Q4 2012 Earnings Call Transcript
Transcript Call Date 03/14/2013

Operator: Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year 2012 Molycorp Earnings Conference Call. My name is Derrick and I will be your operator for today's call. At this time all participants are listen only mode. We shall facilitate a question-and-answer session at the end of the conference. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Brian Blackman, Senior Manager of Investor Relations. Please proceed.

Brian Blackman - Sr. Manager IR: Thank you, operator, and good day, everyone. Thank you for joining us on today's call. As you all know, we just released our financial and operating results for the fourth quarter and year-end 2012. Our press release is posted on the Investor Relations section of our website under This call is being webcast and a replay as well as a transcript will be archived on the Company's website.

For those of you dialed into the call, a slide show that accompanies our prepared remarks is available on the Investor page Molycorp's website as well. For those of you listening by webcast, the slides will be presented in your webcast player where you advance the slides on your own.

During the course of this call, we will make forward-looking statements, and I direct you to Slide number 2 for our disclaimers. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance but involve a number of risks and assumptions. We urge you to review Molycorp's SEC filings for a disclosure of some of the risk factors that could cause actual results to differ materially.

We will also refer to non-GAAP measures and request that you review the reconciliations to the GAAP statements provided with our earnings news release and our website. We'll also refer to non-GAAP financial measures and you can find reconciliations to those most directly comparable GAAP financial measures in our earnings release, also posted on our website.

As you can see on Slide 3, joining us today call is Molycorp's President and Chief Executive Officer, Constantine Karayannopoulos and our Executive Vice President and Chief Financial Officer, Michael Doolan.

I would now like to turn the call over to Constantine.

Constantine Karayannopoulos - President and CEO: Thanks Brian. Hello everyone. Let me begin with Slide 4. 2012 was a year of significant change for Molycorp. First, we successfully transitioned from what was largely a development company to what is now a global operations and production Company. Molycorp is the world's only fully integrated global solution for reliable rare earth supply. By combining the world's best rare earth resource at Mountain Pass with the world's best rare earth processing capabilities from Molycorp Canada and Silmet, we're now vertically integrated on a global scale from a world class upstream rare earth resource to some of the world's most advanced downstream rare earth processing facility.

Second, we have now completed the construction and commissioning of all key production assets in our new state-of-the-art Mountain Pass facility and we are ramping up to full scale commercial operations and delivering feedstock to our value-added downstream processing centers.

Third, we secured additional capital including January's equity and convertible debt raise and we believe that we are now sufficiently capitalized to complete a ramp-up to our initial production run rate of 19,050 metric tons at Mountain Pass, and to operate in 2013 with a reasonable cash cushion.

Fourth, we accomplished all of these things in over the past 15 months while growing market share in several areas and navigating through some pretty challenging headwinds in the global rare earth markets.

Now, my goal going forward for this Company is to sharpen our focus on building greater value for our shareholders. Our priorities in this effort will be to instill greater discipline and accountability across the Company, improve performance across all business units and make sure we achieve our cost savings goals which will involve reductions in overhead spending and headcount. All across the Molycorp enterprise, our people are going to run this business as owners rather than managers.

I'll provided investors on today's call with an update on the progress we're making at Mountain Pass and on global market trends we're seeing across our business segments, but first let me have Michael provide details on our Q4 and full year 2012 financial performance. Michael?

Michael F. Doolan - EVP and CFO: Thanks Constantine, and again good afternoon to everyone. First a quick summary of the full year on Slide 6. We reported net revenue of $528.9 million, a 33% increase over revenue is 2011 of $396.8 million. That included of course, approximately six months of new revenue from the Molycorp Canada acquisition, and during the year we sold more than 9,200 metric tons of product.

Our gross margins for the full year across all segments compressed to 3.3%. Our EBITDA contribution was negative for the year, however on an adjusted basis EBITDA was a positive $111 million and we also reported a full year net loss attributable to common stockholders of $460.9 million or a loss of $4.31 per share.

Adjusted, non-GAAP net loss was $39.2 million or and adjusted loss of $0.37 per share. Please note that the non-cash goodwill impairment of $258.3 million and the impairment charges on other long-lived assets had a negative impact of $2.51 per share.

Moving over to our current liquidity planning, during the fourth quarter we continued our annual budgeting process, including a detailed review of capital spend and near-term cash forecast. Unfortunately many of the cost mitigation efforts that we undertook in mid-2012, were not as successful as we'd hoped and at the turn of the year we completed our liquidity analysis as detailed in the 8-K filed last month and summarized on Slide 7.

The total capital budget for the Mountain Pass facility is approximately $1.45 billion. As of December 31st, we had incurred $1.05 billion of this budget spent to-date. The remaining spend on the project as of year-end is $400 million, although, we view approximately $60 million of this as discretionary; as it is related to the further expansion of Mountain Pass capacity beyond our initial annual target production rate, of 19,050 metric tons. This decision to expand will be based on business conditions and we will update you as we progress. In addition, we are planning for approximately $50 million of other maintenance and expansion capital projects during 2013 across all other business units, for a total cash CapEx forecast during 2013 of up to $450 million.

