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

Molycorp, Inc. (NYSE:MCP)

Q4 2011 Earnings Call

February 23, 2012 4:30 PM ET

Executives

Brian Blackman – Senior Manager, IR

Mark Smith – President and CEO

Jim Allen – CFO and Treasurer

Jim Sims – VP, Corporate Communications

Analysts

Anthony Young

Paretosh Misra – Morgan Stanley

Colin Rusch – ThinkEquity

Jagadish Iyer – Piper Jaffray

Paul Forward – Stifel Nicolaus

Michael Gambardella – JPMorgan

John Christian Evensen – Strategist Newsletter

Operator

Good afternoon, ladies and gentlemen. And welcome to the Molycorp Fourth Quarter and Fiscal Year 2011 Earnings Conference Call. My name is Chris, and I will be your conference moderator for today. Presently, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

And at this time, I would now like to turn the conference over to your presenter for today Mr. Brian Blackman, Senior Manager Investor Relations. Sir, you may proceed.

Brian Blackman

Thank you and good afternoon everyone. We just released our financial and operating results for the fourth quarter and full year of 2011. If you have not yet seen the press release, you can find it posted on the Investor Relations section of our website, at molycorp.com/investors.

This call is being webcast and a replay will be archived on the company’s website. For those of you who have dialed into the call, a slide show that accompanies our prepared remarks is available on the Molycorp website in the investor’s section.

For those of you, who are listening by webcast, the slides will be presented in the webcast player. Please note that you need to advance the slides on your own.

Slide two, has our Safe Harbor statement. And as always, we need to advice you that some of the information discussed on this conference call will contain forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict.

The company’s actual results could differ materially from those contained in such statements, because of variety of factors including those described in detail in the risk factor section of Molycorp’s annual report on Form 10-K for the year ended December 31, 2011.

We also want to caution you that today’s presentation include discussions or adjusted – adjusted or non-GAAP financial measurements that reflect – which reflect how the managements and directors of Molycorp, analyze the business on a daily basis. The adjusted measurements segregate out certain non-cash items such as depreciation and amortization and stock based compensation and certain out of ordinary items. Internally, Molycorp management analysis our business on an operating income perspective and we want our shareholders to have access to the same information we use in understanding our business.

However, these non-cash and other out of ordinary items are important to understanding the company’s long-term performance. Therefore, listeners are highly encouraged to study the non-GAAP to GAAP reconciliation supply at the end of the earnings release which can also be found on our website.

On the call today is Molycorp’s, President and Chief Executive Officer, Mark Smith and our Chief Financial Officer and Treasurer, Jim Allen.

Let me now turn the call over to Mark Smith.

Mark Smith

Thank you, Brain. And thank you all for joining us today and for your continued interest in the company. Before I jump into our fourth quarter and full year 2011 results, let me first note three major accomplishments on slide four by our Molycorp family and this is an area that reflects one of our company’s values namely safety.

Today, marks day 2417, that our Mountain Pass rare earth facility has gone to that last time incident that is more than 6.5 years which is a remarkable achievement for any facility of this type. And our project Phoenix has now registered more than 1.2 million hours without a single last time incident as well.

And finally, our Molycorp metals and alloys facility in Tolleson, Arizona recently celebrated its 15 year without last time incident. I am very proud of our team’s achievement in these extraordinary milestones. And I wanted to take this opportunity in a public forum to commend the entire family of Molycorp for these extraordinary safety accomplishments.

Next slide please. 2011 was truly an outstanding year for Molycorp. If I had to sum up the performance of the Molycorp family in one sentence, it would be this. This company is all about execution, it’s about delivering along we said we would deliver. And I think we certainly did that in 2011.

On the call today, I will summarize our Q4 and full year 2011 results and accomplishments. And I’ll then provide some high level comments on these results and how they positively position Molycorp for the years ahead. I will also provide an update on Project Phoenix and discuss our market outlook and guidance for 2012.

Jim Allen will walk you through our financial results in greater detail. I’ll then close some of my observations on key issues. Our investors have raised in recent quarter. And then we’ll open up to call for you questions.

Starting on slide 7, during the fourth quarter we reported sales of $133 million and adjusted earnings per share of $0.41. For 2011, we achieved net revenues of $397 million and adjusted earnings per share of $1.73. Our net income increased by $169 million compared to 2010, and we generated $43 million in cash flow from operations.

This past year we assembled the components of our mine-to-magnet strategy by adding metal and alloy manufacturing capabilities and by signing a joint venture agreement to manufacture permanent magnets. We achieved our 2011 contracting goal for Phase 1 production, was 78% of Phase 1 now being signed in customer agreement or reserved for XSORBX production. And with regard to XSORBX, we sold a total of 55 metric tons of this product last year. We anticipate sale is rising strongly in 2012 and beyond.

Last but not least we’ve accelerated the Project Phoenix modernization and expansion of our flagship Mountain Pass facility, which remained on time for a Phase 1 production rate of 19,050 metric tons by the end of third quarter 2012. Mechanical completion of Phase 2 production capacity is still on target for the end of 2012.

Moving to slide eight. Since yearend, we have maintained the steady pace of activity against our goals. We have continued the qualification process to ensure our products meet customers’ specifications this ultimately allows us to proceed with signing additional agreements for Phase 1 capacity. We expect to strengthen our balance sheet and increase our strategic flexibility through a $390 million capital investment commitment from Molymet, and we succeeded in launching the formal start up of our new Project Phoenix facility this week with early stage operations such mining, crushing and initial cracking operations now underway.

We also plan to conduct a first firing of the turbines in our Combined Heat and Power plant this week. I am pleased to note that this sequential start up of Project Phoenix has occurred well in advance of our previously announced April 1, 2012 timeline. I will get into more detail on Project Phoenix in the call, but let’s first discuss some of the key highlights for the quarter on slide nine.

We continue to meet customer demand by selling 886 metric tons of REO equivalent to external customers. Our sales were in line with our expectations, though there was a shift in our product mix versus the comparable quarters, which impacted our cost structure and our margins.

First, Mountain Pass performed in line with projections. We produced 1,009 metric tons of REO during the quarter. We observed continued high demand for our lanthanum and didymium products, and sales of our cerium products also picked up strongly as compared to the third quarter, particularly in the glass polishing and carbonate sales.

We also posted a higher percentage of sales from our Molycorp Metals and Alloy’s facility or Molycorp Tolleson in Arizona. With that shift in production, we experienced higher raw material cost. Since Molycorp Tolleson is currently structured largely as a lower gross margin pass-through tolling business, Molycorp Tolleson sales have a direct impact on our margins. This will remain the case, while we reconfigure and expand MMA into a larger, more flexible operation with more customers.

