MCP 3.31.2015 10Q

10-Q 1 mcp331201510q.htm FORM 10-Q MARCH 31, 2015 MCP 3.31.2015 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 001-34827

Molycorp, Inc.

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)	27-2301797 (I.R.S. Employer Identification No.)
5619 Denver Tech Center Parkway, Suite 1000 Greenwood Village, Colorado (Address of principal executive offices)	80111 (Zip Code)

(303) 843-8040

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ¨	Accelerated filer x	Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 5, 2015, the registrant had 277,979,529 shares of common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS



	PAGE
DEFINITIONS	3

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)	6
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	7
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)	8
Condensed Consolidated Statements of Cash Flows (Unaudited)	9
Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3. Quantitative and Qualitative Disclosures About Market Risk	48
Item 4. Controls and Procedures	48

Part II. OTHER INFORMATION
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3. Defaults Upon Senior Securities	50
Item 4. Mine Safety Disclosures	50
Item 5. Other Information	50
Item 6. Exhibits	50

Signatures	51

DEFINITIONS

The following table includes acronyms and abbreviations used in this report as well as definitions of certain rare earths, rare metals and mining terms often used in our public filings. Unless the context requires otherwise, references in this report to “Molycorp,” “we,” “our” or “us” refer to Molycorp, Inc. and its consolidated subsidiaries.



ARO	Asset Retirement Obligation.
ASC	Accounting Standards Codification.
ASP	Average Selling Price.
Assay	The analysis of the proportions of metals in ore, or the testing of an ore or mineral for composition, purity, weight, or other properties of commercial interest.
ASU	Accounting Standards Update.
Bastnasite	Bastnasite is a mixed-lanthanide fluoro-carbonate mineral (Ln F CO3) that currently provides the bulk of the world's supply of the light REEs. Bastnasite and monazite are the two most common sources of REEs. Bastnasite is found in carbonatites, igneous carbonate rocks that melt at unusually low temperatures.
Board	Molycorp's Board of Directors.
Bonded magnet	Bonded neodymium-magnets are prepared by melt spinning a thin ribbon of the NdFeB alloy. The ribbon contains randomly oriented Nd2Fe14B nano-scale grains. This ribbon is then pulverized into particles, mixed with a polymer and either compression or injection molded into bonded magnets. Bonded magnets offer less flux than sintered magnets, but can be net-shape formed into intricately shaped parts and do not suffer significant eddy current losses.
Cerium	Cerium (Ce) is a soft, silvery, ductile metal which easily oxidizes in air. Cerium is the most abundant of the REEs, and is found in a number of minerals, including monazite and bastnasite. Cerium has two relatively stable oxidation states, enabling both the storage of oxygen and its widespread use in catalytic converters. Cerium is widely used in the glass polish industry and in many other applications.
CHP	Combined Heat and Power.
Concentrate	Concentrate is a mineral processing product that generally describes the material that is produced after crushing and grinding ore, effecting significant separation of gangue (waste) minerals from the desired metal and/or metal minerals, and discarding the waste minerals. The resulting “concentrate” of minerals typically has an order of magnitude higher content of minerals than the beginning ore material.
Cut-off grade	Cut-off grade is the lowest grade of mineralized material that qualifies as ore in a given deposit. The grade above which minerals are considered economically mineable considering the following parameters: estimates over the relevant period of mining costs, ore treatment costs, general and administrative costs, refining costs, royalty expenses, by-product credits, process and refining recovery rates and price.
Didymium	Didymium is a natural and unseparated combination of neodymium and praseodymium, which is approximately 75% neodymium and 25% praseodymium, depending on the ore.
Dysprosium	Dysprosium (Dy) is a REE with a metallic silver lust. A few percent of Dy is often added to high-power NdFeB magnets to increase their resistance to demagnetization. A minor use of dysprosium is in the magnetostrictive alloy, based on DyTbFe, called terfenol-D.
EBITDA	Earnings Before Interest, Taxes, Depreciation and Amortization.
Europium	Europium (Eu) is a REE with luminescent properties. Excitation of the europium atom, by absorption of energy, results in a visible emission. Almost all practical uses of europium utilize this luminescent behavior.
Exchange Act	Securities Exchange Act of 1934, as amended.
FASB	Financial Accounting Standards Board.
FCC	Fluid Catalytic Cracking.
GAAP	Accounting principles generally accepted in the United States.
Gadolinium	Gadolinium (Gd) is a REE that absorbs neutrons and therefore is used for shielding and controlling neutron radiography and in nuclear reactors. Because of its paramagnetic properties, solutions of organic gadolinium complexes and gadolinium compounds are popular intravenous contrast enhancing agents for medical Magnetic Resonance Imaging (MRI). Gadolinium is sometimes added to samarium cobalt magnets to make their magnetic properties less temperature dependent.
Gallium	Gallium is a rare metal not found in nature, but it is easily obtained by smelting. Very pure gallium metal has a brilliant silvery color and its solid metal fractures conchoidally like glass. Almost all gallium is used for microelectronics.
Grade	The average REE content, as determined by assay of a metric ton of ore.



HREE	Heavy rare earth element.
Indium	Indium is a rare, very soft, malleable and easily fusible post-transition metal that is chemically similar to gallium and thallium, and shows intermediate properties between these two. Indium's current primary application is to form transparent electrodes from indium tin oxide (ITO) in liquid crystal displays and touchscreens, and this use largely determines its global mining production. It is widely used in thin-films to form lubricated layers. It is also used for making particularly low melting point alloys, and is a component in some lead-free solders.
Lanthanum	Lanthanum (La) is the first member of the Lanthanide series of REEs. Lanthanum is a strategically important REE due to its use in FCCs, which are used in the production of transportation and aircraft fuel. Lanthanum is also used in fuel cells, batteries, and many other products.
LED	Light-emitting diode.
LREC	Light rare earth concentrate (purified and unseparated).
LREE	Light rare earth element.
MD&A	Management's Discussion and Analysis of Financial Condition and Results of Operations.
Mill	A processing plant that produces a concentrate of the valuable minerals contained in an ore.
Mineralization	The process or processes by which a mineral or minerals are introduced into a rock, resulting in a valuable or potentially valuable deposit.
Molycorp Canada	Molycorp Minerals Canada ULC (formerly Neo Material Technologies Inc.).
Mountain Pass	The Molycorp Minerals, LLC rare earth minerals mining and processing facility located in Mountain Pass, California.
Monazite	Monazite is a reddish-brown phosphate mineral. Monazite minerals are typically accompanied by concentrations of uranium and thorium. This has historically limited the processing of monazite, however this mineral is becoming more attractive because it typically has slightly elevated concentrations of mid-to heavy rare earths as compared to rare earth-containing minerals such as bastnasite.
mt	Metric Ton = 2,205 pounds.
Niobium	Niobium is a rare, soft, grey, ductile transition metal found in the mineral pyrochlore, the main commercial source for niobium, and columbite. Niobium is used mostly in alloys, the largest part in special steel such as that used in gas pipelines. Although alloys contain only a maximum of 0.1% of niobium, that small percentage improves the strength of the steel. The temperature stability of niobium-containing superalloys is important for its use in jet and rocket engines. Niobium is also used in various superconducting materials, among other applications.
NdFeB	Neodymium-iron-boron alloy.
NdPr	Neodymium/Praseodymium.
Nd²O³	Neodymium(III) oxide or neodymium sesquioxide is the chemical compound composed of neodymium and oxygen.
Neodymium	Neodymium (Nd) is a REE used in a wide variety of applications, particularly as a key constituent of NdFeB permanent magnets and as an additive to capacitor dielectrics. NdFeB magnets have a relatively high power/weight ratio, and are used in a large variety of motors, generators, sensors and computer hard disk drives. Capacitors containing neodymium are found in cellular telephones, computers and nearly all other electronic devices. A minor application of neodymium is in lasers.
Neo Powders^TM	NdFeB magnet powders.
Ore	That part of a mineral deposit which could be economically and legally extracted or produced at the time of reserve determination.
Overburden	In surface mining, overburden is the material that overlays an ore deposit. Overburden is removed prior to mining.
Praseodymium	Praseodymium (Pr) is a REE that generally comprises about 4% of the lanthanide content of bastnasite and is used in several applications, including in NdFeB magnetic materials and as a coloring pigment in photographic filters, airport signal lenses, and welder's glasses.
Probable reserves	Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
Proven reserves	Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established.



REE	Rare earth element.
Recovery	The percentage of contained metal actually extracted from ore in the course of processing such ore.
REO	Rare earth oxide.
Reserves	That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Same definition as 'ore'.
Rhenium	Rhenium is a silvery-white, heavy, third-row transition metal. With an estimated average concentration of 1 part per billion (ppb), rhenium is one of the rarest elements in the Earth's crust. The free element has the third-highest melting point and highest boiling point of any element. Rhenium resembles manganese chemically and is obtained as a by-product of molybdenum and copper ore's extraction and refinement. Nickel-based superalloys of rhenium are used in the combustion chambers, turbine blades, and exhaust nozzles of jet engines. These alloys contain up to 6% rhenium, making jet engine construction the largest single use for the element, with the chemical industry's catalytic uses being next-most important.
Samarium	Samarium (Sm) is a REE predominantly used to produce samarium-cobalt magnets. Although these magnets are slightly less powerful than NdFeB magnets at room temperature, samarium cobalt magnets can be used over a wider range of temperatures and are less susceptible to corrosion.
SEC	Securities and Exchange Commission.
SEG	Samarium, europium, gadolinium.
Sintered magnet	Sintered NdFeB-magnets are prepared by the raw materials being melted in a furnace, cast into a mold and cooled to form ingots. The ingots are pulverized and milled to tiny particles, which then undergo a process of liquid-phase sintering whereby the powder is magnetically aligned into dense blocks which are then heat-treated, cut to shape, surface treated and magnetized.
Tantalum	Tantalum is a rare, hard, blue-gray, lustrous transition metal that is highly corrosion resistant. It is part of the refractory metals group, which are widely used as minor component in alloys. The chemical inertness of tantalum makes it a valuable substance for laboratory equipment and a substitute for platinum, but its main use today is in tantalum capacitors in electronic equipment such as mobile phones, DVD players, video game systems and computers.
Terbium	Terbium (Tb) is a REE used primarily as a phosphor, either in fluorescent lamps or x-ray screens. It can replace dysprosium in NdFeB magnets but usually does not because of its cost. A minor use of terbium is in the magnetostrictive alloy, based on DyTbFe, called terfenol-D.
Ton	2,000 pounds.
Yttrium	Yttrium (Y), although not a lanthanide series element, is often considered to be a REE and its behavior is similar to heavy REEs. It is predominantly utilized in lighting applications and ceramics. Other uses include resonators, lasers, microwave communication devices and other electronic devices.
Zirconium oxide	Zirconium oxide is a white amorphous powder that is insoluble in water and highly refractory, used as a pigment for paints, a catalyst, and an abrasive.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOLYCORP, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares and per share amounts)



	March 31, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	133,599		$	211,685
Trade accounts receivable, net	47,697			44,575
Inventory (Note 4)	180,810			169,323
Prepaid expenses and other current assets	36,013			29,332
Total current assets	398,119			454,915
Non-current assets:
Deposits	31,213			31,078
Property, plant and equipment, net (Note 5)	1,691,051			1,707,970
Inventory (Note 4)	24,724			25,127
Intangible assets, net	211,726			215,871
Investments	7,793			8,801
Goodwill	102,808			102,808
Other non-current assets	27,350			29,416
Total non-current assets	2,096,665			2,121,071
Total assets	$	2,494,784		$	2,575,986
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	35,102		$	40,842
Accrued expenses	30,718			33,666
Interest payable	28,184			18,300
Debt and capital lease obligations (Note 6)	13,953			12,560
Other current liabilities	5,691			4,686
Total current liabilities	113,648			110,054
Non-current liabilities:
Asset retirement obligation	17,876			17,799
Deferred tax liabilities	63,731			63,802
Debt and capital lease obligations (Note 6)	1,570,801			1,559,781
Other non-current liabilities	20,140			20,247
Total non-current liabilities	1,672,548			1,661,629
Total liabilities	$	1,786,196		$	1,771,683
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock, $0.001 par value; 700,000,000 shares authorized at March 31, 2015 and December 31, 2014	278			260
Additional paid-in capital	2,247,199			2,245,478
Accumulated other comprehensive income (loss)	1,466			(3,323		)
Accumulated deficit	(1,547,742		)	(1,445,408		)
Total Molycorp stockholders’ equity	701,201			797,007
Noncontrolling interests	7,387			7,296
Total stockholders’ equity	708,588			804,303
Total liabilities and stockholders’ equity	$	2,494,784		$	2,575,986

See accompanying notes to the condensed consolidated financial statements.

MOLYCORP, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(In thousands, except shares and per share amounts)



	Three Months Ended March 31,
	2015			2014
Revenues	$	106,424		$	118,526
Costs of sales:
Costs excluding depreciation and amortization	(105,874		)	(125,473		)
Depreciation and amortization	(25,280		)	(16,147		)
Gross loss	(24,730		)	(23,094		)
Operating expenses:
Selling, general and administrative	(21,457		)	(17,956		)
Depreciation, amortization and accretion	(5,573		)	(7,201		)
Research and development	(3,141		)	(2,766		)
Operating loss	(54,901		)	(51,017		)

Other income	2,123			474
Interest expense	(46,300		)	(35,639		)
Loss before income taxes and equity earnings	(99,078		)	(86,182		)
Income tax (expense) benefit	(2,968		)	1,907
Equity in loss of affiliates	(224		)	(1,723		)
Net loss	(102,270		)	(85,998		)
Net income attributable to noncontrolling interests	(64		)	(63		)
Net loss attributable to Molycorp stockholders	$	(102,334	)	$	(86,061	)

Net loss	$	(102,270	)	$	(85,998	)
Other comprehensive (loss) income:
Foreign currency translation adjustments	4,789			(852		)
Comprehensive loss	$	(97,481	)	$	(86,850	)
Comprehensive loss attributable to:
Molycorp stockholders	(97,545		)	(86,913		)
Noncontrolling interest	64			63
	$	(97,481	)	$	(86,850	)
Loss per share of common stock (Note 9):
Net loss attributable to Molycorp stockholders	$	(102,334	)	$	(86,061	)
Dividends on Convertible Preferred Stock	—			(2,846		)
Loss attributable to common stockholders	$	(102,334	)	$	(88,907	)

Weighted average common shares outstanding—basic	245,808,011			221,374,589
Basic loss per share:	$	(0.42	)	$	(0.40	)

Weighted average common shares outstanding—diluted	245,808,011			221,374,589
Diluted loss per share:	$	(0.42	)	$	(0.40	)

See accompanying notes to the condensed consolidated financial statements.