As of December 31st, we maintained $227.8 million of cash and cash equivalents on the balance sheet. We moved forward with the recommendation for additional financing in the form of primary common stock and new convertible notes in January 2013. We raised $414.2 million net of underwriting discounts and commissions in the aggregate from these offerings, which we believe will provide sufficient liquidity under our current business plan for the remainder of the year. While we are comfortable with our liquidity positions, we remain cognizant of our needs to conserve cash. I recommended to our management team to curtail all discretionary investments, implement additional procedures to improve our capital allocation decision-making and develop a more rigorous framework to best ensure that investments undertaken provide an adequate return for shareholders.

Also we have begun the planning process to improve the long-term health of our balance sheet, which includes putting in place a credit revolver facility as discussed on prior calls. While there is no quick fix, we believe that our business is more effectively managed by reducing leverage and we are focused on ensuring that we achieve our financial and operating goals this year and into the future.

Moving to our detailed financial performance, our operating segment results begin on Slide 8, with the Resources segment. Sales volume out of Mountain Pass for the full year have declined as compared to 2011, and as a reminder, the spot transaction market for rare earth was exceptionally strong during the prior year and then the counter balance of slower demand showing up through 2012. The slower demand had an impact on both volumes and prices within the Resources segment. We continue to observe destocking inventories within the supply-chain although it is unknown as to how much material remains in key customer stocks. Nevertheless, we are cautiously optimistic for returning levels of demand in certain key product applications, including catalyst.

On Slide 9, our Chemicals & Oxides segment sold 4,631,000 metric tons during the year and please note that the full year numbers represent a partial year of contribution from Molycorp Canada. Sales volumes out of our Asian operations remained quite resilient and we are observing favorable ordering trend out of Zibo and Jiangyin. Sales volumes out of the European operations were weaker. Chemicals & Oxide's volumes were down 10.5% in the fourth quarter as compared to the third quarter of 2012 largely a result of weakness within China. This was offset by strong demand for catalyst products.

On Slide 10, our Magnetic business sold 3,150 metric tons of bonded magnetic powders and alloys during the year. Although the partial year contribution shows an operating loss, the underlying fundamentals of this business remain favorable and we are proud of the stability and anticipated EBITDA contribution from this business.

Within our Rare Metals segment on Slide 11, we sold 366 metric tons during the year for $78.9 million in revenues. Fourth quarter metals volumes increased 5% as compared to the third quarter. We continue to maintain a healthy balance of critical metals with an eye toward incremental margin expansion as a result of recent operational initiatives. We also believe our Rare Metals business is well-positioned to grow in step with continued adoption of LED lighting during 2013, which provides diversification from certain rare earth faster markets.

We continue with our P&L on Slide 12; consolidated gross margin for the full year fell to 3.3%, largely as a result of selling prices falling faster than we could process and convert higher priced raw materials. In our Resources segment this reduction was the result of higher processing costs within our legacy infrastructure, as well as higher variable cost. Within Chemicals & Oxides and our magnetics units we had somewhat higher cost inventories as we've been traditionally reliant upon third-party suppliers for these raw material feedstocks. The impact on cost was also compounded by Molycorp Canada acquisition, in which we had to step up the inventory value at the time of the acquisition in a mark-to-market fashion. As an example, we stepped up inventory within our Chemicals & Oxides unit by $22.8 million at the time of the acquisition. Most of that had flowed through cost of goods sold by the end of the year.

Across the consolidated Company, we had a total of $120 million hit the cost of goods relating to LCM adjustments, abnormal costs i.e., unabsorbed overheads and the impact of the purchase accounting. While we're not immune to pricing changes in the market our ability to secure reliable low-cost material at Mountain Pass will help alleviate a substantial portion of this risk on a going forward basis. There remain substantial improvements to be made in our cost structure. However, our progress to becoming the world's lowest cost producer of rare earth products remains on track. And one of the easiest ways for us to reduce our material cost is to supply rare earth carbonate to our downstream facilities for Mountain Pass. We are targeting up to 5,000 metric tons of rate earth carbonate to be sold to our downstream segments during 2013 and into the next year.

For the full year, we incurred an operating loss of $436.3 million compared to an operating profit of $152.9 million during 2011. Selling, general, and administrative expenses totaled $113.7 million during the year while R&D came at $27.8 million or 5.2% as a percentage of net sales.

You also noticed we recorded a non-cash goodwill impairment charge of $258.3 million in the fourth quarter. This is primarily derived from the Molycorp Canada acquisition with $145 being attributable to the Chemicals & Oxides segment, $96 million under the Magnetic Materials & Alloys segment and the balance to Rare Metals business unit. Some of the circumstances that negatively impacted our fair value estimates included consequences of software pricing environment, delays in ramping up the Mountain Pass facility that deferred our ability to start negotiating longer-term contracts. Our effectively tax rate for the full year was just over 10% which provided a tax benefit of $54.1 million and on an adjusted basis, our tax rate would have been approximately 25%.