Additionally, during the fourth quarter, we experienced higher production costs on a consolidated basis. Some of these costs are being felt industry-wide, such as higher prices for raw materials, chemicals and general utility cost. Chemical cost in particular increased 56% over the back half of 2011 and we had to absorb those higher costs in Q4.

As many of you know, we have a long-term plan in place as part of Project Phoenix to produce our own chemicals through and onsite Chlor-Alkali facility, which is now under construction at Mountain Pass. We also have been working to minimize the short-term impact of these unanticipated costs. For example, we have succeeded in lowering our chemical consumption per kilogram with output, which will help offset these higher costs somewhat as we move further into the year.

We made a decision in Q4 to increase our spend on the accelerated ramp up of Project Phoenix production. These additional cost are neither traditional capital expenditures, nor a built up in working capital, but are certainly critical to the successful launch of our new Mountain Pass facility. Specifically we increased allocations to build and train our work force, so that we would be in a better operational position as we reached Phase 1 production capacity by the end of Q3 of this year.

With the accelerated sequential startup at Mountain Pass which we were proud to announce earlier this week, it’s imperative that we continue to put the right human infrastructure in place. We’re looking at our systems, our processes and our work force and making sure that we have the right skill sets in place, skill sets which are virtually non-existence outside of China.

We also increased spending in the quarter among other things, R&D initiatives and geology and exploration, all of which are key investments in our future growth productivity and profitability. As we complete the various parts of Project Phoenix, I believe the investors will begin to see how our technological innovations will help support a much more stable and predictable cost structure as compared to any other growth producer.

Let me switch gears and focus on the full year, starting on slide 10. The progress we have made is been remarkable and I’m very proud of our many accomplishments in 2011. In April we acquired Estonia-based AS Silmet, one of only two rear processing companies in Europe, which we now call Molycorp Silmet.

We also acquired our Tolleson Arizona facility, now called it Molycorp Metals and Alloys. Both acquisitions were highly strategic for us and they expanded our capabilities into higher quality oxide production and into the downstream manufacturing of rare earth metals and alloys including neodymium-iron-boron alloy which is use to manufacture permanent rare earth magnets. Both of these facilities also have increased Molycorp’s technical and intellectual property capabilities. The Silmet facility in particular puts us in a position to expand in the new markets specifically those for high-purity rare earth products and the rare metals niobium and tantalum.

I will add that while the cost of doing business at these facilities is greater today. We feel that by having a multi facility approach, it enables us to grow our customer and increase our longer term sales pipeline. Moreover, as we fully integrate these facilities into the Molycorp portfolio, we will look for new technologies and technology transfers and other methods to continually lower our cost.

Once we ramp up production at Mountain Pass later this year and beyond, investors will see the benefits of this multi facility supply chain strategy and the positive impact to both our top and bottom line. Also in November we entered in a joint venture with Daido Steel and Mitsubishi Corporation to manufacture and sell next generation neodymium-iron-boron permanent rare earth magnets.

This is an exciting partnership for us and could open up new channels of sales for many years to come. We plan to commence operations from this new permanent manufacturing facility by the end of 2012 and our JV is in discussions with several parties for future sales and increase production.

Another milestone for 2011 was our investment in Boulder Wind Power, which is developed a rare earth magnet wind turbine generator that is unlike anything in the market today. This technology relies on permanent rare earth magnets that require no dysprosium, a rare earth that is truly rare. As this technology moves toward commercialization, it has a potential to have a significant impact on those markets and provide us with yet another downstream outlet for our rare earth products.

And another milestone in 2011 was our three-year supply agreement with Hitachi Metals for rare earth magnetic materials such as didymium metal and alloy, and lanthanum oxide. This among other contracts on which we are working will help improve and sustain both our top and bottom line performance.

Our goal remains to become one of the world’s most integrated low cost producers of rare earth products. Each of the strategic assets that we’ve acquired gets us that much closer to our goal, but we are still working on tapping into the true earnings potential of the system as a whole.

It is with this long-term vision in mind that we’ve recently entered into an agreement to accept the $390 million investment Molymet as specialty metals producers out of Chile, that focuses on Molybdenum and rhenium. The additional capital from this transaction provides us with substantial flexibility to pursue new opportunities in global markets as we look to further complement our long-term strategy.

Let’s turn to slide 11. As I previous mentioned for the full year 2011, we reported net sales of $397 million and adjusted EPS of $1.73. This is based upon more than 3,500 metric tons of our rare earth products sold.

For those of you who joined us in 2010, you will recall that we discuss the benefit of having existing infrastructure at Mountain Pass to process and sell nearly 3,000 metric tons. We finished the year achieving this goal while bringing on an additional approximately 5,000 metric tons of sales through our Sillamae vertical integration. This interim production capacity has provided substantial de-risking benefits for Project Phoenix and has allowed us to generate $43 million in positive cash flow from operations.

We also have forge new customer relationships in sales pipeline for our products, including customers in the United States, Europe and the Asia-Pacific region, which is in line with our global strategy.

On slide 12, you can see our Phase 1 contracting update. Our goal in 2010 was to convert 25% of our original Letters of Intent into long-term agreements for sales of our Phase 1 off-take capacity.

In 2011, our goal was to convert an additional 50% into agreements for a total conversion of 75% by the end of 2011. As we recently reported, we achieved both of these goals and we have 78% of capacity accounted in off-take agreements, 20% of which is being reserved for our proprietary XSORBX water purification products.

I would not that we are very pleased with the traction we are making with XSORBX as we have sold approximately 55 metric tons into the market during 2011. Our market ceding efforts have started to take run and we expect further penetration of the waste water and recreational water markets this year.

Indeed, we expect to sell approximately 1,000 ton of XSORBX product during 2012. We also believe that we’re on the path for market acceptance of XSORBX into drinking water purification markets.

Let’s talk about Project Phoenix. We achieved a very key milestone this week as we successfully launched the sequential start-up of this new facility. Let me explain a few elements of the start-up on slide 13.

Active mining at a full mine production rate of approximately 2,800 short tons of fresh rare earth ore per day is in full swing and actually has been underway for several weeks.

Mechanical completion of the new Crushing Facility has been achieved and it is now in operation. Mechanical completion of the initial Cracking Facility has also been achieved, steam testing of this unit has been completed and feedstock from stockpiled material is now being fed into the system.

