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Molycorp Inc. (NYSE:MCP)

Q4 2013 Results Earnings Conference Call

March 4, 2014, 9:00 ET

Executives

Brian Blackman – VP, Investor Relations

Geoffrey Bedford – President and CEO

Michael Doolan – CFO

Analysts

Brian Lee - Goldman Sachs

Ben Kallo - Robert W. Baird

Avinash Kant - D.A. Davidson

Michael Gambardella - JPMorgan

Brett Levy - Jefferies

Paul Forward - Stifel

Alex Fridlyand - PMB Paribas

Paratesh Mirza - Morgan Stanley

Owen Douglas - Robert W. Baird

Zach Zolnierz - GMP Securities

Operator

Good day, ladies and gentlemen, and welcome to the Q4 and full year 2013 Molycorp Incorporated earnings conference call. [Operator instructions.] Now, I would like to turn the call over to Mr. Brian Blackman, vice president of investor relations. Please proceed, sir.

Brian Blackman

Thank you, operator, and good morning to everyone. As many of you saw, we issued our operating and financial results for the fourth quarter and full year of 2013 last evening. Our press release is posted on the investor relations section of our website at molycorp.com.

This call is being webcast and a replay and transcript will be available on the company’s website shortly thereafter. For those of you dialed into the call, the slideshow that accompanies our prepared remarks is available on the investor page of Molycorp’s website. For those of you listening by webcast, the slides will be presented in your webcast player, where you can advance the slides on your own?

During the course of this call, we will make forward looking statements and I direct you to slide number two for our disclaimers. All statements that address the expectations or projections about the future of our forward looking statements, although they reflect our current expectations, these statements are not guarantees of future performance, but involve a number of risks and assumptions. We urge you to review Molycorp’s SEC filings for a discussion of some of the factors that could cause actual results to differ.

We also refer to non-GAAP financial measures and you can find reconciliation to the most directly comparable GAAP financial measures in our earnings release, also posted on our website.

As you can see on slide three, joining us today is Molycorp’s president and chief executive officer, Mr. Geoff Bedford, and executive vice president and chief financial officer, Mr. Michael Doolan.

I’d like to now turn the call over to Geoff.

Geoff Bedford

Thank you, Brian, and good morning everyone. First, let me make a few high level comments before Michael provides details on our financial performance for the quarter and year. Let’s start on slide four.

As we have seen over the past several quarters, demand appears to be returning to more normalized levels, albeit at a subdued pace, as customers have been reducing inventories and adjusting their purchasing plans accordingly.

We were encouraged to see our chemicals and oxide segment increase its shipments slightly in the fourth quarter. This was particularly encouraging given that Q4 volumes in our industry are typically lighter than Q3 volumes.

Our magnetics business continues to show signs of strengthening, as shipments over the back half of 2013 were stronger than the first half. Look forward, we expect that magnetics will continue to be robust.

Overall, in the rare earth market, we’re starting to see less price volatility, which is positive as it brings confidence back to the market and encourages customers to increase their use of rare earths. It can also lead to new application growth across our supply chain.

At Mountain Pass, we reported in the fourth quarter the completion and commissioning of our retail multistage cracking plant. Today, I am pleased to announce that our chloralkali plant has exited commissioning, and is in operation. In addition to this milestone, we achieved NSF certification for the bleach produced by this facility, and I’ll discuss the importance of that later in the call.

As many of you know, Mountain Pass is actually a collection of 12 separate operating systems. After more than three years of construction and commissioning of these complex and interconnected systems, all these major systems are now in operation. That alone is a major accomplishment, and one of which everyone at Mountain Pass and across the company are very proud.

Our focus at Mountain Pass is now on optimizing and debottlenecking our process. For example, this December we’ve been working on reducing cycle times in our multistage cracking plant. We’ve successfully improved this process by about 40%, with an objective to improve it further.

However, in the fourth quarter we were impacted by process interruptions and bottlenecks. These took a toll on production and slowed our production ramp in Q4, more than we would have liked. This is reflected in resources segment volume.

We continue to believe that achieving operating cash breakeven before interest is attainable in 2014. We are encouraged in terms of customer interest, in increased output of Mountain Pass, and the revenue we can generate from converting Mountain Pass products into higher value specialty and engineered rare earth materials in our downstream business.

I will provide additional detail on our business segment operations later in the call. First, let me have Michael review the details of our fourth quarter financials. Michael?

Michael Doolan

Thanks, Geoff, and again, good day to everyone. I would like to start with an overview the quarter before we touch on some highlights for the full year. I will then move into the status of our balance sheet and financial plans for 2014.

First, a quick summary of the quarter, on slide six. We reported net revenue of $124 million, a 17% decrease as compared to the third quarter revenues of $149 million. The decrease was largely driven by lower volumes in our magnetics segment, which typically experiences a seasonal high during the third quarter.

Overall product volumes were 3,200 metric tons, a 12% decrease as compared to the third quarter. On a year over year comparison, revenues were down 8% versus the fourth quarter of 2012, largely due to lower realized pricing, offset by a slight increase in volumes year over year.

Our gross margin was negative 21.8% or a gross loss of $27 million for the quarter. We reported a loss before interest, tax, depreciation, and amortization, EBITDA, in Q4 of $163 million. This loss included noncash impairment charges of $119 million related to goodwill, long-lived assets, and intangible assets.

Further details are available in the MD&A section of our 10-K filing for the year ended 2013. However, the bulk of these write downs affected the valuation of our Chinese export quotas, which we have determined are less valuable in today’s market environment.

Additional impairments to exploration rights and patents are taken at the end of the year, as were impairments for property, plant, and equipment, largely related to obsolete fixed assets at our Mountain Pass operating facility, which are not suitable for future capacity expansion.

And, as we have previously discussed, we will delay further expansion at Mountain Pass beyond its initial design capacity until market demand requires it. And again, this aggregate impairment charge of $119 million is noncash.

On an adjusted non-GAAP basis, we reported a loss of $10.5 million before interest, tax, depreciation, amortization, and accretion. Our net loss attributable to common stockholders for the quarter was $197 million, or a loss of $0.95 per share. On an adjusted non-GAAP basis, we had a loss of $0.28 per share.

Now, shifting to our detailed financial performance for the fourth quarter of 2013, our operating segment results begin on slide 7, with the resources segment. During the fourth quarter, resources sold 1,034 metric tons of REO-equivalent, that’s rare earth oxide equivalent, products, for $11 million.

