10-Q 1 mcp630201310q.htm 10-Q MCP 6.30.2013 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-34827
Molycorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 
(State or other jurisdiction of
incorporation or organization)
27-2301797 
(I.R.S. Employer
Identification No.)
5619 Denver Tech Center Parkway, Suite 1000 
Greenwood Village, Colorado 
(Address of principal executive offices)
80111 
(Zip Code)
(303) 843-8040
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x


Accelerated filer ¨


Non-accelerated filer ¨
(Do not check if a 
smaller reporting company)
Smaller reporting company ¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 7, 2013, the registrant had 188,607,514 shares of common stock, par value $0.001 per share, outstanding.


 

INDEX

 
PAGE
 
 
 



2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



MOLYCORP, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share amounts)

 
June 30, 2013
 
December 31, 2012
 
 
 
(Revised)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
264,162

 
$
227,790

Trade accounts receivable, net (Note 4)
51,117

 
52,430

Inventory (Note 5)
213,733

 
287,376

Deferred charges (Note 15)
5,107

 
9,412

Deferred tax assets (Note 15)
9,079

 
9,789

Income tax receivable
20,296

 
25,087

Prepaid expenses and other current assets
21,168

 
21,794

Total current assets
584,662

 
633,678

Non-current assets:
 
 
 
Deposits (Note 6)
26,632

 
26,769

Property, plant and equipment, net (Note 7)
1,713,258

 
1,544,304

Inventory (Note 5)
24,663

 
26,096

Intangible assets, net (Note 9)
430,596

 
450,938

Investments
61,082

 
64,036

Deferred tax assets (Note 15)
—

 
—

Goodwill (Note 9)
239,742

 
239,742

Other non-current assets
6,547

 
6,972

Total non-current assets
2,502,520

 
2,358,857

Total assets    
$
3,087,182

 
$
2,992,535

 
 
 
 

3

 
June 30, 2013
 
December 31, 2012
 
 
 
(Revised)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
104,981

 
$
241,994

Accrued expenses (Note 12)
45,357

 
59,013

Income tax payable
10,971

 
15,267

Deferred tax liabilities (Note 15)
55

 
—

Debt and capital lease obligations (Note 14)
14,638

 
39,604

Other current liabilities
5,639

 
3,539

Total current liabilities
181,641

 
359,417

Non-current liabilities:
 
 
 
Asset retirement obligation (Note 13)
15,161

 
18,586

Deferred tax liabilities (Note 15)
134,617

 
160,675

Debt and capital lease obligations (Note 14)
1,348,990

 
1,188,832

Derivative liability (Note 23)
6,660

 
7,816

Pension liabilities (Note 24)
3,384

 
3,292

Other non-current liabilities
2,287

 
2,659

Total non-current liabilities
1,511,099

 
1,381,860

Total liabilities    
$
1,692,740

 
$
1,741,277

Commitments and contingencies (Note 19)


 


Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 350,000,000 shares authorized at June 30, 2013 (Note 16)
189

 
139

Preferred stock, $0.001 par value; 5,000,000 shares authorized at June 30, 2013 (Note 16)
2

 
2

Additional paid-in capital
1,947,983

 
1,691,429

Accumulated other comprehensive loss
(12,065
)
 
(9,433
)
Accumulated deficit
(576,237
)
 
(466,091
)
Total Molycorp stockholders’ equity
1,359,872

 
1,216,046

Noncontrolling interests
34,570

 
35,212

Total stockholders’ equity
1,394,442

 
1,251,258

Total liabilities and stockholders’ equity    
$
3,087,182

 
$
2,992,535



See accompanying notes to the condensed consolidated financial statements.

4

MOLYCORP, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenues
$
136,862

 
$
104,577

 
$
283,229

 
$
189,047

Costs of sales:
 
 
 
 
 
 
 
Costs excluding depreciation and amortization
(136,792
)
 
(103,569
)
 
(273,386
)
 
(153,641
)
Depreciation and amortization
(18,574
)
 
(5,081
)
 
(32,883
)
 
(8,452
)
Gross profit (loss)
(18,504
)
 
(4,073
)
 
(23,040
)
 
26,954

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
(25,807
)
 
(23,070
)
 
(52,321
)
 
(47,253
)
Corporate development
(73
)
 
(14,925
)
 
(188
)
 
(18,305
)
Depreciation, amortization and accretion
(8,293
)
 
(2,279
)
 
(16,516
)
 
(2,637
)
Research and development
(6,506
)
 
(6,049
)
 
(12,911
)
 
(9,699
)
Impairment of goodwill and other long-lived assets
(377
)
 
—

 
(377
)
 
—

Operating loss
(59,560
)
 
(50,396
)
 
(105,353
)
 
(50,940
)
Other (expense) income:
 
 
 
 
 
 
 
Other income (expense)
1,827

 
(30,980
)
 
2,086

 
(37,558
)
Foreign exchange gain (loss), net
1,667

 
(2,789
)
 
1,278

 
(1,185
)
Interest expense, net of capitalized interest
(14,869
)
 
(9,805
)
 
(26,518
)
 
(9,720
)
 
(11,375
)
 
(43,574
)
 
(23,154
)
 
(48,463
)
Loss before income taxes and equity earnings
(70,935
)
 
(93,970
)
 
(128,507
)
 
(99,403
)
Income tax benefit
3,530

 
27,303

 
26,021

 
29,485

Equity in results of affiliates
(3,284
)
 
(257
)
 
(6,356
)
 
(484
)
Net loss
(70,689
)
 
(66,924
)
 
(108,842
)
 
(70,402
)
Net income attributable to noncontrolling interest
(486
)
 
(680
)
 
(1,304
)
 
(680
)
Net loss attributable to Molycorp stockholders
$
(71,175
)
 
$
(67,604
)
 
$
(110,146
)
 
$
(71,082
)
 
 
 
 
 
 
 
 
Net loss
$
(70,689
)
 
$
(66,924
)
 
$
(108,842
)
 
$
(70,402
)
Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
662

 
(4,221
)
 
(2,632
)
 
(1,691
)
Comprehensive loss
$
(70,027
)
 
$
(71,145
)
 
$
(111,474
)
 
$
(72,093
)
Comprehensive loss attributable to:
 
 
 
 
 
 
 
Molycorp stockholders
(69,541
)
 
(70,465
)
 
(110,170
)
 
(71,413
)
Noncontrolling interest
(486
)
 
(680
)
 
(1,304
)
 
(680
)
 
$
(70,027
)
 
$
(71,145
)
 
$
(111,474
)
 
$
(72,093
)
 Loss per share of common stock (Note 17):
 
 
 
 
 
 
 
Basic
$
(0.44
)
 
$
(0.71
)
 
$
(0.72
)
 
$
(0.82
)
Diluted
$
(0.44
)
 
$
(0.71
)
 
$
(0.72
)
 
$
(0.82
)


See accompanying notes to the condensed consolidated financial statements.


5


MOLYCORP, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands, except share amounts)

 
Common Stock
 
Series A
Mandatory
Convertible
Preferred
Stock
 
Additional
Paid-In Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
Molycorp Stockholders' Equity
 
Non
controlling interests
 
Total Stockholders' Equity
 
Shares
$
 
Shares
$
 
 
 
 
 
 
Balance at December 31, 2012 (Revised)
138,773,538

$
139

 
2,070,000

$
2

 
$
1,691,429

 
$
(9,433
)
 
$
(466,091
)
 
$
1,216,046

 
$
35,212

 
$
1,251,258

Stock-based compensation (Note 18)
1,156

—

 
—

—

 
794

 
—

 
—

 
794

 
—

 
794

Component of convertible debt (Note 14)
—

—

 
—

—

 
21,815

 
—

 
—

 
21,815

 
—

 
21,815

Deferred taxes on component of convertible debt
—

—

 
—

—

 
(8,508
)
 
—

 
—

 
(8,508
)
 
—

 
(8,508
)
Conversion of Exchangeable Shares (Note 16)
13,483

—

 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

Issuance of shares for conversion of Debentures (Note 14)
2,358

—

 
—

—

 
49

 
—

 
—

 
49

 
—

 
49

Issuance of Primary Shares (Note 16)
43,125,000

43

 
—

—

 
248,097

 
—

 
—

 
248,140

 
—

 
248,140

Issuance of Borrowed Shares (Note 16)
6,666,666

7

 
—

—

 
—

 
—

 
—

 
7

 
—

 
7

Net (loss) income
—

—

 
—

—

 
—

 
—

 
(110,146
)
 
(110,146
)
 
1,304

 
(108,842
)
Preferred dividends
—

—

 
—

—

 
(5,693
)
 
—

 
—

 
(5,693
)
 
—

 
(5,693
)
Distribution to noncontrolling interests
—

—

 
—

—

 
—

 
—

 
—

 
—

 
(1,946
)
 
(1,946
)
Other comprehensive loss
—

—

 
—

—

 
—

 
(2,632
)
 
—

 
(2,632
)
 
—

 
(2,632
)
Balance at June 30, 2013
188,582,201

$
189

 
2,070,000

$
2

 
$
1,947,983

 
$
(12,065
)
 
$
(576,237
)
 
$
1,359,872

 
$
34,570

 
$
1,394,442



See accompanying notes to the condensed consolidated financial statements.
















6


MOLYCORP, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands, except share amounts)

 
Common Stock
 
Series A
Mandatory
Convertible
Preferred
Stock
 
Additional
Paid-In Capital
 
Accumulated
Other
Comprehensive Loss
 
Retained Earnings / (Accumulated Deficit
 
Total
Molycorp Stockholders' Equity
 
Non
controlling interests
 
Total Stockholders' Equity
 
Shares
$
 
Shares
$
 
 
 
 
 
 
Balance at December 31, 2011
83,896,043

$
84

 
2,070,000

$
2

 
$
838,547

 
$
(8,481
)
 
$
15,078

 
$
845,230

 
$
—

 
$
845,230

Stock-based compensation (Note 18)
—

—

 
—

—

 
2,484

 
—

 
—

 
2,484

 
—

 
2,484

Issuance of shares for investment from Molymet, net of stock issuance costs
12,500,000

12

 
—

—

 
390,081

 
—

 
—

 
390,093

 
—

 
390,093

Issuance of shares for interest in Molycorp Canada
13,545,426

14

 
—

—

 
284,130

 
—

 
—

 
284,144

 
15,761

 
299,905

Component of convertible debt
—

—

 
—

—

 
3,105

 
—

 
—

 
3,105

 
—

 
3,105

Net (loss) income
—

—

 
—

—

 
—

 
—

 
(71,082
)
 
(71,082
)
 
680

 
(70,402
)
Preferred dividends
—

—

 
—

—

 
(5,693
)
 
—

 
—

 
(5,693
)
 
—

 
(5,693
)
Other comprehensive loss
—

—

 
—

—

 
—

 
(1,691
)
 
—

 
(1,691
)
 
—

 
(1,691
)
Fair value step-up of noncontrolling interests (Note 11)
—

—

 
—

—

 
—

 
—

 
—

 
—

 
34,982

 
34,982

Balance at June 30, 2012
109,941,469

$
110

 
2,070,000

$
2

 
$
1,512,654

 
$
(10,172
)
 
$
(56,004
)
 
$
1,446,590

 
$
51,423

 
$
1,498,013



See accompanying notes to the condensed consolidated financial statements.



7

MOLYCORP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
Six Months Ended June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net loss
$
(108,842
)
 
$
(70,402
)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
 
Depreciation, amortization and accretion
49,399

 
11,089

Deferred income tax benefit
(29,496
)
 
(12,131
)
Inventory write-downs
47,958

 
26,106

Release of inventory step-up value
3,499

 
8,361

Stock-based compensation expense
794

 
1,900

Allowance for doubtful accounts
—

 
2,500

Foreign exchange loss
667

 
1,214

Equity in results of affiliates
6,356

 
484

Other operating adjustments
(1,513
)
 
33

Net change in operating assets and liabilities (Note 22)
(42,863
)
 
(33,535
)
Net cash used in by operating activities
(74,041
)
 
(64,381
)
Cash flows from investing activities:
 
 
 
Cash paid in connection with acquisition, net of cash acquired
—

 
(591,011
)
Investment in joint ventures
(3,423
)
 
(14,805
)
Deposits
—

 
(488
)
Capital expenditures
(264,726
)
 
(403,932
)
Other investing activities
(224
)
 
2

Net cash used in investing activities
(268,373
)
 
(1,010,234
)
Cash flows from financing activities:
 
 
 
Capital contributions
—

 
390,225

Repayments of debt
(27,283
)
 
(2,188
)
Net proceeds from sale of common stock
248,150

 
—

Net proceeds from sale of Senior Notes
—

 
635,373

Issuance of 5.50% Convertible Notes
165,600

 
—

Payments of preferred dividends
(5,693
)
 
(5,693
)
Proceeds from debt
—

 
9,745

Dividend paid to noncontrolling interests
(1,946
)
 
—

Other financing activities
(360
)
 
(2,394
)
Net cash provided by financing activities
378,468

 
1,025,068

Effect of exchange rate changes on cash
318

 
(46
)
Net change in cash and cash equivalents
36,372

 
(49,593
)
Cash and cash equivalents at beginning of the period
227,790

 
418,855

Cash and cash equivalents at end of period
$
264,162

 
$
369,262


Non-cash financing activities and investing activities:
 
 
 
Change in accrued capital expenditures
$
(108,861
)
 
$
93,446



See accompanying notes to the condensed consolidated financial statements.

8

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013



(1)
Basis of Presentation
    
Molycorp, Inc. (“Molycorp” or the “Company”) is one of the world's leading global rare earth companies, and the only one that operates a vertically integrated, global supply chain that combines a world-class rare earth resource with manufacturing facilities on three continents that can produce a wide variety of custom engineered, advanced rare earth materials from all of the lanthanide elements, plus yttrium. The Company's vertically integrated, global manufacturing supply chain is comprised of a workforce of approximately 2,650 scientists, engineers, chemists, technologists, and highly skilled workers in 27 locations across 11 countries. Molycorp's vertical integration allows it to operate multiple product supply chains, serve as a highly reliable supplier of advanced rare earth and rare metal materials, and provide price visibility to customers worldwide.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and Regulation S-X promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). While the December 31, 2012 balance sheet information was derived from the Company’s audited financial statements, for interim periods, GAAP and Regulation S-X do not require all information and related disclosures that are required in the annual financial statements, and all disclosures required by GAAP for annual financial statements have not been included. Therefore, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with Molycorp’s consolidated financial statements and related notes for the year ended December 31, 2012, included in Molycorp's Form 10-K filed on March 18, 2013. The balance sheet as of December 31, 2012 included in this Quarterly Report on Form 10-Q contains revisions related to the completion of the Company’s purchase price allocation with respect to the acquisition of Molycorp Canada (see Note 9 and 11 below).

The accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, and which, in the opinion of management, are necessary for the fair presentation of Molycorp’s financial position, results of operations and cash flows at June 30, 2013, and for all periods presented. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of the financial statements, in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on the Company’s historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ significantly from these estimates under different assumptions and conditions. Significant estimates made by management in the accompanying financial statements include the collectability of accounts receivable, the recoverability of inventory, the useful lives and recoverability of long-lived assets such as property, plant and equipment, intangible assets, goodwill and investments, capital leases, uncertain tax positions, the fair values of assets acquired and liabilities assumed, including business combinations, and the adequacy of the Company’s asset retirement obligations.

In addition, certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications did not affect results of operations.

    The Company exited development stage status in the second quarter of 2012. At that time, its planned principal operations at the Molycorp Mountain Pass facility had effectively commenced with the transition to production from recently-mined rare earth ore, and the Company's revenues began to significantly increase as a result of the acquisition of Molycorp Canada (see Note 11).

(2)
Liquidity and Capital Requirements
Total capital expenditures for the modernization and expansion efforts and certain other capital projects at the Molycorp Mountain Pass Rare Earth Facility (the "Molycorp Mountain Pass facility") are expected to total approximately $1.54 billion. This updated projection includes certain expenditures that are expected to be deferred until 2014, including discretionary expenditures required only to expand production beyond the Molycorp Mountain Pass facility's designed capacity of 19,050 metric tons ("mt") of rare earth oxides ("REO"), if and when market demand, product pricing, capital availability and financial returns will justify such production. Of the $1.54 billion projected capital expenditures, the Company had spent approximately

9

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


$1.30 billion on a cash basis through June 30, 2013, excluding capitalized interest.
As of June 30, 2013, the Company estimates cash expenditures totaling approximately $150 million through December 31, 2013 and approximately $85 million in 2014 to fund remaining capital expenditures for the modernization and expansion efforts and certain other capital expenditures at the Molycorp Mountain Pass facility. Additionally, the Company expects to spend approximately $17 million on other maintenance and expansion capital expenditures across all operating segments during the second half of 2013, some of which is discretionary.
Other cash requirements for the remainder of 2013 include the final payment of approximately $6.0 million to the noncontrolling shareholder of the Company's majority owned Jiangyin Jia Hua Advanced Material Resources Co. Ltd. facility in Jiangyin, China, and preferred stock dividend payments of approximately $5.6 million, if and after they are declared by the Board of Directors of the Company to be paid in cash.
Given the combination of ramping up toward the designed capacity of 19,050 mt of REO per year at the Molycorp Mountain Pass facility, and the declining pricing environment of rare earth elements ("REEs"), the Company anticipates significantly lower than previously expected revenues and cash flow from operations through the remainder of 2013.
The Company plans to fund its capital expenditures primarily from its consolidated cash balances of $264.2 million as of June 30, 2013, and cash generated from operations. While the Company's cash balances as of June 30, 2013 will fund a substantial portion of its capital needs, the full funding of the Company's planned capital expenditures continues to be dependent on (i) its cost estimates for capital expenditures being accurate, (ii) its ability to ramp up run rates at its Molycorp Mountain Pass facility pursuant to its expectations without delays, (iii) its ability to generate sufficient cash flow from its operating segments, under variable market conditions that continue to be weaker than anticipated, to meet other cash needs (the Company estimates that a 15% drop in market prices for all REEs would reduce its estimated consolidated cash balance as of December 31, 2013 by approximately $8 million and that a 15% drop in volumes would reduce its estimated consolidated cash balance as of December 31, 2013 by approximately $30 million), (iv) its ability to sell its entire production of REO and (v) the absence of any payments on current and future contingent liabilities. If these assumptions prove inaccurate, its estimates could prove incorrect and it may need additional financing.
As part of its cash management procedures, the Company continues to pursue other sources of liquidity, including potential proceeds from revolving credit facilities, equity issuances, and lease and loan financing for certain equipment.
There can be no assurance that the Company will be successful in securing access to additional cash proceeds through the revolving credit facilities or other forms of financing that it is currently pursuing on commercially acceptable terms, or at all. Accordingly, if necessary, the Company believes it has the ability to curtail capital expenditures and revise its current business plan to the extent necessary to preserve adequate liquidity sufficient to sustain operations.
(3)
Segment Information
In the third quarter of 2012, management reorganized the Company's operations into four new reportable segments to better reflect its primary activities as a global producer of custom engineered, advanced rare earth materials: Resources; Chemicals and Oxides; Magnetic Materials and Alloys; and Rare Metals. The new composition of the Company's reportable segments is based on a combination of product lines and technologies aligned with its current strategy.

The Resources segment includes the Company's operations at its Molycorp Mountain Pass facility where it conducts rare earth minerals extraction to produce: rare earth concentrates; REO, including lanthanum, cerium, neodymium, praseodymium and yttrium; heavy rare earth concentrates, which include samarium, europium, gadolinium, terbium, dysprosium, and others; and SorbXTM, a line of proprietary rare earth-based water treatment products.

The Chemicals and Oxides segment includes: production of REO at the Company's operations in Sillamäe, Estonia ("Molycorp Silmet"); heavy rare earth oxides from the Company's facilities in Jiangyin, Jiangsu Province, China; and production of REO, salts of REEs, zirconium-based engineered materials and mixed rare earth/zirconium oxides from the Company's facilities in Zibo, Shandong Province, China. Rare earths products and zirconium-based engineered products are primarily supplied to the automotive catalyst, electronics, ceramic, clean technology and glass industries.

The Magnetic Materials and Alloys segment includes: the production of neodymium-iron-boron ("NdFeB") magnet powders ("Neo Powders™") through Molycorp's wholly-owned manufacturing facilities in Tianjin, China and Korat, Thailand,

10

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


under the Molycorp Magnequench brand. Neo Powders™ are used to make bonded magnets for a variety of electronic and mechanical products such as micro motors, precision motors, sensors and other applications requiring high levels of magnetic strength, flexibility, small size and reduced weight. This reporting segment also includes manufacturing of neodymium and samarium magnet alloys, other specialty alloy products and rare earth metals at Molycorp Metals and Alloys ("MMA") in Tolleson, Arizona.

The Rare Metals segment comprises: Molycorp's production of gallium, indium, tantalum and rhenium from its operations in Quapaw, Oklahoma; Blanding, Utah; Peterborough, Ontario; Napanee, Ontario; Sagard, Germany; and Hyeongok Industrial Zone in South Korea. This operating segment also includes tantalum and niobium from the Company's operations in Sillamäe, Estonia. Rare metals are primarily used in the wireless, light-emitting diode, flat panel display, turbine, solar and catalyst industries.

The asset retirement obligation is recognized only within the Resources segment. In addition, the annual profit earned from the Estonian operations is not taxed in Estonia. In accordance with the Estonian Income Tax Act, only the distribution of annual profit is subject to income tax in Estonia. Intersegment sales and transfers are based on similar arms-length transactions with third parties at the time of the sale.
Prior to the third quarter of 2012, the basis of segmentation of the Company's activities was the location of its operations. As a result of the changes in the composition of the Company's reportable segments discussed above, the prior period reporting segments presentation has been revised for comparative purposes.

