Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Mark A. Smith – CEO

John Bassett – SVP, Operations

John L. Burba – EVP and Chief Technology Officer

Doug Jackson – SVP Business Development and Sales/Marketing

Jim Allen – CFO

Molycorp, Inc. (MCP) Analyst Day Conference Call October 20, 2011 1:43 PM ET

Mark A. Smith

[Abrupt Start] ...this year. China, if we’re doing an apples-to-apples basis is putting about 21,000 to 22,000 tons of material out in the market for the rest of the world. Molycorp is producing somewhere between 4,000 and 6,000 tons this year. That leaves a very substantial deficit. That isn’t changing. The client demand numbers are what they are and they not changing. And we’re going to continue to see the supply deficit affecting the markets.

All the access in China, they speak for themselves. They’re continuing to reduce their export quotas. They’re actually been forcing production quotas. And this is something new in 2011. China (inaudible) production quotas they issue in countries for years and they’ve never really been enforced and now they’re enforcing it. They shut down three lines in the South China play area. And then metals shutdown voluntarily.

I’ve got a report yesterday the (inaudible) materials, they’ve shutdown their operations in China. They may keep those operations shutdown until the end of the Chinese New Year. So we’re starting to see this production quota issue really come home to a lot of these produce. And, of course, we saw Valco [ph] make the announcement and I think it was early this week, the largest producer in the world that they’re going to shutdown for a month. And that’s not production quota issue. That’s what they want to do to keep the pricing environment a little higher. So all of that continues and we don’t expect the year’s export quota reduction to stop in the near future.

It’s the Chinese third debut in January of 2011 in a conference in Vancouver showing what they think of their demand growth in-country. And, of course, we’ve got this demand growth in China that’s largely responsible for why they continue to reduce export quotas. They have their own needs that they need to met.

I think this slide is really representative of what higher growth we expect and what kind of adjustments they have to make in their system in-country to make sure they meet those growth demands.

Molycorp has grown a lot over the last year. You know, we kind of started out with (inaudible) facility in the headquarters office and the folks in Denver Colorado we now have a metals and alloy facility in Talis in Arizona, so we own the Silmet’s facility that’s called Molycopr and Silmet’s with Silmet’s in Estonia. And we’ve just recently opened up an office in Tokyo and Japan to provide more customer service to a very, very large market there. That’s always been about 50% in Molycorp’s sales and Japan is the largest (inaudible) user outside of China.

So it’s a very important market to us and many times as we all – as management team travel to Tokyo, it’s not enough. The Japanese culture is one where they like a lot of (inaudible) faces with their suppliers so we got to have people on the ground that we are faced with in every single day, we are seeing extremely positive results from that already.

We continue to build the story that, the kind of three things that you got to have in the rare earth industry to be successful, one is you have to have a substantial amount of ore grade. Nothing pass [ph] of course is a world class composite of average ore grade 8.24%. You have to have the ability to take the ore out of the ground, process it into the individual rare development. Molycorp has almost 50 years of history on that and those are number two that we’ve now been running at a commercial scale out of this plan which you will drive through today, some new process technologies fore ore [ph], for yourselves.

And that’s provided us not only with a de-risking demonstration for these new technologies but maybe more importantly than that, we have operated on a fair amount; we have four more years of experience in this rare earth processing. And outside of China, those are the only operators that have been processing these materials for the last four years. So we think that that’s a real plus for Molycorp.

And then finally, and this is one that doesn’t really gets talked about a lot but you have to be able to meet your customer’s specs [ph]. Every customer has a different specification for their rare earth product if they want. So out of the difficulty of meeting customer specs that actually goes to the issue of radiation and Molycorp knows how to meet the radiation specifications for their customers and we can actually shift materials to Japan and they can accept because it meets their radiation specifications.

Low radiation specifications have gotten very, very tight in the last 10 years. Just about two years ago, the specifications of (inaudible) per gram is now 0.8 (inaudible) per gram. That’s actually radiation levels that are below background in almost every place in the world. So that’s how difficult it is to meet customer specifications in the products. And we’ve got the 60 years of experience here that allowed us to do that.

First (inaudible) supply chain strategy. We’ve got the first four parts of that supply chain—rare earth extraction, oxides, metals, alloys, wells underhand right now through the ownership of two new facilities. Well, what we’ve done here in the past and we’ll continue to work on establishing that JV partnership for magnets production. So a lot of work is going in to those negotiations and I don’t want to ever say that something is right around the corner but we’ve been working on these negotiations for a long time and they’re starting to home in on the final issues. So we expect some good news there in the near future.

