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EX-10.3 - EXHIBIT 10.3 - Molycorp, Inc.ex103_wsfsappointmentandre.htm
EX-10.2 - EXHIBIT 10.2 - Molycorp, Inc.ex102wsfsappointmentandres.htm
EX-95.1 - EXHIBIT 95.1 - Molycorp, Inc.mcp10q6302015ex951.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-34827
Molycorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 
(State or other jurisdiction of
incorporation or organization)
27-2301797 
(I.R.S. Employer
Identification No.)
5619 Denver Tech Center Parkway, Suite 1000 
Greenwood Village, Colorado 
(Address of principal executive offices)
80111 
(Zip Code)
(303) 843-8040
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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.
Large accelerated filer ¨


Accelerated filer x


Non-accelerated filer ¨
(Do not check if a
smaller reporting company)
Smaller reporting company ¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 14, 2015, the registrant had 259,276,814 shares of common stock, par value $0.001 per share, outstanding.



 


TABLE OF CONTENTS

 
PAGE
 
 
 
 
 
 
 
 
 





DEFINITIONS
The following table includes acronyms and abbreviations used in this report as well as definitions of certain rare earths, rare metals and mining terms often used in our public filings. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q ("Report") to “Molycorp,” “we,” “our” or “us” refer to Molycorp, Inc. and its consolidated subsidiaries.
ARO
Asset Retirement Obligation.
ASC
Accounting Standards Codification.
ASP
Average Selling Price.
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.
ASU
Accounting Standards Update.
Bastnasite
Bastnasite is a mixed-lanthanide fluoro-carbonate mineral (Ln F CO3) that currently provides the bulk of the world's supply of the light REEs. Bastnasite and monazite are the two most common sources of REEs. Bastnasite is found in carbonatites, igneous carbonate rocks that melt at unusually low temperatures.
Board
Molycorp's Board of Directors.
Bonded magnet
Bonded neodymium-magnets are prepared by melt spinning a thin ribbon of the NdFeB alloy. The ribbon contains randomly oriented Nd2Fe14B nano-scale grains. This ribbon is then pulverized into particles, mixed with a polymer and either compression or injection molded into bonded magnets. Bonded magnets offer less flux than sintered magnets, but can be net-shape formed into intricately shaped parts and do not suffer significant eddy current losses.
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. Cerium has two relatively stable oxidation states, enabling both the storage of oxygen and its widespread use in catalytic converters. Cerium is widely used in the glass polish industry and in many other applications.
CHP
Combined Heat and Power.
Concentrate
Concentrate is 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 desired metal and/or metal minerals, and discarding the waste minerals. The resulting “concentrate” of minerals typically has an order of magnitude higher content of minerals than the beginning ore material.
Cut-off grade
Cut-off grade is 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 natural and unseparated combination of neodymium and praseodymium, which is approximately 75% neodymium and 25% praseodymium, depending on the ore.
Dysprosium
Dysprosium (Dy) is a REE with a metallic silver lust. A few percent of Dy is often added to high-power NdFeB magnets to increase their resistance to demagnetization. A minor use of dysprosium is in the magnetostrictive alloy, based on DyTbFe, called terfenol-D.
EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization.
Europium
Europium (Eu) is a REE with luminescent properties. Excitation of the europium atom, by absorption of energy, results in a visible emission. Almost all practical uses of europium utilize this luminescent behavior.
Exchange Act
Securities Exchange Act of 1934, as amended.
FASB
Financial Accounting Standards Board.
FCC
Fluid Catalytic Cracking.
GAAP
Accounting principles generally accepted in the United States.
Gadolinium
Gadolinium (Gd) is a REE that absorbs neutrons and therefore is used for shielding and controlling neutron radiography and in nuclear reactors. Because of its paramagnetic properties, solutions of organic gadolinium complexes and gadolinium compounds are popular intravenous contrast enhancing agents for medical Magnetic Resonance Imaging (MRI). Gadolinium is sometimes added to samarium cobalt magnets to make their magnetic properties less temperature dependent.
Gallium
Gallium is a rare metal not found in nature, but it is easily obtained by smelting. Very pure gallium metal has a brilliant silvery color and its solid metal fractures conchoidally like glass. Almost all gallium is used for microelectronics.
Grade
The average REE content, as determined by assay of a metric ton of ore.

3


HREE
Heavy rare earth element.
Indium
Indium is a rare, very soft, malleable and easily fusible post-transition metal that is chemically similar to gallium and thallium, and shows intermediate properties between these two. Indium's current primary application is to form transparent electrodes from indium tin oxide (ITO) in liquid crystal displays and touchscreens, and this use largely determines its global mining production. It is widely used in thin-films to form lubricated layers. It is also used for making particularly low melting point alloys, and is a component in some lead-free solders.
Lanthanum
Lanthanum (La) is the first member of the Lanthanide series of REEs. Lanthanum is a strategically important REE due to its use in FCCs, which are used in the production of transportation and aircraft fuel. Lanthanum is also used in fuel cells, batteries, and many other products.
LED
Light-emitting diode.
LREC
Light rare earth concentrate (purified and unseparated).
LREE
Light rare earth element.
MD&A
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Mill
A processing plant that produces a concentrate of the valuable minerals contained in an ore.
Mineralization
The process or processes by which a mineral or minerals are introduced into a rock, resulting in a valuable or potentially valuable deposit.
Molycorp Canada
Molycorp Minerals Canada ULC (formerly Neo Material Technologies Inc.).
Mountain Pass
The Molycorp Minerals, LLC rare earth minerals mining and processing facility located in Mountain Pass, California.
Monazite
Monazite is a reddish-brown phosphate mineral. Monazite minerals are typically accompanied by concentrations of uranium and thorium. This has historically limited the processing of monazite, however this mineral is becoming more attractive because it typically has slightly elevated concentrations of mid-to heavy rare earths as compared to rare earth-containing minerals such as bastnasite.
mt
Metric Ton = 2,205 pounds.
Niobium
Niobium is a rare, soft, grey, ductile transition metal found in the mineral pyrochlore, the main commercial source for niobium, and columbite. Niobium is used mostly in alloys, the largest part in special steel such as that used in gas pipelines. Although alloys contain only a maximum of 0.1% of niobium, that small percentage improves the strength of the steel. The temperature stability of niobium-containing superalloys is important for its use in jet and rocket engines. Niobium is also used in various superconducting materials, among other applications.
NdFeB
Neodymium-iron-boron alloy.
NdPr
Neodymium/Praseodymium.
Nd2O3
Neodymium(III) oxide or neodymium sesquioxide is the chemical compound composed of neodymium and oxygen.
Neodymium
Neodymium (Nd) is a REE used in a wide variety of applications, particularly as a key constituent of NdFeB permanent magnets and as an additive to capacitor dielectrics. NdFeB magnets have a relatively
high power/weight ratio, and are used in a large variety of motors, generators, sensors and computer hard disk drives. Capacitors containing neodymium are found in cellular telephones, computers and nearly all other electronic devices. A minor application of neodymium is in lasers.
Neo PowdersTM
NdFeB magnet powders.
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) is a REE that generally comprises about 4% of the lanthanide content of bastnasite and is used in several applications, including in NdFeB magnetic materials and as a coloring pigment in photographic filters, airport signal lenses, and welder's glasses.
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.

4


REE
Rare earth element.
Recovery
The percentage of contained metal actually extracted from ore in the course of processing such ore.
REO
Rare earth oxide.
Reserves
That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Same definition as 'ore'.
Rhenium
Rhenium is a silvery-white, heavy, third-row transition metal. With an estimated average concentration of 1 part per billion (ppb), rhenium is one of the rarest elements in the Earth's crust. The free element has the third-highest melting point and highest boiling point of any element. Rhenium resembles manganese chemically and is obtained as a by-product of molybdenum and copper ore's extraction and refinement. Nickel-based superalloys of rhenium are used in the combustion chambers, turbine blades, and exhaust nozzles of jet engines. These alloys contain up to 6% rhenium, making jet engine construction the largest single use for the element, with the chemical industry's catalytic uses being next-most important.
Samarium
Samarium (Sm) is a REE predominantly used to produce samarium-cobalt magnets. Although these magnets are slightly less powerful than NdFeB magnets at room temperature, samarium cobalt magnets can be used over a wider range of temperatures and are less susceptible to corrosion.
SEC
Securities and Exchange Commission.
SEG
Samarium, europium, gadolinium.
Sintered magnet
Sintered NdFeB-magnets are prepared by the raw materials being melted in a furnace, cast into a mold and cooled to form ingots. The ingots are pulverized and milled to tiny particles, which then undergo a process of liquid-phase sintering whereby the powder is magnetically aligned into dense blocks which are then heat-treated, cut to shape, surface treated and magnetized.
Tantalum
Tantalum is a rare, hard, blue-gray, lustrous transition metal that is highly corrosion resistant. It is part of the refractory metals group, which are widely used as minor component in alloys. The chemical inertness of tantalum makes it a valuable substance for laboratory equipment and a substitute for platinum, but its main use today is in tantalum capacitors in electronic equipment such as mobile phones, DVD players, video game systems and computers.
Terbium
Terbium (Tb) is a REE used primarily as a phosphor, either in fluorescent lamps or x-ray screens. It can replace dysprosium in NdFeB magnets but usually does not because of its cost. A minor use of terbium is in the magnetostrictive alloy, based on DyTbFe, called terfenol-D.
Ton
2,000 pounds.
Yttrium
Yttrium (Y), although not a lanthanide series element, is often considered to be a REE and its behavior is similar to heavy REEs. It is predominantly utilized in lighting applications and ceramics. Other uses include resonators, lasers, microwave communication devices and other electronic devices.
Zirconium oxide
Zirconium oxide is a white amorphous powder that is insoluble in water and highly refractory, used as a pigment for paints, a catalyst, and an abrasive.