    




11

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)



Three months ended June 30, 2013
 
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other(a)
 
Eliminations(b)
 
Total Molycorp, Inc.
Revenues:
 
(In thousands)
External
 
$
10,922

 
$
34,789

 
$
66,114

 
$
25,037

 
 
 
$
—

 
$
136,862

Intersegment
 
6,665

 
6,692

 
—

 
—

 
 
 
(13,357
)
 
—

Total revenues
 
$
17,587

 
$
41,481

 
$
66,114

 
$
25,037

 
 
 
$
(13,357
)
 
$
136,862

Depreciation, amortization and accretion
 
$
(11,629
)
 
$
(5,589
)
 
$
(7,422
)
 
$
(2,170
)
 
$
(57
)
 
$
—

 
$
(26,867
)
Operating (loss) income
 
$
(40,404
)
 
$
(15,174
)
 
$
10,638

 
$
(3,381
)
 
$
(9,953
)
 
$
(1,286
)
 
$
(59,560
)
(Loss) income before income taxes and equity earnings
 
$
(39,215
)
 
$
(14,019
)
 
$
10,898

 
$
129

 
$
(27,442
)
 
$
(1,286
)
 
$
(70,935
)
Total assets at June 30, 2013
 
$
1,953,529

 
$
590,582

 
$
606,813

 
$
104,002

 
$
912,660

 
$
(1,080,404
)
 
$
3,087,182

Capital expenditures (c)
 
$
55,693

 
$
1,138

 
$
411

 
$
719

 
$
93

 
$
—

 
$
58,054



Three months ended June 30, 2012
 
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other(a)
 
Eliminations(b)
 
Total Molycorp, Inc.
Revenues:
 
(In thousands)
External
 
$
16,533

 
$
39,019

 
$
31,532

 
$
17,493

 
 
 
$
—

 
$
104,577

Intersegment
 
400

 
726

 
—

 
—

 
 
 
(1,126
)
 
—

Total revenues
 
$
16,933

 
$
39,745

 
$
31,532

 
$
17,493

 
 
 
$
(1,126
)
 
$
104,577

Depreciation, amortization and accretion
 
$
(2,594
)
 
$
(1,419
)
 
$
(1,877
)
 
$
(1,399
)
 
$
(29
)
 
$
(42
)
 
$
(7,360
)
Operating (loss) income
 
$
(17,158
)
 
$
(10,475
)
 
$
(3,107
)
 
$
478

 
$
(30,436
)
 
$
10,302

 
$
(50,396
)
Loss before income taxes
 
$
(17,137
)
 
$
(11,970
)
 
$
(3,460
)
 
$
(1,375
)
 
$
(70,330
)
 
$
10,302

 
$
(93,970
)
Capital expenditures (c)
 
$
228,787

 
$
2,627

 
$
832

 
$
2,627

 
$
—

 
$
—

 
$
234,873



12

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


Six months ended June 30, 2013
 
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other(a) (d)
 
Eliminations(b)
 
Total Molycorp, Inc.
Revenues:
 
(In thousands)
External
 
$
25,580

 
$
84,389

 
$
120,792

 
$
52,468

 
 
 
$
—

 
$
283,229

Intersegment
 
9,310

 
21,302

 
—

 
—

 
 
 
(30,612
)
 
—

Total revenues
 
$
34,890

 
$
105,691

 
$
120,792

 
$
52,468

 
 
 
$
(30,612
)
 
$
283,229

Depreciation, amortization and accretion
 
$
(20,682
)
 
$
(11,127
)
 
$
(12,901
)
 
$
(4,573
)
 
$
(116
)
 
$
—

 
$
(49,399
)
Operating (loss) income
 
$
(80,529
)
 
$
(18,480
)
 
$
17,401

 
$
(403
)
 
$
(21,518
)
 
$
(1,824
)
 
$
(105,353
)
(Loss) income before income taxes and equity earnings
 
$
(78,908
)
 
$
(16,911
)
 
$
27,798

 
$
3,860

 
$
(62,522
)
 
$
(1,824
)
 
$
(128,507
)
Capital expenditures (c)
 
$
148,032

 
$
4,099

 
$
1,453

 
$
3,649

 
$
167

 
$
—

 
$
157,400



Six months ended June 30, 2012
 
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other(a)
 
Eliminations(b)
 
Total Molycorp, Inc.
Revenues:
 
(In thousands)
External
 
$
61,011

 
$
46,339

 
$
50,488

 
$
31,209

 
 
 
$
—

 
$
189,047

Intersegment
 
2,232

 
3,936

 
—

 
—

 
 
 
(6,168
)
 
—

Total revenues
 
$
63,243

 
$
50,275

 
$
50,488

 
$
31,209

 
 
 
$
(6,168
)
 
$
189,047

Depreciation, amortization and accretion
 
$
(4,708
)
 
$
(1,734
)
 
$
(1,953
)
 
$
(2,599
)
 
$
(53
)
 
$
(42
)
 
$
(11,089
)
Operating income (loss)
 
$
373

 
$
(24,012
)
 
$
(2,963
)
 
$
1,870

 
$
(50,277
)
 
$
24,069

 
$
(50,940
)
Income (loss) before income taxes and equity earnings
 
$
462

 
$
(24,863
)
 
$
(3,596
)
 
$
855

 
$
(96,330
)
 
$
24,069

 
$
(99,403
)
Capital expenditures (c)
 
$
488,225

 
$
3,878

 
$
932

 
$
3,877

 
$
—

 
$
—

 
$
496,912


(a)
Corporate loss before income taxes and equity earnings includes business development costs, personnel and related costs, including stock-based compensation expense, accounting and legal fees, occupancy expense, information technology costs and interest expense. Total corporate assets is comprised primarily of cash and cash equivalents and deferred tax assets.
(b)
The net elimination in operating results includes costs of sales eliminations of $12,071 and $28,788 for the three and six months ended June 30, 2013, respectively, and $11,470 and $30,279 for the three and six months ended June 30, 2012, respectively. Costs of sales eliminations consist of intercompany gross profits as well as eliminations of lower of cost or market adjustments related to intercompany inventory. The total assets elimination is comprised primarily of intercompany investments and intercompany accounts receivable and profits in inventory.
(c)
On an accrual basis excluding capitalized interest.
(d)
In the first quarter 2013, the Corporate segment included severance charges of $2,100. See Note 24 for details.


13

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


(4)
Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company reviews the need for an allowance for doubtful accounts quarterly based on historical experience with each customer and the specifics of each arrangement. At June 30, 2013 and December 31, 2012, the allowance for doubtful accounts was $2.6 million.

(5)
Inventory
At June 30, 2013 and December 31, 2012, inventory consisted of the following:


June 30,
2013
 
December 31,
2012
Current:
(In thousands)
Concentrate stockpiles
$
6,304

 
$
6,393

Raw materials
63,251

 
95,248

Work-in-process
43,442

 
55,229

Finished goods
80,586

 
114,903

Materials and supplies
20,150

 
15,603

Total current
$
213,733

 
$
287,376

Long-term:
 
 
 
Concentrate stockpiles
$
4

 
$
4

Raw materials
24,659

 
26,092

Total long-term
$
24,663

 
$
26,096

Assessment of normal production levels
The Company performs an assessment of normal production levels on a quarterly basis. As a result, it expenses a portion of its production costs that, assuming the Company had been operating at normal production ranges, would have been allocated to inventory. For the three months ended June 30, 2013 and 2012, the Company excluded from inventory, and expensed, $25.5 million and $2.4 million, respectively, and $47.5 million and $5.4 million for the six months ended June 30, 2013 and 2012, respectively.
Write-downs of inventory
As a result of production or purchase costs in excess of net realizable value, the Company recognized write-downs of finished goods and work-in-process inventory of $21.4 million and $19.5 million for the three months ended June 30, 2013 and 2012, respectively, and $41.1 million and $26.1 million for the six months ended June 30, 2013 and 2012, respectively. In addition, due to slow moving inventory and adjustments to estimated REO quantities, the Company recognized write-downs of stockpile inventory totaling $4.5 million and zero for the three months ended June 30, 2013 and 2012, respectively, and $6.9 million and zero for the six months ended June 30, 2013 and 2012, respectively. The level within the fair value hierarchy in which the write-downs of inventory are included is the significant other observable inputs—Level 2.
Subject to certain exceptions, substantially all of the property and assets of the Company are pledged as collateral for some of the Company's indebtedness, as further discussed in Note 14.
(6)
Deposits
The Company had $26.6 million and $26.8 million in deposits reported as non-current assets at June 30, 2013 and December 31, 2012, respectively. The deposits at June 30, 2013 consisted of $20.6 million under an escrow arrangement for the Company’s facilities agreement with Kern River Gas Transmission Company, $1.5 million related to the Company’s construction insurance program, and $4.5 million comprised primarily of collateral placed against the surety bonds issued to California state and regional agencies for the closure and reclamation obligations at the Molycorp Mountain Pass facility.

14

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


(7)    Property, Plant and Equipment, net
The Company capitalized expenditures of $77.4 million and $244.4 million for the three months ended June 30, 2013 and 2012, respectively, and $198.2 million and $510.2 million for the six months ended June 30, 2013 and 2012, respectively. The majority of these capital expenditures related to the expansion and modernization efforts, and certain other capital projects, at the Molycorp Mountain Pass facility. These amounts include capitalized interest of $19.3 million and $9.5 million for the three months ended June 30, 2013 and 2012, respectively, and $40.8 million and $13.3 million for the six months ended June 30, 2013 and 2012, respectively.
At June 30, 2013 and December 31, 2012, property, plant and equipment consisted of the following:
 
June 30,
2013
 
December 31,
2012
 
(In thousands)
Land
$
12,363

 
$
12,475

Land improvements
68,903

 
63,269

Buildings and improvements
402,517

 
237,379

Plant and equipment
287,768

 
194,934

Vehicles
2,912

 
2,842

Computer software
9,607

 
9,528

Furniture and fixtures
1,115

 
1,116

Construction in progress (a)
939,333

 
1,011,541

Natural gas delivery facility under capital lease
15,658

 
15,658

Mining equipment under capital lease
5,135

 
—

Mineral properties
24,174

 
24,327

Exploration rights
16,170

 
16,166

Property, plant and equipment at cost
1,785,655

 
1,589,235

Less accumulated depreciation
(72,397
)
 
(44,931
)
Property, plant and equipment, net
$
1,713,258

 
$
1,544,304

(a)
Represents costs incurred at the Molycorp Mountain Pass facility and all other capital projects. See Note 2.
The amortization of assets recorded under capital leases is included with depreciation expense in the condensed consolidated statements of operations and comprehensive income.
    
Subject to certain exceptions, substantially all of the property and assets of the Company are pledged as collateral for some of the Company's indebtedness, as further discussed in Note 14.

(8)
Mineral Properties, Development Costs and Exploration Rights
Mineral properties and development costs, which are referred to collectively as mineral properties, include acquisition costs, drilling costs, and the cost of other development work associated with the Molycorp Mountain Pass facility, all of which are capitalized. The Company began depleting mineral properties in 2012 using the units of production method over estimated proven and probable reserves that were stated in an updated reserve report dated January 4, 2012. For the three and six months ended June 30, 2013 and 2012, the Company capitalized a nominal amount of depletion costs in work-in-process inventory related to the reserves that were mined and crushed during the corresponding periods.
Exploration rights represent acquired rights to explore properties that are believed to potentially contain mineral deposits.


15

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


(9)
Goodwill and Other Intangible Assets
There were some changes in the carrying amount of goodwill as a result of adjusting the preliminary values assigned to certain assets and liabilities of Molycorp Canada based on additional information obtained since June 11, 2012. See Note 11 below for details. However, the Company recognized additional goodwill impairment of $31.6 million that completely offset the goodwill recognized as a result of those adjustments.
 
December 31,
2012
Additional impairment
June 30,
2013
 
Reported
Adjustment
 
 
 
(In thousands)
Chemicals and Oxides
$
125,229

$
16,132

$
(16,132
)
$
125,229

Magnetic Materials and Alloys
102,808

16,716

(16,716
)
102,808

Rare Metals
11,705

(1,232
)
1,232

11,705

Total
$
239,742

$
31,616

$
(31,616
)
$
239,742

At June 30, 2013 and December 31, 2012, other intangible assets consisted of the following:
 
Customer relationships
Rare earth quotas
Patents
Trade names
Land use rights
Other
Total
Gross carrying amount
(In thousands)
At December 31, 2012
$
344,774

78,300

33,252

$
15,586

3,568

4,420

$
479,900

Foreign currency translation adjustment
(269
)
—

—

—

—

—

(269
)
At June 30, 2013
$
344,505

$
78,300

$
33,252

$
15,586

$
3,568

$
4,420

$
479,631

 
 
 
 
 
 
 
 
Amortization
 
 
 
 
 
 
 
At December 31, 2012
$
14,095

4,035

9,365

$
1,152

66

249

$
28,962

Adjustments

—

—

(873
)
—

—

(873
)
Amortization
10,359

3,459

6,707

32

81

308

20,946

At June 30, 2013
24,454

7,494

16,072

311

147

557

49,035

Net book value
$
320,051

$
70,806

$
17,180

$
15,275

$
3,421

$
3,863

$
430,596

    At June 30, 2013, trade names included indefinite-lived intangible assets with a gross carrying amount of $14.8 million. During the first quarter of 2013, the Company reversed an immaterial prior period amortization related to these assets as part of certain measurement period adjustments associated with the acquisition of Molycorp Canada.
Total amortization expense of all other intangible assets during the six months ended June 30, 2012 was $2.7 million.
(10)
Investments
Boulder Wind Power, Inc.
On September 13, 2011, the Company invested $20.0 million into Boulder Wind Power, Inc. Series B convertible preferred stock, which is accounted for at cost. At June 30, 2013, the fair value of this investment was not estimated as there were no identified events or changes in circumstances that may have had a significant adverse effect on the fair value of the investment.



16

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


Intermetallics Japan Joint Venture
In January 2012, Molycorp, Daido Steel Co., Ltd. (“Daido”) and Mitsubishi Corporation (“Mitsubishi”) entered into a definitive shareholders agreement for the purpose of funding a new joint venture, Intermetallics Japan ("IMJ"), to manufacture sintered NdFeB permanent rare earth magnets. The capital contribution ratio of IMJ is 30.0% by Molycorp, 35.5% by Daido and 34.5% by Mitsubishi.
During the first quarter of 2013, Molycorp contributed $3.4 million in cash to complete the acquisition of its proportional ownership in IMJ. Total contributions by Molycorp to IMJ from the signing of the definitive shareholders agreement were $31.1 million.
Molycorp accounts for this investment under the equity method because it has the ability to exercise significant influence over the operating and financial policies of IMJ, as evidenced by Molycorp’s ownership share and its proportional voting rights and representation in the Board of Directors of IMJ. The condensed consolidated statements of operations and comprehensive income for the three months ended June 30, 2013 and 2012 include a loss of $1.6 million and $0.2 million, respectively, associated with this equity method interest. For the six months ended June 30, 2013 and 2012, the loss from the investment in IMJ was $3.6 million and $0.6 million, respectively.
Molycorp Canada Investments
As a result of the acquisition of Molycorp Canada in June 2012, Molycorp acquired the following investments:
•
25% ownership interest in Ganzhou Keli Rare Earth New Material Co., Ltd. (“Keli”), a company that converts REO into metals for use in Neo Powders™. The purchase allocation attributable to this investment at the time of the acquisition was $12.2 million. Molycorp accounts for this ownership interest under the equity method because it has the ability to exercise significant influence over the operating and financial policies of Keli, as evidenced by Molycorp’s ownership share and its proportional voting rights. The condensed consolidated statements of operations and comprehensive income include a loss associated with this equity method ownership interest of $1.4 million for the three months ended June 30, 2013, a gain of $0.3 million for the period from June 12, 2012 to June 30, 2012, and a loss of $2.4 million for the six months ended June 30, 2013.
•
33% ownership interest in Toda Magnequench Magnetic Materials Co. Ltd. (“TMT”), a company that produces rare earth magnetic compounds with Neo Powders™ supplied by Magnequench (Tianjin) Company Limited in its normal course of business. The purchase allocation attributable to this investment at the time of the acquisition was $1.6 million. Molycorp accounts for this ownership interest under the equity method because it has the ability to exercise significant influence over the operating and financial policies of TMT, as evidenced by Molycorp’s ownership share and its proportional voting rights. The results of operations associated with this equity method investment were nominal in the current and prior year interim periods.
•
50% ownership interest in Ingal Stade GmbH (“Ingal Stade”), a joint venture facility in Stade, Germany, which extracts gallium metal from alumina smelter bayer liquor with purity level of 5N (99.999%) or higher. The purchase allocation attributable to this investment at the time of the acquisition was $4.9 million. Molycorp accounts for this ownership interest under the equity method because it has the ability to exercise significant influence over the operating and financial policies of Ingal Stade, as evidenced by Molycorp’s ownership share and its proportional voting rights. The results of operations associated with this equity method investment were nominal in the current and prior year interim periods.
•
19.5% ownership interest in Atlantic Metals & Alloys, LLC, a company that provides refining services for residues and scrap of the rare and platinum group metals. The purchase allocation attributable to this investment at the time of the acquisition was $1.4 million. Molycorp accounts for this ownership interest under the cost method. At June 30, 2013, the fair value of this investment was not estimated as there were no identified events or changes in circumstances that may have had a significant adverse effect on the fair value of the investment.

17

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


•
7% ownership interest in Vive Crop Protection, a company that specializes in the formulation of active ingredients used in crop protection. The purchase allocation attributable to this investment at the time of the acquisition was $0.9 million. Molycorp accounts for this ownership interest under the cost method. At June 30, 2013, the fair value of this investment was not estimated as there were no identified events or changes in circumstances that may have had a significant adverse effect on the fair value of the investment.
(11)
Acquisitions
Molycorp Canada
On June 11, 2012, Molycorp completed the acquisition of all of the outstanding equity of Molycorp Canada's predecessor company pursuant to the terms of an arrangement agreement (the "Arrangement Agreement") for an aggregate purchase price of approximately $1,192.3 million. Pursuant to the Arrangement Agreement, Molycorp Canada's former shareholders elected to receive: (a) cash consideration equal to Canadian dollars ("Cdn") $11.30 per share of Molycorp Canada's predecessor company's common stock; or (b) share consideration of 0.4242 shares of Molycorp common stock or 0.4242 shares (the "Exchangeable Shares") issued by MCP Exchangeco Inc., Molycorp's wholly-owned Canadian subsidiary, which are exchangeable for shares of Molycorp's common stock on a one-for-one basis, per each share of Molycorp Canada's predecessor company's common stock; or (c) a combination of cash and shares of Molycorp common stock or Exchangeable Shares, all subject to the proration mechanics set forth in the Arrangement Agreement.
The consideration paid to Molycorp Canada's former shareholders was comprised of approximately $908.2 million in cash, exclusive of realized losses on the contingent forward contract to purchase $870.0 million Canadian dollars, accounted for as a separate transaction apart from the business combination, as further discussed in Note 23. Additionally, 13,545,426 shares of Molycorp common stock and 507,203 Exchangeable Shares were issued and collectively valued at $284.1 million based on the closing price of the Company's common stock on the acquisition date in accordance with the relevant accounting guidance. The Exchangeable Shares have no par value.
A preliminary allocation of the consideration transferred to the net assets of Molycorp Canada was made as of June 11, 2012. During the second quarter of 2013, the Company further adjusted the preliminary values assigned to certain assets and liabilities of Molycorp Canada in order to reflect additional information obtained since June 11, 2012. As a result of the additional goodwill recognized during the final allocation of the consideration transferred to the net assets of Molycorp Canada, the goodwill impairment the Company recognized in the fourth quarter of 2012 has increased by $31.6 million to $287.9 million. The measurement period adjustments described in the table below have been reflected in the opening balance sheet; however, since these adjustments did not have a significant impact on the Company's condensed consolidated statements of operations and comprehensive income or cash flows in any period, those statements were not retrospectively adjusted.
The following table summarizes the determination of the fair value of identifiable assets acquired and liabilities assumed in the Molycorp Canada acquisition:





18

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
Preliminary Allocation of Consideration Transferred as of December 31, 2012
Measurement Period Adjustments
Final Allocation of Consideration Transferred
Purchase consideration:
(In thousands)
Cash consideration
$
908,181

 
$
908,181

Fair value of Molycorp common stock and Exchangeable Shares issued
284,144

 
284,144

Total purchase consideration
$
1,192,325

 
$
1,192,325

Estimated fair values of the assets and liabilities acquired:
 
 
 
Cash and cash equivalents
$
317,169

$
—

$
317,169

Restricted cash
4,951

—

4,951

Accounts receivable
101,470

—

101,470

Inventory
250,989

—

250,989

Prepaid expenses and other current assets
26,893

—

26,893

Property, plant and equipment
75,745

—

75,745

Investments
21,019

(1,091
)
19,928

Intangibles
482,234

—

482,234

Deferred tax charges
13,435

—

13,435

Deferred tax assets
11,473

(1,423
)
10,050

Goodwill
494,809

31,616

526,425

Other non-current assets
4,367

—

4,367

Accounts payable and accrued expenses
(138,576
)
—

(138,576
)
Debt
(255,338
)
—

(255,338
)
Other current liabilities
(33,990
)
—

(33,990
)
Deferred tax liabilities
(154,309
)
5,880

(148,429
)
Other non-current liabilities
(14,255
)
—

(14,255
)
Non-controlling interests
(15,761
)
(34,982
)
(50,743
)
Total purchase consideration
$
1,192,325

$
—

$
1,192,325


Goodwill associated with the acquisition of Molycorp Canada arose primarily because of Molycorp Canada's proven leadership in the development, processing, and distribution of technically advanced rare earth products; greater exposure to the world’s largest and fastest-growing rare earths consuming market, China; deferred tax liabilities; and expected synergies that do not qualify for separate recognition. The goodwill is not amortized and is not deductible for tax purposes. During the fourth quarter of 2012, after giving effect to the final purchase price adjustments as noted above, the Company recognized a goodwill impairment of $287.9 million, and an impairment of patents recorded under the Magnetic Materials and Alloys segment of $6.0 million.
The revenues, earnings and earnings per share of the combined entity had the acquisition date been January 1, 2012, were as follows:


(In thousands, except per share amounts)    
Revenues
 
Net Income (Loss)
 
Net Income (Loss)
Attributable To Molycorp
 
EPS Basic
Unaudited pro forma April 1, 2012 to June 30, 2012 (combined entity)
$
260,542

 
$
(59,519
)
 
$
(62,114
)
 
$
(0.60
)
Unaudited pro forma January 1, 2012 to June 30, 2012 (combined entity)
$
523,865

 
$
(59,079
)
 
$
(63,466
)
 
$
(0.63
)
The unaudited pro forma amounts are not necessarily indicative of the operating results that would have occurred if the acquisition of Molycorp Canada had taken place on January 1, 2012. The unaudited pro forma revenues, earnings and earnings

19

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


per share of the combined entity above are adjusted: a) to eliminate the effect of sales and costs that occurred previous to the business combination between the Company and Molycorp Canada; b) to reflect the net incremental depreciation and amortization expense as a result of the allocation of the purchase price to certain depreciable and amortizable assets with useful lives ranging from two to 30 years; c) the tax effect of unaudited pro forma adjustments using the Molycorp federal, state and international statutory tax rates based on the applicable tax jurisdictions; and d) the estimated net increase of interest expense associated with the issuance of the Company's Senior Notes (as defined below) as part of the acquisition. The unaudited pro forma earnings of the combined entity for the three and six months ended June 30, 2012, were also adjusted to exclude $103.9 million and $114.7 million, respectively, of non-recurring direct transaction costs. The weighted average number of shares outstanding utilized in the EPS basic calculation have been adjusted to reflect the additional shares issued pursuant to the acquisition of Molycorp Canada and the Molibdenos y Metales S.A. equity financing.
For the three and six months ended June 30, 2012, the Company recognized approximately $52.8 million and $61.6 million, respectively, of transaction costs related to the acquisition of Molycorp Canada.
(12)
Accrued Expenses
Accrued expenses at June 30, 2013 and December 31, 2012 consisted of the following:
 