(inaudible) and I hope I’m not disappointing anyone by letting you know that, you know, even though it’s an exciting day and we love having you all out here, the timing was kind of a bit too (inaudible) in your visits here today.

The board of directors has made a decision, a recommendation that our head of the team prepared for them and prepared it to them and are working in the last two days. And that’s to do with the acceleration process team that’s improved on the (inaudible) today.

It’s a very exciting time for Molycorp who’s presented the economic case for that – presented a marketing case for that then the board and the head of the community approved the acceleration project.

It’s very exciting for us that we’ll increase or move in the positive direction. So the start-up time for Project Phoenix by three months. We’ll be introducing an additional roughly 3,500 metric tons of product to the rest of the world.

Next year the result of this earlier start up, and that we’ll achieve that 19,015 metric tons per year production rate three months earlier to what we’ve anticipated. So around October 2012 we’ll be producing at that rate.

$114 million to cover the cost of that acceleration, I’ll let John Bassett talk about that a little bit more on the benefit questions last and this morning about the $114 million. So he’ll talk about that a little bit.

But anytime tomorrow we’ll accelerate something which can cost more money (inaudible) he’ll give us some more details on it.

We really think that this, you know, the way that Dr. Burba and his team have read dozens of schedules for this project substantial de-risk (inaudible) determined factors as well. The way the project was going to be start up before was basically to get the council complete in line one and we have to keep over the operations and then make our training on switches.

So now we’re going to do a very sequenced approach and basically have the equivalent of 14 chemical plants that would have to be started up in this process. And now we’re doing that as a very sequential method and it goes all at once.

It’s a very, very proven way to de-risk for start up problems that you could have in large complex facilities like this. So, John, maybe you could speak to that a little bit later. But it’s a very good team (inaudible) as well.

And then the good news is also, some exciting stuff today, when you go out to the pit and you overlook that pit. And by the way the pit never looked better. It’s so clean and the (inaudible). So it’s a beautiful thing (inaudible) like mining.

You’re going to see a (inaudible) across that business. It’s intensive work. So look for that. So that’s where the first ore will be that we will look in the pit on Monday of next week. So we are actually going to be starting to remove fresh ores from the pit start piling that and getting it ready to be introduced in to the middle.

It’s a pretty exciting time up here in that regard.

You have seen this line before, so I hope that a lot of times the details (inaudible) 10 years or 60 years almost, track record of producing over 20,000 metric tons per year. We’ve got a great group of employees out here and they’re now up 205 Molycorp employees out here, 840 employees in the company. We would probably have another 150 to 200 Molycorp employees out here within the next 12 months or so.

So we’re going to be ramping up very quickly worldwide resource by one [ph], by one point if you want to make two. You probably all noticed the big sign that is on the gate. But that’s the sign that I would look for as soon as I arrive at the facility.

That’s shows how many days (inaudible) gone without (inaudible) accident or restricted worker in this case. It’s now gone over 60 years, 2,291 days that this facility have gone lost-time accident, but also like to know that we’re probably about 20,000, 22,000 hours a month of ore contract assigned that year and probably Phoenix has also gone a year on lost-time accident.

So safety is a battle for a company when you see that you like (inaudible).

Molycorp Sillamae, a really good news out of there this morning, they just formed the first stages of (inaudible) metal. So Molycorp is producing not only (inaudible) metal that are in Sillamae facilities, but we’re also producing Samarium metal that are in Tolleson facility.

So while we pull a lot of that metal production for now bringing that – more and more of that in house, this facility has about 550 employees. (inaudible) we’ve gone over half a year now without a lost-time accident. They did have an accident early this spring and prior to that they have a four or five-year record without the lost-time accident.

So again safety is very, very important out of that facility. They’re doing a great job. And then we’ve got a lot of good news that’s starting to come out of Sillamae. We’re starting to understand what their technology capabilities are much better than what we did on the front end.

And this is really good, probably permanent to those are high technology and high-security production facilities for us as we move into the future here.

Tolleson Arizona, a great facility as well, 26 employees down there. They’re producing the Neodymium-iron-boron alloys today. They’re producing Samarium cobalt alloys today. They’re producing Samarium metals today. They’ll grow that business and we’re starting in 2012. And they’re also making those couple of other high technology and alloys.

