Earlier this month Molycorp (MCP) received a notice from the NYSE that its stock was in jeopardy of being delisted from the exchange. The company's common stock traded below $1.00 per share for 30 consecutive trading days. According to the notice, Molycorp has six months to cure the situation:
The Company can regain compliance with the minimum per share average closing price standard at any time during the six-month cure period if, on the last trading day of any calendar month during the cure period, the Company has ((i)) a closing share price of at least $1.00 and ((ii)) an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month.
In the event that the Company fails to achieve compliance with the continued listing standards by the expiration of the six-month cure period, the stock will be delisted.
Molycorp has experienced consistent operating losses and cash burn ever since rare earth prices began to free fall in Q4 2012; MCP traded around $11 per share at that point. The company has executed three capital raises since that time, the last of which came after it received a $400 million lifeline from Oaktree Capital (OAK) in August. In Q3 the company experienced cash burn from operations and investing of $47 million, down from $75 million in Q2. In my previous article I projected cumulative cash burn of about $269 million over the next 12 months. With over $300 million in cash on hand, the company appeared able to sustain itself through 2015.
Molycorp Breaks The Buck
Molycorp threw investors for a loop in late November when it announced a $38 million debt-for-equity swap - a de facto capital raise. The stock hit a 52-week low of $1.12. MCP broke the buck on November 28th and has traded below $1 ever since; the drop was driven more by the fear that management would further dilute equity holders with more debt-for-equity swaps than by operational issues at the company.
Is Delisting Imminent?
In my opinion, a delisting of the stock appears imminent. DA Davidson recently downgrated MCP from Buy to Neutral due to lingering production issues at the company's Mountain Pass facility. At bottleneck related to the facility's Leach system has kept the company from operating at full capacity. With cash burn and operating losses not expected to abate any time soon, I do not see any near term catalysts that would drive the stock above $1 for an extended period. Therefore, I believe a delisting is imminent.
I believe an NYSE delisting is imminent for MCP. Such an event would cause investors to lose interest in MCP and it would be disastrous for the stock. Investors should avoid MCP.
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His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.
In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.
Disclosure: The author is short MCP. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.