Rare Earth Prices Boost Molycorp

The race for rare earth miners is on, and one of the lead horses is making some major headway on the financial front. Yesterday, Molycorp (NYSE: MCP  ) reported that revenue was up 154% from the third quarter to $21.7 million as rare earth oxide prices continued their meteoric rise.

In the fourth quarter, Molycorp realized $34.02 per kilogram for its material, up from $16.10 in the third quarter and $4.72 a year earlier. And the hot streak has continued in 2011, so we should see even higher prices in the first quarter of this year.

After adjusting for stock compensation and an asset impairment, the incredible jump in sales brought Molycorp to an adjusted net income of $0.03. Holy cats, Batman, if Molycorp is making money now just wait until it's selling 40,000 metric tons in a few years.

Will prices stay high?
The fourth-quarter results are impressive, but the only question investors need to ask themselves is how high will prices be when Molycorp's facilities come online? Lynas Corp. out of Australia will be online this year with 22,000 metric tons of capacity. Once Molycorp's 40,000 metric tons of capacity is fully online, where will prices go? Supply and demand is so out of whack right now that anyone with rare earth minerals can basically name their price, but that won't last forever.

Molycorp estimates there are 60,000 metric tons of demand outside of China in 2011 and Chinese exports will be below 30,000 metric tons. A few years down the line, Lynas and Molycorp alone will add 62,000 metric tons to the market. Add in Rare Element Resources (AMEX: REE  ) , Avalon Rare Metals (AMEX: AVL  ) , and a slew of junior miners popping up from Canada to South Africa, and the market is going to change significantly. Any of these mines are still five to 10 years from production, but they put a cloud over rare earth mineral prices going forward.

For now, these results are outstanding and the Mountain Pass manufacturing facilities, code-named Project Phoenix, appear to be ahead of schedule. So far so good, but what is the future for this rare earth mineral powerhouse?

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Read/Post Comments (2) | Recommend This Article (4)

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  • Report this Comment On March 10, 2011, at 3:22 PM, cdantoin wrote:

    Your article is spot on.

    One caveat to the economics of LREE and HREE. As the LREE monster Molycorp comes online and reaches its 40,000 per year production levels over the next two years, REE (light) prices will experience downward pressure before AVL and REE can being production. According to Jack Lifton the economics of processing (by 2015) the volumes of LREE by AVL and REE, in order to get to the more valuable HREE in their deposits, will become economically unfeasible. Also, between now and 2015 Molycorp will be forced to acquirer access to a heavy deposit to counter the threat of REE and AVL coming online around 2015/16 with their large light and heavy deposits (of 10% and 20% HREE respectively). The question for Molycorp (1% HREE) then becomes which HREE deposit can be acquirer before REE and AVL can capitalize (estimates of $1 billion in infrastructure) and begin production making Molycorp vulnerable to them as competitors. The advantage for a Molycorp acquisition of UCORE is UCORE’s 100% owned subsidiary Rare Earth One, a U.S. corporation owns its former uranium producing mine at “ Bokan Mountain” Alaska, all extremely important for the DoD supply-chain, note:

    U.S. Senator’s and Representative, January 28, 2011 Letter to Secretary of Defense, Mr. Gates http://www.politico.com/static/PPM110_110131_rare_earth.html

    HOUSE RESOLUTION NO.16, IN THE LEGISLATURE OF THE STATE OF ALASKA, TWENTY-SIXTH LEGISLATURE - SECOND SESSION (ref expedite permitting of Bokan) http://www.legis.state.ak.us/PDF/26/Bills/HR0016A.PDF

    Alaska Governor, Sean Parnell, February22, 2011 Letter to President Obama http://gov.alaska.gov/parnell_media/resources_files/gov_ltrt...

    Finally, UCORE’s existing infrastructure, former permitting in a recognized state and federal mining district, ability to begin production in less than 36 months, proximity to Molycorp and Japan processing facilities and U.S. based magnet manufacturers makes it the ideal target for Molycorp acquisition.

  • Report this Comment On March 11, 2011, at 5:32 PM, nswanberg wrote:

    Barron.s Recent Insider Activity

    Sellers

    Company Name Insiders Name Title $ Value No. of Shares in Trans. Range of Values Transaction Dates

    Molycorp B. Dolan DO $348,819,000 6,976,380 50.00 February 16, 2011

    Molycorp R. Bhappu DO 348,819,000 6,976,380 50.00 February 16, 2011

    Molycorp M. Kristoff D 122,990,600 2,459,812 50.00 February 16, 2011

    We are all suckers now!

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