Average selling prices were down in the quarter, largely as a result of shifting product mix as we are shipping additional light rare earth concentrate and selling additional volumes of cerium based products. Average selling prices for rare earth softened during the quarter for cerium and lanthanum derived products which were offset by an increase in pricing for neodymium and praseodymium.

As Geoff mentioned, we have completed commissioning at our chloralkali plant at Mountain Pass, and we anticipate that our margins will begin to realize the benefit of the completed system during 2014. Optimization and debottlenecking our production will continue to impact our cost curve in the near term. However, we expect to achieve operating cash flow positive before interest this year. I think I’m a little bit more bullish than Geoff on that point.

For the full year, we’ve sold approximately 3,900 metric tons of product for Mountain Pass, and produced 3,473 metric tons during the year. Our sales volume at Mountain Pass was up 47% from the prior year.

On slide eight, chemicals and oxides reported $55 million in revenue, a slight decrease as compared to the third quarter. The decrease is attributable to certain softened market pricing. However, pricing appears to be stabilizing and our volumes of 1,760 metric tons outpaced the third quarter. For the full year, we sold nearly 6,600 metric tons through our chemicals and oxides segment.

And on slide nine, we reported $59 million of revenue in our magnetic materials and alloys segment, an 18% decrease from the third quarter. And as previously discussed, the commercial buying patterns within magnetic materials displaced seasonality, and Q4 sales were in line with expectations.

We sold 1,353 metric tons of magnetic powders and alloys at an average selling price of nearly $24 per kilogram. This is a higher realized price than compared to the prior quarter. For the full year, we sold 5,884 metric tons of magnetic materials and alloys at an average selling price of $43 per kilogram.

And lastly, on slide 10, our rare metals segment reported $14.5 million in revenue compared to $21 million in the third quarter. We sold 58 metric tons of rare metals at an average selling price of $250 per kilogram. Overall volumes were down compared to the prior quarter, although Q3 pulled forward some key sales volumes of niobium out of the fourth quarter.

Average selling prices were up from $206 per kilogram to $250 per kilogram, based on a favorable product mix and increasing prices within our tantalum products. For the full year, we sold 317 metric tons of rare metals at an average selling price of $272 per kilogram.

One final housekeeping item related to rare metals is during the second half of 2013 we implemented our plan to discontinue operations at our Napanee, Ontario facility. The operating results of Napanee have been included in discontinued operations within our 10-K filing, and the presentation of 2012 financial data for the rare metals segment has been revised for comparative purposes. And of note, that sale of the facility actually closed yesterday, March 3.

Moving back to our consolidated P&L, selling, general, and administrative expenses were $31 million for the quarter, and while we have made significant progress in reducing SG&A, we continue to look for opportunities to reduce costs. Interest expense during the quarter was $25 million, and we reported a tax benefit of $32 million during the quarter. Our full year effective tax rate was 14% on a net loss before income taxes and equity earnings of $225 million.

Now, on slide 11, and in terms of our balance sheet and statement of cash flows, we used $65 million in cash for operations during the quarter. We also spent $45 million in Q4 for cash capital expenditures, which is indicative of our slowing capital spend at Mountain Pass. And there have been no changes to the overall Mountain Pass project budget of $1.55 billion.

For the full year, and across all operating segments, we spent $379 million in capital expenditures. Look forward to the full year 2014, we anticipate capital expenditures will be between $85 million and $90 million across the entire organization. As of December 31, we maintain $314 million of cash and cash equivalents on the balance sheet.

On previous quarterly calls, we have also discussed our ongoing efforts to secure a revolving credit facility. At this point, we are tabling the potential facility, large as a result of our changed liquidity position following the successful raise of additional capital in October of last year. In addition, we believe that the currently proposed terms of this current facility would not have been favorable to the company and our continued flexibility in terms of treasury management outweigh any potential benefit the revolver may offer.

With significant construction at Mountain Pass now complete, and $314 million of cash, we are comfortable with our global liquidity position to fuel our anticipated growth in 2014.

Now let me turn the call back over to Geoff.

Geoff Bedford

Thank you, Michael. Now let’s look a bit closer at how things are progressing within our resources segment. That begins on slide 13.

Our continued efforts to optimize operations at our multistage cracking unit are taking us from a historic mid-50s recovery rate to a rate we believe will be in excess of 85%, with a target of 90% plus. That helps to reduce our production costs, based on higher feed utilization and improves our deposit utilization.

As I mentioned earlier, our chloralkali plant is now operational and producing in-spec and NSF-certified bleach, which can be further processed into hydrochloric acid and [caustic], reagents we use internally, or sold through an agreement we have with a third-party distributor.

This process utilizes recycled waste water and we expect we’ll reduce our water discharge by as much as 70%, a significant cost savings. The hydrochloric acid and caustic we produce in the chloralkali plant is consumed internally in our rare earth separation process, and drives additional cost savings.

As some of you may know, legacy operations at Mountain Pass required as many as 15 to 20 tanker trucks per day of chemical reagents delivered to the site. Producing our own reagents onsite will save us money, generate additional revenue, and further reduce the environmental footprint of rare earth production at Mountain Pass.

Across other parts of our facility, we are seeing continued improvements in our optimization efforts. For example, we have installed additional solvent extraction capacity, which is both increasing our NDPR recovery and helping us produce additional lanthanum for new markets served by our existing customer base.

With respect to our production in the fourth quarter, our debottlenecking efforts and interruptions slowed our production ramp more than we would have liked. Additionally, commissioning of our chloralkali plant took several weeks longer than we expected. For example, we lost approximately 15 working days due to severe freezing and inclement weather, as well as downtime within our impurities separation unit, which was caused by mechanical issues. These issues have since been remedied.

Our production during the second half of 2013 and into the early months of 2014 was lower than expected, as a result of these production interruptions. In Q4, we produced approximately 1,000 metric tons, and production to date in Q1 is approximately 800 tons through the end of February.

As we increase our production volumes, it is likely that we will continue to encounter unforeseen interruptions. We anticipate production in the first half of 2014 to be below the design capacity of 19,050 metric tons on an annualized basis. However, as we have done throughout the current production ramp at Mountain Pass, we will continue to work through these interruptions. We continue to optimize and debottleneck our leach system, which will help strengthen that system, increase recoveries, and increase throughput.

As our production rates rise, we expect our unit production cost to continue to decline. On the demand side, we are encouraged by the demand outlook we are hearing from customers, both internal and external, for lanthanum, neodymium, praseodymium, and light rare earth concentrate, which we call alloys. We ship [unintelligible] to our downstream facilities for processing into value-added products.

As Michael mentioned earlier, since the initial adjustments to our estimate in the first quarter of 2013, there have been no material changes to our Mountain Pass capital budget. With initial construction now behind us, we expect our capital expenditure requirements to be significantly lower going forward.