Liquefied natural gas has been truck to the side and off-loaded in to the on-side storage terminal. The LNG system associated with the combined heat and power plant has been pressurized in the first test firing of the turbines in the CHP plant will be accomplished this week. LNG is being used for start-up operations until pipeline natural gas becomes available. This will take placed upon completion of the ongoing construction of a feeder line to the facility which is expected to be completed in April of this year.

Next slide, please. This launch of the first operations in Project Phoenix facility was accomplished ahead of our previously announced goal of an April 1, sequential start-up. All time lines have been met for exceeded since we announced our plans in 2010. One of the more powerful benefits to have incurred production capabilities at Mountain Pass is our ability to leverage those facilities as we conduct a sequential ramp up for Project Phoenix.

Being able to temporarily integrate legacy facilities with new ones has helped us to significantly de-risk our Phase ramp. Slides 15 to 20 have the latest photos to update the progress of Project Phoenix. What you can expect to see over the next eight months, is the completion of construction, testing and commissioning of the following.

Milling and mineral extraction, paste tailings processing and storage the remaining portion of the cracking facility, impurities removal, rare earth oxide separations and product finishing. Through this tiered strategy, we are able to qualify and ramp production component independent of the step before or after all while maintaining our current rare earth production. This is unlike most Greenfield production scenarios and paves the way for a much more efficient and faster ramp of our Phase 1 production capacity.

On slide 21, I would like to say something about the outlook for rare earth market. 2011 was a volatile ride. It’s certainly no secret that China dominates global rare earth markets that China’s internal rare earth demand continues decline and that continues to force industry consolidation and constrict internal production. As we look at the coming year we expect to see a continuation of China’s enhanced enforcement of internal production coaters and it’s cracked down on facilities that don’t meet significantly tougher environmental performance standards.

Just this past week, Chinese officials announced another initiatives aimed at developing new rare earth based materials over the next five years in order to boost their manufacturing capacity and promote the application of rare earth materials in high end manufacturing. Clearly, this is yet another signal to the rest of the world that China expects its internal consumption and utilization of rare earth to continue to grow in the years ahead. We believe all of these trends will continue into the coming years in addition to the continued growth of overall global demand.

In the past, we have provided production guidance and we have been trying to give you tools to better evaluate our business. I would like to reaffirm that we expect to reach our production guidance range of 8,000 to 10,000 metric tons of ROE equivalent products a across all of our operating segments. 2012 will be a year of transition for us, and with it comes a number of unusual circumstances within our operations.

We’re anticipating strong sales growth this year building quarter-to-quarter, though a significant part of our increase in production will be in the fourth quarter. As such, we expect the real impact to sales of that increased production into our bottom line performance to be felt in early 2013 rather than 2012. As usual, the first quarter of the calendar has been slow in 2011, again due to the Chinese New Year.

As I noted earlier, our overall cost of production will increase in 2012 as there remains a substantial amount of one-time expenses as we transition the Project Phoenix operations and ramp the new facility.

It’s important to note, however, that we’re what we’re spending now through this transition period to mitigate the risk of Phoenix start up, and once we reach the higher levels of production our COGS will become much more normalized, and we’ll be in a better position to leverage our experience and optimize our cost structure.

We fully expect to realize the benefits on these current investments once increased production of Mountain Pass begins which will have a positive impact on all factors of our operations and our financial performance.

With that I’ll now turn the call over to Jim Allen to discuss our financial results in more detail.

Jim Allen

Thanks Mark, and good afternoon, everyone. For today’s discussion I’m first going to cover our quarterly and annual performance on a consolidated basis followed by segment details. Then we will review cash flow, effective tax rates, our balance sheet and capital requirements. I’ll start my discussion on slide 23.

As Mark noted, we reported a 132.9 million in sales during the fourth quarter as compared to 138 million during the third quarter of 2011. Slight decrease is attributable to a shift in our product mix and lower pricing for certain products. On a consolidated basis, we sold 886 net metric tons for railroad bauxite equivalent products at an average sales price of $124.18 per kilogram. We also sold an additional 92 metric tons of rear metals at an average sales price of $211.12 per kilogram.

Fourth quarter consolidated cost of goods sold was 62.6 million compared to 55.7 million in the third quarter of 2011 and 18.3 million in the fourth quarter of 2010. Gross margin percentage for the quarter was 52.9%. Gross margin was heavily influenced during the quarter by higher raw material cost for alloys, and that combined with higher chemical cost during the fourth quarter. Once our new core outlive plant is online, we will no longer have this exposure to market prices for these essential chemicals.

Selling, general and administrative expenses for the quarter were $24 million compared to 14.9 million in the third quarter. The substantial increase is primarily related to higher overhead or Mountain Pass facility, mostly due to increased labor cost for Project Phoenix. Increased R&D spending, and increase consulting cost related to expanded business operations. While it is our intension to continue to strategically invest in our core business, we are cognizant that maintaining cost controls across our production and SG&A functions are prudent measures to delivering shareholder valued.

Income tax for the quarter was 15.9 or effective 37.4% rate. This tax expense compares to 19.1 million during the third quarter of the year, a shift in profit contribution among our operating segments resulted in a higher effective tax rate during the quarter.

Net income for the quarter was $26.7 million. The more relevant measures net income attributable to common stock holders, which reflects dividends on our convertible preferred stock and net income attributable to former minority Molycorp – former minority owners of Molycorp Sillamäe.

Our net income attributable to common stock holders was 22.8 million in the quarter or $0.26 per diluted share. We incurred certain non-cash and out of ordinary and business expansion items reported in the quarter as detailed in our non-GAAP reconciliation. Removing these items, deals and adjusted net income attributable to common stock holders of 35.9 million or $0.41 per diluted share. Slide 24 provides details on our fourth quarter 2011 products and volumes.

Turning to slide 25 for the full year 2011 net sales increased to 361.7 million to $396.8 million, you know, only two thirds of that increase is related to organic growth at Mountain Pass. The sales volumes increased year-over-year by 67% and pricing was up substantially. On a consolidated basis we’ve sold 3516 metric tons of REO equivalent material compared to 1830 metric ton sold during 2010.

Our average sales price for REO products $97.11 during the year compared to $19.20 per kilogram during 2010. Full year cost of goods sold was 177.9 million or gross margin of 55.2% compared to a negative gross margin during 2010 of 6.9%. Gross margins were aided by better pricing for our products, but we’re offset by higher cost of goods sold related to increased chemical costs and higher raw materials for feedstocks at Molycorp Sillamae and Molycorp Metals and Alloy.

Full-year selling, general and administrative expenses were 64.4 million during 2011 compared to 47.5 million during 2010. Employee head count was increased substantially in preparation for our increased production when finished the year with total of 920 employees.