This facility, 14 years without a lost-time accident. So you can see that safety is a real critical target of our lives as part of the Molycorp family.

Our Molycorp office in Tokyo is – we don’t actually have that whole innovative (inaudible) but it is the first time we have done this as a company. And we’re already seeing these huge benefits from it because of the day-to-day that are actually – we give to Molycorp customers.

We’re seeing kind of a change in the Japanese markets which I think further supports having an office there. A lot of Japanese customers historically, always use the trading house to procure a rare earth element. But what we’re finding, especially this last summer when prices, maybe get up to this $150 a kilogram of cerium that the Japanese buyers with these materials are now realizing that the trading house now gives a 2% or 3% (inaudible). And just as a matter of fact they control the prices of the rare earth, they’re actually asking us if we will do direct business with them as opposed to the trading houses. Molycorp is happy to do it either way of having that customer service office here in Japan where it helps us with the direct business that we can do.

With that, I’ll pass the baton over to John Bassett, Senior Vice President on Operations. I think for most of you, this is probably the first time that you seen John. John just started with us in January of this year, but John and I go back 15 or so years doing business together. So, I’m glad to have him here as part our staff.

John Bassett

Good morning. I’m going to give you a little orientation with Phoenix and try and help you out with our tour today. First of all, I would like to say a few things about the project in general. And one of course, we – I’m excited we got a privilege [ph] to accelerate the project. The project continues to be fully funded and I think there is some questions about the price tag as we do that acceleration.

I’ve been associated with a lot of big projects over the years. And it’s been my experience in general, when you speed up a project, slow down a project, stop this project, it will cost you 15%. It just seems to be one of the rules of thumb that I have. And sure enough, that’s what this turned out to be.

I also want to talk a little bit about how we mitigate our risk on this project. We have a very effective steering committee that oversees the construction management. And what we look for – we try to identify problems early on and opportunities early on. One of the opportunities we found would be the potential to expedite this project.

So, the stage start-up, this is also a mitigation issue. We’re asking a lot on (inaudible) and integrate my people in a very sequential way, so, that we can focus on our work with just a few people and then move on to the next part.

The other thing that’s very important for you to realize is the fact that we have been running the plans – the financial plans for four years. We have been trying out all the technologies. So, we’ve proving them out. So, not only do they work but we have experience with it. This is a discussion of the production that will come out on phase 1 and phase 2. There’s nothing particularly new in this chart if you think about where we’re going to be in 2012. You know, the guidance here is 8,000 to 10,000 metric tons a year until 2020.

Here you can see the quarter by quarter growth of our rare earth equivalent production. A list of the products that we make including a couple of new ones this month. And unless anybody else has any questions on that, I’ll just move on.

Here’s the kind of an aerial view of what we’re going to do today. First of all, I want to point out the interstate right here in our – practically our own private exit certainly makes access to the plant (inaudible) staying close to people into the structure and we can get people and things to the plant [ph].

Today, we’ll be touring this facility. Let me just walk you through the process flow. Of course, we start the open pit mine here. And the ore that we bring out of there, we bring it over to the crushing area. Then we will run it over to the (inaudible) hill. We cloak the rare earth material out of it. So, we do some processing there. Some of the impurities and the non-ore will go back to placement tail facility. We’ll scurry it up to make it in the kind of toothpaste and then we’ll pump that out into the long term storage area there. The rare ore that – the rare earths will be going to the – to the new separation plant in order to be separated into the final products.

Today on our tour, we’ll be on the upper right hand edge of the pit, so you’ll get a chance to look down in the pit. We’ll be just to the left of the a storage site. Your men will also get a chance to come down and look into where the separation plant is. Here’s the view of the – I’ll run through some pictures here of – which actually are a little bit dated. It’s very hard to keep these presentations up to date because it changes. So, you might want to bring this along with you and you can see what is happening in two to three weeks.

Again, we’ll be on the upper right hand edge here. So, we’ll be able to look down into the pit and see what it looks like. You’ll be able to see a little red X over here where we have some ore exposed. This is a picture of the separations facility. This is the power plant here as it is in the next slide. And you’ll notice that there’s no specs here. When you get out there, you’ll certainly see some specs.