MOLYCORP, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands, except shares and per share amounts)



	Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated deficit			Total Molycorp Stockholders' Equity			Non controlling interests			Total Stockholders' Equity
	Shares	$
Balance at December 31, 2014	259,831,422	$	260	$	2,245,478		$	(3,323	)	$	(1,445,408	)	$	797,007		$	7,296		$	804,303
Stock-based compensation	73,672	—		1,777			—			—			1,777			—			1,777
Conversion of Exchangeable Shares	123	—		—			—			—			—			—			—
Issuance of shares for conversion of Debentures	2,924	—		1			—			—			1			—			1
Warrants exercise (Note 8)	18,071,175	18		(18		)	—			—			—			—			—
Net (loss) income	—	—		—			—			(102,334		)	(102,334		)	64			(102,270		)
Distribution to noncontrolling interests	—	—		—			—			—			—			(40		)	(40		)
Other comprehensive loss	—	—		—			4,789			—			4,789			—			4,789
Other	—	—		(39		)	—			—			(39		)	67			28
Balance at March 31, 2015	277,979,316	$	278	$	2,247,199		$	1,466		$	(1,547,742	)	$	701,201		$	7,387		$	708,588



	Common Stock			Series A Mandatory Convertible Preferred Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated deficit			Total Molycorp Stockholders' Equity			Non controlling interests			Total Stockholders' Equity
	Shares	$		Shares		$			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated deficit			Total Molycorp Stockholders' Equity			Non controlling interests			Total Stockholders' Equity
Balance at December 31, 2013	240,380,094	$	241	2,070,000		$	2		$	2,194,405		$	(6,451	)	$	(840,474	)	$	1,347,723		$	29,339		$	1,377,062
Stock-based compensation	177,491	—		—		—			103			—			—			103			—			103
Conversion of Series A Mandatory Convertible Preferred Stock	4,140,000	4		(2,070,000	)	(2		)	(2		)	—			—			—			—			—
Conversion of Exchangeable Shares	392	—		—		—			—			—			—			—			—			—
Issuance of shares for conversion of Debentures	1,281	—		—		—			7			—			—			7			—			7
Net (loss) income	—	—		—		—			—			—			(86,061		)	(86,061		)	63			(85,998		)
Preferred dividends	—	—		—		—			(2,846		)	—			—			(2,846		)	—			(2,846		)
Distribution to noncontrolling interests	—	—		—		—			—			—			—			—			(435		)	(435		)
Other comprehensive loss	—	—		—		—			—			(852		)	—			(852		)	—			(852		)
Other	—	—		—		—			(263		)	—			—			(263		)	19			(244		)
Balance at March 31, 2014	244,699,258	$	245	—		$	—		$	2,191,404		$	(7,303	)	$	(926,535	)	$	1,257,811		$	28,986		$	1,286,797

See accompanying notes to the condensed consolidated financial statements.

MOLYCORP, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



	Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net loss	$	(102,270	)	$	(85,998	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation, amortization and accretion	30,853			23,348
Deferred income tax (benefit) expense	231			(6,097		)
Inventory write-downs	28,868			17,371
Stock-based compensation	1,503			822
Equity in results of affiliates	224			1,723
PIK interest	3,106			—
Other operating adjustments	3,963			831
Net change in operating assets and liabilities (Note 13)	(39,363		)	2,215
Net cash used in operating activities	(72,885		)	(45,785		)
Cash flows from investing activities:
Capital expenditures	(6,333		)	(29,752		)
Other investing activities	947			493
Net cash used in investing activities	(5,386		)	(29,259		)
Cash flows from financing activities:
Repayments of debt	979			(489		)
Payments of preferred dividends	—			(2,846		)
Dividend paid to noncontrolling interests	(40		)	(435		)
Other financing activities	(781		)	1,323
Net cash used in financing activities	158			(2,447		)
Effect of exchange rate changes on cash	27			(776		)
Net change in cash and cash equivalents	(78,086		)	(78,267		)
Cash and cash equivalents at beginning of the period	211,685			314,317
Cash and cash equivalents at end of period	$	133,599		$	236,050

See accompanying notes to the condensed consolidated financial statements.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015


(1)	Going Concern

As a result of continuing softness in the prices for our products, as well as inconsistent or depressed demand for certain of our products and the delayed ramp-up of operations at our Mountain Pass facility, we have incurred, and continue to incur, operating losses. While certain of our business units currently generate positive cash flow from operations, we have not yet achieved break-even cash flow from operations (excluding interest) on a consolidated basis as we continue the ramp-up and optimize production at our Mountain Pass facility.

As of March 31, 2015, the total principal balance of our outstanding debt is approximately $1.7 billion, including approximately $206.5 million of our 3.25% Convertible Notes that matures on June 15, 2016. Based on our current cash forecast, we may not have sufficient funds available to repay those convertible notes at maturity, in part because the delayed draw proceeds under the 2014 Financings (defined below) would not be available in the event we do not achieve certain earnings and production targets specified in the 2014 Financings. Additionally, the agreements governing the 2014 Financings contain springing maturity obligations if we do not repay, or provide for the repayment of, certain of our 3.25% Convertible Notes by April 2016. Certain of our debt obligations contain covenants that are subject to interpretation. Although we do not believe we are in breach of any such covenants as at March 31, 2015, if a creditor under any such debt obligations decides to declare a breach of any such covenant, then such creditor could exercise its rights under the applicable debt obligations, which will trigger cross-defaults in other debt obligations. Such actions by creditors could require repayment of our debt before maturity, and we cannot assure you that we will be able to meet such repayment obligations. See more information on our convertible notes and other debt obligations at Note 6.

In addition, on December 30, 2014, we received notice that we are not in compliance with the continued listing standards of the New York Stock Exchange ("NYSE") because the current trading price for our common stock is below the minimum listing requirements. We are taking actions to meet the compliance standards for continued listing on the NYSE, and are seeking approval from our stockholders for a reverse stock split as an alternative means of regaining compliance with the minimum share price requirement. However, we cannot guarantee that we will be able to meet the necessary requirements for continued listing, and, therefore, we cannot guarantee that our common stock will remain listed for trading on the NYSE. If we fail to meet the necessary requirements for our common stock to remain listed on the NYSE or other similar markets, then we will be obligated to offer to repurchase all of our outstanding convertible notes at a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest. Our failure to make such an offer or repurchase any tendered convertible notes will result in an event of default under the indentures governing our convertible notes. Any such event of default will trigger a cross-default on our other debt obligations, including the 2014 Financings. Our inability to cure any such defaults, including the prepayment of our debt obligations, would have a material adverse effect on our financial position and results of operations.

Capital expenditures for our Mountain Pass facility have decreased significantly and are expected to total approximately $35 million for the remainder of 2015 and $20 million in 2016. Additionally, we expect to spend approximately $17 million for the remainder of 2015 and $20 million in 2016 on maintenance and expansion capital expenditures across all other operating segments. Our annual cash interest payments on all debt (excluding capital leases), including unused commitment fees, currently total approximately $124 million. This amount excludes other associated fees and expenses that may become payable by us under our credit agreements. The amount of our cash requirements continues to be dependent on (i) the accuracy of our cost estimates for capital expenditures, (ii) our ability to operate and maintain our Mountain Pass facility and our other operations within our current estimates, (iii) our ability to ramp-up run rates at our Mountain Pass facility pursuant to our expectations without further delays, and to achieve lower cash costs of production as a result of further optimization of operations at our Mountain Pass facility, (iv) stable or improved market conditions, (v) our ability to sell our production of rare earths to external customers and our downstream facilities (including our ability to sell our Cerium through market acceptance of SorbX^® or otherwise), (vi) our ability to repatriate cash generated from our global operations, and (vii) the absence of payments on current and future contingent liabilities.

Our cash balances of $133.6 million as of March 31, 2015 represent our primary source of liquidity to fund our capital expenditures, debt service and net operating cash requirements. As part of our plan to achieve positive cash flows from operations, we have implemented initiatives to reduce our operating and administrative costs and we will continue to pursue other cost efficiencies. Despite these efforts, due to, as discussed above, the continuing softness in the prices for our products, inconsistent or depressed demand for certain of our products and the delayed ramp-up of operations at our Mountain Pass facility, we will need additional financing in 2015 to meet our business plan and our obligations as they come due.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

to us and certain of our subsidiaries up to approximately $400.0 million in secured financing through credit facilities and the sale and leaseback of certain equipment at our Mountain Pass facility (the "2014 Financings") for corporate, operating and capital expenditures purposes. On September 11, 2014, we executed agreements governing the 2014 Financings and received initial gross proceeds totaling $250.0 million from Oaktree, with the remaining $149.8 million available to be drawn until April 30, 2016, $134.8 million of which is available only if we achieve certain financial and operational performance targets. For more information, see Note 6 below. Additionally, availability of the other $15.0 million may be limited by certain outstanding balances under our foreign subsidiary credit facilities.

We regularly evaluate opportunities to reduce our debt and/or related interest costs. In November 2014, we exchanged $11.0 million of the aggregate principal amount of our 5.50% Convertible Notes, and $27.0 million of the aggregate principal amount of our 6.00% Convertible Notes for a total of approximately 15,056,603 shares of our common stock, plus payments in cash of accrued but unpaid interest. Additionally, we may from time to time seek to repurchase other outstanding debt securities with cash and/or exchanges for common stock or securities convertible into common stock or other debt securities.

In December 2014, our Board of Directors approved the engagement of an independent investment bank and advisory firm to advise us in pursuing various financing alternatives to secure a more sustainable capital structure. While we are evaluating a number of alternatives, we will seek to convert a significant portion of our outstanding debt to equity, including the exchange of debt for shares of our common stock. In addition, we may seek to reduce our cash interest cost and/or extend debt maturity dates by negotiating the exchange of outstanding debt for new debt with modified terms. Although we have been successful in raising funds to date, there can be no assurance that adequate or sufficient funding will be available in the future, or available under terms acceptable to us.

These circumstances indicate the existence of a material uncertainty that casts substantial doubt as to our ability to meet our business plan and our obligations as they come due and, accordingly, the appropriateness of the use of the accounting principles applicable to a going concern. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis that assumes we will be able to continue to realize our assets and discharge our liabilities in the normal course of business, and do not reflect the adjustments to the carrying amount of assets and liabilities that would be necessary if we were unable to obtain adequate financing or restructure our debt. If we are unable to execute our business plan and restructure our debt, we may not be able to continue as a going concern.


(2)	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and Regulation S-X promulgated under the Exchange Act, and reflect all adjustments that are normal and recurring in nature, which, in the opinion of management, are necessary for the fair presentation of our financial position, results of operations and cash flows at March 31, 2015, and for all periods presented. While the December 31, 2014 balance sheet information was derived from our audited financial statements, for interim periods, GAAP and Regulation S-X do not require all information and related disclosures that are required in the annual financial statements and, as a result, all disclosures required by GAAP and Regulation S-X for annual financial statements have not been included in this report. Therefore, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on March 16, 2015.

The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned and majority-owned subsidiaries. Intercompany balances and transactions have been eliminated on consolidation. Investments in joint ventures where we do not exert control, but have the ability to exercise significant influence over the operating and financial policies of the investee, are accounted for under the equity method. All other investments are accounted for at cost. Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.

Use of Estimates

The preparation of the financial statements, in accordance with GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ significantly from these estimates under different assumptions and conditions. Significant estimates we made in the accompanying financial statements include the collectability of accounts receivable, the recoverability of inventory, the useful

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

lives and recoverability of long-lived assets such as property, plant and equipment, intangible assets, goodwill and investments, capital leases, uncertain tax positions, the realizability of deferred tax assets, and the adequacy of the asset retirement obligation.

Significant Accounting Policies

A summary of our significant accounting policies can be found in Item 8, Note 3 of the audited consolidated financial statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on March 16, 2015.

Prior to January 1, 2015, the functional currency of certain entities within our Magnetic Materials and Alloys segment was the U.S. dollar. We changed the functional currency of these entities to the Chinese Renminbi effective January 1, 2015 following a significant shift from U.S. dollar to Chinese Renminbi denominated sales that occurred as a result of the patent expiration relating to the sales of Neo Powders™. The change in functional currency was applied prospectively from January 1, 2015. The accounting basis of the assets and liabilities affected by the change in functional currency were adjusted to reflect the exchange rate on the date of the change in functional currency. As a result of this change, we recorded a $4.5 million cumulative translation gain in other comprehensive loss on January 1, 2015.

Recent Accounting Pronouncements

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The guidance in the new standard is limited to the presentation of debt issuance costs. The standard does not affect the recognition and measurement of debt issuance costs. Prior to the issuance of the standard, debt issuance costs were required to be presented in the balance sheet as a deferred charge (i.e., an asset). For public entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis.

We intend to adopt ASU 2015-03 in our financial statements for the annual period beginning on January 1, 2016. As of March 31, 2015, our other non-current assets included deferred charges related to debt issuance costs of approximately $15.1 million. The retrospective adoption of this new standard will have the effect of presenting the deferred charges balance as of December 31, 2016 and 2015 as a contra liability to our debt and capital lease obligations, rather than a non-current asset. The adoption of this new standard will have no impact to our statements of operations and comprehensive income or loss in all periods presented.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The new guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. An entity will be required to disclose sufficient qualitative and quantitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. For calendar-year public entities, the new guidance is effective starting in 2017, and interim periods within that year. Early adoption is not permitted. An entity should apply the amendments in this update using one of the following two methods:


1.	Retrospectively to each prior reporting period presented.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015


2.	Retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. If an entity elects this transition method, it also should provide the additional disclosures in reporting periods that include the date of initial application of:


i.	The amount by which each financial statement line item is affected in the current reporting period by the application of this update as compared to the guidance that was in effect before the change.


ii.	An explanation of the reasons for significant changes.

We intend to adopt ASU 2014-09 in our financial statements for the annual period beginning on January 1, 2017. The extent of the impact of adoption of the standard has not yet been determined.


(3)	Segment Information

Our operations are organized into four reportable segments, each reflecting a unique combination of product lines and technologies: Resources, Chemicals and Oxides, Magnetic Materials and Alloys, and Rare Metals.

The Resources segment includes our operations at the Mountain Pass facility, where we perform rare earth minerals extraction to produce LREC; separated rare earth oxides, including Lanthanum, Cerium, and Neodymium-Praseodymium; heavy rare earth concentrates, which include Samarium, Europium, Gadolinium, Terbium, Dysprosium, and others; and a line of proprietary rare earth-based water treatment products, including SorbX^® and PhosFIX^®.

The Chemicals and Oxides segment includes the following productions: rare earths from our Molycorp Silmet AS, or Molycorp Silmet, facility in Sillamäe, Estonia; separated heavy rare earth oxides and other custom engineered materials from our majority-owned Jiangyin Jia Hua Advanced Material Resources Co., Ltd. , or Molycorp Jiangyin, facility in Jiangyin, Jiangsu Province, China; and rare earths, salts of REEs, zirconium-based engineered materials, and mixed rare earth/zirconium oxides from our majority-owned Zibo Jia Hua Advanced Material Resources Co., Ltd., or Molycorp Zibo, facility in Zibo, Shandong Province, China. At our Chemicals and Oxides segment, we develop and sell rare-earth based oxides for all the major emission catalysts manufacturers. Several factors are driving an increasing demand for emission catalysts, including the following: the accelerating shift of vehicle production to the BRIC countries (Brazil, India, Russia and China); the continuous development of new emission catalytic solutions; and an overall tightening of environmental regulations around the world. Other applications that utilize rare earths and zirconium-based materials we produce at our Chemicals and Oxides segment include computers, television display panels, optical lenses, mobile phones, electronic chips, and many others.

The Magnetic Materials and Alloys segment includes the production of Neo Powders™ through our wholly-owned manufacturing facilities in Tianjin, China, and Korat, Thailand, under the Molycorp Magnequench brand. This operating segment also includes manufacturing of Neodymium and Samarium magnet alloys and other specialty alloy products and rare earth metals at our Molycorp Metals and Alloys, Inc., or MMA, facility in Tolleson, Arizona. Neo Powders™ are used in the production of high performance, bonded NdFeB permanent magnets, which are found in micro motors, precision motors, sensors, and other applications requiring high levels of magnetic strength, flexibility, small size, reduced weight, and energy efficient performance.

The Rare Metals segment produces, reclaims, refines, and markets high value niche metals and their compounds that include Gallium, Indium, Rhenium, Tantalum, and Niobium. Operations in this segment are distributed in several locations: Quapaw, Oklahoma; Blanding, Utah; Peterborough, Ontario, Canada; Sagard, Germany; Hyeongok Industrial Zone in South Korea; and Sillamäe, Estonia. Applications from products made in this segment include wireless technologies, LED, flat panel display, turbine, solar, catalyst, steel additive, electronics applications, and others. The growing adoption of LED applications, which require the use of Gallium trichloride, is allowing the Rare Metals segment to benefit from the decline in certain rare earth phosphor applications.

