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9 -2 1 4 -0 5 4
REV: OCTOBER 15, 2015

BENJAMIN C. ESTY

E. SCOTT MAYFIELD

Molycorp: Financing the Production of Rare Earth

Minerals (A)
Molycorp, the Western Hemisphere’s only producer of rare earth minerals, was in the middle of a
major capital expenditure program called “Project Phoenix” that was designed to renovate and expand
the Mountain Pass mine in California. But the past year had been particularly difficult as spot prices
for rare earth minerals had fallen by as much as 85% causing the firm’s stock price to fall from a high
of $77 in May 2011, to a low of $16 in recent trading. On August 2, 2012, the firm announced its revenues
and earnings for the second quarter, both of which were well below consensus forecasts. According to
a press release, the results affected the firm’s funding strategy:

We expect that our cash flow from operations for the remainder of 2012 will likely be
less than we expected. Accordingly, we will need to secure additional financing for a
substantial portion of our remaining 2012 capital expenditures. . . . We cannot assure you
that we will be able to obtain any such financing on commercially acceptable terms or at
all.1

The next day, Molycorp’s stock price fell 29% to close at $11.49. Reacting to the news, JPMorgan
equity analyst Michael Gambardella cut his 12-month price target by 41% from $19.50 to $11.50, and
changed his investment recommendation from “neutral” to “underweight.” 2 Yet, other analysts
interpreted the news quite differently. For example, Anthony Young, an equity analyst at Dahlman
Rose & Co., said the report was “not as bad as the headline looks” and maintained his “buy” rating for
Molycorp.3 He did, however, reduce his 12-month price target from $55 to $36.4

With less internally generated cash flow, Molycorp needed to revise its funding plan to complete
Project Phoenix. The questions facing the management team were how much capital to raise, what kind
to raise, and when to raise it.

Rare Earths Industry and Background

Rare earth minerals—or elements—occurred naturally and abundantly in ore deposits, but not
typically in large concentrations. Whereas “light” rare earths represented 80%–99% of ore deposits and
included elements lanthanum through europium (atomic numbers 57–63), “heavy” rare earths
included elements gadolinium through lutetium (atomic numbers 64–71) as well as yttrium (atomic

Professor Benjamin C. Esty and Senior Lecturer E. Scott Mayfield prepared this case. This case was developed from published sources. Funding
for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis
for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management.

Copyright © 2014, 2015 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-
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214-054 Molycorp: Financing the Production of Rare Earth Minerals (A)

number 39).5 Mining companies dug ore out of the ground, milled the ore into a fine grain, separated
the rare earth elements (REEs), and refined them into high-purity rare earth oxides (REOs). Mining
firms then either sold the oxides to downstream processing companies or refined them into metals,
alloys, and magnets.6

The demand for rare earth minerals had risen dramatically over the past 60 years because of their
unique electrical, mechanical, and magnetic properties. REEs were critical inputs to many emerging
technologies ranging from clean energy to defense applications. Rare earth metals, alloys, and magnets
were found in hybrid and electric vehicles, wind power turbines, cell phones, and radar and sonar
systems, among other consumer and industrial goods. A single Toyota Prius, for example, used almost
20 pounds of REEs in its batteries.7 By 2010, global demand for rare earths was 136,000 tons a of REO
per year and was expected to increase to 185,000 tons by 2015 and to over 275,000 tons by 2020. 8

The U.S. Geological Survey estimated that worldwide rare earth deposits totaled 110 million tons,
with approximately 55 million tons located in China, 13 million tons in the U.S., and the remainder
spread across numerous countries, each holding less than 3% of total deposits.9 Although China
represented 50% of worldwide deposits, it accounted for almost 97% of global production in 2011.

Until 2010, Chinese export quotas had exceeded the demand for REOs from the rest of the world.
However, citing concerns about the availability of rare earths for its own domestic industries and the
desire to conserve its own domestic resources, China started reducing its export quotas, increasing
export tariffs, and imposing production quotas on rare earths. As a result, Chinese exports fell 40% in
2010,10 and Molycorp forecasted that China’s export quotas would continue to tighten through 2015. 11
Not surprisingly, REO prices increased significantly—in some cases, by 20 to 40 times their price in
early 2010! (Exhibits 1a and 1b show historical prices for light and heavy REOs, respectively.)
According to Molycorp CEO Mark Smith, China exported 30,000 to 32,000 tons of REO in 2010,
compared to global demand for 50,000 to 55,000 tons outside of China. 12 Noting the imbalance, he said,
“I don’t remember a lot from my economics 101 class that I took in college, but when you have that
kind of a supply and demand situation, there is a very severe impact on prices as well.” 13

After peaking in the middle of 2011, REO prices started to fall precipitously. Across the globe,
investors funded new mining projects to increase the availability of REOs. For example, projects at
Molycorp in the U.S. and Lynas in Australia were scheduled to add 60,000 tons of REO production,
and other projects around the world had the potential to add another 75,000 tons in 2015.14 In addition,
prices were driven down by reduced demand for and substitution away from REOs by component
manufacturers, increased recycling of REOs from existing products, and liquidation of REO stockpiles
by speculators.

