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Summary

  • Molycorp's earnings and turnaround story continue to disappoint.
  • There is no end in sight to losses and cash outflows.
  • The $125 million credit facility - an important source of funding - is off the table.

Molycorp (NYSE:MCP) reported its first quarter earnings last Wednesday after the market closed, and the company's financial results and story continue to disappoint. I focused on the following areas:

Revenues

Molycorp's net revenues of $118.5 million decreased 4.3% from net revenues of $123.8 million in 4Q 2013, and decreased 18.5% from net revenues of $145.4 million in 1Q 2013. This is particularly disappointing, given the fact that 4Q 2013 was considered to be a down quarter. Total volume of 3,518 metric tons [MT] represents a 10% increase over 4Q 2013, at an average selling price ("ASP") of $33.69/kg. Whether declining revenues are due to China's stockpiling of rare earths, seasonality, or product mix, revenue declines are looking like the norm instead of a trend

Earnings

The company suffered a net loss attributable to shareholders of $88.1 million, compared to a loss of $194.3 million and $39.0 million for 4Q 2013 and 1Q 2013, respectively. The company also incurred inventory write-downs of 17.4 million. At a minimum, there appears to be no end to losses in sight, as the company's average selling price of $33.69.kg is not robust enough to cover its cost of goods sold. That said, Molycorp suffered a gross loss of $23.1 million, prior to selling and administrative expenses.

Revolving Credit Facility That Never Was

Management finally admitted that the $125 million revolving credit facility it was close to securing in 3Q 2013 is now off the table. This is significant, because any future cash shortfall would most likely come from an equity raise. Since the end to losses and cash outflows are nowhere in sight, investors would be wise to price in the potential dilution from another equity raise some time in 2014.

Conclusion

Molycorp's earnings and turnaround story continue to disappoint. Losses and cash outflows will not subside near-term. That said, I rate the stock a sell.

Source: Molycorp Disappoints On Earnings ... Again