Molycorp Corporate Presentation - January 2011

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RARE EARTH RESURGENCE: Building A Mine-To-Magnets Rare Earths Supply Chain January 2011 Update

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Transcript of Molycorp Corporate Presentation - January 2011

Page 1: Molycorp Corporate Presentation - January 2011

RARE EARTH RESURGENCE:Building A Mine-To-Magnets Rare Earths Supply Chain

January 2011 Update

Page 2: Molycorp Corporate Presentation - January 2011

Forward-Looking Statementsand Other Important Cautions

This 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.

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IPO Summary

Issuer: Molycorp, Inc.

Symbol/Exchange: MCP/NYSE

Shares Sold: 29,128,700

Net Capital Raised: $378.6 million

Joint Book runners: Morgan Stanley, JP Morgan

Use of proceeds: Modernization and expansion of our Mountain Pass, CA facility, andexpansion into metals, alloys, and magnet production.

Shares outstanding: 82,291,200

Market Cap (as of 1/20/11): $3.75 billion

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Molycorp Update

Successful IPO on July 29, 2010; raised $378.6M.

Successful commercial scale operation of new processing technologies and ramp-up to a 3,000 tons/year rate.

Construction commenced of new facility; mining re-started.

Commercial launch of cerium-based water treatment technology: 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.

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Lanthanum

Cerium

Praseodymium

Neodymium

Samarium

Dysprosium

Europium

Terbium

Gadolinium

Erbium

ReducesWeightEmissionsEnergy consumption

AllowsGreater efficiencyPerformanceMiniaturizationSpeedDurabilityThermal stability

Commercially significant rare earth elements to be produced by Molycorp Properties Product applications

Molycorp intends to produce all 10 of these rare earth elements commercially.

Rare Earths Are Critical to Enabling Various Technologies

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What We’ll Produce

* 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.

3,000

19,050

40,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2010 12 / 2012 Expansion Option*

Total REO EquivalentREO equivalent in metric tons / year

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What We’ll Produce

* 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.

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201,395

402,790

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2010 12 / 2012 Expansion Option*

Sm, Eu, Dy, Gd, TbREO equivalent in kgs / year

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Producing Essential Componentsto a Diverse Set of Industries

Molycorp is well-positioned to capitalize on a variety of high-growth technologies

Top Revenue Contributors

2013E1 Anticipated Market Growth

Product Finished Product End Markets Production % of Revenue

2010-2015E CAGR

Neodymium Iron Boron alloy

Neodymium Iron Boron Magnets

Wind Turbines, Hybrid and Electric Vehicles

8.16mm kgs 57% 14%

Cerium oxide Water purification

Industrial and Drinking Water Filters, and Autos

8.21mm kgs 18% NA

Samarium Cobalt alloy

Samarium Cobalt Magnets

Defense, Aerospace .77mm kgs 8% 14%

Lanthanum metal Nickel Metal Hydride Batteries

Electronics, Hybrid Vehicles

2.49mm kgs 7% 16.4%

Lanthanum oxide Catalysts FCC Catalysts 3.1mm kgs 4% 4.8%

Source: 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

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3

2

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Robust Expected Demand Growth Driven by Rapidly Expanding

End-Markets

Source: IMCOANote: Totals may not add to 100% due to rounding

2010E REO Demand by Application 2010E–2015E End-Market Demand CAGR (REO)

2010E Total 125,000 mt REO

2015E Adj. Total 205,000 mt REO

Others6%

Ceramics6%

Phosphors7%

Magnets21%

Metal Alloys17.5%

Polishing 15%

Glass 8%

Catalysts19.5% 16.4%

14.0%

9.6%

7.1%

5.2%

4.8%

1.8%

5.2%

Metal Alloys

Magnets

Polishingpowder

Phosphors

Ceramics

Catalysts

Glassadditives

Other

2010E – 2015E Total Growth64%

2015E REO Demand by Application

Others4.5%

Ceramics4.5%

Phosphors6%

Magnets25%

Metal Alloys23.5%

Polishing 15%

Glass 6%

Catalysts15.5%

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Hybrid and Electric Vehicles Demand Drivers:

Annual Hybrid and Electric Vehicle Sales (000’s)

Rare Earths Are Critical Inputs for the Hybrid and Electric Vehicles Market

Total Rare Earth Metal Alloys Consumption (ktpa)