Molycorp
Molycorp was the only rare earth mineral producer in the Western Hemisphere, and its Mountain
Pass mine was one of the world’s largest mining facilities outside of China. With over 2,700 scientists,
engineers, and skilled workers in 27 locations across three continents (North America, Europe, and
Asia), Molycorp had the ability to produce ultra-pure rare earth minerals from ore that it extracted
from the Mountain Pass mine. (Exhibit 2 shows Molycorp’s vertically integrated structure.) In 2011,
Molycorp reported net income of $117.5 million on revenues of $396.8 million. (Exhibits 3 and 4 show
the firm’s income statement and balance sheets, respectively.)

a In this case, “tons” refers to metric tons. One metric ton is equal to 1,000 kilograms or 2,200 pounds.

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Molycorp: Financing the Production of Rare Earth Minerals (A) 214-054

The company’s history could be traced back to the discovery of critical ores at the Mountain Pass
mine in 1949, which led to commercial production starting in 1952. For the next 40 years, the Mountain
Pass mine produced up to 20,000 tons of REO per year, an amount that satisfied virtually all of the
global demand for REO.15 As a result of declining resources, stricter environmental regulations, and
weakening market conditions, mining stopped in 2002. 16

After three unsuccessful attempts by Chinese firms to acquire the Mountain Pass facility,b a group
of U.S.-based private equity investors that included Goldman Sachs and Pegasus Partners acquired the
facility in June 2008.17 Their objective was to implement a vertically integrated “mine-to-magnets”
strategy that would allow for low-cost production, processing, and distribution of REOs. Two years
later, in July 2010, the investor group conducted an initial public offering (IPO) by issuing shares on
the New York Stock Exchange under the ticker MCP. (Exhibit 5 shows Molycorp’s stock price from its
IPO in 2010 through early August 2012.)c

The IPO proceeds and other start-up funds were used to implement Molycorp’s “mine-to-magnets”
strategy, which had two key parts: (1) the modernization and expansion of the Mountain Pass facility,
known as Project Phoenix, and (2) the acquisition of downstream refining and manufacturing
capabilities. Both parts required significant capital investment.

Project Phoenix—Capital Expenditures

Despite having been in operation since 1952, Molycorp estimated that its Mountain Pass mine still
had over 30 years of useful life remaining, with proven reserves of 40,000 tons of REO and probable
reservesd of 964,000 tons.18 Yet much of the facility’s infrastructure was antiquated and required
extensive modernization to enable low-cost production. With the right investment, Molycorp estimated
that its cost of REO production could be 50% to 70% lower than its competitors’. 19

The modernization and expansion of the Mountain Pass facility was scheduled to occur in two
phases. Phase I would modernize the facility and permit annual production of 19,000 tons, up from
less than 3,000 tons. Phase II would then double annual production capacity to 40,000 tons. Phase I
began in January 2011 and was scheduled to be completed by the end of 2012. Management expected
to complete Phase II by the end of 2013. CEO Mark Smith described the project this way:

Beginning next year, we expect to significantly ramp up production of 10 different

high-puritye rare earth oxides—light and heavy rare earths—as well as a variety of rare
earth metals, alloys, and permanent rare earth magnets. We also remain on track to
emerge as the world’s lowest-cost manufacturer of rare earth oxides, which will be a
particularly powerful growth driver for our downstream manufacturing operations.20

b In 2005, a Chinese government–owned oil company called CNOOC attempted to acquire the mine, but the U.S. Congress
blocked the transaction. Chinese companies made two more unsuccessful attempts to purchase the mine from Chevron during
the period from 2005 to 2008.
c Molycorp originally planned to raise up to $478 million by selling 28.1 million shares for $15–$17 each. After cutting the offering
price to $14 per share, the stock closed down at $12.85 on the first day of trading.
d Estimates of probable reserves were based on deposit samples, meaning that the estimated quality and quantity of reserves
were based on geologic inferences, not actual measurements.
e Molycorp produced custom-engineered materials from 13 different ultra-pure rare earths (plus yttrium) at purity levels up to
6N (99.9999%) and from six other rare metals at purity levels up to 8N (99.999999%).

