|
1,875
|
|
|
$
|
1,500
|
|
Completion bonus
|
|
|
|
|
|
|
1,445
|
|
Defined contribution plan
|
|
|
228
|
|
|
|
988
|
|
Other accrued expenses
|
|
|
2,268
|
|
|
|
2,030
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
4,371
|
|
|
$
|
5,963
|
|
|
|
|
|
|
|
|
|
|
|
|
(j)
|
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. Depreciation expense
associated with the asset retirement cost was $0.3 million,
$0.3 million and $1.8 million for the three months
ended March 31, 2010, and 2009, and cumulatively for the
period from June 12, 2008 (Inception) through
March 31, 2010, respectively. The following table presents
the activity in our asset retirement obligation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Year
|
|
|
Ended
|
|
Ended
|
|
|
March 31, 2010
|
|
December 31, 2009
|
|
Balance at beginning of period
|
|
$
|
14,202
|
|
|
$
|
13,583
|
|
Obligations settled
|
|
|
|
|
|
|
(387
|
)
|
Accretion expense
|
|
|
263
|
|
|
|
1,006
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
14,465
|
|
|
$
|
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
March 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.
As a limited liability company, the Company does not incur or
pay federal or state income taxes. Rather, taxable income and
losses of the Company are reported on the income tax returns of
the Companys members. As a result, a provision for incomes
taxes has not been included in the consolidated statements of
operations.
F-29
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Condensed Consolidated Financial
Statements (Continued)
Members interests are represented by 48,219,217 and
44,308,804 shares of the Companys common stock at
March 31, 2010 and December 31, 2009, respectively.
Paid-in capital in the consolidated balance sheets represents
amounts paid by members or interests earned under certain stock
compensation agreements. For the three months ended
March 31, 2010, the Company received contributions from its
members totaling $10 million in exchange for
3,785,945 shares of common stock.
|
|
(m)
|
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 income
(loss) per share reflects the dilution of potential common
shares in the weighted average number of common shares
outstanding during the year, 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 share equivalents at the average
selling prices of the shares during the year. For the three
months ended March 31, 2010, and 2009 there were no
outstanding stock options or other potential shares outstanding.
|
|
(n)
|
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)
|
Commitments
and Contingencies
|
The Company is self-insured for employee healthcare costs,
subject to a related stop-loss agreement with an insurance
company. The Companys accrued liability associated with
this obligation was $0.1 million as of March 31, 2010
and December 31, 2009.
|
|
(b)
|
Future
Operating Lease Commitments
|
The Company has certain operating leases for office space, land,
and certain equipment. Remaining annual minimum payments under
these leases at March 31, 2010 were $0.1 million in
2010 and $0.1 million in 2011.
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 the related 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 March 31,
2010, 60 employees, or approximately 50% of the
Companys workforce, were covered by this collective
bargaining agreement.
F-30
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
(e)
|
Reclamation
Surety Bonds
|
As of March 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.
|
|
(f)
|
Insurance
Premium Financing Agreement
|
As of March 31, 2009, Molycorp was a party to a short-term
premium financing agreement related to its property insurance
policies. The unpaid principal balance of $0.3 million is
included in accrued expenses in the consolidated balance sheet.
The agreement requires monthly principal and interest payments
of $41,592 through November 2010.
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
must obtain a number of additional permits in order to complete
the plant modernization and expansion. 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 anticipates
additional conditions, requirements and obligations associated
with the additional permits required for future operations,
including the modernization and expansion of the Mountain Pass
facility. Certain conditions could be imposed in order to obtain
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 issued, maintained or renewed in
a timely fashion if at all, or may be issued or 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 obtain,
maintain or renew permits, could have a material adverse effect
on the Companys business, results of operations and
financial condition.
|
|
(6)
|
Stock
Based Compensation
|
The Company issued an option to its Chief Executive Officer on
April 10, 2009 for the purchase of 145,214 shares of
Company Common stock. 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 124,468 shares of common stock with a
stated exercise price of $2.41 per share. On February 1,
2010 the remaining options were exercised.
|
|
(a)
|
Limited
Number of Products
|
The Companys current operations are limited to the
production and sale of REOs from stockpiled concentrates and it
does 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 of lanthanum concentrate accounted for 77% and 63% of our
sales for the three months ended March 31, 2010 and 2009,
respectively.