Moving to slide 14, let me touch on some of the quarter’s highlights for our chemicals and oxides segment. China volumes grew by 38%, as we increased sales between our business units by shipping more NDPR to our [unintelligible] business. We are continuing to see increased demand for engineered rare earth products used in the [unintelligible] market. In addition, our [Jiangyin] facility shipped more high purity rare earth materials into China.

Many of you may recall that we’ve been working through high cost inventory at our facilities for the better part of 18 months. Currently, Zibo and Jiangyin have worked through all their high cost raw materials. While we remain cautious, market stability should continue to improve the economics of the chemicals and oxides business.

Our European volumes grew, led by our Sillamae, Estonia facility, but lower average selling prices and margins on an increased cerium product mix. This growth in China and Europe was partially offset by softness in Japan, which continues to adjust inventory levels across many of our products due to their upcoming fiscal year end.

Our Q4 sales volumes increase was primarily driven by our ability to ship [unintelligible] from Mountain Pass to our processing plant in Estonia, which provides that plant with a more stable source of feedstock. For the first quarter, we anticipate volumes will continue to strengthen within our chemicals and oxides.

The automotive industry appears to remain a strong downstream market for us, both through the petroleum catalyst and the automotive catalyst market. However, we are currently limited by our production at Mountain Pass to support the additional lanthanum needs of petroleum catalyst customers. This should be addressed as Mountain Pass production volumes increase.

Overall, in the near to mid term, we continue to expect to see rare earth volumes increase, price volatility decrease, and margins return to more typically levels as demand continues to normalize. Longer term, we continue to expect global demand for rare earths to increase across most sectors.

Turning now to slide 15, let me provide some highlights from our magnetic materials and alloys segment. Volumes shipped in the majority of our end market segments were lower in the quarter, but this was in line with expectations.

As explained in the previous call, we felt the supply chain had built excess inventory in the third quarter in anticipation of an impending price increase for our Neo powders. We therefore anticipated our customers’ moderated demand in the quarter, as they reduced their inventory levels. The fourth quarter is also a seasonally weaker quarter for the magnetics business.

Even with these challenges, we were pleased with the business units’ performance during the quarter. Volumes shipped in the second half of the quarter were ultimately stronger than the first half, as expected. In the short term, we expect conservative order volumes from our customers.

While we think the majority of the excess inventory built during the third quarter has been consumed, the extended shutdown period for Chinese New Year will likely result in a marginally weaker quarter. Our next generation magnetic [bonded] powders are continuing to gain market traction, and we are optimistic for the continued strength of this business segment.

As mentioned on prior calls, we are currently making operational gains at our rare metals facility, and we continue to improve throughput against our fixed cost base. The growing trend towards energy efficient LED lighting has been a good growth driver for both our rare metals group in gallium and our chemicals and oxides group in [unintelligible], and we expect this to continue.

A quick note related to our tantalum production, subsequent to the year-end, our tantalum smelter facility in Estonia gained its conflict-free certification from the Electronic Industry Citizenship Coalition, or EICC, effective through July 2014, which demonstrates our commitment to provide conflict-free tantalum to our customers. We believe tantalum will continue to be a core piece of our rare metals business in 2014.

Let me make a few closing comments, on slide 16, before we turn to your questions. 2013 was a year of challenges, but also one with many accomplishments. I’d like to thank all of our employees across the globe for their hard work and dedication. Throughout the year, we made a concerted effort to rightsize our organization, to reduce overhead costs, and improve efficiency in our workforce.

At Mountain Pass, we completed construction and commissioning of all major production units, and our production ramp continues to position us to meet both internal and external market demand. Our downstream business units generated positive cash flow, despite facing a difficult market environment with soft demand and declining prices.

Looking ahead at 2014 and beyond, global markets appear to be strengthening, albeit a bit slowly, and the core economics of our business in magnetics and rare earths continue to improve. This presents us with a stable platform for continued scaling and growth.

We always retain a measure of cautiousness when speaking to our future market trends, but as I look ahead, it is a very exciting time for our company. I am optimistic of the continuing prospect for long term growth in demand for the engineered materials we make and for our company’s ability to capture multiple margin opportunities across our integrated supply chain.

Finally, with our new and integrated production assets largely in place, our customers will see a company positioned to much more consistently meet their product specifications, delivery timetables, and value proposition.

We will strengthen our value proposition to our customers by providing technical solutions that help them more efficiently and profitably use our materials, and we will strengthen our product development support to help our customers create next generation products that benefit both them and us.

By delivering on these customer focused goals, we will strive to attract and retain customers, maximize returns for our shareholders, and be recognized as the world’s preeminent rare earth and rare metals manufacturer.

We look forward to taking your questions.

Brian Blackman

Thank you, Geoff. Operator, we’d like to now turn the call over to some questions.

Question-and-Answer Session

Operator

[Operator instructions.] Your first question comes from the line of Brian Lee with Goldman Sachs.

Brian Lee - Goldman Sachs

First, I know Geoff, you alluded to some of this by segment, but if you could elaborate a little bit, it would definitely be helpful. This is a question around the trajectory of volumes, not just at Mountain Pass, but overall. Since it seems you guys have consistently been running at utilization of 70% or even below across all the segments, wondering how much of that is just truly demand driven and only attributed to demand, and then what we should be monitoring for a turn in those trends.

Geoff Bedford

Not addressing Mountain Pass specifically, but if we look at the other business segments, when we look at the magnetic materials piece, the MNA segment, the magnetic market has been showing signs of strength, and we’ve been seeing recovery in that market. I think for our particular business, it is a bit seasonal.

And you know, we talked a little bit about how Q3 we saw some inventory build, in advance of a pricing increase for our products. We think we’re sort of working through that inventory in the fourth quarter. And again, I think in the first quarter, seasonally it’s a bit slower, but then as we look out after that, I think that we should see some recovery in those markets and improvement in that business segment.

On the chemicals and oxides, which is sort of our value-added engineered rare earth products, if you will, for me, again, it really depends on the application. We’re seeing, in the FCC catalyst market, for example, and the automotive catalyst, I’ve referred to that, we’re seeing good market demand there. And you know, we see continued improvement in our ability to service those markets.

I think some of the other markets, for example [polish], we’ve seen strength in China for the lower-end polish market, but the Japanese markets are a little slower. So it’s a little bit more of a mixed bag there.

I would say overall, I would expect our volumes in the chemicals and oxides segment will be improving from where we’ve seen them in the middle of 2013. But really, it really depends on what segment you’re talking about there.