June 30,
2013
 
December 31,
2012
 
(In thousands)
Defined contribution plan
$
985

 
$
1,400

Professional fees
157

 
4,971

Accrued payroll and related benefits
5,877

 
7,532

Sales and use tax
3,913

 
7,187

Bonus accrual
2,673

 
3,503

Interest payable
18,696

 
15,253

Advance from customer
134

 
1,753

Withholding taxes
2,343

 
2,929

Amount payable to noncontrolling shareholder
6,004

 
9,640

Other accrued expenses
4,575

 
4,845

Total accrued expenses
$
45,357

 
$
59,013

(13)
Asset Retirement Obligation
The following table presents the activity in the Company’s asset retirement obligation for the six months ended June 30, 2013 and the year ended December 31, 2012:
 
Six months ended June 30, 2013
 
Year Ended December 31, 2012
 
(In thousands)
Balance at beginning of period
$
22,125

 
$
15,541

Obligations settled
(2,013
)
 
(2,954
)
Accretion expense
688

 
1,299

Revisions in estimated cash flows
—

 
7,872

Loss on settlement
—

 
367

Balance at end of period
$
20,800

 
$
22,125



20

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


The balances above for the six months ended June 30, 2013 and the year ended December 31, 2012 include a short-term portion of $5.6 million and $3.5 million, respectively, which were recorded under other current liabilities.
During 2012, the Company increased its projected asset retirement obligation cash flows by approximately $7.9 million, of which $3.8 million related to the addition of new processing facilities at its Molycorp Mountain Pass facility and $4.1 million related to revised estimates for the demolition and reclamation of the old mill and mineral recovery areas at the same facility.
The Company is required to provide the applicable governmental agencies with financial assurances relating to its closure and reclamation obligations. At June 30, 2013, the Company had financial assurance requirements of $28.8 million, which were satisfied with surety bonds placed with California state and regional agencies.
(14)
Debt and Capital Lease Obligations
The following table provides a summary of the current and non-current portions of Molycorp's debt outstanding at June 30, 2013 and December 31, 2012:
 
June 30, 2013
 
December 31, 2012
 
Current
 
Non-Current
 
Current
 
Non-Current
 
(In thousands)
Bank loans due September 2013 - September 2017
$
13,024

 
$
3,343

 
$
39,252

 
$
4,118

3.25% Convertible Notes, net of discount, due June 2016
—

 
202,790

 
—

 
198,689

6.00% Convertible Notes, net of discount, due June 2017
—

 
339,179

 
—

 
331,977

5.00% Debentures, net of discount, due December 2017
—

 
2,507

 
—

 
2,774

5.50% Convertible Notes, net of discount, due February 2018
—

 
145,738

 
—

 
—

10% Senior Secured Notes, net of discount, due June 2020
—

 
636,756

 
—

 
636,111

Total debt
13,024

 
1,330,313

 
39,252

 
1,173,669

 
 
 
 
 
 
 
 
Capital lease obligations
1,614

 
18,677

 
352

 
15,163

Total debt and capital lease obligations
$
14,638

 
$
1,348,990

 
$
39,604

 
$
1,188,832

Weighted average interest rate on the bank loans was 4.23% and 3.57% at June 30, 2013 and December 31, 2012, respectively.
Scheduled minimum debt repayments, excluding capital lease obligations, are $12.3 million for the remainder of 2013, $1.5 million in 2014, $1.4 million in 2015, $230.8 million in 2016, $416.9 million in 2017 and $823.0 million thereafter.
In May 2013, the Company entered into five capital lease agreements, each with a term of 48 months, for the use of certain mining equipment at its Molycorp Mountain Pass facility. The aggregate amount of future minimum lease payments on these new capital lease arrangements was $5.6 million at inception of the leases, which included a nominal amount of executory costs and imputed interest of $0.5 million.
At June 30, 2013, future minimum capital lease payments, comprised of the capital leases entered into in May 2013 and a capital lease entered into during the second quarter of 2012, were $51.1 million, in the aggregate. Of this amount, $3.2 million is due in the remainder of 2013, $6.5 million is due in each of the three succeeding fiscal years, $5.6 million is due in the fifth year, and $22.8 million is due thereafter. The aggregate amount of future minimum lease payments at June 30, 2013 included total executory costs of $1.8 million and imputed interest of $29.0 million.
During the first half of 2013, holders of $0.3 million aggregate principal amount of the Debentures elected to convert their notes at the same pro-ration of cash and shares consideration as if such holders had converted immediately prior to the acquisition of Molycorp Canada. As a result of this conversion, the Company paid a total of $0.2 million, including accrued interest, in cash with the remainder converted into 2,358 shares of Molycorp common stock.

21

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


Additional detail on the convertible debt instruments that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer's economic interest cost is as follows:
 
3.25% Convertible Notes
 
6.00% Convertible Notes
 
5.50% Convertible Notes
 
At June 30, 2013
 
At December 31, 2012
 
At June 30, 2013
 
At December 31, 2012
 
At June 30, 2013
 
At December 31, 2012
 
(In thousands)
Liability component (a)
$
200,133

 
$
196,702

 
$
336,416

 
$
330,177

 
$
145,249

 
n/a
Equity component
$
36,251

 
$
36,251

 
$
68,695

 
$
68,695

 
$
21,815

 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2013
 
Three months ended June 30, 2012
 
Three months ended June 30, 2013
 
Three months ended June 30, 2012
 
Three months ended June 30, 2013
 
Three months ended June 30, 2012
 
 
Accretion of liability component
$
1,721

 
$
1,604

 
$
2,838

 
n/a
 
$
891

 
n/a
Interest cost (b)
$
3,931

 
$
3,801

 
$
9,909

 
n/a
 
$
3,576

 
n/a
Capitalized interest
$
2,224

 
$
3,801

 
$
5,607

 
n/a
 
$
2,021

 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2013
 
Six months ended June 30, 2012
 
Six months ended June 30, 2013
 
Six months ended June 30, 2012
 
Six months ended June 30, 2013
 
Six months ended June 30, 2012
Accretion of liability component
$
3,431

 
$
3,198

 
$
5,603

 
n/a
 
$
1,464

 
n/a
Interest cost (b)
$
7,851

 
$
7,592

 
$
19,722

 
n/a
 
$
5,873

 
n/a
Capitalized interest
$
4,805

 
$
7,592

 
$
12,068

 
n/a
 
$
3,530

 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
(a) The liability component is the difference between the net proceeds and the equity component of a convertible note that can be settled in a combination of cash and shares of stock at the election of the issuer. The equity component represents the conversion feature of a convertible note and is treated as original issue discount in addition to the underwriting discount. The liability component includes the periodic amortization of the additional discount.
(b) Interest cost includes the coupon interest, the accretion of the liability component, the accretion of the underwriting discount and the amortization of the issuance costs allocated to the liability component.
 
Debt Issuance During First Quarter 2013
On January 30, 2013, the Company issued $150.0 million aggregate principal amount of its 5.50% Convertible Senior Notes due 2018 (the “5.50% Convertible Notes”) in a registered public offering. Certain officers, directors and other related parties of the Company purchased $20.5 million of this aggregate principal amount. On March 1, 2013, the underwriters of such offering purchased an additional $22.5 million aggregate principal amount of the 5.50% Convertible Notes. After deducting the underwriting discounts and commissions, total net proceeds from the issuance of the 5.50% Convertible Notes were $165.6 million.
The 5.50% Convertible Notes are Molycorp's senior unsecured obligations and pay a 5.50% interest semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2013. The 5.50% Convertible Notes are convertible at any time into shares of Molycorp's common stock, cash, or a combination thereof, at Molycorp's election. The conversion rate will initially be 138.8889 shares of Molycorp common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $7.20 per share of Molycorp's common stock), subject to customary adjustments. The 5.50% Convertible Notes will mature on February 1, 2018, unless earlier repurchased, redeemed or converted in accordance with their terms prior to that date. Molycorp will have the right to redeem the 5.50% Convertible Notes on or after February 1, 2016 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period. The 5.50% Convertible Notes rank equal in right of payment to existing and future liabilities that are not expressly subordinated to the 5.50% Convertible Notes, and rank effectively junior to Molycorp's existing and future secured indebtedness.
The Company separately accounts for the liability and equity components of convertible debt instruments, such as the 5.50% Convertible Notes, that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer's economic interest cost. The additional discount on the liability component is amortized to interest cost over the term of the 5.50% Convertible Notes. The equity component of the 5.50% Convertible Notes is included in the additional paid-in capital section of the statement of stockholders' equity and is treated as original issue discount for purposes of accounting for the

22

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


liability component. Details on the liability and equity component, accretion of liability component and interest cost of the 5.50% Convertible Notes are disclosed in the table above.
Senior Secured Obligations
The 10% Senior Secured Notes due 2020 ("Senior Notes") are senior secured obligations of Molycorp and are guaranteed by certain of Molycorp’s domestic subsidiaries ("Guarantors"). The Senior Notes are secured by a first-priority security interest on substantially all of the property and assets of the Company and the Guarantors, subject to some exceptions for certain "Excluded Assets," such as:

•
Leasehold interests in real property;
•
Certain capital leases that constitute permitted liens;
•
Certain motor vehicles;
•
Assets owned by foreign subsidiaries or, subject to certain limitations, MMA;
•
Assets with a fair market value of less than $15.0 million as to which the board of directors determine in good faith (and certify to the collateral agent) that the costs of obtaining or perfecting such security interest are excessive in relation to the practical benefit to the holder of the Notes of the security afforded thereby (based on the value of such asset);
•
Cash collateral for letters of credit or hedging obligations (up to 105% of the underlying obligations);
•
Certain deposit accounts;
•
The equity interests of immaterial subsidiaries and, subject to certain limitations, MMA;
•
Voting stock of foreign subsidiaries in excess of 65.0% of the voting stock; and
•
Other pledges of stock of a guarantor to the extent that Rule 3-16 of Regulation S-X under the Securities Act would require the filing of separate financial statements of such guarantor.

(15)
Income Taxes
The Company's effective income tax rate was 20.25% for the first six months of 2013. The Company's net loss before income taxes and equity earnings of $128.5 million for the six months ended June 30, 2013 contained no material permanent differences between income for financial reporting purposes and tax purposes. Molycorp had net deferred income tax liabilities of $125.6 million at June 30, 2013 primarily related to the acquisition of Molycorp Canada.
At June 30, 2013, Molycorp determined that a valuation allowance of $40.6 million was required. In making this determination, management analyzed, among other things, the Company's recent history of earnings and cash flows, forecasts of future earnings, and the nature and timing of future deductions and benefits represented by the deferred tax assets and liabilities. Additionally, management determined that changes in estimates regarding losses from the U.S. operations, coupled with finalizing its purchase price allocation and related deferred tax liabilities by jurisdiction relating to the Molycorp Canada acquisition, results in the potential for a valuation allowance on the U.S. net deferred tax assets at the end of 2013. As a result, the forecasted annualized effective tax rate for 2013 has been adjusted during the quarter ended June 30, 2013 to include this estimated valuation allowance.
The Company has undistributed earnings of certain foreign subsidiaries at June 30, 2013, for which deferred taxes of $23.9 million been provided. Also, it had undistributed earnings of certain foreign subsidiaries at June 30, 2013, for which deferred taxes have not been provided. Such earnings are considered indefinitely invested in the foreign subsidiaries. If such earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is not practicable.
The net tax effect of the elimination in consolidation of intercompany balances and transactions resulted in a deferred charge and income tax payable of $5.1 million at June 30, 2013.
Each quarter the Company evaluates the liability for uncertain tax positions and, at June 30, 2013, had a $1.6 million liability for unrecognized tax benefit. Due to resolution with tax authorities, the Company's liability for uncertain tax positions was reduced by $4.7 million in the in the second quarter of 2013, which was recorded as a discrete item. As a result of the statute of limitations that expire in the next 12 months in various jurisdictions, and possible settlements of audit-related issues with taxing authorities in various jurisdictions, the Company believes that it is reasonably possible that the total amount of its net unrecognized income tax benefits will decrease by approximately $1.3 million in the next 12 months and, if recognized, would affect the Company's effective income tax rate.

23

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


As a result of a change in the applicable withholding tax rate related to the unremitted earnings of a certain foreign subsidiary, $2.9 million of deferred tax liabilities have decreased. This decrease has been recorded as a discrete income tax benefit in the first quarter of 2013. In addition, as a result of the American Taxpayer Relief Act, which was signed into law on January 2, 2013, $5.8 million of deferred tax liabilities related to the earnings of certain foreign subsidiaries have decreased. These decreases have been recorded as a discrete income tax benefit in the first quarter of 2013.
(16)
Stockholders’ Equity
At June 30, 2013 and December 31, 2012, the Company had 188,582,201 and 138,773,538 shares of common stock outstanding, respectively, and 2,070,000 shares of 5.50% Series A Mandatory Convertible Preferred Stock (“Convertible Preferred Stock”) outstanding. In each of the first and second quarter of 2013, the Company declared a cash dividend of $1.375 per share on the Convertible Preferred Stock and paid $2.8 million of the aggregate preferred dividend.
On January 30, 2013, the Company issued 37,500,000 shares of its common stock at a price per share of $6.00 (the “2013 Primary Shares”). The underwriters of this public offering purchased an additional 5,625,000 shares of the 2013 Primary Shares at a price per share of $6.00 on February 5, 2013. The underwriters received a 6.00% fee in the form of an underwriter's discount for the 2013 Primary Shares. Certain officers, directors and other related parties of the Company participated in offering of the 2013 Primary Shares by purchasing 15,016,666 of the total 2013 Primary Shares issued. No underwriting fees were charged to the Company for the purchases of the 2013 Primary Shares by the insiders. After deducting the underwriting discounts and commissions, total net proceeds from the issuance of the 2013 Primary Shares were $248.6 million.
Concurrently with the issuance of the 2013 Primary Shares, and in order to facilitate the offering of the 5.50% Convertible Notes, the Company entered into a share lending agreement with Morgan Stanley Capital Services LLC (“MSCS”), an affiliate of Morgan Stanley & Co. LLC, under which it agreed to loan to MSCS up to 7,666,666 shares of common stock (the “2013 Borrowed Shares”), of which 6,666,666 shares were offered through Morgan Stanley at a price per share of $6.00 in a registered public offering in the first quarter of 2013. MSCS did not exercise its option to borrow the remaining additional shares of common stock under this share lending agreement. The Company received no proceeds from the 2013 Borrowed Shares, but only a nominal lending fee from MSCS for the use of these loaned shares. The 2013 Borrowed Shares are issued and outstanding for corporate law purposes. However, based on certain contractual undertakings of MSCS in the share lending agreement that have the effect of substantially eliminating the economic dilution that otherwise would result from the issuance of the 2013 Borrowed Shares, these loaned shares will not be considered outstanding for the purpose of computing and reporting Molycorp's earnings per share.    
In connection with of the acquisition of Molycorp Canada on June 11, 2012, MCP Exchangeco Inc. issued an aggregate of 507,203 Exchangeable Shares in consideration for that portion of the purchase price Molycorp paid to Molycorp Canada’s former shareholders who elected to receive shares of MCP Exchangeco Inc. at the time of acquisition, and later convert the Exchangeable Shares into Molycorp common stock. During the first half of 2013, 13,483 Exchangeable Shares were converted into Molycorp common stock and, as of June 30, 2013, an aggregate of 353,679 Exchangeable Shares had been converted into shares of Molycorp common stock.
(17)
Loss per Share
For the three and six months ended June 30, 2013 and 2012, respectively, the dividends on the Convertible Preferred Stock were subtracted from net loss attributable to Molycorp stockholders for the purpose of computing the basic and diluted earnings per share.

24

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
Three Months Ended June 30,
(In thousands, except share and per share amounts)
2013
 
2012
Net loss attributable to Molycorp stockholders
$
(71,175
)
 
$
(67,604
)
Dividends on Convertible Preferred Stock
(2,846
)
 
(2,846
)
Loss attributable to common stockholders
(74,021
)
 
(70,450
)
Weighted average common shares outstanding—basic
168,075,012

 
99,175,285

Basic loss per share
$
(0.44
)
 
$
(0.71
)
 
 
 
 
Weighted average common shares outstanding—diluted
168,075,012

 
99,175,285

Diluted loss per share
$
(0.44
)
 
$
(0.71
)
    
 
Six Months Ended June 30,
(In thousands, except share and per share amounts)
2013
 
2012
Net loss attributable to Molycorp stockholders
$
(110,146
)
 
$
(71,082
)
Dividends on Convertible Preferred Stock
(5,693
)
 
(5,693
)
Loss attributable to common stockholders
(115,839
)
 
(76,775
)
Weighted average common shares outstanding—basic
160,735,323

 
93,090,872

Basic loss per share
$
(0.72
)
 
$
(0.82
)
 
 
 
 
Weighted average common shares outstanding—diluted
160,735,323

 
93,090,872

Diluted loss per share
$
(0.72
)
 
$
(0.82
)
 
 
 
 
Diluted earnings per share reflect the dilutive impact of potential common stock and unvested restricted shares of common stock in the weighted average number of common shares outstanding during the period, if dilutive. For this purpose, the “treasury stock method” and “if-converted method,” as applicable, are used.
Under the treasury stock method, assumed proceeds upon the exercise of stock options are considered to be used to purchase common stock at the average market price of the shares during the period. Also under the treasury stock method, fixed awards and non-vested shares, such as restricted stock units, are deemed options for purposes of computing diluted earnings per share. At June 30, 2013 and 2012, all potential common stock under the treasury stock method were antidilutive in nature; consequently, the Company did not have any adjustments between earnings per share and diluted earnings per share related to stock options and restricted stock units.
In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be antidilutive. Convertible preferred stock is antidilutive whenever the amount of the dividend declared in or accumulated for the current period per common share obtainable on conversion, including the deemed dividend in the period from a beneficial conversion feature, exceeds basic earnings per share. Molycorp's Convertible Preferred Stock was antidilutive at June 30, 2013 and 2012.
Also, under the if-converted method, convertible debt is antidilutive whenever its interest per common share obtainable on conversion, including any deemed interest from a beneficial conversion feature and nondiscretionary adjustments, net of tax, exceeds basic earnings per share. At June 30, 2013 and 2012, all of the Company's convertible notes were antidilutive.
(18)
Stock-Based Compensation
Molycorp has stock-based compensation plans for executives, eligible employees and non-employee directors. Stock-based awards issued under these plans include stock options to purchase shares of the Company’s common stock, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based restricted stock units ("PBRSUs"). The Company recognized total stock-based compensation expenses of $1.0 million and $1.1 million for the three months ended June 30, 2013 and 2012, respectively, and $0.7 million and $1.9 million for the six months ended June 30, 2013 and 2012, respectively. Included in the stock-based compensation expenses for the three and six months ended June 30, 2013 were forfeiture benefits of $0.1 million and $1.2 million, respectively.

25

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


In December 2012, the Company introduced an Employee Stock Purchase Plan ("ESPP") to provide eligible employees with an opportunity to acquire a proprietary interest in the Company through the purchase of its common stock at a discount over the stock fair market value. The ESPP is implemented by sequential offering periods, the commencement and duration of which are determined by the Board of Directors of Molycorp. For the first offering period, January 1, 2013 - June 30, 2013, the Company recognized a stock-based compensation expense of $0.1 million related to the ESPP.
During the first two quarters of 2013 and 2012, the Company granted RSUs to certain non-employee directors who elected to convert a portion of their quarterly cash retainer into restricted stock. These converted RSUs are fully vested because they relate to services already rendered by the non-employee directors. The same non-employee directors who elected to convert their cash retainer into RSUs, received additional RSUs as matching contributions by the Company equal to 25% of the converted units. The matching RSUs vest on the third anniversary of the grant date.
The following tables summarize the 2013 year-to-date activity for to all stock-based awards:
PBRSUs
Number of
Shares
 
Weighted Average
Grant-Date
Price
Unvested at January 1, 2013
29,302

 
$
30.33

Granted
897,515

 
6.76

Forfeited
(25,053
)
 
$
15.85

Vested
—

 
—

Unvested at June 30, 2013
901,764

 
$
7.27

RSUs
Number of
Shares
 
Weighted Average
Grant-Date
Price
Unvested at January 1, 2013
181,602

 
$
32.15

Granted
991,885

 
$
7.04

Forfeited
(66,611
)
 
$
30.18

Vested*
(14,756
)
 
$
8.04

Unvested at June 30, 2013
1,092,120

 
$
9.93


* Includes deferral and conversion of a portion of fees payable to certain non-employee directors of the Company.
RSAs
Number of
Shares
 
Weighted Average
Grant-Date
Price
Unvested at January 1, 2013
39,974

 
$
40.09

Granted
—

 
—

Forfeited
(8,132
)
 
$
39.75

Vested
—

 
—

Unvested at June 30, 2013
31,842

 
$
37.87

Stock Options
Number of
Shares
 
Weighted Average
Exercise Price
Outstanding at January 1, 2013
35,624

 
$
48.87

Granted
—

 
—

Exercised
—

 
—

Forfeited and expired
(8,238
)
 
48.87

Outstanding at June 30, 2013
27,386

 
$
48.87

Options exercisable at June 30, 2013
18,257

 
$
48.87


26

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


(19)
Commitments and Contingencies
(a)
Future Operating Lease Commitments
The Company has certain operating leases for office space, trailers and certain equipment. Remaining annual minimum payments under these leases at June 30, 2013 were as follows:
 
Total
 
Less Than
1 Year
 
1 - 3 Years
 
4 - 5 Years
 
More Than
5 Years
 
(In thousands)
Operating lease obligations
$
7,845

 
$
2,709

 
$
3,627

 
$
425

 
$
1,085

(b)
Purchase Commitments
The Company entered into contractual commitments for the purchase of materials and services from various vendors, primarily in connection with the Molycorp Mountain Pass facility modernization and expansion efforts. Future payments for all purchase commitments at June 30, 2013 were as follows:
 
Total
 
Less Than
1 Year
 
1 - 3 Years
 
4 - 5 Years
 
More Than
5 Years
 
(In thousands)
Purchase obligations and other commitment
$
216,204

 
$
191,135

 
$
13,349

 
$
6,717

 
$
5,002

(c)
Labor Contract
Certain Molycorp Mountain Pass facility employees are covered by a collective bargaining agreement with the United Steelworkers of America that expires on March 15, 2015. At June 30, 2013, 236 employees, or approximately 60% of the Company’s workforce at the Molycorp Mountain Pass facility, were covered by this collective bargaining agreement.
At June 30, 2013, 171 employees, or approximately 29% of the workforce at the Company’s Molycorp Silmet facility, were unionized employees. The contract with the labor union in Estonia was renewed in February 2012.
(d)
Reclamation Surety Bonds
At June 30, 2013, Molycorp had placed $28.8 million of surety bonds with California state and regional agencies to secure its Mountain Pass facility closure and reclamation obligations.
(e)
Purported Class Action, Derivative Lawsuits and Investigation
        In February 2012, a purported class action lawsuit captioned, Angelo Albano, Individually and on Behalf of All Others Similarly Situated v. Molycorp, Inc., et al., was filed against the Company and certain of its executive officers in the U.S. District Court for the District of Colorado. This federal court action alleges, among other things, that the Company and those officers violated Section 10(b) of the Securities Exchange Act of 1934 in connection with statements relating to its third quarter fiscal 2011 financial results and fourth quarter 2011 production guidance that the Company had filed with or furnished to the SEC, or otherwise made available to the public. In July 2012, the plaintiffs filed an amended consolidated class action complaint against the Company, certain of its officers and directors, certain of its private equity investors, and certain underwriters involved in our public offerings in 2011. The amended complaint alleges, among other things, that some or all of the defendants violated Sections 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 as well as Sections 11, 12(a)(2) and 15 of the Securities Act. The plaintiffs are seeking unspecified damages and other relief. In October 2012, the defendants filed a motion to dismiss all the claims in the amended complaint. The motion has been fully briefed and is pending.  No hearing date has been set. The Company believes the allegations are without merit and that it has valid defenses to such allegations. The Company intends to defend this action vigorously. The Company is unable to provide meaningful

