Molycorp Corporate Presentation - January 2011


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Molycorp Corporate Presentation - January 2011

  1. 1. RARE EARTH RESURGENCE:Building A Mine-To-Magnets Rare Earths Supply Chain January 2011 Update
  2. 2. Forward-Looking Statements and Other Important CautionsThis presentation contains forward‐looking statements that represent Molycorp’s beliefs, projections and predictions about future events or Molycorp’s future performance. Forward‐looking statements can be identified 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 Molycorp’s 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.Factors that may cause actual results to differ materially from expected results described in forward‐looking statements include, but are not limited to:  Molycorp’s ability to secure sufficient capital to implement its business plans; Molycorp’s ability to complete its  modernization and expansion efforts and reach full planned production rates for rare earth oxides and other planned downstream products; uncertainties associated with Molycorp’s reserve estimates and non‐reserve deposit information; uncertainties regarding global supply and demand for rare earths materials; Molycorp’s ability to maintain appropriate relations with unions and employees; Molycorp’s ability to successfully implement its “mine‐to‐magnets” strategy; environmental laws, regulations and permits affecting Molycorp’s 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 Molycorp; and uncertainties associated with unanticipated geological conditions related to mining.For more information regarding these and other risks and uncertainties that Molycorp may face, see the section entitled “Risk Factors” in Molycorp Quarterly Report on Form 10‐Q for the quarterly period ended September 30, 2010 filed with the SEC. Any forward‐looking statement contained in this presentation, or the Quarterly Report on Form 10‐Q , reflects Molycorp’s current views with respect to future events and Molycorp assumes 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.This presentation also contains statistical data and estimates obtained by Molycorp from industry publications and reports generated by third parties. Although Molycorp believes that the publications and reports are reliable, it has not independently verified such data.THIS PRESENTATION USES THE TERM “RESOURCES” TO DESCRIBE THOSE QUANTITIES OF REE’S THAT ARE POTENTIALLY RECOVERABLE FROM ACCUMULATIONS YET TO BE DISCOVERED. BECAUSE OF THE UNCERTAINTY OF COMMERCIALITY AND LACK OF SUFFICIENT EXPLORATION DRILLING, THE RESOURCES CANNOT BE CLASSIFIED AS RESERVES. INVESTORS ARE ADVISED THAT THE SEC DOES NOT RECOGNIZE RESOURCES. ONLY PROBABLE AND POSSIBLE RESERVES MAY BE DISCLOSED TO INVESTORS IN AN SEC FILING. RESOURCES HAVE A GREAT AMOUNT OF UNCERTAINTY AS TO THEIR EXISTENCE. THERE IS NO CERTAINTY THAT ANY PORTION OF THE RESOURCES WILL BE DISCOVERED AND, IF DISCOVERED, WHETHER THEY COULD BE DEVELOPED ECONOMICALLY. THEREFORE, INVESTORS ARE CAUTIONED NOT TO ASSUME THAT ALL OR ANY PART OF MOLYCORP’S RESOURCES EXIST, OR THAT THEY CAN BE DEVELOPED ECONOMICALLY. ACCORDINGLY, INFORMATION CONCERNING DESCRIPTIONS OF RESOURCES CONTAINED IN THIS PRESENTATION IS NOT COMPARABLE TO INFORMATIONINCLUDED IN SEC FILINGS. 2
  3. 3. IPO SummaryIssuer: Molycorp, Inc.Symbol/Exchange: MCP/NYSEShares Sold: 29,128,700Net Capital Raised: $378.6 millionJoint Book runners: Morgan Stanley, JP MorganUse of proceeds: Modernization and expansion of our Mountain Pass, CA facility, and expansion into metals, alloys, and magnet production.Shares outstanding: 82,291,200Market Cap (as of 1/20/11): $3.75 billion 3
  4. 4. Molycorp UpdateSuccessful IPO on July 29, 2010; raised $378.6M.Successful commercial scale operation of new processingtechnologies and ramp-up to a 3,000 tons/year rate.Construction commenced of new facility; mining re-started.Commercial launch of cerium-based water treatmenttechnology: XSORBX™Passage of a rare earth R&D bill (HR 6160) by the U.S.House in 2010 with very strong bipartisan support;multiple bills to be introduced in 2011.“Mine-to-Magnets” project is on time and on budget. 4