On the rare metals business, I think we have very much been impacted by getting our certification for EICC, for our tantalum, and some of those issues that we’ve dealt with. So those are now behind us. You know, we’ve seen the niobium market slow, but again, looking at recoveries in the second half of that market.

So I think overall, notwithstanding the Mountain Pass, I think we would anticipate certainly consistent or improving volume growth out of the other three business units.

Brian Lee - Goldman Sachs

Follow up was just on chloralkali, now that you have it fully commissioned. What’s the timeframe for the positive impact of the cost structure to be fully absorbed? And then can you remind us where you’d be overall on cost per kg once that’s achieved?

Geoff Bedford

I think the impact is immediate. I think the impact will grow over time. I mean, keeping in mind the chloralkali, the benefit there is a reduced water haulage. So just as a rough rule of thumb, for every tanker of bleach that we produce and then utilize or sell, we’ve sort of reduced three tankers of water haulage that we need to deal with. And that cost saving is happening immediately. And then follow on to that is we produce hydrochloric and caustic, which is an additional cost savings.

So I think the impact is immediate, but I do think it will ramp as we ramp the benefit of that. And as far as our cost target, ultimately we still remain where we were, which is in the $6 to $7 kilogram range for all products produced, including cerium.

Brian Lee - Goldman Sachs

And timeframe on that?

Geoff Bedford

That timeframe is really going to coincide with the ramp schedule. Because it’s going to be a combination of spending, which I think we have a clear view of how to get there, but then also the volume produced. So our timeframe is similar to what we’ve talked about for our ramp schedule.

Operator

And your next question comes from the line of Ben Kallo with Robert W. Baird.

Ben Kallo - Robert W. Baird

I know you talked about demand. Could you talk about supply, what you’re seeing out in the marketplace, and how that impacts 2014?

Geoff Bedford

Actually, I was talking with our guys in China this morning, so I can give you sort of a real time update of what we’re seeing right now as far as supply. And I think really it’s sort of divided into the north and the south.

And if you think about south China, I would say that we’ve seen a number of those facilities are not producing today, that they’ve sort of pulled out of the market a bit, due to weaker demand in China. And I think in the south, we still continue to see some smuggling of product, and smuggling of mining and operations. So I think that is what we’re seeing in the south from the supply point of view.

I think in the north, slightly different. I think [Baotou] is sort of the main producer there, so they have better controls. So we’re not seeing the smuggling of some of those issues in the south supply. And I think Baotou, they continue to run at lower volumes than their capacity, but they continue to run.

Ben Kallo - Robert W. Baird

And then when you guys purchased Neo, that was operating at a nice EBITDA clip. When I’m looking through the different segments, where is that getting lost? What’s deteriorating in that business that we’re now suffering a loss?

Geoff Bedford

I think what we’ve seen really is most of it is probably in the chemicals and oxides business. I think our Magnequench business was part of the old Neo operation. It fluctuates up and down, but it does not have the volatility that we’ve seen in some of the other segments.

And on the chemicals and oxides, what we saw through 2013 is as prices were coming down, our inventory costs, which we had purchased raw materials previously, we were trying to deal with higher cost of raw materials and falling market prices. And if you remember, the structure of that business is such that it’s a bit of a pass-through for us, and we’re managing our gross margin per kilogram. So typically, as prices move, so do our raw materials.

The challenge is that the prices tend to lead our material costs. So you get a lag effect. And I think as prices are lifting, the lag is positive, and we see margin improvement. And as prices are declining, the lag is negative and we see a margin contraction. And I think through ’13 we definitely saw margin contraction, and that impacted what would have been the old Neo legacy business.

Michael Doolan

As it relates to the legacy Neo business and what’s reported, there is the impact of purchase accounting. So when Molycorp acquired Neo, all the assets were fair valued and written up, which we’re amortizing. And to that point, to the extent that, in chemicals and oxides, we just wrote off the quotas, they were being amortized, so that will be avoided in future years, roughly about $7 million per year of amortization. And additionally, we wrote off the patent in the magnetic materials alloys segment, which would also have been amortized in 2014. So you’ll start to notice a bit of a pickup as some of the purchase accounting is eliminated from the mix.

Ben Kallo - Robert W. Baird

On the impairment charge, can you just confirm whether or not that has any impact on any covenants? And then moving forward, you talked about the revolver, and not needing that. If I kind of stress your model, of which you guys have a better idea, there’s still a chance you guys could come under some liquidity pressure. Can you rule out needing to a deal or say it’s a low probability, at least?

Michael Doolan

I would say it’s certainly a low probability. We talked about positive operating cash flow pre-interest. I would suggest that in 2014 we’ll be in a position with operating cash flow to cover our capex requirements. You heard us talk about $85 million to $90 million. What we’re going to be short in ’14, though, is covering our debt, the interest expense of $100 million plus. But based on forecasts, we’re still indicating that we will be completely free cash flow positive by the end of 2015.

Ben Kallo - Robert W. Baird

And the covenants?

Michael Doolan

On the covenants, no, there’s no impact on the covenants, these are all Mountain Pass items.

Geoff Bedford

And just to reiterate on the operating line, I think what was prevented really didn’t, in our minds, address the needs of the company. And given our liquidity and cash position, we decided that we were better off not to move into that facility as opposed to other alternatives that might be available. So with the given liquidity position, it wasn’t something we immediately needed to do, and it wasn’t something that we thought was in the best interest longer term, so we stepped back to rethink.

Michael Doolan

The launch, it just limited our ability to move cash from where we’re making it to where we need it.

Operator

And your next question is from the line of Avinash Kant of D.A. Davidson.

Avinash Kant - D.A. Davidson

Did you give out the cost of production in the current quarter? What was it at?

Michael Doolan

It was about 2452, I believe, in Q4, so essentially unchanged from Q3.

Avinash Kant - D.A. Davidson

And if you were to think about, now that you have the facility ready in a quarter or two, do you have an idea where you could take it? Any trajectory on this one?

Geoff Bedford

As I said earlier, I think really if you think about the cost per kilogram, the spending, if you look back, has been fairly consistent back to the quarters. And I think we’ll see that spending being reduced, certainly by the benefit of the chloralkali facility. So that will be a positive impact on how much we’re spending. And then really it comes back to how quickly we ramp, and the volume, for a per kilogram basis. So our targets remain as we’ve talked about, and we’re in the process of ramping as we speak.

Avinash Kant - D.A. Davidson

So now that you have the capacity coming online, more qualitatively, have you had discussions with some of the larger customers? And have you seen that they intend to source more from you versus what they had been sourcing from China? Have you seen a shift in their share of business coming towards you?