The accounting polices used in the preparation of our reportable segment financial information are the same as those used in the preparation of our consolidated financial statements. The primary metric we use to measure the financial performance of each reportable segment is OIBDA (Operating income before depreciation, amortization and accretion), which provides a better indication of the base-line performance of our core business operations.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015



Three months ended March 31, 2015	Resources			Chemicals and Oxides			Magnetic Materials and Alloys			Rare Metals			Corporate and other (a)			Eliminations(b)			Total Molycorp, Inc.
	(In thousands)
Revenues:
External	$	2,514		$	37,288		$	50,508		$	16,114					$	—		$	106,424
Inter-segment	8,315			5,508			1,616			15						(15,454		)	—
Total revenues	$	10,829		$	42,796		$	52,124		$	16,129					$	(15,454	)	$	106,424
OIBDA	$	(34,848	)	$	5,737		$	12,247		$	1,594
Depreciation, amortization and accretion	(21,954		)	(2,283		)	(4,156		)	(2,405		)
Operating (loss) income	$	(56,802	)	$	3,454		$	8,091		$	(811	)	$	(12,079	)	$	3,246		$	(54,901	)
Other expense																			2,123
Interest expense																			(46,300		)
Loss before income taxes and equity earnings																			$	(99,078	)



Three months ended March 31, 2014	Resources			Chemicals and Oxides			Magnetic Materials and Alloys			Rare Metals			Corporate and other (a)			Eliminations(b)			Total Molycorp, Inc.
	(In thousands)
Revenues:
External	$	3,111		$	40,271		$	54,720		$	20,424					$	—		$	118,526
Inter-segment	12,453			6,285			1,218			—						(19,956		)	—
Total revenues	$	15,564		$	46,556		$	55,938		$	20,424					$	(19,956	)	$	118,526
OIBDA	$	(36,445	)	$	3,299		$	13,676		$	(70	)
Depreciation, amortization and accretion	(13,091		)	(3,872		)	(4,237		)	(2,093		)
Operating (loss) income	$	(49,536	)	$	(573	)	$	9,439		$	(2,163	)	$	(7,109	)	$	(1,075	)	$	(51,017	)
Other expense																			474
Interest expense																			(35,639		)
Loss before income taxes and equity earnings																			$	(86,182	)


a.	Includes business development costs, personnel costs, stock-based compensation, accounting and legal fees, occupancy expense, information technology costs and interest expense.


b.	Consists of inter-segment sales and gross profits eliminations as well as eliminations of lower of cost or market adjustments related to inter-segment inventory.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015


(4)	Inventory

At March 31, 2015 and December 31, 2014, our inventory consisted of the following:



	March 31, 2015		December 31, 2014
	(In thousands)
Current:
Raw materials	$	54,648	$	47,796
Work in process	26,205		24,901
Finished goods	71,312		67,795
Materials and supplies	28,645		28,831
Total current	$	180,810	$	169,323
Long-term:
Raw materials	$	24,724	$	25,127
Total long-term	$	24,724	$	25,127

The following table presents charges to costs of sales related to our assessment of normal production levels and write-downs of inventory:



	Three Months Ended March 31,
	2015		2014
	(In thousands)
Abnormal production costs expensed in the period ^(a)	$	28,501	$	24,985
Write-down to the lower of cost or market ^(b)	28,868		16,161
Write-downs of stockpile inventory ^(c)	—		1,210
Total	$	57,369	$	42,356


(a)	Relates to production costs that would have been inventoriable had we been operating at normal production levels. In all periods presented, the majority of these production costs related to the Resources segment.


(b)	Due to the decline in some rare earths prices and low inventory turnover.


(c)	Adjustments of the estimated REO content in the stockpile at the Resources segment.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015


(5)	Property, Plant and Equipment, net

We capitalized expenditures of $3.5 million and $12.3 million for the three months ended March 31, 2015 and 2014, respectively. The majority of these capital expenditures related to capital projects performed at our Mountain Pass facility (Resources segment). At March 31, 2015 and December 31, 2014, our property, plant and equipment consisted of the following:



	March 31, 2015			December 31, 2014
	(In thousands)
Land	$	13,507		$	13,121
Land improvements	305,119			305,119
Buildings and improvements	815,756			811,418
Plant and equipment	707,579			623,453
Vehicles	3,056			2,884
Computer software	12,507			12,268
Furniture and fixtures	1,040			1,039
Construction in progress (a)	16,129			80,699
Natural gas delivery facility under capital lease	15,658			15,658
Mining equipment under capital lease	10,982			10,982
Mineral properties	24,539			23,669
Property, plant and equipment at cost	1,925,872			1,900,310
Less accumulated depreciation	(234,821		)	(192,340		)
Property, plant and equipment, net	$	1,691,051		$	1,707,970


(a)	Primarily related to expenditures at the Mountain Pass facility.

Mineral properties and development costs, which are referred to collectively as mineral properties, include acquisition costs, drilling costs, and the cost of other development work associated with our Mountain Pass facility, all of which are capitalized.


(6)	Debt and Capital Lease Obligations

The following table provides a summary of the current and non-current portions of our debt outstanding and capital lease obligations at March 31, 2015 and December 31, 2014:



	March 31, 2015				December 31, 2014
	Current		Non-Current		Current		Non-Current
	(In thousands)
Bank loans due November 2015 - June 2017	$	10,637	$	90	$	9,326	$	91
3.25% Convertible Notes, net of discount, due June 2016	—		195,421		—		193,549
6.00% Convertible Notes, net of discount, due September 2017	—		339,858		—		335,969
5.00% Debentures, net of discount, due December 2017	—		1,745		—		2,075
5.50% Convertible Notes, net of discount, due February 2018	—		144,777		—		143,581
12.00% Term Loans, due September 2019	—		101,168		—		98,812
12.00% Equipment Financing, due September 2019	—		130,103		—		127,594
10% Senior Notes, net of discount, due June 2020	—		639,291		—		638,899
Total debt	10,637		1,552,453		9,326		1,540,570

Capital lease obligations	3,316		18,348		3,234		19,211
Total debt and capital lease obligations	$	13,953	$	1,570,801	$	12,560	$	1,559,781

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

Weighted average interest rate on the bank loans was 3.90% and 4.1% at March 31, 2015 and December 31, 2014, respectively. Scheduled minimum debt repayments, excluding capital lease obligations, were as follows at March 31, 2015:



Debt maturities, excluding capital leases	(In thousands)
Remainder of 2015	$	7,028
2016	210,154
2017	384,772
2018	161,500
2019	321,154
Thereafter	650,000
Total	$	1,734,608

As of March 31, 2015, we were in compliance with all applicable covenants related to our indebtedness. However, as disclosed in Note 1, certain financial and operational conditions indicate the existence of a material uncertainty that casts substantial doubt on our ability to meet our obligations as they come due.

2014 Financings

The 2014 Financings consist of two term loans and one equipment financing, as follows:

A term loan facility of $185.0 million (the “Parent Term Loan”), $50.2 million of which was advanced on the closing date and $134.8 million is available to be drawn in the minimum amount of $50.0 million at any time until April 30, 2016, subject to the satisfaction of certain conditions, including (i) consolidated adjusted EBITDA of no less than $20.0 million for each of two consecutive fiscal quarters, and (ii) evidence that production at our Mountain Pass facility is equal to or greater than 4,000 mt for each of two consecutive fiscal quarters, in each case prior to, but including, the fiscal quarter ending on March 31, 2016. Proceeds from the Parent Term Loan have been and will be used for capital expenditures, interest expense and general corporate purposes, including the repurchase of certain of our convertible notes owned by Oaktree, and the payment of transaction expenses related to the 2014 Financings.

A term loan facility of $75.0 million (the “Magnequench Term Loan”), $60.0 million of which was advanced on the closing date and $15.0 million of delayed draw term loans to be advanced, subject to the satisfaction of certain conditions, in minimum amounts of $5.0 million after the closing date and until April 30, 2016. Proceeds from the Magnequench Term Loan will be used to satisfy certain intercompany obligations of Magnequench, Inc. and to make certain intercompany loans.

Interest rates on the Parent Term Loan and the Magnequench Term Loan (collectively, the “Term Loans”) are: (i) from the closing date through June 14, 2016, 7.00% per year payable in cash and 5.00% per year payable in kind (“PIK interest”) and (ii) from June 15, 2016, and thereafter, 12.00% per year payable in cash, unless our 3.25% Convertible Notes have been repaid in full with the proceeds of the sale of our common equity or by the exchange of such convertible notes for our common equity, or any combination thereof (the “2016 Notes Equity Refinancing”), in which case, interest will accrue as indicated in (i) above. The daily average unused amount of the delayed draw Term Loans commitment for the Term Loans is subject to an unused commitment enhancement payment of 1.00% per year.

The Term Loans mature on September 11, 2019, with springing maturity dates at (i) April 30, 2016, if we have not repaid, escrowed or extended an amount of cash sufficient to repay when due and payable the 3.25% Convertible Notes down to $40.0 million in the aggregate and (ii) March 31, 2017, if we have not repaid or escrowed an amount of cash sufficient to repay when due and payable (a) our 6.00% Convertible Notes down to $80.0 million in the aggregate and (b) our 5.50% Convertible Notes down to $40.0 million in the aggregate.

We cannot make any voluntary prepayments on the Term Loans prior to the fourth anniversary of the closing date. In addition, any prepayment of the loans and any repayment (or other satisfaction) of the loans after acceleration, but prior to September 11, 2019, will be subject to an early payment premium of (i) 43.8% of the principal amount so prepaid if paid prior to the first anniversary of the closing date, (ii) 33.7% of the principal amount so prepaid if paid on or after the first anniversary of the closing date but prior to the second anniversary of the closing date, (iii) 23.0% of the principal amount so prepaid if paid on or after the second anniversary of the closing date but prior to the third anniversary of the closing date, (iv) 11.5% of the principal amount so prepaid if paid on or after the third anniversary

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

of the closing date but prior to the fourth anniversary of the closing date, and (vi) 3.0% of the principal amount so prepaid if paid on or after the fourth anniversary of the closing date. Any mandatory prepayment of the loans resulting from an asset sale will be subject to an early payment premium of 3.0% of the principal amount so prepaid.

The springing maturity dates, in combination with the early payment premiums applicable to any prepayment of the loans described above, meet the definition of a derivative that is required to be bifurcated from its host debt instrument. Because this derivative is to be classified as a liability, we recognized a discount on the Term Loans as of the closing date of approximately $1.7 million, in the aggregate, which will be amortized to interest expense over the duration of the Term Loans. See Note 14 for more information on this derivative.

A Purchase and Sale Agreement pursuant to which we sold certain equipment including, but not limited to, parts of our natural gas powered co-generation power plant, the Chlor-Alkali facility and the water treatment plant (collectively, the “Equipment”), located at our Mountain Pass facility. In exchange for the sale of the Equipment, we received proceeds of $139.8 million that have been and will be used for the development and improvement of the Equipment and other assets at our Mountain Pass facility, and may be used, to the extent permitted under our 10% Senior Notes indenture and the Parent Term Loan, for interest payments and other general corporate purposes.

Concurrently with entering into the Purchase and Sale Agreement, we and Oaktree entered into an Equipment Lease Agreement, which we refer to as the "Equipment Financing", whereby we leased back all of the Equipment. The Equipment Financing has a five-year term with the following approximate annual rent payments (due quarterly in arrears): $10.1 million in the first year, $10.7 million in the second year, $11.2 million in the third year, $11.8 million in the fourth year and $12.4 million in the fifth year with an additional payment of approximately $179.9 million on the fifth anniversary of the lease commencement date (“Base Rent Payments”); provided, that unless the 2016 Notes Equity Refinancing, as defined above, has occurred by June 15, 2016, the rent will be adjusted to require annual payments of $18.0 million for years two through five and a payment of approximately $147.0 million on the fifth anniversary of the lease commencement date. Base Rent Payments on the Equipment Financing are based on a 7% annual rate applied to the unpaid principal balance plus accrued, but unpaid interest calculated at an annual rate of 5%.

The following table presents a reconciliation of the principal amount to the net carrying value of the Term Loans and the Equipment Financing at March 31, 2015:



	12.00% Term Loans						12.00% Equipment Financing
	March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014
	(In thousands)
Principal amount	$	113,268		$	111,858		$	143,689		$	141,993
Unamortized debt discount	(12,100		)	(13,046		)	(13,586		)	(14,399		)
Net carrying amount	$	101,168		$	98,812		$	130,103		$	127,594

Interest costs on the Term Loans and the Equipment Financing were as follows during the three months ended March 31, 2015:



	12.00% Term Loans		12.00% Equipment Financing
	(In thousands)
Cash interest	$	2,332	$	2,484
PIK interest	1,410		1,696
Accretion of discount and amortization of issuance costs	1,246		1,429
Total interest cost	$	4,988	$	5,609

Obligations under the 2014 Financings are guaranteed by us and certain of our subsidiaries (the “Pari Passu Guarantors”) that also guarantee the obligations under our 10% Senior Notes. Our obligations and those of the Pari Passu Guarantors under the 2014 Financings are secured by a pari passu lien on substantially all of our assets and the assets of the Pari Passu Guarantors (the “Pari Passu Collateral”) on an equal and ratable basis with the obligations under the 10% Senior Notes. The maximum

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

principal amount of debt under the 2014 Financings secured by the Pari Passu Collateral shall not exceed $300.0 million in the aggregate at any time or such higher amount permitted by the Pari Passu Indenture. In addition, the obligations under the 2014 Financings are guaranteed by certain of our other subsidiaries (the “First Priority Guarantors”). The obligations of the First Priority Guarantors under the 2014 Financings are secured by a first priority lien on certain equity interests owned by the First Priority Guarantors, including equity interests of certain foreign subsidiaries. In addition, the Magnequench Term Loan is secured by a first priority lien on substantially all of the assets of Magnequench, Inc.

Convertible Notes and Senior Secured Obligations

The following table presents a reconciliation of the principal amount to the net carrying value for each of our Convertible Notes and our 10% Senior Notes at March 31, 2015 and December 31, 2014, and provides the interest cost of each instrument for the quarters ended March 31, 2015 and 2014:




	3.25% Convertible Notes						6.00% Convertible Notes						5.50% Convertible Notes						10% Senior Notes
	March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014
	(In thousands)
Principal amount	$	206,505		$	206,505		$	383,000		$	383,000		$	161,500		$	161,500		$	650,000		$	650,000
Unamortized debt discount	(11,084		)	(12,956		)	(43,142		)	(47,031		)	(16,723		)	(17,919		)	(10,709		)	(11,101		)
Net carrying amount	$	195,421		$	193,549		$	339,858		$	335,969		$	144,777		$	143,581		$	639,291		$	638,899

	Three Months Ended March 31,
	2015			2014			2015			2014			2015			2014			2015			2014
Cash interest	$	1,678		$	1,869		$	5,745		$	6,210		$	2,221		$	2,372		$	16,250		$	16,250
Accretion of discount and amortization of issuance costs	1,879			2,189			3,943			3,940			1,211			1,287			498			389
Total interest cost	$	3,557		$	4,058		$	9,688		$	10,150		$	3,432		3,659			$	16,748		$	16,639

The interest costs listed immediately above include the accretion of the initial equity component of the convertible notes (3.25% - $36,227; 6.00% - $68,695; and 5.50% - $21,815).

