"Molycorp Said to Get No Bids for Entire Firm in Opening Round" $MCP

Story today. Nobody wants the Mountain Pass mine!

Molycorp Proposed Timeline For Auction And Plan Confirmation Date $MCP $MCPIQ

• Nov. 3, 2015: Disclosure Statement was filed and the Disclosure Statement Notice was served as set forth below;
• Nov. 17, 2015: Deadline for filing and service of exhibits to the Disclosure Statement;
• Nov. 25, 2015: Deadline for objections to the Bidding Procedures;
• Dec. 1, 2015: Deadline for objections to the Disclosure Statement;
• Dec. 8, 2015: Hearing on approval of Disclosure Statement and Bidding Procedures and record date for voting purposes;
• Dec. 11, 2015: Deadline for preliminary indications of interest from potential bidders;
• Dec. 15, 2015: Service of Solicitation Packages, including Auction and Confirmation Hearing Notice (as defined below);
• Dec. 15, 2015: Date of publication of the Auction and Confirmation Hearing Notice (as defined below);
• Dec. 31, 2015: Deadline for filing and service of the notice of potential assumption of executory contracts and unexpired leases;
• Jan. 11, 2016: Deadline for filing of the Plan Supplement (as defined below);
• Jan. 21, 2016: Deadline for (a) submitting votes to accept or reject the Plan and (b) objections to the Plan;
• Jan. 21, 2016: Deadline for objections to the assumption and assignment of executory contracts and unexpired leases in connection with the Sale;
• Jan. 27, 2016: Qualified Bids (as defined in the Bidding Procedures) due and deadline for execution of a Stalking Horse Agreement (as defined in the Bidding Procedures), if any;
• Jan. 28, 2016: Deadline for filing of the Tabulation Declaration (as defined below);
• Feb. 1, 2016: Auction (if necessary);
• Feb. 3, 2016: Deadline for objecting to the proposed assumption and assignment of contracts and leases in connection with the Sale on adequate assurance grounds;
• Feb. 4, 2016: Deadline for reply to any objections to confirmation of the Plan; and
• Feb. 8, 2016: Confirmation Hearing.

Reader Comments on Molycorp "Value Destruction" $MCP

"The extent of the value destruction is pretty breathtaking. They have consumed over $3.8B of capital between the paid in capital and debt outstanding. The 1L bonds are at 25, so that's about $160MM, Oaktree has about $250MM in so we have $400MM in round numbers of market EV (let's assume the equity is a goose egg), just a hair under 90% wealth destruction. That takes some doing - this will rival things like GSAT and IRDM in their first iteration...similar science project type of deals funded heavily with debt while in project development phase. Amazing bond holders sign up for this kind of nonsense."

WSJ: "Molycorp’s Clash With Oaktree Delays Bankruptcy Loan Approval"

WSJ:

"The bankruptcy restructuring leaves Oaktree’s loans in place at the top of Molycorp’s pile of debt, said Molycorp lawyer Paul Leake. Senior bonds will sacrifice their stakes for equity and junior bonds will be offered an opportunity to invest in the turnaround effort, under the plan. The bankruptcy financing is designed to convert to secured bond debt when Molycorp exits, a feature that is geared to making sure Oaktree isn't impaired, Mr. Leake said."

"Molycorp Files for Bankruptcy Protection" $MCP $MCPIQ

Filed in Delaware yesterday. The WSJ story:

Molycorp wasn’t alone in betting on growth. Mining giants such as Rio Tinto Group and BHP Billiton Ltd. invested in mines and deals, “thinking that it didn’t matter how much you produced, you could always dump it in China,” said Paul Gait an analyst with Sanford C. Bernstein & Co. “That wasn’t supposed to change until 2020-2025, and instead the hard landing is happening now.”

There's a restructuring support agreement, and creditors want to keep pouring money into this thing to try to get it going, so the bankruptcy could be relatively quick.

