Case | HBS Case Collection | June 2014

Molycorp: Financing the Production of Rare Earth Minerals (A)

by Benjamin C. Esty and E. Scott Mayfield

Abstract

Molycorp, the western hemisphere's only producer of rare earth minerals, was in the middle of a $1 billion capital expenditure project in its effort to become a vertically integrated supplier of rare earth minerals, oxides, and metals. Yet it had just reported lower than expected revenues and earnings for the second quarter of 2012. In response to the announcement, its stock price fell 29% (its stock price had fallen from $77 to $11 in the past 18 months). The weakening financial performance was due in large part to falling prices for rare earth minerals. With less internally-generated cash flow available to fund the project, management had to decide: how much capital to raise, what kind to raise, and when to raise it. These decisions would determine its capital structure, at least in the short term, as well as its ability to implement its business strategy.

Keywords: financial strategy; convertible debt; uncertainty; competition; Startup; China; Supply & demand; Growth; rare earth minerals; capital structure; valuation; discounted cash flows; Vertical Integration; mining; payoff diagrams; option pricing; Capital Budgeting; Capital Structure; Cash Flow; Financial Strategy; Market Entry and Exit; Vertical Integration; Valuation; Metals and Minerals; Mining Industry; Industrial Products Industry; Canada; California;

Citation:

Esty, Benjamin C., and E. Scott Mayfield. "Molycorp: Financing the Production of Rare Earth Minerals (A)." Harvard Business School Case 214-054, June 2014.