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Molycorp CEO Smith Exits 6 Months After Buying Neo Material (2)

Dec. 12 (Bloomberg) -- Molycorp Inc. Chief Executive Officer Mark Smith left the rare-earths producer amid an investigation of its disclosures and a lawsuit related to engineering deficiencies at its mine.

Vice Chairman and former Neo Material CEO Constantine Karayannopoulos is Smith’s interim replacement, the Greenwood Village, Colorado-based company said yesterday in a statement. Molycorp said its board is looking for a permanent hire.

“We feel that Mark had lost credibility with a number of constituents, shareholders, potential investors and analysts,” said Michael Gambardella, a New York-based analyst at JPMorgan Chase & Co.

Molycorp disclosed the probe by the U.S. Securities and Exchange Commission in a filing on Nov. 9, the day after reporting its third-quarter earnings and hosting a conference call to discuss results with investors, a decision that eroded investors’ trust in his management, Gambardella said.

Gambardella, who rates Molycorp shares underperform, equivalent to a sell, said that regardless of who takes Smith’s place, the company will be producing into an oversupplied market and will need to raise more money next year.

Big Deposit

Molycorp is the owner of the Mountain Pass mine in California, the largest rare-earths deposit outside China.

The exit of Smith, 53, comes as the company is completing construction at the project and is shifting its focus to processing and manufacturing rare-earth products, Jim Sims, a Molycorp spokesman, said by telephone. Smith’s exit was a mutual decision, he said.

“The board decided to make a management change because the profile of the company is rapidly changing,” Sims said.

The shares rose 0.8 percent to $11.42 at 10:10 a.m. in New York. Molycorp has plunged 56 percent since announcing March 8 it would purchase Toronto-based Neo Material, which processes rare-earth ores into magnetic powders and alloys.

“Smith has excellent credentials from a technical perspective but his ability to deal with the financials of an emerging company appeared to overwhelm him at times,” Alan Schlesinger, owner of Alchemy Management LLC in Great Neck, New York, and a Molycorp investor, said in a telephone interview.

Smith declined to respond to Gambardella and Schlesinger’s comments when reached by e-mail.

SEC Probe

Smith’s departure wasn’t related to an investigation by the U.S. Securities and Exchange Commission and Molycorp is on schedule to meet its target of producing at an annual rate of 19,050 metric tons of rare-earth oxides in the current quarter, Sims said.

Molycorp said Nov. 9 it was being probed by the SEC over the accuracy of its public disclosures. The shares slumped last month to $6.06, the lowest closing price since its 2010 IPO, after Molycorp said it was suing a contractor for what it called defective engineering at Mountain Pass, leading to cost overruns.

Private-equity firms Resource Capital Funds of Denver and Pegasus Capital Advisors in New York bought Molycorp’s predecessor, Molybdenum Corp. of America, from Chevron Corp. in 2008 to restart rare-earth mining.

2010 IPO

Molycorp’s shares sold for $14 apiece in the IPO, managed by JPMorgan and Morgan Stanley, to help fund Mountain Pass’s restart. The stock more than tripled that year after China curbed output and cut export quotas for rare earths, 17 chemically similar metallic elements used in hybrid cars, oil- refining catalysts, wind turbines and weapons.

The shares and rare earth prices plunged in 2011 as buyers pursued alternative raw materials and used stockpiles. Lanthanum oxide, a rare earth used to refine gasoline, has dropped 53 percent this year, according to Shanghai Steelhome Information data. Cerium oxide, used in glass polishing, has declined 56 percent and neodymium oxide, used in magnets, has fallen 46 percent, the data show.

Mountain Pass mine, 60 miles (96 kilometers) southwest of Las Vegas in the Mojave desert, accounted for a majority of the world’s rare-earth production from 1965 to 1985, according to an April report from the U.S. Government Accountability Office.

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