As Mark mentioned earlier in the fourth quarter we intensified our investments in our labor pools ensure that we are operating a peak performance as we reach Phase 1 in Mountain Pass. Income tax expense for the year was 28.6 million or effectively 19.5% for the full year.

As a reminder, we benefited from the reversal of evaluation allowance against our deferred tax assets during the first half of 2011, which was less significant during the third and fourth quarters.

Net income for the full-year was $118.3 million compared to a net loss of 50.8 million during 2010, an improvement of 169.1 million. Net income attributable to common stockholders in more relevant measure was $108 million or $1.27 per share.

On an adjusted basis net income attributable to stockholders was 147.8 million during the year or $1.73 per diluted share. We will continue to publish adjusted earnings that are intended to represent operational results of the company’s existing facilities, which is how management views the business. There was a reconciliation of all adjusted figures presented in our press release issued today.

Moving on to slide 26, we have broken out performance by operating segment. As a reminder consolidated financial and operational results represented on a net basis, which will loosen our company sales.

Discussion of segment margins is performed on a gross basis. Gross margin at Mountain Pass for the full year was 74.4%. This compares to a negative margin during 2010 of 6.9%.

During the quarter, Mountain Pass produced 1,009 metric tons of REO equivalent product and produced 3,062 metric tons during the full year. Gross margins at the Sillamäe facility for April 1, 2011, through the end of the year was 13.6% and the facility produced 514 metric tons of REO equivalent during the quarter and 1,312 metric tons since April 1st of 2011.

Gross margin at the Tolleson facility Molycorp Metals and Alloy from April 15, 2011 through the end of the year was 5.2%. Total production during the period was 457 metric tons, 402 metric tons of rare earth alloys were products and these contain approximately 163 metric tons rare earth oxide equivalent.

As we experienced in the fourth quarter, the sales mix from our segments has an impact on our consolidated gross margin given the lower margins generated at Molycorp Sillamäe and Molycorp Metals and Alloy.

We maintained a solid balance sheet with approximately $418.9 million in cash and cash equivalents at December 31st. For the full year 2011, our cash flow from operations has provided $43 million to the business.

Shifting over to our capital plan, our consolidated capital expenditures totaled 409.2 million on accrual basis excluding capitalized interest during 2011. Today, we have accrued 419.9 million related to Project Phoenix, with the remaining 475 million to be incurred under our existing budget. We are now encountering some costs pressures on our budget and we are currently revaluating the potential impact on that budget.

In addition, we anticipate capital expenditures at Molycorp Silmet in the range of $20 million to $24 million and capital expenditures at Molycorp Metals and Alloys in the range 11 million to 15 million.

Let me turn the call back to Mark for some closing comments.

Mark Smith

Thank you, Jim. Please, turn to slide 27. As we mentioned earlier in the call, we continue to make steady progress in our long-term business plan to be the most advanced and integrated various company outside of China. This is demonstrated by the acquisitions completed during the past quarter as well as the magnet joint venture we announced in the fourth quarter.

Operationally, we met and in many cases exceeded expectations during 2011. This is reflected in our profitability during a year and our ability to meet our Phase 1 production sales agreement goal. As we continue to lay the ground work for the coming years, I want to reiterate a few points.

Although as usual Q1, is expected to be slow because of the Chinese New Year. We do expect continued sales growth in 2012 with gradual increases throughout the year. As I mentioned earlier, the big production ramp up will began in the fourth quarter but we’ll likely be seen in sales in the first quarter of 2013 and beyond. As I discussed on last year’s Q4 call, the first quarter of the year is a relatively slow one for virtually everyone in the earth industry that is because of the Chinese New Year holiday.

Although, it is difficult to identify a direct impact on our historical revenues from this, I’ll remind you that transaction volumes are likely to slow during the first two months of the year. This is normal then our industry as activity has historically picked up near the end of the first calendar quarter.

Also as I mentioned previously our COGS will increase in 2012 in preparation for our accelerated completion of Project Phoenix and our ramp up to Phase 1 production levels.

As of today, based on projected production schedules chemical cost and customer orders we anticipate that production cost on a per kilogram basis for 2012 will increase slightly relative to 2011. Again, we expect that as we have reached – we expect that as we have reached higher levels of production our COGS will become more normalized and we will be able to optimize our cost structure.

We will update you in future calls as to how these cost increases are tracking and we are continuing to work on all aspects of our operation of supply chain for improvements. We remained comfortable with our relatively stable top line performance to generate bottom line returns and remain very optimistic about our long-term market position.

Before we open the call up for Q&A I would like to take this opportunity to address a few questions that I most frequently asked my analyst and investors. The first question is which component of our Phase 1 production are most critical in order to get production online in the accelerated timeframe, and one of the biggest risk to meeting our accelerated production goal?

And the answer to that critical to achieving our Phase 1 production run rate our operations related to mining, crushing, milling, cracking, impurities removal, separation extraction, product finishing and paste tailings production and storage. Operations such as salt recovery and water recycling are not vital to an accelerated launch of production, but they will help us to continue to drive down our cost of production as they come online.

As I just covered we are ahead of schedule with the initial launch that we are otherwise on track to meet our stated goals.

Second question that I get a lot. We’ve made a number of investments and formed partnerships as we have assembled our mine-to-magnets supply chain. I’m often asked what’s missing. What acquisitions, whether technology or distribution would round out the mix.

In answer to that question I would like to say that we have our full mine-to-magnets supply chain assembled now. What we don’t speculate on future acquisitions, I think it is fair to say that you will see us be opportunistic if and when these opportunities arise, both upstream and downstream.

I believe we have the supply chain needed today to enhance our global market position in a very meaningful way. However, we do need to expand the capacity and capability of our acquired facilities to better match our production capabilities at Mountain Pass.

Third question I get a lot, do we have enough capital without further dilution to carry through on our strategy and when and through when? The answer is yes. We have enough capital to execute our mine-to-magnets strategy and we’re in a very strong financial position. With respect to the Project Phoenix acceleration that we’ve previously announced, we plan to fund the acceleration from cash balances, cash flow from operations, and other non-dilutive means.

The fourth question I get a lot involves pricing. I’m frequently asked about my view on pricing going forward. The answer to that one is a little more grey, but while crisis have certainly been riding a rollercoaster over the past year and half, we really don’t see a change in the fundamental long-term view of these markets, especially when it concerns global demand in China and Asia, while supply will remain relatively constrained because of the very high barriers to entry into this industry.

