Molycorp (MCP) Sinks Further as 'the Ax' Said They Need Even More Cash

August 21, 2012 10:56 AM EDT
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Just when Molycorp (NYSE: MCP) investors thought it couldn't get any worse... it did.

Today, JPMorgan's Michael Gambardella, consider the ax in the stock, slashed his price target further from $11.50 to $8.50, saying additional capital is likely needed. He maintained his Underweight rating on the stock.

Gambardella first pointed out the need for Molycorp to raise capital on August 3rd. He was the first to bring up "new funding risks." Ten days afterword, S&P downgraded the company's credit citing the capital shortfall. Then another three days later the company announced the dilutive capital raise.

Commenting on the need for even more capital, Gambardella states: "We estimate MCP's cash needs at approximately $808mm in the near term: $230mm to holders of Neo converts, $306mm of capex for 2H12, $200mm catch-up for accrued vs. cash capex, roughly $40mm in interest expense for 2H12, and $32mm for short-term Neo debt that matures by year end. These estimates exclude operating cash flows. Given our estimated available cash of $774.2mm to $849.2mm for MCP, we think the company will likely have to raise more capital as we don’t think operating cash flows will create enough of a buffer, especially given the risks during the ramp up phase of Mt. Pass."

In addition to funding risk, Molycorp has other risks too, the analyst said. The first is the on-time and on-budget completion of Mt. Pass. Also, he thinks rare earth prices will continue to move lower and put stress on cash flows.

With Gambardella saying the company needs more cash, this should be very concerning to investors.

Shares of Molycorp are down 3 percent today to $9.71.

For an analyst ratings summary and ratings history on Molycorp click here. For more ratings news on Molycorp click here.

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