Geoff Bedford

I think so. It’s very early days as far as what we’ve actually produced. But certainly the feedback we’re getting from our customers is very positive in the sense that they’re anxious to take our materials. We’re talking about, specifically, if you look at the NDR we produce for our magnetics business, our internal demand is quite large, alone.

And then we have quite a bit of interest in the Japanese and some of the European markets for material that’s coming out of Mountain Pass. So I feel very good about that product. If you look at the lanthanum we’re producing, within the U.S. there’s a very large FCC market right in our backyard.

So clearly there are lots of reasons, economics, all other kinds of reasons why they’re also very interested in our products. And we talked about cerium in the past. This will be something that will take us a little more time, but there’s a lot of things that we’re working on. But when we look at those broad categories of products and markets, I’m very encouraged on our ability to move those products.

Avinash Kant - D.A. Davidson

And the broad mix in pricing that you saw change, was it also mix related? Or was it a change in pricing in general? Can you give us some components of the mix versus the broad decline in pricing?

Geoff Bedford

If you’re talking specifically rare earths, I think there was price decline in the fourth quarter, and we’ve since seen them level through the first. So I think it would be a combination of both, because we definitely did see some price declines through the fourth quarter and then mix as well.

Michael Doolan

As it relates to Mountain Pass, certainly mix, because we’re shipping more of the [unintelligible], the concentrate, which is at a lower price.

Operator

And your next question is from the line of Michael Gambardella from JPMorgan.

Michael Gambardella - JPMorgan

I know not all the senior management was there, but when they were ramping up the Mountain Pass facility, the company put out a press release that the capital costs at Mountain Pass would be about $115 million higher than projected, and the rationale that was given in the press release and on the conference call was that this $115 million wasn’t a cost overrun, but in fact it was to accelerate the timing of the startup of Mountain Pass by three months. Clearly, Mountain Pass is significantly behind schedule in terms of production ramp. So what is your recourse to the vendors for that $115 million that the company paid?

Geoff Bedford

Let’s start with the ramp and where we are. Clearly, from what we’ve talked about - and as you said, not all of us were around at the time - but what was talked about a few years back, things were very different, have turned out very differently from what was talked about back then.

So we’ve tried to come in and, in early 2013, understand as quickly as we could and sort of reset expectations, if you will, what we thought the capital would cost, what the major milestones were that needed to be achieved. And we’ve tried to work through those, and I would say on the construction piece, chloralkali was later than what we would have liked, but we sort of held to the capital plan and we’ve managed to sort of put the major pieces in place.

I would say that on the ramp, some of the interruptions and unforeseen surprises that we ramped caused delays to what we otherwise would have liked. As far as, honestly, remedies relative to the $115 million, if that was the number that was talked about two years ago, I don’t even know if I can really answer that question.

Michael Gambardella - JPMorgan

Speaking of the company at the time, and probably the $115 million or $112 million was purely the acceleration of the startup. So was this a misstatement, or was this a miscalculation or mismanagement in terms of the contract [unintelligible] this money? Or was this just a capital overrun? The company put out a public statement. What kind of resource do you have to the vendors? You’re clearly behind schedule. I’m not blaming the current management, I’m just saying if you guys represent the company, from the time you came in and before. And I’m just saying, what recourse do you have for this $115 million, or do you have none?

Geoff Bedford

Again, I cannot speak to what the thinking was around the $115 million and what went into it. So, again, it’s difficult for me to comment on that and what was the thinking at the time. I think when we came in, as we talked about, we looked at whether it made sense to move to phase two, and we decided that we would pause until we could sort of ramp and get our arms around phase one. So that clearly was different from what had been announced earlier, no question.

Michael Gambardella - JPMorgan

[cross talk] looked over the contracts since you came in. Do you have any recourse for this $115 million to the lenders?

Michael Doolan

I guess just a couple of comments. As I understand it, a lot of that payment was to accelerate purchases of specific pieces of equipment that came in, but then getting it onsite and then installing it and having it work as a complete unit, I think there was obviously some issues there.

In terms of getting money back, and I’m not going to say it’s the same $115 million you’re talking about, but I think as you’re aware we have initiated, sometime last year, lawsuits for a couple of engineering firms. In terms of accelerating the equipment but then not having them be able to sort of plug and play, as it were, it’s some of the claims we’re making against the engineering firms.

So again, not necessarily the same dollars, but we are, again, looking at those contracts and trying to recover what we can, as it relates to that. But, as Geoff said, different circumstances and a different time back then.

Michael Gambardella - JPMorgan

Just going forward now, are you guys surprised at the weakness in the rare earth pricing that you’re seeing in the fourth quarter currently, given the fact that Molycorp and Lynas, the two biggest capacity additions that were expected, are way behind schedule in bringing production into the market. Wouldn’t we have seen a much stronger pricing environment with the absence of your production and Lynas’ production? And what will happen if you guys are correct with your guidance and getting up to that 23,000 ton [unintelligible] rate in the fourth quarter, from basically a 4,000 ton rate?

Geoff Bedford

I can talk a little bit about pricing and where we see the market today. As far as being surprised, as I mentioned, I talked to our Chinese guys this morning, to try to understand what they were seeing in the marketplace currently, so we can start there. I think the view of the Chinese market right now is that the magnetic segment overall seems to be doing fairly well.

I think I also mentioned that we’re seeing sort of the low end cerium, which is primarily for polish. A lot of the polish applications have slid into China now for [catalysts], those types of things. We’re seeing that market.

But the other markets are remaining relatively slow in China. [Phosphors] and some of the other markets that we’re bigger in, we are still seeing those markets remain slow. And I think that there’s a few reasons why people are thinking this is the case. One is that we definitely still seem to be seeing inventories coming into the market out of China, some of the big SOEs. As I think you know, we’re accumulating inventories and some of that is still coming into the market.

We are still seeing some of the smuggling and some of those issues that are impacting supply site in the south of China. So I think that from our point of view, we see these prices published every week, and we’ve seen this before, but the reality is that nobody’s really transacting a lot of volume. It’s difficult to really know where those prices are.

Movements in demand, if demand sort of comes back, you can see these prices move around quite a bit. I mean, people go out of their way to try to find a price every week, which may or may not necessarily be representative of business that’s transacting, because there isn’t a lot of business transacting.

So when we think of pricing going forward, and I know, Michael, this is one of the things you’ve been very concerned about, and rightly so. I think that when I think about prices going forward, I think about it in terms of what are the cash costs of our competitors, and particularly Chinese competitors. That’s what we’re talking about here.