5


PART I. FINANCIAL INFORMATION

The condensed, unaudited and not reviewed consolidated financial statements (Debtor-in-Possession) included in this report on Form 10-Q for the quarterly period ended June 30, 2015 ("Report") have not been reviewed by an independent public accountant as required by Rule 10-01(d) of Regulation S-X.
On June 25, 2015, Molycorp, Inc., together with certain of its subsidiaries, filed voluntary petitions for reorganization under chapter 11 (the "Chapter 11 Cases") of title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware. In connection with the filing of the Chapter 11 Cases and due to a reduction in anticipated performance of the Mountain Pass operations, particularly in anticipation of the implementation of the LOP, as defined in this Report, a significant portion of our fixed assets likely will be materially impaired. Only after the finalization and adoption of the LOP will we be in a position to assess the value and the related impairment of the Mountain Pass assets.
As a result, our independent auditor, KPMG LLP, will be unable to complete a review of the consolidated financial statements included in this Report in accordance with AU section 722, Interim Financial Statements (“AU 722”), until such time as the impairment testing of our fixed assets is completed. Accordingly, since this Report is considered deficient with incomplete information and absent a review by an independent public accountant as required by Rule 10-01(d) of Regulation S-X, we expect to file an amendment to this Report upon completion of measuring and recording the impairment of our fixed assets, and after KPMG LLP completes its review of the amended report on Form 10-Q for the quarterly period ended June 30, 2015 in accordance with AU 722.
Section 906 of the Sarbanes-Oxley Act of 2002 requires our chief executive officer and chief financial officer to certify that this Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act. Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 require our chief executive officer and chief financial officer to certify that the financial statements and other the information contained in the Report fairly present, in all material respects, our financial condition and results of operations. Before our officers can make such certifications, we must complete the analysis of the impairment of our Mountain Pass assets. Once we complete this analysis, and KPMG LLP completes its review under AU 722, we expect to file an amendment to this Report in which our chief executive officer and chief financial officer will make the certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.




6

 

ITEM 1. FINANCIAL STATEMENTS
MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Condensed Consolidated Balance Sheets at June 30, 2015 (Unaudited and Not Reviewed) and at December 31, 2014
(In thousands, except shares and per share amounts)
 
June 30, 2015
 
December 31, 2014
ASSETS
 
Not Reviewed
 
 
Cash and cash equivalents
$
76,776

 
$
211,685

Trade accounts receivable, net
49,264

 
44,575

Inventory (Note 4)
171,308

 
169,323

Prepaid expenses and other current assets
37,815

 
29,332

Total current assets
335,163

 
454,915

Deposits
31,248

 
31,078

Property, plant and equipment, net (Note 5)
1,675,558

 
1,707,970

Inventory, non-current (Note 4)
24,321

 
25,127

Intangible assets, net
207,617

 
215,871

Investments
7,852

 
8,801

Goodwill
102,808

 
102,808

Other non-current assets
3,077

 
29,416

Total assets
$
2,387,644

 
$
2,575,986

LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable
$
24,841

 
$
40,842

Accrued expenses
28,544

 
33,666

Interest payable
5

 
18,300

Debt and capital lease obligations, current (Note 6)
14,241

 
12,560

Other current liabilities
8,284

 
4,686

Total current liabilities
75,915

 
110,054

 
 
 
 
Liabilities subject to compromise (Note 2)
1,833,331

 

 
 
 
 
Asset retirement obligation, net of current portion
10,977

 
17,799

Deferred tax liabilities, non-current
62,477

 
63,802

Debt and capital lease obligations, net of current portion (Note 6)
17,530

 
1,559,781

Other non-current liabilities
11,764

 
20,247

Total liabilities     
2,011,994

 
1,771,683

Commitments and contingencies (Note 10)


 


Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 700,000,000 shares authorized at June 30, 2015 and December 31, 2014
260

 
260

Additional paid-in capital
2,248,794

 
2,245,478

Accumulated other comprehensive income (loss)
1,402

 
(3,323
)
Accumulated deficit
(1,882,310
)
 
(1,445,408
)
Total Molycorp stockholders’ equity
368,146

 
797,007

Noncontrolling interests
7,504

 
7,296

Total stockholders’ equity
375,650

 
804,303

Total liabilities and stockholders’ equity
$
2,387,644

 
$
2,575,986


See accompanying notes to the condensed consolidated financial statements.

7


MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(In thousands, except shares and per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
Not Reviewed
 
 
 
Not Reviewed
 
 
Revenues
$
113,842

 
$
116,907

 
$
220,266

 
$
235,432

Costs of sales:
 
 
 
 
 
 
 
Costs excluding depreciation and amortization
(125,674
)
 
(113,399
)
 
(231,549
)
 
(238,872
)
Depreciation and amortization
(25,868
)
 
(20,079
)
 
(51,148
)
 
(36,226
)
Gross loss
(37,700
)
 
(16,571
)
 
(62,431
)
 
(39,666
)
Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
(26,253
)
 
(20,424
)
 
(47,710
)
 
(38,379
)
Depreciation, amortization and accretion
(1,614
)
 
(7,257
)
 
(7,186
)
 
(14,459
)
Revisions in estimated ARO cash flows
4,042

 

 
4,042

 

Research and development
(3,484
)
 
(4,483
)
 
(6,625
)
 
(7,249
)
Operating loss
(65,009
)
 
(48,735
)
 
(119,910
)
 
(99,753
)

 
 
 
 
 
 
 
Other (expense) income
(3,017
)
 
296

 
(894
)
 
770

Gain on conversion of convertible notes
10,895

 

 
10,895

 

Interest expense
(54,869
)
 
(41,285
)
 
(101,169
)
 
(76,925
)
Reorganization items, net (Note 2)
(219,133
)
 

 
(219,133
)
 

Loss before income taxes and equity earnings
(331,133
)
 
(89,724
)
 
(430,211
)
 
(175,908
)
Income tax (expense) benefit
(3,352
)
 
7,427

 
(6,320
)
 
9,334

Equity in income (loss) of affiliates
59

 
(1,553
)
 
(164
)
 
(3,275
)
Net loss
(334,426
)
 
(83,850
)
 
(436,695
)
 
(169,849
)
Net income attributable to noncontrolling interests
143

 
49

 
207

 
112

Net loss attributable to Molycorp stockholders
$
(334,569
)
 
$
(83,899
)
 
$
(436,902
)
 
$
(169,961
)
 
 
 
 
 
 
 
 
Net loss
$
(334,426
)
 
$
(83,850
)
 
$
(436,695
)
 
$
(169,849
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
(64
)
 
(109
)
 
4,725

 
(961
)
Comprehensive loss
$
(334,490
)
 
$
(83,959
)
 
$
(431,970
)
 
$
(170,810
)
Comprehensive income (loss) attributable to:
 
 
 
 
 
 
 
Molycorp stockholders
(334,633
)
 
(84,008
)
 
(432,177
)
 
(170,922
)
Noncontrolling interest
143

 
49

 
207

 
112

 
$
(334,490
)
 
$
(83,959
)
 
$
(431,970
)
 
$
(170,810
)
 
 
 
 
 
 
 
 
Net loss attributable to Molycorp stockholders
$
(334,569
)
 
$
(83,899
)
 
$
(436,902
)
 
$
(169,961
)
Dividends on Convertible Preferred Stock

 

 

 
(2,846
)
Loss attributable to common stockholders
$
(334,569
)
 
$
(83,899
)
 
$
(436,902
)
 
$
(172,807
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding—basic
254,347,447

 
224,223,506

 
250,101,334

 
222,806,917

Basic loss per share:
$
(1.32
)
 
$
(0.37
)
 
$
(1.75
)
 
$
(0.78
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding—diluted
254,347,447

 
224,223,506

 
250,101,334

 
222,806,917

Diluted loss per share:
$
(1.32
)
 
$
(0.37
)
 
$
(1.75
)
 
$
(0.78
)

See accompanying notes to the condensed consolidated financial statements.