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214-054 Molycorp: Financing the Production of Rare Earth Minerals (A)

Acquisitions
As the second part of the firm’s two-part strategy, Molycorp acquired several firms to enhance its
processing and manufacturing capabilities. In particular, it acquired two manufacturers of rare earth
alloys (Santoku America in Arizona and AS Silmet in Estonia) for about $110 million in 2011.21 When
discussing the acquisition, Smith said:

Our high-grade resource, our proprietary low-cost materials processing technology,

and our ability to capture high margins through vertical integration puts Molycorp in a
strong position to capitalize on growth in global rare earth demand and increasingly tight
markets for these critical materials.22

Molycorp’s most recent and largest acquisition occurred in June 2012,f when it acquired Neo
Material Technologies, a Canadian rare earth processor, for $1.5 billion in cash, stock, and assumed
debt.23 Through this acquisition, Molycorp acquired the ability to produce ultra-high-purity, heavy
rare earth materials, magnetic powders, and magnets. Smith said:

We now have the broadest global coverage in the industry, and we can immediately
access highly specialized niche markets that were not available to us prior to the Neo
acquisition. Our expanded product line in rare earths, particularly the “heavies” category,
and rare metals, along with our patented technology platform, and our ability to
consistently meet demanding customer specifications, will make us a formidable player
in these global markets for years to come.

Historical Financing Sources

In order to finance Project Phoenix and the recent acquisitions, Molycorp had raised nearly $1.5
billion of capital from a variety of sources from 2010 to June 2012. Following the IPO in July 2010,
Molycorp issued three sets of securities:

 Convertible Preferred Stock and Secondary Stock Offeringg on February 16, 2011. Molycorp
issued $180 million of 5.5% mandatory convertible preferred stock. At the same time, it made a
secondary offering of 13.5 million shares of common stock at a price of $50 per share, which
allowed certain early investors to liquidate some of their holdings. 24 (Exhibit 6 provides details
on the mandatory convertible preferred stock.)

 Convertible Senior Notes and Secondary Stock Offering on June 15, 2011. Molycorp issued
$230 million of 3.25% convertible senior notes due in 2016 (five-year maturity) in an unrated
private placement.25 Molycorp also conducted another secondary offering consisting of 11.5
million shares at a price of $51 per share. 26 As part of the offering, Mark Smith sold 175,000
shares, about 16% of his Molycorp holdings, which a Molycorp spokesman described as
“prudent personal financial planning.”27

f On March 8, 2012, Molycorp agreed to acquire Neo Materials Technologies at a 42% premium. In response to the announcement,
Molycorp’s stock price increased 19%. Through this transaction, Molycorp booked $76 million of property, plant, and equipment
(PP&E); $480 million of intangible assets; $495 million of goodwill; $317 million of cash; and approximately $217 million of
working capital.
g In a secondary offering, major stockholders sell a portion of their existing holdings to the public. The funds raised in a secondary
offering go to the selling shareholders, not to the company.

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Molycorp: Financing the Production of Rare Earth Minerals (A) 214-054

 Senior Secured Notes on May 25, 2012. Molycorp issued $650 million of 10.0% Senior Secured
Notes that were due in 2020, paid interest on a semiannual basis, and were used to pay for the
Neo Materials acquisition.28 Standard & Poor’s assigned a B rating to the notes. 29

As a result of issuing these securities, Molycorp’s book value leverage ratio (debt-to-total
capitalization) increased from 0% to 43% as of June 2012. Because of the recent decline in its stock price,
however, Molycorp’s leverage ratio on a market value basis (debt-to-total value) had increased to 47%.
As production came online and Molycorp repaid some of its outstanding debt, it was reasonable to
expect that its market value leverage ratio would decrease substantially, and would likely be in the
range of 20% to 30%.

Future Financing Needs and Options

Although Molycorp was well on its way toward implementing the “mine-to-magnets” strategy,
Project Phoenix remained unfinished and in need of additional funding. Management estimated that
the project required another $289 million of capital expenditures in the second half of 2012 and $25
million in early 2013.30 At the same time, the firm still had substantial accrued expenses and accounts
payable associated with the project that were coming due by the end of the year, and would likely
spend another $45 million during the remainder of 2012 on capital projects at other facilities. 31 Besides
funding its capital expenditures, Molycorp had interest expense on outstanding debt and operating
losses that could be exacerbated by low REO prices. As final uses of cash in 2012, Molycorp had to
redeem $230 million of convertible debt that it had assumed as part of the Neo Materials acquisition
and repay an additional $33.2 million in other principal obligations.

The firm had a variety of options to meet these funding obligations. To begin with, the firm had
$369 million of cash as of June 30, 2012, although it would need to keep at least $75 million on hand for
daily operations.32 While bank loans were an option, they were a relatively unattractive funding source
for long-term assets. The most likely options involved issuing new debt or equity, or both. (Exhibit 7
provides data on current market rates. At the time, Molycorp’s stock was trading at $11.49, its equity
beta was 2.33, it paid no dividends, and the stock price volatility assumption used to value its employee
stock options was 60% per year.33) For example, Molycorp could offer:

1. Straight Debt (Bonds)—up to $350 million of five-year senior notes with a 10.0% coupon paid
semiannually and a face value of $1,000. These notes were expected to be issued at a 5% discount
to face value (i.e., at $950 per bond), would likely get a CCC rating, and would carry typical
covenants for high-yield bonds (e.g., strict coverage and liquidity ratio tests, limited
incremental indebtedness, and limits on cash distributions).