Our net loss attributable to common stockholders for the year $449.6 million or a loss of $4.31 per share. Again, $2.51 of this loss was attributable to the goodwill impairment charges. On an adjusted non-GAAP basis, we reported a full year net loss of $39.2 million or an adjusted $0.37 loss per share. Adjusted figures take into account operational expansion items out of ordinary business expenses and certain non-cash items including non-cash goodwill impairment.

Moving to Slide 13, for the fourth quarter we reported total revenue of $134.3 million and a gross loss of $20.5 million or a gross margin of negative 15%. The gross loss during the quarter was driven by unfavorable product mix at our Resources segment and lower pricing and lower volumes at our rare earth and magnetic operations. Net loss attributable to common stockholders was $362.4 million or a loss of $2.91 per share.

On an adjusted basis, net loss was $55.6 million or adjusted loss of $0.45 per share. Our cash CapEx spend during 2012 was $791.5 million and during the year, we used $89.6 million of net cash in our operations. The most efficient way for us to generate significant cash flow is to ultimately move molecules from Mountain Pass to both external customers and into our downstream segments. This remains our number one operational priority.

After January's capital raise, we believe that we have the liquidity and that's necessary to complete our project and begin to leverage the sound economics of our vertically integrated model. We remain cautiously optimistic in the near-term and as we now move beyond the Lunar New Year holiday and I look forward to reporting our progress throughout the year.

Now let me turn it back to Constantine.

Constantine Karayannopoulos - President and CEO: Thank you Michael. Let's look at how things are progressing with our Resources segment, beginning on Slide 15. Our current operational ramp in Mountain Pass is proceeding well. There are always issues to be addressed when scaling up our rare earth separations plant, especially one of this complexity. However, I do not expect any significant technical hurdles at this point that will prevent us from achieving our initial full-scale run rates by mid-year. In addition to increasing throughput at Mountain Pass, we are also gradually increasing the amount of rare earth feedstock being sent to our downstream facilities for processing into value added custom engineered products.

When we execute in the final aspects of bringing this new facility online and into full production, we expect to achieve production cost in the $6 to $7 per kilogram range, which would make us one of the lowest cost, if not the low cost rare earth producer in the world.

With your indulgence, let me give you a bit more color on my last statement. I can tell you from experience that the three most important cost drivers in any rare earth production operation are in order of decreasing magnitude; first, raw materials; second, reagents, primarily hydrochloric acid and caustic; and third utilities power and steam.

I have mentioned before that in my view and this is a view I have held for over a decade. The Mountain Pass deposit is the best rare earth ore body in the world. I base this on the full criteria we have historically used to evaluate all the ore bodies we have taken an interest in; first, tonnage; second, grade; third, mineralogy; and fourth, thorium, uranium and other impurities content. This ore body coupled with our front-end mill and flotation circuits give us a very high-grade mineral concentrate of recoveries, that if not the highest, they are among the highest in the world.

Our co-generation facility are utilizing some of the lowest natural gas prices in the world is producing power and steam at cost that are significantly lower than any other rare earth producers including producers in China. Natural gas prices are boding very well for a general manufacturing renaissance in the United States.

Finally, low cost power when coupled with our chlor-alkali plant under construction will produce hydrochloric acid and caustic soda at cost that will be a fraction of what other rare earth producers have to pay around the world. In addition, the chloralkali plant will allow for the recycling of our waste water making Mountain Pass the most environmentally advanced rare earth operation of its kind.

You can see there is, photographs on Slide 16 through 23 of our new facilities which were taken recently. All the main process units are operational with the exception of our chloralkali plant which is expected to achieve full-scale operation later this year. As you click through these slides let me say this at the risk of repeating myself. I have seen quite a few rare earth processing facilities over my career. This facility is by far the most complex and ambitious rare earth processing facility ever constructed.

The efficiency with which it will operate, its enhanced recovery rates, it's reduced environmental impact, these and other advancements will combine to make this this facility one of the best and lowest cost rare earth production operations in the world. Ultimately we have to prove ourselves. Our production ramp maybe proceeding more slowly than was originally anticipated over the last couple of years but that's allowing us to deal more efficiently with the inevitable challenges that a plant startup always entails.

Moving to slide 24, let's touch on some highlights for our Chemicals & Oxides segment. Given that we actively sell into a variety of markets through the segment, I thought I would provide investors with some increased visibility on downstream customer trends. For example, automotive catalyst demand remains strong and we successfully grew our market share in this sector during 2012. This market continues to show signs of robust demand going forward, the fluid cracking catalysts or FCC. Market is another strong sector for us. Our lanthanum remained sold out to our customers in this segment and we have good visibility into larger commercial volumes.

In the multi-layer ceramic capacitor or MLCC market, we continue to see customers with persistent inventories. This along with the decreasing size of MLCCs has limited near term growth of this segment. However, we believe demand will improve as early as the second half of the year.

Demand remained strong in the battery sector, both in automotive and smaller battery applications. Suppliers to large consumers of batteries in the automotive space remained particularly busy. In the new magnet space, a fair amount of buildup inventory remains in the pipeline primarily in the sintered magnet area. Thus, we do not expect improvement in the segment until the second half of this year.