8



MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands, except shares and per share amounts)

 
Common Stock
Additional
Paid-In Capital
Accumulated
Other
Comprehensive Loss
Accumulated deficit
Total
Molycorp Stockholders' Equity
Non
controlling interests
Total Stockholders' Equity
 
Shares
$
Balance at December 31, 2014
259,831,422

$
260

$
2,245,478

$
(3,323
)
$
(1,445,408
)
$
797,007

$
7,296

$
804,303

 
Not Reviewed
Stock-based compensation
83,791


2,989



2,989


2,989

Conversion of Exchangeable Shares
8,423








Issuance of shares for conversion of Debentures
2,924


1



1


1

Issuance of shares for conversion of convertible notes
1,745,745

2

363



365


365

Warrants exercise (Note 8)
18,071,175

18

(18
)





Borrowed Shares returned (Note 8)
(20,466,666
)
(20
)
20






Net (loss) income




(436,902
)
(436,902
)
207

(436,695
)
Distribution to noncontrolling interests






(60
)
(60
)
Other comprehensive loss



4,725


4,725


4,725

Other


(39
)


(39
)
61

22

Balance at June 30, 2015
259,276,814

$
260

$
2,248,794

$
1,402

$
(1,882,310
)
$
368,146

$
7,504

$
375,650


 
Common Stock
Series A
Mandatory
Convertible
Preferred
Stock
Additional
Paid-In Capital
Accumulated
Other
Comprehensive Loss
Accumulated deficit
Total
Molycorp Stockholders' Equity
Non
controlling interests
Total Stockholders' Equity
 
Shares
$
Shares
$
Balance at December 31, 2013
240,380,094

$
241

2,070,000

$
2

$
2,194,405

$
(6,451
)
$
(840,474
)
$
1,347,723

$
29,339

$
1,377,062

Stock-based compensation
189,188




1,570



1,570


1,570

Conversion of Series A Mandatory Convertible Preferred Stock
4,140,000

4

(2,070,000
)
(2
)
(2
)





Conversion of Exchangeable Shares
21,313










Issuance of shares for conversion of Debentures
2,518




12



12


12

Share-lending arrangements




15,062



15,062


15,062

Net (loss) income






(169,961
)
(169,961
)
112

(169,849
)
Preferred dividends




(2,846
)


(2,846
)

(2,846
)
Distribution to noncontrolling interests








(1,135
)
(1,135
)
Other comprehensive loss





(961
)

(961
)

(961
)
Other




(263
)


(263
)
19

(244
)
Balance at June 30, 2014
244,733,113

$
245


$

$
2,207,938

$
(7,412
)
$
(1,010,435
)
$
1,190,336

$
28,335

$
1,218,671



See accompanying notes to the condensed consolidated financial statements.

9


MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
Six Months Ended June 30,
 
2015
 
2014
 
Not Reviewed
 
 
Cash flows from operating activities:
 
 
 
Net loss
$
(436,695
)
 
$
(169,849
)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
 
Depreciation, amortization and accretion
58,334

 
50,685

Deferred income tax benefit
(1,377
)
 
(14,712
)
Inventory write-downs
61,930

 
36,863

Stock-based compensation
2,714

 
2,288

Equity in results of affiliates
164

 
3,275

PIK interest
6,136

 

Gain on conversion of convertible notes
(10,895
)
 

Non-cash reorganization items, net
219,133

 

Revisions in estimated ARO cash flows
(4,042
)
 

Write-off of debt issuance costs
11,563

 

Other operating adjustments
9,875

 
5,115

Net change in operating assets and liabilities (Note 13)
(37,799
)
 
(31,913
)
Net cash used in operating activities
(120,959
)
 
(118,248
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(14,303
)
 
(44,687
)
Recovery from insurance claims

 
12,900

Other investing activities
947

 
(308
)
Net cash used in investing activities
(13,356
)
 
(32,095
)
Cash flows from financing activities:
 
 
 
Repayments of debt
1,158

 
(3,079
)
Payments of preferred dividends

 
(2,846
)
Dividend paid to noncontrolling interests
(60
)
 
(1,135
)
Other financing activities
(1,581
)
 
164

Net cash used in financing activities
(483
)
 
(6,896
)
Effect of exchange rate changes on cash
(111
)
 
(706
)
Net change in cash and cash equivalents
(134,909
)
 
(157,945
)
Cash and cash equivalents at beginning of the period
211,685

 
314,317

Cash and cash equivalents at end of period
$
76,776

 
$
156,372





See accompanying notes to the condensed consolidated financial statements.

10

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 


(1)
Basis of Presentation
The accompanying unaudited and not reviewed condensed consolidated financial statements (Debtor-in-Possession), which we refer to as condensed consolidated financial statements, have been prepared in accordance with GAAP for interim financial information and Regulation S-X promulgated under the Exchange Act, and reflect all adjustments that are normal and recurring in nature, which, in the opinion of management, are necessary for the fair presentation of our financial position, results of operations and cash flows at June 30, 2015, and for all periods presented, except for measuring and recording the impairment of the Mountain Pass assets. Only after the finalization and adoption of the LOP, as defined below, will we be in a position to assess the value and the related impairment of the Mountain Pass assets. In addition, the accompanying unaudited and not reviewed condensed consolidated financial statements have been prepared following the same significant accounting policies and procedures used in the preparation of the audited financial statements included in our most recent Annual Report on Form 10-K.
While the December 31, 2014 balance sheet information was derived from our audited financial statements, for interim periods, GAAP and Regulation S-X do not require all information and related disclosures that are required in the annual financial statements and, as a result, all disclosures required by GAAP and Regulation S-X for annual financial statements have not been included in this report. Therefore, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on March 16, 2015.
The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year.
Going Concern
The circumstances outlined below indicate the existence of a material uncertainty that casts substantial doubt as to our ability to meet our business plan and our obligations as they come due and, accordingly, the appropriateness of the use of the accounting principles applicable to a going concern.
As a result of continuing softness in the prices for our products, as well as inconsistent or depressed demand for certain of our products and the delayed ramp-up of operations at Mountain Pass, we have incurred, and continue to incur, significant operating losses that have limited our ability to meet our financial obligations. While certain of our business units currently generate positive cash flow from operations, we have not yet achieved break-even cash flow from operations (excluding interest) on a consolidated basis.
On June 25, 2015 (the "Petition Date"), Molycorp, Inc., together with certain of our subsidiaries, filed voluntary petitions for reorganization under chapter 11 (the "Chapter 11 Cases") of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Court"). The filing of the Chapter 11 Cases constitutes an event of default that accelerated several of our debt obligations. Please refer to Item 3 of Part II in this Report for more information on the default upon our significant debt securities. In addition, on June 25, 2015, we received a notice from the New York Stock Exchange ("NYSE"), advising us that, in light of the filing of the Chapter 11 Cases, trading of our common stock on the NYSE was no longer in compliance with its listing requirements and, on July 25, 2015, our common stock was officially delisted from the NYSE. Our common stock began trading on over-the-counter markets under the symbol MCPIQ on June 26, 2015. Please refer to Note 2 of this Report for more information on the Chapter 11 Cases.
Our ability to continue as a going concern is contingent upon, among other factors, our ability to develop a reorganization plan acceptable to our creditors, the Court’s confirmation of our reorganization plan, our ability to successfully implement such a reorganization plan, and our ability to comply with the covenants contained in the Secured Superpriority Debtor-In-Possession Credit Agreement approved by the Court on July 24, 2015 (the "Final DIP Credit Agreement"), which we are disclosing as a subsequent event in Note 18 of this Report. While we operate as a debtor-in-possession under Chapter 11, and upon approval of the Court, we may sell or liquidate assets and settle liabilities for amounts that differ from those reported in the accompanying condensed consolidated financial statements. In addition, the amount of our cash requirements during the bankruptcy proceedings will be dependent on, among other things, (i) the accuracy of our cost estimates for capital expenditures, (ii) our ability to develop and implement a limited operations plan for Mountain Pass that is acceptable to our creditors, pursuant to the Final DIP Credit Agreement (the "Limited Operations Plan" or "LOP"), (iii) stable or improved market conditions, (iv) our ability to sell any production of rare earths and other products manufactured pursuant to the LOP to external customers and our downstream facilities, (v) our ability to repatriate cash generated from our global operations, and (vi) the absence of payments on current and future contingent liabilities.