I would also add that for the past several weeks XSORBX and the Chinese New Year has dramatically slowed activity across the entire rare earth market as it always does. This happens every year, and typically has a measurable impact on first quarter operations for all rare earth companies.

In summary, we are looking forward to do a very successful 2012, and believe we are very well positioned in the global markets today.

Before I close out and take questions, I have been it has been noted that I made a misstatement relative to the sales from our Molycorp Silmet, facility in 2011, that facility had sales of slightly over 500 metric tons not 5,000, I apologies for that confusion.

I’d like to thank you all for your participation today. And with that I’d like to turn this over to Brian Blackman, so we open up the call for Q&A.

Brian Blackman

Thank you. Operator, we’d like to now prompt the room for any questions following the state of arts?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Anthony Young. You may proceed.

Anthony Young

Hey guys, thanks for taking the question. I just wanted a follow-up on the comments from Jim Allen when he was saying that you are incurring some cost pressures on the capital budget. Was that for the entire Mountain Pass project? Or was that A, assume it, or was it one of the other (inaudible) operations?

Brian Blackman

No, the reference here Anthony was to Project Phoenix itself. This is a very large project. We have an excellent project management, system in place which includes very, very strong and meaningful forecasting tools and when we take a look at the project based on these forecasting tools we can see that we are experiencing some cost pressures. The good news is that these are forecasting tools and they allow us to take a very hard look at these issues in advance so that we can make corrections where they need to be made.

So as that effort continues and the studies on these forecasting tools become more finalized, we will certainly report that out but we at least wanted to get that issue on the table that as with any project of this size right now there are pressures that hit us everyday increase prices of steel, over time hours, you name it.

Anthony Young

Okay. That’s great. And then just a follow-up on the a rare earth pricing situation and the position you guys hold, you’ve – now you’ve accelerated the first phase and you also talked about accelerating the second phase to 40,000 tons, you complete by the end of this year and in 2012, I mean, you know, 40,000 tons in a market that is you know, call it a 120,000 tons, I mean, would you guys try to match up supply with demand or would you – look to take advantage of your low cost position when you are thinking about production, I mean, essentially would you guys have 40,000 tons and maybe only operate at 25 or 27,000 tons or do you assume that you guys will be operating flat out like once that 40,000 tons is available?

Brian Blackman

No, we’ve always said Anthony as to Phase 1 we want to run full out and have 100% of that material contracted for. And then the additional 20% that we will have available as a result of Phase II, we will utilize in accordance with customer demand.

Anthony Young

Thank you for your questions.

Brian Blackman

Thank you Anthony.

Operator

Our next question comes from the line of Paretosh Misra with Morgan Stanley. You may proceed.

Paretosh Misra – Morgan Stanley

Hi, guys. So, out of this 8 to 10,000 ton production for 2012, how much of that would come from Mountain Pass and how much is just tolling type production?

Brian Blackman

I think the tolling number out of our Tolleson, Arizona facility will remain relatively consistent, Paretosh. We would like to see some increased production out of our Molycorp Sillamae facility and then the remainder would be Mountain Pass. And obviously taking a look at the 2011 results it then lead you to conclude very quickly that the majority of that would be coming – the vast majority would be coming out of Mountain Pass.

Paretosh Misra – Morgan Stanley

Got it. And then just one follow-up there. You were expecting cost to normalize in 2013, current about $20 and longer-term before guessing close to $3, so what is that normal level now, close to five or what would that be?

Brian Blackman

Jim, you want to say.

Jim Sims

Yes. Paretosh, I’ll address that. The $20 cost that you’re referencing now is our all in COGS number which is the gap number includes depreciation over head allocations. The $3 that you mentioned that is in reference to the number that was published in the SRK report that was published in our IPO. That is a cash production cost, direct cost, does not include the other things that I mentioned, does not include those additional costs that contribute to that higher number.

And in addition, that is a number – the $3 is a number in the new facility, where we are taking advantage of advanced technologies to increase recovery rates and decrease our overall cost.

Paretosh Misra – Morgan Stanley

Okay. Thanks, Jim.

Brian Blackman

And we can work with you on more detail there, Paretosh if that will help. The issue that we’re faced with now is, we’re really ramping up on a human infrastructure basis to Phase 1 levels, but we won’t reach those Phase 1 production levels until later in the year, and that’s really what we’re talking about in terms of normalizing those costs and getting to a point that’s very stable and predictable.

Paretosh Misra – Morgan Stanley

Got thanks, Mark. And good luck with everything.

Mark Smith

Thank you, Paretosh.

Operator

Our next question comes from the line of Colin Rusch, ThinkEquity. You may proceed.

Colin Rusch – ThinkEquity

Thanks, guys. So, can we just get a little bit more detail on what your expectation is for the arc on the cost? Obviously, you’re going to be going through some ramp expense and we’ll get synergies over time, but should we be thinking about something kind of on the order of 2X, that $20 number for part of the year, or should be a little bit worse than that? And then, how should we expect that to trend as you think about the ramp steady state into 2013?

Jim Allen

Yeah. I think, what we can do is, just provide kind of general guidance on where we think it’s going rather than being real precise. I mean, there is a lot of variable that they are going to go in it, dealing with that high-end, the new facility that we mentioned, previously, the actual volumes that we are able to produce and the actual costs of, the chemicals that go in to it.

So, it’s very difficult to pin point exactly, where it is, what we thought we would do was, is present to you, what issues are out there that may cause an increase. If you ask, if I think, they’re going to double, I’d say, no, but short of that I don’t know that we could be real precise.

Colin Rusch – ThinkEquity

Okay. Perfect. And then I think on OpEx obviously, you’re running a little bit higher rate. Now, how should we think about that trending going through the balance of 2012, should we think about 4Q as a run rate to model going forward, should we think about continued ramp up throughout the year or just walk us through kind of that trajectory over the next several quarters?

Jim Allen

I think I’ll try to answer that one Collin. Your fourth quarter costs actually were fairly close in line with what our cost were for the third quarter. And we made the statement during the prepared remarks that we do expect in significant increase in this costs going forward.

But I – we did want to put everybody on notice that until you get to that full volume of production that we will achieve under Phase I of Phoenix, this cost are not going to be in line with the lower numbers that we have publicized.

But we have every reason to expect that we will get to those lower operating costs. And we just need time to optimize the structure including human infrastructure as we get up to those higher volumes, but that’s really the big impact that there were two big impacts we are feeling right now on the cost. One is the number of people that we are bringing on board which allows us to train these operators and be ready to go for a full Project Phoenix Phase 1 which significantly derisk the project, but increases our cost to good sold right now.

