Molycorp (MCPIQ) 10-Q 2014 Q3 Quarterly report

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 September 30, 2014
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 1000Greenwood 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 x

Accelerated filer ¨

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 November 4, 2014, the registrant had 244,774,819 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	40
Item 3. Quantitative and Qualitative Disclosures About Market Risk	54
Item 4. Controls and Procedures	54
Part II. OTHER INFORMATION
Item 1. Legal Proceedings	56
Item 1A. Risk Factors	57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3. Defaults Upon Senior Securities	57
Item 4. Mine Safety Disclosures	57
Item 5. Other Information	57
Item 6. Exhibits	57
Signatures	58

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	U.S. 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.

3

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. Lanthanum is a strategically important REE due to its use in fluid bed cracking catalysts, or 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).
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.
Molycorp Silmet	Molycorp Silmet AS - Sillamäe, Estonia.
MMA	Molycorp Metals and Alloys, Inc. - Tolleson, Arizona.
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 PowdersTM	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.

4

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	U.S. 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.

5

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOLYCORP, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares and per share amounts)

	September 30, 2014			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	313,477		$	314,317
Trade accounts receivable, net	53,229			61,757
Inventory (Note 4)	166,936			171,783
Prepaid expenses and other current assets	27,175			29,210
Total current assets	560,817			577,067
Non-current assets:
Deposits	29,999			25,997
Property, plant and equipment, net (Note 5)	1,736,872			1,762,874
Inventory (Note 4)	25,530			25,329
Intangible assets, net	312,878			330,867
Investments	32,210			48,875
Goodwill	228,750			228,750
Other non-current assets	34,203			7,043
Total non-current assets	2,400,442			2,429,735
Total assets	$	2,961,259		$	3,006,802
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	58,272		$	84,449
Accrued expenses	66,727			48,501
Debt and capital lease obligations (Note 6)	12,769			16,362
Other current liabilities	6,922			4,063
Total current liabilities	144,690			153,375
Non-current liabilities:
Asset retirement obligation	16,681			16,966
Deferred tax liabilities	75,162			85,481
Debt and capital lease obligations (Note 6)	1,582,802			1,363,916
Other non-current liabilities	14,286			10,002
Total non-current liabilities	1,688,931			1,476,365
Total liabilities	$	1,833,621		$	1,629,740
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.001 par value; 700,000,000 shares authorized at September 30, 2014 and 350,000,000 at December 31, 2013 (Note 8)	245			241
Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2013	—			2
Additional paid-in capital	2,232,390			2,194,405
Accumulated other comprehensive loss	(15,704		)	(6,451		)
Accumulated deficit	(1,115,614		)	(840,474		)
Total Molycorp stockholders’ equity	1,101,317			1,347,723
Noncontrolling interests	26,321			29,339
Total stockholders’ equity	1,127,638			1,377,062
Total liabilities and stockholders’ equity	$	2,961,259		$	3,006,802

See accompanying notes to the condensed consolidated financial statements.

6

MOLYCORP, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(In thousands, except shares and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues	$	123,937		$	149,066		$	359,369		$	430,580
Costs of sales:
Costs excluding depreciation and amortization	(119,633		)	(150,444		)	(358,506		)	(421,699		)
Depreciation and amortization	(19,382		)	(16,400		)	(55,608		)	(49,283		)
Gross loss	(15,078		)	(17,778		)	(54,745		)	(40,402		)
Operating expenses:
Selling, general and administrative	(21,907		)	(24,468		)	(60,286		)	(76,702		)
Depreciation, amortization and accretion	(8,093		)	(10,072		)	(22,552		)	(26,273		)
Research and development	(4,353		)	(5,565		)	(11,603		)	(18,476		)
Impairment of long-lived assets	—			(1,118		)	—			(1,495		)
Operating loss	(49,431		)	(59,001		)	(149,186		)	(163,348		)
Other (expenses) income:
Other (expense) income	(2,611		)	(891		)	(1,839		)	2,474
Impairment of investment (Note 17)	(12,000		)	—			(12,000		)	—
Interest expense, net of capitalized interest	(35,442		)	(16,289		)	(112,367		)	(42,807		)
Loss before income taxes and equity earnings	(99,484		)	(76,181		)	(275,392		)	(203,681		)
Income tax (expense) benefit	(3,572		)	12,902			5,762			38,922
Equity in loss of affiliates	(2,092		)	(2,334		)	(5,368		)	(8,690		)
Loss from continuing operations	(105,148		)	(65,613		)	(274,998		)	(173,449		)
Loss from discontinued operations, net of tax	—			(4,186		)	—			(5,190		)
Net loss	(105,148		)	(69,799		)	(274,998		)	(178,639		)
Net income attributable to noncontrolling interests	(31		)	(130		)	(142		)	(1,433		)
Net loss attributable to Molycorp stockholders	$	(105,179	)	$	(69,929	)	$	(275,140	)	$	(180,072	)
Net loss	$	(105,148	)	$	(69,799	)	$	(274,998	)	$	(178,639	)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(8,292		)	4,217			(9,253		)	1,585
Comprehensive loss	$	(113,440	)	$	(65,582	)	$	(284,251	)	$	(177,054	)
Comprehensive loss attributable to:
Molycorp stockholders	(113,409		)	(65,452		)	(284,109		)	(175,621		)
Noncontrolling interest	(31		)	(130		)	(142		)	(1,433		)
	$	(113,440	)	$	(65,582	)	$	(284,251	)	$	(177,054	)
Loss per share of common stock (Note 9):
Net loss attributable to Molycorp stockholders	$	(105,179	)	$	(69,929	)	$	(275,140	)	$	(180,072	)
Dividends on Convertible Preferred Stock	—			(2,846		)	(2,846		)	(8,539		)
Loss attributable to common stockholders	$	(105,179	)	$	(72,775	)	$	(277,986	)	$	(188,611	)
Weighted average common shares outstanding—basic	224,270,303			168,114,266			223,300,073			163,222,000
Basic loss per share:	$	(0.47	)	$	(0.43	)	$	(1.24	)	$	(1.16	)
Weighted average common shares outstanding—diluted	224,270,303			168,114,266			223,300,073			163,222,000
Diluted loss per share:	$	(0.47	)	$	(0.43	)	$	(1.24	)	$	(1.16	)

See accompanying notes to the condensed consolidated financial statements.

7

MOLYCORP, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands, except shares and per share amounts)

	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		$
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	229,664	—		—		—			3,171			—			—			3,171			—			3,171
Conversion of Series A Mandatory Convertible Preferred Stock (Note 8)	4,140,000	4		(2,070,000	)	(2		)	(2		)	—			—			—			—			—
Conversion of Exchangeable Shares	21,313	—		—		—			—			—			—			—			—			—
Issuance of shares for conversion of Debentures	3,225	—		—		—			12			—			—			12			—			12
Share-lending arrangements (Note 8)	—	—		—		—			15,062			—			—			15,062			—			15,062
Warrants (Note 8)	—	—		—		—			23,164			—			—			23,164			—			23,164
Net (loss) income	—	—		—		—			—			—			(275,140		)	(275,140		)	142			(274,998		)
Preferred dividends	—	—		—		—			(2,846		)	—			—			(2,846		)	—			(2,846		)
Distribution to noncontrolling interests	—	—		—		—			—			—			—			—			(3,170		)	(3,170		)
Other comprehensive loss	—	—		—		—			—			(9,253		)	—			(9,253		)	—			(9,253		)
Other	—	—		—		—			(576		)	—			—			(576		)	10			(566		)
Balance at September 30, 2014	244,774,296	$	245	—		$	—		$	2,232,390		$	(15,704	)	$	(1,115,614	)	$	1,101,317		$	26,321		$	1,127,638

	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	$
Balance at December 31, 2012	138,773,538	$	139	2,070,000	$	2	$	1,691,429		$	(9,433	)	$	(466,091	)	$	1,216,046		$	35,212		$	1,251,258
Stock-based compensation	43,847	—		—	—		2,399			—			—			2,399			—			2,399
Component of 5.50% convertible debt	—	—		—	—		21,815			—			—			21,815			—			21,815
Deferred taxes on component of convertible debt	—	—		—	—		(8,508		)	—			—			(8,508		)	—			(8,508		)
Conversion of Exchangeable Shares	12,971	—		—	—		—			—			—			—			—			—
Issuance of shares for conversion of Debentures	2,393	—		—	—		49			—			—			49			—			49
Issuance of Primary Shares	43,125,000	43		—	—		248,097			—			—			248,140			—			248,140
Issuance of Borrowed Shares	6,666,666	7		—	—		—			—			—			7			—			7
Net (loss) income	—	—		—	—		—			—			(180,072		)	(180,072		)	1,433			(178,639		)
Preferred dividends	—	—		—	—		(8,539		)	—			—			(8,539		)	—			(8,539		)
Distribution to noncontrolling interests	—	—		—	—		—			—			—			—			(4,472		)	(4,472		)
Other comprehensive loss	—	—		—	—		—			1,585			—			1,585			—			1,585
Balance at September 30, 2013	188,624,415	$	189	2,070,000	$	2	$	1,946,742		$	(7,848	)	$	(646,163	)	$	1,292,922		$	32,173		$	1,325,095

See accompanying notes to the condensed consolidated financial statements.

8

MOLYCORP, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(274,998	)	$	(178,639	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation, amortization and accretion	78,161			75,870
Deferred income tax benefit	(18,809		)	(36,399		)
Inventory write-downs	51,638			74,475
Release of inventory step-up value	742			5,650
Impairment of investment	12,000			—
Impairment of long-lived assets	—			4,949
Stock-based compensation	3,784			2,399
Equity in results of affiliates	5,368			8,690
Other operating adjustments	8,766			(1,796		)
Net change in operating assets and liabilities (Note 14)	(13,058		)	(45,212		)
Net cash used in operating activities	(146,406		)	(90,013		)
Cash flows from investing activities:
Investment in joint ventures	(703		)	(3,423		)
Capital expenditures	(62,837		)	(334,597		)
Recovery from insurance claims	12,900			—
Other investing activities	460			(364		)
Net cash used in investing activities	(50,180		)	(338,384		)
Cash flows from financing activities:
Repayments of debt	(5,879		)	(25,990		)
Net proceeds from sale of common stock	—			248,150
Issuance of 5.50% Convertible Notes	—			165,600
Debt issuance costs	(14,768		)	—
Proceeds from the Financings (Note 6)	250,000			—
Partial repayment of convertible notes (Note 6)	(27,495		)	—
Payments of preferred dividends	(2,846		)	(8,539		)
Dividend paid to noncontrolling interests	(3,170		)	(4,472		)
Other financing activities	1,626			(797		)
Net cash (used in) provided by financing activities	197,468			373,952
Effect of exchange rate changes on cash	(1,722		)	569
Net change in cash and cash equivalents	(840		)	(53,876		)
Cash and cash equivalents at beginning of the period	314,317			227,790
Cash and cash equivalents at end of period	$	313,477		$	173,914

Non-cash financing activities and investing activities:
Change in accrued capital expenditures	$	(15,649	)	$	(116,161	)
Fixed assets additions under capital lease	1,470			5,992

See accompanying notes to the condensed consolidated financial statements.

9

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(1) 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 September 30, 2014, and for all periods presented. While the December 31, 2013 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, 2013 included in our Annual Report on Form 10-K filed with the SEC on March 3, 2014.

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 of investment. All other investments are accounted for at cost.

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 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 2 of the audited consolidated financial statements for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the SEC on March 3, 2014.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provides guidance about management’s responsibilities in evaluating an entity’s going concern uncertainties, and about the timing and content of related footnote disclosures. Under this amended guidance, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies. When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial

10

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

doubt about the entity’s ability to continue as a going concern. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the footnotes):

a. Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans);

b. Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; and

c. Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.

If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements to understand all of the following:

a. Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern;

b. Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; and

c. Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

This update is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

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.