The 10% Senior Notes are our senior secured obligations and are guaranteed by certain of our domestic subsidiaries ("Guarantors"). The Senior Notes are secured by a first-priority security interest on substantially all of our property and assets and those of the Guarantors, subject to some exceptions for certain "Excluded Assets," such as:


•	Leasehold interests in real property;


•	Certain capital leases that constitute permitted liens;


•	Certain motor vehicles;


•	Assets owned by foreign subsidiaries or, subject to certain limitations, MMA;


•	Assets with a fair market value of less than $15.0 million as to which the board of directors determine in good faith (and certify to the collateral agent) that the costs of obtaining or perfecting such security interest are excessive in relation to the practical benefit to the holder of the Notes of the security afforded thereby (based on the value of such asset);


•	Cash collateral for letters of credit or hedging obligations (up to 105% of the underlying obligations);


•	Certain deposit accounts;


•	The equity interests of immaterial subsidiaries and, subject to certain limitations, MMA;


•	Voting stock of foreign subsidiaries in excess of 65.0% of the voting stock; and


•	Other pledges of stock of a guarantor to the extent that Rule 3-16 of Regulation S-X under the Securities Act would require the filing of separate financial statements of such guarantor.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

Capital Leases

We lease certain mining and other equipment under agreements with various durations that have been determined to be capital leases. Those agreements contain purchase options at the end of the lease term and are generally at market interest rates. At March 31, 2015, total future minimum payments on our capital leases were as follows:



Capital Leases	(In thousands)
Remainder of 2015	$	6,209
2016	8,279
2017	7,161
2018	5,772
2019	5,490
Thereafter	12,706
Total	$	45,617


(7)	Income Taxes

Our effective income tax rate can vary significantly quarter-to-quarter for various reasons, including the mix and volume of business in lower tax jurisdictions, in jurisdictions with tax holidays and tax incentives, and in jurisdictions for which no deferred tax assets have been recognized because management believed it was not more likely than not that future taxable profit would be available against which tax losses and deductible temporary differences could be utilized. Our effective income tax rate can also vary due to the impact of foreign exchange fluctuations, operating losses, changes in our provisions related to tax uncertainties, and changes in our assertion relating to indefinitely reinvesting undistributed earnings of certain foreign subsidiaries.

For the three months ended March 31, 2015 and 2014, our effective tax rates were (3.0)% and 2.2%, respectively. The March 31, 2015 effective tax rate was impacted primarily by a valuation allowance required in the U.S. as a result of tax losses generated during the quarter.


(8)	Stockholders’ Equity

As of March 31, 2015 and December 31, 2014, we had 278,032,526 and 259,921,868 shares of common stock issued and outstanding, respectively. As of these dates, we had 5,000,000 shares of preferred stock authorized to be issued at a par value of $0.001 per share, and no outstanding shares of preferred stock.

Warrants

On September 11, 2014, as part of the 2014 Financings, we issued warrants to Oaktree to purchase up to an aggregate of 18,358,019 shares of our common stock (the “Penny Warrants”) with an exercise price of $0.01 per share, and warrants to purchase up to an aggregate of 6,119,340 shares of our common stock with an exercise price of $2.04 per share.

In February 2015, Oaktree exercised the Penny Warrants. As a result, based on the formula indicated below relative to the cashless exercise, which is applicable to both the Penny Warrants and the Strike Warrants, we issued a total of 18,071,175 shares of our common stock.

The Strike Warrants may be exercised at any time until September 11, 2019 by Oaktree or any registered holder of the Strike Warrants on either a cash basis (i.e., physical exercise) or on a “cashless basis” by surrendering such warrants for a net number of shares of our common stock. With respect to the exercise of the Strike Warrants on a “cashless basis”, the number of shares of our common stock to be surrendered is equal to the quotient obtained by dividing (x) the product of the number of shares of our common stock underlying such Strike Warrants or any portion thereof being exercised (at the election of the registered holder), multiplied by the difference between the Fair Market Value and the warrant price by (y) the Fair Market Value. Fair Market Value means the average last sale price of a share of our common stock for the ten trading days ending on the third trading day prior to the date on which notice of exercise of such the Strike Warrants is sent to Computershare Inc. and Computershare Trust Company, N.A. The exercise price and the number of shares of our common stock issuable upon exercise of the Strike Warrants are subject to customary anti-dilution adjustments for stock splits, stock dividends and recapitalizations

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

of our common stock. Subject to certain exceptions, including the issuance of shares of our common stock or other equity awards pursuant to our equity compensation plans, if we issue common stock (or common stock equivalents) at a purchase price less than the then-current exercise price of the Strike Warrants, the exercise price of the Strike Warrants will be subject to (i) full-ratchet anti-dilution protection for the first two-year period of the Strike Warrants and (ii) weighted-average anti-dilution protection for the remaining three-year period of the Strike Warrants.

The Penny Warrants met the criteria for the equity classification and were recorded, at issuance, at a fair value of approximately $24.7 million, net of issuance costs, in "Additional paid-in capital" in the condensed consolidated statements of stockholders' equity. The Strike Warrants, instead, were classified as a derivative liability because the exercise price may be adjusted for the issuance of additional shares of our common stock under certain circumstances. See Note 14 for more information on the Strike Warrants.

Conversion of Preferred Stock

On March 1, 2014, each share of our Convertible Preferred Stock automatically converted into two shares of our common stock based on the “maximum conversion rate”, as defined in our Amended and Restated Certificate of Incorporation. As a result, we issued 4,140,000 shares of our common stock in connection with the automatic conversion of the 2,070,000 shares of the Convertible Preferred Stock. Also on March 1, 2014, we paid the final $2.8 million of the aggregate preferred dividends on the Convertible Preferred Stock to holders of record at the close of business on February 15, 2014.

Share-lending arrangements

In August 2012, in order to facilitate the offering of our 6.00% Convertible Notes due September 2017, we entered into a share-lending arrangement with Morgan Stanley Capital Services LLC (“MSCS”), an affiliate of Morgan Stanley & Co. LLC, under which we agreed to loan 13,800,000 shares of our common stock to MSCS (the “2012 Borrowed Shares”). In January 2013, in order to facilitate the offering of our 5.50% Convertible Notes due February 2018, we entered into another share-lending arrangement with MSCS, under which we agreed to loan 6,666,666 shares of our common stock (the “2013 Borrowed Shares”, and collectively with the 2012 Borrowed Shares, the “Borrowed Shares”). We received no proceeds and no collateral for the Borrowed Shares, but a nominal lending fee from MSCS for the use of these loaned shares. Given the aggregate lending fees, no further consideration was given to the accounting treatment of the share-lending arrangements. For corporate law purposes, the Borrowed Shares are issued and outstanding. However, based on certain contractual undertakings of MSCS in the share-lending arrangements that have the effect of substantially eliminating the economic dilution that otherwise would result from the issuance of the Borrowed Shares, these loaned shares are not considered outstanding for the purpose of computing and reporting our earnings per share. The Borrowed Shares are to be returned to Molycorp concurrently with the maturity of the related convertible notes. The methodology to fair value our share-lending arrangements consists of an option pricing model used to determine a synthetic cost for borrowing our common stock adjusted for an estimate of the counterparty credit risk. Inputs used in this approach include a combination of Level 2 and Level 3 inputs of the fair value hierarchy.

As of March 31, 2015, all of the Borrowed Shares we originally agreed to loan to MSCS are still outstanding, and the related unamortized issuance cost was included in "Other non-current assets" in the condensed consolidated balance sheet. The following table provides certain other information on our share-lending arrangements as of March 31, 2015:



	2012 Borrowed Shares		2013 Borrowed Shares		Total
	(In thousands)
Fair value	$	1,752	$	1,005	$	2,757
Unamortized issuance cost	8,766		3,846		12,612

The amount of non-cash interest cost recognized from the amortization of the issuance cost associated with the combined share-lending arrangements was $1.2 million during the first quarter of 2015. In response to a comment letter the SEC issued to us with respect to our Annual Report on Form 10-K for the year ended December 31, 2013, in the second quarter of 2014, we recorded an out-of-period adjustment to recognize the fair value of our share-lending arrangements as costs associated with the issuance of the convertible notes described above, with an offset to additional paid-in capital.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

Accumulated other comprehensive income

The following table provides the changes in accumulated other comprehensive income (loss) (“AOCI”) for the three-month periods ended March 31, 2014 and 2014:



	Foreign currency translation adjustments			Postretirement benefit liability			Accumulated other comprehensive loss
	(In thousands)
Balance at December 31, 2014	$	(2,339	)	$	(984	)	$	(3,323	)
Change in other comprehensive loss before reclassifications	4,789			—			4,789
Net income (loss) reclassified from AOCI	—			—			—
Balance at March 31, 2015	$	2,450		$	(984	)	$	1,466



	Foreign currency translation adjustments			Postretirement benefit liability		Accumulated other comprehensive loss
	(In thousands)
Balance at December 31, 2013	$	(6,610	)	$	159	$	(6,451	)
Change in other comprehensive loss before reclassifications	(852		)	—		(852		)
Net income (loss) reclassified from AOCI	—			—		—
Balance at March 31, 2014	$	(7,462	)	$	159	$	(7,303	)

There were no items reclassified from AOCI during the interim periods presented above.


(9)	Loss per Share

For the three months ended March 31, 2014, the dividends on the Convertible Preferred Stock were subtracted from net loss attributable to Molycorp stockholders for the purpose of computing the basic and diluted earnings per share.

Diluted earnings per share reflect the dilutive impact of potential common stock and unvested restricted shares of common stock in the weighted average number of common shares outstanding during the period, if dilutive. For this purpose, the “treasury stock method” and “if-converted method,” as applicable, are used. Under the treasury stock method, assumed proceeds upon the exercise of stock options are considered to be used to purchase common stock at the average market price of the shares during the period. Also under the treasury stock method, fixed awards and non-vested shares, such as restricted stock units, are deemed options for purposes of computing diluted earnings per share. At March 31, 2015 and 2014, all potential common stock under the treasury stock method were antidilutive in nature; consequently, we did not have any adjustments between earnings per share and diluted earnings per share related to stock options and restricted stock units.

In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be antidilutive. Under the if-converted method, convertible debt is antidilutive whenever its interest per common share obtainable on conversion, including any deemed interest from a beneficial conversion feature and nondiscretionary adjustments, net of tax, exceeds basic earnings per share. At March 31, 2015 and 2014, our convertible notes were all antidilutive.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015


(10)	Commitments and Contingencies


(a)	Future Operating Lease Commitments

We lease certain office space, trailers and equipment pursuant to lease agreements that have been determined to be operating leases. Remaining annual minimum payments under these leases at March 31, 2015 were as follows:



	Total		Less Than 1 Year		1 - 3 Years		4 - 5 Years		More Than 5 Years
	(In thousands)
Operating lease obligations	$	7,340	$	2,299	$	3,637	$	695	$	709


(b)	Purchase Commitments

We entered into contractual commitments for the purchase of materials and services from various vendors, primarily in connection with capital projects performed at our Mountain Pass facility. Future payments for all purchase commitments at March 31, 2015 were as follows:



	Total		Less Than 1 Year		1 - 3 Years		4 - 5 Years		More Than 5 Years
	(In thousands)
Purchase obligations and other commitments	$	10,060	$	10,060	$	—	$	—	$	—


(c)	Purported Class Action and Derivative Lawsuits

In February 2012, a purported class action lawsuit was filed in the Colorado Federal District Court against us and certain of our current and former executive officers alleging violations of the federal securities laws. A Consolidated Class Action Complaint filed on July 31, 2012 also named most of our Board members and some of our stockholders as defendants, along with other persons and entities. On March 31, 2015, the Colorado Federal District Court granted our motion to dismiss that Complaint without prejudice. The plaintiffs have until May 29, 2015 to amend their Complaint. We believe that this lawsuit is without merit, and we intend to vigorously defend ourselves against these claims.

Certain of our shareholders filed a consolidated stockholder derivative lawsuit purportedly on our behalf against us (as nominal defendant) and certain of our current and former directors, executive officers and shareholders in the Delaware Court of Chancery. A Consolidated Amended Stockholder Derivative Complaint was filed in August 2012. Pursuant to an order dated May 15, 2013, the Delaware Chancery Court stayed this derivative lawsuit pending the outcome of the Colorado class action lawsuit. On October 9, 2013, certain plaintiffs, purportedly on our behalf, filed a Motion to Lift the Stay and for Leave to File an Amended Complaint. Pursuant to a letter opinion dated May 12, 2014, the Delaware Chancery Court granted plaintiffs’ motion to file a second consolidated amended derivative complaint. In addition, the Delaware Chancery Court lifted the stay of the action. The plaintiffs filed their Second Consolidated Amended Complaint on May 15, 2014, alleging breaches of fiduciary duty and unjust enrichment, but dropping claims for material misstatements and for trading on material, non-public information. The defendants filed a Motion to Dismiss the Second Consolidated Amended Complaint on July 14, 2014, and oral arguments on the Motion to Dismiss were heard on January 16, 2015. The Delaware Chancery Court's decision on the Motion to Dismiss is pending.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

lawsuits. The plaintiff in the new derivative lawsuit filed a Motion to Vacate the consolidation order. On July 15, 2014, the Colorado Federal District Court ruled that, based on the Second Consolidated Amended Derivative Complaint filed in Delaware Chancery Court, the issues raised in the Colorado derivative cases were sufficiently distinct from the issues set forth in the Delaware derivative lawsuit, and reversed its original order dismissing the lawsuits. In its order, the Colorado Federal District Court left open the opportunity for the defendants to file a motion to stay the Colorado derivative lawsuits pending the resolution of the Colorado class action lawsuit. The motion to stay was filed and fully briefed. The Colorado Federal District Court granted the defendants' Motion to Stay all of the Colorado derivative lawsuits pending resolution of the purported Colorado class action lawsuit, and further stayed the new Colorado derivative lawsuit pending resolution of the purported New York class action lawsuit. The Colorado Federal District Court subsequently administratively closed all of the Colorado derivative lawsuits.

In August 2013, two purported class action lawsuits were filed in the U.S. District Court for the Southern District of New York against us and certain of our current and former executive officers, alleging violations of the federal securities laws. A Consolidated Amended Class Action Complaint, filed on May 19, 2014, also named us and certain of our current and former executive officers. On March 12, 2015, the Federal Court for the Southern District of New York issued an order dismissing the lawsuit with prejudice. On April 1, 2015, the plaintiffs filed a motion for reconsideration of certain portions of the dismissal order. Our response to the reconsideration motion is due May 13, 2015. We believe that this lawsuit is without merit, and we intend to continue to vigorously defend ourselves against these claims.

The class action and derivative lawsuits described above have not progressed to a point where a reasonably possible range of losses associated with their ultimate outcome can be estimated at this time. If the final resolution of any such litigation or proceedings is unfavorable, our financial condition, operating results and cash flows could be materially affected.


(d)	Labor Contract

At March 31, 2015, 282 employees, or approximately 60% of the workforce at our Mountain Pass facility were covered by a collective bargaining agreement with the United Steelworkers of America. Our contract with the United Steelworkers of America was ratified in March 2015.


(11)	Concentrations

Resources Segment

There were no significant sales by customer or by product at the Resources segment for the three months ended March 31, 2015 and 2014.

Chemicals and Oxides Segment

Sales of cerium products within the Chemicals and Oxides segment accounted for 14% and 10% of consolidated revenues in the first quarter of 2015 and 2014, respectively. There were no significant sales by customer in this segment in the same interim periods.

Magnetic Materials and Alloys Segment

Sales of Neo Powders™ within the Magnetic Materials and Alloys segment, relative to consolidated revenues, were 46% and 45% for the three months ended March 31, 2015 and 2014, respectively.

Rare Metals Segment

There were no significant sales by product or by customer at the Rare Metals segment for the three months ended March 31, 2015 and 2014.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015


(12)	Related-Party Transactions

We supply Neo Powders™ to Toda Magnequench Magnetic Materials Co. Ltd. (“TMT”), an equity method investee of ours involved in the production of rare earth magnetic compounds. We also purchase magnetic compounds back from TMT in the normal course of business. Two other equity method investees, with whom we regularly buy and sell products, include Ganzhou Keli Rare Earth New Material Co., Ltd. (“Keli”), which processes rare earth oxides into metals for inclusion in our Neo Powders™. In addition, we provide rare metal recycling services to Plansee Holding AG, a privately held Austrian company that is wholly-owned by an Austrian trust, of which one of our Board's directors and other members of his family are beneficiaries.

