Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

(7) Stock-Based Compensation

Molycorp accounts for stock-based compensation based upon the fair value of the awards at the time of grant. The expense associated with such awards is recognized over the service period associated with the issuance. There are no performance conditions associated with these awards.

Effective November 1, 2009, Molycorp, LLC issued 5,880,000 incentive shares to certain employees and independent directors of the Company. At the time of issuance, due to Molycorp, LLC’s option to repurchase vested shares of terminated participants at a price other than fair value, these incentive shares were classified as liabilities and were valued at zero using the intrinsic value method. On April 15, 2010, all holders of incentive shares contributed their incentive shares to Molycorp, Inc. in exchange for an aggregate of 3,012,420 shares of Class B common stock of Molycorp, Inc., 1,004,140 shares of which vested immediately with an additional 1,004,140 shares vesting on September 30, 2010 and the remaining 1,004,140 shares vesting on September 30, 2011. The shares of Class B common stock were non-transferable and the Company had the right to repurchase vested shares upon the termination of employment for any reason.

The shares of Class B common stock automatically converted into shares of common stock, based on a conversion factor, immediately prior to completion of the IPO. On August 3, 2010, Molycorp completed an IPO of common stock at an offering price of $14.00 per share. At that time, the shares of Class B common stock were converted into an aggregate of 2,232,740 shares of common stock, 744,247 of which remained vested with the remaining 1,488,493 vesting over a period of six months following the IPO. Stock-based compensation associated with these shares was zero and $2.6 million for the three months and the six months ended June 30, 2011, respectively, and $28.7 million for the year ended December 31, 2010

On November 4, 2010, the Compensation Committee of the Board of Directors of the Company approved the grant of 37,500 shares of restricted stock with a three-year cliff vesting period to certain executive officers and a director of the Company. The $1.4 million fair value of the awards was determined using the stock price on the date of grant and is recognized straight-line over the three-year vesting period. The stock-based compensation associated with these awards was $0.1 million and $0.2 million for the three months and six months ended June 30, 2011, respectively.

On January 13, 2011, the Company granted 9,557 shares of restricted stock and 32,637 restricted stock units with a three-year cliff vesting period to certain employees and executive officers of the Company. The total $1.9 million fair value of the restricted stock and restricted stock units was determined using the Company’s stock price on the date of grant and is recognized straight-line over the three-year vesting period. On the same day, the Company granted 52,819 stock options that vest in equal installments annually over a three-year period to certain employees and executive officers of the Company. The $1.4 million fair value of the stock options was determined using the Black Scholes option valuation model and the Company’s stock price on the date of grant and is recognized straight-line over the three year vesting period. The stock-based compensation associated with these awards was $0.3 million and $0.5 million for the three months and six months ended June 30, 2011, respectively.

During the second quarter of 2011, Molycorp granted 45,485 restricted stock units and 1,325 shares of restricted stock with a three-year cliff vesting period to certain employees, executive officers and non-employee directors of the Company. The total $2.6 million fair value of these restricted stock units was determined using the Company’s stock price on the date of grants and is recognized straight-line over the three-year vesting period. The stock-based compensation associated with these awards was $0.1 million for the three months and six months ended June 30, 2011.

The stock-based compensation associated with all awards issued since inception was $0.5 million and $3.4 million for the three months and six months ended June 30, 2011, respectively.

Approximately $41,800 and $76,800 of the stock-based compensation associated with these equity awards was capitalized into inventory for the three months and six months ended June 30, 2011, respectively.