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 are in the process of evaluating which of the two methods we will apply to adopt the amendments, and whether this new guidance will have a material impact on our financial statements and related disclosures.

11

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(2) Liquidity and Capital Requirements

We expect to use our cash balances of $313.5 million as of September 30, 2014, as well as cash generated from operations in certain business units to fund our capital expenditures, debt service and other cash requirements as we continue the ramp-up and optimization of production at our Mountain Pass facility. Capital expenditures for our Mountain Pass facility are expected to total approximately $25.0 million for the remainder of 2014, including remaining payments for certain capital expenditures incurred as of September 30, 2014, and $30.0 million in 2015. Additionally, we expect to spend approximately $5.0 million for the remainder of 2014 and $30.0 million in 2015 on maintenance and expansion capital expenditures across all other business units.

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 "Financings") for corporate, operating and capital expenditures purposes. On September 11, 2014, we executed agreements governing the 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.

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 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, (iii) stable or improved market conditions, (iv) 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), (v) our ability to repatriate cash generated from our global operations, and (vi) the absence of payments on current and future contingent liabilities. If these assumptions prove inaccurate, our estimates could prove incorrect and we may need additional financing.

As part of our cash management procedures, we continue to evaluate opportunities to reduce our operating, administrative and interest costs. Additionally, we may from time to time seek to repurchase our outstanding debt securities with cash and/or exchanges for common stock or securities convertible into common stock.

12

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(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 primary measurement we use to measure the financial performance of each reportable segment is OIBDA (Operating income before depreciation, amortization and accretion).

Three months ended September 30, 2014	Resources			Chemicals and Oxides			Magnetic Materials and Alloys			Rare Metals			Corporate and other (a)			Eliminations(b)			Total Molycorp, Inc.
	(In thousands)
Revenues:
External	$	4,509		$	36,814		$	61,345		$	21,269					$	—		$	123,937
Inter-segment	9,424			6,658			1,342			—						(17,424		)	—
Total revenues	$	13,933		$	43,472		$	62,687		$	21,269					$	(17,424	)	$	123,937
OIBDA	$	(31,087	)	$	4,251		$	13,715		$	595
Depreciation, amortization and accretion	(17,332		)	(3,823		)	(4,232		)	(2,034		)
Operating (loss) income	$	(48,419	)	$	428		$	9,483		$	(1,439	)	$	(9,065	)	$	(419	)	$	(49,431	)
Other expense																			(2,611		)
Impairment of investment																			(12,000		)
Interest expense, net of capitalized interest																			(35,442		)
Loss before income taxes and equity earnings																			$	(99,484	)

Three months ended September 30, 2013	Resources			Chemicals and Oxides			Magnetic Materials and Alloys			Rare Metals			Corporate and other (a)			Eliminations(b)			Total Molycorp, Inc.
	(In thousands)
Revenues:
External	$	4,655		$	50,791		$	72,626		$	20,994					—			$	149,066
Inter-segment	8,858			7,174			—			—						(16,032		)	—
Total revenues	$	13,513		$	57,965		$	72,626		$	20,994					$	(16,032	)	$	149,066
OIBDA	$	(44,673	)	$	4,561		$	18,520		$	(911	)
Depreciation, amortization and accretion	(10,853		)	(5,960		)	(7,458		)	(2,144		)
Operating (loss) income	$	(55,526	)	$	(1,399	)	$	11,062		$	(3,055	)	$	(10,806	)	$	723		$	(59,001	)
Other expense																			(891		)
Interest expense, net of capitalized interest																			(16,289		)
Loss before income taxes and equity earnings																			$	(76,181	)

13

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Nine months ended September 30, 2014	Resources			Chemicals and Oxides			Magnetic Materials and Alloys			Rare Metals			Corporate and other (a)			Eliminations(b)			Total Molycorp, Inc.
	(In thousands)
Revenues:
External	$	9,951		$	122,521		$	169,260		$	57,637					$	—		$	359,369
Inter-segment	29,582			16,138			3,725			—						(49,445		)	—
Total revenues	$	39,533		$	138,659		$	172,985		$	57,637					$	(49,445	)	$	359,369
OIBDA	$	(97,831	)	$	12,388		$	39,203		$	1,265
Depreciation, amortization and accretion	(47,432		)	(11,605		)	(12,730		)	(6,228		)
Operating (loss) income	$	(145,263	)	$	783		$	26,473		$	(4,963	)	$	(25,259	)	$	(957	)	$	(149,186	)
Other expense																			(1,839		)
Impairment of investment																			(12,000		)
Interest expense, net of capitalized interest																			(112,367		)
Loss before income taxes and equity earnings																			$	(275,392	)

Nine months ended September 30, 2013	Resources			Chemicals and Oxides			Magnetic Materials and Alloys			Rare Metals			Corporate and other (a)			Eliminations(b)			Total Molycorp, Inc.
	(In thousands)
Revenues:
External	$	30,235		$	135,180		$	193,417		$	71,748					$	—		$	430,580
Inter-segment	18,168			28,476			—			—						(46,644		)	—
Total revenues	$	48,403		$	163,656		$	193,417		$	71,748					$	(46,644	)	$	430,580
OIBDA	$	(104,519	)	$	(2,792	)	$	48,823		$	3,947
Depreciation, amortization and accretion	(31,536		)	(17,087		)	(20,360		)	(6,402		)
Operating (loss) income	$	(136,055	)	$	(19,879	)	$	28,463		$	(2,455	)	$	(32,321	)	$	(1,101	)	$	(163,348	)
Other income																			2,474
Interest expense, net of capitalized interest																			(42,807		)
Loss before income taxes and equity earnings																			$	(203,681	)

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

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

14

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(4) Inventory

At September 30, 2014 and December 31, 2013, our inventory consisted of the following:

	September 30, 2014		December 31, 2013
	(In thousands)
Current:
Concentrate stockpiles	$	—	$	24
Raw materials	52,215		42,627
Work in process	25,254		41,962
Finished goods	62,397		65,662
Materials and supplies	27,070		21,508
Total current	$	166,936	$	171,783
Long-term:
Concentrate stockpiles	$	—	$	4
Raw materials	25,530		25,325
Total long-term	$	25,530	$	25,329

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 September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(In thousands)
Abnormal production costs expensed in the period (a)	$	28,889	$	18,249	$	71,436	$	65,743
Write-down to the lower of cost or market (b)	14,776		19,633		50,296		60,733
Write-downs of stockpile inventory (c)	—		6,884		1,342		13,741
Total	$	43,665	$	44,766	$	123,074	$	140,217

(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.

(5) Property, Plant and Equipment, net

We capitalized expenditures of $17.8 million and $47.3 million for the three and nine months ended September 30, 2014, respectively, and $83.0 million and $281.3 million for the three and nine months ended September 30, 2013, respectively. The majority of these capital expenditures related to the expansion and modernization efforts, and certain other capital projects, at our Mountain Pass facility (Resources segment). Starting in 2014, we no longer capitalized interest because the construction of our Mountain Pass facility was substantially complete at the beginning of the year. For the three and nine months ended September 30, 2013, we capitalized interest of $20.3 million and $61.2 million, respectively. In prior periods, capitalized interest was added to "Construction in progress" until the asset was complete and ready for its intended use. Subsequently, capitalized interest was allocated to the pertinent asset class, such as "Land improvements", "Building and improvements" or "Plant and equipment", and amortized over the estimated useful life of the asset.

At September 30, 2014 and December 31, 2013, our property, plant and equipment consisted of the following:

15

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	September 30, 2014			December 31, 2013
	(In thousands)
Land	$	12,045		$	12,822
Land improvements	304,659			327,029
Buildings and improvements	609,337			418,510
Plant and equipment	509,562			288,603
Vehicles	2,982			2,986
Computer software	12,573			12,424
Furniture and fixtures	1,196			1,044
Construction in progress (a)	394,572			755,107
Natural gas delivery facility under capital lease	15,658			15,658
Mining equipment under capital lease	10,982			7,370
Mineral properties	23,757			23,999
Property, plant and equipment at cost	1,897,323			1,865,552
Less accumulated depreciation	(160,451		)	(102,678		)
Property, plant and equipment, net	$	1,736,872		$	1,762,874

(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 September 30, 2014 and December 31, 2013:

	September 30, 2014				December 31, 2013
	Current		Non-Current		Current		Non-Current
	(In thousands)
Bank loans due May 2014- September 2017	$	9,609	$	1,486	$	14,128	$	2,699
3.25% Convertible Notes, net of discount, due June 2016	—		191,743		—		207,028
6.00% Convertible Notes, net of discount, due September 2017	—		355,614		—		346,708
5.00% Debentures, net of discount, due December 2017	—		2,129		—		2,493
5.50% Convertible Notes, net of discount, due February 2018	—		152,084		—		148,198
12.00% Term Loans, due September 2019	—		96,595		—		—
12.00% Equipment Financing, due September 2019	—		124,583		—		—
10% Senior Notes, net of discount, due June 2020	—		638,521		—		637,435
Total debt	9,609		1,562,755		14,128		1,344,561
Capital lease obligations	3,160		20,047		2,234		19,355
Total debt and capital lease obligations	$	12,769	$	1,582,802	$	16,362	$	1,363,916

Weighted average interest rate on the bank loans was 3.43% and 3.59% at September 30, 2014 and December 31, 2013, respectively. Scheduled minimum debt repayments, excluding capital lease obligations, were as follows at September 30, 2014:

16

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	September 30, 2014
Debt maturities, excluding capital leases	(In thousands)
Remainder of 2014	2,040
2015	7,997
2016	207,331
2017	412,573
2018	172,500
Thereafter	971,154
Total	1,773,595

As of September 30, 2014, we were in compliance with all applicable covenants related to our indebtedness.

12%Term Loans and12% Equipment Financing

On September 11, 2014 (the “closing date”), we received initial gross proceeds totaling $250.0 million from the Financings with 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 satisfy certain financial and operational conditions. Net proceeds from the Financings were approximately $207.7 million after the repayment of approximately $23.5 million of principal amount (plus accrued interest) and $4.0 million of principal amount (plus accrued interest) of our 3.25% Convertible Notes and 6.00% Convertible Notes, respectively, owned by Oaktree (“Oaktree Notes Repurchase”), $8.0 million paid to Oaktree as a commitment yield enhancement, and the payment of transaction costs of approximately $6.6 million as of the closing date. We will be responsible for additional incurred but unpaid transaction costs in respect of the Financings after the closing date. As a result of the Oaktree Notes Repurchase, we recognized a loss on extinguishment of $2.3 million under "Other expense" in the statements of operations and comprehensive loss for the three and nine months ended September 30, 2014. This loss was calculated as the difference between the reacquisition price and the net carrying amount of our convertible notes.

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

a. 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 Oaktree Notes Repurchase and the payment of transaction expenses.

b. 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

17

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

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 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 15 for more information on this derivative.

c. 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%.

Due to the existence of several forms of our continuing involvement with the Equipment, we are required to account for the Equipment Financing as a direct financing under GAAP, rather than a sale-leaseback. Additionally, since the rent payments do not cover the total interest expense of the Equipment Financing, we recognize such payments as interest only with no principal reduction of the financing obligation. However, the unpaid interest calculated at an annual rate of 5% increases the financing obligation up to the final payment due on the fifth anniversary of the Equipment Financing, whether or not the 2016 Notes Equity Refinancing occurs.

In connection with the Financings, we issued warrants to Oaktree to purchase up to an aggregate of 24,477,359 shares of our common stock. For accounting purposes, a portion of the proceeds from the Financings was allocated to the warrants, which created a discount on the Term Loans and the Equipment Financing of approximately $28.2 million, in the aggregate. This discount will be recognized as interest expense over the term of the Financings. See Note 8 and Note 15 for more information on the warrants.