  5. 5. Rare Earths Are Critical to Enabling Various TechnologiesCommerciallysignificant rare earthelements to beproduced by Molycorp Properties Product applicationsLanthanum Reduces WeightCerium EmissionsPraseodymium EnergyNeodymium consumptionSamarium AllowsDysprosium Greater efficiencyEuropium PerformanceTerbium MiniaturizationGadolinium Speed DurabilityErbium Thermal stability Molycorp intends to produce all 10 of these rare earth elements commercially. 5
  6. 6. What We’ll Produce Total REO Equivalent REO equivalent in metric tons / year 45,000 40,000 40,000 35,000 30,000 25,000 20,000 15,000 19,050 10,000 5,000 0 3,000 2010 12 / 2012 Expansion Option** Depending upon market conditions. Molycorp could increase production to this extent under current operating permits,  but  has not yet made any decision to do so. 6
  7. 7. What We’ll Produce Sm, Eu, Dy, Gd, Tb REO equivalent in kgs / year 450,000 400,000 402,790 350,000 300,000 250,000 200,000 201,395 150,000 100,000 50,000 0 2010 12 / 2012 Expansion Option** Depending upon market conditions. Molycorp could increase production to this extent under current operating permits,  but  has not yet made any decision to do so. 7
  8. 8. Producing Essential Components to a Diverse Set of Industries Top Revenue Contributors 2013E1 Anticipated Market Growth Product Finished Product End Markets Production % of 2010-2015E CAGR Revenue Neodymium Wind Turbines, Neodymium Iron Iron Boron Hybrid and Electric 8.16mm kgs 57% 14% 2 Boron alloy Magnets Vehicles Industrial and Drinking Water Cerium oxide Water Filters, and 8.21mm kgs 18% NA purification Autos Samarium Cobalt Samarium Defense, Aerospace .77mm kgs 8% 14% 2 alloy Cobalt Magnets Nickel Metal Electronics, Hybrid Lanthanum metal Hydride 2.49mm kgs 7% 16.4% 3 Vehicles Batteries 4 Lanthanum oxide Catalysts FCC Catalysts 3.1mm kgs 4% 4.8% Molycorp is well-positioned to capitalize on a variety of high-growth technologiesSource: IMCOA1 Based on assumed prices used by SRK report dated April 2010. Actual prices and percentage of revenue could vary materially.2 Represents anticipated market growth for REOs used in magnets3 Represents anticipated market growth for REOs used in metal alloys4 Represents anticipated market growth for REOs used in catalysts 8
  9. 9. Robust Expected Demand Growth Driven by Rapidly Expanding End-Markets2010E REO Demand by Application 2010E–2015E End-Market Demand CAGR (REO) Ceramics Others 6% Catalysts 6% 19.5% Metal Alloys 16.4% Phosphors 7% Glass 8% Magnets 14.0% Magnets Polishing 9.6% 21% powder Polishing 15% Metal Alloys 17.5% Phosphors 7.1%2015E REO Demand by Application 5.2% Ceramics Ceramics Others Catalysts 4.5% 4.5% 15.5% Phosphors Catalysts 4.8% 6% Glass 6% Glass 1.8% additives Magnets Other 5.2% 25% Polishing 15% Metal Alloys 23.5% 2010E Total 2010E – 2015E Total Growth 2015E Adj. Total 125,000 mt REO 64% 205,000 mt REOSource: IMCOANote: Totals may not add to 100% due to rounding 9
  10. 10. Rare Earths Are Critical Inputs for the Hybrid and Electric Vehicles MarketHybrid and Electric Vehicles Annual Hybrid and Electric Vehicle Sales (000’s)Demand Drivers: Hybrid Vehicles Electric Vehicles 3,206 Intensive use of rare earths in hybrid 2,559 2,974 and electric vehicles are compounding 2,247 the traditional use of rare earths 1,775 1,270 962 Hybrid and electric vehicles contain 9- 11 kgs of rare earths Anticipated rare earth demand from 2010f 2011f 2012f 2013f 2014f 2015f 2016f hybrid and electric vehicles is Source: JD Power and Associates estimated to grow significantly Total Rare Earth Metal Alloys Consumption (ktpa) 52.0 22.3 2010f 2015f Source: IMCOA 10
  11. 11. Wind Turbines Are a Significant Driver for Rare Earth Magnet Growth Wind turbine demand drivers  Global commitment to increasing the presence of wind energy:  U.S. EIA estimates >3x increase in installed wind generation 2010-30 to 490GW  China is estimated to have allocated >$150bn to become the world’s wind leader  Growing European use of offshore wind generation  Permanent rare earth magnets are used in generators of wind turbines  Increased reliability and efficiency – reduces expensive breakdowns and maintenance expenditures  Critical element for 3MW+ and off-shore turbine segments  With the expected JV, Molycorp would have access to the raw Permanent Each 3MW permanent magnet rare earth materials, IP and technical expertise to be a world-class turbine requires approximately magnet in one metric ton of neodymium supplier of permanent magnets generator iron boron magnets1 Wind turbine production (GW) REO consumption for magnets (ktpa) North America Europe Asia Other Magnets Consumption Wind Turbine Impact600 490500 54.0 397 8.0400 319300 249 26.3200 159 46.0100 61 26.3 0 2006 2010F 2015F 2020F 2025F 2030F 2010f 2015fSource: Energy Information Administration Source: IMCOA1 IMCOA estimates each megawatt requires 0.4 tons of NdFeB magnets Note: Both magnet consumption and wind turbine impact are middle of IMCOA range 11
