Molycorp Wins Approval to Exit Chapter 11 Bankruptcy
March 30 2016 - 10:30PM
Dow Jones News
Molycorp Inc. won court approval to exit chapter 11 bankruptcy
Wednesday under a plan that leaves the fate of the sole U.S. source
of rare earths uncertain.
Judge Christopher Sontchi confirmed a plan that puts a
trimmed-down Molycorp largely in the hands of senior lender Oaktree
Capital Management. Unsecured creditors will share a minority stake
in the company, which is being rebuilt around the Neo line of
businesses that process rare earths.
As for the Mountain Pass mine in California, which is the only
U.S. mine producing elements essential to electronics including
cellphones and defense systems, it could be facing liquidation, or
it could be targeted for a deal involving an unnamed foreign
entity. The situation is "fluid," Judge Sontchi commented during
hearings in the U.S. Bankruptcy Court in Wilmington, Del.
Wednesday, Molycorp bondholders won court approval to buy
mineral rights and intellectual property associated with the
facility, but are leaving the mine itself behind. To counter
protests from regulators concerned Molycorp was walking away from
environmental risks, the company pointed to surety bonds and the
scrap value of the plant, which will help fund a cleanup.
Molycorp bondholders are still in discussions with an unnamed
foreign party about a potential deal, according to testimony from
John Park, who is with JHL Capital Group, a major investor in the
debt.
Testifying at a court hearing Wednesday, Mr. Park said the
bondholder deal for the mineral rights isn't connected to any
agreement with the unnamed foreign entity. However, talks that
began when Molycorp put Mountain Pass on the auction block haven't
completely ended, he said.
China is the dominant player in the world market for rare
earths, and changes in its trade policy spurred Molycorp's boom and
bust. The company filed for chapter 11 protection last year, loaded
with more than $1.7 billion in debt, much of it taken on when rare
earths prices were high, due largely to Chinese trade
restrictions.
Chinese trade policy changed, prices fell and Molycorp filed for
bankruptcy to revamp its business and its balance sheet. The
money-losing Mountain Pass mine was put on idle status.
At Wednesday's court hearing, Mr. Park said there are still
discussions about finding a way for Molycorp's bondholders to
"pursue a transaction for all the assets of Mountain Pass" with the
unnamed foreign entity playing some role. The sale to bondholders
that was approved Wednesday has no connection to that entity, which
put in an appearance early in the bankruptcy auction process, but
never made a bid.
The fate of Mountain Pass was the focus of much of a two-day
court hearing on Molycorp's chapter 11 exit plan, even though
Mountain Pass was dropped from the plan in a recent deal with
bondholders.
California and San Bernardino County officials objected to the
decision last week to excise Mountain Pass from Molycorp's chapter
11 plan, leaving them will little ground to raise objections about
the risk of harm to the environment, if the open-pit mine is
abandoned.
Mr. Park's testimony cast a spotlight on the potential for risk
of another type, possible foreign involvement in a mine that is the
only place in the U.S., where rare earths are mined.
According to Mr. Park, talks are aimed at finding a path to a
deal that would comply with U.S. laws that kick in when foreign
persons seek to gain control of U.S. businesses or assets that may
raise national security concerns, or involve critical
infrastructure. Deals implicating national interests are to be
presented to the Committee on Foreign Investment in the U.S., or
CFIUS, for review.
"With CFIUS, the ownership thresholds are very important, so the
structure would involve the foreign party owning amounts that would
be CFIUS-compliant," Mr. Park said.
In the years before bankruptcy, Molycorp plunged over $1 billion
into the Mountain Pass mine, hoping the investment would pay off,
even though China loosened trade restrictions and prices for rare
earths fell.
Bondholders are paying $1 million for the mineral rights to
Mountain Pass, as well as some intellectual property. If there is a
deal in Mountain Pass's future, it will involve the entire mining
operation, Mr. Park said.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
March 30, 2016 22:15 ET (02:15 GMT)
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