The following table presents a reconciliation of the principal amount to the net carrying value of the Term Loans and the Equipment Financing at September 30, 2014:

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MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	12.00% Term Loans			12.00% Equipment Financing
	September 30, 2014			September 30, 2014
	(In thousands)
Principal amount (a)	$	110,473		$	140,069
Unamortized debt discount	(13,878		)	(15,486		)
Net carrying amount	$	96,595		$	124,583

(a) Includes PIK interest accretion.

Obligations under the 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 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 principal amount of debt under the 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 Financings are guaranteed by certain of our other subsidiaries (the “First Priority Guarantors”). The obligations of the First Priority Guarantors under the 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 Credit Agreement 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 Senior Notes at September 30, 2014 and December 31, 2013, and provides the interest cost of each instrument for the three and nine months ended September 30, 2014 and 2013:

	3.25% Convertible Notes						6.00% Convertible Notes						5.50% Convertible Notes						10% Senior Notes
	September 30, 2014			December 31, 2013			September 30, 2014			December 31, 2013			September 30, 2014			December 31, 2013			September 30, 2014			December 31, 2013
	(In thousands)
Principal amount	$	206,505		$	230,000		$	410,000		$	414,000		$	172,500		172,500			$	650,000		$	650,000
Unamortized debt discount	(14,762		)	(22,972		)	(54,386		)	(67,292		)	(20,416		)	(24,302		)	(11,479		)	(12,565		)
Net carrying amount	$	191,743		$	207,028		$	355,614		$	346,708		$	152,084		148,198			$	638,521		$	637,435
Interest cost (a)
	Three Months Ended September 30,
	2014			2013			2014			2013			2014			2013			2014			2013
	$	3,935		$	3,988		$	10,710		$	9,969		$	3,711		$	3,609		$	16,658		$	16,622
	Nine Months Ended September 30,
	2014			2013			2014			2013			2014			2013			2014			2013
	$	12,063		$	11,839		$	31,135		$	29,691		$	11,046		$	9,482		$	49,942		$	49,837

(a) Interest cost includes the coupon interest, accretion of the initial equity component of the convertible notes (3.25% - $36,227; 6.00% - $68,695; and 5.50% - $21,815), accretion of the underwriting discounts and amortization of the issuance costs allocated to the liability component.

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:

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MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

• 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.

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 September 30, 2014, total future minimum payments on our capital leases were as follows:

	September 30, 2014
Capital Leases	(In thousands)
Remainder of 2014	2,069
2015	8,278
2016	8,278
2017	7,161
2018	5,770
Thereafter	18,195
Total	49,751

(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 and nine months ended September 30, 2014, our effective tax rates were (3.6)% and 2.1%, respectively, as compared to 16.9% and 19.1% for the three and nine months ended September 30, 2013, respectively. The September 30, 2014 effective tax rates were impacted primarily by the valuation allowance required in the United States. In addition, a $9.6 million discrete income tax benefit has been recognized during the second quarter of 2014 in the United States to offset the increase in deferred tax liabilities from an out-of-period adjustment related to the revised fair value of our share-lending arrangements described in Note 8 below.   

20

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(8) Stockholders’ Equity

At September 30, 2014 and December 31, 2013, we had 244,864,742 and 240,380,138 shares of common stock issued and outstanding, respectively. At December 31, 2013, we also had 2,070,000 shares of our 5.50% Series A Mandatory Convertible Preferred Stock (“Convertible Preferred Stock”) issued and outstanding.

Warrants

On September 11, 2014, as part of the 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 (the “Strike Warrants”, and collectively with the Penny Warrants the “Warrants”). The Warrants may be exercised at any time until September 11, 2019. The Warrants are subject to a lock up that prevents any registered holder to trade any option to purchase or sell shares of our common stock, or transfer or dispose of any shares of our common stock issued or issuable upon exercise of the Warrants for a period of 90 days after the closing date. Each Warrant may be exercised by Oaktree or any registered holder of the Warrant on either a cash basis (i.e., physical exercise) or on a “cashless basis” by surrendering such Warrant for a net number of shares of our common stock. With respect to the exercise of any Warrant 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 Warrant 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 Warrant 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 Warrant Shares are subject to customary anti-dilution adjustments for stock splits, stock dividends and recapitalizations 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 meet the criteria for the equity classification and were recorded 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 15 for more information on the Strike Warrants.

The fair value of the Warrants was determined using an option-pricing model with the following inputs:

	Penny Warrants			Strike Warrants
Term (years)	5			5
Stock price	$	1.55		$	1.55
Strike price	$	0.01		$	2.04
Risk-free interest rate	1.79		%	1.79		%
Volatility	82.6		%	49.9		%
Dividend yield	—		%	—		%

Since the unit of account for the Penny Warrants is our common stock, the volatility is based on the average of historical and implied volatility. For the Strike Warrants, we applied a "Volatility Haircut" based on certain studies supporting that market participants would generally apply a discount to the full observed historical or implied volatility for an option on the stock.    

In addition, in order to account for the restriction on the marketability of the shares of common stock issuable upon exercise of the Warrants for a 90-day period from the closing day, we applied a Discount for Lack Of Marketability (“DLOM”) to the fair value of each Warrant obtained from the option-pricing model. The DLOM was obtained using an option-based approach that estimates a discount as an average strike put option, effectively assuming that if the shares of common stock were

21

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

available to be traded, the holder could sell the shares evenly over the restriction period. In particular, for the Penny Warrants, we discounted the fair value from the option-pricing model by a DLOM of 9%, which resulted into a fair market value of $1.40 per Penny Warrant, whereas for the Strike Warrants we discounted the fair value by a DLOM of 31% to arrive to a fair market value of $0.57 per Strike Warrant.

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.

During the second quarter of 2014, the SEC issued Molycorp a comment letter with respect to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 regarding, among other things, the fair value measurement of our share-lending arrangements. In response to the SEC’s comment, we reconsidered our approach to determining the fair value of our share-lending arrangements and identified a methodology to estimate the long-term borrowing rate of our common stock, which we adjusted for the credit risk of the counterparty given that no collateral was provided to us that complied with ASC 470-20-25-20A. As a result of applying the methodology, management has determined that the fair value at the date of issuance of the 2012 Borrowed Shares and 2013 Borrowed Shares should have been approximately $18.1 million and $6.6 million, respectively. These amounts should have been recognized in the financial statements as issuance costs associated with the issuance of the related convertible notes with an offset to additional paid-in capital.

Because the adjustment, both individually and in the aggregate, was not material to any of the prior years’ financial statements, and the impact of correcting the errors was not material to the full year 2014 financial statements, we recorded the correction in the condensed consolidated financial statements in the second quarter of 2014. The out-of-period adjustment had the following impact on the condensed consolidated balance sheet and the condensed consolidated statements of operations and comprehensive loss:

Increase to balance sheet captions:	As of June 30, 2014
Other non-current assets	$	16,381
Property, plant and equipment, net	3,378
Additional paid-in capital	15,062

Increase to statements of operations and comprehensive loss captions:	Three Months Ended   June 30, 2014
Interest expense, net of capitalized interest	$	4,933
Income tax benefit	9,630

22

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

The following table provides certain other information on our share-lending arrangements as of September 30, 2014:

	2012 Borrowed Shares		2013 Borrowed Shares		Total
	(In thousands)
Fair value	$	3,001	$	1,686	$	4,687
Unamortized issuance cost	10,624		4,505		15,129

The methodology to fair value our share-lending arrangements consists of an option pricing model that we used to determine a synthetic cost for borrowing our common stock, which we then 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 September 30, 2014, all of the Borrowed Shares we originally agreed to loan to MSCS are still outstanding, and the related unamortized issuance cost is included in "Other non-current assets" in the condensed consolidated balance sheet.

The amount of non-cash interest cost recognized relating to the amortization of the issuance cost associated with the combined share-lending arrangements was as follows in 2014:

	Three Months Ended   September 30, 2014		Nine Months Ended   September 30, 2014
	(In thousands)
Interest cost expensed	$	1,250	$	6,183
Interest cost capitalized	—		3,378

Accumulated other comprehensive income

The following table provides the changes in Accumulated other comprehensive income (loss) (“AOCI”) for the nine-month periods ended September 30, 2014 and 2013:

	Foreign currency translation adjustments			Postretirement benefit liability		Accumulated other comprehensive loss
	(In thousands)
Balance at December 31, 2013	$	(6,638	)	$	187	$	(6,451	)
Change in other comprehensive loss before reclassifications	(9,253		)	—		(9,253		)
Net income (loss) reclassified from AOCI	—			—		—
Balance at September 30, 2014	$	(15,891	)	$	187	$	(15,704	)

	Foreign currency translation adjustments			Postretirement benefit liability			Accumulated other comprehensive loss
	(In thousands)
Balance at December 31, 2012	$	(8,261	)	$	(1,172	)	$	(9,433	)
Change in other comprehensive loss before reclassifications	1,585			—			1,585
Net income (loss) reclassified from AOCI	—			—			—
Balance at September 30, 2013	$	(6,676	)	$	(1,172	)	$	(7,848	)

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

23

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(9) Loss per Share

For the nine months ended September 30, 2014 and for the three and nine months ended September 30, 2013, 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 September 30, 2014 and 2013, 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. Convertible preferred stock is antidilutive whenever the amount of the dividend declared in or accumulated for the current period per common share obtainable on conversion, including the deemed dividend in the period from a beneficial conversion feature, exceeds basic earnings per share. Our Convertible Preferred Stock was antidilutive at September 30, 2014 and 2013. Also, 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 September 30, 2014 and 2013, our convertible notes were all antidilutive.

Included in the basic and diluted loss per share for the three and nine months ended September 30, 2013 are losses from discontinued operations of $0.02 and $0.03, respectively, related to an asset disposal that we finalized in the first quarter of 2014.

(10) Stock-Based Compensation

The following tables summarize the stock-based awards with significant activity for the nine months ended September 30, 2014:

PBRSUs	Number of Shares		Weighted Average Grant-Date Price
Unvested at December 31, 2013	697,797		$	7.45
Granted	755,283		$	5.10
Forfeited	(9,052	)	5.45
Vested	—		—
Unvested at September 30, 2014	1,444,028		$	6.19

RSUs	Number of Shares		Weighted Average Grant-Date Price
Unvested at December 31, 2013	1,076,385		$	9.81
Granted	750,289		$	4.22
Forfeited	(64,123	)	$	8.84
Vested	(60,196	)	$	26.85
Unvested at September 30, 2014	1,702,355		$	6.78

24

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(11) 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 September 30, 2014 were as follows:

	Total		Less Than 1 Year		1 - 3 Years		4 - 5 Years		More Than 5 Years
	(In thousands)
Operating lease obligations	$	5,846	$	2,113	$	2,396	$	498	$	839

(b) Purchase Commitments

We entered into contractual commitments for the purchase of materials and services from various vendors, primarily in connection with the modernization and expansion efforts at our Mountain Pass facility. Future payments for all purchase commitments at September 30, 2014 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	$	75,804	$	75,804	$	—	$	—	$	—

(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. The Consolidated Class Action Complaint filed on July 31, 2012 also names most of our Board members and some of our stockholders as defendants, along with other persons and entities. That Complaint alleges 18 claims for relief arising out of alleged: (1) securities fraud in violation of the Securities Exchange Act of 1934, or the Exchange Act, during the proposed class period from February 11, 2011 through November 10, 2011; and (2) materially untrue or misleading statements in registration statements and prospectuses for our public offering of preferred stock in February 2011 and of common stock in June 2011, in violation of the Securities Act of 1933. Our motion to dismiss that Complaint was filed in October 2012 and is pending. 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. Oral arguments on the Motion to Dismiss are scheduled on January 16, 2015.

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

25

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

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 has been fully briefed and is pending. The Motion to Vacate the consolidation order remains pending.

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 names us and certain of our current and former executive officers. The Consolidated Amended Class Action Complaint alleges claims for relief arising out of alleged securities fraud in violation of the Exchange Act, during a purported class period from February 21, 2012 through October 15, 2013. Our Motion to Dismiss the consolidated lawsuit was filed on August 13, 2014. We believe that this lawsuit is without merit, and we intend 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.    