11

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

The accompanying unaudited condensed consolidated financial statements do not reflect any adjustments pertaining to the recoverability and classification of assets or the amount and classification of liabilities or any other adjustments that would be necessary if we were unable to continue as a going concern or were unable to implement a reorganization plan that would allow us to achieve a more sustainable capital structure. A plan of reorganization, if and when approved by the Court, could materially change the amounts and classifications of assets and liabilities reported in the accompanying unaudited consolidated financial statements.
Recently Issued Accounting Pronouncements

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The guidance in the new standard is limited to the presentation of debt issuance costs. The standard does not affect the recognition and measurement of debt issuance costs. Prior to the issuance of the standard, debt issuance costs were required to be presented in the balance sheet as a deferred charge (i.e., an asset). For public entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis.

We intend to adopt ASU 2015-03 in our financial statements for the annual period beginning on January 1, 2016. As of June 30, 2015, as a result of the Chapter 11 Cases, we no longer had deferred charges related to debt issuance costs in our condensed consolidated balance sheet.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
    
The new guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. An entity will be required to disclose sufficient qualitative and quantitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. At issuance, the ASU 2014-09 was effective starting in 2017 for calendar-year public entities, and interim periods within that year. On August 12, 2015, the FASB issued the ASU 2015-14, which defers the adoption of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

An entity should apply ASU 2014-09 using one of the following two methods:

1.
Retrospectively to each prior reporting period presented.
2.
Retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. If an entity elects this transition method, it also should provide the additional disclosures in reporting periods that include the date of initial application of:
i.
The amount by which each financial statement line item is affected in the current reporting period by the application of this update as compared to the guidance that was in effect before the change.
ii.
An explanation of the reasons for significant changes.

We intend to adopt ASU 2014-09 in our financial statements for the annual period beginning on January 1, 2018. The extent of the impact of adoption of the standard has not yet been determined.


12

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

(2)
Reorganization Proceedings    
Voluntary Reorganization Under Chapter 11
In addition to Molycorp, Inc., the Debtors in the Chapter 11 Cases include certain of its direct and indirect wholly owned domestic subsidiaries and certain of our foreign subsidiaries in Canada, Barbados and Luxembourg (collectively, the "Debtors"). The Debtors are continuing in possession of their properties and are managing their businesses, as debtors-in-possession, in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court. Our operating subsidiaries in Hong Kong, China, Thailand, Japan, Korea, Germany, United Kingdom, Estonia and Singapore, our non-operating subsidiary in Sri Lanka, and our majority owned joint venture in Quapaw, Oklahoma currently are not Debtors (collectively, the "Non-Filing Entities") under the Chapter 11 Cases. The Chapter 11 Cases are styled In re Molycorp, Inc., et al, U.S. Bankruptcy Court, District of Delaware, Case No. 15-11357.
The Chapter 11 Cases are intended to permit us to reorganize and increase our liquidity, and to focus on the more profitable aspects of our business while limiting cash costs attributable to our other operations. Our goal is to develop and implement a reorganization plan that meets the standards for confirmation under the Bankruptcy Code. Confirmation of a reorganization plan could materially alter the classifications and amounts reported in our consolidated financial statements, which do not give effect to any adjustments to the carrying values of assets or amounts of liabilities that might be necessary as a consequence of a confirmation of a reorganization plan or other arrangement or the effect of any operational changes that may be implemented.
During the Chapter 11 Cases, and upon approval of the Court, we may seek to convert a significant portion of our outstanding debt to equity, including the exchange of debt for shares of common stock of the reorganized company. In addition, we may seek to reduce our cash interest cost and/or extend debt maturity dates by negotiating the exchange of outstanding debt for new debt with modified terms.
Operation and Implication of the Bankruptcy filing

Under Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases by the Debtors automatically stayed most actions against the Debtors, including most actions to collect indebtedness incurred prior to the Petition Date or to exercise control over our property. Accordingly, although the Chapter 11 Cases triggered defaults for certain of the Debtors’ debt obligations, creditors are stayed from taking any actions as a result of such defaults. Substantially all of our pre-petition liabilities are subject to settlement under a reorganization plan. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. The Debtors, operating as debtors-in-possession under the Bankruptcy Code, may, subject to approval of the Court, sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the condensed consolidated financial statements. Further, a confirmed reorganization plan or other arrangement may materially change the amounts and classifications of assets and liabilities in our consolidated financial statements.
At the first hearing the Court held on June 26, 2015, we obtained approval to pay both pre-petition wages and benefits that were earned before the Petition Date and have not yet been paid, and we are authorized to pay post-petition wages and benefits earned after the Petition Date. On June 26, 2015, the Court approved a number of other motions, allowing us to maintain our banking systems, insurance programs, utilities, and pay certain essential suppliers and lienholders for pre-petition amounts as warranted. All of the orders signed by the Court under the Chapter 11 Cases can be found by clicking on the Prime Clerk link in the Investor Relations Center of our website http://www.molycorp.com/investors.
The U.S. Trustee for the District of Delaware (the "U.S. Trustee") has appointed an official committee of unsecured creditors (the “UCC”). The UCC is organized to represent the interests of all creditors that have unsecured claims against the Debtors. The UCC and its legal representatives have a right to be heard on all matters affecting the Debtors that come before the Court. There can be no assurance that the UCC will support the Debtors' positions on matters to be presented to the Court in the future or on any reorganization plan, once proposed.
Reorganization Plan

In order for us to emerge successfully from the Chapter 11 Cases, we must obtain the Court's approval of a reorganization plan, which will enable us to transition from the Chapter 11 Cases into ordinary course operations outside of bankruptcy. In connection with a reorganization plan, we also may require a new credit facility, or “exit financing.” Our ability to obtain such approval and financing will depend on, among other things, the timing and outcome of various ongoing matters related to the

13

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

Chapter 11 Cases. A reorganization plan determines the rights and satisfaction of claims from various creditors and security holders, and is subject to the ultimate outcome of negotiations and Court decisions ongoing through the date on which the reorganization plan is confirmed.
Although our goal is to file a plan of reorganization that restructures the liabilities of the existing Molycorp business, we may determine that it is in the best interests of the Debtors’ estates to seek Court approval of a sale of all or a portion of our assets pursuant to Section 363 of the Bankruptcy Code or seek confirmation of a reorganization plan providing for such a sale or other arrangement.
We expect that any proposed reorganization plan will provide, among other things, mechanisms for settlement of claims against the Debtors' estates, treatment of our existing equity and debt holders, and certain corporate governance and administrative matters pertaining to the reorganized company. Any proposed reorganization plan will potentially be subject to revision based upon negotiations with our secured creditors, the U.S. Trustee, the UCC and other interested parties, and thereafter in response to objections and the requirements of the Bankruptcy Code or the Court. There can be no assurance that we will be able to secure approval for any proposed reorganization plan from the Court. In the event we do not secure approval of a proposed reorganization plan, we may not have sufficient time to propose a revised plan before the outstanding principal and interest under the Final DIP Credit Agreements becomes due and payable.
Debtor-In-Possession Financing
On July 2, 2015, we received approval from the Court, pursuant to an interim order (the "Interim Order"), to borrow an aggregate of $22.0 million in interim debtor-in-possession financing provided by an affiliate of Oaktree Capital Management. On July 22, 2015, the Court, pursuant to a final order (the "Final Order"), approved the Final DIP Credit Agreement for an additional aggregate of $113.4 million from the same lender. Please refer to Note 18 of this Report for more information on the debtor-in-possession financings.
Liabilities subject to compromise
Upon filing a petition for reorganization, GAAP provides that all liabilities are to be separated into obligations that were incurred prior to the filing of a bankruptcy petition (the "pre-petition liabilities") and those incurred after the filing of the petition (the "post-petition liabilities"). Pre-petition liabilities are further segregated into liabilities subject to compromise ("LSTC") and liabilities not subject to compromise. LSTC are pre-petition obligations that are not fully secured and that have at least a possibility of not being repaid at the full claim amount. However, fully secured liabilities may become impaired under a reorganization plan and may be classified as LSTC.
LSTC, including claims that become known after a bankruptcy petition is filed, are reported on the basis of the expected amount of the total allowed claim, even though they may be settled for lesser amounts. Allowed claims are initially included in the debtors listing of liabilities filed with the bankruptcy court or submitted by a creditor to the bankruptcy court and not objected by the debtor. Allowed claims remain subject to future adjustment that may result from actions of the bankruptcy court, rejection of contracts and unexpired leases, negotiations, disputed claims, valuation of collateral securing claims, and other events. The following table presents the pre-petition LSTC of the Debtors as of June 30, 2015:
 
June 30,
2015
 
(In thousands)
Trade accounts payable
$
16,485

Debt (Note 6)
1,764,380

Interest payable
52,001

Other accounts payable
465

 
$
1,833,331

Please refer to Note 6 of this Report for more information on our debt subject to compromise.