In glass polishing markets, we saw demand erosion during the pricing peak of 2011. To-date that demand has been slow to return, but it is returning. With prices – with rare earth prices were off to 2011 highs, we are seeing renewed interest and expect to see things pick up over the next several quarters. We are not assuming any increasing there, however, in our internal models until at least 2014.

In the near term, we expect downward pressure on rare earth volumes prices and raw material cost to continue. Longer term, however, we expect global demand for rare-earths to increase and I believe the Company is well positioned to take advantage of any global market recovery driven by increased uses of our products in energy efficient lighting, hybrid electric cars and micro motors for energy efficient devices.

Turning to Slide 25, let me give some highlights from our Magnetic Materials & Alloys segment. Demand during the fourth quarter for neo powders produced by our Magnequench business was softer than normal. This was a direct result of lower than typical holiday season demand, particularly in our traditional base market such as hard disk drives, optical disk drives and office automation products. Most of the companies in our supply chain for example Seagate, Western Digital, and Nidec reported much weaker than expected unit volumes as a result of sluggish global economic conditions.

From a market development perspective, the story is starting to get a big brighter. A new permanent rare earth magnet that we rolled out in Q4 of last year called MQ2 has the potential to be a significant game changer in a number of downstream markets. Let me provide some background here. Permanent rare earth magnets or neo magnets as we call them provide significant advantages over iron based ferrite magnets, including increased performance, reduced size and weight, and other benefits primarily better energy efficiency.

However, magnet customers, magnet consumers rather, have been (indiscernible) over the past two years about using neo magnets because when they are used in higher temperature, under the hood for example environments, they traditionally have required the addistion of some dysprosium and/or terbium to maintain their magnetic performance. One of the key problems is that dysprosium and terbium, which are heavy rare earths, are fairly rare. Relying on these heavy rare earths for inclusion into neo magnets as part of that formulation significantly increases both the cost and supply uncertainty. In response to this we have developed a new product called MQ2, which provides motor manufacturers with high-performance and high-temperature stability they need without the addition of any dysprosium or terbium.

In fact the wide advantage in these MQ2 magnets use -- we estimated to be between 4% and 6%. In other words, you can achieve the same performance as a magnet containing as much as 6% dysprosium without any dysprosium in the formulation.

These zero dysprosium or zero Dy magnets use newly developed – I apologize. These newly developed new powders which are used in MQ2 magnets are made by our Magnequench subsidiary. What is important is that MQ2 magnets display far superior retention of magnetic flux at elevated temperatures than higher price sintered neodymium magnets and again, they contain no high price dysprosium.

We are introducing this new product into two principal markets, automotive and home appliances, largely because of the volume potential and the sensitivity of these sectors to energy conservation which these magnets greatly enhance. Some of the many applications that can use MQ2 magnets are shown on Slide 26. These include automotive ignition coils, automatic transmission motors, electric vehicle traction motors and engine cooling water pumps just to name a few.

Also displayed are applications that use our zery Dy MQ1 conventional bonded magnets and our low Dy MQ3 magnets. Just to compare the differences; a typical MQ3 magnet has about a 2% to 4% dysprosium advantage compared to the equivalent sintered magnets. In the home appliance market we are working with major end product manufacturers for use of MQ2 magnets and direct drive washing machines and also for compressors in air conditioners.

This innovative product is a direct result of our proprietary (indiscernible) technology. Moreover, we can make them in our supply chains either inside or outside of China, utilizing our low-cost production of neodymium and praseodymium for Mountain Pass. With regard to MQ1 and MQ3 magnets, we are seeing renewed interest in these products as replacements for ferrite magnets as rare earth prices have fallen from the peaks of 2011. For example, while the per kilogram price of MQ1 bonded neo magnets is higher than ferrite, the greater magnetic properties of MQ1 allow users to reduce other costs by designing smaller models with less copper and steel and greater energy efficiency.

Turning to Slide 27, on the sintered neo magnet side, our joint venture with Daido Steel and Mitsubishi Corporation completed construction in the fourth quarter of last year of our sintered neo magnet facility in Japan. That facility is now being commissioned and is on its way to achieving an initial 500 ton per year production of sintered magnets that also use significantly less dysprosium than traditional. Our primarily target markets here are again, the automotive and home appliance sectors but in distinctly different applications, like MQ1, MQ2, and MQ3.

In general, our outlook for the 2013 magnetics market is cautiously optimistic. Beyond 2013, both of the world's leading independent rare earth market analysts are forecasting relatively robust 9% to 15% per annum growth in these markets. Historically the rare earth Magnetic Materials market has grown at about 17% per year. Both also believe this growth could be higher if a stable and predictable supply of neo magnets and the associated supply chains were made available to the market. That is precisely what Molycorp is positioned to provide.

On Slide 28, you see a quick update on our proprietary SorbX water purification product. As some of you may have seen, a press release was issued this afternoon, separate from our earnings release announcing a five year agreement under which Univar, one of the world's leading distributors of industrial and specialty chemicals will purchase SorbX-100, our proprietary cerium-based water treatment product for distribution to the municipal and industrial wastewater treatment facilities in North America. This is an important step forward in our ongoing commercialization efforts for this product, and I'm especially pleased by the Company with Univar (stature) and market leadership, we will lead SorbX sales into these markets.