For the three months ended March 31, 2015 and 2014, we purchased metals and received services from Keli for a total of $12.9 million and $16.9 million, respectively, and, as of March 31, 2015, we had a balance payable to Keli of $6.9 million. Transactions with all other related parties were nominal in these periods.


(13)	Net Change in Operating Assets and Liabilities

Net change in operating assets and liabilities, net of the effects of acquisitions and dispositions, consisted of the following for the three months ended March 31, 2015 and 2014:



	Three Months Ended March 31,
	2015			2014
	(In thousands)
Decrease (increase) in operating assets:
Trade accounts receivable	$	(3,123	)	$	10,171
Inventory	(40,013		)	(12,157		)
Prepaid expenses and other current assets	(7,046		)	(6,968		)
Increase (decrease) in operating liabilities:
Trade accounts payable	(4,649		)	(2,065		)
Income tax payable	988			(52		)
Interest payable	17,312			17,233
Asset retirement obligation	(168		)	(1,125		)
Accrued expenses	(2,664		)	(2,822		)
	$	(39,363	)	$	2,215


(14)	Fair Value of Financial Instruments

For assets and liabilities that are required under GAAP to be measured at fair value on a recurring or nonrecurring basis, we refer to a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad levels:


•	Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•

Level 2 - Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.


•	Level 3 - Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable.

Our assets and liabilities measured at fair value on a recurring basis were as follows at March 31, 2015 and December 31, 2014:

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015



	March 31, 2015
	Quoted Prices in Active Markets for Identical Assets/Liabilities		Significant Other Observable Inputs	Significant Unobservable Inputs
	(Level 1)		(Level 2)	(Level 3)
	(In thousands)
Assets:
Cash equivalents	$	22,613	—	—
Liabilities:
Derivative liabilities:
Springing Maturity on Term Loans	—		—	$	8,008
Strike Warrants	—		—	552
Share Purchase Agreement	—		—	6,495



	December 31, 2014
	Quoted Prices in Active Markets for Identical Assets/Liabilities		Significant Other Observable Inputs	Significant Unobservable Inputs
	(Level 1)		(Level 2)	(Level 3)
	(In thousands)
Assets:
Cash equivalents	$	57,309	—	—
Liabilities:
Springing Maturity on Term Loans	—		—	$	7,292
Strike Warrants	—		—	1,769
Share Purchase Agreement	—		—	6,165

Our financial assets classified in Level 1 consist of money market funds valued based on quoted prices for identical assets in active markets. The fair value of our derivative liabilities is recorded in "Other long-term liabilities" in the balance sheets as of March 31, 2015 and December 31, 2014.

The Springing Maturity on Term Loans is a derivative liability bifurcated from the Term Loans issued on September 11, 2014 in conjunction with the 2014 Financings. The technique used to fair value the Springing Maturity on Term Loans is the income approach based on a discounted cash flow model using, among others inputs, a probability factor of 10% representing the likelihood that the springing maturity dates would be triggered. The change in fair value of the Springing Maturity on Term Loans for the first quarter of 2015 resulted in a loss of approximately $0.7 million, which we recorded as interest expense in our condensed consolidated statement of operations and comprehensive loss.

The Strike Warrants were issued in conjunction with the 2014 Financings. The change in fair value of the Strike Warrants resulted in a gain of approximately $1.2 million for the three months ended March 31, 2015, which we recorded as interest expense in our condensed consolidated statement of operations and comprehensive loss. The technique used to fair value the Strike Warrants is the income approach based on a discounted cash flow model using, among others inputs, a 10% "Volatility Haircut" representing a discount to the full observed historical or implied volatility for an option on the stock.

The share purchase agreement (“SPA”) relates to a contract between NMT Holding GmbH, our wholly-owned German subsidiary, and the shareholders of Buss & Buss, a majority-owned subsidiary of ours. The SPA includes a call and a put option on shares of the remaining shareholder and his legal successors. If the call option is exercised by us, a premium is added to the consideration to purchase the underlying shares in Buss & Buss. If the put option is exercised by the remaining shareholder of Buss & Buss or his legal successors, a discount will reduce the cost basis of the securities sold to us. We account for the put option at fair value with changes in fair value recognized currently in earnings. The change in fair value of the put option

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

resulted in a nominal unrealized loss and gain for the three months ended March 31, 2015 and 2014, respectively, which were recorded as interest expense in the condensed consolidated statements of operations and comprehensive income. The technique used to fair value the SPA is the income approach based on a discounted cash flow model using significant unobservable inputs. Changes to these inputs based on reasonably possible alternative assumptions would not significantly change amounts we recognized in our balance sheets and condensed consolidated statements of operations and comprehensive loss.

The following table presents the fair value of publicly traded financial liabilities we report at their carrying amount:



	March 31, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)

3.25% Convertible Notes due June 2016	$	195,421	$	20,392	$	193,549	$	88,281
6.00% Convertible Notes due September 2017	339,858		36,864		335,969		107,240
5.50% Convertible Notes due February 2018	144,777		14,031		143,581		46,028
10% Senior Notes due June 2020	639,291		330,850		638,899		357,500
Total long-term debt	$	1,319,347	$	402,137	$	1,311,998	$	599,049

The carrying amount of the financial liabilities listed above is comprised of the principal amount reduced by the unamortized underwriting discount. In addition, for each of our convertible notes the principal amount is further reduced by the unamortized discount representing the value of the respective equity components at issuance. The fair value of the financial liabilities listed above, which are all classified in Level 1, is based on the last available market trade of each reporting period. Our Debentures, Term Loans and Equipment Financings are not actively traded, and the difference between their carrying amount and fair value is impractical to estimate. The carrying amount of certain other financial instruments, such as trade accounts receivables, trade accounts payable, accrued expenses, bank loans and capital lease obligations approximate fair value and, therefore, have been excluded from the table above.


(15)	Subsidiary Guarantor Financial Information

The Senior Notes are fully, unconditionally and jointly and severally guaranteed by all of our 100% owned existing and future domestic material subsidiaries, as defined in the indenture governing the Senior Notes. The Senior Notes guarantee of a guarantor will automatically terminate, and the obligations of such guarantor under the Senior Notes guarantee will be unconditionally released and discharged, upon (all terms as defined in the indenture governing the Senior Notes):


(1)	any sale, exchange, transfer or other disposition of a majority of the capital stock of (including by way of consolidation or merger) such guarantor by us or any restricted subsidiary to any person or persons, as a result of which such guarantor is no longer a direct or indirect subsidiary of ours;


(2)	any sale, exchange, transfer or other disposition of all or substantially all assets of such guarantor that results in such guarantor having no assets;


(3)	the designation by us of such guarantor as an unrestricted subsidiary; or


(4)	defeasance or discharge of the Senior Notes;

provided that any such event occurs in accordance with all other applicable provisions of the indenture.

Presented below are the condensed consolidating financial statements of the Parent ("Molycorp, Inc.") as issuer, its combined guarantor subsidiaries and its combined non-guarantor subsidiaries, which are presented as an alternative to providing separate financial statements for the guarantors. The accounts of the Parent, the guarantor and non-guarantor subsidiaries are presented using the equity method of accounting for investments in subsidiaries for purposes of these condensed consolidating financial statements only. Certain of the prior periods separate financial information has been reclassified to conform to the presentation of the most recent period herein disclosed.

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015



	March 31, 2015
	(In thousands)
Condensed Consolidating Balance Sheets	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Current assets:
Cash and cash equivalents	$	21,500		$	6,399		$	105,700		$	—		$	133,599
Trade accounts receivable, net	—			2,588			45,109			—			47,697
Inventory	—			41,057			139,753			—			180,810
Prepaid expenses and other current assets	1,000			10,644			24,369			—			36,013
Total current assets	22,500			60,688			314,931			—			398,119
Non-current assets:
Deposits	1,756			29,457			—			—			31,213
Property, plant and equipment, net	—			1,557,738			133,313			—			1,691,051
Inventory	—			24,724			—			—			24,724
Intangible assets, net	—			360			211,366			—			211,726
Investments	—			—			7,793			—			7,793
Goodwill	—			—			102,808			—			102,808
Investments in consolidated subsidiaries	—			90,398			—			(90,398		)	—
Intercompany accounts receivable	2,065,509			—			—			(2,065,509		)	—
Other non-current assets	14,981			7,284			5,085			—			27,350
Total non-current assets	2,082,246			1,709,961			460,365			(2,155,907		)	2,096,665
Total assets	$	2,104,746		$	1,770,649		$	775,296		$	(2,155,907	)	$	2,494,784
Current liabilities:
Trade accounts payable	$	—		$	11,932		$	23,170		$	—		$	35,102
Accrued expenses	2,078			13,312			15,328			—			30,718
Interest payable	27,490			446			248			—			28,184
Debt and capital lease obligations	—			3,315			10,638			—			13,953
Other current liabilities	—			315			5,376			—			5,691
Total current liabilities	29,568			29,320			54,760			—			113,648
Non-current liabilities:
Asset retirement obligation	—			17,876			—			—			17,876
Deferred tax liabilities	—			—			63,731			—			63,731
Debt and capital lease obligations	1,365,417			148,451			56,933			—			1,570,801
Intercompany accounts payable	—			2,189,473			639,135			(2,828,608		)	—
Other non-current liabilities	8,560			1,424			10,156			—			20,140
Total non-current liabilities	1,373,977			2,357,224			769,955			(2,828,608		)	1,672,548
Total liabilities	$	1,403,545		$	2,386,544		$	824,715		$	(2,828,608	)	$	1,786,196
Stockholders’ equity:
Common stock	278			—			—			—			278
Additional paid-in capital	2,247,199			132,335			534,440			(666,775		)	2,247,199
Accumulated other comprehensive loss	1,466			—			1,465			(1,465		)	1,466
Accumulated deficit	(1,547,742		)	(748,230		)	(592,711		)	1,340,941			(1,547,742		)
Total Molycorp stockholders’ equity	701,201			(615,895		)	(56,806		)	672,701			701,201
Noncontrolling interests	—			—			7,387			—			7,387
Total stockholders’ equity	701,201			(615,895		)	(49,419		)	672,701			708,588
Total liabilities and stockholders’ equity	$	2,104,746		$	1,770,649		$	775,296		$	(2,155,907	)	$	2,494,784

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015



	December 31, 2014
	(In thousands)
Condensed Consolidating Balance Sheets	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Current assets:
Cash and cash equivalents	$	98,650		$	5,329		$	107,706		$	—		$	211,685
Trade accounts receivable, net	—			1,924			42,651			—			44,575
Inventory	—			36,956			132,367			—			169,323
Prepaid expenses and other current assets	—			9,673			19,659			—			29,332
Total current assets	98,650			53,882			302,383			—			454,915
Non-current assets:
Deposits	1,756			29,322			—			—			31,078
Property, plant and equipment, net	—			1,575,670			132,300			—			1,707,970
Inventory	—			25,127			—			—			25,127
Intangible assets, net	—			377			215,494			—			215,871
Investments	—			785			8,016			—			8,801
Goodwill	—			—			102,808			—			102,808
Investments in consolidated subsidiaries	—			91,672			—			(91,672		)	—
Intercompany accounts receivable	2,063,568			—			—			(2,063,568		)	—
Other non-current assets	16,421			7,792			5,203			—			29,416
Total non-current assets	2,081,745			1,730,745			463,821			(2,155,240		)	2,121,071
Total assets	$	2,180,395		$	1,784,627		$	766,204		$	(2,155,240	)	$	2,575,986
Current liabilities:
Trade accounts payable	$	—		$	14,641		$	26,201		$	—		$	40,842
Accrued expenses	1			15,705			17,960			—			33,666
Interest payable	17,323			551			426			—			18,300
Debt and capital lease obligations	—			3,234			9,326			—			12,560
Other current liabilities	—			263			4,423			—			4,686
Total current liabilities	17,324			34,394			58,336			—			110,054
Non-current liabilities:
Asset retirement obligation	—			17,799			—			—			17,799
Deferred tax liabilities	—			—			63,802			—			63,802
Debt and capital lease obligations	1,357,003			146,805			55,973			—			1,559,781
Intercompany accounts payable	—			2,134,041			658,986			(2,793,027		)	—
Other non-current liabilities	9,061			1,424			9,762			—			20,247
Total non-current liabilities	1,366,064			2,300,069			788,523			(2,793,027		)	1,661,629
Total liabilities	$	1,383,388		$	2,334,463		$	846,859		$	(2,793,027	)	$	1,771,683
Stockholders’ equity:
Common stock	260			—			—			—			260
Additional paid-in capital	2,245,478			132,335			534,440			(666,775		)	2,245,478
Accumulated other comprehensive loss	(3,323		)	—			(3,323		)	3,323			(3,323		)
Accumulated deficit	(1,445,408		)	(682,171		)	(619,068		)	1,301,239			(1,445,408		)
Total Molycorp stockholders’ equity	797,007			(549,836		)	(87,951		)	637,787			797,007
Noncontrolling interests	—			—			7,296			—			7,296
Total stockholders’ equity	797,007			(549,836		)	(80,655		)	637,787			804,303
Total liabilities and stockholders’ equity	$	2,180,395		$	1,784,627		$	766,204		$	(2,155,240	)	$	2,575,986

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015



	Three Months Ended March 31, 2015
	(In thousands)
Condensed Consolidating Statements of Operations and Comprehensive Income	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Revenues	$	—		$	12,508		$	102,477		$	(8,561	)	$	106,424
Costs of sales:
Costs excluding depreciation and amortization	—			(42,481		)	(71,954		)	8,561			(105,874		)
Depreciation and amortization	—			(21,127		)	(4,153		)	—			(25,280		)
Gross (loss) profit	—			(51,100		)	26,370			—			(24,730		)
Operating expenses:
Selling, general and administrative	(3,995		)	(8,228		)	(9,234		)	—			(21,457		)
Depreciation, amortization and accretion	—			(913		)	(4,660		)	—			(5,573		)
Research and development	—			(139		)	(3,002		)	—			(3,141		)
Operating (loss) income	(3,995		)	(60,380		)	9,474			—			(54,901		)

Other (expense) income	(31,842		)	(108		)	34,073			—			2,123
Interest expense	(36,837		)	(3,681		)	(5,782		)	—			(46,300		)
Interest income (expense) from intercompany notes	8,767			(611		)	(8,156		)	—			—
Equity loss from consolidated subsidiaries	(38,427		)	(1,275		)	—			39,702			—
(Loss) income before income taxes and equity earnings	(102,334		)	(66,055		)	29,609			39,702			(99,078		)
Income tax expense	—			(4		)	(2,964		)	—			(2,968		)
Equity in loss of affiliates	—			—			(224		)	—			(224		)
Net (loss) income	(102,334		)	(66,059		)	26,421			39,702			(102,270		)
Net income attributable to noncontrolling interest	—			—			(64		)	—			(64		)
Net (loss) income attributable to Molycorp stockholders	$	(102,334	)	$	(66,059	)	$	26,357		$	39,702		$	(102,334	)

Net (loss) income	$	(102,334	)	$	(66,059	)	$	26,421		$	39,702		$	(102,270	)
Other comprehensive loss:
Foreign currency translation adjustments	—			—			4,789			—			4,789
Comprehensive (loss) income	$	(102,334	)	$	(66,059	)	$	31,210		$	39,702		$	(97,481	)
Comprehensive (loss) income attributable to:
Molycorp stockholders	(102,334		)	(66,059		)	31,146			39,702			(97,545		)
Noncontrolling interest	—			—			64			—			64
	$	(102,334	)	$	(66,059	)	$	31,210		$	39,702		$	(97,481	)

