Molycorp: 4 Reasons To Take That $1B Intangible Asset Write-Off Now [View article]
Sal,
Here are your comments from my original article on the $1B impairment > http://bit.ly/WWuVIC
"The reported loss of Neo if I remember correctly was due to post acquisition costs not due to the operational business so an impairment seems not likely. I am getting the impression that you are trying to put more ammo on the fire given what happened to the share price on the back of the dilutive event, which you correctly anticipated. Correct me if I am wrong."
"If you do not know the operating earnings of the acquired entity how can you write they will need to impair ? The equity needed has nothing to do with the acquisition of Neo but with the fact that there is more capital investment needed for the ramp of the mine and its refining operations. So that argument fails to support an impairment. My opinion is that your article is highly speculative and that you should have stated that either in the conclusion and or in the summary."
"Is that unit Neo alone or are there other activities in that unit you said yourself that that is the $64,000 dollar question and as long as we do not know that, its pure speculation if they need to impair or not...by the way a goodwill impairment is a non cash item... "
You argued with me then and now you're still arguing. I'm starting to see a pattern here Sal.
Molycorp: 4 Reasons To Take That $1B Intangible Asset Write-Off Now [View article]
Sal,
People have been predicting rare earth price increases due to the new China/Japan tensions for months now, yet prices and demand keep declining. Some have also pointed to Japan's stockpiling of rare earths. Even if there is another embargo, Japan may need to deplete its stockpiles before it buys more.
Secondly, if the goodwill write-off was triggered by analysis from accountants and not my article, then why the delay in filing the 10-k? It seems like the accountants and management are scrambling around on short notice - I only wrote the article about a month ago. Whether the write-off will be large enough to reduce the amortization expense going forward, only time will tell. I'm betting that it will.
votingmachine, I was not implying that MCP should be "managing inventory value." I am keen on the MCP's "hard book value" since that drives the company's market cap. Almost 50% of tangible GAAP book value is tied up in inventory, so the true value of the inventory is important.
I understand the loss on the sale of inventory - COGS are increasing and gross margin declining. What about the loss on obsolete or slow moving inventory? The is potentially a much bigger item and requires a higher level of subjectivity.
Actually, I had planned to write this article a month ago when I noticed the ballooning inventory. "Did you write this article on request?" Sal, I'm not a disc jockey, but I do think the inventory level is important enough to address - 48% of tangible GAAP book value is nothing to scoff at. And yes, I did see your comment on the prior article but I didn't think you seriously wanted me to respond. Your sense of humor "ceases" to amaze me.
votingmachine, I did not make the delineation between "current" and "non-current" inventory. I only used management's descriptions. Secondly, I never suggested that the inventory acquired from Neo has not been sold, only that inventory jumped after the acquisition. Of note is that the company asserted that gross margins decreased due to increased costs from the Neo deal, which implies that the value of WIP or finished goods includes higher labor costs.
At the end of the day, whether inventory should be written off because the basket price is decreasing or it's slow moving is irrelevant. The inventory levels look problematic and I would avoid the stock until management gives more clarity on the value and how it's being managed going forward.
Sal, I told you that intangibles were impaired back in January, but you thought I was delusional. I could have told you at once that intangibles and inventory were overvalued but you still would have argued with me. That said, the importance of these issues - intangibles, inventory, cash flows - are such that you have to treat them separately and provide detailed analysis so as not to appear speculative or engaging in rumor mongering.
In my estimation, the mark-to-market pursuant to the current basket price would be applied to finished goods. Though it is apparent that there could be another write-off for slow moving inventory, it is more difficult to quantify. MCP's auditors will have to weigh in on that. At the end of the day, inventory - much of it slow moving - was nearly 50% of GAAP book value. The inventory is a bigger issue than I had once thought, and its mismanagement is probably the main source of the company's cash flow problems.
Molycorp: 4 Reasons To Take That $1B Intangible Asset Write-Off Now [View article]
ausheds,
Jan was way ahead of the game when he focused on intangibles and inventory. I too noted the inventory in January when I went through the balance sheet, cash flow statement, gross margins year-over-year and corporate costs. Tactically I decided to get over the intangibles first and then tackle other potential mark-to-market issues. A month ago people - other than management and the auditors - thought I was delusional when I mentioned the balance sheet. Now that they realize the balance sheet is important, we can have a worthwhile discussion going forward. If MCP's balance sheet is overstated, then comparing its multiple of book value to its peers is meaningless.
I think we are both right. The housing market seems to be bipolar. The backlog numbers are impressive and the YOY growth is eye-popping. However, everything is compared to an extremely low base. Annual housing starts still have not topped 1 million, and a lot of people who usually buy homes are either unemployed or have impaired credit. Short-term I think you are right. Long-term I think I'm right.