(12) Concentrations

Resources Segment

There were no significant sales by customer or by product at the Resources segment for the three and nine months ended September 30, 2014, and for the three and nine months ended September 30, 2013.

Chemicals and Oxides Segment

Sales of cerium products within the Chemicals and Oxides segment accounted for 12% and 8% of consolidated revenues in the third quarter of 2014 and 2013, respectively, and 11% and 10% for the nine months ended September 30, 2014 and 2013, respectively. There were no significant sales by customer in this segment in all interim periods indicated above.

Magnetic Materials and Alloys Segment

Sales of Neo Powders™ within the Magnetic Materials and Alloys segment, relative to consolidated revenues, were 45% and 45% for the three months ended September 30, 2014 and 2013, respectively, and 45% and 40% for the nine months ended September 30, 2014 and 2013, respectively.

Sales of Neo Powders™ to Daido Electronics, a subsidiary of one of IMJ’s shareholders, totaled $18.6 million and $16.3 million for the three months ended September 30, 2014 and 2013, respectively, and $45.8 million and $39.2 million for the nine months ended September 30, 2014 and 2013, respectively. At September 30, 2014 and December 31, 2013, we had accounts receivable from Daido Electronics of $6.3 million and $7.5 million, respectively.

Rare Metals Segment

There were no significant sales by product or by customer at the Rare Metals segment for the three and nine months ended September 30, 2014 and the three and nine months ended September 30, 2013.

26

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(13) Related-Party Transactions

We supply Neo Powders™ to Daido Electronics, a subsidiary of one of IMJ’s shareholders, and 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™, and Ingal Stade GmbH, which sells gallium to our rare metals facilities located in Canada and the United States. 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 and nine months ended September 30, 2014, we purchased metals and received services from Keli for a total of $15.0 million and $50.6 million, respectively, as compared to $20.4 million and $44.8 million for the three and nine months ended September 30, 2013, respectively.

Except for Daido Electronics, which is disclosed in Note 12, transactions with all other related parties were nominal in all interim periods indicated above.

(14) 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 nine months ended September 30, 2014 and 2013:

	Nine Months Ended September 30,
	2014			2013
	(In thousands)
Decrease (increase) in operating assets:
Trade accounts receivable	$	8,301		$	(5,557	)
Inventory	(50,057		)	26,816
Prepaid expenses and other current assets	(3,368		)	(1,085		)
Increase (decrease) in operating liabilities:
Trade accounts payable	(10,641		)	(16,642		)
Income tax payable	2,346			(8,768		)
Interest payable	30,467			(26,765		)
Asset retirement obligation	(1,415		)	(2,385		)
Accrued expenses	11,309			(10,826		)
	$	(13,058	)	$	(45,212	)

(15) 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.

27

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Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

• 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 September 30, 2014 and December 31, 2013:

	September 30, 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	$	212,728	—	—
Liabilities:
Derivative liabilities:
Springing Maturity on Term Loans	—		—	$	1,694
Strike Warrants	—		—	$	2,510
Share Purchase Agreement	—		—	$	6,057

	December 31, 2013
	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	$	179,052	—	—
Liabilities:
Derivative liability - Share Purchase Agreement	—		—	$	6,089

The financial assets classified in Level 1 at September 30, 2014 and December 31, 2013 consist of money market funds valued based on quoted prices for identical assets in active markets.

The Springing Maturity on Term Loans is a derivative liability bifurcated from the Term Loans issued on September 11, 2014 in conjunction with the Financings described in Note 6. The technique used to fair value the Springing Maturity on Term Loans is the income approach based on a discounted cash flow model using significant unobservable inputs, including a probability factor of 5% representing the likelihood that the springing maturity dates would be triggered. There was no change in fair value of the Springing Maturity on Term Loans during the three and nine months ended September 30, 2014.

The Strike Warrants were issued on September 11, 2014 in conjunction with the Financings described in Note 6. The change in fair value of the Strike Warrants resulted in a gain of approximately $1.0 million for the three and nine months ended September 30, 2014, which was recognized in "Interest expense" in the condensed consolidated statements of operations and comprehensive income. The technique used to fair value the Strike Warrants is the income approach based on a discounted cash flow model using significant unobservable inputs. See Note 8 for more information on the inputs and technique used to fair value the Strike Warrants.

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

28

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Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

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 resulted in nominal unrealized gains and losses for the three and nine months ended September 30, 2014, and for the three and nine months ended September 30, 2013, which were recognized in "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.

The fair value of our derivative liabilities is recorded in "Other long-term liabilities" in the balance sheets as of September 30, 2014 and December 31, 2013.

The following table presents the fair value of publicly traded financial liabilities we reported at their carrying value at September 30, 2014 and December 31, 2013:

	September 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
Long-term debt
3.25% Convertible Notes due June 2016	$	191,743	$	128,033	$	207,028	$	161,771
6.00% Convertible Notes due September 2017	355,614		139,400		346,708		312,570
5.50% Convertible Notes due February 2018	152,084		61,422		148,198		164,015
10% Senior Notes due June 2020	638,521		448,500		637,435		646,750
Total long-term debt	$	1,337,962	$	777,355	$	1,339,369	$	1,285,106

On September 11, 2014, as part of the Financings we repurchased approximately $23.5 million aggregate principal amount of our 3.25% Convertible Notes and $4.0 million on our 6.00% Convertible Notes. See Note 6 for more information.

The carrying value of the financial liabilities listed above is comprised of the principal amount reduced by the unamortized underwriting discount and unamortized issuance costs. 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. See Note 6 for more information.

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 value 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.

(16) Subsidiary Guarantor Financial Information

The Senior Notes are fully, unconditionally and jointly and severally guaranteed by all of Molycorp, Inc.'s 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 Molycorp 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 Molycorp;

(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;

29

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(3) the designation by Molycorp 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 Molycorp, Inc. (“Parent”) 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.

30

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	September 30, 2014
	(In thousands)
Condensed Consolidating Balance Sheets	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Current assets:
Cash and cash equivalents	$	209,255		$	8,399		$	95,823		$	—		$	313,477
Trade accounts receivable, net	—			4,360			48,869			—			53,229
Inventory	—			34,217			132,719			—			166,936
Prepaid expenses and other current assets	—			15,028			12,147			—			27,175
Total current assets	209,255			62,004			289,558			—			560,817
Non-current assets:
Deposits	1,756			28,243			—			—			29,999
Property, plant and equipment, net	—			1,607,027			129,845			—			1,736,872
Inventory	—			25,530			—			—			25,530
Intangible assets, net	—			393			312,485			—			312,878
Investments	—			17,016			15,194			—			32,210
Goodwill	—			—			228,750			—			228,750
Investments in consolidated subsidiaries	340,620			117,098			—			(457,718		)	—
Intercompany accounts receivable	1,943,181			—			117,941			(2,061,122		)	—
Other non-current assets	17,701			7,929			8,573			—			34,203
Total non-current assets	2,303,258			1,803,236			812,788			(2,518,840		)	2,400,442
Total assets	$	2,512,513		$	1,865,240		$	1,102,346		$	(2,518,840	)	$	2,961,259
Current liabilities:
Trade accounts payable	$	—		$	30,434		$	27,838		$	—		$	58,272
Accrued expenses	25,048			18,159			23,520			—			66,727
Debt and capital lease obligations	—			3,160			9,609			—			12,769
Other current liabilities	—			352			6,570			—			6,922
Total current liabilities	25,048			52,105			67,537			—			144,690
Non-current liabilities:
Asset retirement obligation	—			16,681			—			—			16,681
Deferred tax liabilities	—			—			75,162			—			75,162
Debt and capital lease obligations	1,381,945			144,638			56,219			—			1,582,802
Intercompany accounts payable	—			2,061,122			—			(2,061,122		)	—
Other non-current liabilities	4,203			1,414			8,669			—			14,286
Total non-current liabilities	1,386,148			2,223,855			140,050			(2,061,122		)	1,688,931
Total liabilities	$	1,411,196		$	2,275,960		$	207,587		$	(2,061,122	)	$	1,833,621
Stockholders’ equity:
Common stock	245			—			—			—			245
Additional paid-in capital	2,232,390			149,857			1,315,426			(1,465,283		)	2,232,390
Accumulated other comprehensive loss	(15,704		)	—			(15,704		)	15,704			(15,704		)
Accumulated deficit	(1,115,614		)	(560,577		)	(431,284		)	991,861			(1,115,614		)
Total Molycorp stockholders’ equity	1,101,317			(410,720		)	868,438			(457,718		)	1,101,317
Noncontrolling interests	—			—			26,321			—			26,321
Total stockholders’ equity	1,101,317			(410,720		)	894,759			(457,718		)	1,127,638
Total liabilities and stockholders’ equity	$	2,512,513		$	1,865,240		$	1,102,346		$	(2,518,840	)	$	2,961,259

31

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	December 31, 2013
	(In thousands)
Condensed Consolidating Balance Sheets	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Current assets:
Cash and cash equivalents	$	169,145		$	6,467		$	138,705		$	—		$	314,317
Trade accounts receivable, net	—			4,990			56,767			—			61,757
Inventory	—			32,307			139,476			—			171,783
Prepaid expenses and other current assets	—			15,833			13,377			—			29,210
Total current assets	169,145			59,597			348,325			—			577,067
Non-current assets:
Deposits	1,754			24,243			—			—			25,997
Property, plant and equipment, net	—			1,620,851			142,023			—			1,762,874
Inventory	—			25,329			—			—			25,329
Intangible assets, net	—			442			330,425			—			330,867
Investments	—			34,134			14,741			—			48,875
Goodwill	—			—			228,750			—			228,750
Investments in consolidated subsidiaries	532,767			121,849			—			(654,616		)	—
Intercompany accounts receivable	2,001,583			—			—			(2,001,583		)	—
Other non-current assets	—			771			6,272			—			7,043
Total non-current assets	2,536,104			1,827,619			722,211			(2,656,199		)	2,429,735
Total assets	$	2,705,249		$	1,887,216		$	1,070,536		$	(2,656,199	)	$	3,006,802
Current liabilities:
Trade accounts payable	$	—		$	49,702		$	34,747		$	—		$	84,449
Accrued expenses	18,158			13,782			16,561			—			48,501
Debt and capital lease obligations	—			2,234			14,128			—			16,362
Other current liabilities	—			617			3,446			—			4,063
Total current liabilities	18,158			66,335			68,882			—			153,375
Non-current liabilities:
Asset retirement obligation	—			16,966			—			—			16,966
Deferred tax liabilities	—			—			85,481			—			85,481
Debt and capital lease obligations	1,339,368			19,355			5,193			—			1,363,916
Intercompany accounts payable	—			1,999,562			2,021			(2,001,583		)	—
Other non-current liabilities	—			1,393			8,609			—			10,002
Total non-current liabilities	1,339,368			2,037,276			101,304			(2,001,583		)	1,476,365
Total liabilities	$	1,357,526		$	2,103,611		$	170,186		$	(2,001,583	)	$	1,629,740
Stockholders’ equity:
Common stock	241			—			—			—			241
Preferred stock	2			—			—			—			2
Additional paid-in capital	2,194,405			149,857			1,315,426			(1,465,283		)	2,194,405
Accumulated other comprehensive loss	(6,451		)	—			(6,451		)	6,451			(6,451		)
Accumulated deficit	(840,474		)	(366,252		)	(437,964		)	804,216			(840,474		)
Total Molycorp stockholders’ equity	1,347,723			(216,395		)	871,011			(654,616		)	1,347,723
Noncontrolling interests	—			—			29,339			—			29,339
Total stockholders’ equity	1,347,723			(216,395		)	900,350			(654,616		)	1,377,062
Total liabilities and stockholders’ equity	$	2,705,249		$	1,887,216		$	1,070,536		$	(2,656,199	)	$	3,006,802