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015



	Three Months Ended March 31, 2014
	(In thousands)
Condensed Consolidating Statements of Operations and Comprehensive Income	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Revenues	$	—		$	17,230		$	113,733		$	(12,437	)	$	118,526
Costs of sales:
Costs excluding depreciation and amortization	—			(53,379		)	(84,531		)	12,437			(125,473		)
Depreciation and amortization	—			(12,127		)	(4,020		)	—			(16,147		)
Gross (loss) profit	—			(48,276		)	25,182			—			(23,094		)
Operating expenses:
Selling, general and administrative	(240		)	(8,158		)	(9,558		)	—			(17,956		)
Depreciation, amortization and accretion	—			(1,045		)	(6,156		)	—			(7,201		)
Research and development	—			(143		)	(2,623		)	—			(2,766		)
Operating (loss) income	(240		)	(57,622		)	6,845			—			(51,017		)

Other (expense) income	(18,271		)	16			18,729			—			474
Interest (expense) income	(34,555		)	(1,205		)	121			—			(35,639		)
Interest income (expense) from intercompany notes	10,355			(504		)	(9,851		)	—			—
Equity (loss) income from consolidated subsidiaries	(43,350		)	323			—			43,027			—
(Loss) income before income taxes and equity earnings	(86,061		)	(58,992		)	15,844			43,027			(86,182		)
Income tax benefit	—			—			1,907			—			1,907
Equity in loss of affiliates	—			(1,707		)	(16		)	—			(1,723		)
Net (loss) income	(86,061		)	(60,699		)	17,735			43,027			(85,998		)
Net income attributable to noncontrolling interest	—			—			(63		)	—			(63		)
Net (loss) income attributable to Molycorp stockholders	$	(86,061	)	$	(60,699	)	$	17,672		$	43,027		$	(86,061	)

Net (loss) income	$	(86,061	)	$	(60,699	)	$	17,735		$	43,027		$	(85,998	)
Other comprehensive (loss) income:
Foreign currency translation adjustments	—			—			(852		)	—			(852		)
Comprehensive (loss) income	$	(86,061	)	$	(60,699	)	$	16,883		$	43,027		$	(86,850	)
Comprehensive (loss) income attributable to:
Molycorp stockholders	(86,061		)	(60,699		)	16,820			43,027			(86,913		)
Noncontrolling interest	—			—			63			—			63
	$	(86,061	)	$	(60,699	)	$	16,883		$	43,027		$	(86,850	)

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015



	Three Months Ended March 31, 2015
	(In thousands)
Condensed Consolidating Statements of Cash Flows	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Net cash used in operating activities	$	(19,985	)	$	(50,428	)	$	(2,472	)	$	—		$	(72,885	)
Cash flows from investing activities:
Intercompany advances made	(60,020		)	(3,673		)	—			63,693			—
Repayments from non-guarantor	2,000			—			—			(2,000		)	—
Loans to parent	—			—			(4,956		)	4,956			—
Loans to guarantors	(3,000		)	—			—			3,000			—
Repayments from parent	—			—			1,101			(1,101		)	—
Capital expenditures	—			(4,853		)	(1,480		)	—			(6,333		)
Other investing activities	—			785			162			—			947
Net cash used in investing activities	(61,020		)	(7,741		)	(5,173		)	68,548			(5,386		)
Cash flows from financing activities:
Repayments of debt	—			—			979			—			979
Dividend paid to noncontrolling interests	—			—			(40		)	—			(40		)
Repayments to parent	—			—			(2,000		)	2,000			—
Repayments to non-guarantors	(1,101		)	—			—			1,101			—
Borrowing from parent	—			—			3,000			(3,000		)	—
Borrowing from non-guarantors	4,956			—			—			(4,956		)	—
Intercompany advances owed	—			60,020			3,673			(63,693		)	—
Other financing activities	—			(781		)	—			—			(781		)
Net cash (used in) provided by financing activities	3,855			59,239			5,612			(68,548		)	158
Effect of exchange rate changes on cash	—			—			27			—			27
Net change in cash and cash equivalents	(77,150		)	1,070			(2,006		)	—			(78,086		)
Cash and cash equivalents at beginning of the period	98,650			5,329			107,706			—			211,685
Cash and cash equivalents at end of period	$	21,500		$	6,399		$	105,700		$	—		$	133,599

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015



	Three Months Ended March 31, 2014
	(In thousands)
Condensed Consolidating Statements of Cash Flows	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Net cash provided by (used in) operating activities	$	(33,089	)	$	(829	)	$	(11,867	)	$	—		$	(45,785	)
Cash flows from investing activities:
Intercompany advances made	(55,041		)	—			—			55,041			—
Repayments from non-guarantor	32,000			—			—			(32,000		)	—
Capital expenditures	—			(27,943		)	(1,809		)	—			(29,752		)
Other investing activities	—			—			493			—			493
Net cash used in investing activities	(23,041		)	(27,943		)	(1,316		)	23,041			(29,259		)
Cash flows from financing activities:
Repayments of debt	—			—			(489		)	—			(489		)
Payments of preferred dividends	(2,846		)	—			—			—			(2,846		)
Dividend paid to noncontrolling interests	—			—			(435		)	—			(435		)
Repayments to parent	—			—			(32,000		)	32,000			—
Intercompany advances owed	—			25,238			29,803			(55,041		)	—
Other financing activities	—			1,323			—			—			1,323
Net cash provided by (used in) financing activities	(2,846		)	26,561			(3,121		)	(23,041		)	(2,447		)
Effect of exchange rate changes on cash	—			—			(776		)	—			(776		)
Net change in cash and cash equivalents	(58,976		)	(2,211		)	(17,080		)	—			(78,267		)
Cash and cash equivalents at beginning of the period	169,145			6,467			138,705			—			314,317
Cash and cash equivalents at end of period	$	110,169		$	4,256		$	121,625		$	—		$	236,050

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q ("Report") contains forward-looking statements within the meaning of the Exchange Act and the Securities Act of 1933. All statements in this Report, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and represent our beliefs, projections and predictions about future events or our future performance. You can identify forward-looking statements by terminology such as "may," "will," "would," "could," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" or the negative or plural of these terms or other similar expressions or phrases. These forward-looking statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results to differ materially from any future results, performance or achievement described in or implied by such statements.

Risk factors and uncertainties that may cause actual results to differ materially from expected results include, among others:


•	our ability to generate sufficient cash from operations to implement our business plans and service our debt obligations;


•	the need to secure additional capital to implement our business plans, and our ability to successfully secure any such capital, including our ability to access the remaining committed funds under the 2014 Financings;


•	our ability to service our debt and our ability to refinance our debt or exchange our debt for debt and/or equity securities;


•	our ability to maintain the listing of our common stock on the New Your Stock Exchange, or NYSE;


•	our ability to ramp up production at our Mountain Pass facility and to optimize our Mountain Pass facility to produce rare earths and other planned downstream products at planned production rates and cash production costs, including the impact of any unanticipated process interruptions;


•	the success of our cost mitigation efforts in connection with our modernization and expansion efforts at the Mountain Pass facility, which if unsuccessful, might cause our costs to exceed budget;


•	the final costs of our planned capital projects which may differ from estimated costs, including unanticipated costs related to the ramp up and optimization of our Mountain Pass facility;


•	market conditions, including prices and demand for our products;


•	our ability to control our working capital needs;


•	risks and uncertainties associated with intangible assets, including any future goodwill impairment charges;


•	our ability to protect our intellectual property, and our ability to defend against any claims of infringement of intellectual property rights of third parties;


•	risks associated with doing business globally, including foreign exchange rate fluctuations and our ability to repatriate cash generated from our global operations;


•	our ability to develop internal and external sources of demand for our products;


•	the development and commercialization of new products;


•	unexpected actions of domestic and foreign governments, including changes to China's export quota system, production quotas system and other regulatory mechanisms for the rare earths industry;


•	various events which could disrupt operations, including natural events and other risks;


•	uncertainties associated with our reserve estimates and non-reserve deposit information, including estimated mine life and annual production;


•	uncertainties related to feasibility studies that provide estimates of expected or anticipated costs, expenditures and economic returns, REO prices, production costs and other expenses for operations, which are subject to fluctuation;


•	risks and liabilities related to the dangers involved in the mining and processing of minerals and the manufacture of mineral products;


•	uncertainties regarding global supply and demand for rare earths materials;


•	uncertainties regarding the results of our exploratory drilling programs;


•	our ability to enter into additional definitive agreements with our customers and our ability to maintain customer relationships;


•	our ability to supply rare earth materials pursuant to our existing supply agreements, and the amount and timing of sales of rare earth materials pursuant to such agreements;


•	uncertainties related to Molycorp Canada's competitive position in the manufacture of NdFeB powders resulting from the expiration of certain key patents;


•	our ability to successfully integrate other acquired businesses;


•	our ability to maintain appropriate relations with unions and employees and avoid work stoppages;


•	our ability to retain certain key employees, and our ability to attract employees with the required training, skills and experience to operate our business;


•	our ability to successfully implement our vertical integration strategy;


•	environmental laws, regulations and permits affecting our business, directly and indirectly, including, among others, those relating to mine reclamation and restoration, climate change, emissions to the air and water and human exposure to hazardous substances used, released or disposed of by us;


•	our ability to obtain and renew permits required for the operation of our manufacturing facilities;


•	uncertainties associated with unanticipated geological conditions related to mining; and


•	the outcome of the stockholder class action litigation and derivative litigation, including any actions taken by government agencies in connection therewith.

Refer to "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 16, 2015 for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Any forward-looking statement you read in this Report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, operating results, growth strategy and liquidity. You should not place undue reliance on these forward-looking statements because such statements speak only as to the date when made. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future, except as otherwise required by applicable law. The following discussion and analysis should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and related notes included in this Report.

This Report also contains statistical data and estimates we obtained from industry publications and reports generated by third parties. Although we believe that the publications and reports are reliable, we have not independently verified their data.

Overview

We are a leading rare earths producer that operates a vertically integrated, global supply chain that combines a world-class rare earths resource with manufacturing facilities on three continents that can produce a wide variety of custom-engineered, advanced rare earth materials from rare earth elements. Technologies that rely on rare earths include, among others, high-efficiency motors and appliances, advanced vehicles, and direct drive wind turbines. Our vertically integrated business allows

us to operate multiple product supply chains, serve as a supplier of advanced rare earths and rare metal materials, and provide price visibility to customers worldwide. Our operations are organized into the following four reportable segments, each reflecting a unique combination of product lines and technologies: Resources; Chemicals and Oxides; Magnetic Materials and Alloys; and Rare Metals.

Resources

The Resources segment includes our operations at the Mountain Pass facility, home to one of the world's largest and richest deposits of rare earths (including light, mid, and heavy rare earths) that has been producing rare earth products for over 60 years. At the Mountain Pass facility, we conduct rare earth minerals extraction to produce LREC; separated rare earth oxides, including Lanthanum, Cerium and NdPr; heavy rare earth concentrates, which include SEG, Terbium, Dysprosium and others; and a line of proprietary rare earth-based water treatment products, including SorbX^® and PhosFIX^®.

LREE, such as Cerium, Lanthanum, Neodymium and Praseodymium, we produce at our Mountain Pass facility are used in a wide array of clean technologies, such as advanced wind turbines, high-efficiency appliances and industrial motors, water purification technologies, auto emission catalysts, and many others. While HREE, such as SEG, Terbium, Dysprosium, are important to some applications, we believe that technology advances are reducing the need for HREE in certain applications, including products containing NdFeB magnets with little-to-no HREE.

We sell Lanthanum oxide from our Mountain Pass facility to manufacturers of FCC catalysts for the petroleum refining industry. Rare earths like Lanthanum typically comprise between 2-4% of FCC catalyst materials and deliver important benefits to the petroleum refining process, such as increased catalyst activity and stability, increased gasoline yield and reduced production of liquefied petroleum gas. The combination of these processing benefits helps the refinery industry save energy resources and reduce its impact on the environment.

Since 2013, we have been evaluating the phosphorus-removal performance of SorbX^® in full-scale trials conducted at several wastewater treatment plants. We are currently working with some of these plants to conduct long-term trials that demonstrate additional benefits of SorbX^® beyond phosphorus removal. Some of our trials have led to customer purchase orders for SorbX^®, with the result that we have been selling limited, but growing, volumes of SorbX^® to municipal and industrial customers. Sales of PhosFIX^® for recreational water applications have been limited, but consistent, through the end of the first quarter of 2015.

Chemicals and Oxides

The Chemicals and Oxides segment includes: production of rare earths at Molycorp Silmet; production of separated heavy rare earth oxides and other custom engineered materials from our Molycorp Jiangyin facility; and production of rare earths, salts of REEs, zirconium-based engineered materials and mixed rare earth/zirconium oxides from our Molycorp Zibo facility. Rare earths and zirconium applications from products made in this segment include catalytic converters, computers, television display panels, optical lenses, mobile phones, electronic chips, and many others.

At our Chemicals and Oxides segment, we develop and sell rare earth-based oxides for all the major emission catalysts manufactures. Several factors are driving an increasing demand for emission catalysts, including the accelerating shift of vehicle production to the BRIC countries (Brazil, India, Russia and China), the continuous development of new emission catalytic solutions and an overall tightening of environmental regulations around the world.

Magnetic Materials and Alloys

The Magnetic Materials and Alloys segment includes the production of Neo Powders™ through our wholly-owned manufacturing facilities in Tianjin, China, and Korat, Thailand, under the Molycorp Magnequench brand. This operating segment also includes manufacturing of neodymium and samarium magnet alloys, other specialty alloy products and rare earth metals at our MMA facility. Neo Powders™ are used in the production of high performance, bonded NdFeB permanent magnets, which are found in micro motors, precision motors, sensors, and other applications requiring high levels of magnetic strength, flexibility, small size, reduced weight, and energy efficient performance.

Rare Metals

The Rare Metals segment produces, reclaims, refines and markets high value niche metals and their compounds that include Gallium, Indium, Rhenium, Tantalum, and Niobium. Operations in this segment are distributed in several locations:

Quapaw, Oklahoma; Blanding, Utah; Peterborough, Ontario, Canada; Sagard, Germany; Hyeongok Industrial Zone in South Korea; and Sillamäe, Estonia. Applications from products made in this segment include wireless technologies, LED, flat panel display, turbine, solar, catalyst, steel additive, electronics applications, and others. The growing adoption of LED applications, which require the use of gallium trichloride, is allowing the Rare Metals segment to benefit from the diversification that our Chemicals and Oxides segment is experiencing relative to certain rare earth phosphor markets.

Optimization and Production Ramp-Up at our Mountain Pass Facility

During the first quarter of 2015, we continued to make improvements to the expanded leach system and Chlor-Alkali plant at our Mountain Pass facility.

Seven of the nine tanks in our expanded leach system resumed operations as of April 2015; we anticipate to place the remaining leach tanks in operation before the end of the second quarter of 2015. A fully operational leach system should allow us to lower operating costs and increase rare earth production.

During the later part of the first quarter of 2015, we have also mitigated the impurity level of the brine feedstock that our Chlor-Alkali plant transforms into hydrochloric acid, or HCl, and other chemical reagents necessary for the production of rare earths. As a result, we have begun to restore the operational efficiency of the Chlor-Alkali plant, and have gradually resumed on-site production of HCl at our Mountain Pass facility. In addition, constraints with the market availability of HCl abated during the first quarter of 2015. Although we intend to rely on increased on-site production of HCl, we would still need to procure some quantities of HCl from third-party suppliers.

Commissioning of our Cracking Plant, which is part of a multi-stage chemical process designed to reduce cycle time in the reaction of certain chemical reagents and, therefore, to increase our rare earth recovery rate, started during the first quarter of 2015. We expect our Cracking Plant to be fully operational before the end of the second quarter of 2015.

Given our continued optimization efforts for most of the first quarter of 2015, our production at the Mountain Pass facility was 1,479 mt, up from 1,328 mt in the fourth quarter of 2014, and 368 mt higher than production in the first quarter of 2014.