27

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


quantification of how the final resolution of these claims may impact its future consolidated financial position or results of operations.
        Eight stockholder derivative lawsuits have been filed in three different jurisdictions purportedly on behalf of Molycorp, Inc., against certain of its directors and officers, and certain of its private equity investors. These cases have been filed in the Delaware Court of Chancery, the U.S. District Court in Colorado, and the District Court in Arapahoe County, Colorado. They are captioned: Gaines v. Smith et al., Case No. 7282 (Del. Ch. Feb. 12, 2012); Paskowitz v. Smith et al., Case No. 7319 (Del. Ch. Mar. 9, 2012); Wilson v. Smith et al., No. 7395-VCN (Del. Ch. April 4, 2012); Resource Equities, G.P. v. Smith et al., Case No. 8744 (Del. Ch. July 23, 2013); Wells v. Smith et al., No. 1:12-cv-00447-WJM (D. Colo. Feb. 21, 2012); Swaggerty v. Smith et al., No. 12-cv-00589-CMA-KLM (D. Colo. Mar. 7, 2012); Clem v. Smith et al., No. 12 CV 392 (Arapahoe Cnty., Colo. Feb. 24, 2012); and Nationwide Consulting, Inc. v. Smith et al., No. 12 CV 448 (Arapahoe Cnty., Colo. Mar. 5, 2012). The Clem and Nationwide cases, which were previously consolidated under the caption Clem v. Smith et al., No. 12 CV 392 (Arapahoe Cnty., Colo.), have been voluntarily dismissed without prejudice. The Wells and Swaggerty cases have both been dismissed without prejudice in favor of the lawsuits proceeding in the Delaware Court of Chancery.  As a result, plaintiffs in the Wells and Swaggerty cases filed notices of appeal before the 10th Circuit. The defendants have filed a responsive brief in the 10th Circuit in the Wells and Swaggerty cases. The 10th Circuit case has been fully briefed and the court has heard oral argument. The court has not yet ruled on the appeal.
        The derivative cases have been consolidated, with the exception of the Wells and Swaggerty cases, which are the subject of an appeal in the 10th Circuit, and the recently filed Resource Equities case, which has yet to be consolidated with the earlier filed cases, and are proceeding in the Delaware Court of Chancery. In August 2012, a consolidated amended shareholder derivative complaint was filed with the Delaware Court of Chancery challenging, among other things, certain sales of stock by officers, directors and private equity firms, and certain Molycorp corporate acquisitions during 2011. The amended complaint asserts causes of action for: (1) alleged breaches of fiduciary duty, including the duties of loyalty and due care; (2) alleged breach of fiduciary duty not to trade on or misuse material non-public information; (3) alleged unjust enrichment; and (4) alleged aiding and abetting a breach of fiduciary duty against controlling stockholders. On behalf of Molycorp, the plaintiffs in the derivative actions seek, among other things, monetary damages, restitution, an accounting, and certain changes to corporate governance procedures. On October 22, 2012, the defendants filed motions to dismiss and motions to stay the consolidated Delaware derivative action pending resolution of the securities class action lawsuit.  By order dated May 15, 2013, the Delaware Court of Chancery granted the defendants' motions to stay the consolidated Delaware derivative action pending final disposition of the securities class action lawsuit, subject to the ability of any party to move to vacate the order for good cause. As a result of this order, all actions in the Delaware derivative action currently are stayed pending final disposition of the securities class action lawsuit.
In August 2012, the staff of the SEC notified the Company that a formal order of investigation (the "Investigation") had been issued regarding, among other things, the accuracy of the Company's public disclosures. On June 27, 2013, the staff of the SEC notified the Company that the Investigation has been completed and that the staff does not intend to recommend any enforcement action by the SEC against the Company.
(20)
Concentrations
(a)
Products
There were no significant sales by product at the Resources segment for the three and six months ended June 30, 2013. For the six months ended June 30, 2012, significant sales by product, as percentage of consolidated revenues, were as follows at the Resources segment:
 
 
Lanthanum products
15
%
Neodymium and Praseodymium products
16
%
The Chemicals and Oxides segment includes sales of REO, zirconium-based engineered materials and mixed rare earth/zirconium oxides from the acquisition of Molycorp Canada on June 11, 2012. Sales of cerium products within the Chemicals

28

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


and Oxides segment accounted for approximately 7% and 11% of consolidated revenues for the three and six months ended June 30, 2013, respectively.
Within the Magnetic Materials and Alloys segment, sales of Neo Powders™ were approximately 41% and 38% of consolidated revenues for the three and six months ended June 30, 2013, respectively. The Neo Powders™ were introduced into Molycorp's product mix with the acquisition of Molycorp Canada on June 11, 2012. For the three and six months ended June 30, 2012, sales of NdFeB alloys at the Magnetic Materials and Alloys segment were approximately 60% and 74% of consolidated revenues, respectively.
Sales of Tantalum at the Rare Metals segment were approximately 8% and 9% of consolidated revenues for the three and six months ended June 30, 2013, respectively. There were no significant sales by product at the Rare Metals segment for the three and six months ended June 30, 2012.
(b)
Customers
There were no significant sales to individual customers relative to consolidated revenues at any of the Company's segments during the three and six months ended June 30, 2013.
For the six months ended June 30, 2012, the Resources segment sales to Hitachi Metals Ltd.and Grace were $24.4 million and $22.7 million, respectively.
Sales from the Magnetic Materials and Alloys segment to Santoku Corporation for the three and six months ended June 30, 2012 were $9.2 million and $24.7 million, respectively.
There were no significant sales by customer at the Chemicals and Oxides and Rare Metals segments for the three and six months ended June 30, 2012.
(21)
Related-Party Transactions
Transactions with equity method investees: TMT, Keli and Ingal Stade
The Company supplies Neo Powders™ to TMT to produce rare earth magnetic compounds. Molycorp then purchases these compounds back from TMT in its normal course of business. Additionally, Keli processes rare earth oxides into metals for inclusion in the Neo Powders™.
For the three and six months ended June 30, 2013, the Company sold $1.1 million and $2.0 million, respectively, of Neo Powders™ to TMT, and purchased rare earth magnetic compounds from TMT for $0.4 million and $0.9 million, respectively.
The Company purchased metals and received services from Keli for a total of $14.7 million and $24.4 million, respectively, during the three and six months ended June 30, 2013.
Ingal Stade sells gallium to the Company's facilities located in Ontario, Canada and to some of its facilities in the United States. For the three and six months ended June 30, 2013, the Company purchased $1.1 million and $2.3 million, respectively, of gallium metal from Ingal Stade.
For the period from June 12, 2012 to June 30, 2012, the Company purchased $0.5 million worth of compounds from TMT, purchased metals and received services from Keli for $5.3 million, and purchased $0.5 million of gallium metal from Ingal Stade.
(22)
Net Change in Operating Assets and Liabilities
Net change in operating assets and liabilities, net of the effects of acquisitions and dispositions, consisted of the following for six months ended June 30, 2013 and 2012:

29

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
Six Months Ended June 30,
 
2013
 
2012
 
(In thousands)
Decrease (increase) in operating assets:
 
 
 
Accounts receivable
$
1,205

 
$
58,705

Inventory
23,176

 
5,765

Prepaid expenses and other assets
519

 
(8,875
)
Increase (decrease) in operating liabilities:
 
 
 
Accounts payable
(21,167
)
 
(29,116
)
Income tax payable
494

 
(17,405
)
Interest payable
(27,689
)
 
(5,143
)
Asset retirement obligation
(2,013
)
 
—

Accrued expenses
(17,388
)
 
(37,466
)
 
$
(42,863
)
 
$
(33,535
)
(23)
Derivative Instruments
Put Option
As a result of the acquisition of Molycorp Canada, the Company assumed a liability associated with the put option issued to holders of the noncontrolling interest of Buss & Buss, a business acquired by Molycorp Canada's predecessor company. The Buss & Buss put option relates to a share purchase agreement (“SPA”) between NMT Holding GmbH, a German subsidiary of the Company, and the shareholders of Buss & Buss entered into May 27, 2010 by Molycorp Canada's predecessor company. The SPA includes a call and a put option on shares of the remaining shareholder and his legal successors. If the call option is exercised by the Company, a premium is added to the consideration to purchase the underlying shares in Buss & Buss. If the put option is exercised by the remaining shareholder of Buss & Buss or his legal successors, a discount will reduce the cost basis of the securities sold to the Company. The Company does not account for this derivative as a hedge. The put option had a fair value of $6.7 million at June 30, 2013, recorded as "Derivative liability" in the condensed consolidated balance sheet. The change in fair value of the put option resulted in an unrealized gain of $0.4 million and $1.2 million for the three and six months ended June 30, 2013, respectively, which was recognized in "Interest expense" in the condensed consolidated statement of operations and comprehensive income. The technique Molycorp used to fair value this derivative is the income approach based on a discounted cash flow model. With the exception of the risk free interest rate, which is a Level 1 input within the fair value hierarchy, all other inputs used to fair value this put option are based on unobservable Level 3 inputs based on management's assumptions. These inputs include: equity-risk premium, risk premium, size premium and growth rate. Any reasonably foreseeable changes in assumed levels of unobservable inputs used to fair value this put option would not be expected to have a material impact on the Company's financial position or results of operations.
2012 Contingent Forward Contract
On March 28, 2012, the Company entered into a contingent forward contract to purchase Canadian dollars with a notional amount of Cdn$870.0 million to manage the foreign currency exposure with respect to its planned acquisition of Molycorp Canada. The Company did not apply hedge accounting to this contingent forward contract. Upon settlement of this derivative on June 11, 2012 (the date of the Molycorp Canada acquisition), the Company recognized a loss of $37.5 million in "Other expense" in the condensed consolidated statement of operations and comprehensive income. Of this loss, $6.7 million was recognized during the three months ended March 31, 2012 and the remainder during the second quarter of 2012.
(24)
Employee Benefit Plans and Severance Charges
Employee Benefit Plans
Defined Contribution Retirement Plans
The Company maintains defined contribution retirement plans for all U.S. employees. The Company currently makes Safe Harbor Matching Contributions in an amount equal to 100% of the first 3% contributed and 50% of the next 2% contributed by

30

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


each eligible employee. In addition, the Company may determine to make discretionary matching or nonelective employer (profit sharing) contributions in an amount designated by the Company. Discretionary matching contributions, if any, will be based on a percentage of employee contributions to the defined contribution plans each year, as designated by the Company. The Company's Safe Harbor Matching Contributions will always be 100% vested. Employees become 100% vested in Company discretionary matching contributions and/or nonelective employer contributions, if any, after 3 years of service.
Expenses related to this plan totaled $0.8 million and $0.4 million for the three months ended June 30, 2013 and 2012, respectively, and $1.6 million and $0.8 million for the six months ended June 30, 2013 and 2012, respectively.
Defined Benefit Pension Plan and Other Post-Retirement Benefits
In accordance with the terms of the Arrangement Agreement, the Company maintained the terms of the benefit plans for Molycorp Canada’s current and former employees. Molycorp Canada's predecessor company had a defined benefit pension plan (“Pension Plan”), which covered all hourly employees employed as of September 30, 1995, and all hourly employees subsequently hired by Molycorp Canada's predecessor company up to 2003 at its former U.S. manufacturing facility in Anderson, Indiana. A December 31 measurement date is used for the Pension Plan.
The Company also maintained the terms of Molycorp Canada post-retirement medical and life insurance benefits plan for certain employees from the Anderson, Indiana manufacturing facility. The measurement date for this post-retirement benefit plan (“PBP”) is December 31. The actuarial valuation for funding purposes of the Pension Plan and PBP is January 1 of each year.
The Company's total contribution to the Pension Plan and PBP is expected to be approximately $0.1 million in 2013.
    
The components of the Pension Plan and PBP net periodic benefit cost for the three and six months ended June 30, 2013, and for the period from June 12, 2012 to June 30, 2012, are set forth below:
Three Months Ended June 30, 2013
Pension Plan
 
PBP
 
Total
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
Service Cost
$
—

 
$
—

 
$
—

Interest cost
78

 
2

 
80

Expected return on plan assets
(67
)
 
—

 
(67
)
Amortization of transition obligation/(asset)
—

 
—

 
—

Amortization of prior service cost
—

 
(1
)
 
(1
)
Amortization of actuarial loss
63

 
(2
)
 
61

Net periodic benefit cost
$
74

 
$
(1
)
 
$
73


Six Months Ended June 30, 2013
Pension Plan
 
PBP
 
Total
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
Service Cost
$
—

 
$
—

 
$
—

Interest cost
156

 
4

 
160

Expected return on plan assets
(135
)
 
—

 
(135
)
Amortization of transition obligation/(asset)
—

 
—

 
—

Amortization of prior service cost
—

 
(2
)
 
(2
)
Amortization of actuarial loss
126

 
(4
)
 
122

Net periodic benefit cost
$
147

 
$
(2
)
 
$
145



31

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


Period from June 12, 2012 to June 30, 2012
Pension Plan
 
PBP
 
Total
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
Service Cost
$
—

 
$
—

 
$
—

Interest cost
18

 
—

 
18

Expected return on plan assets
(14
)
 
—

 
(14
)
Amortization of transition obligation/(asset)
—

 
—

 
—

Amortization of prior service cost
—

 
—

 
—

Amortization of actuarial loss
12

 
—

 
12

Net periodic benefit cost
$
16

 
$
—

 
$
16


Severance Charges

In the first quarter of 2013, the Company took a number of actions throughout the organization as part of its continuing effort to contain costs and increase the efficiency of its operations. As a result, the Company reduced a portion of its workforce, primarily within the Corporate group, and recognized employee severance and benefit costs of $2.1 million through the second quarter of 2013, which were included in "Selling, general and administrative” expense in the condensed consolidated statement of operations and comprehensive income. As of June 30, 2013, the Company paid $1.4 million of these severance benefits using the Company's cash balance available at that time. The remainder will be paid over eight months from June 30, 2013.


32

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


(25)
Subsidiary Guarantor Financial Information
The Senior Notes are jointly, severally and unconditionally guaranteed by all of Molycorp, Inc.'s existing and future domestic material subsidiaries, as defined in the indenture governing the Senior Notes. The Senior Notes guarantee of a guarantor will automatically terminate, and the obligations of such guarantor under the Senior Notes guarantee will be unconditionally released and discharged, upon (all terms as defined in the indenture governing the Senior Notes):
(1)
any sale, exchange, transfer or other disposition of a majority of the capital stock of (including by way of consolidation or merger) such guarantor by Molycorp or any restricted subsidiary to any person or persons, as a result of which such guarantor is no longer a direct or indirect subsidiary of Molycorp;
(2)
any sale, exchange, transfer or other disposition of all or substantially all assets of such guarantor that results in such guarantor having no assets;
(3)
the designation by Molycorp of such guarantor as an unrestricted subsidiary; or
(4)
defeasance or discharge of the Senior Notes;
provided that any such event occurs in accordance with all other applicable provisions of the indenture.
Presented below are the condensed consolidating financial statements of Molycorp, Inc. (“Parent”) as issuer, its combined guarantor subsidiaries and its combined non-guarantor subsidiaries, which are presented as an alternative to providing separate financial statements for the guarantors. The accounts of the Parent, the guarantor and non-guarantor subsidiaries are presented using the equity method of accounting for investments in subsidiaries for purposes of these condensed consolidating financial statements only. Certain of the prior periods separate financial information has been reclassified to conform to the presentation of the most recent period herein disclosed.
 
At June 30, 2013
 
(in thousands)
Condensed Consolidating Balance Sheets
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Molycorp, Inc. consolidated
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
113,810

 
$
6,752

 
$
143,600

 
$
—

 
$
264,162

Trade accounts receivable, net
—

 
6,450

 
44,667

 
—

 
51,117

Inventory
—

 
43,842

 
169,891

 
—

 
213,733

Deferred charges
—

 
1,666

 
3,441

 
—

 
5,107

Deferred tax assets
—

 
—

 
8,669

 
410

 
9,079

Income tax receivable
—

 
20,242

 
—

 
54

 
20,296

Prepaid expenses and other current assets
—

 
7,588

 
13,580

 
—

 
21,168

Total current assets
113,810

 
86,540

 
383,848

 
464

 
584,662

Non-current assets:
 
 
 
 
 
 
 
 
 
Deposits
1,753

 
24,743

 
136

 
—

 
26,632

Property, plant and equipment, net
—

 
1,551,654

 
161,604

 
—

 
1,713,258

Inventory
—

 
24,663

 
—

 
—

 
24,663

Intangible assets, net
—

 
475

 
430,121

 
—

 
430,596

Investments
—

 
45,042

 
16,040

 
—

 
61,082

Deferred tax assets
—

 
—

 
—

 
—

 
—

Goodwill
—

 
—

 
239,742

 
—

 
239,742

Investments in consolidated subsidiaries
749,368

 
91,552

 
—

 
(840,920
)
 
—


33

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


Intercompany accounts receivable
1,840,403

 
109,780

 
793

 
(1,950,976
)
 
—

Other non-current assets
—

 
787

 
5,760

 
—

 
6,547

Total non-current assets
2,591,524

 
1,848,696

 
854,196

 
(2,791,896
)
 
2,502,520

Total assets    
$
2,705,334

 
$
1,935,236

 
$
1,238,044

 
$
(2,791,432
)
 
$
3,087,182

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
—

 
$
80,552

 
$
24,429

 
$
—

 
$
104,981

Accrued expenses
18,253

 
7,691

 
19,413

 
—

 
45,357

Income tax payable
2,746

 
16

 
8,549

 
(340
)
 
10,971

Deferred tax liabilities
—

 
—

 
1

 
54

 
55

Debt and capital lease obligations
—

 
1,614

 
13,024

 
—

 
14,638

Other current liabilities
—

 
5,639

 
—

 
—

 
5,639

Total current liabilities
20,999

 
95,512

 
65,416

 
(286
)
 
181,641

Non-current liabilities:
 
 
 
 
 
 
 
 
 
Asset retirement obligation
—

 
15,161

 
—

 
—

 
15,161

Deferred tax liabilities
—

 
—

 
133,867

 
750

 
134,617

Debt and capital lease obligations
1,324,463

 
18,677

 
5,850

 
—

 
1,348,990

Derivative liability
—

 
—

 
6,660

 
—

 
6,660

Pension liabilities
—

 
—

 
3,384

 
—

 
3,384

Intercompany accounts payable
—

 
1,889,286

 
61,690

 
(1,950,976
)
 
—

Other non-current liabilities
—

 
1,275

 
1,012

 
—

 
2,287

Total non-current liabilities
1,324,463

 
1,924,399

 
212,463

 
(1,950,226
)
 
1,511,099

Total liabilities    
$
1,345,462

 
$
2,019,911

 
$
277,879

 
$
(1,950,512
)
 
$
1,692,740

 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock
189

 
—

 
—

 
—

 
189

Preferred stock
2

 
—

 
—

 
—

 
2

Additional paid-in capital
1,947,983

 
149,857

 
1,283,863

 
(1,433,720
)
 
1,947,983

Accumulated other comprehensive loss
(12,065
)
 
—

 
(12,065
)
 
12,065

 
(12,065
)
 Accumulated deficit
(576,237
)
 
(234,532
)
 
(346,203
)
 
580,735

 
(576,237
)
Total Molycorp stockholders’ equity
1,359,872

 
(84,675
)
 
925,595

 
(840,920
)
 
1,359,872

Noncontrolling interests
—

 
—

 
34,570

 
—

 
34,570

Total stockholders’ equity
1,359,872

 
(84,675
)
 
960,165

 
(840,920
)
 
1,394,442

Total liabilities and stockholders’ equity    
$
2,705,334

 
$
1,935,236

 
$
1,238,044

 
$
(2,791,432
)
 
$
3,087,182










34

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
At December 31, 2012
 
(Revised)
 
(in thousands)
Condensed Consolidating Balance Sheets
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Molycorp, Inc. consolidated
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
16,560

 
$
18,020

 
$
193,210

 
$
—

 
$
227,790

Trade accounts receivable, net
—

 
7,738

 
44,692

 
—

 
52,430

Inventory
—

 
49,416

 
237,960

 
—

 
287,376

Deferred charges
—

 
2,203

 
7,209

 
—

 
9,412

Deferred tax assets
—

 
—

 
11,731

 
(1,942
)
 
9,789

Income tax receivable
—

 
25,087

 
—

 
—

 
25,087

Prepaid expenses and other current assets
—

 
9,085

 
12,709

 
—

 
21,794

Total current assets
16,560

 
111,549

 
507,511

 
(1,942
)
 
633,678

Non-current assets:
 
 
 
 
 
 
 
 
 
Deposits
1,752

 
24,862

 
155

 
—

 
26,769

Property, plant and equipment, net
—

 
1,377,147

 
167,157

 
—

 
1,544,304

Inventory
—

 
26,096

 
—

 
—

 
26,096

Intangible assets, net
—

 
508

 
450,430

 
—

 
450,938

Investments
—

 
45,241

 
18,795

 


 
64,036

Goodwill
—

 
—

 
239,742

 
—

 
239,742

Investments in consolidated subsidiaries
860,390

 
97,960

 
—

 
(958,350
)
 
—

Intercompany accounts receivable
1,577,466

 
169,446

 
794

 
(1,747,706
)
 
—

Other non-current assets
—

 
885

 
6,087

 
—

 
6,972

Total non-current assets
2,439,608

 
1,742,145

 
883,160

 
(2,706,056
)
 
2,358,857

Total assets    
$
2,456,168

 
$
1,853,694

 
$
1,390,671

 
$
(2,707,998
)
 
$
2,992,535

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
—

 
$
191,769

 
$
50,225

 
$
—

 
$
241,994

Accrued expenses
14,872

 
10,087

 
34,054

 
—

 
59,013

Income tax payable
2,746

 
—

 
15,267

 
(2,746
)
 
15,267

Deferred tax liabilities
—

 
1,942

 
—

 
(1,942
)
 
—

Debt and capital lease obligations
—

 
352

 
39,252

 
—

 
39,604

Other current liabilities
—

 
3,539

 
—

 
—

 
3,539

Total current liabilities
17,618

 
207,689

 
138,798

 
(4,688
)
 
359,417

Non-current liabilities:
 
 
 
 
 
 
 
 
 
Asset retirement obligation
—

 
18,586

 
—

 
—

 
18,586

Deferred tax liabilities
5,884

 
8,470

 
143,575

 
2,746

 
160,675

Debt and capital lease obligations
1,166,777

 
15,163

 
6,892

 
—

 
1,188,832

Derivative liability
—

 
—

 
7,816

 
—

 
7,816

Pension liabilities
—

 
—

 
3,292

 
—

 
3,292

Intercompany accounts payable
49,843

 
1,577,363

 
120,500

 
(1,747,706
)
 