In summary, on Slide 29, I would say that the long-term fundamentals of our business have not changed since Molycorp was launched as a public company. Demand for secure and reliable supplies of high-quality rare earth materials, remain strong, and is forecast to grow robustly in the out years, both inside and outside China.

Molycorp is uniquely positioned to leverage the power of our globally integrated supply chain and low-cost of production to provide customers with increased security of supply and long-term pricing visibility. We believe that our financial performance for the first half of 2013 is likely to be slightly weaker than that of the second half of 2012. This is due to the typical seasonality of slow global rare earth sales in the first quarter of every year as well as the fact that our Mountain Pass facility is not expected to achieve full-scale commercial production until midyear 2013.

However, we also expect global supply and demand for rare earth oxides will approach a healthier balance during 2013 and our pricing within many key of applications of rare earths will be beneficial to both customers and suppliers. In summary, I believe that we have built a very unique company, which we are continuing to build, the only company in the world that can provide customers with a fully integrated global solution for reliable rare earth supply.

Thank you for your attention. I look forward to your questions.

Transcript Call Date 03/14/2013

Operator: Brian Lee, Goldman Sachs.

Brian Lee - Goldman Sachs & Co.: I guess first on pricing. It seems like Q4 pricing for the Resources segment was lower than that implied in the spot market for your particular mix. Can you give us a sense of what might be driving the disconnect and how pricing should trend from here?

Constantine Karayannopoulos - President and CEO: Primarily the issue with the fourth quarter pricing was one of mix. I wouldn't read too much about into this. It was clearly not representative of what most folks look at as the basket of rare earths for the Mountain Pass distribution. Long term this will be fundamentally corrected. But at any given quarter depending on which product sell preferentially to others that could create some imbalances compared to the standard indices that folks might be following.

Brian Lee - Goldman Sachs & Co.: I guess maybe switching costs for a second. I know you talked Constantine about $6 to $7 per kg as the long-term target. Can you give us a sense just in the near-term given the delay in chloralkali and uncertain timing of Phase 2, how we should be thinking about the trend in the cost roadmap just over the next several quarters?

Constantine Karayannopoulos - President and CEO: Sure. The $6 to $7 target is again cash costs and they are Phase 1 only. We are not looking into Phase 2 to get there. I would expect that as we ramp up to full Phase 1 production without chlor-alkali will be in the low to mid-teens per kilogram. Once chlor-alkali comes on stream, it will have a significant impact both in terms of reducing our reagent costs as I mentioned earlier, but also because it will have a significant cost impact on our wastewater operations because until the chlor-alkali plant comes on stream and allows us to recycle our wastewater, we have to haul the waste water offsite and that's a very expensive operation. So, what might appear as a disconnect between the pre and post chlor-alkali operation is really a combination of the benefits coming from cheaper reagents and the elimination of the wastewater haulage charges. I don't know if that helps you, but I would expect to hit that $67 a kilogram in the second half once our chlor-alkali plant is fully commissioned and operating.

Brian Lee - Goldman Sachs & Co.: Maybe last one for me if I could squeeze it in on the Univar agreement. How is pricing being set on that relationship and are there any minimum volumes being included in the terms of the deal?

Constantine Karayannopoulos - President and CEO: Yeah. There is a pricing set as a minimum. Above that pricing there is an 85%, 15% share of the revenues. So, 85% of what Univar charges comes directly to Molycorp and they keep 15%. There is a minimum volume in every year, that allows Univar to retain exclusivity, if we drop below those volumes then the contract becomes non-exclusive if we so wish it.

Brian Lee - Goldman Sachs & Co.: Is the pricing floor tied to any spot pricing on cerium?

Constantine Karayannopoulos - President and CEO: No, in fact the approach we've taken with XSORBX is we're trying to price XSORBX to our eventual customers' next best alternative. It's priced independently of what the price of cerium is. It's priced in terms of what the value is to the end user. So, we've launched the product, we have made our first shipments to Univar and we are doing a number of installations over the next three months that we expect will produce some definitive optimization of pricing and utilization of our XSORBX in a variety of applications, different way streams have different characteristics. So we might take perhaps a more refined approach to our pricing later on in the year either up or down depending on what the early feedback from the end users is.

Operator: Jeff Kramer, Morgan Stanley.

Jeff Kramer - Morgan Stanley: Maybe just briefly on the operational side, and on the crack leaching process we're using the proprietary technology to increase recovery rates from low 50% up to 90%, could you just touch on where that process is and if it's meeting expectations right now?

Constantine Karayannopoulos - President and CEO: The leach is running at full input. We are experiencing some bottlenecks, which are not unanticipated, typical teething pains, pump failures, filtering issues. We have been fixing those as we've been going along. The cracking plant, we expect it to be fully operational in the second quarter, and that's when we will see the full recovery rates that you talked about. Again, I would describe the challenges that we've had as more teething pains than anything else, nothing serious in it, as I said in my comments that would prevent from hitting Phase 1 rates by the middle of the year.