22.3

52.0

2010f 2015fSource: IMCOA

9621,270

1,7752,247

2,5592,974

3,206

2010f 2011f 2012f 2013f 2014f 2015f 2016f

Hybrid Vehicles Electric Vehicles

Intensive use of rare earths in hybrid and electric vehicles are compounding the traditional use of rare earths

Hybrid and electric vehicles contain 9-11 kgs of rare earths

Anticipated rare earth demand from hybrid and electric vehicles is estimated to grow significantly

Source: JD Power and Associates

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Wind Turbines Are a Significant Driver for Rare Earth Magnet Growth

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 materials, IP and technical expertise to be a world-class supplier of permanent magnets

Wind turbine demand drivers

Permanent rare earth magnet in generator

Each 3MW permanent magnet turbine requires approximately one metric ton of neodymium iron boron magnets1

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159

249319

397

490

0

100

200

300

400

500

600

2006 2010F 2015F 2020F 2025F 2030F

North America Europe Asia Other

26.346.0

8.0

26.3

54.0

2010f 2015f

Magnets Consumption Wind Turbine Impact

Source: IMCOANote: Both magnet consumption and wind turbine impact are middle of IMCOA range

Wind turbine production (GW) REO consumption for magnets (ktpa)

Source: Energy Information Administration1 IMCOA estimates each megawatt requires 0.4 tons of NdFeB magnets

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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.

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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.

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0

50,000

100,000

150,000

200,000

250,000

2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015fChina Supply Molycorp Supply Other Supply China Demand Adjusted Global Demand

Global Supply & Demand

Global Rare Earths Supply and Demand(tonnes, REO ±20%)

Source: IMCOA

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Chinese ExportsVersus ROW Demand

Global Surplus Global Deficit

Additional demand drivers: Government stockpiling Further adoption of wind turbine technology Potential for China to become a net RE importer

Source: IMCOA

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Met

ric

tons

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ObservationsOn China

China continues to warn of declining quotas in the future

Closed 280 illegal mines; reducing export licenses; designated 11 mines Jaingxi as “national planning mines”

Internal REE demand rising with GDP growth while Chinese production from 2005-2010 relatively stagnant

Strict environmental standards expected to double production costs (Wang Guozhen, the former VP of China Nonferrous Engineering and Research Institute)

53% of respondents think China will“become a net importer ofrare earths by 2015”in a Metal-Pages.com poll.

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3

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1 SRK estimates used for model2 As of June 15, 2010; Metals-Pages.com3 As of Jan. 18, 2011; Metals-Pages.com 4 Molycorp estimatesNote: 3-yr average refers to Metals Pages oxide and metal prices averaged from May 2007 – May 2010, FOB China

Pricing Drivers

Market Dynamics SupportContinued Pricing Gains

Note: NdFeB = Neodymium iron boron; SmCo = Samarium cobalt

China continues to focus supply inward, despite growing ROW demand

– Dramatic consolidation of Chinese rare earths industry

Existing rare earths production insufficient to meet expected market demand

National strategic stockpiling– China, Japan, and S. Korea

currently stockpiling– US and EU looking to

stockpile4

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Pricing ($/kg)

3-Year Average

March 20101 June 20102 Jan. 20113

% change March 2010- Jan. 2011

Oxides

Lanthanum oxide $6.05 $6.60 $8.12 $60.80 821%

CeriumOxide (glass applications) $4.03 $4.09 $6.47 $63.40 1,449%

Oxide (water filters) $13.20 - -

XSORBX™ $9.90 - -

Europium oxide $442.07 $473.00 $567.60 $630.00 33%

Metals

Lanthanum $10.01 $13.20 $13.20 $62.50 373%

Praseodymium $32.12 $37.99 $42.94 $115.50 204%

Neodymium $32.41 $37.99 $42.94 $117.50 209%

Alloy products

NdFeB alloy $35.20 $42.94 $84.37 140%

SmCo alloy $50.60 $54.14 $69.36 37%

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World-Class Mining Resourceat 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

California seaports

• Facility is ISO 9000 and ISO 14000 certified

• Estimated 30+ years mine life

• Ability to double planned production under current permitting

• 168 Employees

Reserves & Resources

Source: 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

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Category REO% k tons REO (Mlbs)