You know, we’ve spent some time trying to understand what those cash costs were. And understanding Chinese financial statements at times can be difficult, but their process is simply a process. We’ve sent technical people in to understand what their process is as best we can, and try to get as good an idea as we can about where we think those prices are.

And our experience has been that typically when we see the Chinese competitors, they don’t go into a negative cash position. So if they think that prices are such that they’re moving into negative cash, they actually will pull back and stop production. And we’ve seen that. We’ve seen Baotou do it. I think we’re seeing some of it in the south right now.

So if you put together where we think the cash costs are, plus or minus, and where prices are today, plus or minus, looking ahead, we’re somewhat encouraged. As you’ve heard us say many times, we’re not here to predict where rare earth prices are going, but just trying to understand the economics of the industry and where we sit in that, and what ultimately that could mean longer term. Clearly, short term prices can do lots of different things.

Michael Gambardella - JPMorgan

Just simple supply and demand. If you’re running at about 400 tons a month, you’re somewhere in that 4,500/5,000 ton annual run rate, and you’re projecting that you’re going to go to 23,000 ton run rate from 4,500 by the fourth quarter, and you’re also saying that these markets are so thin and illiquid that it’s hard to get even a price, isn’t that volume impact just going to collapse the pricing environment?

Geoff Bedford

Again, it comes back to where we sit on the cost curve versus others. And also, keep in mind, we’re talking generalities. When we talk specifically about Mountain Pass, the NDPR is going into our own downstream operation. The LREC goes into our own separating facility. We have these value added businesses all lined up to gain margin through those businesses. And the FCC and lanthanum, it’s in our backyard, which gives us some advantages over some of the competitors that are supplying that in other parts of the world.

So I hear what you’re saying, and trust me, I’ve thought long and hard about this before I sat in this seat. And that was kind of the conclusion that I came to. And that’s sort of where I feel the market is right now.

Michael Gambardella - JPMorgan

So you’re pretty much betting that your low costs will be able to push Chinese guys out of the marketplace?

Geoff Bedford

No, I’m not betting on that at all. I think what we’re betting on, or what we’re executing on, is that we’re going to be able to take as much of this material out of Mountain Pass and drive it through our downstream operations to get margin there, and that we have advantages geographically, if nothing else, for some of the other products. So that’s where we’re landing at this point.

Operator

And your next question comes from the line of Brett Levy from Jefferies.

Brett Levy - Jefferies

You guided that some of the chloralkali plant disruptions that were evident in Q4 were also evidence in Q1. Kind of backing out the noncash part of the EBITDA number you guided to, it seems like you were around negative 44 in the fourth quarter. Based on the continuing disruptions and the pricing dynamics and the fact that you really do have kind of two months on the books already, can you guide up or down using the noncash adjusted EBITDA number for Q4, but kind of how Q1 might look?

Michael Doolan

The short answer, we’ll be better, just because we’re seeing different demand, pricing stabilizing. And as Geoff mentioned, notwithstanding we’re not at the ramp up where we want to be, the savings coming out of chloralkali are pretty quick. We’re reducing haulage, we’re starting to reduce chemical purchases. So all that being said, Q1, we’ll be better off than Q4. So I think the trends will be positive, but I don’t think Q1 is going to be in the range that we would have liked a month ago, before the delay in chloralkali. But I think the trend is positive.

Brett Levy - Jefferies

And then you guys backed into guidance that EBITDA or operating cash flow, I don’t know if you’re using those interchangeably, would be somewhere in the area of capex of $85 million to $90 million. Can you talk a little about whether that’s back end loaded, if there’s a couple of cash flow negative quarters and then a couple of really big cash flow positive quarters at the very end that save things? Can you give some sense of what the ramp is to that number?

Michael Doolan

First of all, I’d definitely say that it’s back end loaded, because it is somewhat contingent on the Mountain Pass ramp. But accepting the Mountain Pass ramp for what it is, in terms of cash flow quarters or really months, it will be June and December, because those are the two months when we have our biggest single interest payments, $32 million and change, on our high-yield note. Other than that, the rest of the cash flow, as I said, is fairly linear, but it will be dependent on the ramp at Mountain Pass.

Brett Levy - Jefferies

When you say operating cash flow, I think basically the comment was that you guys were generating operating cash flow, before interest, of something near capex?

Michael Doolan

Correct.

Brett Levy - Jefferies

And I guess what I’m trying to figure out is when does that number start to turn into an EBITDA positive number.

Michael Doolan

Well EBITDA positive, I’ll say close in Q2. But I’m not going to say positive in Q2. And then certainly trending better from there.

Geoff Bedford

But again, keeping in mind that’s subject to the ramp. I can talk a little bit about the ramp. I think that the chloralkali facility was a really important piece for obvious reasons, because it helped us with, quite frankly, water haulage, and even the logistics of dealing with that is a bottleneck for us. So clearly that’s important.

So now we have a plan to aggressively try to move this ramp up. And we’ve looked at where we think the bottlenecks are, we’ve looked at what we think are kind of the key things we need to manage to increase the throughput. And we have a plan to do that and get this quarter over quarter improvement that Michael is talking about, but we are sort of cautioning that there are unforeseen types of things that come in here, which is why we’re a bit cautious.

So that’s the plan as we go forward. We think that we have a good plan and pathway to get from here to there, but there’s always those unforeseen events that we’ll have to manage as and when they come up. And keep in mind, this, of course, is all subject to end market demand.

And again, as we talked about a little earlier, based on our own internal needs of NDPR, and what we’re seeing with the FCC market, we think that demand is there, but as we go through the year we’ll keep you posted on what the markets are doing.

Operator

And your next question is from the line of Paul Forward from Stifel.

Paul Forward - Stifel

You had mentioned the patent expiration in July of ’14 in the MNA segment. Wanted to ask, is there any material impact on margins in that segment? Or is that not going to be all that significant? When you talk about overall operating cash flows being breakeven this year, was there any impact from that in that calculation?

Geoff Bedford

Relative to resources and what’s going on with the ramp at Mountain Pass, it is not as material, clearly. But as those patents come off, we expect that there will be competitors entering into the market. Our view is that likely what we’ll see is that market will segment somewhat.

And if you look the higher value, hard disk drive type applications, we’ll continue to really dominate that space. And I think that because of the value added of those products, that we’ll see higher margins in those products. Some of the lower end markets and some of the lower applications, we may see customers coming into and we’ll probably have our competitors [unintelligible], and we may have to sharpen our potential there.