And then the other one is the chemical cost that we are experiencing which are hydrochloric acid and sodium hydroxide primarily and the good news there also is once our chlor-alkali facility is up and running then those costs are also are under our controls. So we are very encouraged about where we are going, but in the meantime we just has to act like other rare earth producers and experienced these cost increases.

Colin Rusch – ThinkEquity

Great. Thanks a lot, guys. I will hop back in the queue.

Jim Allen

Okay. Thanks, Collin.

Operator

Our next question comes from the line of Jagadish Iyer with Piper Jaffray. You may proceed.

Jagadish Iyer – Piper Jaffray

Thanks for taking my question. Couple of questions, Mark and Jim. First thing I wanted to understand is that you have sold about 55 metric tons of XSORBX, can you give us what kind of revenue was that in the fourth quarter from XSORBX? And now that you have said that you have allocated about 1,000 metric tons that you would probably sell this year, what kind of ASP should we model XSORBX given that it’s value-added offering that you guys are doing?

Mark Smith

Jim is looking that up right now to get you the precise answers.

Jagadish Iyer – Piper Jaffray

Okay. While he is looking up I will just add another, next question on this one. Mark, maybe you can help us with that if I look at your volumes from your slide 26 and look at ‘10 versus ‘11 clearly lanthanum, cerium where 85% of your total volumes in ‘10 and while in ‘11 there were about 74%, how much latitude do you have in terms of pulling more of didymium and neodymium, given the continued demand that you have into 2012. Can you give us some color on that one please?

Mark Smith

Yeah. I think really what’s you are going to start to see more and more coming out of Molycorp is going to be a distribution of these products that really reflects the natural distribution of these elements in our ore body. When you get the small volumes of production and sales like we have right now, we have the capability because of inventory to make minor adjustments, which on a percentage basis may seem quite significant. But in the long run this business is all about the natural distribution of those elements in the ore body, and that’s how we predict our sales.

Jagadish Iyer – Piper Jaffray

Okay. And finally on from my end, I just wanted to understand when do you think that the contribution will come from Daido. Is going to be in ‘12, or is it going to be in ‘13?

Mark Smith

There would definitely won’t see any sales coming out of that joint venture until 2013. The project is scheduled to be mechanically complete in roughly September of 2012. So the good news is the facility will be up and operational. Then they will start production in the fourth quarter. And we should see our first sales, which we do have contract for, I might add, in the first quarter of 2013.

Jagadish Iyer – Piper Jaffray

And what should we be expecting on your recent capital rate from Molycorp Metals, is it going to be more in the mine-to-magnets strategy, or we should rethink about anything else or in terms of spending additional capital on heavy rare earth.

Mark Smith

I think our first of all, the additional capital for the heavy rear earth side is we see it right now is fairly minimal, so it isn’t a big impact one-way or the other, and what we’ve continued to say about the Moly net capital investment is that, there continued to be a lot of opportunities available in the rear sector on a full, upstream and downstream view point and we are now in a position to really take advantage of those things on very short notice, and we think it strengthens our ability to further add capacity upstream, downstream and in magnet production as well if that opportunity arises.

Jagadish Iyer – Piper Jaffray

Thank you.

Mark Smith

So just to answer your question it’s about $564,000.

Jagadish Iyer – Piper Jaffray

In 2011.

Mark Smith

Right.

Operator

(Operator Instructions) And our next question comes from the line of Paul Forward with Stifel Nicolaus. Sir you may proceed.

Paul Forward – Stifel Nicolaus

Thanks very much. Just a couple of things, on slide nine, you go through some of the fourth quarter numbers, I was wondering if you could talk a little bit about the sales were 886 metric tons REO and then you have production numbers that add up to a bigger number than that across the three different segments. So I was just wondering if you could talk about, I mean is there some there is some inter-segment issues that bring the production levels higher than the net external sales? Or was inventories go up during the quarter; I was just wondering if you could talk about that?

Jim Allen

Yeah, we did produce more than we sold in the fourth quarter. Inventories did increase a little bit during the quarter that’s right. That just a reflective of really what the demand was for the quarter.

Mark Smith

And then the other thing that does impact us right now Paul is that the when we move the didymium oxide into the downstream pipeline sort to speak, it takes a significant amount of time to move it from oxide to metal and ultimately into alloy. So you’re also seeing a timing effect as well.

Paul Forward – Stifel Nicolaus

And the Mark I think you talked about the Chinese New Year and how that’s made a first couple of months, first quarter pretty week. I guess can we expect a similar type of production is ahead of sales in the first quarter and might based on the first couple of quarter – or first couple of months of what you’ve seen so far in the first quarter might you would be able to give us a ballpark estimate or directionally where does that sales number look and how it might shape up for the first quarter?

Mark Smith

Historically see this problem every year and it’s a very difficult one to predict. One of the things that we know for sure Paul is that, the last week in February there is always a pick up in the market and the good news from our standpoint is that we already our feeling the pickup in the market. So we are seeing that normal trend happen, we’ll start seeing our sales pickup and start to get into a, you know, a more normal expectation in March, January really wasn’t too bad.

So we’ll see how the quarter average is out, but this is nothing new we mention that last year as well, and what we tend to do is to not focus too much on the first quarter, but instead to focus on that annual sales number, because things always ramp up significantly in the second quarter. They ramp up a little bit more in the third quarter and in the fourth quarter either usually about what the third quarter was or a little bit more. And that’s the history, you can plot it out in this industry for the last 20 years, and that’s the way it works.

Paul Forward – Stifel Nicolaus

I just on that point, you’ve got – the unchanged production target of 8 to 10,000 tons in 2012 is just – have you think about that with the ramp really happening toward the end of the year. Is there a sales target you might think about for 2012? I know you might not want to give something very specific here, but how can we thing about how there might be a similar type of production be ahead of the overall sales number just simply because of the timing issues that you talked about?

Mark Smith

It’s a difficult question particularly for 2012, because we’ve got the startup activities associated with project Phoenix where we will be in the – ramping up phase and we’ll have different quality materials coming out until we get to normal quality functions for our products. So it’s a little hard to judge exactly what sales will be for the year, because the variable nature of the products coming out is going to affect who we can sell it to and how fast we can move the material. But year-on-year we do expect increased sales in 2012 versus 2011.

Paul Forward – Stifel Nicolaus

Okay. And shifting gears a little bit on Molymet can you talk about – are there physician sort of technology synergies between yourselves and Molymet, and that they were really interested in, or could you maybe go a little bit more into the how the two companies might offer some benefits to one and other.