SEC Guide 7: Proven and Probable 8.24 13,588 2,210

NI 43-101: Measured & Indicated 6.68 24,341 3,251

NI 43-101: Inferred 6.32 10,446 1,320

NI 43-101 Totals 34,787 4,571

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Energy Efficiency Increasesand GHG ReductionsWith On‐Site Natural GasCo‐Gen 

Higher RE Recovery and Process Efficiency 

BreakthroughsAllow for Same

Amount of Product Using

½ The Ore

Near‐ZeroWastewater Discharge

DramaticReduction in Process Use of Fresh Water

EnvironmentalTechnology Breakthroughs

Large Reduction of Reagent Use

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1 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. (Metal-Pages.com, Jan. 7, 2011)3 Lynas presentation on 12/6/2010

China

Anticipated Cost Advantages vs. Key Competitors

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Average Rare Earth Oxide Production Cost (per kg.)

1,2

Cost-advantaged processing drives significant commercial advantage:

High-power quality and efficient onsite natural gas co-generation

On-site reagent production and acid recycling

Process technology break-throughs

Infrastructure

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$2.77

$5.58

$7.00

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

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Dependent Upon China

Dependent Upon

Foreign Supplies

Trading One DependenceFor Another?

Petroleum Supply Chain

Hybrid Vehicle Supply Chain

Page 22: Molycorp Corporate Presentation - January 2011

Our Mine-to-MagnetsManufacturing Supply Chain

Rare Earths Material

Processing

Rare Earths Metals

Rare Earths Alloys

Rare Earths Magnets

Global Supply Chain:

~97% Chinese Production

~100% Chinese Production

80% Chinese

20% Japanese(1)

80% Chinese

17% Japanese(1)

3% Europe(1)

Molycorp’s "Mine-to-Magnets” strategy differentiates us from other early stage concentrate or oxide-only projects, and provides exposure to the high margin metals, alloys, and magnet markets

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.

Molycorp BusinessMagnet

Joint Venture2

Rare Earths Mining and

Milling

~97% Chinese Production

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$3.85 $4.49 $4.49$6.60$6.60

$49.68$35.20 $36.92

$131.41

Nd Oxide Nd Metal Nd Alloy

Oxide Cost Metal Cost Alloy Cost Margin

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1 Molycorp cost data based on SRK report dated April 20102 Per kilogram of Nd Oxide

Vertical Integration Across the Value Chain Drives Superior Margins

Nd Oxide to Alloy Value Chain (per kg.)1

1 kg 0.86 kgs 3.06 kgsProduction:

Margin2: $31.35 $70.64+125%

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Molycorp Has Secured Non-Binding LOIs Across the “Mine to Magnets” Value Chain

Total Number of LOIs

19 Non-binding LOIs representing 138% of 2013 anticipated production volume.

Contracts signed in 11/10 with W.R. Grace for 5-year purchase of La with 3-year option.

Neo Materials non-binding LOI represents another 15-25% of 2013 anticipated production volume.

Counterparties

Neo Materials

US chemical and energy companies

Japanese industrial, electronics, and chemical companies

European industrial, electronics, and chemical companies

XSORBX™ successfully introduced into commercial wastewater and recreational water markets.

XSORBX™ being readied for introduction into intl. drinking water purification markets.

New Product Introduction

Denotes Customer Location

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BreakthroughTechnologies

Water Treatment

• Lack of Clean drinking water is a global problem

• XSORBX® unique chemistry removes:

• Pathogens such as Protozoa, Fungi, Bacterial, Viruses

• Organic toxins such as Pesticides

• Heavy metals such as Arsenic, Selenium, and Chromium

• We’re developing man-portable filters togive our troops thecleanest drinking water available

Industrial Process Waste Streams

• XSORBX® ASP, Arsenic Sequestration Process employs the XSORBX®

technology in the mining and smelting industry

• Volumetric capacity for specific hazardous materials that exceeds any other commercially available product

• Studies show stable, concentrated waste could potentially be classified as non hazardous

Molycorp Deploys Incredibly Flexible Technology Focused on:

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Recycling will be critical to the rare earth industry, and Molycorp will be a leader in the recycling industry.

Molycorp's new plant was designed with recycling in mind.

• Lowest-cost operation in the industry.• Highly flexible circuit design.• Recycled REE's can be co-processed with primary

production, yielding additional cost savings.

Key focus areas:• RE phosphors from CFLs• NdFeB alloy recovery in magnet manufacture

Commercial OpportunitiesIn Recycling

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Q&A

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