14

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

Reorganization items, net
We report costs directly associated with the reorganization proceedings as reorganization items, net in the accompanying condensed consolidated statements of operations and comprehensive loss. These costs include legal and other professional advisory fees pertaining to the Chapter 11 Cases, and all adjustments made to the carrying amount of certain pre-petition liabilities reflecting claims allowed by the Court. The following table presents the reorganization items incurred after the Petition Date:

 
Three and Six Months Ended June 30, 2015
 
(In thousands)
Legal and other professional fees
$
(1,849
)
Adjustments to the carrying amount of debt
(97,306
)
Write-off of deferred financing costs
(13,769
)
Gain on fair value adjustment of Springing Maturity derivative (Note 14)
8,008

Early Payment Premium on Term Loans
(48,253
)
Incremental Stipulated Loss Value on Equipment Financing
(65,964
)
 
$
(219,133
)

Consolidation
When one or more entities in the consolidation group are in bankruptcy and some other entities in the consolidation group are not, GAAP requires us to present separate condensed combined financial statements of the entities that are in bankruptcy. As such, condensed combined financial statements of the Debtors are presented in Note 17.

(3)
Segment Information
Our operations are organized into four reportable segments, each reflecting a unique combination of product lines and technologies: Resources, Chemicals and Oxides, Magnetic Materials and Alloys, and Rare Metals.
The Resources segment includes our operations at the Mountain Pass facility that, currently, is equipped to perform rare earth minerals extraction to produce LREC; separated rare earth oxides, including Lanthanum, Cerium, and Neodymium-Praseodymium; heavy rare earth concentrates, which include Samarium, Europium, Gadolinium, Terbium, Dysprosium, and others; and a line of proprietary rare earth-based water treatment products, including SorbX® and PhosFIX®.
The Chemicals and Oxides segment includes the following productions: rare earths from our Molycorp Silmet AS, or Molycorp Silmet, facility in Sillamäe, Estonia; separated heavy rare earth oxides and other custom engineered materials from our majority-owned Jiangyin Jia Hua Advanced Material Resources Co., Ltd. , or Molycorp Jiangyin, facility in Jiangyin, Jiangsu Province, China; and rare earths, salts of REEs, zirconium-based engineered materials, and mixed rare earth/zirconium oxides from our majority-owned Zibo Jia Hua Advanced Material Resources Co., Ltd., or Molycorp Zibo, facility in Zibo, Shandong Province, China. At our Chemicals and Oxides segment, we develop and sell rare-earth based oxides for all the major emission catalysts manufacturers. Several factors are driving an increasing demand for emission catalysts, including the following: the accelerating shift of vehicle production to the BRIC countries (Brazil, India, Russia and China); the continuous development of new emission catalytic solutions; and an overall tightening of environmental regulations around the world. Other applications that utilize rare earths and zirconium-based materials we produce at our Chemicals and Oxides segment include computers, television display panels, optical lenses, mobile phones, electronic chips, and many others.
The Magnetic Materials and Alloys segment includes the production of Neo Powders™ through our wholly-owned manufacturing facilities in Tianjin, China, and Korat, Thailand, under the Molycorp Magnequench brand. This operating segment also includes manufacturing of Neodymium and Samarium magnet alloys and other specialty alloy products and rare earth metals at our Molycorp Metals and Alloys, Inc., or MMA, facility in Tolleson, Arizona. Neo Powders™ are used in the production of high performance, bonded NdFeB permanent magnets, which are found in micro motors, precision motors,

15

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

sensors, and other applications requiring high levels of magnetic strength, flexibility, small size, reduced weight, and energy efficient performance.
The Rare Metals segment produces, reclaims, refines, and markets high value niche metals and their compounds that include Gallium, Indium, Rhenium, Tantalum, and Niobium. Operations in this segment are distributed in several locations: Quapaw, Oklahoma; Blanding, Utah; Peterborough, Ontario, Canada; Sagard, Germany; Hyeongok Industrial Zone in South Korea; and Sillamäe, Estonia. Applications from products made in this segment include wireless technologies, LED, flat panel display, turbine, solar, catalyst, steel additive, electronics applications, and others. The growing adoption of LED applications, which require the use of Gallium trichloride, is allowing the Rare Metals segment to benefit from the decline in certain rare earth phosphor applications.
The accounting polices used in the preparation of our reportable segment financial information are the same as those used in the preparation of our consolidated financial statements. The primary metric we use to measure the financial performance of each reportable segment is OIBDA (Operating income before depreciation, amortization and accretion), which provides a better indication of the base-line performance of our core business operations.
Three months ended June 30, 2015
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other (a)
 
Eliminations(b)
 
Total Molycorp, Inc.
 
(In thousands)
Revenues:
 
External
$
1,780

 
$
38,989

 
$
49,273

 
$
23,800

 
 
 
$

 
$
113,842

Inter-segment
13,531

 
6,967

 
1,202

 

 
 
 
(21,700
)
 

Total revenues
$
15,311

 
$
45,956

 
$
50,475

 
$
23,800

 
 
 
$
(21,700
)
 
$
113,842

OIBDA
$
(35,457
)
 
$
5,344

 
$
8,113

 
$
1,783

 
 
 
 
 
 
Depreciation, amortization and accretion
(18,730
)
 
(2,313
)
 
(4,165
)
 
(2,218
)
 
 
 
 
 


Operating (loss) income
$
(54,187
)
 
$
3,031

 
$
3,948

 
$
(435
)
 
$
(16,216
)
 
$
(1,150
)
 
$
(65,009
)
Other expense
 
 
 
 
 
 
 
 
 
 
 
 
(3,017
)
Gain on conversion of convertible notes
 
 
 
 
 
 
 
 
 
 
 
 
10,895

Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
(54,869
)
Reorganization items, net
 
 
 
 
 
 
 
 
 
 
 
 
(219,133
)
Loss before income taxes and equity earnings
 
 
 
 
 
 
 
 
 
 
 
 
$
(331,133
)

16

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

Six months ended June 30, 2015
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other (a)
 
Eliminations(b)
 
Total Molycorp, Inc.
 
(In thousands)
Revenues:
 
External
$
4,294

 
$
76,278

 
$
99,780

 
$
39,914

 
 
 
$

 
$
220,266

Inter-segment
21,846

 
12,476

 
2,818

 
15

 
 
 
(37,155
)
 

Total revenues
$
26,140

 
$
88,754

 
$
102,598

 
$
39,929

 
 
 
$
(37,155
)
 
$
220,266

OIBDA
$
(70,305
)
 
$
11,081

 
$
20,359

 
$
3,379

 
 
 
 
 
 
Depreciation, amortization and accretion
(40,684
)
 
(4,596
)
 
(8,320
)
 
(4,625
)
 
 
 
 
 
 
Operating (loss) income
$
(110,989
)
 
$
6,485

 
$
12,039

 
$
(1,246
)
 
$
(28,294
)
 
$
2,095

 
$
(119,910
)
Other expense
 
 
 
 
 
 
 
 
 
 
 
 
(894
)
Gain on conversion of convertible notes
 
 
 
 
 
 
 
 
 
 
 
 
10,895

Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
(101,169
)
Reorganization items, net
 
 
 
 
 
 
 
 
 
 
 
 
(219,133
)
Loss before income taxes and equity earnings
 
 
 
 
 
 
 
 
 
 
 
 
$
(430,211
)

Three months ended June 30, 2014
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other (a)
 
Eliminations(b)
 
Total Molycorp, Inc.
 