Molycorp: 4 Reasons To Take That $1B Intangible Asset Write-Off Now [View article]
Molycorp: 4 Reasons To Take That $1B Intangible Asset Write-Off Now [View article]
Here are your comments from my original article on the $1B impairment > http://bit.ly/WWuVIC
"The reported loss of Neo if I remember correctly was due to post acquisition costs not due to the operational business so an impairment seems not likely. I am getting the impression that you are trying to put more ammo on the fire given what happened to the share price on the back of the dilutive event, which you correctly anticipated. Correct me if I am wrong."
"If you do not know the operating earnings of the acquired entity how can you write they will need to impair ? The equity needed has nothing to do with the acquisition of Neo but with the fact that there is more capital investment needed for the ramp of the mine and its refining operations. So that argument fails to support an impairment. My opinion is that your article is highly speculative and that you should have stated that either in the conclusion and or in the summary."
"Is that unit Neo alone or are there other activities in that unit you said yourself that that is the $64,000 dollar question and as long as we do not know that, its pure speculation if they need to impair or not...by the way a goodwill impairment is a non cash item... "
You argued with me then and now you're still arguing. I'm starting to see a pattern here Sal.
Molycorp: 4 Reasons To Take That $1B Intangible Asset Write-Off Now [View article]
People have been predicting rare earth price increases due to the new China/Japan tensions for months now, yet prices and demand keep declining. Some have also pointed to Japan's stockpiling of rare earths. Even if there is another embargo, Japan may need to deplete its stockpiles before it buys more.
Secondly, if the goodwill write-off was triggered by analysis from accountants and not my article, then why the delay in filing the 10-k? It seems like the accountants and management are scrambling around on short notice - I only wrote the article about a month ago. Whether the write-off will be large enough to reduce the amortization expense going forward, only time will tell. I'm betting that it will.
Avoid Molycorp: Substantial Inventory Write-Off Imminent [View article]
Avoid Molycorp: Substantial Inventory Write-Off Imminent [View article]
Avoid Molycorp: Substantial Inventory Write-Off Imminent [View article]
I understand the loss on the sale of inventory - COGS are increasing and gross margin declining. What about the loss on obsolete or slow moving inventory? The is potentially a much bigger item and requires a higher level of subjectivity.
Avoid Molycorp: Substantial Inventory Write-Off Imminent [View article]
Avoid Molycorp: Substantial Inventory Write-Off Imminent [View article]
At the end of the day, whether inventory should be written off because the basket price is decreasing or it's slow moving is irrelevant. The inventory levels look problematic and I would avoid the stock until management gives more clarity on the value and how it's being managed going forward.
Avoid Molycorp: Substantial Inventory Write-Off Imminent [View article]
Avoid Molycorp: Substantial Inventory Write-Off Imminent [View article]
Avoid Molycorp: Substantial Inventory Write-Off Imminent [View article]
In my estimation, the mark-to-market pursuant to the current basket price would be applied to finished goods. Though it is apparent that there could be another write-off for slow moving inventory, it is more difficult to quantify. MCP's auditors will have to weigh in on that. At the end of the day, inventory - much of it slow moving - was nearly 50% of GAAP book value. The inventory is a bigger issue than I had once thought, and its mismanagement is probably the main source of the company's cash flow problems.
Molycorp: 4 Questions For Management Ahead Of Earnings Release [View article]
He took that almost verbatim from my previous articles.
Molycorp: 4 Reasons To Take That $1B Intangible Asset Write-Off Now [View article]
Jan was way ahead of the game when he focused on intangibles and inventory. I too noted the inventory in January when I went through the balance sheet, cash flow statement, gross margins year-over-year and corporate costs. Tactically I decided to get over the intangibles first and then tackle other potential mark-to-market issues. A month ago people - other than management and the auditors - thought I was delusional when I mentioned the balance sheet. Now that they realize the balance sheet is important, we can have a worthwhile discussion going forward. If MCP's balance sheet is overstated, then comparing its multiple of book value to its peers is meaningless.
How This Oil Refiner Became Carl Icahn's Lucky Accident [View article]
Ignore me all you want, but it would be foolhardy to ignore CVR. Good luck to all longs.
7 Housing Stocks Headed For A Fall [View article]
I think we are both right. The housing market seems to be bipolar. The backlog numbers are impressive and the YOY growth is eye-popping. However, everything is compared to an extremely low base. Annual housing starts still have not topped 1 million, and a lot of people who usually buy homes are either unemployed or have impaired credit. Short-term I think you are right. Long-term I think I'm right.