32

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	Three Months Ended September 30, 2014
	(In thousands)
Condensed Consolidating Statements of Operations and Comprehensive Income	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Revenues	$	—		$	19,163		$	115,150		$	(10,376	)	$	123,937
Costs of sales:
Costs excluding depreciation and amortization	—			(45,596		)	(84,413		)	10,376			(119,633		)
Depreciation and amortization	—			(16,460		)	(2,922		)	—			(19,382		)
Gross (loss) profit	—			(42,893		)	27,815			—			(15,078		)
Operating expenses:
Selling, general and administrative	(4		)	(11,233		)	(10,670		)	—			(21,907		)
Depreciation, amortization and accretion	—			(952		)	(7,141		)	—			(8,093		)
Research and development	—			(111		)	(4,242		)	—			(4,353		)
Impairment of long-lived assets	—			—			—			—			—
Operating (loss) income	(4		)	(55,189		)	5,762			—			(49,431		)
Other (expense) income:
Other (expense) income	(21,778		)	90			19,077			—			(2,611		)
Impairment of investment	—			(12,000		)	—			—			(12,000		)
Interest expense, net of capitalized interest	(33,201		)	(1,894		)	(347		)	—			(35,442		)
Interest income (expense) from intercompany notes	10,047			(537		)	(9,510		)	—			—
Equity loss from consolidated subsidiaries	(60,243		)	(3,065		)	—			63,308			—
(Loss) income before income taxes and equity earnings	(105,179		)	(72,595		)	14,982			63,308			(99,484		)
Income tax expense	—			—			(3,572		)	—			(3,572		)
Equity in loss of affiliates	—			(1,820		)	(272		)	—			(2,092		)
Net (loss) income	(105,179		)	(74,415		)	11,138			63,308			(105,148		)
Net income attributable to noncontrolling interest	—			—			(31		)	—			(31		)
Net (loss) income attributable to Molycorp stockholders	$	(105,179	)	$	(74,415	)	$	11,107		$	63,308		$	(105,179	)
Net (loss) income	$	(105,179	)	$	(74,415	)	$	11,138		$	63,308		$	(105,148	)
Other comprehensive loss:
Foreign currency translation adjustments	—			—			(8,292		)	—			(8,292		)
Comprehensive (loss) income	$	(105,179	)	$	(74,415	)	$	2,846		$	63,308		$	(113,440	)
Comprehensive (loss) income attributable to:
Molycorp stockholders	(105,179		)	(74,415		)	2,877			63,308			(113,409		)
Noncontrolling interest	—			—			(31		)	—			(31		)
	$	(105,179	)	$	(74,415	)	$	2,846		$	63,308		$	(113,440	)

33

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	Nine Months Ended September 30, 2014
	(In thousands)
Condensed Consolidating Statements of Operations and Comprehensive Income	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Revenues	$	—		$	48,402		$	342,201		$	(31,234	)	$	359,369
Costs of sales:
Costs excluding depreciation and amortization	—			(137,465		)	(252,275		)	31,234			(358,506		)
Depreciation and amortization	—			(44,618		)	(10,990		)	—			(55,608		)
Gross (loss) profit	—			(133,681		)	78,936			—			(54,745		)
Operating expenses:
Selling, general and administrative	(397		)	(29,828		)	(30,061		)	—			(60,286		)
Depreciation, amortization and accretion	—			(3,054		)	(19,498		)	—			(22,552		)
Research and development	—			(354		)	(11,249		)	—			(11,603		)
Impairment of long-lived assets	—			—			—			—			—
Operating (loss) income	(397		)	(166,917		)	18,128			—			(149,186		)
Other (expense) income:
Other (expense) income	(24,900		)	302			22,759			—			(1,839		)
Impairment of investment	—			(12,000		)	—			—			(12,000		)
Interest expense, net of capitalized interest	(107,415		)	(4,289		)	(663		)	—			(112,367		)
Interest income (expense) from intercompany notes	30,836			(1,551		)	(29,285		)	—			—
Equity loss from consolidated subsidiaries	(182,894		)	(4,751		)	—			187,645			—
(Loss) income before income taxes and equity earnings	(284,770		)	(189,206		)	10,939			187,645			(275,392		)
Income tax benefit (expense)	9,630			—			(3,868		)	—			5,762
Equity in loss of affiliates	—			(5,119		)	(249		)	—			(5,368		)
Net (loss) income	(275,140		)	(194,325		)	6,822			187,645			(274,998		)
Net income attributable to noncontrolling interest	—			—			(142		)	—			(142		)
Net (loss) income attributable to Molycorp stockholders	$	(275,140	)	$	(194,325	)	$	6,680		$	187,645		$	(275,140	)
Net (loss) income	$	(275,140	)	$	(194,325	)	$	6,822		$	187,645		$	(274,998	)
Other comprehensive loss:
Foreign currency translation adjustments	—			—			(9,253		)	—			(9,253		)
Comprehensive loss	$	(275,140	)	$	(194,325	)	$	(2,431	)	$	187,645		$	(284,251	)
Comprehensive loss attributable to:
Molycorp stockholders	(275,140		)	(194,325		)	(2,289		)	187,645			(284,109		)
Noncontrolling interest	—			—			(142		)	—			(142		)
	$	(275,140	)	$	(194,325	)	$	(2,431	)	$	187,645		$	(284,251	)

34

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	Three Months Ended September 30, 2013
	(In thousands)
Condensed Consolidating Statements of Operations and Comprehensive Income	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Revenues	$	—		$	19,237		$	142,421		$	(12,592	)	$	149,066
Costs of sales:
Costs excluding depreciation and amortization	—			(55,517		)	(107,519		)	12,592			(150,444		)
Depreciation and amortization	—			(9,336		)	(7,064		)	—			(16,400		)
Gross (loss) profit	—			(45,616		)	27,838			—			(17,778		)
Operating expenses:
Selling, general and administrative	(3		)	(15,623		)	(8,842		)	—			(24,468		)
Depreciation, amortization and accretion	—			(1,597		)	(8,475		)	—			(10,072		)
Research and development	—			(1,037		)	(4,528		)	—			(5,565		)
Impairment of long-lived assets	—			—			(1,118		)	—			(1,118		)
Operating (loss) income	(3		)	(63,873		)	4,875			—			(59,001		)
Other (expense) income:
Other income (expense)	1,731			63			(2,685		)	—			(891		)
Interest expense, net of capitalized interest	(14,093		)	(744		)	(1,452		)	—			(16,289		)
Interest income (expense) from intercompany notes	9,211			1,412			(10,623		)	—			—
Equity loss from consolidated subsidiaries	(54,858		)	(333		)	—			55,191			—
Loss before income taxes and equity earnings	(58,012		)	(63,475		)	(9,885		)	55,191			(76,181		)
Income tax (expense) benefit	(11,914		)	14,879			9,937			—			12,902
Equity in loss of affiliates	—			(1,617		)	(717		)	—			(2,334		)
Loss from continuing operations	(69,926		)	(50,213		)	(665		)	55,191			(65,613		)
Loss from discontinuing operations, net of tax	—			—			(4,186		)	—			(4,186		)
Net loss	(69,926		)	(50,213		)	(4,851		)	55,191			(69,799		)
Net income attributable to noncontrolling interest	—			—			(130		)	—			(130		)
Net loss attributable to Molycorp stockholders	$	(69,926	)	$	(50,213	)	$	(4,981	)	$	55,191		$	(69,929	)
Net loss	$	(69,926	)	$	(50,213	)	$	(4,851	)	$	55,191		$	(69,799	)
Other comprehensive loss:
Foreign currency translation adjustments	—			—			4,217			—			4,217
Comprehensive loss	$	(69,926	)	$	(50,213	)	$	(634	)	$	55,191		$	(65,582	)
Comprehensive loss attributable to:
Molycorp stockholders	(69,926		)	(50,213		)	(504		)	55,191			(65,452		)
Noncontrolling interest	—			—			(130		)	—			(130		)
	$	(69,926	)	$	(50,213	)	$	(634	)	$	55,191		$	(65,582	)

35

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	Nine Months Ended September 30, 2013
	(In thousands)
Condensed Consolidating Statements of Operations and Comprehensive Loss	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Revenues	$	—		$	68,014		$	397,548		$	(34,982	)	$	430,580
Costs of sales:
Costs excluding depreciation and amortization	—			(147,209		)	(309,472		)	34,982			(421,699		)
Depreciation and amortization	—			(28,523		)	(20,760		)	—			(49,283		)
Gross (loss) profit	—			(107,718		)	67,316			—			(40,402		)
Operating expenses:
Selling, general and administrative	(3		)	(49,126		)	(27,573		)	—			(76,702		)
Depreciation, amortization and accretion	—			(3,258		)	(23,015		)	—			(26,273		)
Research and development	—			(4,428		)	(14,048		)	—			(18,476		)
Impairment of long-lived assets	—			—			(1,495		)	—			(1,495		)
Operating (loss) income	(3		)	(164,530		)	1,185			—			(163,348		)
Other (expense) income:
Other income	1,731			306			437			—			2,474
Interest (expense) income, net	(39,978		)	(5,039		)	2,210			—			(42,807		)
Interest income (expense) from intercompany notes	27,455			4,293			(31,748		)	—			—
Equity loss from consolidated subsidiaries	(163,247		)	(6,742		)	—			169,989			—
Loss before income taxes and equity earnings	(174,042		)	(171,712		)	(27,916		)	169,989			(203,681		)
Income tax (expense) benefit	(6,030		)	23,130			21,822			—			38,922
Equity in loss of affiliates	—			(5,239		)	(3,451		)	—			(8,690		)
Loss from continuing operations	(180,072		)	(153,821		)	(9,545		)	169,989			(173,449		)
Loss from discontinuing operations, net of tax	—			—			(5,190		)	—			(5,190		)
Net loss	(180,072		)	(153,821		)	(14,735		)	169,989			(178,639		)
Net income attributable to noncontrolling interest	—			—			(1,433		)	—			(1,433		)
Net loss attributable to Molycorp stockholders	$	(180,072	)	$	(153,821	)	$	(16,168	)	$	169,989		$	(180,072	)
Net loss	$	(180,072	)	$	(153,821	)	$	(14,735	)	$	169,989		$	(178,639	)
Other comprehensive loss:
Foreign currency translation adjustments	—			—			1,585			—			1,585
Comprehensive loss	$	(180,072	)	$	(153,821	)	$	(13,150	)	$	169,989		$	(177,054	)
Comprehensive loss attributable to:
Molycorp stockholders	(180,072		)	(153,821		)	(11,717		)	169,989			(175,621		)
Noncontrolling interest	—			—			(1,433		)	—			(1,433		)
	$	(180,072	)	$	(153,821	)	$	(13,150	)	$	169,989		$	(177,054	)

36

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	Nine Months Ended September 30, 2014
	(In thousands)
Condensed Consolidating Statements of Cash Flows	Parent				Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Molycorp, Inc. consolidated
Net cash used in operating activities	$	(25,585	)		$	(138,045	)	$	17,224		$	—		$	(146,406	)
Cash flows from investing activities:
Intercompany advances made	(174,993		)		(133,291		)	(58,309		)	366,593			—
Repayments from non-guarantor	34,997				—			—			(34,997		)	—
Loans to guarantors	—				—			(6,655		)	6,655			—
Investment in joint ventures	—				—			(703		)	—			(703		)
Capital expenditures	—				(56,837		)	(6,000		)	—			(62,837		)
Recovery from insurance claims	—				12,900			—			—			12,900
Other investing activities	—				—			460			—			460
Net cash used in investing activities	(139,996		)		(177,228		)	(71,207		)	338,251			(50,180		)
Cash flows from financing activities:
Repayments of debt	—				—			(5,879		)	—			(5,879		)
Debt issuance costs	(4,032		)		(7,605		)	(3,131		)	—			(14,768		)
Proceeds from the Financings	50,167				139,833			60,000			—			250,000
Partial repayment of convertible notes	(27,495		)		—			—			—			(27,495		)
Payments of preferred dividends	(2,846		)		—			—			—			(2,846		)
Dividend paid to noncontrolling interests	—				—			(3,170		)	—			(3,170		)
Repayments to parent	—				—			(34,997		)	34,997			—
Borrowing from non-guarantors	—				6,655			—			(6,655		)	—
Intercompany advances owed	190,160				176,433			—			(366,593		)	—
Other financing activities	(263		)		1,889			—			—			1,626
Net cash (used in) provided by financing activities	205,691				317,205			12,823			(338,251		)	197,468
Effect of exchange rate changes on cash	—			��	—			(1,722		)	—			(1,722		)
Net change in cash and cash equivalents	40,110				1,932			(42,882		)	—			(840		)
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	$	209,255			$	8,399		$	95,823		$	—		$	313,477