(In thousands)
Revenues:
 
External
$
2,331

 
$
45,437

 
$
53,195

 
$
15,944

 
 
 
$

 
$
116,907

Inter-segment
7,706

 
3,195

 
1,165

 

 
 
 
(12,066
)
 

Total revenues
$
10,037

 
$
48,632

 
$
54,360

 
$
15,944

 
 
 
$
(12,066
)
 
$
116,907

OIBDA
$
(30,298
)
 
$
4,836

 
$
11,812

 
$
740

 
 
 
 
 
 
Depreciation, amortization and accretion
(17,009
)
 
(3,908
)
 
(4,261
)
 
(2,101
)
 

 

 


Operating (loss) income
$
(47,307
)
 
$
928

 
$
7,551

 
$
(1,361
)
 
$
(9,083
)
 
$
537

 
$
(48,735
)
Other income
 
 
 
 
 
 
 
 
 
 
 
 
296

Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
(41,285
)
Loss before income taxes and equity earnings


 


 


 
 
 


 


 
$
(89,724
)


17

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

Six months ended June 30, 2014
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other (a)
 
Eliminations(b)
 
Total Molycorp, Inc.
 
(In thousands)
Revenues:
 
External
$
5,442

 
$
85,707

 
$
107,915

 
$
36,368

 
 
 
$

 
$
235,432

Inter-segment
20,159

 
9,481

 
2,383

 

 
 
 
(32,023
)
 

Total revenues
$
25,601

 
$
95,188

 
$
110,298

 
$
36,368

 
 
 
$
(32,023
)
 
$
235,432

OIBDA
$
(66,742
)
 
$
8,136

 
$
25,489

 
$
671

 
 
 
 
 
 
Depreciation, amortization and accretion
(30,101
)
 
(7,781
)
 
(8,498
)
 
(4,194
)
 
 
 
 
 
 
Operating (loss) income
$
(96,843
)
 
$
355

 
$
16,991

 
$
(3,523
)
 
$
(16,196
)
 
$
(537
)
 
$
(99,753
)
Other income
 
 
 
 
 
 
 
 
 
 
 
 
770

Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
(76,925
)
Loss before income taxes and equity earnings
 
 
 
 
 
 
 
 
 
 
 
 
$
(175,908
)

a.
Includes business development costs, personnel costs, stock-based compensation, accounting and legal fees, occupancy expense, information technology costs and interest expense.
b.
Consists of inter-segment sales and gross profits eliminations as well as eliminations of lower of cost or market adjustments related to inter-segment inventory.

(4)
Inventory
At June 30, 2015 and December 31, 2014, our inventory consisted of the following:
 
June 30,
2015
 
December 31,
2014
 
(In thousands)
Current:
 
 
 
Raw materials
$
48,692

 
$
47,796

Work in process
26,502

 
24,901

Finished goods
67,025

 
67,795

Materials and supplies
29,089

 
28,831

Total current
$
171,308

 
$
169,323

Long-term:
 
 
 
Raw materials
$
24,321

 
$
25,127

Total long-term
$
24,321

 
$
25,127


The following table presents charges to costs of sales related to our assessment of normal production levels and write-downs of inventory:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Abnormal production costs expensed (a)
$
18,289

 
$
17,562

 
$
46,790

 
$
42,546

Write-down to the lower of cost or market (b)
33,063

 
19,359

 
61,931

 
35,520

Write-downs of stockpile inventory (c)

 
132

 

 
1,342

 
$
51,352

 
$
37,053

 
$
108,721

 
$
79,408



18

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

(a)
Relates to production costs that would have been inventoriable had we been operating at normal production levels. In all periods presented, the majority of these production costs related to the Resources segment.
(b)
Due to the decline in some rare earths prices and low inventory turnover.
(c)
Adjustments of the estimated REO content in the stockpile at the Resources segment.

(5)
Property, Plant and Equipment, net
We capitalized expenditures of $9.5 million and $13.0 million for the three and six months ended June 30, 2015, respectively, and $17.2 million and $29.4 million for the three and six months ended June 30, 2014, respectively. The majority of these capital expenditures related to capital projects performed at Mountain Pass (Resources segment). At June 30, 2015 and December 31, 2014, our property, plant and equipment consisted of the following:
 
June 30,
2015
 
December 31,
2014
 
(In thousands)
Land
$
13,507

 
$
13,121

Land improvements
308,090

 
305,119

Buildings and improvements
811,198

 
811,418

Plant and equipment
711,650

 
623,453

Vehicles
3,084

 
2,884

Computer software
12,637

 
12,268

Furniture and fixtures
1,043

 
1,039

Construction in progress (a)
16,623

 
80,699

Natural gas delivery facility under capital lease
15,658

 
15,658

Mining equipment under capital lease
10,982

 
10,982

Mineral properties
24,539

 
23,669

Property, plant and equipment at cost
1,929,011

 
1,900,310

Less accumulated depreciation
(253,453
)
 
(192,340
)
Property, plant and equipment, net
$
1,675,558

 
$
1,707,970

(a)
Primarily related to expenditures at the Mountain Pass facility.

Mineral properties and development costs, which are referred to collectively as mineral properties, include acquisition costs, drilling costs, and the cost of other development work associated with Mountain Pass, all of which are capitalized.     
Due to a reduction in the anticipated performance of the Mountain Pass operations, particularly in anticipation of the implementation of the LOP, a significant portion of our fixed assets may be materially impaired. Only after the finalization and adoption of the LOP will we be in a position to assess the value and any related impairment of the Mountain Pass assets. We expect to file an amendment to this Report upon completion of measuring and recording the impairment of the Mountain Pass fixed assets.

19

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

(6)
Debt and Capital Lease Obligations
The following table provides a summary of our debt and capital lease obligations, and the Debtors' obligations subject to compromise as of June 30, 2015:
 
June 30, 2015
 
December 31, 2014
 
Current
 
Non-Current
 
Current
 
Non-Current
 
(In thousands)
Debt not subject to compromise:
 
 
 
 
 
 
 
3.25% Convertible Notes, net of discount, due June 2016

 

 

 
193,549

6.00% Convertible Notes, net of discount, due September 2017

 

 

 
335,969

5.00% Debentures, net of discount, due December 2017

 

 

 
2,075

5.50% Convertible Notes, net of discount, due February 2018

 

 

 
143,581

10% Senior Secured Notes, net of discount, due June 2020

 

 

 
638,899

12.00% Term Loans, due September 2019

 

 

 
98,812

12.00% Equipment Financing, due September 2019

 

 

 
127,594

Bank loans due November 2015 - June 2017
10,842

 
64

 
9,326

 
91

Capital lease obligations
3,399

 
17,466

 
3,234

 
19,211

 
14,241

 
17,530

 
12,560

 
1,559,781

 
 
 
 
 
 
 
 
Debt subject to compromise:
 
 
 
 
 
 
 
3.25% Convertible Notes due June 2016
206,505

 

 

 

6.00% Convertible Notes due September 2017
382,986

 

 

 

5.00% Debentures due December 2017
1,745

 

 

 

5.50% Convertible Notes due February 2018
148,939

 

 

 

10% Senior Secured Notes due June 2020
650,000

 

 

 

12.00% Term Loans, due September 2019
162,857

 

 

 

12.00% Equipment Financing, due September 2019
211,348

 

 

 

 
1,764,380

 

 

 

Weighted average interest rate on the bank loans was 3.49% and 4.1% at June 30, 2015 and December 31, 2014, respectively. The bank loans due November 2015 - June 2017 are credit facilities entered into by certain of the Non-Filing Entities.
The filing of the Chapter 11 Cases constitutes an event of default that accelerated most of our debt obligations for which principal and accrued interest became payable and due immediately upon the commencement of the bankruptcy proceedings. However, payments on most of our obligations became subject to the automatic stay as of the Petition Date, and no payments will be made to our creditors unless approved by the Court. Scheduled minimum debt repayments, including interest and excluding capital lease obligations, were as follows at June 30, 2015:
Debt maturities, including PIK interest and excluding capital leases
(In thousands)
Remainder of 2015
$
1,769,976

