Source: http://www.mineweb.com, November 6, 2012
By: Dorothy Kosich
Facing liquidity concerns and a weaker rare earths market, Molycorp is suing the engineering firm it considers responsible for delays and cost overruns at its flagship Mountain Pass facility expansion.
U.S. rare earths producer Molycorp has sued the engineering firm formerly in charge of designing the chemical processes at its troubled Project Phoenix for damages in excess of $45 million.
In a lawsuit filed on Oct. 31, 2012, in the U.S. District Court for Colorado, Molycorp claims M&K Chemical Engineering Consultants of Granite City, Illinois, “failed to perform its work in accordance with good engineering practices…and consistently failed to provide its work product in accordance with the contractual work schedule.”
The miner also claimed M&K alleged failure to adhere to technical specifications impeded Molycorp’s effort to standardize equipment and installation at its Mountain Pass Operation near Las Vegas.
‘Many of M&K’s designs were unsafe creating hazardous conditions that, if not rectified, could have resulted in serious injury or death to personnel working in and around the facilities,” the lawsuit claimed, adding the designs for various solids handling systems failed to consider operations and maintenance issues associated with acid and caustic solids.
“The M&K errors and omissions that have been discovered to date at Project Phoenix have resulted in a determination by Molycorp that all of M&K’s work must be audited and corrected before it can be used for Project Phoenix,” said the complaint. “The audit and correction effort is ongoing and has caused delays in the construction and operation of the facilities.”
Molycorp terminated its contract with M&K on May 18, 2012, estimating it had paid the engineering firm in excess of $37 million for the work on Project Phoenix.
In a news release, Molycorp Executive Vice President and General Counsel, John F. Ashburn, Jr., said the defects will not impact the timing of the company’s plans to ramp up production at its Mountain Pass rare earths facility.
The company still expects to achieve full Phase 1 production rates at the end of the fourth quarter as previously announced.
However, Standard & Poor’s lowered its ratings on Colorado-based Molycorp in August, stating, “The downgrade and CreditWatch listing reflect our view that weaker market conditions, spending to complete the Mountain Pass Project,” along with increasing debt “are likely to stress the company’s liquidity in the near term.”
During the second quarter Molycorp reported a net loss of $71.02 million or 82-cents per share.