Mark Smith

Yeah. And it’s on two things primarily. One is technology, and that has to do with the whole subject matter solvent extraction. The molybdenum industry has used solvent extraction techniques for a long time, whereas industry uses solvent extraction techniques and both companies feel that there can be a very good technology exchange between them that can improve both the companies’ capabilities in that regard. So, I’d say that that is a very big point for us.

The other point, which we think is very important is the fact that Molymet does have a very good world reach with their sales organization right now, where that creates a huge advantage for us when we can call somebody and ask them to go and physically look at something that we might be interested in or material that’s being offered to us for sale and we can then look at reselling.

It’s nice to have those feet on the ground and they can go out and look at those things for us and we don’t have to take two or three weeks to schedule flights there and what not, so the worldwide sales force is also, I think, a real advantage to us.

And then certainly last but not least, the President and CEO of Molymet and gentlemen by the name of John Graell, has well over 30 years of experience in the in the metals industry and is really considered one of the preeminent strategists and industrial experts in the world. And having his expertise on our Board, I think makes our already very good Board and even better one.

So, I think we get a lot of things other than just money and strategic flexibility out of this deal. We get technology. We get addition feet on the ground, where we need them quickly. And we get an outstanding new Board member.

Paul Forward – Stifel Nicolaus

Great. And may be lastly, on the – you mentioned the chemical cost pressures at the Chlor-Alkali Facility would be that that will provide some relief. Can you talk about just the development Chlor-Alkali Facility and what’s your expectations currently are and the timing of that?

Mark Smith

I don’t know the exact timing. I know that it’s later this year that is expected to come online. But I do know that KBR is our EPC contractor for that project. They have been on-site for several months now that project is moving along very well, foundations are poured pipe or axe are being put in to place. So, its progress is right on schedule. And I do – I apologize, I don’t know the exact date. But I know that the mechanical completion and start-up is schedule to occur later this year, probably a fourth quarter item.

Paul Forward – Stifel Nicolaus

Great. Thanks very much.

Mark Smith

All right. Thanks, Paul

Operator

Our next question comes from the line of Michael Gambardella with JPMorgan. You may proceed.

Michael Gambardella – JPMorgan

Hi, good afternoon, Mark.

Mark Smith

Hi, Mike.

Michael Gambardella – JPMorgan

just a question on the pricing going forward, the pricing on thorium has come in quite a bit even before Chinese New Year, but from about high 150 down to 30 recently and compared to 60 at beginning of 2011, so it was about half of where it was at the beginning of 2011. And what is causing that because none of the new supply is come on to the market yet? And in your opinion, what is causing that type of pricing erosion?

Mark Smith

One of thing that we are seeing is that the manufacturing capabilities in China are continuing to grow Mike. And as an example of some of the glass polish manufacturers have actually moved their facilities to China and so China is actually moving lot of more of their domestic material into their own internal usage , I guess in country usages and as a result of those increasing internal demands you will often time see at least temporarily a corresponding decrease in demand outside of China and that would be probably my first thought that would come to mind relative to why those prices have gone down, they certainly gone down a lot more on the export prices than they have on the in country prices.

And I know that I have mentioned this many times before but that’s one of the beauties about XSORBX to us is that we don’t depend on that glass polish market as much as others will depend on it to sale their cerium into.

Michael Gambardella – JPMorgan

Okay. And then on the magnet side, which is primarily neodymium, could you give us some idea. I had heard that about 80% of the world’s magnets are being produced in China with Chinese rare earth. So how big of a market outside of China, because you’re clearly not going to ship into China with neodymium, how big of a market outside of China do you have, and how much supply will you and Lynas bring into that market this year?

Mark Smith

Well, the market outside is about 17% in Japan and 3% in Germany. And I think there is about 40,000 tons of magnet rare earth oxide equivalent that moves into the world. So we just have to do our math. And that would be the amount of magnetic materials that Molycorp and Lynas would be trying to get better products into. So I haven’t done that math. I’ll stop my head. But 40,000 times it was about 8,000 tons of REO that Lynas and Molycorp would be buying for. And on Phase I, to put that in perspective, Phase I, Molycorp would be producing, I believe about 3,200 or 3,300 tons of magnetic materials.

Michael Gambardella – JPMorgan

Okay. And on Phase II?

Mark Smith

Phase II it’s just double.

Michael Gambardella – JPMorgan

Okay. And then last question, just on the cost, I think following up on an earlier question. I think (inaudible) cost someone had referred to less than $3 per kilogram. And I think you had $20 of kilogram and I understand the $20 includes some non-cash depreciation so forth, but can you tell us of the $20 what’s the cash cost today and do you still expect to get your cash cost what the SRK number was?

Mark Smith

I’ll answer the last question first, and that’s an absolute yes. And then I’ll let Jim Allen do the apples-to-apples figure for you.

Brian Blackman

Right. And when we’re talking about cash cost, we have to also include the Mountain Pass overhead cost as well, because that was excluded from the SRK model. So right now if you break it down, roughly, probably one-third to two-third is operational cash cost versus Mountain Pass overhead cost.

Mark Smith

$6 to $12 a kilogram.

Michael Gambardella – JPMorgan

That’s up to 20.

Brian Blackman

It would be the apples-to-apples comparison to the 277 that we will achieve.

Mark Smith

Yeah, and that’s for Mountain Pass, so I mean if you want more details, we can follow-up on that.

Michael Gambardella – JPMorgan

Okay.

Brian Blackman

(Inaudible).

Michael Gambardella – JPMorgan

The $6 to $12 is the cash cost right now.

Mark Smith

I think that’s about right, yes.

Michael Gambardella – JPMorgan

Of the 20?

Mark Smith

No. Mike, that is the Mountain Pass operational – the Mountain Pass admin cost. Those are also cash cost. There is some depreciation in there, depreciation for the year let me just get you the number.

Operator

And our last question comes from the line of John Christian Evensen with Strategist Newsletter. You may proceed.

John Christian Evensen – Strategist Newsletter

Hi, Mark. How are you today?

Mark Smith

Hi, John. How are you doing?

John Christian Evensen – Strategist Newsletter

Good. So a couple of questions on the downstream. Obviously the oxide you accelerated Project Phoenix Plant. In terms of year-end 2012, where do you see your capacities for downstream metals, neodymium-iron-boron and alloys, samarium-cobalt alloys, either including or non-including the going arrangement you have for didymium currently?

Brian Blackman

Look we have right now at Talison is about 600 tons per year of neodymium iron-boron, alloy capacity and one of our capital projects for the year, is 2,000 ton per year furnace that we would put in so that would – that capacity would go up to 2600 tons. On the samarium-cobalt side we currently do about 100 tons of that a year.