2016
5,269

2017
28

2018

2019

Thereafter

Total
$
1,775,273


20

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

12.00% Term Loans and Equipment Financing
On September 11, 2014, we entered into two term loans and one equipment financing agreement (the "2014 Financings") with an affiliate of Oaktree Capital Management, L.P. (collectively with certain of its affiliates and funds under its management, "Oaktree"). The 2014 Financings consist of the following:
a.
A term loan facility of $185.0 million (the “Parent Term Loan”), $50.2 million of which was advanced on September 11, 2014 and $134.8 million was available to be drawn at any time until April 30, 2016, subject to the satisfaction of certain conditions. However, as part of the Final DIP Credit Agreement, no more funds are available to be drawn under the Parent Term Loan. Proceeds from this loan were used prior to the Petition Date for capital expenditures, interest expense and general corporate purposes, including the repurchase of certain of our convertible notes owned by Oaktree, and the payment of transaction expenses related to the 2014 Financings.
b.
A term loan facility of $75.0 million (the “Magnequench Term Loan”), $60.0 million of which was advanced on September 11, 2014 and $15.0 million was available to be drawn at any time until April 30, 2016, subject to the satisfaction of certain conditions. However, as part of the Final DIP Credit Agreement, no more funds are available to be drawn under the Magnequench Term Loan. Proceeds from this loan were used to satisfy certain intercompany obligations of Magnequench, Inc. and to make certain intercompany loans.
The contractual interest rates on the Parent Term Loan and the Magnequench Term Loan (collectively, the “Term Loans”) are 7.00% per year payable in cash and 5.00% per year payable in kind (“PIK interest”). The Term Loans mature on September 11, 2019, and, prior to the Petition Date, were subject to certain springing maturity conditions. In addition, according to the agreements governing the Term Loans, any prepayment of the loans and any repayment (or other satisfaction) of the loans after acceleration would be subject to certain early payment premium obligations.
The springing maturity conditions, in combination with the early payment premiums payable upon triggering the springing maturity, met the definition of an embedded derivative liability subject to bifurcation from its host debt instrument at inception. See Note 14 of this Report for more information on this derivative liability. As a result of the event of the default on the Term Loans triggering the early repayment premium, the fair value of the springing maturity liability was determined to be nil. We recognized a gain on the fair value adjustment of $8.0 million as a reorganization item in our condensed consolidated statements of operations and comprehensive loss.
We accrued $48.3 million to account for the early payment premium obligation. The amount was recorded as an increase to the Term Loans as of June 30, 2015, with a corresponding charge to reorganization items for the three and six months ended June 30, 2015. According to the terms of the Final DIP Credit Agreement, the early payment premium obligation under the Term Loans remained an allowed valid and enforceable obligation, although we retain the right to argue that the early payment premium obligations are (a) not payable due to the reinstatement or assumption of the applicable obligations or (b) less in amount due to the date used for the calculation thereof.
Notwithstanding the forgoing, pursuant to paragraph 25 of the Final Order, parties have until 90 days after July 8, 2015 to commence a contested matter or adversary proceeding with respect to the early payment premium obligations and certain related matters (or to seek standing to do so).
c.
A Purchase and Sale Agreement pursuant to which we sold to Oaktree certain equipment including, but not limited to, parts of our natural gas powered co-generation power plant, the Chlor-Alkali facility and the water treatment plant (collectively, the “Equipment”), located at Mountain Pass. In exchange for the sale of the Equipment, we received proceeds of $139.8 million that have been used for the development and improvement of the Equipment and other assets at Mountain Pass. Concurrently with entering into the Purchase and Sale Agreement, we and Oaktree entered into an Equipment Lease Agreement, which we refer to as the "Equipment Financing", whereby we leased back all of the Equipment. The Equipment Financing has a five-year term with the following approximate annual rent payments (due quarterly in arrears): $10.1 million in the first year, $10.7 million in the second year, $11.2 million in the third year, $11.8 million in the fourth year and $12.4 million in the fifth year with an additional payment of approximately $179.9 million on the fifth anniversary of the lease commencement date. Rent payments on the Equipment Financing are based on a 7% annual rate applied to the unpaid principal balance plus accrued, but unpaid interest calculated at an annual rate of 5%.
We accrued $66.0 million to account for a Stipulated Loss Value ("SLV") obligation as an increase of the Equipment Financing balance as of June 30, 2015, with a corresponding charge to reorganization items for the three and six

21

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

months ended June 30, 2015. Under the terms of the Equipment Lease Agreement, a SLV would be payable to Oaktree in the event of certain defaults. According to the terms of the Final DIP Credit Agreement, the SLV remained an allowed valid and enforceable obligation, although we retain the right to argue that the SLV is (a) not payable due to the reinstatement or assumption of the applicable obligations or (b) less in amount due to the date used for the calculation thereof.
Notwithstanding the forgoing, pursuant to paragraph 25 of the Final Order, parties have until 90 days after July 8, 2015 to commence a contested matter or adversary proceeding with respect to the SLV obligation and certain related matters (or to seek standing to do so).
The following table presents a reconciliation of the principal amount to the net carrying value of the Term Loans and the Equipment Financing:
 
12.00% Term Loans
 
12.00% Equipment Financing
 
June 30,
2015
 
(In thousands)
Principal amount 
$
114,604

 
$
145,384

Early Payment Premium on Term Loans
48,253

 

Incremental Stipulated Loss Value on Equipment Financing

 
65,964

Unamortized debt discount
(11,304
)
 
(12,647
)
Adjustment for estimate of allowed claims and write-off of discounts
11,304

 
12,647

Net carrying amount
$
162,857

 
$
211,348


 
12.00% Term Loans
 
12.00% Equipment Financing
 
December 31,
2014
 
(In thousands)
Principal amount 
$
111,858

 
$
141,993

Unamortized debt discount
(13,046
)
 
(14,399
)
Net carrying amount
$
98,812

 
$
127,594

    
Effective as of the Petition Date, we ceased amortizing discounts and issuance costs on our debt subject to compromise, and recorded interest expense for the amount that will be paid, or that is probable of becoming an allowed claim, during the Chapter 11 Cases. The following table shows the interest expense recorded in the interim periods presented in this Report on the Term Loans and the Equipment Financing:
Recorded Interest
12.00% Term Loans
 
12.00% Equipment Financing
 
12.00% Term Loans
 
12.00% Equipment Financing
 
Three Months Ended June 30, 2015
 
Six Months Ended June 30, 2015
 
(In thousands)
Cash interest
$
2,224

 
$
2,373

 
$
4,556

 
$
4,857

PIK interest
1,336

 
1,695

 
2,746

 
3,390

Accretion of discount and amortization of issuance costs
1,144

 
1,314

 
2,390

 
2,743

 
$
4,704

 
$
5,382

 
$
9,692

 
$
10,990

    
The contractual interest expense that would have been accrued on the Term Loans and the Equipment Financing if they were not subject to compromise is as follows:


22

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

Contractual Interest
12.00% Term Loans
 
12.00% Equipment Financing
 
12.00% Term Loans
 
12.00% Equipment Financing
 
Three Months Ended June 30, 2015
 
Six Months Ended June 30, 2015
 
(In thousands)
Cash interest
$
2,004

 
$
2,542

 
$
3,962

 
$
5,026

PIK interest
1,432

 
1,816

 
2,830

 
3,590

 
$
3,436

 
$
4,358

 
$
6,792

 
$
8,616

Obligations under the 2014 Financings are guaranteed by us and certain of our subsidiaries that also guarantee the obligations under our 10% Senior Secured Notes (the “Pari Passu Guarantors”). Our obligations and those of the Pari Passu Guarantors under the 2014 Financings are secured by a pari passu lien on substantially all of our assets and the assets of the Pari Passu Guarantors (the “Pari Passu Collateral”) on an equal and ratable basis with the obligations under the 10% Senior Secured Notes. The maximum principal amount of debt under the 2014 Financings secured by the Pari Passu Collateral shall not exceed $300.0 million in the aggregate at any time or such higher amount permitted by the Pari Passu Indenture. In addition, the obligations under the 2014 Financings are guaranteed by certain of our other subsidiaries (the “First Priority Guarantors”). The obligations of the First Priority Guarantors under the 2014 Financings are secured by a first priority lien on certain equity interests owned by the First Priority Guarantors, including equity interests of certain foreign subsidiaries. In addition, the Magnequench Term Loan is secured by a first priority lien on substantially all of the assets of Magnequench, Inc.
Convertible Notes, 10% Senior Secured Notes and 5% Debentures
The following table presents a reconciliation of the principal to the net carrying amount for each of our Convertible Notes, 10% Senior Secured Notes and our 5% Debentures. The debt balances as of June 30, 2015 reflect the amounts that are probable of becoming allowed claims:
At June 30, 2015
 
 
 
 
 
 
 
 
 
 
3.25% Convertible Notes
 
6.00% Convertible Notes
 
5.50% Convertible Notes
 
10% Senior Secured Notes
 
5% Debentures
 
(In thousands)
Principal amount
$
206,505

 
$
382,986

 
$
148,939

 
$
650,000

 
$
1,745

Unamortized debt discount
(9,330
)
 
(39,335
)
 
(14,284
)
 
(10,338
)
 

Adjustment for estimate of allowed claims and write-off of discounts
9,330

 
39,335

 
14,284

 
10,338

 

Net carrying amount
$
206,505

 
$
382,986

 
$
148,939

 
$
650,000

 
$
1,745


At December 31, 2014
 
 
 
 
 