—

Other non-current liabilities
—

 
1,102

 
1,557

 
—

 
2,659


35

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


Total non-current liabilities
1,222,504

 
1,620,684

 
283,632

 
(1,744,960
)
 
1,381,860

Total liabilities    
$
1,240,122

 
$
1,828,373

 
$
422,430

 
$
(1,749,648
)
 
$
1,741,277

 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock
139

 
—

 
—

 
—

 
139

Preferred stock
2

 
—

 
—

 
—

 
2

Additional paid-in capital
1,691,429

 
149,857

 
1,283,863

 
(1,433,720
)
 
1,691,429

Accumulated other comprehensive loss
(9,433
)
 
—

 
(9,433
)
 
9,433

 
(9,433
)
Accumulated deficit
(466,091
)
 
(124,536
)
 
(341,401
)
 
465,937

 
(466,091
)
Total Molycorp stockholders’ equity
1,216,046

 
25,321

 
933,029

 
(958,350
)
 
1,216,046

Noncontrolling interests
—

 
—

 
35,212

 
—

 
35,212

Total stockholders’ equity
1,216,046

 
25,321

 
968,241

 
(958,350
)
 
1,251,258

Total liabilities and stockholders’ equity    
$
2,456,168

 
$
1,853,694

 
$
1,390,671

 
$
(2,707,998
)
 
$
2,992,535



36

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
Three months ended June 30, 2013
 
(in thousands)
Condensed Consolidating Statements of Operations and Comprehensive Loss
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Molycorp, Inc. consolidated
Revenues
$
—

 
$
27,168

 
$
121,726

 
$
(12,032
)
 
$
136,862

Costs of sales:
 
 
 
 
 
 
 
 
 
Costs excluding depreciation and amortization
—

 
(46,363
)
 
(102,461
)
 
12,032

 
(136,792
)
Depreciation and amortization
—

 
(11,757
)
 
(6,817
)
 
—

 
(18,574
)
Gross (loss) profit
—

 
(30,952
)
 
12,448

 
—

 
(18,504
)
Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
—

 
(16,415
)
 
(9,392
)
 
—

 
(25,807
)
Corporate development
—

 
(73
)
 
—

 
—

 
(73
)
Depreciation, amortization and accretion
—

 
48

 
(8,341
)
 
—

 
(8,293
)
Research and development
—

 
(1,431
)
 
(5,075
)
 
—

 
(6,506
)
Impairment of goodwill and other long-lived assets
—

 
—

 
(377
)
 
—

 
(377
)
Operating loss
—

 
(48,823
)
 
(10,737
)
 
—

 
(59,560
)
Other (expense) income:
 
 
 
 
 
 
 
 
 
Other income
—

 
235

 
1,592

 
—

 
1,827

Foreign exchange gains, net
—

 
9

 
1,658

 
—

 
1,667

Interest (expense) income, net
(14,745
)
 
(2,236
)
 
2,112

 
—

 
(14,869
)
Interest income (expense) from intercompany notes
8,592

 
1,237

 
(9,829
)
 
—

 
—

Equity loss from consolidated subsidiaries
(65,022
)
 
(7,487
)
 
—

 
72,509

 
—

 
(71,175
)
 
(8,242
)
 
(4,467
)
 
72,509

 
(11,375
)
Loss before income taxes and equity earnings
(71,175
)
 
(57,065
)
 
(15,204
)
 
72,509

 
(70,935
)
Income tax benefit
—

 
(11,198
)
 
14,728

 
—

 
3,530

Equity in results of affiliates
—

 
(8,012
)
 
4,728

 
—

 
(3,284
)
Net loss
(71,175
)
 
(76,275
)
 
4,252

 
72,509

 
(70,689
)
Net income attributable to noncontrolling interest
—

 
—

 
(486
)
 
—

 
(486
)
Net loss attributable to Molycorp stockholders
$
(71,175
)
 
$
(76,275
)
 
$
3,766

 
$
72,509

 
$
(71,175
)
 
 
 
 
 
 
 
 
 
 
Net loss
$
(71,175
)
 
$
(76,275
)
 
$
4,252

 
$
72,509

 
$
(70,689
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
662

 
—

 
662

Comprehensive loss
$
(71,175
)
 
$
(76,275
)
 
$
4,914

 
$
72,509

 
$
(70,027
)
Comprehensive loss attributable to:
 
 
 
 
 
 
 
 
 
Molycorp stockholders
(71,175
)
 
(76,275
)
 
5,400

 
72,509

 
(69,541
)
Noncontrolling interest
—

 
—

 
(486
)
 
—

 
(486
)
 
$
(71,175
)
 
$
(76,275
)
 
$
4,914

 
$
72,509

 
$
(70,027
)


37

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
Six months ended June 30, 2013
 
(in thousands)
Condensed Consolidating Statements of Operations and Comprehensive Loss
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Molycorp, Inc. consolidated
Revenues
$
—

 
$
48,777

 
$
256,842

 
$
(22,390
)
 
$
283,229

Costs of sales:
 
 
 
 
 
 
 
 
 
Costs excluding depreciation and amortization
—

 
(91,692
)
 
(204,084
)
 
22,390

 
(273,386
)
Depreciation and amortization
—

 
(19,187
)
 
(13,696
)
 
—

 
(32,883
)
Gross (loss) profit
—

 
(62,102
)
 
39,062

 
—

 
(23,040
)
Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
—

 
(33,316
)
 
(19,005
)
 
—

 
(52,321
)
Corporate development
—

 
(188
)
 
—

 
—

 
(188
)
Depreciation, amortization and accretion
—

 
(1,661
)
 
(14,855
)
 
—

 
(16,516
)
Research and development
—

 
(3,391
)
 
(9,520
)
 
—

 
(12,911
)
Impairment of goodwill and other long-lived assets
—

 
—

 
(377
)
 
—

 
(377
)
Operating loss
—

 
(100,658
)
 
(4,695
)
 
—

 
(105,353
)
Other (expense) income:
 
 
 
 
 
 
 
 
 
Other income
—

 
234

 
1,852

 
—

 
2,086

Foreign exchange gains, net
—

 
9

 
1,269

 
—

 
1,278

Interest (expense) income, net
(25,885
)
 
(4,295
)
 
3,662

 
—

 
(26,518
)
Interest income (expense) from intercompany notes
18,244

 
2,881

 
(21,125
)
 
—

 
—

Equity loss from consolidated subsidiaries
(108,389
)
 
(6,409
)
 
—

 
114,798

 
—

 
(116,030
)
 
(7,580
)
 
(14,342
)
 
114,798

 
(23,154
)
Loss before income taxes and equity earnings
(116,030
)
 
(108,238
)
 
(19,037
)
 
114,798

 
(128,507
)
Income tax benefit
5,884

 
8,252

 
11,885

 
—

 
26,021

Equity in results of affiliates
—

 
(10,010
)
 
3,654

 
—

 
(6,356
)
Net loss
(110,146
)
 
(109,996
)
 
(3,498
)
 
114,798

 
(108,842
)
Net income attributable to noncontrolling interest
—

 
—

 
(1,304
)
 
—

 
(1,304
)
Net loss attributable to Molycorp stockholders
$
(110,146
)
 
$
(109,996
)
 
$
(4,802
)
 
$
114,798

 
$
(110,146
)
 
 
 
 
 
 
 
 
 
 
Net loss
$
(110,146
)
 
$
(109,996
)
 
$
(3,498
)
 
$
114,798

 
$
(108,842
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
(2,632
)
 
—

 
(2,632
)
Comprehensive loss
$
(110,146
)
 
$
(109,996
)
 
$
(6,130
)
 
$
114,798

 
$
(111,474
)
Comprehensive loss attributable to:
 
 
 
 
 
 
 
 
 
Molycorp stockholders
(110,146
)
 
(109,996
)
 
(4,826
)
 
114,798

 
(110,170
)
Noncontrolling interest
—

 
—

 
(1,304
)
 
—

 
(1,304
)
 
$
(110,146
)
 
$
(109,996
)
 
$
(6,130
)
 
$
114,798

 
$
(111,474
)





38

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
Three months ended June 30, 2012
 
(in thousands)
Condensed Consolidating Statements of Operations and Comprehensive Loss
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Molycorp, Inc. consolidated
Revenues
$
—

 
$
29,802

 
$
75,887

 
$
(1,112
)
 
$
104,577

Costs of sales:
 
 
 
 
 
 
 
 
 
Costs excluding depreciation and amortization
—

 
(37,142
)
 
(67,539
)
 
1,112

 
(103,569
)
Depreciation and amortization
—

 
(2,308
)
 
(2,773
)
 
—

 
(5,081
)
Gross (loss) profit
—

 
(9,648
)
 
5,575

 
—

 
(4,073
)
Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
(114
)
 
(21,546
)
 
(1,410
)
 
—

 
(23,070
)
Corporate development
(29
)
 
(14,896
)
 
—

 
—

 
(14,925
)
Depreciation, amortization and accretion
—

 
(365
)
 
(1,914
)
 
—

 
(2,279
)
Research and development
—

 
(4,515
)
 
(1,534
)
 
—

 
(6,049
)
Operating (loss) income
(143
)
 
(50,970
)
 
717

 
—

 
(50,396
)
Other (expense) income:
 
 
 
 
 
 
 
 
 
Other (expense) income
(31,011
)
 
96

 
(65
)
 
—

 
(30,980
)
Foreign exchange losses, net
—

 
(3
)
 
(2,786
)
 
—

 
(2,789
)
Interest (expense) income, net
(11,653
)
 
(679
)
 
2,527

 
—

 
(9,805
)
Interest income (expense) from intercompany notes
3,408

 
128

 
(3,536
)
 
—

 
—

Equity loss from consolidated subsidiaries
(44,747
)
 
(11,726
)
 
—

 
56,473

 
—

 
(84,003
)
 
(12,184
)
 
(3,860
)
 
56,473

 
(43,574
)
Loss before income taxes and equity earnings
(84,146
)
 
(63,154
)
 
(3,143
)
 
56,473

 
(93,970
)
Income tax benefit (expense)
16,542

 
2,236

 
8,525

 
—

 
27,303

Equity in results of affiliates
—

 
(22,743
)
 
22,486

 
—

 
(257
)
Net loss
(67,604
)
 
(83,661
)
 
27,868

 
56,473

 
(66,924
)
Net income attributable to noncontrolling interest
—

 
—

 
(680
)
 
—

 
(680
)
Net loss attributable to Molycorp stockholders
$
(67,604
)
 
$
(83,661
)
 
$
27,188

 
$
56,473

 
$
(67,604
)
 
 
 
 
 
 
 
 
 
 
Net loss
$
(67,604
)
 
$
(83,661
)
 
$
27,868

 
$
56,473

 
$
(66,924
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
(4,221
)
 
—

 
(4,221
)
Comprehensive loss
$
(67,604
)
 
$
(83,661
)
 
$
23,647

 
$
56,473

 
$
(71,145
)
Comprehensive loss attributable to:
 
 
 
 
 
 
 
 
 
Molycorp stockholders
(67,604
)
 
(83,661
)
 
24,327

 
56,473

 
(70,465
)
Noncontrolling interest
—

 
—

 
(680
)
 
—

 
(680
)
 
$
(67,604
)
 
$
(83,661
)
 
$
23,647

 
$
56,473

 
$
(71,145
)





39

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
Six months ended June 30, 2012
 
(in thousands)
Condensed Consolidating Statements of Operations and Comprehensive Loss
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Molycorp, Inc. consolidated
Revenues
$
—

 
$
95,068

 
$
100,133

 
$
(6,154
)
 
$
189,047

Costs of sales:
 
 
 
 
 
 
 
 
 
Costs excluding depreciation and amortization
—

 
(66,265
)
 
(93,530
)
 
6,154

 
(153,641
)
Depreciation and amortization
—

 
(4,164
)
 
(4,288
)
 
—

 
(8,452
)
Gross profit
—

 
24,639

 
2,315

 
—

 
26,954

Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
(77
)
 
(44,243
)
 
(2,933
)
 
—

 
(47,253
)
Corporate development
(46
)
 
(18,259
)
 
—

 
—

 
(18,305
)
Depreciation, amortization and accretion
—

 
(699
)
 
(1,938
)
 
—

 
(2,637
)
Research and development
—

 
(8,086
)
 
(1,613
)
 
—

 
(9,699
)
Operating loss
(123
)
 
(46,648
)
 
(4,169
)
 
—

 
(50,940
)
Other (expense) income:
 
 
 
 
 
 
 
 
 
Other income (expense)
(37,589
)
 
96

 
(65
)
 
—

 
(37,558
)
Foreign exchange losses, net
—

 
(2
)
 
(1,183
)
 
—

 
(1,185
)
Interest (expense) income, net
(11,524
)
 
(680
)
 
2,484

 
—

 
(9,720
)
Interest income (expense) from intercompany notes
3,408

 
226

 
(3,634
)
 
—

 
—

Equity loss from consolidated subsidiaries
(43,105
)
 
(22,403
)
 
—

 
65,508

 
—

 
(88,810
)
 
(22,763
)
 
(2,398
)
 
65,508

 
(48,463
)
Loss before income taxes and equity earnings
(88,933
)
 
(69,411
)
 
(6,567
)
 
65,508

 
(99,403
)
Income tax benefit (expense)
17,851

 
3,109

 
8,525

 
—

 
29,485

Equity in results of affiliates
—

 
(22,970
)
 
22,486

 
—

 
(484
)
Net loss
(71,082
)
 
(89,272
)
 
24,444

 
65,508

 
(70,402
)
Net income attributable to noncontrolling interest
—

 
—

 
(680
)
 
—

 
(680
)
Net loss attributable to Molycorp stockholders
$
(71,082
)
 
$
(89,272
)
 
$
23,764

 
$
65,508

 
$
(71,082
)
 
 
 
 
 
 
 
 
 
 
Net loss
$
(71,082
)
 
$
(89,272
)
 
$
24,444

 
$
65,508

 
$
(70,402
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
(1,691
)
 
—

 
(1,691
)
Comprehensive loss
$
(71,082
)
 
$
(89,272
)
 
$
22,753

 
$
65,508

 
$
(72,093
)
Comprehensive loss attributable to:
 
 
 
 
 
 
 
 
 
Molycorp stockholders
(71,082
)
 
(89,272
)
 
23,433

 
65,508

 
(71,413
)
Noncontrolling interest
—

 
—

 
(680
)
 
—

 
(680
)
 
$
(71,082
)
 
$
(89,272
)
 
$
22,753

 
$
65,508

 
$
(72,093
)



40

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
Six months ended June 30, 2013
 
(in thousands)
Condensed Consolidating Statements of Cash Flows
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Molycorp, Inc. consolidated
Net cash (used in) provided by operating activities
$
(1,972
)
 
$
(93,855
)
 
$
21,786

 
$
—

 
$
(74,041
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Loans to guarantor
—

 
—

 
(40,000
)
 
40,000

 
—

Intercompany advances made
(318,835
)
 
—

 
—

 
318,835

 
—

Loans to non-guarantor
—

 
(1,300
)
 
—

 
1,300

 
—

Repayments of notes receivable from non-guarantor
10,000

 
—

 
—

 
(10,000
)
 
—

Investment in joint ventures
—

 
(3,423
)
 
—

 
—

 
(3,423
)
Capital expenditures
—

 
(255,989
)
 
(8,737
)
 
—

 
(264,726
)
Other investing activities
—

 
—

 
(224
)
 
—

 
(224
)
Net cash used in investing activities
(308,835
)
 
(260,712
)
 
(48,961
)
 
350,135

 
(268,373
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Repayments of debt
—

 
—

 
(27,283
)
 
—

 
(27,283
)
Net proceeds from sale of common stock
248,150

 
—

 
—

 
—

 
248,150

Issuance of 5.50% Convertible Notes
165,600

 
—

 
—

 
—

 
165,600

Payments of preferred dividends
(5,693
)
 
—

 
—

 
—

 
(5,693
)
Dividend paid to noncontrolling interests
—

 
—

 
(1,946
)
 
—

 
(1,946
)
Borrowings from non-guarantor
—

 
40,000

 
—

 
(40,000
)
 
—

Borrowing from guarantor
—

 
—

 
1,300

 
(1,300
)
 
—

Repayments to parent
—

 
—

 
(10,000
)
 
10,000

 
—

Intercompany advances owed
—

 
303,659

 
15,176

 
(318,835
)
 
—

Other financing activities
—

 
(360
)
 
—

 
—

 
(360
)
Net cash provided by (used in) financing activities
408,057

 
343,299

 
(22,753
)
 
(350,135
)
 
378,468

Effect of exchange rate changes on cash
—

 
—

 
318

 
—

 
318

Net change in cash and cash equivalents
97,250

 
(11,268
)
 
(49,610
)
 
—

 
36,372

Cash and cash equivalents at beginning of the period
16,560

 
18,020

 
193,210

 
—

 
227,790

Cash and cash equivalents at end of period
$
113,810

 
$
6,752

 
$
143,600

 
$
—

 
$
264,162






41

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


 
Six months ended June 30, 2012
 
(in thousands)
Condensed Consolidating Statements of Cash Flows
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Molycorp, Inc. consolidated
Net cash (used in) provided by operating activities
$
(21,296
)
 
$
(20,450
)
 
$
(22,635
)
 
$
—

 
$
(64,381
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Loans to non-guarantor
(455,200
)
 
—

 
—

 
455,200

 
—

Intercompany advances made
(562,362
)
 
—

 
—

 
562,362

 
—

Repayments of notes receivable from guarantor
31,100

 
—

 
—

 
(31,100
)
 
—

Investment in subsidiaries
(350,000
)
 
—

 
—

 
350,000

 
—

Cash paid in connection with acquisitions, net of cash acquired
—

 
—

 
(591,011
)
 
—

 
(591,011
)
Investment in joint ventures
—

 
(14,805
)
 
—

 
—

 
(14,805
)
Deposits
—

 
(488
)
 
—

 
—

 
(488
)
Capital expenditures
—

 
(395,901
)
 
(8,031
)
 
—

 
(403,932
)
Other investing activities
—

 
—

 
2

 
—

 
2

Net cash used in investing activities
(1,336,462
)
 
(411,194
)
 
(599,040
)
 
1,336,462

 
(1,010,234
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Capital contributions from stockholder
390,225

 
—

 
—

 
—

 
390,225

Contribution from parent
—

 
—

 
350,000

 
(350,000
)
 
—

Proceeds from debt
—

 
—

 
9,745

 
—

 
9,745

Repayments of debt
—

 
(870
)
 
(1,318
)
 
—

 
(2,188
)
Net proceeds from sale of Senior Notes
635,373

 
—

 
—

 
—

 
635,373

Payments of preferred dividends
(5,693
)
 
—

 
—

 
—

 
(5,693
)
Borrowing from parent
—

 
—

 
455,200

 
(455,200
)
 
—

Repayments to parent
—

 
(31,100
)
 
—

 
31,100

 
—

Intercompany advances owed
—

 
460,615

 
101,747

 
(562,362
)
 
—

Other financing activities
(2,616
)
 
—

 
222

 
—

 
(2,394
)
Net cash provided by financing activities
1,017,289

 
428,645

 
915,596

 
(1,336,462
)
 
1,025,068

Effect of exchange rate changes on cash
—

 
—

 
(46
)
 
—

 
(46
)
Net change in cash and cash equivalents
(340,469
)
 
(2,999
)
 
293,875

 
—

 
(49,593
)
Cash and cash equivalents at beginning of the period
407,446

 
10,758

 
651

 
—

 
418,855

Cash and cash equivalents at end of period
$
66,977

 
$
7,759

 
$
294,526

 
$
—

 
$
369,262





42

MOLYCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2013 (Continued)


(26)
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standard Board ("FASB") issued ASU 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires companies to report, in one place, information about reclassifications out of accumulated other comprehensive income ("AOCI"). Companies also are required to present reclassifications by component when reporting changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the period, companies must report the effect of the reclassifications on the respective line items in the statement where net income is presented. In certain circumstances, this can be done on the face of that statement. Otherwise, it must be presented in the notes. For items not reclassified to net income in their entirety in the period (e.g., pension amounts that are capitalized in inventory), companies must cross-reference in a note to other required disclosures. This update was effective for public companies in fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of this updated guidance did not have any impact on the Company's financial statements and related disclosures.
In July 2012, the FASB issued ASU 2012-02, Intangibles - Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment. In accordance with this update, an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount and record an impairment charge, if any. This update was effective for annual and interim period impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption was permitted. The adoption of this updated guidance did not have any impact on the Company's financial statements and related disclosures.
(27)
Subsequent Events
Preferred stock dividend
In August 2013, the Company declared a cash dividend of $1.375 per share on the Convertible Preferred Stock to be paid on September 1, 2013 to holders of record at the close of business on August 15, 2013.
Discontinued Operations
In July 2013, the Company committed to a plan to discontinue operations at its Napanee, Ontario - Canada rare metals recycling facility by the end of fiscal 2013.