F-31
MOLYCORP,
LLC
(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 Companys lanthanum
concentrate and its largest customer comprised 77% the
Companys total product revenue for the three months ended
March 31, 2010. There were no other customers comprising
more than 10% of total product revenue during this time period.
For the three months ended March 31, 2009, the
Companys two largest customer comprised 63% (59% of the
total corresponds to the Companys largest customer and 4%
of the total corresponds to the Companys second largest
customer) of the total product revenue.
|
|
(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, the Companys members 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 the Companys
Mountain Pass facility closure and reclamation obligations. The
total amount of collateral provided by the members at
March 31, 2010 was $18.2 million. The Company has
agreed to pay each member a 5% annual return on the amount of
collateral provided. Under the terms of the agreement, the
members may receive quarterly payments, delayed payments, or
payments-in-kind.
During the three months ended March 31, 2010 and 2009, the
Company recognized approximately $0.2 million and
$0.1 million, respectively in compensation to the members
under this agreement which is included in selling, general and
administrative expense in the consolidated statement of
operations. Accrued expenses in the consolidated balance sheets
included payables to members totaling $0.8 million and
$0.6 million at March 31, 2010 and December 31,
2009, respectively, relating to these agreements.
|
|
(a)
|
Corporate
Reorganization
|
Molycorp, Inc. was formed on March 4, 2010, and 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
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. All of the shares of Class A common stock and
Class B common stock will convert into shares of common
stock immediately prior to the consummation of an initial public
offering of Molycorp, Inc. common stock.
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 losses of $7.7 million and $5.6 million for
the three months ended March 31, 2010 and 2009,
respectively, would have generated pro forma unaudited deferred
income tax benefits of approximately $3.0 million and $2.2
million for the three
F-32
MOLYCORP,
LLC
(A
Company in the Development Stage)
Notes to
Condensed Consolidated Financial
Statements (Continued)
months ended March 31, 2010 and 2009, respectively,
assuming a combined federal and state statutory income tax rate.
However, as realization of such tax benefit would not have been
assured, we would also have established a valuation allowance to
eliminate such pro forma tax benefits.
|
|
(b)
|
Related
Party Transaction
|
On April 16, 2010, Molycorp Minerals, LLC executed an
agreement under which an affiliate of one of Molycorp,
Inc.s stockholders agreed to purchase up to
$5 million of product from Molycorp, Inc. through
December 31, 2010. Purchases under the agreement would
occur at Molycorp, Inc.s request at a price per pound
based on published index pricing. Upon the resale of any
acquired product, Molycorp, Inc. is entitled to receive 50% of
the sales price that exceeds a specified level.
On May 28, 2010, existing stockholders of Molycorp, Inc.
purchased additional shares of its Class A common stock for
$5.0 million.
On July 9, 2010, Molycorp, Inc. completed a 38.23435373-for-one
stock split with respect to its Class A common stock and
Class B common stock, which has been retroactively
reflected for all periods presented in the accompanying
financial statements.
F-33
28,125,000
Shares
Molycorp, Inc.
Common Stock
PROSPECTUS
Joint Book-Running Managers
Morgan Stanley
J.P. Morgan
Co-Managers
CIBC
Credit Suisse
Stifel Nicolaus Weisel
Dahlman Rose & Company
Piper Jaffray
Knight/Houlihan Lokey
Griffiths McBurney Corp.
Dealer
Prospectus Delivery Obligation
Until ,
2010 (the 25th day after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
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, the New York Stock Exchange
Listing fee and the FINRA fee are estimates.
|
|
|
|
|
|
|
Amount
|
|
|
SEC Registration Fee
|
|
$
|
39,204
|
|
NYSE Listing Fee
|
|
|
153,500
|
|
FINRA Filing Fee
|
|
$
|
55,485
|
|
Accounting Fees and Expenses
|
|
|
270,000
|
|
Legal Fees and Expenses
|
|
|
1,300,000
|
|
Printing and Engraving Expenses
|
|
|
250,000
|
|
Blue Sky Fees and Expenses
|
|
|
45,000
|
|
Transfer Agent and Registrar Fees and Expenses
|
|
|
3,500
|
|
Miscellaneous Expenses
|
|
|
200,000
|
|
|
|
|
|
|
Total
|
|
$
|
2,316,689
|
|
|
|
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.
II-1
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 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 occurring 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.