 
 
 
 
 
3.25% Convertible Notes
 
6.00% Convertible Notes
 
5.50% Convertible Notes
 
10% Senior Secured Notes
 
5% Debentures
 
(In thousands)
Principal amount
$
206,505

 
$
383,000

 
$
161,500

 
$
650,000

 
$
2,075

Unamortized debt discount
(12,956
)
 
(47,031
)
 
(17,919
)
 
(11,101
)
 

Net carrying amount
$
193,549

 
$
335,969

 
$
143,581

 
$
638,899

 
$
2,075

 
 
 
 
 
 
 
 
 
 
    
Effective as of the Petition Date, we ceased amortizing discounts and issuance costs on our debt subject to compromise, and recorded interest expense for the amount that will be paid, or that is probable of becoming an allowed claim, during the Chapter 11 Cases. The following table shows the interest expense recorded in the interim periods presented in this Report for each of our Convertible Notes and our 5% Debentures:


23

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

Recorded Interest
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
2014
 
2015
2014
 
(In thousands)
3.25% Convertible Notes
$
3,325

$
4,070

 
$
6,882

$
8,128

6.00% Convertible Notes
9,218

10,275

 
18,906

20,425

5.50% Convertible Notes
3,225

3,676

 
6,657

7,335

10% Senior Secured Notes
15,636

16,645

 
32,384

33,284

5% Debentures
22

27

 
44

54

 
$
31,426

$
34,693

 
$
64,873

$
69,226

    
The contractual interest expense that would have been accrued if our debt was not subject to compromise is as follows:
Contractual Interest
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
(In thousands)
3.25% Convertible Notes
$
1,678

 
$
3,356

6.00% Convertible Notes
5,745

 
11,490

5.50% Convertible Notes
2,221

 
4,441

10% Senior Secured Notes
16,250

 
32,500

5% Debentures
22

 
44

 
$
25,916

 
$
51,831


5.50% Convertible Notes

On January 30, 2013, we issued $150.0 million aggregate principal amount of our 5.50% Convertible Senior Notes due 2018 (the “5.50% Convertible Notes”) in a registered public offering. Certain of our officers, directors and other related parties purchased $20.5 million of this aggregate principal amount. On March 1, 2013, the underwriters of such offering purchased an additional $22.5 million aggregate principal amount of the 5.50% Convertible Notes. After deducting the underwriting discounts and commissions, net proceeds from the issuance of the 5.50% Convertible Notes were $165.6 million. The 5.50% Convertible Notes are our senior unsecured obligations and pay a 5.50% interest semi-annually in arrears on February 1 and August 1 of each year. The 5.50% Convertible Notes are convertible at any time into shares of our common stock, cash, or a combination thereof, at our election. The 5.50% Convertible Notes will mature on February 1, 2018, unless earlier repurchased, redeemed or converted in accordance with their terms prior to that date. The 5.50% Convertible Notes rank equal in right of payment to existing and future liabilities that are not expressly subordinated to the 5.50% Convertible Notes, and rank effectively junior to our existing and future secured indebtedness.

In the fourth quarter of 2014, we exchanged $11.0 million aggregate principal amount of our 5.50% Convertible Notes for a total of 4,358,490 shares of our common stock, plus a payment in cash of accrued but unpaid interest.

In the second quarter of 2015, we exchanged approximately $12.6 million aggregate principal amount of our 5.50% Convertible Notes for a total of 1,744,912 shares of our common stock, plus a payment in cash of accrued but unpaid interest.


24

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

6.00% Convertible Notes

On August 22, 2012, we issued $360.0 million aggregate principal amount of our 6.00% Convertible Senior Notes due 2017 (the “6.00% Convertible Notes”) in a registered public offering. On August 28, 2012, the underwriters of the 6.00% Convertible Notes exercised their option to purchase an additional $54.0 million aggregate principal amount of the 6.00% Convertible Notes. Total net proceeds from the issuance of the 6.00% Convertible Notes were $395.7 million, after deducting the underwriting discounts and commissions. Certain of our directors, officers and other related parties purchased $6.4 million of the aggregate principal amount of the 6.00% Convertible Notes, for which we did not pay any underwriting discounts and commissions. The 6.00% Convertible Notes are our senior unsecured obligations with interest payable semi-annually in arrears on March 1 and September 1 of each year. The 6.00% Convertible Notes will mature on September 1, 2017, unless earlier repurchased, redeemed or converted in accordance with their terms, and will be convertible at any time prior to the second scheduled trading day immediately preceding the maturity date into shares of common stock, cash, or a combination thereof, at our election. The 6.00% Convertible Notes rank equal in right of payment to existing and future liabilities that are not expressly subordinated to the 6.00% Convertible Notes, and rank effectively junior to our existing and future secured indebtedness.
In the fourth quarter of 2014, we exchanged $27.0 million aggregate principal amount of our 6.00% Convertible Notes for a total of 10,698,113 shares of our common stock, plus a payment in cash of accrued but unpaid interest.
In September 2014, we repaid $4.0 million of our 6.00% Convertible Notes principal amount as part of the 2014 Financings.

10% Senior Secured Notes
On May 25, 2012, we issued $650.0 million aggregate principal amount of senior secured notes due 2020 (the "Senior Secured Notes"). Total net proceeds from the issuance of the Senior Secured Notes were $635.4 million after deducting the initial purchasers' discounts. The Senior Secured Notes bear interest at the rate of 10% per year payable on June 1 and December 1 of each year beginning on December 1, 2012. The 10% Senior Secured Notes are our senior secured obligations and are guaranteed by the Pari Passu Guarantors. The Senior Secured Notes are secured by a first-priority security interest on substantially all of our property and assets and those of the Pari Passu Guarantors, subject to some exceptions for certain "Excluded Assets," such as:

Leasehold interests in real property;
Certain capital leases that constitute permitted liens;
Certain motor vehicles;
Assets owned by foreign subsidiaries or, subject to certain limitations, MMA;
Assets with a fair market value of less than $15.0 million as to which the board of directors determine in good faith (and certify to the collateral agent) that the costs of obtaining or perfecting such security interest are excessive in relation to the practical benefit to the holder of the Notes of the security afforded thereby (based on the value of such asset);
Cash collateral for letters of credit or hedging obligations (up to 105% of the underlying obligations);
Certain deposit accounts;
The equity interests of immaterial subsidiaries and, subject to certain limitations, MMA;
Voting stock of foreign subsidiaries in excess of 65.0% of the voting stock; and
Other pledges of stock of a guarantor to the extent that Rule 3-16 of Regulation S-X under the Securities Act would require the filing of separate financial statements of such guarantor.

On June 1, 2015, we elected to take advantage of the 30-day grace period with respect to the $32.5 million semi-annual interest payment due June 1, 2015 on our 10% Senior Secured Notes, as provided for in the indenture governing these notes. This election did not trigger any cross-default provisions in other of our outstanding debt prior to the end of the grace period.

3.25% Convertible Notes
On June 15, 2011, we issued $230.0 million aggregate principal amount (net proceeds of $223.1 million after deducting the initial purchasers’ discounts and commissions) of our 3.25% Convertible Notes due 2016 (the “3.25% Convertible Notes”) in an offering exempt from the registration requirements of the Securities Act. The 3.25% Convertible Notes are our senior unsecured obligations and bear interest at a rate of 3.25% per annum, payable semi-annually in arrears on June 15 and December 15 of

25

MOLYCORP, INC.
(DEBTOR-IN-POSSESSION)
Notes to Condensed Consolidated Financial Statements (Unaudited and Not Reviewed)
June 30, 2015
 

each year. The 3.25%% Convertible Notes mature on June 15, 2016, unless repurchased or converted in accordance with their terms. We do not have the right to redeem the 3.25% Convertible Notes prior to maturity.
In September 2014, we repaid approximately $23.5 million of our 3.25% Convertible Notes principal amount as part of the 2014 Financings.

On June 15, 2015, we elected to take advantage of the 30-day grace period with respect to the approximately $3.36 million semi-annual interest payment due June 15, 2015 on our 3.25% Convertible Notes, as provided for in the indenture governing these notes. This election did not trigger any cross-default provisions in other of our outstanding debt prior to the end of the grace period.

Capital Leases    

We lease certain mining and other equipment under agreements with various durations that have been determined to be capital leases. Those agreements contain purchase options at the end of the lease term and are generally at market interest rates. Our capital lease obligations are secured by the underlying leased equipment, and initially were all assumed with the First Day Motions of the Chapter 11 Cases. At June 30, 2015, total future minimum payments on our capital leases were as follows:
Capital Leases
(In thousands)