That’s probably close to 35% to 45% of the world market by the way, and that capacity although we might incrementally increase it would not be significantly increased so that takes care of Talison at Silmet we currently have the some extraction capabilities of 3000 metric tons per year, we would like to see that increase although the primary goal that we are working on right now is to get them a single feedstock hopefully coming from Mountain Pass, because their production capacity is seriously impacted when they have more than one feedstock.

So, they basically have to clean everything out of the system and start over to run a new one. So our biggest goal is to get them as close to 3,000 as we can and then do have a high purity where product that were going to provide some capital then for that we have commitments from customers on and that will probably increase their capacity by another four to 500 tons per year.

On the metal side, Sillamae has currently had about a 120 tons of neodymium metal per year and we would looking at capital programs there, probably not this year, but certainly in 2013, we’d like to double that to about 240 or 250 metric tons a year of metal.

John Christian Evensen – Strategist Newsletter

Just on the samarium cobalt, 35%, 40% world market, is that including China or not including China?

Brian Blackman

Not including China.

John Christian Evensen – Strategist Newsletter

Not including China. Thank you. And then on the alloy question, basically you have 0.05% distribution of dysprosium in Mountain Pass which had 19000 metric tons to just roughly 8 metric tons a year production. Are you going to be able to supply all of the dysprosium you need for your alloys and magnets internally or even that’s use in external source and have you identified any external sources?

Brian Blackman

Long-term goal obviously is to supply our own. When you take a look at the – what happens to your bottom line when you start having to pay market prices for dysprosium, it doesn’t take one long to figure out that you really want to have a full supply chain capability for dysprosium. So we will supply as much as we can until we can bring another heavy rear earth’s resource online. And, in between, we’ll have to purchase that material on the open market.

John Christian Evensen – Strategist Newsletter

What percentage of dysprosium do you believe you’ll have in your alloys and magnet on a top down basis?

Brian Blackman

Well, it depends on what our production level is, John. I mean, it’s 600. That depends on the magnet that they are using. Some magnets only require 2% to 3%, some require 7% or 8%. I guess, on average if you used about a 4% on average, you’d need about 24 tons of dysprosium for the current capacity at Tolleson.

John Christian Evensen – Strategist Newsletter

All right. And then, with respect to Phase 2 flux capacity of roughly 20,000 metric tons. Obviously, 16 rare earth or 16 different supply and demand curves. Do you have the capability let’s say if the magnet growth is there to produce up to 40,000 metric tons and stockpile say this year while selling the neodymium into other market, either at the Metal or Alloy and catch that margin?

Brian Blackman

It’s certainly not a preferred alternative. Molycorp at one time as you know back in the late 60s and most of the 70s provided 100% of the niobium to the world market, so laterally every color television had Molycorp niobium in it. Niobium also is not a large percentage of our natural distribution, and so we ended up having to stockpile a lot of lanthanum and cerium over the years and that’s not a preferred way to do business, which is one of the primary drivers behind the product development exercise that we work through to develop XSORBX.

We’re not all that concerned, at least right now, about lanthanum because the lanthanum markets are continue to be very robust for both FCC catalyst business and the nickel-metal hydride battery business. But as the ion battery comes in to play more and more then obviously, we have to put some efforts in to more product development for lanthanum, so I think, we feel pretty comfortable. And one of our primary goals that we set back in 2002 was to make sure we put our company in a position where we can simultaneously sell what we product and not have to stock Pier 1 where we are selling another.

John Christian Evensen – Strategist Newsletter

Of course. In terms of the current lanthanum tolling arrangement you have, what sort of capacity do you see for that facility in 2012 before you bring your own capacities online, can you see growth there or is that facility pretty much mixed out?

Brian Blackman

Do not mixed up by any way shape or form in fact they will be expanding in 2012 to take more of our material. So we will continue to work with them on those capabilities and make sure that that what we have between our own production and the tolling capabilities matches, what our customers need and what Mountain Pass is producing.

John Christian Evensen – Strategist Newsletter

All right. And then in terms of the magnet joint venture is that exclusive or can you pursue additional magnet joint ventures?

Brian Blackman

No, we can pursue additional joint ventures. There is – there are some geographic limitations and the type of magnet limitations there. But that has not preclude us from getting in to other joint ventures. And we are very interested in that particularly in the win side.

John Christian Evensen – Strategist Newsletter

Okay. And then last question when is the Molycorp conference call is question on pricing long-term. In terms of long-term do you see domestic Chinese prices currently as a reasonable estimate of long-term prices excluding cerium and lanthanum and on the top of that Lynas gave a guidance last fall that in China domestic production cost are going up around a $25 a kilogram, would you concur with that and do you believe that suggest that domestic Chinese prices will be the long term new reality?

Brian Blackman

I don’t want to comment one way or another on Lynas’ comment, they can have their opinion, but our data indicates that prior to these new environmental standards going into place, the Chinese production cost were in the neighborhood of $5.58 a kilogram and our estimates which are based on communications with our (inaudible) operation in China are that those cost could double as a result of the environmental regulations that they now trying to comply with.

We know China is also got a little higher inflation that what we are seeing in other places, but the Lynas number seems of little tad high compared to what I think our data would indicate.

So then on the long-term pricing I think one of the things we have learned in 2011 is to not predict what prices of rare earth will do, because there was a rollercoaster for sure and I think that what we do instead of predicting prices as we just continue to keep our eye on the supply and demand fundamental of the industry.

And although, the big press in the industry in the third and fourth quarter was the loss of demand or reduction in demand to the rest of the world that demand was more than picked up in China and on a worldwide basis the demand continued at about the same as it was in 2010. And supply is going to continue to be restricted. Even if Lynas and Molycorp come on with the barriers to entry, I don’t see a whole lot of other players coming into this space. And as demand continues to grow, supply will continue to be more and more of a problem. So long-term we are still we remain very optimistic about pricing.

The other thing I would add, John, is that we also tend to focus on what the prices have done from August until December until now. And we look at the reduction that has occurred. But after being in the industry for 25 years and seeing what the first 23 years was like, I’m still pretty amazed at what the prices are today versus what they were in the first 23 years of my existence in this business. I mean, they are still about 10 times higher than what they were for the first 23 years. So I think it’s also in the eye of the holder.

Operator

Ladies and gentlemen, we have no further questions at this time. And this concludes today’s conference. Thank you so much for your participation. You may now disconnect. Have a great day.

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's CEO Discusses Q4 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts