Molycorp Going Concern Warning in 10-Q $MCP

Form 10-Q for the quarterly period ended March 31, 2015:

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 our Mountain Pass facility, we have incurred, and continue to incur, operating losses. 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 as we continue the ramp-up and optimize production at our Mountain Pass facility.

As of March 31, 2015 , the total principal balance of our outstanding debt is approximately $1.7 billion , including approximately $206.5 million of our 3.25% Convertible Notes that matures on June 15, 2016. Based on our current cash forecast, we may not have sufficient funds available to repay those convertible notes at maturity, in part because the delayed draw proceeds under the 2014 Financings (defined below) would not be available in the event we do not achieve certain earnings and production targets specified in the 2014 Financings. Additionally, the agreements governing the 2014 Financings contain springing maturity obligations if we do not repay, or provide for the repayment of, certain of our 3.25% Convertible Notes by April 2016. Certain of our debt obligations contain covenants that are subject to interpretation. Although we do not believe we are in breach of any such covenants as at March 31, 2015 , if a creditor under any such debt obligations decides to declare a breach of any such covenant, then such creditor could exercise its rights under the applicable debt obligations, which will trigger cross-defaults in other debt obligations. Such actions by creditors could require repayment of our debt before maturity, and we cannot assure you that we will be able to meet such repayment obligations. See more information on our convertible notes and other debt obligations at Note 6.

In addition, on December 30, 2014, we received notice that we are not in compliance with the continued listing standards of the New York Stock Exchange ("NYSE") because the current trading price for our common stock is below the minimum listing requirements. We are taking actions to meet the compliance standards for continued listing on the NYSE, and are seeking approval from our stockholders for a reverse stock split as an alternative means of regaining compliance with the minimum share price requirement. However, we cannot guarantee that we will be able to meet the necessary requirements for continued listing, and, therefore, we cannot guarantee that our common stock will remain listed for trading on the NYSE. If we fail to meet the necessary requirements for our common stock to remain listed on the NYSE or other similar markets, then we will be obligated to offer to repurchase all of our outstanding convertible notes at a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest. Our failure to make such an offer or repurchase any tendered convertible notes will result in an event of default under the indentures governing our convertible notes. Any such event of default will trigger a cross-default on our other debt obligations, including the 2014 Financings. Our inability to cure any such defaults, including the prepayment of our debt obligations, would have a material adverse effect on our financial position and results of operations.

Capital expenditures for our Mountain Pass facility have decreased significantly and are expected to total approximately $35 million for the remainder of 2015 and $20 million in 2016. Additionally, we expect to spend approximately $17 million for the remainder of 2015 and $20 million in 2016 on maintenance and expansion capital expenditures across all other operating segments. [So, $52 million of capex in balance of 2015 and $40 million in 2016 if they are still around.]Our annual cash interest payments on all debt (excluding capital leases), including unused commitment fees, currently total approximately $124 million . This amount excludes other associated fees and expenses that may become payable by us under our credit agreements. The amount of our cash requirements continues to be dependent on (i) the accuracy of our cost estimates for capital expenditures, (ii) our ability to operate and maintain our Mountain Pass facility and our other operations within our current estimates, (iii) our ability to ramp-up run rates at our Mountain Pass facility pursuant to our expectations without further delays, and to achieve lower cash costs of production as a result of further optimization of operations at our Mountain Pass facility, (iv) stable or improved market conditions, (v) our ability to sell our production of rare earths to external customers and our downstream facilities (including our ability to sell our Cerium through market acceptance of SorbX ® or otherwise), (vi) our ability to repatriate cash generated from our global operations, and (vii) the absence of payments on current and future contingent liabilities.

Our cash balances of $133.6 million as of March 31, 2015 represent our primary source of liquidity to fund our capital expenditures, debt service and net operating cash requirements. As part of our plan to achieve positive cash flows from operations, we have implemented initiatives to reduce our operating and administrative costs and we will continue to pursue other cost efficiencies. Despite these efforts, due to, as discussed above, the continuing softness in the prices for our products, inconsistent or depressed demand for certain of our products and the delayed ramp-up of operations at our Mountain Pass facility, we will need additional financing in 2015 to meet our business plan and our obligations as they come due.

In August 2014, we and certain of our subsidiaries entered into a commitment letter with Oaktree Capital Management, L.P. (collectively with certain of its affiliates and funds under its management, "Oaktree") pursuant to which Oaktree agreed to provide  to us and certain of our subsidiaries up to approximately $400.0 million in secured financing through credit facilities and the sale and leaseback of certain equipment at our Mountain Pass facility (the "2014 Financings") for corporate, operating and capital expenditures purposes. On September 11, 2014, we executed agreements governing the 2014 Financings and received initial gross proceeds totaling $250.0 million from Oaktree, with the remaining $149.8 million available to be drawn until April 30, 2016, $134.8 million of which is available only if we achieve certain financial and operational performance targets. For more information, see Note 6 below. Additionally, availability of the other $15.0 million may be limited by certain outstanding balances under our foreign subsidiary credit facilities.

We regularly evaluate opportunities to reduce our debt and/or related interest costs. In November 2014, we exchanged $11.0 million of the aggregate principal amount of our 5.50% Convertible Notes, and $27.0 million of the aggregate principal amount of our 6.00% Convertible Notes for a total of approximately 15,056,603 shares of our common stock, plus payments in cash of accrued but unpaid interest. Additionally, we may from time to time seek to repurchase other outstanding debt securities with cash and/or exchanges for common stock or securities convertible into common stock or other debt securities.

In December 2014, our Board of Directors approved the engagement of an independent investment bank and advisory firm to advise us in pursuing various financing alternatives to secure a more sustainable capital structure. While we are evaluating a number of alternatives, we will seek to convert a significant portion of our outstanding debt to equity, including the exchange of debt for shares of our common stock. 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. Although we have been successful in raising funds to date, there can be no assurance that adequate or sufficient funding will be available in the future, or available under terms acceptable to us.

These circumstances 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. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis that assumes we will be able to continue to realize our assets and discharge our liabilities in the normal course of business, and do not reflect the adjustments to the carrying amount of assets and liabilities that would be necessary if we were unable to obtain adequate financing or restructure our debt. If we are unable to execute our business plan and restructure our debt, we may not be able to continue as a going concern.