Here’s the picture of the mill, including the (inaudible) foundation. We start to see some structure going up over that when you get up there. The tailings plant, we’ll get a chance to look up at that from the paste tailing area, lay down area. And you’ll get to see the magnitude of this – of the paste tailings area with a picture that has been adjusted so can have a look at it. And we’ll be on the upper left hand edge of this looking down on it. Okay.

John L. Burba

Okay. We’ll, I’d like to talk with you a little bit about our approach to environmental technology innovations. And I have a number of slides to try to flip through (inaudible). One of the things that we wanted to do, in fact, way back in 2004, Mark and I sat down in his office in Brea, California. We were talking about what would be necessary to the Mountain Pass to ever be rebuilt and start up and be a viable facility.

And we came up with these three key things – we’ve got to be the low cost producer in the whole world. We have to have independent control of our cerium because cerium is about 49% of our rare earth content. And then I think that this one is the probably the key driver. We have to be environmentally secured. And the reason for that is that the rare earth industry historically has been dirty.

We’re all aware of the issues of these in China and India and perhaps there’s just huge problem. We cannot afford to do that anymore. So, our goal was to accomplish all three of these things. And that’s our three significant jobs. Most people will tell you that you could accomplish this one – maybe this one and this one but to do all three is we’ve run into a fair amount of skepticism.

So, I’m going to explain to you how that works. Now, the thing is – that is key to try to accomplish something like this is actually set things around early before you ever start doing it. Because what happens then is, once you have these principles, they drive your thinking, driving in the research, drive the engineering and then carry you of where you want to be.

So, the things that are breakthrough technology system that we’re employing is our advanced salt recycle process. This allows us to convert our waste salt back into reagents that adversely eliminates waste water discharge. In the mid ‘90s when this plant was running at roughly at 20,000 tons per year, they were pumping out 850 gallons per minute of waste salts. It went down and out into – down into great, big, huge evaporation ponds, those dry white beds that you guys go through.

We won’t be doing that now. In fact, we’re not going to do – our goal is to have a zero waste water discharge. We may have a very tiny amount that we’ll have coming down. We have then solidified permanent tailings disposal system. These are the new utilized – previously, a lot of the mining companies in the rare earth industry and we’re taking this a step further in that our system actually has a (inaudible) tailings so that we do not – we minimize, absolutely the potential of water – impacted water leaking into ground water.

We also have a rain water collection system that’s being built into that. So, any rain water that touches the tailings is processed back up into our water treatment plants and we use it as (inaudible) test water. So, we’re not going to be discharging impacted water at all. What will be going to the water board is saying (inaudible) it will give us variance on this level of discharge. So, we just incorporate it right into the process.

We’re incorporating a combined heat and power plant running on natural gas. This will lower our emission dramatically. Later, we can ask Scott Holman [ph] and he can tell you how much it lowers the emission but it’s incredible. And the other thing is to reduce the power, electricity cost from roughly 16 (inaudible) kilowatt/hour to something in the (inaudible) kilowatt/hour. Of course, we (inaudible) and we need to (inaudible) for our process. And then we have some very high efficiency process (inaudible) keeping (inaudible) that allow us to do things in very different ways than the rest of the world does.

And one of these techniques is powering saving that’s about $120 million to $130 million dollars of CapEx (inaudible). This gives you – there's a little cartoon and believe me, this isn't just (inaudible) but this cartoon shows you a little bit about how this – our environment systems work. We mine those into the middle. We have extraction and purification, various separation for new products [ph], well, we provide hydrochloric acid and sodium amide oxide to these units. They produce salt water and it comes back here and it goes back into salt purification system, it goes back to the salt (inaudible) unit and hydrochloric acid and sodium hydroxide to come back.

You add some salt because some of – we will be filling some (inaudible) products and keep everything in balance and so that's the way the salt works, the mill can come down to this (inaudible) tailing facility.

The net result of all of this – totally how we’re going to do the environment piece of it brining home the cost. The cost of our low-cost power and the scheme that we’re doing, our raw material is actually natural gas not hydrochloric acid and sodium hydroxide. And the cost of that, we're projecting an operating cost of about $2.77 per kilo and we just went through another read up on this and our engineering firm is still sticking with this number.

And I think even operations guys have come from different direction and they're sliding the bolt on it. So we're feeling great confidence that we’re going to be a low-cost producer. So, what do we need? We need heavy rare earth. Well, (inaudible) is known as very light and mid range rare earth deposit. We have heavies in our deposits but it’s – they’re not very high concentrations. So the question is, what are we going to do to supply dysprosium, terbium, niobium into in the industry.

