Download - Molycorp Slides Group 6
Group 6
‘Mine-to-Magnets’ Business Strategy
Modernisation & Expansion of Mountain Pass Facility, known as ‘Project Phoenix’
Acquisition of downstream refining & manufacturing capabilities
Vertically Integrated Business Structure REO Production Costs could be 50-70% lower than competitors Goal - “World’s lowest-cost manufacturer of rare earth oxides”
Acquisitions
Santoku America
(Arizona, US)
AS Silmet(Estonia)
$110m $1.5bCash,Stock,Assumed Debt
Molycorp’s Capital Requirements Supplementary Financing is needed for the project as
Cash is not enough New funds also need to be raised to pay certain
costs, like Interest Expenses and Creditors It is unwise to use a high level of cash to pay off
debts at this uncertain time for the company If successful, it is expected that Molycorp’s Cash
Flows will increase by a significant margin Revenues are forecasted to grow by 69% from 2013 to
2014
2012 Project Financing $ 289,000,000 2013 Project Financing $ 25,000,000 Associated Projects $ 45,000,000 Accounts Payable $ 287,900,000 Accrued Expenses $ 51,500,000 Operating Losses $ 42,600,000 Interest Expenses $ 9,700,000 Cash Reserves $ (294,000,000)
Minimum Capital Needed $ 456,700,000
Capital Requirements for Molycorp
Funding Options Available To MolycorpType of Financing Details
Bond Issuance 5 year senior notes, 10% semi-annual coupon, sold at a 5% discount, max of $350m.
Convertible Bond Issuance
5 year convertible notes, 6% semi-annual coupon, sold at par, max of $350m.
Usually, there is a premium on the conversion price when the Bond matures.
Common Stock Issuance
Between $100m and $300m of common stock can be realistically issued.
Share Lending Agreement
Issuer lends an affiliate a number of shares alongside a Convertible Bond purchase. The affiliate has full rights on the share, and they pay a fee for using the shares. Affiliate gives these shares back at maturity of the convertible bonds. Can be used as a funding mechanism or a hedging option.
Bank Loan Unattractive as this is an expensive form of financing for Capital Assets.
Funding Selection Considerations Cost
Equity finance generally more expensive Underwriting costs Claims on future profits Tax shield
Debt carries CCC rating – medium risk. Investors require higher return & coupon payments.
Straight debt (bonds) or convertible notes? Lower coupons might make convertible bonds more attractive
Overall leveraging capability. Molycorp will want to be mindful of its Interest Coverage ratio to reduce risk of financial distress
Funding Selection Considerations Time
Molycorp needs funds in the immediate future It must make a considered trade-off between length of capital use and capital
payment Maturity Mismatches must be avoided Molycorp is hopeful of increased future cash flow which makes servicing debt
easier Market Liquidity
Is the market interested in the company? Investors may shy away from an equity holding if outlook is poor
Effects on Existing Shareholders Will the shareholders be supportive of its Management’s financing tactics? Will their holdings be excessively diluted? Do they feel that the company can afford an exacerbated leverage position?
Questions?