Haven't seen the actual term sheet, but here is the company announcement of the deal:

"As part of today’s filings, the Company filed a restructuring plan term sheet that broadly outlines the terms of the plan of reorganization that the Company expects to pursue. The plan term sheet provides for the discharge of the Company’s more than $700 million in unsecured notes. The plan term sheet further calls for holders of the Debtors’ $650 million in 10% senior secured notes to have their debt exchanged for a majority equity stake in reorganized Molycorp."

The DIP loan looks very expensive - 7% coupon and 12% OID, so a 20%+ IRR depending on how long the bankruptcy takes.

P.S. I don't think that this deposit can be mined economically, so we may get a chance to short it to zero again with a new public company!

Last Week's Trades in Walter Energy and Molycorp Bonds

• A million+ of the WLT 8.5s due 2021 traded at 3.5; yield to maturity of 222%.
• An odd-lot of the WLT 9.875s due 2020 traded at 2.45; yield to maturity of 399%.
• The MCP 10% secured notes were trading at around 35 to yield around 40% to maturity.
• A single MCP note due June 2016 traded at a penny.
• Some odd-lots of the MCP notes due September 2017 traded at around 3 cents.

Review of SuperFuel: Thorium, the Green Energy Source for the Future by Richard Martin

Nuclear reactors for power generation don't have to use uranium for fuel and water for coolant, the way that the 99 power reactors in the U.S., and the ones in the rest of the world, currently do. In fact, it's somewhat of a historical accident that reactors don't use a completely different fuel - thorium - and a completely different coolant, like molten salt or metal.

Wired reporter Richard Martin wrote SuperFuel in 2012 to advocate for a switch to liquid fluoride thorium reactors. Generating power with thorium is a hot topic, with advocates like Kirk Sorensen, and startups like Terra Power (which is backed by Myhrvold) all trying to push for a nuclear renaissance with a new fuel.

The advantages of thorium for power generation involve the fuel and the reactor design. A thorium reactor makes more efficient use of a fuel that is more abundant than uranium and generates less waste. The design has also better inherent safety: the negative temperature coefficient of reactivity provides negative feedback against meltdowns, the coolant is stable (does not react with water like sodium coolant, or break down to hydrogen at high temperature like water), and the reactor operates at close to atmospheric pressure because of the high boiling points of the coolant salts.

The disadvantage at this point is that it is starting to seem like we really don't have the energy crisis that it looked like we did from 2008-2011. In fact, the mentions of energy scarcity and global warming now seem really dated.

Some of the complex aspects of the LFTR reactor are a bit hand-wavy, vaporware type stuff. For example, the design of the reactor calls for a continuous reprocessing loop of the molten salt (to remove undesired decay products like xenon). Of course, this has never been tried at plant-sized scale; the testing has been limited to the laboratory.

But the more important question given the past two years' developments is: can it compete with the cost of utility scale solar? Checking some recent updates, we see utilities buying solar for around 5 cents per kwh. Another example is an Xcel energy exec saying that solar project was chosen on a strictly economic basis, without considering carbon emissions or renewable energy standards. Here's further examples of an unsubsidized solar price close to 5 cents per kwh.

Five cents (and falling) is dirt cheap, and it makes it hard to justify the enormous research and development cost that it would take to commercialize an entirely new reactor design and fuel cycle.

The book functions best as an example of path dependence. It was the desire to produce material for nuclear weapons that led to reactors initially using uranium, and it was the desire to use water to cool naval reactors (for obvious reasons) that prevented any other design besides light water reactors.

Last time we mentioned path dependence was in reference to the paper  "Portage: Path Dependence and Increasing Returns in U.S. History". Path dependence is a good concept that explains why many things are the way they are.

By the way, thorium also ties into the distress of rare earth producer Molycorp. Thorium is almost always found in the ores (like monazite) that contain rare earth metals. Thus, rare earth ore is slightly radioactive and a refining operation both has to separate the rare earths from the thorium and dispose properly of concentrated radioactive waste product.