II-2
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, 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 April 15, 2010, in connection with our corporate
reorganization, the members of Molycorp, LLC exchanged 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 to Molycorp, LLC in exchange
for 1,261,149.25 shares of Class A common stock of
Molycorp, Inc., which is effectively equivalent to approximately
48,969,449 shares of common stock of Molycorp, Inc. (based
on an assumed offering price of $14.00 per share). Additionally
on April 15, 2010, all of the holders of profits interests
in Molycorp Minerals, LLC contributed all of their profits
interests to Molycorp, Inc. in exchange for
78,788.33 shares of Class B common stock of Molycorp,
Inc., which is effectively equivalent to approximately
2,232,739 shares of common stock of Molycorp, Inc. (based
on an assumed offering price of $14.00 per share).
On May 28, 2010, Molycorp, Inc. issued and sold an
aggregate of 49,519.69 shares of its Class A common
stock of Molycorp, Inc., which is effectively equivalent to
approximately 1,922,812 shares of common stock of Molycorp,
Inc. (based on an assumed offering price of $14.00 per share),
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 an assumed offering
price of $14.00 per share), for aggregate proceeds of $5,000,000.
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
|
|
3
|
.1**
|
|
Certificate of Incorporation of Molycorp, Inc.
|
|
3
|
.2**
|
|
Form of Amended and Restated Certificate of Incorporation of
Molycorp, Inc.
|
|
3
|
.3**
|
|
Bylaws of Molycorp, Inc.
|
|
3
|
.4**
|
|
Form of Amended Bylaws of Molycorp, Inc.
|
|
4
|
.1**
|
|
Form of Certificate of Molycorp, Inc. Common Stock (after
consummation of the offering)
|
|
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
|
|
10
|
.2**
|
|
Letter Agreement, dated April 16, 2010, between Molycorp
Minerals, LLC and Traxys North America LLC
|
|
10
|
.3**
|
|
Employment Agreement, dated November 1, 2009, between
Molycorp, LLC and Mark A. Smith
|
|
10
|
.4**
|
|
Contribution Agreement, dated April 15, 2010, by and among
Molycorp, Inc., Molycorp, LLC, Molycorp Minerals, LLC and the
parties listed therein
|
|
10
|
.5**
|
|
Stockholders Agreement, dated April 15, 2010, by and among
Molycorp, Inc. and the parties listed therein
|
|
10
|
.6**
|
|
Registration Rights Agreement, dated April 15, 2010, by and
among Molycorp, Inc. and the parties listed therein
|
|
10
|
.7**
|
|
Form of Restricted Stock Agreement
|
|
10
|
.8**
|
|
Molycorp Minerals, LLC Management Incentive Compensation Plan,
effective as of April 1, 2009
|
|
10
|
.9**
|
|
Termination and Mutual Release Agreement, dated June 16,
2010, between Molycorp Minerals, LLC and Traxys North America LLC
|
|
10
|
.10**
|
|
Sales/Buy-Back Agreement, dated June 1, 2010, between Molycorp
Minerals, LLC and Traxys North America LLC
|
|
10
|
.11**
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and Mark A. Smith
|
II-3
|
|
|
|
|
|
10
|
.12**
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and James S. Allen
|
|
10
|
.13**
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and John F. Ashburn, Jr.
|
|
10
|
.14**
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and John L. Burba
|
|
10
|
.15**
|
|
Molycorp, Inc. 2010 Equity and Performance Incentive Plan
|
|
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
|
|
10
|
.17**
|
|
Summary of Collateral Arrangement for Surety Bonds
|
|
10
|
.18**
|
|
Form of Director and Officer Indemnification Agreement
|
|
16
|
.1**
|
|
Letter from KPMG LLP to the Securities and Exchange Commission
|
|
21
|
.1**
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
23
|
.2**
|
|
Consent of SRK Consulting (U.S.), Inc.
|
|
23
|
.3**
|
|
Consent of Jones Day (included in Exhibit 5.1)
|
|
23
|
.4**
|
|
Consent of Roskill Consulting Group Limited
|
|
23
|
.5**
|
|
Consent of Industrial Minerals Company of Australia Pty Ltd.
|
|
24
|
.1**
|
|
Power of Attorney
|
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
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.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as a 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 this offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
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
29th day of July 2010.
Molycorp,
Inc.
|
|
|
|
By:
|
/s/ John F.
Ashburn, Jr., Esq.
|
John F. Ashburn, Jr., Esq.