Jeff Kramer - Morgan Stanley: Just with regards to the Univar contract, what would you guys consider your contract position right now at Mountain Pass? I know there was a 20% wedge for SorbX in the past. Just comment where you're broadly and with SorbX.

Constantine Karayannopoulos - President and CEO: At full Phase 1 run rates we would have excess cerium at year one of the contract. We'll be getting close in year two. Year one being 2013, which is less than a full year and we have not hit Phase 1 rates yet. In year two 2013 by the end of the year I would expect that we'd be getting close to being sold out of our run rate capacity. And by year 2015 according to the volumes under contract if we are shipping those volumes that will get us to the situation where we will have to make a decision of either implementing and starting up Phase 2 or becoming a net buyer of cerium for this product line. I don't know if I answered your question.

Jeff Kramer - Morgan Stanley: I guess, the rest of the – on the SorbX, but with rest of the products that accounts the lanthanum or cerium directed away from SorbX, as far as – what kind of other positions you have those. Are those the rest of the products full sold what we sold?

Constantine Karayannopoulos - President and CEO: I think it's fair to assume that if the SorbX volumes get to that point, pretty well the entire output of separated cerium from Mountain Pass will be dedicated to SorbX. The Mountain Pass cerium output is ideally – is an ideal fit for SorbX. For additional cerium molecules, to serve the rest of our customers, we will have to rely on Silmet separation which will be fed, and actually we have started to ship raw materials to Silmet out of Moutain Pass and we're getting ready to continue to supply raw materials to our Zibo plant in China as well. We have to rely on the rest of our separation facilities at Silmet, Zibo, and Jiangyin to supply the needs of other cerium customers, and also our internal needs for cerium molecules as part of our automotive catalyst based product line.

Jeff Kramer - Morgan Stanley: And just lanthanum and NdPr?

Constantine Karayannopoulos - President and CEO: Lanthanum, we expect will be sold out of Mountain Pass into the fluid catalytic cracking markets. NdPr, we will – the bulk of it will be consumed by our Magnequench facility in Thailand, as well our Tolleson facility in Phoenix. In addition to putting together a number of NdPr metal and neodymium-iron-boron alloy product lines for customers in Japan primarily in the sintered magnet base.

Jeff Kramer - Morgan Stanley: Just lastly on the financial side, obviously at the capital raise in January, and you were projecting out the cushion at the end of the year, do you feel you should be kind of displaying what capital raise is between '13? And just on the ABL facility, should we expect that to be signed I guess in the next couple of months?

Constantine Karayannopoulos - President and CEO: Sorry, what was the last part of your question?

Jeff Kramer - Morgan Stanley: The ABL facility that's been considered.

Constantine Karayannopoulos - President and CEO: Well, why don't I take a sip of water and I will ask Michael to answer that, but fundamentally you're not off.

Michael F. Doolan - EVP and CFO: Certainly, we do not anticipate coal impact to the market in 2013 and just on the ABL it's actually we'll looking at a traditional just revolving credit facility. That's – this still remains our number one priority. We've been sort of distracted during this first quarter, but the bank we're dealing with is anxious for us to proceed and I hope to be able to report positive news by the next time we do our call.

Jeff Kramer - Morgan Stanley: That's in China, right?

Michael F. Doolan - EVP and CFO: Well there is tranche in Asia, yes, but there is also rest of the world peace, so round numbers is 25 million in Asia and 100 million for the rest of the world.

Operator: Christopher Kovacs, Robert W. Baird.

Christopher Kovacs - Robert W. Baird: First on the decision to no-go or go on phase two, you mentioned SorbX in demand there, what are some of the other factors that you are making process and when should we look out for that.

Constantine Karayannopoulos - President and CEO: Clearly since half of our output out of Mountain Pass is cerium, XSORBX will play a big role in any decision to startup Phase 2. Other factors will be the health of the magnetic industry both the sintered customers that we have as well as our internal Magnequench division. Lanthanum I think could be not as important a revenue and margin driver, if we have NdPr and cerium sown up. So, fundamentally, I think the biggest challenge will be cerium. There is really no other customer – no other producer rather of rare earths in the history of the rare earth industry in the last 20 years that has been sold out of Cerium. Neo materials used to be but that involved a number of optimization steps running the separation facilities at lower rates if the output cannot be sold and becoming a net buyer of other products in the markets. But realistically I've not come across any rare earth operations that have been sold out of cerium on a sustained basis. So if we can sell out – if we have a pretty good visibility into cerium sales XSORBX or not, then that will go a long way towards justifying the startup of Phase 2 because let's face it, selling neodymium and praseodymium into the growing magnet space is not as big of a challenge as selling cerium into any application that will accept it.

Christopher Kovacs - Robert W. Baird: So you give yourself what a year till you have that, Resources?