43

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
        In this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to “Molycorp,” “we,” “our” or “us” refer to Molycorp, Inc. and its consolidated subsidiaries. As used herein, a ton is equal to 2,000 pounds, the term “mt” means a metric ton (equal to 2,205 pounds). For definitions of certain rare earth-related and mining terms, see “Glossary of Selected REEs, Rare Metals and Mining Terms.”
This Quarterly Report on Form 10-Q contains forward-looking statements that represent our beliefs, projections and predictions about future events or our future performance. You can identify forward-looking statements by terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other similar expressions or phrases. These forward-looking statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results to differ materially from any future results, performance or achievement described in or implied by such statements.
Risk factors and uncertainties that may cause actual results to differ materially from expected results include, among others: our ability to successfully integrate Neo Material Technologies Inc., formerly referred to as Neo or Neo Materials and now Molycorp Minerals Canada ULC or Molycorp Canada, into our operations; our ability to achieve fully the strategic and financial objectives related to our acquisition of Molycorp Canada, including the acquisition’s impact on our financial condition and results of operations; and unexpected costs or liabilities that may arise from the acquisition, ownership or operation of Molycorp Canada.
Additional risk factors that may cause actual results to differ materially from expected results described in forward-looking statements include, but are not limited to:
•
the potential need to secure additional capital to implement our business plans, and our ability to successfully secure any such capital;
•
our ability to optimize our Molycorp Mountain Pass Rare Earth Facility, which we refer to as the Molycorp Mountain Pass facility, and to reach a designed capacity of 19,050 mt of rare earth oxides, or REO, and other planned downstream products;
•
the success of our cost mitigation efforts in connection with our modernization and expansion efforts at the Molycorp Mountain Pass facility, which if unsuccessful, might cause our costs to exceed budget;
•
the final costs of our planned capital projects which may differ from estimated costs;
•
market conditions, including prices and demand for our products;
•
our ability to control our working capital needs;
•
risks and uncertainties associated with intangible assets, including any future goodwill impairment charges;
•
foreign exchange rate fluctuations;
•
the development and commercialization of new products;
•
unexpected actions of domestic and foreign governments;
•
various events which could disrupt operations, including natural events and other risks;
•
uncertainties associated with our reserve estimates and non-reserve deposit information, including estimated mine life and annual production;
•
uncertainties related to feasibility studies that provide estimates of expected or anticipated costs, expenditures and economic returns, REO prices, production costs and other expenses for operations, which are subject to fluctuation;
•
uncertainties regarding global supply and demand for rare earths materials;
•
uncertainties regarding the results of our exploratory drilling programs;

44

•
our ability to enter into additional definitive agreements with our customers and our ability to maintain customer relationships;
•
our sintered neodymium-iron-boron, or NdFeB, rare earth magnet joint venture’s ability to successfully manufacture magnets within its expected timeframe;
•
our ability to successfully integrate other acquired businesses;
•
our ability to maintain appropriate relations with unions and employees;
•
our ability to successfully implement our vertical integration strategy;
•
environmental laws, regulations and permits affecting our business, directly and indirectly, including, among others, those relating to mine reclamation and restoration, climate change, emissions to the air and water and human exposure to hazardous substances used, released or disposed of by us;
•
uncertainties associated with unanticipated geological conditions related to mining;
•
the outcome of the stockholder class action litigation and derivative litigation, including any actions taken by government agencies in connection therewith; and
•
those other risks discussed and referenced in the section entitled “Risk Factors” described in our Annual Report on Form 10-K for the year ended December 31, 2012.
Any forward-looking statement you read in this Quarterly Report on Form 10-Q reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, operating results, growth strategy and liquidity. You should not place undue reliance on these forward-looking statements because such statements speak only as to the date when made. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future, except as otherwise required by applicable law.
The following discussion and analysis should be read in conjunction with our June 30, 2013 unaudited condensed consolidated financial statements and related notes included herein. This Quarterly Report on Form 10-Q also contains statistical data and estimates we obtained from industry publications and reports generated by third parties. Although we believe that the publications and reports are reliable, we have not independently verified their data.
Overview
We are one of the world's leading global rare earth companies, and the only one that operates a vertically integrated, global supply chain that combines a world-class rare earth resource with manufacturing facilities on three continents that can produce a wide variety of custom engineered, advanced rare earth materials from all of the lanthanide elements, plus yttrium.

Our vertically integrated, global manufacturing supply chain is comprised of a workforce of approximately 2,650 scientists, engineers, chemists, technologists, and highly skilled workers in 27 locations across 11 countries. Our vertical integration allows us to operate multiple product supply chains, serve as a highly reliable supplier of advanced rare earth and rare metal materials, and provide price visibility to customers worldwide.
    
Our business is organized into four reportable segments: (1) Resources; (2) Chemicals and Oxides; (3) Magnetic Materials and Alloys; and (4) Rare Metals. See Note 3 in Part 1, Item 1 of this Quarterly Report on Form 10-Q for financial information regarding our reportable segments.
The Resources segment includes our operations at the Molycorp Mountain Pass facility, home to one of the world's largest and richest deposits of rare earths (including light, mid, and heavy rare earths) that has been producing rare earth products for approximately 60 years. At the Molycorp Mountain Pass facility, we conduct rare earth minerals extraction to produce: rare earth concentrates; REO, including lanthanum, cerium, neodymium, praseodymium, and yttrium; heavy rare earth concentrates, which include samarium, europium, gadolinium, terbium, dysprosium, and others; and SorbXTM, a line of proprietary rare earth-based water treatment products. We currently are conducting pilot and full-scale tests to determine the efficacy of SorbXTM in removing phosphates from municipal wastewater on a commercial basis as compared to other water treatment products. In addition, we expect to conduct similar tests with industrial wastewater. We are conducting these tests to determine the efficacy of SorbXTM beyond the laboratory-scale tests we previously have conducted. Based on the results of these tests, we expect to be

45
 

able to determine the size and scope of the municipal and industrial wastewater treatment markets where SorbXTM will be effective.
The Chemicals and Oxides segment includes: production of REO at our operations at Molycorp Silmet; separated heavy rare earth oxides and other custom engineered materials from our facilities in Jiangyin, Jiangsu Province, China; and production of REO, salts of rare earth elements, or REEs, zirconium-based engineered materials and mixed rare earth/zirconium oxides from our facilities in Zibo, Shandong Province, China. Rare earth and zirconium applications from products made in this segment include catalytic converters, computers, television display panels, optical lenses, mobile phones, electronic chips, and many others.
The Magnetic Materials and Alloys segment includes: the production of Neo Powders™ through our wholly-owned manufacturing facilities in Tianjin, China, and Korat, Thailand, under the Molycorp Magnequench brand. This operating segment also includes manufacturing of neodymium and samarium magnet alloys, other specialty alloy products and rare earth metals at our MMA facility, located in Tolleson, Arizona. Neo Powders™ are used in micro motors, precision motors, sensors, and other applications requiring high levels of magnetic strength, flexibility, small size, and reduced weight.
The Rare Metals segment produces, reclaims, refines and markets high value niche metals and their compounds that include gallium, indium, rhenium, tantalum, and niobium. Operations in this segment include the following: Quapaw, Oklahoma; Blanding, Utah; Peterborough, Ontario; Napanee, Ontario; Sagard, Germany; Hyeongok Industrial Zone in South Korea; and Sillamäe, Estonia. Applications from products made in this segment include wireless technologies, LED, flat panel display, turbine, solar, catalyst, steel additive, electronics applications, and others.
Material Changes in Results of Operations
The comparability of our operating results during the first half of 2013 and 2012 is significantly affected by the Molycorp Canada acquisition on June 11, 2012.
Modernization and Expansion of our Molycorp Mountain Pass Facility
Production at Mountain Pass from stockpiled feedstock versus newly produced feedstock in 2012 can be broken down as follows: 100% of production from January 1, 2012 through June 25, 2012 was from stockpiled material; from June 26, 2012 through July 30, 2012, 91.7% came from stockpiled material and 8.3% from new material; from July 31, 2012 through September, 27, 2012, 50% came from stockpiled material and 50% from new material; and from September 28, 2012 through December 31, 2012, 100% came from new material.
All completed production components of our Molycorp Mountain Pass facility have been demonstrated to operate at their designed capacity of 19,050 mt of REO or better. Our Molycorp Mountain Pass facility has demonstrated an operational rate of approximately 15,000 mt of REO per year. We continue to optimize the operation of our Molycorp Mountain Pass facility and, upon completion and commissioning of the remaining elements of the multi-stage crack unit, we expect our Molycorp Mountain Pass facility to be able to operate at its designed capacity. Our actual production rate will be influenced by customer demand and end-market conditions, among other factors. Upon completion of the chloralkali plant expected later in 2013, and depending upon the volume of REO production, we expect our Molycorp Mountain Pass facility to have production cash costs lower than those publicly reported for China by government officials and those reported for other non-Chinese rare earth projects. Although the modernization and expansion of our Molycorp Mountain Pass facility was planned to allow an expanded run rate of up to 40,000 mt of REO per year, we will not expand production beyond the initial planned run rate unless market demand, product pricing, capital availability and financial returns justify such production.
We expect to complete construction of the chloralkali plant at our Molycorp Mountain Pass facility in the second half of 2013. Our chloralkali plant will help us recycle water used in separation processes, as well as regenerate chemical reagents needed for separations, which is expected to significantly reduce the amount of reagent supplies we must purchase. While the chloralkali plant is not required for rare earth production, it is expected to help significantly drive down our unit production costs at our Molycorp Mountain Pass facility.
In addition to directly supplying customer demand, our Molycorp Mountain Pass facility will begin to provide rare earth feedstock for our value-added processing plants in Sillamäe, Estonia; Zibo, China; Jiangyin, China; and Tolleson, Arizona. Those facilities produce advanced materials that are custom engineered for a variety of global rare earth markets. We expect our Molycorp Mountain Pass facility to provide increased volumes of rare earth feedstock for the planned production of our Sillamäe and Zibo facilities in 2013.
Neodymium/praseodymium produced at our Molycorp Mountain Pass facility is expected to be sold directly to magnetic

46

material customers, the Intermetallics Japan joint venture, or IMJ, MMA and our downstream operations under the Molycorp Magnequench brand at our wholly-owned manufacturing facilities in Tianjin, China and Korat, Thailand.
Factors Affecting our Results of Operations
Sales
The quantities we sell are affected by the production capabilities of our rare earth products and rare metals processing facilities, and by a combination of global and regional supply and demand factors, including the production level of certain industries relying on rare earth products, such as the automotive and electronics industries, China REEs export quotas and regulations, prices of REEs, and the demand and sophistication of downstream applications with rare earths content. Sales of our products are also subject to seasonal decreases in the first quarter of each year as customers react to the Chinese New Year holiday shutdown.
Cost of Sales
Our cost of sales includes the processing costs and the cost of certain raw materials we purchased from outside vendors, which we allocated to the products we produced at our operating facilities. In addition, our cost of sales reflects the cost allocated to the inventory we acquired as part of various business acquisitions. Because many of our costs are fixed, as our production increases or decreases, our average cost per metric ton produced decreases or increases, respectively. Primary production costs include direct labor and benefits, chemicals, natural gas, depreciation and amortization, electricity, maintenance, operating supplies and other plant overhead expenses. Our cost of sales may also reflect the write-down of inventory based on current prices for our products, which could materially affect our consolidated net results of operations.
Our most significant variable costs are chemicals, raw materials and natural gas. In early September 2012, our on-site CHP plant began feeding low-cost, high efficiency electrical power and steam to plants and buildings across the Molycorp Mountain Pass facility. As a result, natural gas costs have gradually replaced third-party electricity costs, which we expect will help us bring our power costs down significantly. In the near future, we also intend to produce more of our chemicals for the Molycorp Mountain Pass facility at an on-site plant, which we expect will reduce our variable chemical costs in that facility.
In addition to volume fluctuations, our variable costs, such as electricity, natural gas, operating supplies and chemicals, are influenced by general economic conditions that are beyond our control.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist primarily of personnel and related costs, including stock-based compensation, legal, accounting and other professional fees, occupancy costs and information technology costs, which have all increased over the last few years as a result of our business acquisitions and the expansion of our Molycorp Mountain Pass facility.
Corporate Development
Our corporate development expenses consist of travel costs, legal and advisory fees that we incur in connection with business acquisitions and other business development activities we pursue as part of our vertical integration strategy.
Research and Development
We incur expenses to improve the efficiency of our REO processing operations, develop new applications for individual REEs, research value added rare metals applications and perform exploratory drilling. These expenses, which we anticipate to continue to increase, consist primarily of salaries, outside labor, material and equipment. The acquisition of Molycorp Canada bolstered our research and development activities with the addition of labs in Singapore and the United Kingdom and process development capabilities at most of the production facilities.
Interest Expenses
We are incurring significantly higher interest costs as a result of issuing additional indebtedness to partially finance the Molycorp Canada acquisition, including the repayment of Molycorp Canada's indebtedness, and to fund capital expenditures at our Molycorp Mountain Pass facility. The majority of our interest costs is currently capitalized.


47

Income Taxes
We account for income taxes in accordance with Accounting Standard Codification 740, Income Taxes. This guidance requires the recognition of deferred tax assets and liabilities for the tax effect of temporary differences between the financial statement and tax basis of recorded assets and liabilities at enacted statutory tax rates. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The recoverability of deferred tax assets is based on both our historical and anticipated earnings levels and is reviewed each reporting period to determine if any additional valuation allowance is necessary when it is more likely than not that amounts will not be recovered. We have concluded that a valuation allowance of $40.6 million and $20.6 million was required as of June 30, 2013 and December 31, 2012, respectively.
We review our deferred tax assets and liabilities each reporting period using the enacted tax rate expected to apply to taxable income for the period in which the deferred tax asset or liability is expected to be realized. The statutory income tax rates that are applied to our current and deferred income tax calculations are significantly impacted by the jurisdictions in which we conduct business. Changes in jurisdiction income tax rates and apportionment laws will result in changes in the calculation of our current and deferred income taxes. The effects of any changes are recorded in the period of enactment and can increase or decrease the net deferred tax assets and liabilities on the balance sheet.
Environmental
Our operations are subject to numerous and detailed environmental laws, regulations and permits, including those pertaining to employee health and safety, environmental permitting and licensing, air quality standards, greenhouse gas, or GHG, emissions, water usage and pollution, waste management, plant and wildlife protection, handling and disposal of radioactive substances, remediation of soil and groundwater contamination, land use, reclamation and restoration of properties, the discharge of materials into the environment and groundwater quality and availability.
We have spent, and anticipate that we will continue to spend, financial and managerial resources to comply with environmental requirements. For example, we incurred approximately $5.3 million and $2.6 million during the second quarter of 2013 and 2012, respectively, and approximately $10.5 million and $4.8 million during the first half of 2013 and 2012, respectively, and expect to incur approximately $5.8 million for the remainder of 2013, for ongoing operating environmental expenditures, including salaries, monitoring, compliance, reporting and permits. The amounts above include expenditures for the removal and disposal of wastewater generated in excess of the existing evaporation capability of all evaporation ponds at our Molycorp Mountain Pass facility, which we incurred while the chloralkali facility was being constructed. We estimate that we will incur approximately $3.7 million for wastewater transportation and disposal costs for the remainder of 2013.
The costs we anticipate to incur as part of our on-going mine reclamation activities at our Molycorp Mountain Pass facility, which we expect to continue throughout closure and post-closure periods of our mining operations, are included in asset retirement obligation disclosure in Note 13 in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Although we have incurred only nominal environmental expenditures at some of our other operating facilities in the first and second quarters of 2013 and 2012, we may have to incur environmental capital and operating costs associated with future possible modernization and expansion plans related to those other facilities.
Discussion and Analysis of our Reportable Segments
The following analysis presents operating results on a gross basis (i.e., before intercompany eliminations). We believe this presentation provides a better understanding of the performance of each reportable segment in terms of contribution to our vertically integrated operations.

Prior to the third quarter of 2012, our basis of segment reporting was the location of our operations. As a result of the changes in the composition of our reportable segments discussed in Note 3 of Part 1, Item 1 of this Quarterly Report on Form 10-Q, the reportable segments presentation of the prior interim period has been revised for comparative purposes.

48

Three and Six Months Ended June 30, 2013 Compared to Three and Six Months Ended June 30, 2012
Three months ended June 30, 2013
 
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other(a)
 
Eliminations(a)
 
Total Molycorp, Inc.
Revenues:
 
(In thousands)
External
 
$
10,922

 
$
34,789

 
$
66,114

 
$
25,037

 
 
 
$
—

 
$
136,862

Intersegment
 
6,665

 
6,692

 
—

 
—

 
 
 
(13,357
)
 
—

Total revenues
 
$
17,587

 
$
41,481

 
$
66,114

 
$
25,037

 
 
 
$
(13,357
)
 
$
136,862

Depreciation, amortization and accretion
 
$
(11,629
)
 
$
(5,589
)
 
$
(7,422
)
 
$
(2,170
)
 
$
(57
)
 
$
—

 
$
(26,867
)
Operating (loss) income
 
$
(40,404
)
 
$
(15,174
)
 
$
10,638

 
$
(3,381
)
 
$
(9,953
)
 
$
(1,286
)
 
$
(59,560
)
(Loss) income before income taxes and equity earnings
 
$
(39,215
)
 
$
(14,019
)
 
$
10,898

 
$
129

 
$
(27,442
)
 
$
(1,286
)
 
$
(70,935
)
Total assets at June 30, 2013
 
$
1,953,529

 
$
590,582

 
$
606,813

 
$
104,002

 
$
912,660

 
$
(1,080,404
)
 
$
3,087,182

Capital expenditures (c)
 
$
55,693

 
$
1,138

 
$
411

 
$
719

 
$
93

 
$
—

 
$
58,054



Three months ended June 30, 2012
 
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other(b)
 
Eliminations(a)
 
Total Molycorp, Inc.
Revenues:
 
(In thousands)
External
 
$
16,533

 
$
39,019

 
$
31,532

 
$
17,493

 
 
 
$
—

 
$
104,577

Intersegment
 
400

 
726

 
—

 
—

 
 
 
(1,126
)
 
—

Total revenues
 
$
16,933

 
$
39,745

 
$
31,532

 
$
17,493

 
 
 
$
(1,126
)
 
$
104,577

Depreciation, amortization and accretion
 
$
(2,594
)
 
$
(1,419
)
 
$
(1,877
)
 
$
(1,399
)
 
$
(29
)
 
$
(42
)
 
$
(7,360
)
Operating (loss) income
 
$
(17,158
)
 
$
(10,475
)
 
$
(3,107
)
 
$
478

 
$
(30,436
)
 
$
10,302

 
$
(50,396
)
Loss before income taxes
 
$
(17,137
)
 
$
(11,970
)
 
$
(3,460
)
 
$
(1,375
)
 
$
(70,330
)
 
$
10,302

 
$
(93,970
)
Capital expenditures (c)
 
$
228,787

 
$
2,627

 
$
832

 
$
2,627

 
$
—

 
$
—

 
$
234,873













49

Six months ended June 30, 2013
 
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other(a) (d)
 
Eliminations(b)
 
Total Molycorp, Inc.
Revenues:
 
(In thousands)
External
 
$
25,580

 
$
84,389

 
$
120,792

 
$
52,468

 
 
 
$
—

 
$
283,229

Intersegment
 
9,310

 
21,302

 
—

 
—

 
 
 
(30,612
)
 
—

Total revenues
 
$
34,890

 
$
105,691

 
$
120,792

 
$
52,468

 
 
 
$
(30,612
)
 
$
283,229

Depreciation, amortization and accretion
 
$
(20,682
)
 
$
(11,127
)
 
$
(12,901
)
 
$
(4,573
)
 
$
(116
)
 
$
—

 
$
(49,399
)
Operating (loss) income
 
$
(80,529
)
 
$
(18,480
)
 
$
17,401

 
$
(403
)
 
$
(21,518
)
 
$
(1,824
)
 
$
(105,353
)
(Loss) income before income taxes and equity earnings
 
$
(78,908
)
 
$
(16,911
)
 
$
27,798

 
$
3,860

 
$
(62,522
)
 
$
(1,824
)
 
$
(128,507
)
Capital expenditures (c)
 
$
148,032

 
$
4,099

 
$
1,453

 
$
3,649

 
$
167

 
$
—

 
$
157,400



Six months ended June 30, 2012
 
Resources
 
Chemicals and Oxides
 
Magnetic Materials and Alloys
 
Rare Metals
 
Corporate and other(a)
 
Eliminations(b)
 
Total Molycorp, Inc.
Revenues:
 
(In thousands)
External
 
$
61,011

 
$
46,339

 
$
50,488

 
$
31,209

 
 
 
$
—

 
$
189,047

Intersegment
 
2,232

 
3,936

 
—

 
—

 
 
 
(6,168
)
 
—

Total revenues
 
$
63,243

 
$
50,275

 
$
50,488

 
$
31,209

 
 
 
$
(6,168
)
 
$
189,047

Depreciation, amortization and accretion
 
$
(4,708
)
 
$
(1,734
)
 
$
(1,953
)
 
$
(2,599
)
 
$
(53
)
 
$
(42
)
 
$
(11,089
)
Operating income (loss)
 
$
373

 
$
(24,012
)
 
$
(2,963
)
 
$
1,870

 
$
(50,277
)
 
$
24,069

 
$
(50,940
)
Income (loss) before income taxes and equity earnings
 
$
462

 
$
(24,863
)
 
$
(3,596
)
 
$
855

 
$
(96,330
)
 
$
24,069

 
$
(99,403
)
Capital expenditures (c)
 
$
488,225

 
$
3,878

 
$
932

 
$
3,877

 
$
—

 
$
—

 
$
496,912


(a)
Corporate loss before income taxes and equity earnings includes business development costs, personnel and related costs, including stock-based compensation expense, accounting and legal fees, occupancy expense, information technology costs and interest expense. Total corporate assets is comprised primarily of cash and cash equivalents and deferred tax assets.
(b)
The net elimination in operating results includes costs of sales eliminations of $12,071 and $28,788 for the three and six months ended June 30, 2013, respectively; $11,470 and $30,279 for the three and six months ended June 30, 2012, respectively. Costs of sales eliminations consist of intercompany gross profits as well as eliminations of lower of cost or market adjustments related to intercompany inventory. The total assets elimination is comprised primarily of intercompany investments and intercompany accounts receivable and profits in inventory.
(c)
On an accrual basis excluding capitalized interest.
(d)
In the first quarter 2013, the Corporate segment included severance charges of $2,100. See Note 24 for details.




50

Resources
Sales from our Resources segment were $17.6 million and $34.9 million for the three and six months ended June 30, 2013, respectively, as compared to sales of $16.9 million and $63.2 million for the three and six months ended June 30, 2012, respectively. In the second quarter of 2013, this segment sold 1,049 mt of products at an average sales price, or ASP, of $16.77 per kilogram, as compared to 525 mt at an ASP of $32.25 per kilogram in the corresponding period of 2012. For the six months ended June 30, 2013 and 2012, Resources sold 1,812 mt at an ASP of $19.25 per kilogram, and 1,197 mt at an ASP of $52.83 per kilogram, respectively.
The global economic weakness of the last few years, combined with the unwinding of speculative purchases of REEs following a period (mostly the first half of 2011) when abnormal premiums were placed on Chinese export quotas for REEs, led to an oversupply of rare earth materials that has caused prices for this segment's primary products to significantly deteriorate from their peak in mid-2011. For example, prices for cerium oxide 99%, lanthanum oxide 99% and neodymium/praseodymium oxide 99% have decreased, on average and based on China export prices quoted by major REEs market sources, by approximately 84%, 87% and 66%, respectively, from the beginning of 2012 to the end of the second quarter of 2013. The anticipation of falling REEs prices generally results in a very conservative purchasing pattern by our customers.
Aggregate production volume at our Resources segment was 756 mt and 1,374 mt for the three and six months ended June 30, 2013, respectively, as compared to 671 mt and 1,286 mt for the three and six months ended June 30, 2012, respectively. As further discussed above, we experienced delays associated with our modernization and expansion efforts at our Molycorp Mountain Pass facility that led to lower-than-anticipated production from the Resources segment in 2012 and the first half of 2013. We expensed $23.9 million and $44.1 million during the three and six months ended June 30, 2013, respectively, of production-related costs that would have otherwise been charged to inventory if we maintained normal production levels during these periods. This compares to expensing of abnormal production-related costs of $2.4 million and $5.4 million during the three and six months ended June 30, 2012, respectively. Higher abnormal production costs in the first half of 2013, as compared to the second half of 2012, were due primarily to period over period labor cost increases, despite modest increments in REO volumes produced, and to abnormal consumption of the primary chemicals used for our REO production during the commissioning and testing phase of our new separation processes in the first half of 2013 at Resources. As of June 30, 2013, we had a total of 393 employees at our Molycorp Mountain Pass facility, as compared to 345 employees as of June 30, 2012. Staffing increases are directly related to the ramp up in employees needed to run the larger production facilities. Even though the costs of hydrochloric acid and caustic soda, which are the main chemicals used in our REO separation processes at Resources, have decreased during the first half of 2013, as compared to the first half of 2012, variable production costs at Resources were unfavorably affected by higher consumption of those chemicals per unit of REO produced during the commissioning and testing phase of our new separation processes in the first half of 2013. Hydrochloric acid and caustic soda costs have decreased, on average and in the aggregate, by approximately 19% from the first half of 2012 to the first half of 2013, contributing to savings of approximately $0.13 cents per kilogram of REO produced, whereas the temporary higher consumption of chemicals associated with the start-up phase of our new separation processes led to a cost increase of approximately $1.60 per kilogram of REO produced. The commissioning and testing of the new separation processes at Resources also led to an increase in wastewater transportation costs of approximately $0.35 per kilogram of REO produced in the first half of 2013, as compared to the corresponding prior-year period. However, we anticipate sourcing more of our chemicals internally during the second half of 2013 and into 2014, when our chloralkali plant is expected to be fully operational and optimized, which will allow us to recycle water used in the REO separation process, as well as regenerate chemicals needed for the REO separation at the Resources segment. The anticipated incremental, but not absolute, sourcing of chemicals from within our Molycorp Mountain Pass facility, and the future elimination of our current need to transport wastewater at an offsite facility, are expected to gradually contribute to lowering our cost of production over the next few quarters.
Operating income for the three and six months ended June 30, 2013 was further reduced at the Resources segment by $9.9 million and $26.7 million, respectively, of finished goods and work-in-process inventory write-down to net realizable value, as compared to $9.4 million and $9.7 million for the corresponding periods in 2012, respectively. In addition, due to slow moving inventory and adjustments to estimated REO quantities, Resources recognized write-downs of stockpile inventory totaling $4.5 million and zero for the three months ended June 30, 2013 and 2012, $6.9 million and zero for the six months ended June 30, 2013 and 2012, respectively. The deterioration in REEs prices described above, combined with a lower inventory turnover caused by the current conservative purchasing pattern of our customers and the delays associated with our modernization and expansion efforts at our Molycorp Mountain Pass facility, led to this higher inventory write-down in the first half of 2013.        
We currently are conducting pilot and full-scale tests to determine the efficacy of SorbXTM in removing phosphates from municipal wastewater on a commercial basis as compared to other water treatment products. In addition, we expect to conduct similar tests with industrial wastewater. We are conducting these tests to determine the efficacy of SorbXTM beyond the laboratory-scale tests we previously have conducted. Based on the results of these tests, we expect to be able to determine the size and scope of the municipal and industrial wastewater treatment markets where SorbXTM will be effective.