Executive Vice President and General Counsel
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
|
|
|
|
|
|
|
*
Mark
A. Smith
|
|
President and Chief Executive Officer and Director (Principal
Executive Officer)
|
|
July 29, 2010
|
|
|
|
|
|
*
James
S. Allen
|
|
Chief Financial Officer and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
|
|
July 29, 2010
|
|
|
|
|
|
*
Russell
D. Ball
|
|
Director
|
|
July 29, 2010
|
|
|
|
|
|
*
Ross
R. Bhappu
|
|
Chairman of the Board
|
|
July 29, 2010
|
|
|
|
|
|
*
Brian
T. Dolan
|
|
Director
|
|
July 29, 2010
|
|
|
|
|
|
*
Charles
R. Henry
|
|
Director
|
|
July 29, 2010
|
|
|
|
|
|
*
Mark
S. Kristoff
|
|
Director
|
|
July 29, 2010
|
|
|
|
|
|
*
Alec
Machiels
|
|
Director
|
|
July 29, 2010
|
|
|
|
|
|
*
Jack
E. Thompson
|
|
Director
|
|
July 29, 2010
|
|
|
|
* |
|
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 has been
previously filed on behalf of such directors and officers. |
|
|
By |
/s/ John F.
Ashburn, Jr., Esq.
|
Attorney-in-Fact
July 29, 2010
II-5
EXHIBIT INDEX
|
|
|
|
|
|
1
|
.1**
|
|
Form of Underwriting Agreement
|
|
3
|
.1**
|
|
Certificate of Incorporation of Molycorp, Inc.
|
|
3
|
.2**
|
|
Form of Amended and Restated Certificate of Incorporation of
Molycorp, Inc.
|
|
3
|
.3**
|
|
Bylaws of Molycorp, Inc.
|
|
3
|
.4**
|
|
Form of Amended Bylaws of Molycorp, Inc.
|
|
4
|
.1**
|
|
Form of Certificate of Molycorp, Inc. Common Stock (after
consummation of the offering)
|
|
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
|
|
10
|
.2**
|
|
Letter Agreement, dated April 16, 2010, between Molycorp
Minerals, LLC and Traxys North America LLC
|
|
10
|
.3**
|
|
Employment Agreement, dated November 1, 2009, between
Molycorp, LLC and Mark A. Smith
|
|
10
|
.4**
|
|
Contribution Agreement, dated April 15, 2010, by and among
Molycorp, Inc., Molycorp, LLC, Molycorp Minerals, LLC and the
parties listed therein
|
|
10
|
.5**
|
|
Stockholders Agreement, dated April 15, 2010, by and among
Molycorp, Inc. and the parties listed therein
|
|
10
|
.6**
|
|
Registration Rights Agreement, dated April 15, 2010, by and
among Molycorp, Inc. and the parties listed therein
|
|
10
|
.7**
|
|
Form of Restricted Stock Agreement
|
|
10
|
.8**
|
|
Molycorp Minerals, LLC Management Incentive Compensation Plan,
effective as of April 1, 2009
|
|
10
|
.9**
|
|
Termination and Mutual Release Agreement, dated June 16,
2010, between Molycorp Minerals, LLC and Traxys North America LLC
|
|
10
|
.10**
|
|
Sales/Buy-Back Agreement, dated June 1, 2010, between Molycorp
Minerals, LLC and Traxys North America LLC
|
|
10
|
.11**
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and Mark A. Smith
|
|
10
|
.12**
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and James S. Allen
|
|
10
|
.13**
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and John F. Ashburn, Jr.
|
|
10
|
.14**
|
|
Executive Employment Agreement, dated May 21, 2010, between
Molycorp, Inc. and John L. Burba
|
|
10
|
.15**
|
|
Molycorp, Inc. 2010 Equity and Performance Incentive Plan
|
|
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
|
|
10
|
.17**
|
|
Summary of Collateral Arrangement for Surety Bonds
|
|
10
|
.18**
|
|
Form of Director and Officer Indemnification Agreement
|
|
16
|
.1**
|
|
Letter from KPMG LLP to the Securities and Exchange Commission
|
|
21
|
.1**
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
23
|
.2**
|
|
Consent of SRK Consulting (U.S.), Inc.
|
|
23
|
.3**
|
|
Consent of Jones Day (included in Exhibit 5.1)
|
|
23
|
.4**
|
|
Consent of Roskill Consulting Group Limited
|
|
23
|
.5**
|
|
Consent of Industrial Minerals Company of Australia Pty Ltd.
|
|
24
|
.1**
|
|
Power of Attorney
|