Factors Affecting our Results of Operations and Discussion of our Consolidated Results of Operations

Recent developments affecting the global rare earth industry

On May 1, 2015, the Chinese government removed export duties on more than 100 commodities, including rare earths and rare earth ferro-alloys. The export duties imposed on rare earths produced in China ranged from 15% to 25%. The removal of export duties in China is expected to lower the selling costs of these commodities in the global metals market, and should increase international demand of rare earths.

On April 30, 2015, the Chinese government announced a proposed resource tax on rare earths. Under this proposed tax regime, HREE will have a 27% of tax rate in all regions, while LREE will be subject to a 11.5% tax in Inner Mongolia, 9.5% in Sichuan province and 7.5% in Shandong province. The new resource tax regime would be effective to all materials sold after May 1, 2015. The tax will be levied on the basis of the sales revenue of the rare earth concentrate, excluding any freight or transportation fees from the producing point to ports or destinations assigned by customers. Market participants surveyed by leading rare earth industry media are still unable to determine what impact the new resource tax regime in China will have on the global trade for rare earths and related applications.

Revenues

The quantities we sell are affected by the production capabilities of our rare earth products and rare metals processing facilities, and by a combination of global and regional supply and demand factors, including the production level of certain industries relying on rare earth products, such as the automotive, chemicals and electronics industries, production quotas, duties and regulations, prices of REEs, and the demand and sophistication of downstream applications with rare earths content.

Sales of our rare earths, salts of REEs, zirconium-based engineered materials and mixed rare earth/zirconium oxide products from our Chemicals and Oxides segment are particularly affected by the typical manufacturing slow-down across Asia during the Chinese New Year and Spring Festival holidays in the first quarter of each year. First quarter sales in the Magnetic Materials and Alloys segment can be weaker than the following periods due to the fact that the first quarter of each year coincides with the end of the fiscal year for most Japanese companies in the supply chain predominantly served by that segment. The effort by these companies to draw down inventory levels near to their year-end closing typically results into lower shipments of products from the Magnetic Materials and Alloys segment. Sales of our rare earths, including LREC and heavy rare earth concentrates from our Resources segment, are affected by a combination of the factors described above. Additionally, in certain of our segments, particularly the Magnetic Materials and Alloys segment, prices are set at a one-quarter lag, so improvements in our results will lag any market improvements.

For the three months ended March 31, 2015, our consolidated revenues of $106.4 million were approximately 10% lower than in the first quarter of 2014, primarily as a result of lower sales volume and ASP at our Magnetic Materials and Alloys and Chemicals and Oxides segments, which reported a period-over-period net revenue decline of approximately 8% and 7%, respectively. On average, these two segments represented approximately 47% and 35%, respectively, of our consolidated revenues in both interim periods.

Net revenues from our Resources segment were approximately 19% lower in the first quarter of 2015 as compared to the first quarter of 2014. As further discussed below, lower than anticipated production volumes, combined with a substantial decline in price of the rare earths currently produced and sold at our Resources segment, led to this variance year-over-year.

Net revenues from our Rare Metals segment were 21% lower for the three months ended March 31, 2015, as compared to the three months ended March 31, 2014, due to a combination of lower sales volume and ASP.

Costs of sales

Our costs of sales comprise processing costs, including depreciation and amortization of productive assets, and costs of certain raw materials that we purchase from outside vendors, which we allocate to the products we produce at our operating facilities. Because many of our costs are fixed, as our production increases or decreases, our average cost per volume produced decreases or increases, respectively. Primary production costs across our reportable segments include direct labor and benefits, chemical reagents, natural gas, depreciation and amortization, electricity, maintenance, operating supplies and other plant overhead expenses. Our costs of sales may also reflect the write-down of inventory based on current market prices for our products, which could materially affect our consolidated net results of operations.

Our most significant variable costs across all segments are raw materials, chemical reagents, electricity and natural gas. Our CHP plant at the Mountain Pass facility feeds lower-cost, high efficiency electrical power and steam to plants and buildings across the facility. Our variable costs, such as electricity, natural gas, operating supplies and chemical reagents, are subject to volume fluctuations and are influenced by general economic conditions that are beyond our control.

During the three months ended March 31, 2015, our consolidated costs of sales excluding depreciation and amortization decreased approximately $19.6 million, or 16% as compared to the same period in 2014. This change was in part attributable to the period-over-period decline in revenues, and in part to lower production costs across all our reportable segments.

Consolidated depreciation and amortization in cost of sales were $25.3 million for the three months ended March 31, 2015 as compared to $16.1 million in the first quarter of 2014. Higher depreciation and amortization expenses in first quarter of 2015 were mostly related to productive assets that we placed into service at our Mountain Pass facility over the last twelve months.

Selling, general and administrative expenses

Our selling, general and administrative expenses consist primarily of personnel and related costs, including stock-based compensation, legal, accounting and other professional fees, occupancy costs and information technology costs. For the three months ended March 31, 2015, our consolidated selling, general and administrative expenses, including stock-based compensation, increased $3.5 million, or 19%, from the comparable period in 2014. This change was primarily related to our engagement of independent advisors to assist us in evaluating various financing alternatives to secure a more sustainable capital structure.

Interest expenses

In September 2014, we incurred additional indebtedness as part of the 2014 Financings, which contributed to the majority of the incremental $10.7 million in interest expenses we reported during the first quarter of 2015. The remainder of the increase in interest expense was associated with the accretion of discounts and amortization of deferred issuance costs related to our debt instruments.

Income taxes

We account for income taxes in accordance with ASC 740, Income Taxes. This guidance requires the recognition of deferred tax assets and liabilities for the tax effect of temporary differences between the financial statement and tax basis of recorded assets and liabilities at enacted statutory tax rates. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The recoverability of deferred tax assets is based on both our historical and anticipated earnings levels and is reviewed each reporting period to determine if any additional valuation allowance is necessary when it is more likely than not that amounts will not be recovered.

We review our deferred tax assets and liabilities each reporting period using the enacted tax rate expected to apply to taxable income for the period in which the deferred tax asset or liability is expected to be realized. The statutory income tax rates that are applied to our current and deferred income tax calculations are significantly impacted by the jurisdictions in which we conduct business. Changes in jurisdiction income tax rates and apportionment laws will result in changes in the calculation of our current and deferred income taxes. The effects of any changes are recorded in the period of enactment and can increase or decrease the net deferred tax assets and liabilities on the balance sheet.

Our effective income tax rate can vary significantly quarter-to-quarter for various reasons, including the mix and volume of business in lower tax jurisdictions, in jurisdictions with tax holidays and tax incentives, and in jurisdictions for which valuation allowances are established because management believed it was not more likely than not that future taxable profit would be available against which tax losses and deductible temporary differences could be utilized. Our effective income tax rate can also vary due to the impact of foreign exchange fluctuations, goodwill impairments, operating losses, changes in our provisions related to tax uncertainties, and changes in our assertion relating to indefinitely reinvesting undistributed earnings of certain foreign subsidiaries.

OIBDA and Adjusted OIBDA

We define OIBDA as operating income before depreciation, amortization and accretion. Adjusted OIBDA consists of OIBDA excluding certain non-cash items and other out-of-ordinary business expense and operational expansion items. OIBDA and adjusted OIBDA are both non-GAAP financial measures. We believe that adjusting out these items from OIBDA, including but not limited to purchase accounting adjustments, stock-based compensation, out-of-ordinary expenses/income, asset impairment charges and other miscellaneous charges, is useful to investors because it provides an overall understanding of our historical financial performance and future prospects. We believe that each of OIBDA and adjusted OIBDA is an indication of our base-line performance. Exclusion of these items permits evaluation and comparison of results for our core business operations, and it is on this basis that we internally assess our business' performance.



	Three Months Ended March 31,
	2015			2014
Operating loss	$	(54,901	)	$	(51,017	)
Add back:
Depreciation and amortization included in costs of sales	25,280			16,147
Depreciation, amortization and accretion	5,573			7,201
OIBDA	(24,048		)	(27,669		)
Add back:
Stock-based compensation	1,503			822
Inventory write-downs (Mountain Pass)	27,640			15,693
Impact of purchase accounting on cost of inventory sold	—			577
Water removal costs	3,352			8,102
Adjusted OIBDA	$	8,447		$	(2,475	)

Capital Expenditures

We capitalized expenditures of $3.5 million and $12.3 million for the three months ended March 31, 2015 and 2014, respectively. The majority of these expenditures related to the production ramp-up and optimization of our Mountain Pass facility, the construction of which was substantially completed at the beginning of 2014.

Environmental Expenditures

Our operations are subject to numerous and detailed environmental laws, regulations and permits, including those pertaining to employee health and safety, environmental permitting and licensing, air quality standards, greenhouse gas, or GHG, emissions, water usage and pollution control, waste management, plant and wildlife protection, handling and disposal of radioactive materials, remediation of soil and groundwater contamination, land use, reclamation and restoration of properties, and the discharge of materials into the environment and groundwater quality and availability.

We have spent, and anticipate that we will continue to incur, financial and managerial resources to comply with environmental requirements. At our Mountain Pass facility, we incurred approximately $4.6 million for the three months ended March 31, 2015 for ongoing operating environmental expenditures, including salaries, monitoring, compliance, reporting and permits. This compares to $10.9 million for the three months ended March 31, 2014. Included in the amounts above are costs for the removal and disposal of wastewater generated in excess of the existing evaporation capability of all ponds at our Mountain Pass facility. Costs we incur for mine reclamation activities at our Mountain Pass facility, which we expect to incur through the closure of our mining operations and thereafter, are recorded in the asset retirement obligation caption of our condensed consolidated balance sheets.

For the remainder of 2015, we expect to incur approximately $9.0 million for ongoing operating environmental expenditures at our Mountain Pass facility, and approximately $7.0 million at our other operating facilities, in the aggregate. Included in the $9.0 million for our Mountain Pass facility are $3.5 million for wastewater transportation and disposal costs. However, we may have to incur additional environmental capital and operating costs associated with future possible modernization and expansion plans related to these other operations.

Related-Party Transactions - Refer to Note 12 in Item 1 of this Report.

Discussion and Analysis of our Reportable Segments

The analysis of our reportable segments, which follows the discussion of our consolidated results, presents operating results on a gross basis (i.e., before intercompany eliminations). We believe this presentation provides a better understanding of the performance of each reportable segment in terms of contribution to our vertically integrated operations.

Three months ended March 31, 2015 compared to three months ended March 31, 2014



Resources
	Three months ended March 31,
	2015			2014			Variance
	(In thousands, except volume and ASP)
Gross revenues	$	10,829		$	15,564		$	(4,735	)	(30	)%
Sales volume (mt)	1,269			988			281			28	%
ASP per kilogram	$	8.56		$	15.75		$	(7.19	)	(46	)%

Depreciation, amortization and accretion ^(a)	$	21,954		$	13,091		$	8,863
Operating loss	(56,802		)	(49,536		)	(7,266		)
OIBDA	$	(34,848	)	$	(36,445	)	$	1,597
(a) Related to production and other operating expense.

Aggregate production volume at our Resources segment was 1,479 mt for the three months ended March 31, 2015, as compared to 1,111 mt in the corresponding prior-year period. Despite a 33% increase over a year ago, production volume at Resources was still lower than anticipated. During the first quarter of 2015, we continued to mitigate certain quality issues related to the brine feedstock that have impacted the operational efficiencies of our Chlor-Alkali plant, and continued to address certain construction and installation issues that were previously identified with our expanded leach system. These mitigation activities constrained our production ramp-up during the quarter. At the end of March 2015, six of the nine leach tanks necessary to produce greater volumes of rare earths were back on-line at our Mountain Pass facility. An additional leach tank resumed operation in April 2015. Once our ramp-up and optimization efforts are complete, actual production of rare earths (including LREC) at our Resources segment will depend on internal requirements for our Chemical and Oxides segment, our Magnetic Materials and Alloys segment, and external customer demand.

For the three months ended March 31, 2015, revenues at our Resources segment were $10.8 million, or 30% lower as compared to the first quarter of 2014. This change was primarily attributed to a 46% decline in ASP, partially offset by an increase in sales volume of 28%. Higher sales volumes for the three months ended March 31, 2015 were largely driven by increased shipments of LREC from our Mountain Pass facility to our downstream facilities for processing into value-added rare earth products. These inter-segment sales accounted for approximately 77% of total revenues reported by the Resources segment in the first quarter of 2015.

Unregulated and unreported mining and export of rare earth materials from China continued to unfavorably impact realized prices for most REEs in our industry. For example, prices for Cerium, Lanthanum, Neodymium and Praseodymium have decreased, on average and based on China export prices quoted by major REEs market sources, by approximately 45%, 44%, 4% and 33%, respectively, year-over-year. This adverse impact has started to abate since the Chinese government implemented stricter controls on illegal production and trade of REEs in October 2014. However, there is no assurance that REEs prices may recover significantly in the near future.

While we continued to optimize operations at our Resources segment to achieve greater commercial rates, lower production volumes led to us to record $27.8 million of production-related costs that would have been charged to inventory if we maintained normal production levels during the three months ended March 31, 2015. This compares to recorded abnormal production-related costs of $23.0 million for the first quarter of 2014.

Operating income for the three months ended March 31, 2015 at our Resources segment was unfavorably affected also by the write-down of finished goods and work-in-process inventory to market value of $27.6 million, as compared to $14.5 million for the corresponding prior-year period. Write-downs of inventory to market value were associated with the decline in rare earths prices and lower than anticipated inventory turnover.

Despite the decline in revenues year-over-year, our Resources segment reported a favorable OIBDA variance of $1.6 million in the first quarter 2015. Market availability of HCl, combined with more on-site production of HCl and lower prices for natural gas, which our CHP plant transforms into electricity at Mountain Pass, contributed to lower our production costs in this segment.



Chemicals and Oxides
	Three months ended March 31,
	2015		2014			Variance
	(In thousands, except volume and ASP)
Gross revenues	$	42,796	$	46,556		$	(3,760	)	(8	)%
Sales volume (mt)	1,800		1,926			(126		)	(7	)%
ASP per kilogram	$	23.78	$	24.17		$	(0.39	)	(2	)%

Depreciation and amortization^(a)	$	2,283	$	3,872		$	(1,589	)
Operating income (loss)	3,454		(573		)	4,027
OIBDA	$	5,737	$	3,299		$	2,438
(a) Related to production and other operating expense.

For the first quarter of 2015, revenues in our Chemicals and Oxides segment were $42.8 million, or 8% lower than revenues generated in the same quarter of 2014. This variance was mostly driven by 7% lower sales volumes and a 2% decrease in ASP. Demand for most rare earths remained stable during the three months ended March 31, 2015, while sales to the Auto Catalyst market segment increased from the first quarter of 2014. However, supply to certain customers of our Chemicals and Oxides segment was transitioned to our Resources segment during the first quarter of 2015, a shift that accounted for part of the lower sales volume compared to the equivalent period in 2014. Unregulated mining, separation and export of rare earths in China continued to put pressure on prices and margins of the products sold by our Chemicals and Oxides segment.

OIBDA in our Chemicals and Oxides segment improved $2.4 million during the three months ended March 31, 2015, driven by an increase in operating income of approximately $4.0 million. Lower production costs, combined with lower selling, general and administrative expenses, led to higher operating income in this segment during the first quarter of 2015. Depreciation and amortization was lower than the first quarter of 2014 due to this segment no longer amortizing certain customer relationship intangible assets, which were written off at the end of 2014.



Magnetic Materials and Alloys
	Three months ended March 31,
	2015		2014		Variance
	(In thousands, except volume and ASP)
Gross revenues	$	52,124	$	55,938	$	(3,814	)	(7	)%
Sales volume (mt)	1,444		1,374		70			5	%
ASP per kilogram	$	36.10	$	40.71	$	(4.61	)	(11	)%

Depreciation and amortization^(a)	$	4,156	$	4,237	$	(81	)
Operating income	8,091		9,439		(1,348		)
OIBDA	$	12,247	$	13,676	$	(1,429	)
(a) Related to production and other operating expense.