51

Chemicals and Oxides
Comparative results for the Chemicals and Oxides segment were affected by the addition to our product mix of REO, salts of REEs, zirconium-based engineered materials and mixed rare earth/zirconium oxides from the Molycorp Canada acquisition on June 11, 2012. Chemicals and Oxides' sales volume in the first quarter of each year is particularly affected by the typical manufacturing slow down across Asia during the Chinese New Year and Spring Festival holidays.
Chemicals and Oxides' sales were $41.5 million on volume of 1,266 mt and $105.7 million on volume of 3,132 mt for the three and six months ended June 30, 2013, respectively. This compares to sales for this segment of $39.7 million on volume of 692 mt and $50.3 million on volume of 969 mt for the three and six months ended June 30, 2012, respectively. ASP was $32.76 per kilogram and $33.74 per kilogram for the three and six months ended June 30, 2013, respectively, as compared to $57.47 per kilogram and $51.91 per kilogram for the corresponding periods in 2012, respectively. The Molycorp Canada acquisition accounted for approximately 78% of the second quarter 2013 sales in this segment at an ASP of $38.20 per kilogram, and approximately 76% of the first half of 2013 sales at an ASP of $39.70 per kilogram. For the period from June 12, 2012 to June 30, 2012, the Molycorp Canada acquisition accounted for approximately $21.8 million of the second quarter 2012 sales in this segment at an ASP of $104.00 per kilogram.
Given the current global economic environment, customers in all market segments we serve have been monitoring closely and, in some instances, reducing their inventory levels. Although certain markets served by this segment have shown signs of improvements during the first and second quarter of 2013, demand for multi-layer ceramic capacitor, glass polishing and phosphor applications remained weak. REO demand for automotive catalyst and fluid cracking catalyst applications, as well as automotive and smaller battery applications, continued to improve during the first and second quarter of 2013, as compared to the corresponding periods in 2012.
The segment's operating income in the first and second quarter of 2013 was negatively affected by the release of inventory that was stepped-up in value in conjunction with the Molycorp Canada acquisition, which caused our costs of sales to be higher by $0.5 million and $2.5 million for the three and six months ended June 30, 2013, respectively, had we not stepped-up the inventory value at the time of acquisition. In addition, during the three and six months ended June 30, 2013, we recognized write-downs of inventory to net realizable value of $9.0 million and $11.7 million, respectively, and expensed $0.6 million and $2.0 million, respectively, of production-related costs that would have otherwise been charged to inventory if we maintained normal production levels. Write-downs of inventory to net realizable value during the three and six months ended June 30, 2012 were $9.7 million and $22.5 million, respectively. The prior-year periods write-downs were driven by the release of inventory that was stepped-up in value in conjunction with the Molycorp Silmet acquisition, which was completed at the time when abnormal premiums were placed on Chinese export quotas for REEs.
Magnetic Materials and Alloys
Comparative results for the Magnetic Materials and Alloys segment were affected by the inclusion of Neo Powders™ from the Molycorp Canada acquisition on June 11, 2012. Various manufacturers of hard disk drives, optical disc drives and office automation products represent the base markets for the Neo Powders™. First quarter sales in this segment are typically weaker than the following periods due to the fact that the first quarter of each year coincides with the end of the fiscal year for most Japanese companies in the supply chain predominantly served by the Magnetic Materials and Alloys segment. The effort by these companies to draw down inventory levels near to their year-end closing typically results into lower shipments of this segment's products.
Magnetic Materials and Alloys' revenues were $66.1 million on volume of 1,485 mt and $120.8 million on volume of 2,748 mt for the three and six months ended June 30, 2013, respectively. This compares to sales of $31.5 million on volume of 579 mt and $50.5 million on volume of 747 mt for the three and six months ended June 30, 2012, respectively. ASP was $44.52 per kilogram and $43.96 per kilogram for the three and six months ended June 30, 2013, respectively, as compared to $80.18 per kilogram and $116.77 per kilogram for corresponding periods in 2012, respectively. Sales of Neo Powders™ in the second quarter of 2013 accounted for approximately 86% of this segment revenues at an ASP of $38.38 per kilogram, and approximately 89% in the first half of 2013 at an ASP of $39.17 per kilogram. For the period from June 12, 2012 to June 30, 2012, the Molycorp Canada acquisition accounted for approximately $18.7 million of the second quarter 2012 sales in this segment at an ASP of $50.71 per kilogram. In the first half of 2012, revenues from this segment derived primarily from the sale of neodymium and samarium alloys to one customer.     
Magnetic Materials and Alloys' operating income for the three and six months ended June 30, 2013 was negatively affected by the write-down of inventory to net realizable value of $0.5 million and $0.6 million, respectively, and by $0.4 million and $0.8 million, respectively, of expenses for production-related costs that would have otherwise been charged to inventory if we maintained normal production levels. The inventory adjustment for six months ended June 30, 2013 was partially offset by the release of inventory that was stepped-down in value in conjunction with the Molycorp Canada acquisition, which caused our

52

costs of sales to be $0.1 million lower had we not stepped-down the inventory value at the time of acquisition. Write-downs of inventory to net realizable value at the Magnetic Materials and Alloys segment for the three and six months ended June 30, 2012 were $4.3 million and $4.5 million, respectively.     
Rare Metals
Comparative results for the Rare Metals segment were affected by the addition to our product mix of gallium, indium and rhenium from the Molycorp Canada acquisition on June 11, 2012.
Revenues from our Rare Metals segment were $25.0 million and $52.5 million for the three and six months ended June 30, 2013, respectively, as compared to $17.5 million and $31.2 million for the three and six months ended June 30, 2012, respectively. In the second quarter of 2013, this segment sold 92 mt of products at an ASP of $272.14 per kilogram, as compared to 94 mt at an ASP of $187.35 per kilogram for the corresponding period in 2012. For the six months ended June 30, 2013 and 2012, Rare Metals sold 173 mt and 168 mt of products, respectively, at an ASP of $303.27 per kilogram and $185.36 per kilogram, respectively. The Molycorp Canada acquisition accounted for approximately 75% of Rare Metals' sales for the three months ended June 30, 2013 at an ASP of $367.35 per kilogram, and 62% at an ASP of $376.48 per kilogram in the first half of 2013. For the period from June 12, 2012 to June 30, 2012, the Molycorp Canada acquisition accounted for approximately $3.1 million of the second quarter 2012 sales in this segment at an ASP of $391.50 per kilogram.
The continued adoption of LED applications, which require the use of some rare metals we produce, is allowing this segment to benefit from the diversification that our Chemicals and Oxides segment is experiencing relative to certain rare earth phosphor markets.
Similarly to the other segments, Rare Metals' operating income in the first and second quarter of 2013 was negatively affected by the release of inventory that was stepped-up in value in conjunction with the Molycorp Canada acquisition, which caused our costs of sales to be $0.5 million and $1.0 million higher for the three and six months ended June 30, 2013, respectively, had we not stepped-up the inventory value at the time of acquisition. In addition, during the same periods in 2013, we recognized write-down of inventory to net realizable value for $2.0 million and $2.1 million, respectively, and expensed $0.6 million and $0.6 million of production-related costs that would have otherwise been charged to inventory if we maintained normal production levels. There were no material adjustments to inventory in the corresponding periods of 2012 for this segment.
Selling, General and Administrative Expenses
Our consolidated selling, general and administrative expenses, including stock-based compensation, were $25.8 million and $52.3 million for the three and six months ended June 30, 2013, respectively, as compared to $23.1 million and $47.3 million for the three and six months ended June 30, 2012, respectively.
In the first quarter of 2013, we took a number of actions throughout the organization as part of our continuing effort to contain costs and increase the efficiency of our operations. As a result, we reduced a portion of our workforce, primarily within the Corporate group, and recognized employee severance and benefit costs of $2.1 million in our Corporate segment through the end of the second quarter 2013. As of June 30, 2013, we paid $1.4 million of these severance benefits using our available cash balance at that time. The remainder will be paid over eight months from June 30, 2013. Starting in the latter part of fiscal 2011 and all through fiscal 2012, there was a significant deterioration in prices of rare earth products. In addition, delays in ramping up our Molycorp Mountain Pass facility to its initial planned annual run rate in 2012 deferred our ability to enter into longer-term contracts and generate the anticipated synergies, including positive cash flows, expected from the Molycorp Canada acquisition, which we completed in June 2012. Although our long-term strategy remains in place, such as achieving full-scale commercial production at our Molycorp Mountain Pass facility in 2013 and targeting the downstream markets that we believe have the potential for stronger rare earth products demand later in 2013, the weaker-than-expected financial performance of the last few quarters, attributable mainly to the operational and economic factors described above, required us to make certain adjustments to our short-term strategy to conserve cash and minimize costs.

Start-up costs related to the construction of our Molycorp Mountain Pass facility, which are included in our consolidated selling, general and administrative expenses, were $0.6 million and $1.2 million during the three and six months ended June 30, 2013, as compared to $6.9 million and $15.8 million in the corresponding periods of 2012. This explains the fact that our consolidated selling, general and administrative expenses did not change significantly period-over-period despite the Molycorp Canada acquisition and the severance and benefit costs we recognized in the first and second quarter of 2013.





53

Corporate Development
Corporate development expenses were $0.1 million and $0.2 million for the three and six months ended June 30, 2013, respectively, as compared to $14.9 million and $18.3 million during the three and six months ended June 30, 2012, respectively, when we incurred the majority of due diligence and other costs related to the Molycorp Canada acquisition.
Depreciation, Amortization and Accretion
Consolidated depreciation and amortization expenses related to production were $18.6 million and $32.9 million for the three and six months ended June 30, 2013, respectively, as compared to $5.1 million and $8.5 million for the three and six months ended June 30, 2012, respectively. These period-over-period increases were primarily related to the addition of fixed assets acquired as part of the Molycorp Canada acquisition, and fixed assets that we constructed and placed into service at our Molycorp Mountain Pass facility subsequent to the first half of 2012.
Consolidated depreciation, amortization and accretion expenses unrelated to production were $8.3 million and $16.5 million for the three and six months ended June 30, 2013, respectively, as compared to $2.3 million and $2.6 million for the three and six months ended June 30, 2012, respectively. Such a large annual increase was mainly due to the addition of approximately $480.0 million in amortizable intangible assets in connection with the Molycorp Canada acquisition.
Research and Development
Consolidated research and development expenses were $6.5 million and $12.9 million for the three and six months ended June 30, 2013, respectively, as compared to $6.0 million and $9.7 million for the three and six months ended June 30, 2012, respectively. These period-over-period increases were attributable mainly to the addition of laboratories in Singapore and the United Kingdom as a result of the Molycorp Canada acquisition, which bolstered our efforts to improve the efficiency of our REO processing operations, to develop new applications for individual REEs and research value added rare metals applications. These expenses, which we anticipate to continue to increase in the future, consist primarily of salaries, outside labor, material and equipment.
Interest Expense
The significant increase in our short-term and long-term indebtedness from May 2012 to January 2013 led to the higher interest cost in the first and second quarter of 2013, as compared to the same quarters in 2012. Approximately 58% of the interest cost on our long-term debt was capitalized, on average, for the three and six months ended June 30, 2013, whereas the interest on our long-term debt outstanding during the first and second quarter of 2012 was virtually all capitalized.
Foreign exchange (loss) gain
We had a net foreign currency transaction gain of $1.7 million and $1.3 million during the three and six months ended June 30, 2013, respectively, as compared to a foreign currency transaction loss of $2.8 million and $1.2 million for the three and six months ended June 30, 2012, respectively, related primarily to the revaluation in euro of U.S. dollar monetary balances owed by Molycorp Silmet.
Other Expense
On March 28, 2012, we entered into a contingent forward contract to purchase Canadian dollars with a notional amount of Cdn$870.0 million to manage the foreign currency exposure with respect to our acquisition of Molycorp Canada. As of March 31, 2012, we recognized a loss of $6.7 million in other expense related to this contract.
Capital Expenditures
Our consolidated capital expenditures, on an accrual basis and excluding capitalized interest, totaled $58.1 million and $157.4 million for the three and six months ended June 30, 2013, respectively, as compared to $234.9 million and $496.9 million for the three and six months ended June 30, 2012, respectively. The majority of these capitalized costs related to the modernization and expansion of our Molycorp Mountain Pass facility.


54

Related Party Transactions
We supply Neo Powders™ to our equity method investee TMT to produce rare earth magnetic compounds, and purchase these compounds back from TMT in the normal course of business. Keli, another equity method investees of ours, processes rare earth oxides into metals for inclusion in the Neo Powders™, also in the normal course of business.
For the three and six months ended June 30, 2013, we sold $1.1 million and $2.0 million, respectively, of Neo Powders™ to TMT, and purchased rare earth magnetic compounds from TMT for $0.4 million and $0.9 million, respectively.
We also purchased metals and received services from Keli for a total of $14.7 million and $24.4 million during the three and six months ended June 30, 2013 respectively.
Our equity method investee Ingal Stade sells gallium to our facilities located in Ontario, Canada and to some of our facilities in the United States. For the three and six months ended June 30, 2013, we purchased $1.1 million and $2.3 million, respectively, of gallium metal from Ingal Stade.
For the period from June 12, 2012 to June 30, 2012, we purchased $0.5 million worth of compounds from TMT, we purchased metals and received services from Keli totaling $5.3 million, and purchased $0.5 million of gallium metal from Ingal Stade.
Outlook for the Remainder of 2013
We are seeing increasingly bullish signals from customers across several segments for product demand in the second half of 2013, although we presently anticipate significantly lower than previously expected revenues and cash flow from operations. With regard to our Molycorp Mountain Pass facility, we expect to produce at rates that make economic sense and that correspond to market demand and maximize financial returns, and not necessarily produce just to meet original design specifications. As we continue to optimize operations at our Molycorp Mountain Pass facility, and bring up the chloralkali plant in in the second half of 2013, we should be ready to adjust production to meet customer demand and be price competitive with any rare earth producer in the world.
Capital Requirements
We expect capital expenditures for the modernization and expansion efforts and certain other capital projects at our Molycorp Mountain Pass Rare Earth facility to total approximately $1.54 billion. This updated projection includes certain expenditures that are expected to be deferred until 2014, including discretionary expenditures required only to expand production beyond the Molycorp Mountain Pass facility's designed capacity of 19,050 mt of REO, if and when market demand, product pricing, capital availability and financial returns will justify such production. Of the $1.54 billion projected capital expenditures, we had spent approximately $1.30 billion on a cash basis through June 30, 2013, excluding capitalized interest.
As of June 30, 2013, we estimate cash expenditures totaling approximately $150 million through December 31, 2013 and approximately $85 million in 2014 to fund remaining capital expenditures for the modernization and expansion efforts and certain other capital expenditures at our Molycorp Mountain Pass facility. Additionally, we expect to spend approximately $17 million on other maintenance and expansion capital expenditures across all operating segments during the second half of 2013, some of which is discretionary.
Other cash requirements for the remainder of 2013 include the final payment of approximately $6.0 million to the noncontrolling shareholder of our majority owned Jiangyin Jia Hua Advanced Materal Resources Co. Ltd. facility in Jiangyin, China, and preferred stock dividend payments of approximately $5.6 million, if and after they are declared by our Board of Directors to be paid in cash.    
Liquidity and Capital Resources
Given the combination of ramping up toward the designed capacity of 19,050 mt of REO per year at our Molycorp Mountain Pass facility and the declining pricing environment of rare earth elements, or REEs, we anticipate significantly lower than previously expected revenues and cash flow from operations through the remainder of 2013.
We plan to fund our capital expenditures primarily from our consolidated cash balances of $264.2 million as of June 30, 2013, and cash generated from operations. While our cash balances as of June 30, 2013 will fund a substantial portion of these capital needs, the full funding of our planned capital expenditures continues to be dependent on (i) our cost estimates for capital

55

expenditures being accurate, (ii) our ability to ramp up run rates at our Molycorp Mountain Pass facility pursuant to our expectations without delays, (iii) our ability to generate sufficient cash flow from our operating segments, under variable market conditions that continue to be weaker than anticipated, to meet other cash needs (we estimate that a 15% drop in market prices for all REEs would reduce our estimated consolidated cash balance as of December 31, 2013 by approximately $8 million and that a 15% drop in volumes would reduce our estimated consolidated cash balance as of December 31, 2013 by approximately $30 million), (iv) our ability to sell our entire production of REO and (v) the absence of any payments on current and future contingent liabilities. If these assumptions prove inaccurate, our estimates could prove incorrect and it may need additional financing.
In addition to the remaining capital expenditures at our Molycorp Mountain Pass facility and other operating facilities, we expect to fund our working capital and other cash requirements, with our available cash balances of $264.2 million at June 30, 2013, anticipated future cash flow from operations at certain segments, potential proceeds from revolving credit facilities, equity issuances, and lease and loan financing for certain equipment that we are currently pursuing in our normal process of properly managing our cash and working capital requirements.
There can be no assurance that we will be successful in securing access to additional cash proceeds through the revolving credit facilities or other forms of financing that we are currently pursuing on commercially acceptable terms, or at all. Accordingly, if necessary, we believe we have the ability to curtail capital expenditures and revise our current business plan to the extent necessary to preserve adequate liquidity sufficient to sustain operations.
Cash Used in Operating Activities
Net cash used in operating activities was $74.0 million during the six months ended June 30, 2013, as compared to $64.4 million in the corresponding prior year period. This change was primarily driven by higher costs of sales incurred during the final start-up phases of the modernization and expansion efforts at our Molycorp Mountain Pass facility, and much larger interest expenses.
Cash Used in Investing Activities
Net cash used in investing activities in the half of 2013 were $268.4 million as compared to $1.0 billion in the first half of 2012. This decrease was attributable to our acquisition of Molycorp Canada in June 2012 combined with a slow down in capital expenditures at the Molycorp Mountain Pass facility, where the largest and more complex infrastructures erected as part of our expansion and modernization efforts are about to be completed.
Cash from Financing Activities
Net cash provided from financing activities were $378.5 million and $1.0 billion during the six months ended June 30, 2013 and 2012, respectively. In the first half of 2013, we raised $413.8 million, net of underwriting discount and transaction costs, through the issuance of our 5.50% convertible notes and the issuance of 43,125,000 shares of common stock. These cash inflows were partially offset by the repayment of certain bank loans of $27.3 million, the payment of preferred stock dividends of $5.7 million and other dividends we paid to one of our noncontrolling interests of $1.9 million. In the first half of 2012, we issued $650.0 million aggregate principal amount of our Senior Notes and raised $390.2 million through the issuance of common stock in a private placement to an entity that now is one of our largest stockholders.
Liquidity of Subsidiaries
Our total $264.2 million of cash and cash equivalents at June 30, 2013 is comprised of: 1) $113.9 million held by Molycorp Minerals, LLC; 2) $3.5 million held by Molycorp Silmet; 3) $6.8 million held by MMA; and 4) $140.0 million held by Molycorp Canada.
At June 30, 2013, our foreign operating subsidiaries held cash and cash equivalents in foreign countries as follows:






56


 
(In thousands)
China (including Hong Kong)
$
89,605

Barbados
21,583

Canada
7,350

Japan
2,606

Germany
(301
)
United Kingdom
3,021

Thailand
1,357

Korea
625

Singapore
942

Estonia
3,514

Luxembourg
80

Other
21

Total cash and cash equivalents in foreign countries
130,403

 
 
United States
133,759

Total cash and cash equivalents
$
264,162

In addition to cash and cash equivalents, the primary sources of liquidity of our subsidiaries are cash provided by operations and, in the case of our activities in China, Japan and Estonia, borrowing under certain bank loans. From time to time, the sources of liquidity for our subsidiaries may be supplemented by intercompany loans in the form of interest bearing unsecured promissory notes. At June 30, 2013, Molycorp, Inc. had a net receivable balance of $367.5 million from MCP Exchangeco Inc.; Molycorp Minerals Canada ULC had a net receivable balance from Molycorp Minerals, LLC of $100.0 million; Magnequench International Inc. had a net receivable balance of $40.0 million from Molycorp Minerals, LLC; Molycorp Minerals, LLC had a net receivable balance from: Molycorp Minerals Canada ULC of $217.5 million, from Molycorp Silmet of $18.5 million, from MMA of $2.0 million and from our liaison office in Tokyo, Japan of $0.3 million. Our subsidiaries' liquidity generally is used to fund their working capital requirements, investments, capital expenditures and third-party debt service requirements.