37

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

	Nine Months Ended September 30, 2013
	(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	$	(2,990	)	$	(79,888	)	$	(7,135	)	$	—		$	(90,013	)
Cash flows from investing activities:
Loans to guarantor	—			—			(40,000		)	40,000			—
Loans to parent	—			—			(12,800		)	12,800			—
Intercompany advances made	(438,374		)	—			—			438,374			—
Loans to non-guarantor	—			(1,300		)	—			1,300			—
Repayments from non-guarantor	38,000			264			—			(38,264		)	—
Investment in joint ventures	—			(3,423		)	—			—			(3,423		)
Capital expenditures	—			(320,829		)	(13,768		)	—			(334,597		)
Other investing activities	—			—			(364		)	—			(364		)
Net cash used in investing activities	(400,374		)	(325,288		)	(66,932		)	454,210			(338,384		)
Cash flows from financing activities:
Repayments of debt	—			—			(25,990		)	—			(25,990		)
Net proceeds from sale of common stock	248,150			—			—			—			248,150
Issuance of 5.50% Convertible Notes	165,600			—			—			—			165,600
Payments of preferred dividends	(8,539		)	—			—			—			(8,539		)
Dividend paid to noncontrolling interests	—			—			(4,472		)	—			(4,472		)
Borrowings from non-guarantor	12,800			40,000			—			(52,800		)	—
Borrowing from guarantor	—			—			1,300			(1,300		)	—
Repayments to parent	—			—			(38,000		)	38,000			—
Repayment to guarantor	—			—			(264		)	264			—
Intercompany advances owed	—			356,867			81,507			(438,374		)	—
Other financing activities	—			(797		)	—			—			(797		)
Net cash provided by (used in) financing activities	418,011			396,070			14,081			(454,210		)	373,952
Effect of exchange rate changes on cash	—			—			569			—			569
Net change in cash and cash equivalents	14,647			(9,106		)	(59,417		)	—			(53,876		)
Cash and cash equivalents at beginning of the period	16,560			18,020			193,210			—			227,790
Cash and cash equivalents at end of period	$	31,207		$	8,914		$	133,793		$	—		$	173,914

38

MOLYCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(17) Impairment of Investment

In September 2011, we invested $20.0 million in Boulder Wind Power, Inc. ("BWP") Series B convertible preferred stock that we accounted for at cost. BWP is a company engaged in the development of permanent magnet generators and power conversion technology. At December 31, 2013, due to certain delays in the commercialization of BWP's technology, we reassessed the carrying value of this investment and determined to write it down to $12.0 million. In the third quarter of 2014, the Board of Directors of BWP approved a plan to wind-down BWP's day-to-day operations and pursue potential sales opportunities for its portfolio of intellectual properties. Due to the current status of BWP operations and uncertainty around the timing and amount of any future value from the investment in BWP, we recognized an impairment charge of $12.0 million for the three and nine months ended September 30, 2014 in "Other (expense) income" in the condensed consolidated statement of operations and comprehensive loss to write-off the remaining investment balance in BWP.

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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:

• 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 Financings;

• 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 optimization of our Mountain Pass facility;

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

• our ability to control our working capital needs;

• our ability to service our debt;

• 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;

40

• 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;

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

• our sintered NdFeB rare earths magnet joint venture's ability to successfully manufacture magnets within its expected timeframe;

• our ability to remediate the material weaknesses in our internal control over financial reporting, and our ability to maintain sufficient internal controls in the future, which could affect our ability to ensure timely and reliable financial reports;

• our ability to successfully integrate other acquired businesses;

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

• 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 filed with the SEC on March 3, 2014 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 all of the lanthanide elements, plus yttrium. 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:

41

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™.

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 delivering 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. Since 2013, we have been selling limited volumes of SorbX^®. Sales of PhosFIX™ for recreational water applications have been limited, but consistent, through the third quarter of 2014.

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 facilities in Jiangyin, Jiangsu Province, China; and production of rare earths, salts of REEs, zirconium-based engineered materials and mixed rare earth/zirconium oxides from our facilities in Zibo, Shandong Province, China. 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; Stade, 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.

Modernization and Expansion of our Mountain Pass Facility

At the end of September 2014, we placed into service an expanded leach system at our Mountain Pass facility. The improvements made to the leach system include the installation of additional leach tanks, a technology that has been proven to increase the system's retention capacity. As we ramp up the leach system toward commercial production, we are addressing certain construction and installation issues that have been identified with the system. While operations of the new leach system are expected to be limited in the near term due to constraints with on-site production and market availability of hydrochloric

42

acid ("HCl"), we expect that, once it is fully operational and sufficient supplies of HCl are available, the system will help us increase rare earth production and lower operating costs.

In addition, during the third quarter of 2014, engineers at our Mountain Pass facility continued to make equipment repairs and address quality issues related to the brine feedstock that have impacted the operational efficiencies of our Chlor-Alkali plant, which uses process waste water to produce HCl and other chemical reagents necessary for rare earth production. However, it might take several months of optimization before we can fully realize anticipated benefits from our Chlor-Alkali plant.

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

(See discussion by segment in the next section of this MD&A)

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, China REE export quotas, 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.

Our consolidated revenues for the three and nine months ended September 30, 2014 were approximately $123.9 million and $359.4 million, respectively, a decline of approximately 17% in each case relative to the comparable periods in 2013.

The decrease in consolidated revenues from the third quarter of 2013 to the third quarter of 2014 was mostly driven by lower sales volume in our Magnetic Materials and Alloys segment where net revenues declined about 16%, and lower realized prices in our Chemicals and Oxides segment, which experienced a 28% period-over-period net revenues decrease. Net sales in these two segments were fairly consistent in both interim periods relative to consolidated revenues, with Magnetic Materials and Alloys at an average of 49% and Chemicals and Oxides at an average of 32%. Net revenues in our Resources segment, which represented 4% of consolidated revenues in the third quarter of 2014, decreased by approximately 3%. From the third quarter of 2013 to the third quarter of 2014, our Resources segment increased sales to our downstream processing facilities by approximately 6%. Net revenues from our Rare Metals segment were virtually flat for the three months ended September 30, 2014, as compared to the three months ended September 30, 2013.

The decrease in consolidated revenues during the first nine months of 2014, as compared to the first nine months of 2013, was largely attributable to the same factors affecting the quarter-over-quarter changes described above. Net revenues in our Magnetic Materials and Alloys and Chemicals and Oxides segments were 12% and 9% lower, respectively, than the comparable period a year ago. Net sales in these two segments were an average of 46% and 33%, respectively, of consolidated revenues on a year-to-date basis. Net revenues in our Resources segment, which represented 3% of consolidated revenues for the nine months ended September 30, 2014, decreased by approximately 67%. However, our Resources segment increased sales to our downstream processing facilities by approximately 63% period-over-period. Net revenues in our Rare Metals segment decreased 20% for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, and represented approximately 16% of consolidated revenues in each of those periods.

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

43

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 and nine months ended September 30, 2014, our consolidated costs of sales excluding depreciation and amortization decreased approximately $30.8 million, or 20%, and $63.2 million, or 15%, respectively, as compared to the same periods in 2013. These variances were mostly correlated to the period-over-period decline in revenues. In addition, all segments recognized lower charges for the write-downs of inventory to net realizable value during the the three and nine months ended September 30, 2014. However, during the same interim periods, our Resources and Rare Metals segments reported higher abnormal production costs as compared to the corresponding prior-year periods.

Consolidated depreciation and amortization in cost of sales were $19.4 million and $55.6 million for the three and nine months ended September 30, 2014, respectively, as compared to $16.4 million and $49.3 million in the corresponding periods of 2013, respectively. Higher depreciation and amortization expenses in 2014 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 and nine months ended September 30, 2014, our consolidated selling, general and administrative expenses, including stock-based compensation, decreased $2.6 million, or 10%, and $16.4 million, or 21%, respectively, from the comparable periods in 2013. In 2013, we reduced a portion of our workforce, primarily within the corporate function, and recognized employee severance and benefit costs of $2.1 million. Those benefits were fully paid by the end of March 2014. That reduction in workforce, in combination with other cost saving initiatives, drove this favorable variance in our consolidated selling, general and administrative expenses period-over-period.

Research and development

We incur expenses to improve the efficiency of our REO processing operations, develop new applications for individual REEs, research value-added rare metals applications and perform exploratory drilling. These expenses consist primarily of salaries, outside labor, material and equipment. Consolidated research and development expenses for the three and nine months ended September 30, 2014 decreased $1.2 million, or 22%, and $6.9 million, or 37%, respectively, from the comparable periods in 2013. We continue to dedicate resources to research and develop new applications for our products, and to provide technical solutions to our customers that allow a more efficient and profitable use of our products.

Other expense

For the three and nine months ended September 30, 2014, we recognized a charge of $12.0 million in "Other (expense) income" to write-off our investment in BWP following its Board of Directors' approval of a plan to wind-down BWP's day-to-day operations and pursue potential sales opportunities for its portfolio of intellectual properties. See Note 17 in Item 1 of this Report for more information.

Interest expenses, net of capitalized interest

Since the construction of Mountain Pass was substantially complete at the beginning of 2014, there are no longer assets that qualify for interest capitalization. Approximately 55% of the aggregate interest cost on our long-term debt was capitalized, on average, during the three and nine months ended September 30, 2013, thus explaining the large increase in interest expense, net of capitalized interest, from the corresponding prior-year periods.

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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 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 and nine months ended September 30, 2014, our effective tax rates were (3.6)% and 2.1%, respectively, as compared to 16.9% and 19.1% for the three and nine months ended September 30, 2013, respectively. The September 30, 2014 effective tax rates were impacted primarily by the valuation allowance required in the United States. In addition, a $9.6 million discrete income tax benefit has been recognized during the second quarter of 2014 in the United States to offset the increase in deferred tax liabilities from an out-of-period adjustment related to the revised fair value of our share-lending arrangements described in Note 8 to the condensed consolidated financial statements included within Item 1 of this Report.   

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.

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Operating loss	$	(49,431	)	$	(59,001	)	$	(149,186	)	$	(163,348	)
Add back:
Depreciation and amortization included in costs of sales	19,382			16,400			55,608			49,283
Depreciation, amortization and accretion	8,093			10,072			22,552			26,273
OIBDA	(21,956		)	(32,529		)	(71,026		)	(87,792		)
Add back:
Stock-based compensation	1,496			1,687			3,784			2,399
Inventory write-downs (Mountain Pass)	13,396			20,264			45,682			53,799
Impact of purchase accounting on cost of inventory sold	23			2,151			742			4,445
Impairment of discontinued assets	—			3,454			—			3,454
Water removal	845			5,146			10,186			13,844
Adjusted OIBDA	$	(6,196	)	$	173		$	(10,632	)	$	(9,851	)

Capital Expenditures

We capitalized expenditures of $17.8 million and $47.3 million for the three and nine months ended September 30, 2014, respectively, and $83.0 million and $281.3 million for the three and nine months ended September 30, 2013, respectively. The substantial decline in these expenditures in 2014 over the comparable prior periods is associated with the completion of all major production systems at our Mountain Pass facility. 