Well, we have a four-pronged approach to this, because one of things that we have learned all those years and as Mark says, “We’ve all been in this industry and other industries for a long time, the only thing is successful is to always back yourself up as many ways as possible. So we don't have one approach to dealing with the heavy rare earth. We can actually afford [ph]. And so the first thing is we have a great active recycling but effort that putting together to both magnets and phosphorous.

We have partners that we’re looking with in this, but we may intend to collect these recycled materials and reuse. That’s a very wise use of (inaudible) material. The next thing is to increase efficiency or efficient use of heavy rare earth (inaudible). And dysprosium is one that I'd like to think about with respect to magnetics. It's critical to stabilize getting them on warm magnets and we learn at elevated temperatures.

What we've done is we're looking for technologies that require less dysprosium and traditional applications but Boulder Wind is a company that has developed a permanent magnet generator for wind turbines that describe – that requires no dysprosium. I’ve got a very clever design. We looked at it and decide if this is really a good technology play and so we have – we decided that we've made an investment. We also are working with AIMs [ph] laboratory from DOE to locate and to identify the new more effective ways of creating magnets, to require less dysprosium and therefore or more effective.

The next thing is we have developed a pricing technology. This illusion technology that will allow us to accept virtually any mineral pod into our faucet and do it in a environmentally testable way. There so, if we find an ore body some place does we can bring an ore concentrate in. We can run a (inaudible) cards existing process. We don't have to go a whole new process to deal with. It's just drops right in and we look like three. So, we think that this will be very effective.

And then, the fourth one and this is one that everybody is interested in is identification of new rare earth resources. I’m going to speak just a minute more about the Boulder Wind Power. This was a – we think – as I said, we think this is a very significant place [ph]. For us, if you take a look at the (inaudible) wind turbines, all of the ones that are being build today have significant quantities this frozen.

And that’s because the generators get hot and there are a lot of AD currents that will be magnified by the magnets, big issues. What Boulder has done is he they’ve learned how to virtually eliminate that returns [ph] and built a very (inaudible) clever cooling system into their generator. And you consider being the number of magnets that are projected going into wind turbines, this is as good as the whole Dysprosium magnet.

So, we think this is going to being a huge deal so that you can put very simple magnets into those turbines. They’re going to be less expensive and they’re seeing even more efficiency out of this particular design than others. So, we’re really pumped on is an example of kinds of technologies that we’re looking for. On the heavy rare earth deposits, we approach this in the same way that we approach the design of (inaudible).

We put together some fundamental requirements that we operate on [ph]. First of all, we have to have an adequate ore grade which we design as 2%. Less than that, you start becoming very uneconomic and you start increasing the size of the environment quickly. The rare earth distribution has miscued towards heavies and must be amenable to environmentally sound production and economically (inaudible).

So, we’re tapping into 59 years of history. We have enormous database made up of files with all sorts of rare earth deposits all over the world. In fact, there’s virtually nothing that has been in the news that we didn’t already have a file (inaudible). And all of those folks have contacted us and a very few of them recharged in our screening criteria.

So, what we have – what we do have is we have – excuse me, I got the wrong direction, it’s what happens when you kind of push the (inaudible). Yeah. What we do have is four prospects and we have actually more than this but (inaudible) the top of our list, all which have rare earth (inaudible) content (inaudible) 4% and very significant heavy rear earth content. All that mineral locations that can be processed at the (inaudible) facility and these new deposits (inaudible).

Okay. These were first announced Molycorp earlier this month. So, one of these deposits is one that’s within roughly four miles of where we are right now. We would – we’ll be able to truck the mineral directly into our process.

The mineralogy is a very amenable to our processing. And the nice thing about it is that it’s a nice ore grade and it’s got a very god distribution of heavy rare earth. So, we’re 1.6% Torbium [ph], 0.5% Dysprosium and I might add that this is an unusual mineralization because technically those ratios would be reversed. Typically, you’ll see Dysprosium two to three times greater than Torbium [ph]. So, this is an interesting thing. High in Neurobium [ph] and it’s also very good in the Adenium [ph] (inaudible) and then it’s lower in Serium [ph] and (inaudible). We have surface occurrence that extends over 10,000 feet and as I mentioned, we can process at either.