  12. 12. US DOECritical Materials Strategy Short-Term Criticality Matrix DOE assigned a high supply risk and high importance for five rare earths over the next five years. 12
  13. 13. US DOECritical Materials Strategy Medium Term Criticality Matrix DOE found that a high supply risk and high importance for these REEs continues out to 5-15 years. 13
  14. 14. Global Supply & Demand 250,000 Global Rare Earths Supply and Demand (tonnes, REO ±20%) 200,000 150,000 100,000 50,000 0 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f China Supply Molycorp Supply Other Supply China Demand Adjusted Global DemandSource: IMCOA 14
  15. 15. Chinese Exports Versus ROW DemandMetric tons Additional demand drivers:  Government stockpiling  Further adoption of wind turbine technology  Potential for China to become a net RE importer Global Surplus Global DeficitSource: IMCOA 15
  16. 16. Observations On China1 China continues to warn of declining quotas in the future2 Closed 280 illegal mines; reducing export licenses; designated 11 mines Jaingxi as “national planning mines”3 Internal REE demand rising with GDP growth while Chinese4 production from 2005-2010 relatively stagnant Strict environmental standards expected to double production costs (Wang Guozhen, the former VP of China Nonferrous5 Engineering and Research Institute) 53% of respondents think China will “become a net importer of rare earths by 2015” in a poll. 16
  17. 17. Market Dynamics Support Continued Pricing Gains Pricing ($/kg) Pricing Drivers % change 3-Year March June 20102 Jan. 20113 March 2010  China continues to focus Average 20101 - Jan. 2011 supply inward, despiteOxides growing ROW demandLanthanum oxide $6.05 $6.60 $8.12 $60.80 821% – Dramatic consolidation ofCerium Chinese rare earths industryOxide (glass $4.03 $4.09 $6.47 $63.40 1,449%applications)  Existing rare earthsOxide (water filters) $13.20 - - production insufficient to meet XSORBX™ $9.90 - - expected market demandEuropium oxide $442.07 $473.00 $567.60 $630.00 33%Metals  National strategic stockpilingLanthanum $10.01 $13.20 $13.20 $62.50 373% – China, Japan, and S. KoreaPraseodymium $32.12 $37.99 $42.94 $115.50 204% currently stockpilingNeodymium $32.41 $37.99 $42.94 $117.50 209% – US and EU looking toAlloy products stockpile 4NdFeB alloy $35.20 $42.94 $84.37 140% 4SmCo alloy $50.60 $54.14 $69.36 37%Note: NdFeB = Neodymium iron boron; SmCo = Samarium cobalt 1 SRK estimates used for model 2 As of June 15, 2010; 3 As of Jan. 18, 2011; 4 Molycorp estimates Note: 3-yr average refers to Metals Pages oxide and metal prices averaged from May 2007 – May 2010, FOB China 17
  18. 18. World-Class Mining Resource at Mountain Pass, CA • 58 years of operating history • 30-year mine permit and EIR approved • Mining operations re-started in Dec. 2010 • Construction of new processing facility underway • Plan provides for fully installed infrastructure – Water – Electricity – Natural gas pipeline – Easy access to Interstates, rail head, and Reserves & Resources California seaportsCategory REO% k tons REO (Mlbs) • Facility is ISO 9000 and ISO 14000 certifiedSEC Guide 7: Proven and Probable 8.24 13,588 2,210 • Estimated 30+ years mine lifeNI 43-101: Measured & Indicated 6.68 24,341 3,251NI 43-101: Inferred 6.32 10,446 1,320 • Ability to double planned productionNI 43-101 Totals 34,787 4,571 under current permitting • 168 EmployeesSource: SRK report dated April 2010Note: See disclaimer for information on reserves and resources, resources are from the initial SRK report prior to redaction to comply with SEC Industry Guide 7 18