Constantine Karayannopoulos - President and CEO: No. I think a year might be a little too soon, because we are – the markets are still fairly depressed. We will – we would prefer to see the real demand for rare earths become a little closer to apparent or the other way around, apparent demand, which is what we are seeing now being a little closer to the real demand. The real demand being the rare earths that ultimately are used in all the consumer products that are being bought on a daily basis and there is still a significant disconnect, if you do a first principles accounting of what rare earths are bought and sold in the world. So, when the apparent demand gets a little closer to what it should be and we have a little bit better visibility for a few quarters and perhaps a little longer-term of that and we will make that decision in Phase 2. But the bulk of Phase 2 is still integrated into Phase 1 that it's not really that big a step. There are a couple of fundamental steps that we will need to take such as the construction of Phase 2 of our cogen facility, but we can operate Mountain Pass at higher rates than Phase 1 without absolutely having to have Phase 2 of co-generation. We also need to spend a bit more money on chloralkali on an additional burner for example, but these are not high-cost items. Collectively, they are in the ballpark of about $60 million to $70 million and they have about a 12 month lead times some of these issues, some of these items. So, I think if we by the end of this year, if we feel that we have a little better visibility on SorbX as well as the rest of the industry, we could be getting closer to making that decision to startup Phase 2. But in all honesty, if that's the case, I will be very pleasurably surprised, I wouldn't expect to be having this conversation with our board probably well into 2014.

Christopher Kovacs - Robert W. Baird: I imagined you've had plenty of customers that you had long-term agreements with, some trying to come back and renegotiate with you, is that behind us now?

Constantine Karayannopoulos - President and CEO: Yes and no. There are a number of customers that – let me say this the right way. It's really easy to forget what happened in 2011, and I guess there are still a few folks out there that feel that there might be room for prices to continue to slide. Of course when prices stop sliding and they start going the other way they want to get the benefit of the even lower-prices. So it's a constant struggle, some of our contracts have floors and ceilings, which allow for prices to come down within certain percentage of the Asian metal or the Metal Pages Index, so I think the relative volatility in prices is a fact of life for those contracts, they are long-term, but specifically what I'm referring to is contracts in the magnetic space where we suffered through couple of years or year and a half of motor producers and users of motors made a very conscious decision to get out of any activity that introduced any new development in motors that utilized rare earth based magnets given what had happened to prices. So, I think it will take someone like Molycorp back in the space, back in the supply chain where the secure supply position all the way from raw materials to Magnetic Materials and magnets out of our (AMG), for example, facility at a predictable price to cause these customers to regain the confidence that they lost for a good reason back in 2011. It's not going to be a quick solution. But I think as I said, Molycorp has a big role to play in this and I expect this is something that we will be able to turn into a very fundamental advantage compared to all of our other competitors inside and outside of China.

Christopher Kovacs - Robert W. Baird: My follow-on is kind of related, anything that you at the helm would like to divest now that you're running the show?

Constantine Karayannopoulos - President and CEO: Sorry I didn't get the question.

Christopher Kovacs - Robert W. Baird: To divest any of your operations that don't really fit into your plan.

Constantine Karayannopoulos - President and CEO: At this stage, listen, we have some pretty clear priorities and objectives. If someone shows up with a big check for any of our assets we'll listen. Everything has at the right price.

Christopher Kovacs - Robert W. Baird: Anything is for sale, right?

Constantine Karayannopoulos - President and CEO: Well, it's not on sale and it's not for sale. But at the end of the say if someone wants to pay the right price for some of our assets with the exception of the crown jewels like Mountain Pass, for example, I'd be willing to listen, but we are actively quoting any bias for any parts of our business. As I said, we are not a very large operation and we need to be deadly focused on that going to make the difference in the near term, like starting up Mountain Pass and focusing on some of our key customers. Next year or two years from now if we have sold all of over and achieved all of our other objectives, yeah, that might be the right time to start revising or just starting to examine whether our asset base is the right asset base and how all of our assets fit. But I wouldn't hold my breath; I will be doing any asset sales in the near-term.

Operator: Paretosh Misra, Morgan Stanley.

Paretosh Misra - Morgan Stanley: I thought you said that you expect to get your first refined samples probably sometime in the second quarter, and is there any certification process after that, in other words, do you have to send it your customers and they let you know if the samples meet the quality they are looking for or how does that...

Constantine Karayannopoulos - President and CEO: Refined samples of what?

Paretosh Misra - Morgan Stanley: Rare earths, neodymium, praseodymium, and lanthanum primarily.

Constantine Karayannopoulos - President and CEO: We have been producing NdPr out the Mountain Pass for a couple of years now. I assume you are talking about coming out of our new Phase 1?

Paretosh Misra - Morgan Stanley: Correct. Yeah, new Phase 1, yeah.

Constantine Karayannopoulos - President and CEO: Given the fact that the bulk of the NdPr or a significant portion of that will be used internally. I don't expect very serious qualification issues. I think ultimately what comes out of the Phase 1 facility will be indistinguishable from the legacy systems that were employed among us. But yeah, the late first quarter, which is a couple weeks to go, second quarter is the time when we will have commercial quantities coming out of NdPr out of Phase 1.

Paretosh Misra - Morgan Stanley: Then the second and the last question, could you tell us what was cash cost at Mountain Pass in the fourth quarter or at least approximately?