2. Convertible Debt—up to $350 million of five-year convertible notes with a 6.0% coupon and
$1,000 face value (issued at par). Interest would be payable on a semiannual basis. The
conversion price would be $13.80 per share (a 20% conversion premium to the current stock
price of $11.49 per share), and the conversion ratio would be 72.464 shares per $1,000 of
principal amount. These notes would also likely get a CCC rating from Standard & Poor’s.

3. Common Stock—from $100 million to $350 million of common stock.

The size of the need combined with uncertainty about the firm’s projected revenue concerned many
analysts. (Exhibit 8 shows analyst revenue forecasts by five analysts as of early August 2012.) One
analyst said:

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214-054 Molycorp: Financing the Production of Rare Earth Minerals (A)

While Mt. Pass remains on-budget and on-time (though exhibiting cost pressures),
MCP still has to complete the project and deliver a commercial product to its
customers. . . . [Furthermore] rare earth prices continue to move lower, and we believe
they will take another meaningful step down as MCP and Lynas ramp up production. 34

Despite these concerns, CEO Mark Smith remained optimistic about the future:

We are on the cusp of bringing a decade of innovation, development and hard work
by the Molycorp family to fruition for our company and for our shareholders. The next
six months are perhaps the most exciting and challenging for our company as we ramp
up Project Phoenix and fully integrate Molycorp Canada [Neo Material Technologies]. 35

If Smith was correct and Molycorp was able to complete Project Phoenix as planned and on the
revised budget, the firm would be in a position to ramp up production and generate considerable cash
flow. Smith added: “We’ve got all the pieces to the puzzle to make this happen and now we just need
to execute. . . . The company’s top line can really begin to jump higher in 2013 after the facility
expansion is operational.” 36 (Exhibit 9 provides a cash flow forecast for Molycorp assuming Project
Phoenix was completed according to the new time schedule and budget; Exhibit 10 provides financial
information on other firms that were actively developing rare earth projects.)

Conclusion
Molycorp’s leadership team had spent years planning for and then executing on its strategic plan
for the rejuvenation of the Mountain Pass facility and the development of downstream processing
capabilities. Yet the recent downturn in REO prices had raised the possibility that Molycorp might not
be able to raise sufficient funds to complete Project Phoenix and implement its mine-to-magnets
strategy. The firm needed a funding plan and it needed the plan quickly. Clearly investors had been
spooked by the idea that Molycorp needed additional funds and by the fact it might not be able to raise
them. Even though Smith was arguing the firm was on the “cusp” of something great, not everyone
was convinced. JPMorgan equity analyst Michael Gambardella was more circumspect in his
assessment of the firm and its prospects:

This warning by the company is concerning to us, however, as it is tough to determine

whether they will be able to raise enough funds and/or at what cost especially after
recent, significant financings.37

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Molycorp: Financing the Production of Rare Earth Minerals (A) 214-054

Exhibit 1a Weekly Prices for Light Rare Earth Oxides from December 2007 to August 2012 ($ per kg)

$400

$350 Peak-to-Base Current-to-Peak

Price Ratio Price Ratio
Base = 1/1/10 Current = 8/6/12
$300 Cerium 36.3X 16%
Lanthanum 27.1X 18%
$250 Neodymium 17.4X 26%

$200

$150

$100

$50

$0
Dec-07

Mar-08

Mar-09
Jun-08

Mar-11

Mar-12
Dec-08

Jun-09

Mar-10
Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12
Sep-08

Sep-09

Sep-10

Sep-11
Cerium Lanthanum Neodymium

Source: Thomson Reuters Datastream, accessed 12/17/13.

Exhibit 1b Weekly Prices for Heavy Rare Earth Oxides from December 2007 to August 2012 ($ per kg)

$6,000

Peak-to-Base Current-to-Peak
$5,000 Price Ratio Price Ratio
Base = 1/1/10 Current = 8/6/12
Dysprosium 21.4X 44%
Europium 11.4X 43%
$4,000 Terbium 11.2X 48%

$3,000

$2,000

$1,000

$0
Mar-11
Mar-08

Mar-09

Mar-10

Mar-12
Dec-07

Jun-09
Jun-08

Dec-08

Dec-09

Jun-10

Sep-10

Dec-10

Jun-11

Dec-11

Jun-12
Sep-08

Sep-09

Sep-11

Europium Terbium Dysprosium

Source: Thomson Reuters Datastream, accessed 12/17/13.

