January 23, 2013 / 1:32 PM / 5 years ago

UPDATE 2-Molycorp warns of weak revenue, cash crunch; shares fall

* Estimates lower Q4; sees weak first-half 2013 output

* Sees additional $80 mln in costs for mine-expansion project

* Plans to raise $300 million from share, note sale

* Shares down 9 percent (Adds analyst comment, background)

By Maneesha Tiwari

Jan 23 (Reuters) - Rare earth producer Molycorp Inc warned of significantly lower revenue and cash flow for the first half of the year and said it will not generate enough money to fund the expansion of its main mine in California.

The company’s shares fell 9 percent to $8.05 in afternoon trade. The stock has fallen 75 percent since touching a life-high of $35.75 in April as rare earth prices plunged.

The price of rare earths skyrocketed through 2010 and early 2011 as China, the producer of more than 95 percent of global supply, clamped down on exports. Prices have come down sharply since as the country eased export controls due to weak demand at home.

Molycorp, the biggest non-Chinese producer of rare earth elements used in products such as smartphones and tablets, on Wednesday said it plans to sell $200 million of its shares and $100 million in notes to fund capital expenditures this year.

The company would have had a cash shortfall of about $250 million this year without the proceeds of the offerings, it said in a regulatory filing. (link.reuters.com/vys45t)

The expansion and modernization of its Mountain Pass mine and the associated processing plant have already seen many cost overruns and delays, and the company said the cost of completing the project would rise by another $80 million to $1.42 billion.

Adding to the company’s woes in ramping up the mine is an investigation by the U.S. Securities and Exchange Commission over the accuracy of its public disclosures.

Molycorp’s Chief Executive Mark Smith quit last month as its board thought a different style of management was needed to run the company as it transitioned from being a “development-stage company to an operational one.”

Constantine Karayannopoulos, previously the CEO of Neo Material Technologies that was bought by Molycorp last year for C$1.2 billion, was named Smith’s interim replacement.

“The intent (of the share and note offering) is to raise a sufficient amount of funds so that there is no danger of them having to come back to the market,” said analyst Jon Hykawy of Byron Capital Markets.

“I think what you’re seeing is the influence of interim CEO Constantine, he is very conservative.”

Molycorp said its fourth-quarter revenue and cash flow were also significantly less than expected due to lower production. It is expected to report quarterly results next month.

The miner said production for the first half of this year would be lower-than-expected due to delays in achieving Phase 1 commercial production rate of 19,050 tonnes at Mountain Pass.

The mine was in operation from the 1950s to early 2000s, when it was shut down due to poor market conditions and environmental issues. Molycorp started processing stockpiled materials at the old plant in 2009.

Molycorp said on Jan. 10 revenue for 2013 would come below estimates. (Reporting by Maneesha Tiwari and Krishna N. Das; Editing by Saumyadeb Chakrabarty)

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