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 $2.9 million and $17.0 million for the three and nine months ended September 30, 2014, respectively, for ongoing operating environmental expenditures, including salaries, monitoring, compliance, reporting and permits. This compares to $6.1 million and $16.6 million for the three and nine months ended September 30, 2013, respectively. 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.

The increase in ongoing operating environmental expenditures in that facility over a year ago was due primarily to the additional disposal capacity we had in two evaporation ponds at the beginning of 2013. Those two evaporation ponds were emptied in order to replace the primary lining system in 2012. The maximum disposal capacity of our evaporation ponds has been historically reached during the coldest months at Mountain Pass in the first and fourth quarter of every year. In addition, our Chlor-Alkali plant was turned over to operations at the end of February 2014. For the remainder of 2014, we expect to incur approximately $2.9 million for ongoing operating environmental expenditures, including $1.2 million for wastewater transportation and disposal costs.

Although we have incurred only nominal environmental expenditures at some of our other operating facilities during the three and nine months ended September 30, 2014 and 2013, we may have to incur environmental capital and operating costs associated with future possible modernization and expansion plans at those facilities.

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.

Related-Party Transactions - Refer to Note 13 in Item 1 of this Report.

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Discussion and Analysis of our Reportable Segments

The following analysis presents operating results on a gross basis (i.e., before inter-segment 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 and nine months ended September 30, 2014 compared to three and nine months ended September 30, 2013

Resources
	Three months ended September 30,										Nine months ended September 30,
	2014			2013			Variance				2014			2013			Variance
	(In thousands, except volume and ASP)
Gross revenues	$	13,933		$	13,513		$	420	3	%	$	39,533		$	48,403		$	(8,870	)	(18	)%
Sales volume (mt)	1,085			1,080			5		—	%	3,047			2,892			155			5	%
ASP per kilogram	$	12.84		$	12.51		$	0.33	3	%	$	12.97		$	16.74		$	(3.77	)	(23	)%
Depreciation, amortization and accretion (a)	$	17,332		$	10,853		$	6,479			$	47,432		$	31,536		$	15,896
Operating loss	(48,419		)	(55,526		)	7,107				(145,263		)	(136,055		)	(9,208		)
OIBDA	$	(31,087	)	$	(44,673	)	$	13,586			$	(97,831	)	$	(104,519	)	$	6,688
(a) Related to production and other operating expense.

For the three months ended September 30, 2014, revenues at our Resources segment were $13.9 million, or 3% higher as compared to the third quarter of 2013 as a result of a 3% increase in realized prices. For the nine months ended September 30, 2014, revenues of $39.5 million in this segment were 18% lower than the first nine months of 2013 due to an ASP decline of approximately 23% offset by a sales volume increase of 5%.

Aggregate production volume at our Resources segment was 691 mt and 3,441 mt for the three and nine months ended September 30, 2014, respectively, as compared to 1,099 mt and 2,473 mt for the corresponding prior-year periods, respectively. Production at our Resources segment in the third quarter of 2014 was much lower than anticipated due to constraints with on-site production and market availability of HCl, one of the main chemical reagents used in our leaching process. Quality issues related to our brine feedstock have impacted the operational efficiencies of our Chlor-Alkali plant, which uses process waste water to produce HCl and other chemical reagents necessary for rare earth production. Work is progressing on schedule to address the issues and we believe the Chlor-Alkali plant will be able to operate within its design capacity. In addition, as we ramp up the leach system toward commercial production, we are addressing certain construction and installation issues that have been identified with the system. Once our ramp-up and optimization efforts are complete, actual production of REO (including LREC) will depend on internal requirements for our Chemical and Oxides segment, our Magnetic Materials and Alloys segment, and external customer demand.

Slightly higher sales volumes, mostly for the nine months ended September 30, 2014, were largely driven by increased shipments of LREC from the Mountain Pass facility to our downstream facilities for processing into value-added rare earth products. Higher demand for mixed rare earth oxides allowed the Resources segment to realize slightly better ASP in the third quarter of 2014. A shift in product mix from NdPr to LREC, which is priced lower than NdPr, led in part to the ASP decline in this segment for the nine months ended September 30, 2014.

Unregulated and unreported mining and export of rare earth materials from China continued to unfavorably impact realized prices for REEs in our industry, although such impact has started to abate over the last few quarters. For example, from the three months ended September 30, 2013 to the three months ended September 30, 2014, prices of lanthanum oxide 99% and cerium oxide 99% have decreased, on average and based on China export prices quoted by major REEs market sources, by approximately 19% and 32%, respectively, whereas from the nine months ended September 30, 2013 to the nine months ended September 30, 2014, prices of the same REO have decreased by approximately 33% and 38%, respectively.

Lower than anticipated production volumes, combined with increased purchases from third party suppliers of the primary chemical reagents while we continued to optimize our Chlor-Alkali plant, led to the expensing of $23.3 million and $63.1 million of production-related costs during the three and nine months ended September 30, 2014, respectively. These costs would have been charged to inventory if we maintained normal production and consumption levels in those periods. This

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compares to expensing of abnormal production-related costs of $16.2 million and $60.3 million for the three and nine months ended September 30, 2013, respectively.

Operating income for the three and nine months ended September 30, 2014 at the Resources segment was unfavorably affected by the write-down of finished goods and work-in-process inventory to net realizable value totaling $13.4 million and $44.3 million, respectively, as compared to $13.4 million and $40.1 million for the corresponding periods in 2013, respectively. In addition, we recognized write-downs of stockpile inventory were nil for the third quarter of 2014 and $1.3 million for the nine months ended September 30, 2014, as compared to $6.9 million and $13.7 million the three and nine months ended September 30, 2013, respectively. Write-downs of inventory to net realizable value were associated with the decline in rare earths prices and lower than anticipated inventory turnover. Write-downs of rare earths stockpiles at our Resources segment are associated with adjustments to the estimated REO content in the stockpile based on assays of rare earths processed.

Our Resources segment reported a favorable variance in the third quarter 2014 OIBDA over the same quarter last year. This was attributed to a decline in operating loss of approximately $7.1 million combined with about 60% higher depreciation, amortization and accretion add-back. For the nine months ended September 30, 2014, OIBDA in this segment also changed favorably, albeit to a less extent as compared to the third quarter, because of a higher depreciation, amortization and accretion add-back. A number of high-value fixed assets have been placed into service at our Mountain Pass facility over the last twelve months, thus leading to an increase in depreciation charges in 2014.

Chemicals and Oxides
	Three months ended September 30,										Nine months ended September 30,
	2014		2013			Variance					2014		2013			Variance
	(In thousands, except volume and ASP)
Gross revenues	$	43,472	$	57,965		$	(14,493	)	(25	)%	$	138,659	$	163,656		$	(24,997	)	(15	)%
Sales volume (mt)	1,651		1,696			(45		)	(3	)%	5,159		4,828			331			7	%
ASP per kilogram	$	26.33	$	34.18		$	(7.85	)	(23	)%	$	26.88	$	33.90		$	(7.02	)	(21	)%
Depreciation and amortization(a)	$	3,823	$	5,960		$	(2,137	)			$	11,605	$	17,087		$	(5,482	)
Operating income (loss)	428		(1,399		)	1,827					783		(19,879		)	20,662
OIBDA	$	4,251	$	4,561		$	(310	)			$	12,388	$	(2,792	)	$	15,180
(a) Related to production and other operating expense.

Third quarter 2014 revenues at our Chemicals and Oxides segment were $43.5 million, or 25% lower than revenues generated in the third quarter of 2013, mostly due to a 23% decrease in ASP. For the nine months ended September 30, 2014, revenues in this segment were $138.7 million, or 15% lower than the corresponding prior-year period due to an ASP decline of approximately 21% offset by a sales volume increase of 7%.

Unregulated rare earths separation activities in China, combined with changes in the product mix sold at our Chemicals and Oxides segment during the three months ended September 30, 2014, led to the decline in ASP from the third quarter of 2013. In addition, volume sold at our Molycorp Silmet facility in the third quarter of 2014 was lower than a year ago due to timing of certain shipments and lower demand of cerium carbonate. During the nine months ended September 30, 2014, our Chemicals and Oxides segment increased shipments of magnetic products to third parties, as compared to the corresponding prior-year period. Better sales of magnetic and rare earth engineered materials allows our Chemicals and Oxides segment to mitigate the unfavorable impact to the ASP caused by softer market demand for phosphors and multi-layer ceramic capacitors, which are some of the end-user markets where this segment typically sells heavy rare earth products.

Operating results for the three and nine months ended September 30, 2014 in this segment were unfavorably affected also by the write-down of finished goods and work-in-process inventory to net realizable value of $1.1 million and $3.5 million, respectively, as compared to $4.0 million and $15.7 million for the corresponding prior-year periods, respectively.

OIBDA in our Chemicals and Oxides segment declined $0.3 million for the three months ended September 30, 2014, but increased $15.2 million for the nine months ended September 30, 2014. During the same periods, operating income improved by $1.8 million and $20.7 million, respectively, due to lower write-down of finished goods and work-in-process inventory, and due to a reduction in selling, general and administrative expenses. Depreciation and amortization add-back was lower as compared to the prior year as this segment is no longer amortizing definite-lived rare earth quotas.

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Magnetic Materials and Alloys
	Three months ended September 30,									Nine months ended September 30,
	2014		2013		Variance					2014		2013		Variance
	(In thousands, except volume and ASP)
Gross revenues	$	62,687	$	72,626	$	(9,939	)	(14	)%	$	172,985	$	193,417	$	(20,432	)	(11	)%
Sales volume (mt)	1,551		1,783		(232		)	(13	)%	4,308		4,531		(223		)	(5	)%
ASP per kilogram	$	40.42	$	40.73	$	(0.31	)	(1	)%	$	40.15	$	42.69	$	(2.54	)	(6	)%
Depreciation and amortization(a)	$	4,232	$	7,458	$	(3,226	)			$	12,730	$	20,360	$	(7,630	)
Operating income	9,483		11,062		(1,579		)			26,473		28,463		(1,990		)
OIBDA	$	13,715	$	18,520	$	(4,805	)			$	39,203	$	48,823	$	(9,620	)
(a) Related to production and other operating expense.

For the three months ended September 30, 2014, revenues of $62.7 million at our Magnetic Materials and Alloys segment were 14% lower than revenues generated in the third quarter of 2013 driven by a 13% decline in sales volume. For the nine months ended September 30, 2014, revenues in this segment were $173.0 million, or 11% lower than the first nine months of 2013 due to a combination of lower sales volume and lower ASP.

Lower sales volume in this segment, particularly from the third quarter of 2013 to the third quarter of 2014, was attributed to inventory adjustments throughout the supply chain due to anticipated changes in Neo Powders™ prices. In connection with the expiration of one of Magnequench's patents related to the sale of Neo Powders™ early in the third quarter of 2014, the supply chain expected a reduction in Neo Powders™ prices, which resulted in customers delaying some purchases during the second quarter. Although shipments of Neo Powders™ for media storage devices were virtually flat year over year, Neo Powders™ sales to certain segments of the automotive market were stronger than anticipated in the third quarter of 2014. The ASP decline at our Magnetic Materials and Alloys segment, mostly during the nine months ended September 30, 2014, was attributed to a number of factors, including lower revenues from our MMA, Tolleson, facility, the expiration of the Magnequench patent and changes in Neo Powders™ product mix.

    The unfavorable OIBDA variance for the three and nine months ended September 30, 2014 is attributable to lower depreciation offset combined with the unfavorable variance in operating income because of lower revenues. Despite the expiration of the patent, our ability to consistently deliver high quality products at scale globally, allows us to remain confident that demand for our Neo Powders™ will continue in the foreseeable future.