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214-054 Molycorp: Financing the Production of Rare Earth Minerals (A)

Exhibit 2 Molycorp’s Vertically Integrated Structure (the “Mine-to-Magnets” strategy)

Mine

Mill

Rare
Earth To Market
Oxides Ce, La, Nd, Sm, & Eu
Extraction and
Processing Facilities Rare Earth To Market
● Metal conversion Metals & Metals: La, Nd, & Pr
Alloys
● Alloy and magnet Alloys: NdFeB & SmCo

production
Magnets To Market

Source: Adapted from P. Misra and P. Sood, “Molycorp, Inc.,” Morgan Stanley Research Report, August 13, 2012, Exhibit 24,
via Thompson ONE, accessed 12/17/13.

Notes: Ce = Cerium, La = Lanthanum, Nd = Neodymium, Sm = Samarium, Eu = Europium Pr = Praseodymium, NdFeB =

Neodymium Iron Boron, SmCo = Samarium Cobalt.

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Molycorp: Financing the Production of Rare Earth Minerals (A) 214-054

Exhibit 3 Molycorp Income Statement, 2009–2012 (millions of dollars)

Year Ending 12/31 6 Months Ending 6/30

2009 2010 2011 2011 2012

Revenue $ 7.1 $ 35.2 $ 396.8 $ 125.9 $ 189.0

Costs of Goods Sold 21.8 28.8 154.2 55.1 145.3
Gross Profit (14.7) 6.4 242.7 70.8 43.8

SG&A 12.7 45.2 56.7 22.5 65.6

Research & Development (R&D) - 2.3 7.7 3.0 9.7
Depreciation 1.2 6.9 15.2 5.4 11.1
Earnings Before Interest and Tax (EBIT) (28.6) (48.1) 163.1 39.9 (42.6)

Net Interest 0.2 (0.2) 0.4 (0.2) 9.7

Restructuring and Other Charges (0.2) 3.0 15.8 - 47.6
Profit Before Tax (PBT) (28.6) (50.8) 146.9 40.1 (99.9)

Tax Expense (Credit) - - 28.6 (6.4) (29.5)

Minority Interest - - 0.8 1.0 (0.7)
Net Income (28.6) (50.8) 117.5 45.6 (69.7)

Common Dividends 0.0 0.0 0.0 0.0 0.0

Sources: S&P Capital IQ (accessed 11/8/13), and Molycorp Annual Reports, various years.

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214-054 Molycorp: Financing the Production of Rare Earth Minerals (A)

Exhibit 4 Molycorp Balance Sheet, 2009–2012 (millions of dollars)

As of December 31st June 30th

2009 2010 2011 2012

Assets
Cash & Short-Term Investments $ 6.9 $ 316.4 $ 418.9 $ 369.3
Accounts Receivable 1.2 16.4 70.7 118.4
Inventory 8.5 18.8 111.9 319.9
Other Assets 1.8 1.8 37.5 105.4
Current Assets 18.5 353.4 639.0 913.0

Net PP&E 66.4 94.0 561.6 1,153.3

Goodwill - - 3.4 505.0
Intangibles 0.7 0.6 3.1 491.9
Other Long-Term Assets 12.1 31.5 47.9 96.0
Total Assets 97.7 479.6 1,255.1 3,159.2

Liabilities
Short-Term Borrowing - 3.1 0.9 -
Accounts Payable 2.9 13.0 161.6 287.9
Accrued Expenses 5.9 4.2 12.9 51.5
Current Portion of LT Debt - - 1.5 263.2
Other Current Liabilities 0.7 0.4 1.7 35.0
Current Liabilities 9.5 20.7 178.6 637.6

Long-Term Debt - - 196.5 835.0

Deferred Tax Liabilities - - 18.9 172.7
Other Non-current Liabilities 13.5 12.3 15.8 50.9
Total Liabilities 23.1 33.0 409.9 1,696.2
Shareholder Equity 74.6 446.5 845.2 1,463.0
Total Liabilities & Equity 97.7 479.6 1,255.1 3,159.2

Other Items
Total Shares Outstanding 45.0 82.3 83.9 109.9
Current Ratio 1.9 17.1 3.6 1.4
Debt-to-Total Capital (book value) 0% 1% 19% 43%

Sources: S&P Capital IQ (accessed 11/8/13), and Molycorp Annual Reports, various years.

10

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Exhibit 5 Molycorp: Daily Stock Price from Its IPO in July 2010 to August 2012 (millions of dollars)

$80
2/16/11 Mandatory 6/15/11 Convertible Note
Convertible Preferred Offering and Secondary
$70 Offering and Secondary Stock Offering at $51/share
Stock Offering at $50/share

$60

$50

5/25/12 10% Senior

$40 Secured Note Offering

$30

$20

$10

$0

Rare Earth ETF S&P 500 Molycorp

Source: Thomson Reuters Datastream, accessed 12/17/13.