So I think in our minds, we are thinking margins will come up in that business, and that’s been built into this particular projection that we’re talking about here. But again, relative to some of the other pieces of the business, the ramp at Mountain Pass, I wouldn’t say that this one is one that’s really moving the needle significantly.

Paul Forward - Stifel

And just as a follow up on all the talk about the ramp and Mountain Pass, you have, as a stated target, 23,000 tons a year by year-end. Just wondering if you could give us a little bit of an update on kind of what percentage of that is placed with customers at this point? And have there been any significant changes in placing material with customers over the past three months, since we had our last conference call?

Geoff Bedford

I think we feel very good about where the NDPR and the lanthanum and our ability to move that. I think we’ve talked in the past about cerium and some of the efforts that are going on with SorbX, and I think we have a commercial product, we have a handful of customers. We’re working with a number of other pilots and trials, and our plan is to grow that business. But you know, as far as 2014, I think our expectations are that we will certainly not sell the lion’s share of that cerium, that we will be seeing cerium, but we’ll be having to work to build markets to take.

So I would say that that probably hasn’t changed materially from where we were three months ago, quite frankly. I think if anything, I think we’ve probably seen the FCC market improving. So we’re probably feeling a little more confident on the lanthanum. The NDPR, of course, is our own. And cerium, that’s where our work needs to happen.

Operator

And your next question is from the line of Alex Fridlyand from PMB Paribas.

Alex Fridlyand - PMB Paribas

I just wanted to confirm a little bit about the ramp. I know you guys are not going to give quarter by quarter guidance, but both the ramp and cost per kilo, you expect to go from basically where you are now to roughly 19,000 tons run rate by the end of 2014? Or higher than that, lower than that? What kind of cadence can you give us for this ramp?

Geoff Bedford

I think what we’ve talked about in the past is exiting the year at 23,000, which would be slightly higher than the 19,000. That remains our objective here. We’ve started the year a little slower than we would have liked. We’ve talked about that. As I mentioned, we have our objectives, and we sort of have what we think are the bottlenecks and the key projects that need to get done. And again, assuming demand is there, that really remains our target, what we’re trying to do.

Operator

Your next question is from the line of Paratesh Mirza from Morgan Stanley.

Paratesh Mirza - Morgan Stanley

First, on your export quotas at Zibo and the Jiangyin facilities, could you help me understand what was the EBITDA impact, given that you don’t anticipate any cash flow from these export quotas going forward?

Geoff Bedford

The EBITDA impact will be zero, because we were amortizing them, but that got pulled out of the EBITDA calculation. But from an earnings perspective, round numbers, about $7 million per year of amortization.

Paratesh Mirza - Morgan Stanley

So you are not selling those export quotas, I guess?

Michael Doolan

No, we still have these export quotas. These are export quotas that we use to export our products out of China. I think that what’s changed for us is that with some of the WTO and other initiatives that have gone on, and what happened with Molycorp acquired Neo was these quotas were given intangible value. And since that time, given some of the changes in the market, and really that these quotas aren’t restrictive of exports given market supply and demand, and how much of the demand is now in China, the view was that the value of them has changed.

Paratesh Mirza - Morgan Stanley

And on the chloralkali plant, how much capex did you spend on this plant, and how much water haulage cost savings did you expect in millions of dollars every quarter?

Michael Doolan

We don’t give that level of granularity on overall individual projects within the Mountain Pass site. As it relates to water haulage, we’ve been running close to $5 million per quarter. In Q4, it was actually a little over $7 million, as we are debottlenecking and so forth, as Geoff talked about. So you’re looking at round numbers, an annual saving of about $20 million, which we’re not going to get all of in ’14, because we were still hauling water through January and February.

Geoff Bedford

And we will continue to haul some water, so we don’t want to imply that we go to zero. But certainly the 70% plus is a good number.

Operator

Your next question is from the line of Owen Douglas from Robert W. Baird.

Owen Douglas - Robert W. Baird

I really want to just get a better sense of what some of these debottlenecking impacts have been on the volume, because you said that they’re supposed to be a bit of a ramp, and we saw that although you said there was a problem in Q4, the volumes were fairly similar to what they were in Q3. So I just want to try to better understand, absent these debottlenecking problems, how you would have seen things play out there?

Geoff Bedford

That’s a difficult question to answer, because it’s a bit of a hypothetical. I think one of the challenges that we saw was we mentioned specifically we lost a number of days just because it’s freezing. When it freezes, you understand where your heat tracing is not working. So we’ve remedied that. I think we also saw, in our impurity removal, we probably lost two or three weeks through that section as well.

So it’s sort of lost production days, I guess is where we would talk to. The challenge we have is that we do have inventory buffer in the system, but if somebody goes down for an extended period of time, there just really isn’t the buffer in the system to keep everything else running. So really now, our objective here is to look across all the systems and make sure that they’re all managing the uptime and building inventories in the right places.

And then I think the other thing, the chloralkali delay, as I mentioned, just getting those water haulage trucks in and out of the plant in and of itself is a logistics constraint. So those were kind of the things that impacted us. And without those, where could we have been? That’s difficult to speculate.

Owen Douglas - Robert W. Baird

Just to make sure I get this right, the chloralkali delay, that was due to logistical problems with maneuvering the water haulage trucks onsite?

Geoff Bedford

Sorry, no. Without chloralkali, we were required to haul all the water offsite, and that is sort of a logistical issue, just getting trucks in and out to haul the water. With chloralkali now off and running, we use that water and recycle it to make bleach and then hydrochloric and caustic. So it avoids us having to deal with that water haulage.

Owen Douglas - Robert W. Baird

And the cold, you’re referring to cold in the first quarter, or in January and February of this year?

Geoff Bedford

It was late December.

Owen Douglas - Robert W. Baird

And is that the same cause of disruption in January and February of this year?

Geoff Bedford

Not the cold. I think the cold was much more limited, but definitely the chloralkali, because it did drag into the first quarter. And also, the impurity removal, I think it staggered the quarters as well. It sort of went down late in the fourth, and we didn’t get it up and running again at full volume capacity until the end of the first quarter.

Owen Douglas - Robert W. Baird

In the fourth quarter, before you had these delays, what sort of run rates were you hitting at the Mountain Pass facility?

Geoff Bedford

We really want to stay away from monthly and weekly volumes and guidance, to be honest with you. I understand your question in the sense that clearly you need to understand where the bottlenecks are and what we’re doing to improve our production ramp. But I think for us to be talking about what we did for a week or two of production I think might be a bit misleading. So apologies for that.

Owen Douglas - Robert W. Baird

As you saw, I’m just trying to get a better sense of what’s really holding you guys back from achieving this ramp up, and whether or not we should really have our base case be that 2014 maybe another miss.