First quarter sales volume in this segment is typically weaker than the following periods due to the fact that the first quarter of each year coincides with the end of the fiscal year for most Japanese companies in the supply chain predominantly served by the Magnetic Materials and Alloys segment. The effort by these companies to draw down inventory levels near their year-end closing, typically results in lower shipments of this segment's products.

For the three months ended March 31, 2015, revenues of $52.1 million at our Magnetic Materials and Alloys segment were 7% lower than revenues generated in the first quarter of 2014, mostly driven by lower ASP. Sales volume increased 5% year-over-year.

The seasonal inventory draw down in the first quarter of 2015 was less pronounced than the first quarter of 2014. Sales to the hard disk drive, or HDD, market, where our share remains unchanged despite the expiration of a patent (the Magnequench patent) related to the sale of Neo Powders™ in the third quarter of 2014, were in line with expectations. Sales for the automotive markets, such as the Electric Power Steering, or EPS, market, were approximately 50% higher than a year ago. Higher sales volume to the EPS market offset lost sales in the optical disk drive, or ODD, market following the expiration of the Magnequench patent. Part of the incremental total sales volume in our Magnetic Materials and Alloys segment was attributed to the fact that the Neo Powders™ market anticipated higher prices for Neodymium and NdPr, the rare earth feedstock materials primarily used in the manufacturing of Neo Powders™, whose price fluctuations are passed directly on to our customers. Within the first quarter of 2015, Neodymium and NdPr were subject to price increases of up to 9% and 6%, respectively. On a yearly basis, however, prices for Neodymium and NdPr were lower, on average, by 18% and 16%, respectively, thus explaining, in part, the ASP reduction from the first quarter of 2014 to the quarter ended March 31, 2015. Neo Powders™ prices are set at a one-quarter lag; therefore, the yearly change in price for these rare earths is based on average prices observed in the immediately preceding quarter of each year.

Lower OIBDA during the three months ended March 31, 2015 was largely correlated with the ASP decline in our Magnetic Materials and Alloys segment.



Rare Metals
	Three months ended March 31,
	2015			2014			Variance
	(In thousands, except volume and ASP)
Gross revenues	$	16,129		$	20,424		$	(4,295	)	(21	)%
Sales volume (mt)	92			101			(9		)	(9	)%
ASP per kilogram	$	175.29		$	202.21		$	(26.92	)	(13	)%

Depreciation and amortization^(a)	$	2,405		$	2,093		$	312
Operating loss	(811		)	(2,163		)	1,352
OIBDA	$	1,594		$	(70	)	$	1,664
(a) Related to production and other operating expense.

Due to a 9% decrease in sales volume and a 13% reduction in ASP, our Rare Metals segment reported 21% lower revenues during the three months ended March 31, 2015. Changes in the product mix and an oversupply of gallium metal led to most of the revenue decline at Rare Metals. However, lower abnormal production costs and charges for impairment of inventory, combined with our continued efforts to contain selling, general and administrative expenses, contributed to the favorable OIBDA variance in this segment during the three months ended March 31, 2015.

Going Concern, Liquidity and Capital Resources

As of March 31, 2015, the total principal balance of our outstanding debt is approximately $1.7 billion, including approximately $206.5 million of our 3.25% Convertible Notes that matures on June 15, 2016. Based on our current cash forecast, we may not have sufficient funds available to repay those convertible notes at maturity, in part because the delayed draw proceeds under the 2014 Financings (described below) would not be available in the event we do not achieve certain earnings and production targets specified in the 2014 Financings. Additionally, the agreements governing the 2014 Financings contain springing maturity obligations if we do not repay, or provide for the repayment of, certain of our 3.25% Convertible Notes by April 2016. Certain of our debt obligations contain covenants that are subject to interpretation. Although we do not believe we are in breach of any such covenants as at March 31, 2015, if a creditor under any such debt obligations decides to declare a breach of any such covenant, then such creditor could exercise its rights under the applicable debt obligations, which will trigger cross-defaults in other debt obligations. Such actions by creditors could require repayment of our debt before maturity, and we cannot assure you that we will be able to meet such repayment obligations. See more information on our convertible notes and other debt obligations at Note 6 in Item 1 of this Report.

In addition, on December 30, 2014, we received notice that we are not in compliance with the continued listing standards of the NYSE because the current trading price for our common stock is below the minimum listing requirements. We are taking actions to meet the compliance standards for continued listing on the NYSE, and are seeking approval from our stockholders for a reverse stock split as an alternative means of regaining compliance with the minimum share price requirement. However, we cannot guarantee that we will be able to meet the necessary requirements for continued listing, and, therefore, we cannot guarantee that our common stock will remain listed for trading on the NYSE. If we fail to meet the necessary requirements for our common stock to remain listed on the NYSE or other similar markets, then we will be obligated to offer to repurchase all of our outstanding convertible notes at a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest. Our failure to make such an offer or repurchase any tendered convertible notes will result in an event of default under the indentures governing our convertible notes. Any such event of default will trigger a cross-default on our other debt obligations, including the 2014 Financings. Our inability to cure any such defaults, including the prepayment of our debt obligations, would have a material adverse effect on our financial position and results of operations.

In August 2014, we and certain of our subsidiaries entered into a commitment letter with Oaktree Capital Management, L.P. (collectively with certain of its affiliates and funds under its management, "Oaktree") pursuant to which Oaktree agreed to provide to us and certain of our subsidiaries up to approximately $400.0 million in secured financing through credit facilities and the sale and leaseback of certain equipment at our Mountain Pass facility (the "2014 Financings") for corporate, operating and capital expenditures purposes. On September 11, 2014, we executed agreements governing the 2014 Financings and received initial gross proceeds totaling $250.0 million from Oaktree, with the remaining $149.8 million available to be drawn until April 30, 2016, $134.8 million of which is available only if we achieve certain financial and operational performance targets. For more information, see Note 6 in Item 1 of this Report. Additionally, availability of the other $15.0 million may be limited by certain outstanding balances under our foreign subsidiary credit facilities.

applicable to a going concern. The unaudited condensed consolidated financial statements included in Item 1 of this Report have been prepared on a going concern basis that assumes we will be able to continue to realize our assets and discharge our liabilities in the normal course of business, and do not reflect the adjustments to the carrying amount of assets and liabilities that would be necessary if we were unable to obtain adequate financing or restructure our debt. If we are unable to execute our business plan and restructure our debt, we may not be able to continue as a going concern.

Cash Used in Operating Activities

Net cash used in operating activities was $72.9 million during the three months ended March 31, 2015, as compared to $45.8 million in the corresponding prior-year period. Lower realized prices across all of our operating segments, larger interest payments, and an increase in working capital of approximately $39.4 million led to a higher use of cash during the first quarter of 2015.

Cash Used in Investing Activities

For the quarter ended March 31, 2015, net cash used in investing activities was $5.4 million, as compared to $29.3 million in the first quarter of 2014. This decrease was primarily attributable to a significant reduction in capital expenditures at our Mountain Pass facility.

Cash from Financing Activities

Net cash from financing activities during the three months ended March 31, 2015 was $0.2 million. During the first quarter of 2014, net cash used in financing activities of $2.4 million related primarily to the final dividends we paid on our Convertible Preferred Stock.



Cash and Cash Equivalents by Country at March 31,2015	(In thousands)
China (including Hong Kong)	$	52,039
Estonia	7,078
Canada	13,031
Japan	10,727
United Kingdom	3,177
Other	7,727
Total cash and cash equivalents in foreign countries	93,779

United States	39,820
Total cash and cash equivalents	$	133,599

Approximately 8% of the total cash and cash equivalents held by our foreign operating subsidiaries relate to undistributed earnings that are considered indefinitely reinvested in these foreign subsidiaries. If such earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is not practicable.

In addition to cash and cash equivalents, the primary sources of liquidity for our domestic and foreign subsidiaries are cash provided by operations and, in the case of our activities in China and Japan, borrowing under certain bank loans. From time to time, the sources of liquidity for our operating subsidiaries may be supplemented by intercompany loans in the form of interest bearing unsecured promissory notes. At March 31, 2015, Magnequench International Inc. (Magnetic Materials and Alloys segment) had a net receivable balance of $52.6 million from Molycorp Minerals, LLC (Resources segment) and $16.9 million from Molycorp, Inc. (Corporate); Molycorp Minerals, LLC had a net receivable balance from Molycorp Silmet (Chemicals and Oxides segment) of $18.7 million (all amounts including accrued interest). Our operating subsidiaries' liquidity generally is used to fund their working capital requirements, investments, capital expenditures and third-party debt service requirements.

Contractual Obligations

At March 31, 2015, we had the following contractual obligations:



	Payments Due by Period
	Total		Less Than 1 Year		1 - 3 Years		4 - 5 Years		More Than 5 Years
	(In thousands)
Operating lease obligations ⁽¹⁾	$	7,340	$	2,299	$	3,637	$	695	$	709
Purchase obligations and other commitments ⁽²⁾	10,060		10,060		—		—		—
Employee obligations ⁽³⁾	2,461		2,461		—		—		—
Asset retirement obligations ⁽⁴⁾	33,083		213		7,189		632		25,049
Long-term debt	1,734,608		7,029		756,425		971,154		—
Fixed interest on long-term debt	587,768		133,418		342,843		111,507		—
Capital lease obligations	45,617		8,278		20,566		10,420		6,353
Total	$	2,420,937	$	163,758	$	1,130,660	$	1,094,408	$	32,111


(1)	Represents all operating lease payments for office space, land and office equipment.


(2)	Represents contractual commitments for the purchase of materials and services from vendors.


(3)	Represents primarily payments due to employees for awards under our annual incentive plan.

(4)

Under applicable environmental laws and regulations, we are subject to reclamation and remediation obligations resulting from the mining operations at our Mountain Pass facility. The amounts presented above represent our estimated future undiscounted cash flows required to satisfy the obligations currently known to us. The discount rates we used to recognize these obligations in the balance sheets range from 5% to 10%, depending on the timing of when these obligations arose or were updated. The difference between the total ARO amount from the table above and the total ARO recognized in our balance sheet at March 31, 2015 of $18.2 million represents the effect of discounting our future reclamation and remediation obligations.

Off-Balance Sheet Arrangements

As of March 31, 2015, our only off-balance sheet arrangements are the operating leases and purchase obligations included in the contractual obligations table above.

Recent Accounting Pronouncements

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.


1.	Retrospectively to each prior reporting period presented.


2.	Retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. If an entity elects this transition method, it also should provide the additional disclosures in reporting periods that include the date of initial application of:


i.	The amount by which each financial statement line item is affected in the current reporting period by the application of this update as compared to the guidance that was in effect before the change.


ii.	An explanation of the reasons for significant changes.

We intend to adopt ASU 2014-09 in our financial statements for the annual period beginning on January 1, 2017. The extent of the impact of adoption of the standard has not yet been determined.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our operations may be impacted by commodity prices, geographic concentration, changes in interest rates and foreign currency exchange rates.

Commodity Price Risk

A portion of our current business is conducted in the spot market; therefore, prices can vary with the transaction and individual bids received. Our products are primarily marketed to manufacturers as component materials. Prices will vary based on the demand for the end products being produced with the mineral resources we mine and process.

Our sales and profitability are determined principally by the price of the rare earth products, rare metals and magnet alloys that we produce and, to a lesser extent, by the price of natural gas and other supplies used in the production process. The prices of our rare earth products are influenced by the price and demand of the end products that our products support, including automotive, electronics and clean energy technologies. A significant decrease in the global demand for these products may have a material adverse effect on our business. We currently have no significant hedging contracts for revenues and costs in place and intend to consider hedging strategies in the future.

Our costs and capital investments are subject to market movements in other commodities such as natural gas and chemicals. We may enter into derivative contracts for a portion of the expected usage of these products, but we do not currently have any derivative contracts on these commodities and we do not currently anticipate entering into derivative agreements on commodities.

Interest Rate Risk

Our exposure to the interest rate risk on our total variable interest debt, which totaled $10.7 million at March 31, 2015, would not be significantly impacted by variations in interest rates at this time. Our exposure to interest rate risk would increase if, for example, we obtain and utilize additional debt facilities in the future.

Foreign Currency Risk

We are exposed to fluctuations of the U.S. dollar (our reporting currency) against the functional currencies of our foreign subsidiaries, including the Chinese Renminbi and the Japanese Yen, when we translate our foreign subsidiaries' financial statements into U.S. dollars for inclusion in our consolidated financial statements. Cumulative translation adjustments are recorded in accumulated other comprehensive income or loss as a separate component of equity. Any increase or decrease in the value of the U.S. dollar against those foreign currencies results in unrealized foreign currency translation losses or gains with respect to assets acquired in, liabilities assumed from, intercompany balances with and results of operations from our foreign subsidiaries. Therefore, we may experience a negative impact on our comprehensive income or loss and stockholders' equity with respect to our holdings in those subsidiaries as a result of foreign currency translation. We generally do not hedge against the risk that we may incur non-cash gains or losses upon the translation of the financial statements of our foreign subsidiaries into U.S. dollars.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures

In accordance with Rule 13a-15(b) of the Exchange Act, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this Report. Based on its evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2015.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting in the first quarter of 2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Two additional shareholder derivative lawsuits were filed purportedly on our behalf against us (as nominal defendant) and certain of our current and former directors, executive officers and shareholders, in the Colorado Federal District Court. These lawsuits allege claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment based on events in 2011 and 2012. The Colorado Federal District Court dismissed these lawsuits. The plaintiffs filed an appeal of that ruling to the U.S. Court of Appeals for the Tenth Circuit, and the Tenth Circuit remanded these cases back to the Colorado Federal District Court. Subsequently, a different shareholder, purportedly on our behalf, filed a new shareholder derivative lawsuit in the Colorado Federal District Court alleging claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment based on events during 2011 through 2013. The Colorado Federal District Court sua sponte consolidated this lawsuit with the remanded lawsuits. The plaintiff in the new derivative lawsuit filed a Motion to Vacate the consolidation order. On July 15, 2014, the Colorado Federal District Court ruled that, based on the Second Consolidated Amended Derivative Complaint filed in Delaware Chancery Court, the issues raised in the Colorado derivative cases were sufficiently distinct from the issues set forth in the Delaware derivative lawsuit, and reversed its original order dismissing the lawsuits. In its order, the Colorado Federal District Court left open the opportunity for the defendants to file a motion to stay the Colorado derivative lawsuits pending the resolution of the Colorado class action lawsuit. The motion to stay was filed and fully briefed. The Colorado Federal District Court granted the defendants' Motion to Stay all of the Colorado derivative lawsuits pending resolution of the purported Colorado class action lawsuit, and further stayed the new Colorado derivative lawsuit pending resolution of the purported New York class action lawsuit. The Colorado Federal District Court subsequently administratively closed all of the Colorado derivative lawsuits.

ITEM 1A. RISK FACTORS.

There were no material changes to the risk factors disclosed in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC on March 16, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95.1 to this Report.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

See the Exhibit Index at the end of this Report, which is incorporated by reference herein.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	MOLYCORP, INC.

May 7, 2015	By:	/s/ Geoffrey R. Bedford
		Geoffrey R. Bedford President and Chief Executive Officer (Principal Executive Officer)

May 7, 2015	By:	/s/ Michael F. Doolan
		Michael F. Doolan Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX



3.1			Amended and Restated Certificate of Incorporation of Molycorp, Inc., as amended (incorporated by reference to Exhibit 3.1 to Molycorp, Inc.'s Quarterly Report on Form 10-Q (File No. 001-34827) filed with the Securities and Exchange Commission on August 6, 2014).
3.2			Bylaws of Molycorp, Inc. (incorporated by reference to Exhibit 3.2 to Molycorp, Inc.'s Current Report on Form 8-K (File No. 001-34827) filed with the Securities and Exchange Commission on August 6, 2010).
31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95.1			Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

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