Note: The Market Vectors Rare Earth/Strategic Metals ETF (ticker = REMX) was an ETF of publicly traded firms engaged in mining, refining, and manufacturing rare earth metals.

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214-054 Molycorp: Financing the Production of Rare Earth Minerals (A)

Exhibit 6 Details of the Mandatory Convertible Preferred Stock Issued in February 2011

Security: 5.5% Series A Mandatory Convertible Preferred Stock

Issue Date: February 16, 2011
Issue Amount: $180 million
Securities: 1.8 million shares (par value per share = $0.001) with
liquidation preference
Offering Price: $100.00 per share
Underwriting The underwriter will retain 3.3% leaving proceeds of 96.7%
Discount: for the company
Dividends: Paid quarterly in February, May, August, and November
5.5% per share ($1.375 per quarter)
Mandatory March 1, 2014 (3 years)
Conversion Date:
Conversion Rate: Stock Price > $60.00, then the rate = 1.6667 shares
$50.00 ≤ Stock Price ≤ $60.00, then the rate is determined
by dividing $100.00 by the stock price
Stock Price < $50.00, then the rate = 2.0000 shares
Voting Rights: None
Use of Proceeds: To fund the company's modernization and expansion plan

Source: Molycorp, Inc., 5.5% Series A Mandatory Convertible Preferred Stock, Prospectus, February 10, 2011, accessed 6/5/14.

Exhibit 7 Current Market Rates as of August 3, 2012

US Treasury Yields Corporate Bond Yields

(constant maturity) (10-year maturity)
Credit
Maturity Yield Yield
Rating

1 month 0.03% AAA 2.35%

6 months 0.08% AA 2.45%
1 year 0.16% A 2.65%
3 years 0.33% BBB 3.60%
5 years 0.67% BB 6.10%
10 years 1.60% B 7.35%
30 years 2.65% CCC 10.92%

Sources: Federal Reserve Selected Interest Rates (Daily)-H.15;

BondsOnline Group, Thomson Reuters, and casewriter

12

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Molycorp: Financing the Production of Rare Earth Minerals (A) 214-054

Exhibit 8 Analyst Forecasts of Molycorp Revenues as of Early August 2012

$2,500

$2,000
Revenue Forecast ($ millions)

$1,500

$1,000

$500

$0
2009A 2010A 2011A 2012est 2013est 2014est 2015est 2016est
CIBC Gabelli & Co. JP Morgan Morgan Stanley Piper Jaffray

Source: Analyst reports from Thompson ONE. Matthew Gibson and Ian Parkinson, CIBC, August 7, 2012; Brian Chin,
Gabelli & Co., August 3, 2012; Michal Gambardella et al., JPMorgan, August 3, 2012; Paretosh Misra and Piyush
Sood, Morgan Stanley, August 13, 2012; and Jagadish Iyer and Vasanth N. Mohan, Piper Jaffray, August 3, 2012.
All reports accessed 12/17/13.

13

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214-054 Molycorp: Financing the Production of Rare Earth Minerals (A)

Exhibit 9 Molycorp Cash Flow Forecast (millions of dollars)

July-Dec Fiscal Year Ending December 31st

2012 2013 2014 2015 2016 2017

Operating Assumptions
REO Production (tons, thousands) 6.0 25.0 40.0 40.0 40.0 40.0
Percentage of REO allocated to Metals Production 63% 32% 35% 35% 35% 35%
Metals production (tons, thousands) 3.8 8.0 14.0 14.0 14.0 14.0

REO Price ($/kg) 43.2 20.6 19.2 19.5 19.7 20.0

Metal/Alloy Price ($/kg) 104.7 58.1 63.1 63.9 64.8 65.7
REO Cost ($/kg) 26.1 9.3 6.0 6.1 6.2 6.3
Metal/Alloy Cost ($/kg) 82.1 34.4 37.4 37.9 38.4 38.9

Revenue
REO $ 97 $ 350 $ 499 $ 506 $ 513 $ 520
Metals/Alloys 394 465 883 895 908 920
Total Revenue 490 815 1,382 1,401 1,421 1,441

Cost of Sales
REO 58 158 156 158 160 163
Metals/Alloys 309 275 523 530 538 545
Total Cost of Sales 367 433 679 689 698 708

Gross Profit
REO 38 192 343 348 353 358
Metals/Alloys 85 190 360 365 370 375
Total Gross Profit 123 382 703 713 723 733
SG&A 57 100 100 101 103 104
Other Expense 17 9 10 10 10 10
EBITDA 49 273 593 601 610 618

Cash Flow Items

Capital Expenditures 334 70 45 45 45 45
Depreciation 25 125 125 125 125 125
Net Working Capital (1) 301 258 289 293 297 301

Gross Margin 25.1% 46.9% 50.9% 50.9% 50.9% 50.9%

Revenue Growth (2) 20.0% 69.6% 1.4% 1.4% 1.4%

Sources: "Molycorp, Inc.," P. Misra and P. Sood (Morgan Stanley, 8/13/2012); "Molycorp," M. Gambardella,
T. Langton, and B. Ossenbeck ( J.P. Morgan, 8/3/ 2012); and casewriter estimates.