  19. 19. Environmental Technology BreakthroughsEnergy Efficiency Increases Higher RE Recovery and and GHG Reductions Process Efficiency With On‐Site  BreakthroughsNatural Gas Allow for SameCo‐Gen  Amount of  Product UsingLarge  ½ The OreReduction of Reagent Use Dramatic Near‐Zero Reduction in Process  Wastewater Discharge Use of Fresh Water 19
  20. 20. Anticipated Cost Advantages vs. Key Competitors Average Rare Earth Oxide Production Cost Cost-advantaged processing (per kg.) drives significant commercial advantage:$8.00  High-power quality and efficient$7.00 onsite natural gas co-generation $7.00$6.00  On-site reagent production and $5.58 acid recycling$5.00$4.00  Process technology break- throughs$3.00 $2.77  Infrastructure$2.00$1.00$0.00 3 China 1,21 IMCOA2 Wang Guozhen, the former VP of China Nonferrous Engineering and Research Institute, indicated that China’s production costs may double as a result of ongoing environmental reforms. (, Jan. 7, 2011)3 Lynas presentation on 12/6/2010 20
  21. 21. Trading One Dependence For Another? Petroleum Supply ChainDependent Upon Foreign Supplies Hybrid Vehicle Supply ChainDependent Upon China 21
  22. 22. Our Mine-to-Magnets Manufacturing Supply Chain Molycorp’s "Mine-to-Magnets” strategy differentiates us from other early stage concentrate oroxide-only projects, and provides exposure to the high margin metals, alloys, and magnet markets Magnet Molycorp Business Joint Venture2 Rare Earths Rare Earths Rare Earths Rare Earths Rare Earths Mining and Material Metals Alloys Magnets Milling Processing Global Supply Chain:  ~97% Chinese  ~97% Chinese  ~100% Chinese  80% Chinese  80% Chinese Production Production Production  20% Japanese(1)  17% Japanese(1)  3% Europe(1)Source: REITA report dated January 27, 20101 Dependent on Chinese rare earths feedstock2 “Molycorp and Hitachi Metals, Ltd. have entered into an agreement regarding the planned formation of joint ventures for the production of rare earth alloys and magnets in the U.S. 22
  23. 23. Vertical Integration Across the Value Chain Drives Superior Margins Nd Oxide to Alloy Value Chain (per kg.)1 Oxide Cost Metal Cost Alloy Cost Margin $131.41 $35.20 $36.92 $49.68 $6.60 $6.60 $3.85 $4.49 $4.49 Nd Oxide Nd Metal Nd Alloy Production: 1 kg 0.86 kgs 3.06 kgs Margin2: $31.35 $70.64 +125%1 Molycorp cost data based on SRK report dated April 20102 Per kilogram of Nd Oxide 23
  24. 24. Molycorp Has Secured Non-Binding LOIs Across the “Mine to Magnets” Value Chain Denotes Customer LocationTotal Number of LOIs Counterparties New Product Introduction 19 Non-binding LOIs  Neo Materials  XSORBX™ successfully representing 138% of 2013 introduced into commercial  US chemical and energy anticipated production volume. wastewater and recreational companies water markets. Contracts signed in 11/10 with  Japanese industrial, electronics, W.R. Grace for 5-year purchase  XSORBX™ being readied for and chemical companies of La with 3-year option. introduction into intl. drinking  European industrial, electronics, water purification markets. Neo Materials non-binding LOI and chemical companies represents another 15-25% of 2013 anticipated production volume. 24
  25. 25. Breakthrough Technologies Molycorp Deploys Incredibly Flexible Technology Focused on:Water Treatment Industrial Process Waste Streams• Lack of Clean drinking water is a global problem • XSORBX® ASP, Arsenic Sequestration Process employs the XSORBX®• XSORBX® unique chemistry removes: technology in the mining and smelting • Pathogens such as Protozoa, Fungi, industry Bacterial, Viruses • Volumetric capacity for specific • Organic toxins such as Pesticides hazardous materials that exceeds any • Heavy metals such as Arsenic, Selenium, other commercially available product and Chromium • Studies show stable, concentrated• We’re developing waste could potentially be classified as man-portable filters to non hazardous give our troops the cleanest drinking water available 25
  26. 26. Commercial Opportunities In Recycling1 Recycling will be critical to the rare earth industry, and Molycorp will be a leader in the recycling industry.2 Molycorps new plant was designed with recycling in mind. • Lowest-cost operation in the industry. • Highly flexible circuit design. • Recycled REEs can be co-processed with primary production, yielding additional cost savings.3 Key focus areas: • RE phosphors from CFLs • NdFeB alloy recovery in magnet manufacture 26
  27. 27. Q&A 27