3/5

Molycorp 2017 Note Trades at 3 Cents

A million+ of the Molycorp 6% notes due 9/2017 traded at 3 cents. A yield to maturity of over 300 percent!

Upcoming Dates to Circle on Calendar $MCP $WLT

WLT 9.875s have a coupon on 6/15 - for about $22 million.
MCP 3.25s have a coupon on 6/15 - for about $3.7 million.
And of course, the MCP 30 day grace period started on 6/1.

I wonder whether WLT will make that unsecured coupon?

Molycorp Skips Interest Payment Due Today $MCP

"GREENWOOD VILLAGE, CO (June 1, 2015) — Molycorp, Inc. (NYSE: MCP) (the “Company”) announced today that it has elected to take advantage of the 30-day grace period with respect to the $32.5 million semi-annual interest payment due June 1, 2015 on its 10% Senior Secured Notes due 2020, as provided for in the indenture governing the notes. This election by the Company will not trigger any cross-default provisions in other outstanding Company debt prior to the end of the grace period and should not affect current operations. As previously disclosed, the Company has retained financial and legal advisors to assist the Company to restructure its debt. The Company will use the grace period to continue to evaluate different options related to such debt restructuring."

Molycorp Interest Payment On Monday $MCP

Molycorp has a $32.5 million coupon due June 1 on the $650 million of 10% secured notes. That's a date to "circle on the calendar" - that's a lot of cash.

Glassdoor.com Reviews of Working at Molycorp

Speaking of sleuthing, here are highlights from some of the reviews of Molycorp on Glassdoor.com

• "Long drive, bad executive decisions (both locally and corporate), mismanagement of construction resulting in costly delays, overages, bad engineering, and poor QA/QC of construction."
• "they reward there shifters and bosses according to amount produced , so if something breaks or if a product goes out of spec , instead of fixing the problem or adjusting procedure to get it back in spec. they just run full speed or duct tape the problem so they can get there numbers out and leave the real problem for some one on the other shift , and of course the other shift runs the same way so it never gets fixed or corrected until millions of dollars are spent reworking product hat could have been fixed from the beginning"
• "Basically everything about the place. Horrible management. My boss was not even my technical boss, was not qualified to manage or run a laboratory and made it a nightmare. The laboratory was whofully understaffed and needs a management structure and more people for the amount of work the facility expects. Coworkers who drag their feet and expect you to pick up the slack or do their duties. Take a look at the other reviews. A laughable operation going on. I hope it doesn't fold in the way many predict, for the sake of the men and women who work up there."
• "The most technically incompetent and unethical organization under the sun. Spent $1.5B+ to build Project Phoenix , misrepresented to investors that they knew what they were doing technically, but eliminated the technical staff. Fired the entire mining department when the drilling program didn't produce the desired expanded resource results. Operations is a bunch of clueless mining folks with chemistry or metallurgy degrees that don't understand the process and lie to Sr. management about everything and blame everyone but themselves. Stock is down 70+% in a year and they have no idea how to identify or prioritize the projects necessary to succeed. Anyone decent that can escape already has. This will go down as Enron II after bankruptcy."
• "From a safety perspective this place is the worst... people by pass safety interlocks and other safety devices and cause spills of hazardous chemical with no consequences, where any other company has zero tolerance. No wonder this place was shut down by the EPA in the late 1990's."

Doesn't sound good. People are always going to complain about their job, but the Glassdoor reviews at a successful company look very different.

Molycorp Mountain Pass

Bloomberg Reporting: "Hedge Fund JHL Said to Lead Talks for Molycorp Bankruptcy Loan" $MCP

"The DIP loan, which may range from $150 million to $200 million, would give the company fresh cash instead of exchanging existing notes for the debt, the people with knowledge of the talks said. Under the creditors’ bankruptcy proposal, the first-lien notes would be converted into equity in a reorganized entity, they said."

