Mining Roundup: Molycorp’s Loss Widens on Falling Rare Earth Prices

Rio Tinto and Vale See Strong Iron Ore Market

Mining Roundup: Molycorp’s Loss Widens on Falling Rare Earth Prices

iNVEZZ.com Friday, August 9th: U.S. rare earths miner Molycorp (NYSE:MCP) yesterday reported a wider quarterly loss as operating expenses exceeded revenues and the company grappled with falling prices for its products.

In the second quarter, Molycorp's loss attributable to common shareholders was $74.0 million, compared to a loss of $70.5 million a year earlier, when the company had fewer shares outstanding. Excluding costs associated with expansion and other items, the loss in the three-month period widened to $60.9 million from $3 million a year earlier. Revenue rose 31 percent to $136.9 million, yet costs, excluding depreciation and amortisation, jumped 32 percent to $136.8 million.

Produced primarily in China, rare earths are 17 metals, used in many high-tech products including smartphones, tablets and hybrid vehicles. Prices soared in 2010 and early 2011 as China clamped down on exports, but it has eased export controls since then and prices have declined.

Molycorp’s Chief Executive Officer Constantine Karayannopoulos yesterday said in an interview: "There was nothing moving, and prices continued to slide through the quarter." The CEO noted, however, that rare earth prices had bottomed out at the beginning of the current quarter and customers had resumed orders.

Prior to the release of the quarterly report, the Molycorp’s share price closed yesterday’s trading session in New York at $7.91 – 4.96 percent up on the day. But the announcement had a debilitating impact on the stock which lost almost 11 percent in after-hours trade.

Vale Mulling Accounting Change to Curb Forex Impact on Profit

Brazilian miner Vale (NYSE:VALE), the world’s largest iron ore producer, may adopt so-called "hedge-accounting" rules to smooth out the impact of currency fluctuations like those that hit its second-quarter earnings, Chief Executive Officer Murilo Ferreira said in a statement yesterday.

On Wednesday, Vale said second-quarter profit plunged 84 percent due to a $2.78 billion charge related to foreign exchange losses on currency derivatives and debt. Under hedge accounting, the miner will set aside some dollar-denominated export proceeds to compensate for the impact of exchange-rate moves on the local-currency value of debt, spreading the currency gains and losses over several years.

Miners See Strong Iron Ore Market Fundamentals

Ferreira has also voiced a positive outlook for the iron ore market, predicting a 10 percent increase in steel output this year in China, the world's largest steelmaker. According to Vale’s chief executive, the Asian country will boost demand for iron ore by producing 780 million metric tonnes of steel this year compared to 683 million tons two years ago.

Vale’s peer Rio Tinto (LON:RIO), the world's second-largest producer of iron ore, has also forecast a strong iron ore market. The London-based miner’s Chief Executive Officer Sam Walsh said that the current iron ore price of $130 a tonne, was "not too bad" and the company would decide later this year, as previously flagged, whether to go ahead with building new mines to reach a production capacity of 360 million tonnes of iron ore a year. Rio has also revealed that it is considering a larger footprint in Guinea by regaining control of the massive Simandou iron ore deposit, which it was stripped of in 2008, prompting the recipient of the land, BSG Resources to claim Rio has no viable plan for its development.

The Vale share price closed yesterday’s trading in New York at $14.69 – 4.7 percent up on the day, while the Rio Tinto share price in London was 2.82 percent higher at £3,101.5p. Rio’s stock has been on the up since yesterday, when the company reported an 18 percent drop in first-half profit and raised dividend by 15 percent (http://invezz.com/news/equities/4672-rio-tintos-share-price-rises-despite-drop-in-profit).

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