So the next step that we’ve got to do is complete in some surveys, which I believe we’ve gotten now. Our drilling program is starting. We have to estimate the extent of mineralization, conduct metallurgical tests or (inaudible); develop a modern plan and get all of our permitting out of the way.

We think that this is going to be a very simple concept, because with these kinds of ore grades we won’t need to move a lot of that rock. And so, we think that we have a chance of saying just come online very quickly. One more slide Mark. Thank you. Thank you, I’m done. Thank you.

Unidentified Participant

Doug? Doug is going to take (inaudible).

Doug Jackson

Okay, thanks, John. Let me go ahead and skip through first couple of slide, Mark has got these earlier so there’s really point. I now want to get straight to what I know is most, core most in your mind just based on a couple of discussions we already have.

What I know is the most – the foremost remind of space on the discussion we already have last night. Supply and demand balances, these crossover [ph] times, again, Mark covered those. I think, the number that’s probably most significant for you to focus on is the difference between where it’s headed and where it is now and just think about that in the context of the world’s production capabilities and our expansion.

A few minutes on just the key things that are happening in the market that (inaudible) to understand, first is just looking at the way the market functions today between in-countries, so-called internal China price and the export price. And then one thing that’s important for you to know is that the way these indexes – and there’s two of them that are published today are actually built – is that in-country.

There is a survey of (inaudible). There’s no traded market, but there is a survey. So at least there is some price discovery on both sides. But when it comes to the export piece, it’s just a formula build up. And that’s certainly aren’t buyers and sellers. So I’m thinking in-country China, adding an estimate for the value of the quota and then adding exports (inaudible).

So there’s really not enough survey environments. It starts with a technical buildup but doesn’t necessarily – in fact, doesn’t really represent what we would consider to be the market from an export perspective. So that’s one issue. I think it’s important to understand.

The other that’s important is that, there is a differential between in-country and export, which does create a large economic incentive for industries to move their production to China. I think that’s intentionally none from an investor policy perspective in China, but it definitely creates an economic incentive. And I think what – so basically it’s – considering if you’re thinking about Western (inaudible) moving and then motivated to potentially move production there.

There’s the technology. I mean, ideally, I can (inaudible) that customers are concerned with, but there is an economic incentive there, certainly. Also, I think deliverable here is just talking about competitiveness to a Western producer that is still outside of China versus companies that are in China that’s exporting. I guess CC Cal [ph] producers, like Power Cal [ph] producers.

And for us, obviously, our focus is on the Western world, so it’s very important that our customer’s accountability is very competitive versus in-country China producers that they made at the export level, okay?

Our belief is, for a lot of these reasons, as well as just the fundamental supply and demand balances, is that the prices, the in-country and the export prices will converge over time. We’re already starting to see that. And that will then illuminate some of these economic incentives. I will ensure our customers can remain competitive.

So the question is, kind of whether (inaudible) come down and what is the magnitude of each (inaudible). But our belief is that we’re going to see most of the activity will be related to in-country China prices rising and converging at the export level. The other thing that’s just absolute price levels obviously would be the kind of price levels we saw, let’s say, four or five months ago along with the constraint, just supply constraints, access to material, forgetting the price level, obviously leads to – have led to some demand destruction or (inaudible).

The good news for us is we’ve been spending a lot of time talking to our customers and we believe strongly that that demand comes back at the kind of price levels that we see in the future. So, for instance, if you’re talking about (inaudible) producer, he’ll tell you that that demand comes back with kind of the $40 kilo level, which is kind of where we’re headed on the (inaudible) space.

So this demand destruction could’ve generally been short-term. We expected that’s going to be the case. John Burba talked about access to the (inaudible) critical issues particularly in the magnetic space, particularly automotive and small magnet space. We think we have a solution on the wind turbine space, but in the small magnets and (inaudible) with the key issue.

We talked already a little bit on the market as well. I got the supply, demands in there, but what’s really happening in China, which is quite amazing, is the rapid consolidation of production levels. So, a lot of year ago, they were using the tortoises, the kind of constrained exports. But now, what’s happening is that there’s been such a production – consolidation of production level. The (inaudible) is really now the producer – at the producer level, which gives them a way to ensure that the production quotas are met over time.

That also gives them – a consolidated producer base gives you a way of constrain or reigned in the illegal mining activity, with some people estimated over as much 40,000 times last year, in-country.