Note: (1) Net Working Capital = Accounts Receivable + Inventory - Accounts Payable - Accrued Expenses. Values
are end of period.
(2) FY 2013 revenue growth rate based on annual FY 2012 revenues of $679 million.

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 214-054 -15-

Exhibit 10 Rare Earth Mining Firms

Market Average
Ticker & Stock As of June 30, 2012 (book values) Value of Leverage Equity
Company Exchange (a) Revenue Assets Debt Equity Equity (b) D/V (c) Beta (d)

Molycorp, Inc. MCP (NYSE) $ 460.0 $ 3,159.2 $ 1,098.2 $ 1,463.0 $ 2,368.3 7.6% 2.33

Alkane Resources Ltd. ALK (ASX) 1.2 179.5 0.0 175.6 301.8 0.0% 2.35
Avalon Rare Metals, Inc. AVL (TSX/NYSE) 0.0 117.0 0.0 113.1 156.7 0.0% 2.76
Greenland Minerals and Energy Ltd. GGG (ASX) 1.1 57.5 0.0 56.2 235.6 0.0% 1.52
Lynas Corporation Ltd. LYC (ASX) 0.0 1,047.8 412.6 576.8 1,698.4 9.0% 2.12
Quest Rare Minerals Ltd. QRM (TSX/NYSE) 0.1 80.6 0.0 77.8 109.6 0.0% 3.02
Rare Element Resources Ltd. REE (NYSE) 0.0 53.2 0.0 50.7 235.8 0.0% 2.44

Sources: Standard & Poor's Capital IQ, accessed 12/3/2013; Thomson Reuters Datastream, accessed 12/3/2013;
Bloomberg, accessed 12/3/2013; CRSP, accessed 1/13/2014; and casewriter estimates.
Notes:
(a) NYSE = New York Stock Exchange; ASX = Australian Stock Exchange; TSX = Toronto Stock Exchange.
(b) As of June 30, 2012.
(c) Two-year average debt/value ratio; value equals the book value of debt plus the market value of equity.
(d) The equity beta was measured over two years against the relevant market index for each exchange.

Company Business Description

Alkane Resources Ltd. An Australian mining and exploration company. Projects included the Tomingley Gold Project (planned 2014); the Dubbo Zirconia
Project, containing zirconium, niobium and other rare earths; and four copper-gold exploration projects.

Avalon Rare Metals, Inc. A Canadian exploration and development company focused on rare metals and minerals. Its Nechalacho Rare Earth Elements
Project was potentially one of the largest new sources of heavy rare earths in the world outside of China.
Greenland Minerals and Energy Ltd. An Australian company focused on developing the Kvanefjeld multi-element project, containing rare earth elements, uranium, and
zinc. The company was through the feasibility phase and into mine development.
Lynas Corporation Ltd. An extraction and processing company focused on rare earth mineral deposits located primarily in Australia and Malaysia. Its
Mount Weld project, located in Western Australia, was the richest known deposit of rare earth minerals in the world. The
company’s state-of-the-art rare earths processing plant in Malaysia was expected to begin production in 2013.
Quest Rare Minerals Ltd. A Canadian exploration company engaged in the identification and discovery of rare earth deposits. Held a 100% interest in the
Strange Lake rare earth property in Quebec.
Rare Element Resources Ltd. An American gold and rare earth exploration and development company. Its primary focus was advancing the Bear Lodge Critical
Rare Earth Project, located in Colorado, into production.

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214-054 Molycorp: Financing the Production of Rare Earth Minerals (A)

Endnotes

1 “Molycorp Reports Second Quarter 2012 Financial Results,” Molycorp press release, August 2, 2012,
http://www.molycorp.com/molycorp-reports-second-quarter-2012-financial-results/, accessed January 8, 2014.
2 Michael Gambardella, Tyler Langton, and Brian Ossenbeck, “Molycorp: Downgrading to Underweight on New Warning of
Potential Funding Shortfall; PT to $11.50,” JPMorgan Equity Research Report, August 3, 2012, p. 1.
3 Anthony Young, Anthony B. Rizzuto, Jr., and Joseph Giordano, “Not As Bad As the Headline Looks,” Dahlman Rose & Co.
Equity Research Report, August 3, 2012, p. 1.
4 Anthony Young, Anthony B. Rizzuto, Jr., and Joseph Giordano, “Taking a Look at a Combined Molycorp and Neo
Materials,” Dahlman Rose & Co. Equity Research Report, May 29, 2012, p. 1; and Young et al., “Not As Bad As the Headline
Looks,” p. 1.
5 Marc Humphries, “Rare Earth Elements: The Global Supply Chain,” Congressional Research Service, June 8, 2012, p. 2.

