Commitments and Contingencies

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies

Commitments and Contingencies

(18) Commitments and Contingencies

(a)    Future Operating Lease Commitments

        The Company has certain operating leases for office space, trailers and certain equipment. Remaining annual minimum payments under these leases at March 31, 2012 were $1.5 million for the remainder of 2012, $0.6 million in 2013, $0.5 million in 2014, $0.5 million in 2015, $0.5 million in 2016 and zero thereafter, totaling $3.6 million.

(b)    Capital Commitments

        In connection with the Molycorp Mountain Pass facility modernization and expansion and future operations, the Company entered into contractual commitments for the purchase of materials and services from various vendors. Future payments for these commitments are estimated at $384.7 million due over one and two years.

        Total capital spending for Project Phoenix Phase 1, Project Phoenix Phase 2 and other capital projects related to operations at Molycorp Mountain Pass for the remainder of 2012 is expected to be approximately $336.0 million. The Company is encountering cost pressures on its projects and management has initiated measures to mitigate certain adverse cost trends. While management is continuing to re-evaluate the impact on the Company's budgets, the Company will incur additional costs, which may be significant, if our mitigation measures are not successful.

(c)    Potential Environmental Obligations

        As part of its ongoing remediation efforts at the Molycorp Mountain Pass facility, the Company identified liner defects in three of the onsite evaporation ponds in 2011. This led to minor groundwater contamination issues that are limited to a small area directly underneath the evaporation ponds. In order to remediate this issue, the Company will replace the primary lining system and might have to install a groundwater recovery system. The Company estimated the cost of these items at between $2.4 million and $4.6 million, which will be treated as capital expenditures. The Company is in the process of finalizing the remediation plans with the Regional Water Quality board.

(d)    Labor Contract

        Certain Molycorp Mountain Pass facility employees are covered by a collective bargaining agreement with the United Steelworkers of America that expires on March 15, 2015. At March 31, 2012, 168 employees, or approximately 57% of the Company's workforce at the Molycorp Mountain Pass facility, were covered by this collective bargaining agreement.

        At March 31, 2012, 174 employees, or approximately 30% of the workforce at the Company's Molycorp Silmet facility, were unionized employees. The contract with the labor union in Estonia was renewed by the end of February 2012.

(d)    Reclamation Surety Bonds

        At March 31, 2012, Molycorp had placed $28.8 million of surety bonds with California state and regional agencies to secure its Mountain Pass facility closure and reclamation obligations.

(e)    Purported class action and derivative lawsuits

        In February 2012, a purported class action lawsuit captioned, Angelo Albano, Individually and on Behalf of All Others Similarly Situated v. Molycorp, Inc., et al., was filed against the Company and certain of its executive officers in the U.S. District Court for the District of Colorado. This federal court action alleges, among other things, that the Company and those officers violated Section 10(b) of the Exchange Act in connection with statements relating to its third quarter fiscal 2011 financial results and fourth quarter 2011 production guidance that the Company had filed with or furnished to the SEC, or otherwise made available to the public. The plaintiffs are seeking unspecified damages and other relief. The Company believes the allegations are without merit and that it has valid defenses to such allegations. The Company intends to defend this action vigorously. The Company is unable to provide meaningful quantification of how the final resolution of these claims may impact its future consolidated financial position or results of operations.

        Seven stockholder derivative lawsuits have been filed in three different jurisdictions purportedly on behalf of Molycorp, Inc., against certain of its directors, certain of its officers, and certain of its private equity investors. These cases have been filed in the Delaware Chancery Court, the U.S. District Court in Colorado, and the District Court in Arapahoe County, Colorado. They are captioned: Gaines v. Smith et al., Case No. 7282 (Del. Ch. Feb. 12, 2012); Paskowitz v. Smith et al., Case No. 7319 (Del. Ch. Mar. 9, 2012); Wilson v. Smith et al., No. 7395-VCN (Del. Ch. April 4, 2012); Wells v. Smith et al., No. 1:12-cv-00447-WJM (D. Colo. Feb. 21, 2012); Swaggerty v. Smith et al., No. 12-cv-00589-CMA-KLM (D. Colo. Mar. 7, 2012); Clem v. Smith et al., No. 12 CV 392 (Arapahoe Cnty., Colo. Feb. 24, 2012); and Nationwide Consulting, Inc. v. Smith et al., No. 12 CV 448 (Arapahoe Cnty., Colo. Mar. 5, 2012). The Clem and Nationwide cases have since been consolidated under the caption Clem v. Smith et al., No. 12 CV 392 (Arapahoe Cnty., Colo.).

        The derivative complaints challenge among other things certain sales of stock by officers, directors and private equity firms, and certain Molycorp corporate acquisitions during 2011. The complaints assert causes of action for: (1) alleged breaches of fiduciary duty, including the duties of loyalty and due care; (2) alleged unjust enrichment; (3) alleged waste of corporate assets; and (4) alleged "abuse of control." On behalf of Molycorp, the plaintiffs in the derivative actions seek, among other things, monetary damages, restitution, an accounting, and certain changes to corporate governance procedures.

        The Defendants have filed a motion in each case seeking to consolidate the derivative actions in one jurisdiction, and have expressed a preference for the Delaware Court of Chancery.

        The Defendants deny allegations in the derivative complaints and will vigorously contest the claims in each lawsuit.