57

Contractual Obligations
At June 30, 2013, we had the following contractual obligations:
 
Payments Due by Period
Contractual Obligations
Total
 
Less Than
1 Year
 
1 - 3 Years
 
4 - 5 Years
 
More Than
5 Years
 
(In thousands)
Operating lease obligations (1)
$
7,845

 
$
2,709

 
$
3,627

 
$
425

 
$
1,085

Purchase obligations and other commitments (2)
216,204

 
191,135

 
13,349

 
6,717

 
5,002

Employee obligations (3)
1,000

 
1,000

 
—

 
—

 
—

Asset retirement obligations (4)
34,766

 
1,993

 
7,780

 
393

 
24,600

Debt and capital lease obligations, including fixed interest payments
2,146,770

 
121,255

 
553,322

 
747,385

 
724,808

Total
$
2,406,585

 
$
318,092

 
$
578,078

 
$
754,920

 
$
755,495

(1)
Represents all operating lease payments for office space, land and office equipment.
(2)
Represents contractual commitments for the purchase of materials and services from vendors.
(3)
Represents primarily payments due to employees for awards under our annual incentive plan.
(4)
Under applicable environmental laws and regulations, we are subject to reclamation and remediation obligations resulting from our operations. The amounts presented above represent our estimated future undiscounted cash flows required to satisfy the obligations currently known to us.
Off-Balance Sheet Arrangements
As of June 30, 2013, our only off-balance sheet arrangements are the operating leases and purchase obligations included in the contractual obligations table above.
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standard Board ("FASB") issued ASU 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires companies to report, in one place, information about reclassifications out of accumulated other comprehensive income ("AOCI"). Companies also are required to present reclassifications by component when reporting changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the period, companies must report the effect of the reclassifications on the respective line items in the statement where net income is presented. In certain circumstances, this can be done on the face of that statement. Otherwise, it must be presented in the notes. For items not reclassified to net income in their entirety in the period (e.g., pension amounts that are capitalized in inventory), companies must cross-reference in a note to other required disclosures. This update was effective for public companies in fiscal years, and interim periods within those years, beginning after 15 December 2012. The adoption of this updated guidance did not have any impact on our financial statements and related disclosures.
In July 2012, the FASB issued ASU 2012-02, Intangibles - Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment. In accordance with this update, an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount and record an impairment charge, if any. The update was effective for annual and interim period impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption was permitted. The adoption of this updated guidance did not have any impact on our financial statements and related disclosures.


58

GLOSSARY OF SELECTED REEs, RARE METALS AND MINING TERMS
The following is a glossary of selected REEs, rare metals and mining terms used in this Quarterly Report on Form 10-Q that may be technical in nature:
Assay
The analysis of the proportions of metals in ore, or the testing of an ore or mineral for composition, purity, weight, or other properties of commercial interest.
Bastnasite
Bastnasite is a mixed-lanthanide fluoro-carbonate mineral (Ln F CO3) that currently provides the bulk of the world's supply of the light REEs. Bastnasite and monazite are the two most common sources of cerium and other REEs. Bastnasite is found in carbonatites, igneous carbonate rocks that melt at unusually low temperatures.
Bonded magnet
Bonded neodymium-magnets are prepared by melt spinning a thin ribbon of the Nd-Fe-B alloy. The ribbon contains randomly oriented Nd2Fe14B nano-scale grains. This ribbon is then pulverized into particles, mixed with a polymer and either compression or injection molded into bonded magnets. Bonded magnets offer less flux than sintered magnets, but can be net-shape formed into intricately shaped parts and do not suffer significant eddy current losses.
Cerium
Cerium (Ce) is a soft, silvery, ductile metal that easily oxidizes in air. Cerium is the most abundant of the REEs, and is found in a number of minerals, including monazite and bastnasite. Cerium has two relatively stable oxidation states, enabling both the storage of oxygen and its widespread use in catalytic converters. Cerium is also widely used in glass polish.
Concentrate
A mineral processing product that generally describes the material that is produced after crushing and grinding ore, effecting significant separation of gangue (waste) minerals from the desired metal and/or metal minerals, and discarding the waste minerals. The resulting “concentrate” of minerals typically has an order of magnitude higher content of minerals than the beginning ore material.
Cut-off grade
The lowest grade of mineralized material that qualifies as ore in a given deposit. The grade above which minerals are considered economically mineable considering the following parameters: estimates over the relevant period of mining costs, ore treatment costs, general and administrative costs, refining costs, royalty expenses, by-product credits, process and refining recovery rates and price.
Didymium
Didymium is a natural and unseparated combination of neodymium and praseodymium, which is approximately 75% neodymium and 25% praseodymium, depending on the ore.
Dysprosium
A few percent of Dysprosium (Dy) is often added to high power neodymium iron boron magnets to increase their resistance to demagnetization. A minor use of dysprosium is in the magnetostrictive alloy, based on DyTbFe called terfenol-D.
Europium
Europium (Eu) is desirable due to its photon emission. Excitation of the europium atom, by absorption of electrons or by UV radiation, results in changes in energy levels that create a visible emission. Almost all practical uses of europium utilize this luminescent behavior.
Gadolinium
Gadolinium (Gd) absorbs neutrons and therefore is used for shielding and controlling neutron radiography and in nuclear reactors. Because of its paramagnetic properties, solutions of organic gadolinium complexes and gadolinium compounds are popular intravenous contrast enhancing agents for medical Magnetic Resonance Imaging contrast agents in (MRI). Gadolinium is sometimes added to samarium cobalt magnets to make their magnetic properties less temperature dependent.
Gallium
Elemental gallium is not found in nature, but it is easily obtained by smelting. Very pure gallium metal has a brilliant silvery color and its solid metal fractures conchoidally like glass. Almost all gallium is used for microelectronics.
Grade
The average REE content, as determined by assay of a metric ton of ore.
Indium
A rare, very soft, malleable and easily fusible post-transition metal that is chemically similar to gallium and thallium, and shows intermediate properties between these two. Indium's current primary application is to form transparent electrodes from indium tin oxide (ITO) in liquid crystal displays and touchscreens, and this use largely determines its global mining production. It is widely used in thin-films to form lubricated layers. It is also used for making particularly low melting point alloys, and is a component in some lead-free solders.
Lanthanum
Lanthanum (La) is the first member of the Lanthanide series. Lanthanum is a strategically important rare earth element due to its use in fluid bed cracking catalysts, FCCs, which are used in the production of transportation and aircraft fuel. Lanthanum is also used in fuel cells and batteries.
Mill
A processing plant that produces a concentrate of the valuable minerals contained in an ore.
Mineralization
The process or processes by which a mineral or minerals are introduced into a rock, resulting in a valuable or potentially valuable deposit.
Monazite
Monazite is a reddish-brown phosphate mineral. Monazite minerals are typically accompanied by concentrations of uranium and thorium. This has historically limited the processing of monazite, however this mineral is becoming more attractive because it typically has elevated concentrations of mid-to heavy rare earths.

59

Niobium
Niobium is a rare, soft, grey, ductile transition metal found in the minerals pyrochlore, the main commercial source for niobium, and columbite. Niobium is used mostly in alloys, the largest part in special steel such as that used in gas pipelines. Although alloys contain only a maximum of 0.1%, that small percentage of niobium improves the strength of the steel. The temperature stability of niobium-containing superalloys is important for its use in jet and rocket engines. Niobium is used in various superconducting materials.
Neodymium
Neodymium (Nd) has two major uses. It is key constituent of NdFeB permanent magnets and it is an additive to capacitor dielectrics. NdFeB magnets maximize the power/weight ratio, and are found in a large variety of motors, generators, sensors and hard disk drives. Capacitors containing neodymium are found in cellular telephones, computers and nearly all other electronic devices. A minor application of neodymium is in lasers.
Ore
That part of a mineral deposit which could be economically and legally extracted or produced at the time of reserve determination.
Overburden
In surface mining, overburden is the material that overlays an ore deposit. Overburden is removed prior to mining.
Praseodymium
Praseodymium (Pr) comprises about 4% of the lanthanide content of bastnasite and has a few specific applications, based mainly on its optical properties. It is a common coloring pigment, and is used in photographic filters, airport signal lenses, and welder's glasses. Because it chemically and magnetically is so similar to its neighbors neodymium and lanthanum, it is typically found in small amounts in applications where neodymium and lanthanum are popular, such as NdFeB magnets and catalysts. These latter applications are actually the largest uses for praseodymium because the magnet and catalyst markets are so large. Thus praseodymium plays an important role, in extending the availability of the more popular neodymium and lanthanum.
Probable reserves
Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
Proven reserves
Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established.
Recovery
The percentage of contained metal actually extracted from ore in the course of processing such ore.
Reserves
That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Same definition as 'ore'
Rhenium
It is a silvery-white, heavy, third-row transition metal. With an estimated average concentration of 1 part per billion (ppb), rhenium is one of the rarest elements in the Earth's crust. The free element has the third-highest melting point and highest boiling point of any element. Rhenium resembles manganese chemically and is obtained as a by-product of molybdenum and copper ore's extraction and refinement. Nickel-based superalloys of rhenium are used in the combustion chambers, turbine blades, and exhaust nozzles of jet engines. These alloys contain up to 6% rhenium, making jet engine construction the largest single use for the element, with the chemical industry's catalytic uses being next-most important.
Samarium
Samarium (Sm) is predominantly used to produce samarium cobalt magnets. Although these magnets are slightly less powerful than NdFeB magnets at room temperature, samarium cobalt magnets can be used over a wider range of temperatures and are less susceptible to corrosion.
Sintered magnet
Sintered neodymium-magnets are prepared by the raw materials being melted in a furnace, cast into a mold and cooled to form ingots. The ingots are pulverized and milled to tiny particles. This undergoes a process of liquid-phase sintering whereby the powder is magnetically aligned into dense blocks which are then heat-treated, cut to shape, surface treated and magnetized.
Tantalum
Tantalum is a rare, hard, blue-gray, lustrous transition metal that is highly corrosion resistant. It is part of the refractory metals group, which are widely used as minor component in alloys. The chemical inertness of tantalum makes it a valuable substance for laboratory equipment and a substitute for platinum, but its main use today is in tantalum capacitors in electronic equipment such as mobile phones, DVD players, video game systems and computers.
Terbium
Terbium (Tb) is used primarily as a phosphor, either in fluorescent lamps or x-ray screens. It can replace dysprosium in NdFeB magnets but usually does not because of its cost. A minor use of terbium is in the magnetostrictive alloy, based on DyTbFe called terfenol-D.
Yttrium
Yttrium (Y), although not a lanthanide series element, is often considered to be a rare earth element and its behavior is similar to heavy rare earth elements. It is predominantly utilized in lighting applications and ceramics. Other uses include resonators, lasers, microwave communication devices and other electronic devices.
Zirconium oxide
A white amorphous powder that is insoluble in water and highly refractory, used as a pigment for paints, a catalyst, and an abrasive.


60

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our operations may be impacted by commodity prices, geographic concentration, changes in interest rates and foreign currency exchange rates.
Commodity Price Risk
Our current principal product mix, including cerium, lanthanum, neodymium, praseodymium, yttrium, europium, dysprosium, terbium, zirconium oxides, gallium, indium, rhenium, tantalum and niobium are commodities but are not traded on any commodity exchange. As such, direct hedging of the prices for future production cannot be undertaken. A portion of our current business is conducted in the spot market; therefore, prices can vary with the transaction and individual bids received. Our products are primarily marketed to manufacturers as component materials. Prices will vary based on the demand for the end products being produced with the mineral resources we mine and process.
Our sales and profitability are determined principally by the price of the rare earth products, rare metals and magnet alloys that we produce and, to a lesser extent by the price of natural gas and other supplies used in the production process. The prices of our rare earth products are influenced by the price and demand of the end products that our products support, including automotive, electronics and clean energy technologies. A significant decrease in the global demand for these products may have a material adverse effect on our business. We currently have no significant hedging contracts for revenues and costs in place and intend to consider hedging strategies in the future.
Our costs and capital investments are subject to market movements in other commodities such as natural gas and chemicals. We may enter into derivative contracts for a portion of the expected usage of these products, but we do not currently have any derivative contracts on these commodities and we do not currently anticipate entering into derivative agreements on commodities.
Interest Rate Risk
Our exposure to the interest rate risk as a result of our total variable interest debt, which totaled $16.4 million at June 30, 2013, would result in an approximately $0.2 million annual increase/decrease in interest rate expense for every 100 basis point increase/decrease in the underlying interest rate. We are not significantly impacted by variations in interest rates at this time. Our exposure to interest rate risk would increase if, for example, we obtain and utilize additional debt facilities in the future.    
Foreign Currency Risk
We are exposed to fluctuations of the U.S. dollar (our reporting currency) against the functional currencies of our foreign subsidiaries, including the Euro, the Canadian dollar, the Chinese Renminbi and the Japanese Yen, when we translate our foreign subsidiaries' financial statements into U.S. dollars for inclusion in our consolidated financial statements. Cumulative translation adjustments are recorded in accumulated other comprehensive income (loss) as a separate component of equity. Any increase (decrease) in the value of the U.S. dollar against those foreign currencies results in unrealized foreign currency translation losses (gains) with respect to assets acquired in, liabilities assumed from, intercompany balances with and results of operations from our foreign subsidiaries. Therefore, we may experience a negative impact on our comprehensive income (loss) and stockholders' equity with respect to our holdings in those subsidiaries as a result of foreign currency translation. We generally do not hedge against the risk that we may incur non-cash losses upon the translation of the financial statements of our foreign subsidiaries into U.S. dollars.


61

ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, or the Exchange Act, the Company's management, with the participation of our Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the Company's “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on its evaluation, in light of the material weakness described below that resulted in a restatement of the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2013, the Company's management, including our Chief Executive Officer and our Chief Financial Officer, have concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2013 to ensure that information the Company is required to disclose in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported with the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to its management as appropriate to allow timely decisions regarding required disclosure.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
Sufficient complement of accounting and financial reporting personnel
As of June 30, 2013, we continued to have a material weakness as we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our financial reporting requirements. This limited our ability, in certain areas, to ensure the necessary consistent communication, reinforcement, and application of accounting policies to make appropriate accounting adjustments and disclosure decisions and resulted in ineffective review of certain reconciliations and journal entries and errors in recording transactions in the financial records.
In light of the material weakness as of March 31, 2013 described above, we re-evaluated our conclusion regarding the effectiveness of our internal control over financial reporting as of December 31, 2012. During our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2012, we identified certain deficiencies that were not considered to be a material weakness, either individually or in the aggregate. Given the subsequent identification of a material weakness for the quarter ended March 31, 2013, we now consider certain control deficiencies identified as of December 31, 2012 to be a material weakness when considered in the aggregate. As of December 31, 2012, we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our financial reporting requirements. This limited our ability, in certain areas, to ensure the necessary consistent communication, reinforcement, and application of accounting policies to make appropriate accounting adjustments and disclosure decisions and resulted in ineffective review of certain reconciliations and journal entries and errors in recording transactions in the financial records.
The control deficiency described above could result in a material misstatement to the annual consolidated financial statements and disclosures or to the interim consolidated financial statements and disclosures that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness. Although our remediation efforts are continuing, during the quarter ended June 30, 2013, we hired additional accounting and financial reporting personnel, including an Operations Controller at our Mountain Pass facility. No additional material misstatements of the Company's historical annual or interim consolidated financial statements and disclosures have been identified.
Remediation plan
In response to the material weakness described above, our management, with oversight from our Audit and Ethics Committee, is dedicating appropriate resources to remediate such material weakness. Until the remediation steps set forth below are fully implemented, the material weakness described above will continue to exist.
Management is taking the following actions to remediate the material weakness related to our complement of accounting and financial reporting personnel described above:

62

•
Re-training the accounting staff at our Mountain Pass operation on the performance of controls for the preparation, execution and review of the calculation of inventory and costs of sales, and controls that are intended to ensure that all accounting reconciliations and journal entries are appropriately prepared and reviewed;
•
Replaced the Operations Controller at our Mountain Pass operation; and
•
Supplementing our accounting department with personnel having an appropriate level of accounting knowledge, experience and training commensurate with our financial reporting requirements, and training them on our control procedures that are intended to ensure that all accounting reconciliations and journal entries are appropriately prepared and reviewed.
 Inherent limitations of internal controls

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Exclusion from our assessment of the effectiveness of our internal control over financial reporting
 
We acquired the predecessor of Molycorp Minerals Canada ULC in the second quarter of 2012 and we have excluded Molycorp Minerals Canada ULC from our assessment of the effectiveness of our internal control over financial reporting. As such, the scope of our assessment of the effectiveness of our controls and procedures does not include Molycorp Minerals Canada ULC. This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from our scope in the year of acquisition. Our assessment of the effectiveness of our controls and procedures for the year ending December 31, 2013 will include Molycorp Minerals Canada ULC.
Changes in internal control over financial reporting

There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting, other than the remediation efforts taken with respect to the material weakness described above.



63

PART II. OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS.
From time to time, we may become subject to various legal and regulatory proceedings relating to our business.
        In February 2012, a purported class action lawsuit captioned, Angelo Albano, Individually and on Behalf of All Others Similarly Situated v. Molycorp, Inc., et al., was filed against the Company and certain of its executive officers in the U.S. District Court for the District of Colorado. This federal court action alleges, among other things, that the Company and those officers violated Section 10(b) of the Securities Exchange Act of 1934 in connection with statements relating to its third quarter fiscal 2011 financial results and fourth quarter 2011 production guidance that the Company had filed with or furnished to the SEC, or otherwise made available to the public. In July 2012, the plaintiffs filed an amended consolidated class action complaint against the Company, certain of its officers and directors, certain of its private equity investors, and certain underwriters involved in our public offerings in 2011. The amended complaint alleges, among other things, that some or all of the defendants violated Sections 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 as well as Sections 11, 12(a)(2) and 15 of the Securities Act . The plaintiffs are seeking unspecified damages and other relief. In October 2012, the defendants filed a motion to dismiss all the claims in the amended complaint. The motion has been fully briefed and is pending.  No hearing date has been set. The Company believes the allegations are without merit and that it has valid defenses to such allegations. The Company intends to defend this action vigorously. The Company is unable to provide meaningful quantification of how the final resolution of these claims may impact its future consolidated financial position or results of operations.
        Eight stockholder derivative lawsuits have been filed in three different jurisdictions purportedly on behalf of Molycorp, Inc., against certain of its directors and officers, and certain of its private equity investors. These cases have been filed in the Delaware Court of Chancery, the U.S. District Court in Colorado, and the District Court in Arapahoe County, Colorado. They are captioned: Gaines v. Smith et al., Case No. 7282 (Del. Ch. Feb. 12, 2012); Paskowitz v. Smith et al., Case No. 7319 (Del. Ch. Mar. 9, 2012); Wilson v. Smith et al., No. 7395-VCN (Del. Ch. April 4, 2012); Resource Equities, G.P. v. Smith et al., Case No. 8744 (Del. Ch. July 23, 2013); Wells v. Smith et al., No. 1:12-cv-00447-WJM (D. Colo. Feb. 21, 2012); Swaggerty v. Smith et al., No. 12-cv-00589-CMA-KLM (D. Colo. Mar. 7, 2012); Clem v. Smith et al., No. 12 CV 392 (Arapahoe Cnty., Colo. Feb. 24, 2012); and Nationwide Consulting, Inc. v. Smith et al., No. 12 CV 448 (Arapahoe Cnty., Colo. Mar. 5, 2012). The Clem and Nationwide cases, which were previously consolidated under the caption Clem v. Smith et al., No. 12 CV 392 (Arapahoe Cnty., Colo.), have been voluntarily dismissed without prejudice. The Wells and Swaggerty cases have both been dismissed without prejudice in favor of the lawsuits proceeding in the Delaware Court of Chancery.  As a result, plaintiffs in the Wells and Swaggerty cases filed notices of appeal before the 10th Circuit. The defendants have filed a responsive brief in the 10th Circuit in the Wells and Swaggerty cases. The 10th Circuit case has been fully briefed and the court has heard oral argument. The court has not yet ruled on the appeal.
        The derivative cases have been consolidated, with the exception of the Wells and Swaggerty cases, which are the subject of an appeal in the 10th Circuit, and the recently filed Resource Equities case, which has yet to be consolidated with the earlier filed cases, and are proceeding in the Delaware Court of Chancery. In August 2012, a consolidated amended shareholder derivative complaint was filed with the Delaware Court of Chancery challenging, among other things, certain sales of stock by officers, directors and private equity firms, and certain Molycorp corporate acquisitions during 2011. The amended complaint asserts causes of action for: (1) alleged breaches of fiduciary duty, including the duties of loyalty and due care; (2) alleged breach of fiduciary duty not to trade on or misuse material non-public information; (3) alleged unjust enrichment; and (4) alleged aiding and abetting a breach of fiduciary duty against controlling stockholders. On behalf of Molycorp, the plaintiffs in the derivative actions seek, among other things, monetary damages, restitution, an accounting, and certain changes to corporate governance procedures. On October 22, 2012, the defendants filed motions to dismiss and motions to stay the consolidated Delaware derivative action pending resolution of the securities class action lawsuit. By order dated May 15, 2013, the Delaware Court of Chancery granted the defendants' motions to stay the consolidated Delaware derivative action pending final disposition of the securities class action lawsuit, subject to the ability of any party to move to vacate the order for good cause. As a result of this order, all actions in the Delaware derivative action currently are stayed pending final disposition of the securities class action lawsuit.
In August 2012, the staff of the SEC notified the Company that a formal order of investigation (the "Investigation") had been issued regarding, among other things, the accuracy of the Company's public disclosures. On June 27, 2013, the staff of the SEC notified the Company that the Investigation has been completed and that the staff does not intend to recommend any enforcement action by the SEC against the Company.

64

ITEM 1A.    RISK FACTORS.
There were no material changes to the risk factors disclosed in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the SEC on March 18, 2013.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.  MINE SAFETY DISCLOSURES.
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95.1 to this Quarterly Report on Form 10-Q.
ITEM 5.    OTHER INFORMATION.
None.
ITEM 6.    EXHIBITS.
See the Exhibit Index at the end of this document, which is incorporated by reference herein.


65


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
MOLYCORP, INC.
 
 
 
August 14, 2013
By:
/s/ Constantine E. Karayannopoulos
 
 
Constantine E. Karayannopoulos
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
August 14, 2013
By:
/s/ Michael F. Doolan
 
 
Michael F. Doolan
Chief Financial Officer
(Principal Financial Officer)



66

EXHIBIT INDEX
3.1

 
Amended and Restated Certificate of Incorporation of Molycorp, Inc., as amended (incorporated by reference to Exhibit 3.1 to Molycorp, Inc.'s Quarterly Report on Form 10-Q (File No. 001-34827) for the quarterly period ended June 30, 2012)
3.2

 
Bylaws of Molycorp, Inc., amended as of August 3, 2010 (incorporated by reference to Exhibit 3.2 to Molycorp, Inc.’s Current Report on Form 8-K (File No. 001-34827) filed with the Securities and Exchange Commission on August 6, 2010
10.1

 
Letter Agreement, dated May 29, 2013, by and between Molycorp, Inc. and Constantine Karayannopoulos.
31.1

 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2

 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1

 
Certification pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95.1

 
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
101.INS

 
XBRL Instance Document
101.SCH

 
XBRL Taxonomy Extension Schema Document
101.CAL

 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF

 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB

 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE

 
XBRL Taxonomy Extension Presentation Linkbase Document



67