Molycorp Counting on Project Phoenix, New Demand

NEW YORK (TheStreet) -- In 2013, Molycorp (MCP) reported a loss of $197.2 million, or 95 cents per share. However, the situation will improve this year as demand of the rare earths produced by Molycorp is improving. Moreover, volatility is decreasing in rare earth prices. The company can achieve breakeven operating cash before interest by year-end and positive cash flow by the end of 2015.

The upshot: Increasing rare-earth demand provides a positive outlook for Molycorp. In addition, the company's production cash cost will also be lowered after commissioning of its chloralkali plant, more on that later. With these factors, Molycorp could rise again.

Hoping for the turnaround

Molycorp's major capital spending is focused on rebuilding its Mountain Pass facility under a project named Phoenix. The total capex for the project will be approximately $1.55 billion.

Although spending on the project will continue in coming years, major construction is almost complete, following the completion last October of the chloralkali plant and the final unit of a multi-stage cracking. Both of these units are operational now.

These units will help the company increase Mountain Pass facility's production rate at a lower cost, which is required to increase margins in the current low rare-earth price environment. Prices of most of the rare-earth metals were at an all-time high in 2011, but they are now back to 2008 levels.

The cracking plant will improve the company's rare-earth recovery rate from Mountain Pass facility, as only 8% of ore the company mines at this facility is rare earth. With the addition of this final unit of a multi-stage cracking plant, the company's recovery rate will improve and is projected to be about 90%.

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