The fate of Molycorp Inc.'s Mountain Pass rare-earths facility
is still up in the air, but a complete shutdown is not an option,
the company said.
In a bankruptcy-court filing, the troubled company said it is
weighing a number of options for the California operation, which
has consistently lost money. From 40 to 200 of the 400 jobs at the
facility could be saved, depending on how much of the Mountain Pass
facility Molycorp decides to keep running while it addresses a $1.7
billion pile of debt, according to court papers filed
Wednesday.
Molycorp filed for chapter 11 bankruptcy protection on June 25
because of financial distress caused by a drop in rare-earths
prices.
The uncertainty over Mountain Pass is linked to a debate over
Molycorp's future. Lenders have been eyeing the profitable Neo
processing business but fretting over Mountain Pass, which produces
the elements, used in small quantities in high-tech products. The
company has taken the position that it needs both businesses for
long-term profitability in a market where a shift in policy from
China, the world's largest supplier of rare earths, can reset the
picture dramatically.
The debt Molycorp is trying to resolve in chapter 11 was run up
when China restricted supply and rare-earths prices were high.
China changed its mind, turning Molycorp's rare-earths production
facility into a money pit.
If China changes its mind again, Neo will need the raw material
Mountain Pass produces to stay healthy, Molycorp Chief Financial
Officer Michael Doolan testified at a hearing earlier in the
case.
It isn't clear whether Molycorp will be able to exit bankruptcy
as a vertically-integrated business. However, a fight over
financing has improved the chances some Mountain Pass workers will
be able to hang onto their jobs, at least for a while.
Molycorp is due in court next week for a final hearing on
bankruptcy financing that has been something of a moving target.
After agreeing to a loan from secured bondholders, Molycorp
switched and decided to accept financing from its senior lender,
affiliates of Oaktree Capital Group .
Oaktree originally demanded Mountain Pass be placed "in a state
of care and maintenance," which lawyers translated as meaning
mothballed, by mid-October. The timing was geared, in part, to
avoid triggering liabilities for failure to give notice of a mass
layoff.
Now Oaktree has dropped that requirement and is calling on
Molycorp to come up with a "limited operations plan" instead, court
papers say. "No form of any limited operations plan contemplates a
complete 'shutdown' or 'mothballing' of Mountain Pass," Molycorp
said in court papers. But there will be a scaling back of the
operation, an environmentally-sensitive matter given the toxic
chemicals in use at Mountain Pass, the company said.
Molycorp is seeking court authority to make severance payments
of from $2.8 million to $5.6 million to people losing their jobs
due to the cutbacks. The range depends on how many jobs are
ultimately saved, Molycorp said. The money is important to keep
people on the job while Mountain Pass transitions to limited
operations, according to the company.
Additionally, Oaktree backed away from requiring Molycorp to
sell Neo. Under the proposed bankruptcy financing, the Neo sale
requirement only kicks in if Molycorp defaults on the loan, court
papers say.
Molycorp's official committee of unsecured creditors, appointed
after the first rounds of fights over financing, is studying the
Oaktree loan proposal.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Peg Brickley at peg.brickley@wsj.com
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