Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Molycorp Inc (MCP)’s Expansion at the Mercy of a Wary Market

Page 1 of 2

The leading American player in the rare earths mining sector, Molycorp Inc (NYSE:MCP has revealed an intention to sell $200 million in stock and $100 million in convertible senior notes (due in 2018) to fund its latest capital expenditure, which includes development work at its Mountain Pass, California  rare-earths mining facility. The news caused an 8.7% dip in the company’s shares in premarket trading; piling on a company whose shares had already fallen more than 60% in 2012.

Bearish options active on Molycorp Inc (MCP) as shares nosediveMolycorp has been hailed as the company that could end the dominance of China in the global rare earth element (REE) industry, They are the 17 elements from Group III of the Periodic Table — the Lanthanides plus Lanthanum, Yttrium and Scandium — that form the beginning of the supply chain for a great deal of high tech equipment. US Army contractors need it to manufacture night vision goggles; Japanese vehicle manufacturers such as Toyota Motor Corporation (NYSE:TM) and Nissan use it in hybrid cars; solar panel manufacturers require it in high efficiency solar cells; high efficiency magnets are made from Neodymium; Chinese and Taiwanese contract manufacturers of mobile devices use it in LCDs. Both the U.S and Japan are among the biggest buyers in this industry whose supply has been 95% controlled by China until recently. More details on the Chinese rare earths sector can be found in my previous article.

Molycorp has a $1.42 billion plan to ramp up the Mountain Pass complex, a figure that is more than its current market cap of $1.10 billion.  The cost of the project has exceeded Molycorp’s expectation, hence the stock offering. An additional $40 million of the common stock will be given to Morgan Stanley (NYSE:MS) in exchange for the lending fee, while Morgan Stanley will be the book runner for the sale.  The business now expects the facility to produce an output of 19,050 tons by mid-2013. Moreover, the initial plan to produce 40,000 tons of rare-earth minerals by the end of 2013 has been deferred due to the weak pricing.

Ultimately, rare earths are a bit of a misnomer. They are not rare like the space metals (Rhenium, Iridium, Osmium) but rather are evenly and finely dispersed throughout the earth’s crust, making few deposits of them economically viable.  The discovery of a major deposit off the coast of one of Japan’s islands – a projected 220 year supply at current usage rates – hasn’t helped a market that has seen its price bubble burst in the past year.

According to its last quarterly statement, Molycorp has about $436 million in cash reserves.  With prices of REE’s falling back to near 2010 levels, Molycorp will only find investors if it can produce at these prices.  Earlier this month, it warned its shareholders that the cost blowout at Mountain Pass, coupled with the falling prices of rare-earths, would result in lower than expected revenues in the first half of the current year and a cash shortfall of $250 million. The note and stock offering is going to cover this.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!