6 Humphries, “Rare Earth Elements: The Global Supply Chain,” pp. 13–14.

7 Ainissa Ramirez, “Where to Find Rare Earth Elements,” April 2, 2013, http://www.pbs.org/wgbh/nova/next/physics/rare-
earth-elements-in-cell-phones/, accessed November 26, 2013.
8 Molycorp, Common Stock Prospectus, February 10, 2011, pp. 4–5.

9 U.S. Department of the Interior, Mineral Commodity Summaries, USGS, January 2013.

10 Molycorp, Common Stock Prospectus, February 10, 2011, pp. 6–7.

11 Molycorp, Inc., Investor Presentation, 2011, p. 8.

12 “Molycorp Lays Out its Investment Case,” eSource Canada Business News Network, November 19, 2010.

13 “Molycorp Lays Out its Investment Case.”

14 Michael Gambardella, Tyler Langton, and Brian Ossenbeck, “Molycorp: Dig the well before you are thirsty,” JPMorgan,
September 7, 2010, p. 12.
15 Molycorp’s History, http://www.molycorp.com/about-us/our-history/, accessed November 18, 2013; and Humphries,
“Rare Earth Elements: The Global Supply Chain,” p. 12.
16 Humphries, “Rare Earth Elements: The Global Supply Chain,” p. 14.

17 “Chevron Mining agrees to sell Mountain Pass rare earth mining operations,” PRNewswire, September 10, 2008,
http://www.prnewswire.com/news-releases/chevron-mining-agrees-to-sell-mountain-pass-rare-earth-mining-operations-
65099292.html, accessed November 26, 2013.
18 Molycorp, Common Stock Prospectus, February 10, 2011, p. 1.

19 Molycorp, Inc., Investor Presentation, 2011, p. 26.

20 “Molycorp Announces Completion of Capital Raise for Its $781 Million Rare Earth Expansion and Modernization Project,”
Molycorp press release, June 16, 2011, http://www.molycorp.com/molycorp-announces-completion-of-capital-raise-for-its-
781-million-rare-earth-expansion-and-modernization-project/, accessed November 19, 2013.
21 Molycorp, 2012 Annual Report, pp. 93–94.

22 “Molycorp Announces Completion of Capital Raise for Its $781 Million Rare Earth Expansion and Modernization Project.”

23 Molycorp, 2012 Annual Report, p. 91.

24 “Molycorp Announces Pricing of Mandatory Convertible Preferred Offering by the Company and Secondary Offering of
Common Stock,” Business Wire, February 10, 2011,
http://www.businesswire.com/news/home/20110210007275/en/Molycorp-Announces-Pricing-Mandatory-Convertible-
Preferred-Offering, accessed December 17, 2013.
25 Molycorp, 2012 Annual Report, p. 97.

16

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Molycorp: Financing the Production of Rare Earth Minerals (A) 214-054

26 “Molycorp Announces Completion of Capital Raise for Its $781 Million Rare Earth Expansion and Modernization Project.”

27 “CORRECT: Bearish Shorts Are on the Rise in the Rare-Earth Sector,” Dow Jones Business News, June 23, 2011.

28 “Molycorp Prices $650 Million of Senior Secured Notes,” Molycorp press release, May 18, 2012,
http://www.molycorp.com/molycorp-prices-650-million-of-senior-secured-notes/, accessed November 22, 2013.
29 “S&P assigns Molycorp preliminary rating,” Reuters, May 14, 2012,
http://www.reuters.com/article/2012/05/14/idUSWNA720420120514, accessed November 26, 2013.
30 Molycorp, Common Stock Prospectus Supplement, August 16, 2012, pp. S-6, S-7.

31 Molycorp, Common Stock Prospectus Supplement.

32 Michael Gambardella, Tyler Langton, and Brian Ossenbeck, “Molycorp: New Capital Raise—Is This Enough?” JPMorgan,
August 16, 2012, p. 1.
33 Molycorp, 2012 Annual Report, p. 105.

34 Michael Gambardella, Tyler Langton, and Brian Ossenbeck, “Molycorp: Downgrading to Underweight on New Warning of
Potential Funding Shortfall,” JPMorgan, August 3, 2012, p. 1.
35 CQ FD Disclosure, FNDW, “Q2 2012 Molycorp, Inc. Earnings Conference Call—Final,” August 2, 2012, p. 9.

36 “Update: Molycorp Swings to 2nd-Quarter Loss as Expenses Soar,” Dow Jones News Service, August 2, 2012.

37 Gambardella et al., “Molycorp: Downgrading to Underweight on New Warning of Potential Funding Shortfall,” p. 1.

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