The good news for the rest of the world as far as supply and as (inaudible) actually, now, we can see it ahead of schedule. So that’s very important to give our customers confidence that relief is coming.

On the demand side, what’s clear is that these few materials in the oxide level in China are being upgraded into other majority of products, finished goods, if you will. The industrial policy around production of electric vehicles, tricycles, wind turbines is driving the demand for these materials to be produced and upgraded and also just a general GDP growth, of course, is larger than, say, the Western World.

Outside of China, we still see significant growth that’s reflected in charts in both market (inaudible). But we still see significant growth particularly the kind of forecasted price levels that we see in the next 5 and 10 years, and this ability for (inaudible) supply. That stability is going to lead the customer confidence. So, long-term, I think the main message is we see this supply and demand balance remaining favorable from our producer perspective.

Just a couple of minutes on contracting, (inaudible) talked about this slide over here. I think it was. We talk about this, I just want to give you kind of a snapshot on where we stand today. The green here reflects contracts that are signed and in place.

They reflect all current supplies as well as supply from the new facility. Then we have about another 10 percentage points of contracts that are in the final stages and the definition there it means that the green, the commercial level price terms and so forth and just – it’s kind of a final legal review from the customer side, if you will.

Then we have a – and this is important. We have a slight, if you will, of volume in the XSORBX space and (inaudible) for XSORBX for that technology. And that is turning out to be – you’ve heard about it, you know what about it, but it’s turning out to be very interesting and we think there’s a lot of applications there. It’s very important for us to have material available for those customers in that space and to support that. It does a couple things for us. It’s interesting from a just (inaudible) price and supplier respect but also takes Serium [ph] out of the typical rare earth space that puts it in our treatment space but gives it out of the kind of supply-and-demand mix when it comes to the rare earth space versus the water treatment.

So we consider that reserve sole for XSORBX space. And then we have these larger slides here called, for the sake of this discussion, qualification. Here, we’re having a discussion with multiple customers related the volumes that reflect that. One thing I want to make a point for you on is this last (inaudible) here.

I think talking with some of you and others. Generally, under-appreciated, the tiniest things to qualify your materials for customers; the typical process in Japan will take six months. The way it works is that, of course, (inaudible) we have production both through here and (inaudible). So we’re able to get our materials qualified as part of the contracting process. Okay. So, that’s the first space. And I think it takes months that we’ve been working on kind of this slice and also this slice for about three or four months now.

So what happens is you get your material qualified and gives you a contract, subject two, final qualification from a new or different facility. So then, once our facility is up the rank, there’s another qualification process to sort of get the final stamp that, “Yes, you can now supply.” This is generally I underappreciated and I would say not fully understood by the market (inaudible) because it’s a big issue. But, again, we’re lucky, we have production. We can actually show the customers something. And then we can talk about it (inaudible) versus the new (inaudible).

Generally, we’re quite pleased on how things are going here also. I really just want to add, customer reaction need to be very positive to convince time line in a way to be able to not going to be able to deliver because they’re just waiting for the Western World to come to the rescue, if you will, so, we’re – I haven’t talked to customers yet obviously, but some of your initial reactions from press release that came out is they were like, “Wow, this is great. And when can we – how much sooner (inaudible) get this material?” So we’re really excited in proportion of perspective to have that additional (inaudible) we can own [ph].

Mark A. Smith

Okay. Unfortunately, we’re running out of time because we like to talk about what we do so much. But we can get only on one bus for the tour, so we’re going to ask that Jim goes through financial updates while we’re on the bus through there. And I don’t mean to take away (inaudible) anyway because he can’t really tell you anything about first quarter yet. So he’s going to tell you about what’s you’ve already seen in the second quarter and being fully funded for (inaudible). So, Jim, if you don’t mind, try to get in front so you can go through the financial parts.

All of the management team (inaudible) and myself, can be on that tour available for questions, you can ask of anything you want and have a good time. Enjoy yourselves out there. Make sure that you only stay with your tour guides so (inaudible) hard hats, glasses, if you’re okay with your shoes (inaudible). Just make sure that if you hear any alarms go off, find your guide and they will guide you where you need to go and be safe. So (inaudible). Enjoy yourselves, enjoy seeing everybody and looking forward to a (inaudible).

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Molycorp CEO Hosts Analyst Day - Conference Call Transcript
This Transcript
All Transcripts