Geoff Bedford

Understood. I think that where we’ve seen our bottlenecks and what slowed us down to date, other than those interruptions that we talked about, I think have been primary at sort of the front end of the system in the leach and the cracking operations. And we talked about improving the cycle times in cracking, and that will help us increase our throughput. And then also increasing our throughput through leach I think is also where the focus is.

The view of this is sort of downstream from that, that we’re in a position that if we can get us through the leach and cracking, that we can then deal with the [unintelligible] extraction and the other downstream processes.

Owen Douglas - Robert W. Baird

And if I could pivot a little bit to some of your downstream segments, they seem to be kind of doing all right. In terms of possibly trying to ramp up production at those downstream facilities, what really are the impediments to getting there? Given the weakness in the market, I presume you could try to source some raw materials from some third parties and put that through your value-added philosophies there. Could you talk through that a bit?

Geoff Bedford

I think the answer, can we source from outside third parties, it’s a bit trickier now, because those third parties also know that we’re coming online with their own, and they’re looking to find other sources and deal with their products in other ways. So I think that it’s much easier for us to source and ramp our downstream facilities with our own raw material than it is to try to find it from third parties. And that really is more the chemicals and oxides.

I think the NDPR, the Magnequench business, absolutely we could be buying NDPR in the Chinese market. I think that what’s governing growth in that business has more to do with market demand and the whole price-volume relationship, and as patents expire, will we be able to sort of lower prices and see expanded growth in that market. I think that’s more the question mark on that business. So for Magnequench, we could clearly be buying product from third parties and increasing volume, if the demand was there. The chemicals and oxides, it’s a little trickier.

Owen Douglas - Robert W. Baird

And on the resources segment, I know that in the past you guys have, and did on this call actually, stated the cash cost amount in the past. Just want to better understand what expense items, actual cash expense items in the resources segment, are not factored into those cash costs per kilogram.

Michael Doolan

Really, it’s all the SG&A. There’s some maintenance that wouldn’t be. Some benefit costs. I think property taxes out, which arguably you could allocate. Typical SG&A stuff, obviously. So site security [unintelligible], the health unit, that sort of stuff, all of those costs. Some of the warehousing for the finished goods comes out of production cost, obviously.

Owen Douglas - Robert W. Baird

So those other costs, it sounds as though those would just be really spread across more production units as you increase your production. So we could see the cash costs of that segment start to more closely approximate the stated cash costs? Is that a fair statement?

Michael Doolan

Yes, it is. That’s fair.

Owen Douglas - Robert W. Baird

Do you have any intention, by the way, of actually including these cash cost numbers in your financial reports? Because it seems like we just keep having to ask on these calls [unintelligible]?

Geoff Bedford

I’m just looking at the IR guys, and they’re making that note. That’s fine. There’s no reason why we’re not.

Operator

And your next question is from the line of Zach Zolnierz of GMP Securities.

Zach Zolnierz - GMP Securities

The guidance that you gave on cash flow, I guess by year-end you’re still reaffirming the 20,000 tons per annum target, which I think coincides with a $6 to $7 cash cost per kilogram. And then what you’re saying is for the year you’ll be operating cash flow breakeven before interest. So when we look at the $85 million to $90 million of operating cash flow against the capex, and you mentioned the delta to get to free cash flow neutral is about over $100 million of the cash interest, I guess I’m wondering why the free cash flow inflection guidance of year-end 2015 is not actually at the point that you hit the 23,000 tons per annum.

Because really I think your capex guidance in ’15 is down maybe $10 million or so. It’s about $75 million. But you still have $90 million or so of delta in operating cash flow. So I guess I’m wondering, if you’re already hitting the 23,000 tons, what is changing in 2015 compared to the annualized run rate at year-end ’14 to make up that difference? And I don’t know if you’re using higher prices, or whatever it might be.

Michael Doolan

No, I think in part it’s just the cumulative effects. To your point, and I haven’t done the math, if you were to take, say, Q1 of ’15 and assuming we are running at the 20,000 on a run rate basis, would we be, then, free cash flow positive? It would be close. But until we’ve made the money, I’m not saying we’re free cash flow positive.

But yes, there will be sort of that inflection point, and if you were to look on a run rate basis, we’ll be just about there. But as I said, until the cash is in the bank, we haven’t indeed earned the extra $100 million to support the interest. We’re not counting on it. That’s why I’m saying kind of more toward the end of 2015. And also, just to hedge our bets a little bit, to be a little bit conservative.

Geoff Bedford

I think one clarification, we are talking about that ramp, and clearly our production costs, our unit costs, will come down and follow the ramp going up. And six to seven remains the target, and the volume will get us a long way there, but we’re still going to have to optimize. And I’m not expecting that we’re going to necessarily see that in 2014. This ramp is going to take us in the right direction, but we’re going to get a long way there, but then we’re going to have to work on optimizing and figuring out these costs. So I think that might be some of it as well.

Michael Doolan

And the other thing, though, is we do have to fill up the pipeline. So we’re running at that, we’re producing LREC, we’re shipping it to our downstream production facilities. But it’s on the water, it’s got to be separated and then sold, so you’re still looking at a quarter or two before we turn that into cash. So that’s why we’re sort of saying end of the year.

Zach Zolnierz - GMP Securities

Understood. So it sounds like if you do get to the 23,000 tons per annum, you’ll be at today’s pricing, you’ll be pretty close, and maybe there’s a couple of quarters of optimization to get to the full free cash flow neutral?

Michael Doolan

Correct.

Zach Zolnierz - GMP Securities

And then my second question, just when you look at the business now, I’m just wondering if there’s any assets that you consider noncore? I know you have some JV interests on the balance sheet. There’s the Boulder Wind investment. Because you’ve mentioned the revolver didn’t come in at terms you thought were attractive. I wonder if there’s any liquidity options that you have across the business.

Michael Doolan

I think if and when we saw that we needed to think about those things, I mean, we’re a public company, so first of all we have a number of alternatives available to us. But you know, you talked about some of those other noncore assets. I think we actually, for Boulder Wind, I think that that was part of some of the writedowns. So I think that we would be open to those types of ideas, except at this point, our focus really is on getting Mountain Pass running, and we think we can do that. And we think we have, as a public company, alternatives to cash flow, if and when we need them.

Operator

There are no further questions. I would now like to turn the call back to Brian Blackman for closing remarks.

Brian Blackman

Well, we’d like to thank everybody for joining us on today’s call. Certainly look forward to checking back in May to report our first quarter results. Have a very good day, everyone.

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