Bonds of Molycorp Inc. (MCP:US), the owner of the largest rare-earth deposit outside of China, rose to the highest level in more than a month after a peer sold shares and its chief executive officer indicated raising equity was an option to combat dwindling cash.
The miner’s $230 million of 3.25 percent convertible notes (MCP:US) due 2016 traded at 76 cents on the dollar at 2:07 p.m. in New York, up from 65.1 cents May 27, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Sydney-based Lynas Corp. sold shares last month to bolster its cash, according to a press release dated May 30.
Molycorp, which has lost money (MCP:US) for nine consecutive quarters and may run out of cash (MCP:US) in about seven months if operations don’t improve, may benefit from new investments being made into the rare-earth industry, according to Diana Monteith, director of convertibles and special situations at Boston-based Loomis Sayles & Co.
“The market gets very excited in distressed land when someone else in the same business does something positive,” Monteith said in a telephone interview.
The convertible notes have a conversion price of $71.40. The stock traded at $2.75 at 1:40 p.m. in New York.
Jim Sims, a spokesman for Greenwood Village, Colorado-based Molycorp, declined to comment.
Rare earths are metals that are not readily found in mines and are difficult to separate out from one another. Most of the metals are not as rare as gold or silver and are widely used in consumer products such as mobile phones and batteries.
Chief Executive Officer Geoffrey Bedford said raising equity was among its options to mitigate the company’s failure to generate free cash flow, according to a May 8 earnings call.
Free cash flow, or the amount the company makes from operating activities less capital expenditures, was negative $533.7 million last year. The miner has $1.47 billion of debt (MCP:US) and had $67.7 million in interest expense (MCP:US) last year, according to data compiled by Bloomberg, and had $236.1 million of cash as of March 31.
With fresh capital, investors see Molycorp’s Mountain Pass facility in California becoming fully operational later this year that would help the company grow, according to Kevin Starke, an analyst that specializes in distressed investments at CRT Capital Group Inc. in Stamford, Connecticut.
Development at the facility, which the company invested $1.5 billion in, according to a CRT report, has been slower than management had hoped for, Chief Financial Officer Michael Doolan said on the earnings call. Mountain Pass boasts the largest rare-earth metals deposit outside China and is currently operating at about half of its estimated peak capacity of 23,000 metric tons a year, according to a May 9 JPMorgan Chase & Co. report.
“Distressed investors looked at Lynas and said if they can raise money, Molycorp can too,” said Starke.
The company reported a net loss of $86.1 million in the first quarter, widening from a $39 million deficit in the prior period, Bloomberg data show. Molycorp’s shares (MCP:US) have fallen about 85 percent in the last two years.
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