Constantine Karayannopoulos - President and CEO: Well, I'd turn it over to Michael, there is some – we do have our estimates and there are a number of issues around the Q4 cost such as increased waste water charges and the like, but I'll let Michael elaborate.

Michael F. Doolan - EVP and CFO: Actually, in Q4, just given the low production volumes, but also the ramp up of additional maintenance in anticipation of the Phase 1. On a cash basis, it's jumped to almost just under $36. I mean I would say that's abnormal, but that's just – I mean that's the math of the quarter. And as Constantine said, waste water haulage as an example is typically $3 million plus in the quarter was just over $10 million for this quarter as we had to close a couple of the ponds and haul more waste water up offsite. Again, as we started to ramp up now and in Q1 and then going forward, as Constantine said, in the absence of chloralkali low to mid-teens and then by the end of the year into that $6 to $7 range. So, we're still, notwithstanding the split, we're still on track for what we've indicated previously.

Operator: Zach Zolnierz, GMP Securities.

Zachary Zolnierz - GMP Securities: Just quick question on cash flow generation, I guess I am just wondering when you gave the adjusted EBITDA number of $111 million, is it fair to assume that the legacy Neo assets are they doing a number perhaps higher than that? Then Mountain Pass is a draw on that number at this point?

Michael F. Doolan - EVP and CFO: Actually that's a fair assessment. If you look at legacy Neo, quite frankly it wasn't as high as I would hope for a full-year basis. But again on an adjusted EBITDA basis you back out the old Neo deal costs and so forth we are 130 to 135 on a full-year basis. So yes, so there is offset at Mountain Pass and so forth and earlier costs at Silmet at the beginning of the year. They are operating at a loss as well.

Zachary Zolnierz - GMP Securities: I think in the past you guys have given some disclosures on the cash balance and sort of where that cash was divvied up in the corporate structure. I guess if you could just comment. I mean are you pretty – is that pretty flexible on how cash can move in between entities and of the 220 side – 227 ending balance is that – so it's fair to just assume that that's all available for CapEx?

Michael F. Doolan - EVP and CFO: Essentially yes. I mean there is some frictional cost to move it between jurisdictions. Other than that I think the one question of course we always get is (drafting) in China. There is, procedural issues, really, just basically, having the authority to sign off on your earnings for the previous year, so in this case having them signoff on our 2012 earnings. After they do that, then we are free to distribute the cash. So that's underway now. We would expect that (ABL's) 2012 earnings would be distributable by May and we actually have still some 2011 earnings that are undistributed that could be distributed at any time.

Zachary Zolnierz - GMP Securities: Then to confirm, you talked about the ABL earlier. You talked about putting it in place but you didn’t actually say whether you expect it to draw. You expect to put in place, but you think liquidity is ample now and that's assuming no drawer on the facility, is that accurate as well?

Michael F. Doolan - EVP and CFO: I guess what I would suggest is that the $25 million piece or portion thereof just as working capital needs in Asia, but it would be used as a working capital management tool. The $100 million I would say is really essentially undrawn.

Zachary Zolnierz - GMP Securities: Then just a couple quick last ones, first on the JV, the magnet manufacturing JV structure. You mentioned that, I guess I'm wondering how as we look in 2013, how that's going to flow through the financials and if given it's that almost a third, a third, a third is there any cash flow expected from that operation, how that perhaps ramps up?

Constantine Karayannopoulos - President and CEO: Well, let me start by saying that we do not -- initially when we went into this JV, we did not expect it to be cash flow positive or at least contributing cash flow back to the ownership structure before 2015. The facility is being commissioned. As we speak, it was completed last year and we expect shipments of magnets to one of our main German customers in the second quarter of this year.

Michael F. Doolan - EVP and CFO: I guess to the second part of that question, we were just equity account for our percentage of interest in the JV similar to we do as total and the (indiscernible) ventures.

Zachary Zolnierz - GMP Securities: Then my last question and I understand that this perhaps can't be answered, but I was wondering Constantine if you could comment on perhaps the relationship with Molymet, obviously a large shareholder and perhaps just to give us a sense maybe what type of synergies are there with that relationship that maybe is not apparent and then thanks for the time guys.

Constantine Karayannopoulos - President and CEO: Molymet owns just under 20% of Molycorp. John Graell, the CEO of Molymet is on our Board. There are really no synergies to speak of other than being able to draw on John's tremendous experience in the resource space, as well as global markets because Molymet is the largest supplier of molybdenum to the world, extensive operations, experience in South America, North America, Europe, and Asia, but other than there is really no other synergies to speak of. Incidentally they were a big investor in our latest fund raising round both in the equity and the convert issue, and they have a fantastic balance sheet that hopefully we won't need any of it in the future, but they have been extremely supportive so far.

Operator: At this time, there are no further questions in the queue I would like to turn the call back over to Mr. Brian Blackman, Senior Manager of Investor Relations for closing remarks.

Brian Blackman - Sr. Manager IR: I'd just like to conclude by thanking everybody for joining us on today's call and we certainly look forward to reporting our first quarter 2013 results to you in May. Thank you very much again for joining our call.

Operator: Ladies and gentlemen that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.