Acquisitions

6 Months Ended

Jun. 30, 2011

Acquisitions [Abstract]

Acquisitions

(5) Acquisitions

The following table summarizes the purchase prices and opening balance sheets for the acquisition of Molycorp Metals and Alloys and the 90.023% controlling interest in Molycorp Silmet:

				Molycorp
	Molycorp Silmet			Metals and Alloys
Effective acquisition date for financial reporting purposes:	April 1, 2011			April 15, 2011
	(in thousands)
Purchase consideration:
Cash consideration	$	9,021		$	17,500
Fair value of common stock		72,653			—
Total purchase consideration	$	81,674		$	17,500
The fair values of the assets and liabilities acquired:
Cash	$	105		$	6,395
Accounts receivable and other current assets		8,626			5,474
Inventory		26,700			11,327
Property and equipment, net		77,947			3,930
Intangible assets subject to amortization		525			—
Liabilities		(19,975	)		(9,626	)
Long-term debt and capital lease obligations		(3,184	)		—
Noncontrolling interest		(9,070	)		—
Total purchase consideration	$	81,674		$	17,500

The purchase price allocations above are based on preliminary assumptions and valuations for each acquisition. These valuations are subject to change as the Company obtains additional information on the assets acquired and liabilities assumed during each acquisition measurement period (up to one year from the acquisition date).

The fair value of the assets acquired includes trade receivables of $5.0 million for Molycorp Silmet and $4.9 million for MMA; these trade receivables are all considered collectible.

The fair value of the noncontrolling interest in Molycorp Silmet was estimated by applying the noncontrolling interest percentage to the preliminary net assets determination.

The amounts of Molycorp Silmet’s ‘and MMA’s (“acquirees”) revenue, earnings and earnings per share included in the Company’s condensed consolidated statements of operations since the acquisition date, and the revenue, earnings and earnings per share of the combined entity had the acquisition date been January 1, 2011, and January 1, 2010, are as follows:

						Net Income
						Attributable To
(In thousands, except per share amounts)	Revenue		Net Income			Molycorp			EPS Basic
Actual April 1, 2011 to June 30, 2011 (acquirees)	$	39,267	$	8,020		$	7,052		$	0.08
Supplemental proforma January 1, 2011 to June 30, 2011 (combined entity)	$	159,350	$	55,463		$	54,495		$	0.60
Supplemental proforma January 1, 2010 to June 30, 2010 (combined entity)	$	32,598	$	(29,598	)	$	(29,618	)	$	(0.61	)

The 2011 revenue of the acquirees and of the combined entity excludes $19.6 million of intercompany sales. The 2011 earnings of the acquirees and of the combined entity were adjusted to exclude $9.2 million of intercompany sales and $1.8 million of non-recurring acquisition-related costs the Company incurred to acquire Molycorp Silmet and MMA, and to reverse $1.1 million of purchase price variance MMA capitalized during the first quarter of 2011. The 2010 earnings of the combined entity were adjusted to reverse $2.0 million of purchase price variance MMA capitalized during the first two quarters of 2010.

Molycorp Silmet

On April 1, 2011, Molycorp acquired 80% of the outstanding shares of AS Silmet (now Molycorp Silmet) from AS Silmet Grupp in exchange for 1,593,419 shares of Molycorp common stock contractually valued at $80 million based on the average closing price of the Company’s common stock as reported by The New York Stock Exchange for the 20 consecutive trading days immediately preceding April 1, 2011, the acquisition date. Under ASC 805, Business Combinations, the consideration transferred in a business combination is measured at fair value on the acquisition date. Generally, the acquisition-date fair value of shares of common stock transferred by the acquirer is the closing price of that stock on the same date adjusted by a discount that a market participant would require as a result of any restrictions on the sale or transferability of the stock. The fair value of common stock of $72.7 million disclosed in the table above is based on the closing price of the Company’s common stock on the acquisition date, net of an estimated discount that a market participant would require given that issuance of the shares of common stock Molycorp transferred in consideration to AS Silmet Grupp was not registered under the Securities Act and such shares are subject to certain lock up provisions, which limit AS Silmet Grupp’s ability to sell these shares.

AS Silmet Grupp retained a 9.977% ownership interest in Molycorp Silmet. Molycorp acquired the other 10.023% from Treibacher Industrie AG for $9.0 million in cash. The Molycorp Silmet acquisition provides Molycorp with a European base of operations and significantly increases the Company’s current rare earth production capacity by approximately 3,000 mt REO equivalent. Molycorp Silmet sources a portion of rare earth feed stocks for production of its products primarily from Molycorp’s Mountain Pass facility. The main focus of this newly acquired business is on the production of rare earth oxides and metals, including didymium metal, a critical component in the manufacture of neodymium-iron-boron permanent rare earth magnets. Molycorp Silmet’s manufacturing operation is located in Sillamäe, Estonia.

In connection with the acquisition of the 90.023% controlling interest in Molycorp Silmet, the Company incurred $1.2 million of acquisition-related costs, which are included in selling, general and administrative expenses for the three and six-month periods ended June 30, 2011, respectively.

Molycorp Metals and Alloys

On April 15, 2011, Molycorp completed the acquisition from Santoku Corporation (“Santoku”) of all the issued and outstanding shares of capital stock of Santoku America, Inc., which is now known as Molycorp Metals and Alloys, an Arizona-based corporation, in an all-cash transaction for $17.5 million. The acquisition provides Molycorp with access to certain intellectual properties relative to the development, processing and manufacturing of neodymium and samarium magnet alloy products. As part of the stock purchase agreement, Santoku will provide consulting services to Molycorp for the purpose of maintaining and enhancing the quality of MMA’s products. On the same date, Molycorp and Santoku entered into five-year marketing and distribution agreements for the sale and distribution of neodymium and samarium magnet alloy products produced by each party. Additionally, the parties entered into a rare earth products purchase and supply agreement through which MMA will supply Santoku with certain rare earth alloys for a two-year period at prices equal to the feedstock cost plus the applicable product premium as such terms are defined in the agreement.

In connection with the acquisition, the Company incurred $0.6 million of acquisition-related costs, which are included in selling, general and administrative expenses for the three and six-month periods ended June 30, 2011, respectively