Rare Metals
	Three months ended September 30,											Nine months ended September 30,
	2014			2013			Variance					2014			2013			Variance
	(In thousands, except volume and ASP)
Gross revenues	$	21,269		$	20,994		$	275		1	%	$	57,637		$	71,748		$	(14,111	)	(20	)%
Sales volume (mt)	104			102			2			2	%	284			275			9			3	%
ASP per kilogram	$	204.51		$	205.82		$	(1.31	)	(1	)%	$	202.73		$	267.13		$	(64.40	)	(24	)%
Depreciation and amortization(a)	$	2,034		$	2,144		$	(110	)			$	6,228		$	6,402		$	(174	)
Operating loss	(1,439		)	(3,055		)	1,616					(4,963		)	(2,455		)	(2,508		)
OIBDA	$	595		$	(911	)	$	1,506				$	1,265		$	3,947		$	(2,682	)
(a) Related to production and other operating expense.

Due to a 2% increase in sales volume in the third quarter of 2014, revenues from our Rare Metals segment were slightly better at $21.3 million as compared to the third quarter of 2013. For the nine months ended September 30, 2014, this segment generated $57.6 million on a sales volume increase of 3%, offset by an ASP decline of approximately 24%, which caused revenues in this segment to be 20% lower than the comparable period a year ago. The change from a year ago in the product mix sold at our Rare Metals segment led to the unfavorable ASP and revenues variance on a year-to-date basis.

Although our Rare Metals segment reported lower charges for the write-down of inventory to net realizable value in 2014, operating results in this segment were unfavorably affected by charges for abnormal production costs of $3.7 million and $4.1

49

million for the three and nine months ended September 30, 2014, respectively, as compared to $0.5 million and $1.1 million in corresponding prior-year periods. Higher expensing of abnormal production costs in 2014 were mainly driven by lower than expected tantalum sales, and production, from our Molycorp Silmet facility after receiving a conflict-free certification from the Electronic Industry Citizenship Coalition earlier in 2014.

Lower selling, general and administrative expenses combined with lower write-down of inventory at our Rare Metals segment contributed to a $1.6 million improvement in its operating results for the third quarter 2014 over the same quarter last year. On a year-to-date basis, the unfavorable OIBDA variance in this segment was mostly driven by the change in our product mix described above.    

Liquidity and Capital Requirements

We expect to use our cash balances of $313.5 million as of September 30, 2014, as well as cash generated from operations in certain business units to fund our capital expenditures, debt service and other cash requirements as we continue the ramp-up and optimization of production at our Mountain Pass facility. Capital expenditures for our Mountain Pass facility are expected to total approximately $25.0 million for the remainder of 2014, including remaining payments for certain capital expenditures incurred as of September 30, 2014, and $30.0 million in 2015. Additionally, we expect to spend approximately $5.0 million for the remainder of 2014 and $30.0 million in 2015 on maintenance and expansion capital expenditures across all other business units.

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 "Financings") for corporate, operating and capital expenditures purposes. On September 11, 2014, we executed agreements governing the 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.

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 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, (iii) stable or improved market conditions, (iv) 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), (v) our ability to repatriate cash generated from our global operations, and (vi) the absence of payments on current and future contingent liabilities. If these assumptions prove inaccurate, our estimates could prove incorrect and we may need additional financing.

As part of our cash management procedures, we continue to evaluate opportunities to reduce our operating, administrative and interest costs. Additionally, we may from time to time seek to repurchase our outstanding debt securities with cash and/or exchanges for common stock or securities convertible into common stock.

Cash Used in Operating Activities

Net cash used in operating activities was $146.4 million during the nine months ended September 30, 2014, as compared to $90.0 million in the corresponding prior-year period. Lower realized prices across all of our operating segments combined with higher abnormal production costs reported at our Resources and Rare Metals segments led to the increased use of cash over a year ago.

Cash Used in Investing Activities

For the nine months ended September 30, 2014, net cash used in investing activities was $50.2 million, as compared to $338.4 million in the first nine months of 2013. This decrease was primarily attributable to a slow-down in capital expenditures at the Mountain Pass facility where all key production components were mechanically complete by the end of 2013.

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Cash from Financing Activities

Net cash from financing activities during the nine months ended September 30, 2014 was $197.5 million, which related primarily to the net proceeds from the Financings, partially offset by the final dividends we paid on the Convertible Preferred Stock and repayments of certain other term loans. During the first nine months of 2013, net cash provided by financing activities totaled $374.0 million, which consisted primarily of $413.8 million, net of underwriting discount commissions and transaction costs, raised through the issuance of our 5.50% convertible notes and the issuance of 43,125,000 shares of our common stock, offset by the repayment of certain bank loans for $26.0 million, the payment of preferred stock dividends for $8.5 million, and other dividends we paid to one of our noncontrolling interests for $4.5 million.

Cash and Cash Equivalents by Country	(In thousands)
China (including Hong Kong)	$	49,820
Barbados	3,041
Canada	8,650
Estonia	9,539
Japan	4,323
Germany	3,077
United Kingdom	2,404
Thailand	955
Other	2,189
Total cash and cash equivalents in foreign countries	83,998
United States	229,479
Total cash and cash equivalents	$	313,477

Approximately 31% 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. The calculation of such additional taxes is not practicable.

In addition to cash and cash equivalents, the primary sources of liquidity of our domestic and foreign subsidiaries are cash provided by operations and, in the case of our activities in China, Japan and Estonia, 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 September 30, 2014, Magnequench International Inc. (Magnetic Materials and Alloys segment) had a net receivable balance of $51.1 million from Molycorp Minerals, LLC (Resources segment) and $13.7 million from Molycorp, Inc. (Corporate); Molycorp Minerals, LLC had a net receivable balance from Molycorp Silmet (Chemicals and Oxides segment) of $18.6 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.

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Contractual Obligations

At September 30, 2014, 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)	$	5,846	$	2,113	$	2,396	$	498	$	839
Purchase obligations and other commitments (2)	75,804		75,804		—		—		—
Employee obligations (3)	2,828		2,828		—		—		—
Asset retirement obligations (4)	33,211		128		3,672		4,184		25,227
Long-term debt	1,773,595		8,636		793,805		971,154		—
Fixed interest on long-term debt	658,105		133,798		365,327		158,980		—
Capital lease obligations	49,751		8,278		21,856		10,723		8,894
Total	$	2,599,140	$	231,585	$	1,187,056	$	1,145,539	$	34,960

(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 our operations. 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 5.12% to 10%, depending on the timing of when these obligations arose or were updated.

Off-Balance Sheet Arrangements

As of September 30, 2014, our only off-balance sheet arrangements are the operating leases and purchase obligations included in the contractual obligations table above.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provides guidance about management’s responsibilities in evaluating an entity’s going concern uncertainties, and about the timing and content of related footnote disclosures. Under this amended guidance, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies. When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the footnotes):

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a. Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans);

b. Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; and

c. Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.

If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements to understand all of the following:

a. Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern;

b. Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; and

c. Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

This update is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

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.

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 are in the process of evaluating which of the two methods we will apply to adopt the amendments, and whether this new guidance will have a material impact on our financial statements and related disclosures.

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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 $11.1 million at September 30, 2014, 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 euro, 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 (loss) as a separate component of equity. Any increase (decrease) in the value of the U.S. dollar against those foreign currencies results in unrealized foreign currency translation losses (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 (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 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 not effective as of September 30, 2014, because of material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses stemmed from the fact that the Company did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with its financial reporting requirements. The material weaknesses are fully described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 3, 2014. Although the material weaknesses are still under remediation as of September 30, 2014, our management has concluded that our consolidated

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financial statements for the periods covered by and included in this Report are fairly stated, in all material respects, in accordance with GAAP for each of the periods presented herein.

Changes in internal control over financial reporting

As of September 30, 2014, we are in the process of completing our remediation efforts related to the material weaknesses. We have not completed testing of the enhanced internal control over financial reporting described below.

During fiscal 2013, and through the three quarters of 2014, we have implemented the following measures to remediate the material weaknesses in internal controls over financial reporting:

•Supplemented our accounting department with personnel having an appropriate level of accounting knowledge, experience and training commensurate with our financial reporting requirements, and continue to train staff on control procedures that are intended to ensure that all accounting reconciliations and journal entries are appropriately prepared and reviewed;

•We implemented enhanced system-based controls, as well as other compensating controls, over restricted access, automated controls and change management activities within the ERP system.

There were no additional changes in our internal control over financial reporting in the third quarter of 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS.

From time to time, we may become subject to various legal and regulatory proceedings relating to our business.

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. The Consolidated Class Action Complaint filed on July 31, 2012 also names most of our Board members and some of our stockholders as defendants, along with other persons and entities. That Complaint alleges 18 claims for relief arising out of alleged: (1) securities fraud in violation of the Securities Exchange Act of 1934, or the Exchange Act, during the proposed class period from February 11, 2011 through November 10, 2011; and (2) materially untrue or misleading statements in registration statements and prospectuses for our public offering of preferred stock in February 2011 and of common stock in June 2011, in violation of the Securities Act of 1933. Our motion to dismiss that Complaint was filed in October 2012 and is pending. 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. Oral arguments on the Motion to Dismiss are scheduled on January 16, 2015.

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 has been fully briefed and is pending. The Motion to Vacate the consolidation order remains pending.

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 names us and certain of our current and former executive officers. The Consolidated Amended Class Action Complaint alleges claims for relief arising out of alleged securities fraud in violation of the Exchange Act, during a purported class period from February 21, 2012 through October 15, 2013. Our Motion to Dismiss the consolidated lawsuit was filed on August 13, 2014. We believe that this lawsuit is without merit, and we intend 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.    

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ITEM 1A.    RISK FACTORS.

The following risk factor is in addition 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, 2013 filed with the SEC on March 3, 2014:

We may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.

In September 2014, we and certain of our subsidiaries each entered into the Financings, including up to approximately $400.0 million in new financing facilities. Of this amount, $134.8 million will be available to us only upon our satisfaction of certain financial and operational conditions. In addition, although each of these credit agreements matures in September 2019, the full amount borrowed under each of the new term loan facilities will become due and payable at (i) April 30, 2016, if we have not repaid, escrowed or extended an amount of cash sufficient to repay when due and payable our 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 assure you that we will be able to refinance any of our convertible debt on commercially reasonable terms or at all.  

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.

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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.
November 5, 2014	By:	/s/ Geoffrey R. Bedford
		Geoffrey R. Bedford President and Chief Executive Officer (Principal Executive Officer)
November 5, 2014	By:	/s/ Michael F. Doolan
		Michael F. Doolan Chief Financial Officer (Principal Financial Officer)

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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).
10.1	Credit Agreement, dated as of September 11, 2014, between Molycorp, Inc., various lenders party thereto and OCM MLYCo CTB Ltd.
10.2	Credit Agreement, dated as of September 11, 2014, between Magnequench, Inc., various lenders party thereto and OCM MLYCo CTB Ltd.
10.3	Purchase and Sale Agreement, dated as of September 11, 2014, between Molycorp Minerals, LLC and OCM MLYCo CTB Ltd.
10.4	Equipment Lease Agreement, dated as of September 11, 2014, between Molycorp Minerals, LLC and OCM MLYCo CTB Ltd.
10.5	Warrant Agreement, dated as of September 11, 2014, between Molycorp, Inc. and Computershare Inc. (The Strike Warrants).
10.6	Warrant Agreement, dated as of September 11, 2014, between Molycorp, Inc. and Computershare Inc. (The Penny Warrants).
10.7	First Amendment, dated as of October 17, 2014, but effective retroactively as of September 30, 2014, to the Credit Agreement, dated as of September 11, 2014, between Molycorp, Inc., various lenders party thereto and OCM MLYCo CTB Ltd.
10.8	First Amendment, dated as of October 17, 2014, but effective retroactively as of September 30, 2014, to the Credit Agreement, dated as of September 11, 2014, between Magnequench, Inc., various lenders party thereto and OCM MLYCo CTB Ltd.
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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