So, it sounds like that 10% note that's been trading for around 50 cents on the dollar is the fulcrum and the unsecured notes (which have been trading for less than 10 cents) and the equity would get wiped out.

Maybe someone should tell these guys, who own $170 million of the common stock!

"Molycorp Reports First Quarter 2015 Financial Results" $MCP

From Form 8-K today:

• The Company reported higher production volumes in the first quarter of 2015 at its Mountain Pass, California rare earth facility of 1,479 metric tons ("mt") of rare earth oxide ("REO") equivalent. This was an 11% increase over the fourth quarter 2014 production of 1,328 mt.
• The Company reported first quarter 2015 product sales volume of 3,436 mt on a consolidated basis, a 9% increase over the fourth quarter of 2014. The Company achieved an average selling price ("ASP") of $30.97 per kilogram in the first quarter of 2015, versus an ASP of $36.91 in the preceding quarter, a 16% decline.
• Net revenues for the quarter were $106 million , an 8% decrease from the fourth quarter of 2014.
• The Company reported negative cash flows from operating activities of $73 million during the first quarter of 2015, and had $134 million in cash and cash equivalents as of March 31, 2015.

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.

Walter Energy and Molycorp Bonds Dumped Today

A million of the WLT 2021s (8.5%) traded at 8 cents today. I believe these are trading flat, and are owed a coupon (4.25 cents) no later than May 15 or the company is in default.

A million+ of the Molycorp 3.25s due next March traded at 4.5 cents! That is a 649% yield to maturity!

A million+ of the Molycorp 6s due 2017 traded at 4.75 cents for a 240% yield to maturity!

Notice the inverted yield curve on Molycorp. They are both trading for ~5 cents because they are trading based on de minimis recovery possibility, not based on yield.

"Molycorp Senior Creditors Said to Submit Restructuring Plan" $MCP

From Bloomberg:

"Houlihan Lokey and Kramer Levin Naftalis & Frankel, which are advising holders of Molycorp’s $650 million of 10 percent first-lien secured notes maturing in June 2020, submitted the plan in late April... The proposal includes swapping a portion or all of the notes into equity...

The plan, which would cut Molycorp’s debt load and interest cost, is based on the creditor group’s expectation that the securities would be impaired in a restructuring while the company’s lower-ranking 3.25 percent convertible notes due in June 2016 would get wiped out... Molycorp has also been negotiating with holders of the $206.5 million in convertible notes, led by Apollo Capital Management LLC, to push out the debt’s maturity date and convert it into equity..."

Brilliant. There have been signs that MCP would need to restructure.

Molycorp has some big interest payments coming up in June. On the unsecured 3.25%s, there is a coupon 6/15 of $3.74 million. On the secured 10%s, there is a coupon due 6/1 of $32.5 million.

Incredible that MCP has a $220 million market cap - with bonds trading sub-10 and people talking about a piece of secured debt as the fulcrum.

Low low distressed debt trades

• RadioShack bonds traded last week with a 5 handle.
• The Walter Energy 8.5s traded at 6.25; massive current yield!
• The EXXI 3s traded in the high 20s - low 40%s ytm.
• Molycorp secured debt moved down about 15 points into the high 40s - around 30% ytm. People had gotten way too optimistic before earnings.
• The Molycorp 6s unsecured and the 3.25s unsecured are both single digit now. The 3.25 ytm is over 400%!
• Goodrich bonds have come down into the mid 40s again. That's a ytm inthe mid 30%s.

Comment from Analyst on Molycorp Conference Call

Kevin Starke - CRT Capital Group - Analyst
Okay. Last question. I do bankruptcies and distressed all day long, and it's fairly obvious to me what you need to do. And this is just me talking, but obviously the converts, their maturities need to be pushed out beyond the 10% senior notes, which means beyond 2020. It means more than five years from now. Maybe it means they need to take stock in lieu of some of their claim. I'm not asking you to endorse that view; it wouldn't be prudent for you to do so.

They do allude to a distressed debt exchange in the annual report.