TORONTO (miningweekly.com) – US-based rare-earth elements producer Molycorp on Tuesday warned that its expected third-quarter cash-flow requirements might be insufficient to meet its capital expansion and operating expenditures at its flagship Mountain Pass mine, in California, prompting it to announce a $200-million stock offering.

Molycorp announced details of a stock offering that it planned to use the net proceeds of to fund its current capital expenditure needs and other cash requirements at its Mountain Pass facility. The joint book runners for the offering will include Morgan Stanley, Goldman Sachs and JP Morgan Securities.

In a US Securities and Exchange Commission filing, the company disclosed that after January, a number of developments had taken place that had reduced its cash cushion to a level below what it viewed as sufficient to ensure it would “have no substantial concern” about its ability to finance itself.

Apart from the potential dilution to existing shareholders, Molycorp also said that about 48.8% of its Mountain Pass deposit was now expected to contain cerium, which had over a number of quarters demonstrated that it was a lower-demand product, failing to attract premium pricing.

Molycorp, which had suffered a series of quarterly losses, also revealed a $100-million budget blowout in its $1.25-billion modernisation and expansion at its main mine, which it hopes would bring down unit costs.

It said it currently had about $160-million cash in the bank, which, together with a successful capital raising, should be enough to sustain the company until market conditions improved and better plant efficiencies were achieved.

The company’s NYSE-listed shares were down 19.65% to $5.70 apiece by noon on Tuesday.

The news prompted Goldman Sachs mining analyst Brian Lee to lower his expected price target to $5 a share, from $6 apiece for the company’s undervalued shares.

"We see this latest round of relatively unexpected fundraising as an indication of continued operational challenges in ramping the company’s Mountain Pass rare earths facility.

“Additionally, we note the increase of $100-million in Mountain Pass's overall budget continues a series of cost overruns on the project relative to original expectations,” he said in a note to clients.

At the start of the month, Molycorp's NYSE-listed shares jumped after the company announced that construction of its chloralkali plant at Mountain Pass was complete. The chloralkali plant would recycle wastewater and produce hydrochloric acid and caustic soda used as part of the rare-earth separation process.

Company officials said that once fully operational and optimised, the chloralkali plant was expected to help the facility achieve its cash production cost targets, which Molycorp believed would make it competitive with the lowest-cost producers globally.

Molycorp last week named 14-year rare-earth industry veteran and COO Geoff Bedford its new president and CEO effective from December 2, to replace Constantine Karayannopoulos who was appointed interim president and CEO in December 2012.

Last month, the shares of Molycorp, which is the only large-scale North American rare-earth elements producer, rose after a rumour surfaced that China’s State Reserve Bureau planned to start buying these critical metals soon.

China Daily USA quoted market trends firm Baichuan Information analyst Du Shuaibing as saying that six large rare-earth producers were on a list for the purchasing programme, which was launched last year.

This round of purchases would target medium and heavy rare earths, which were more valuable but less common than light rare earths, he said.