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On Time, On Budget at Molycorp

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All investors really need to know about Molycorp's (NYSE: MCP  ) earnings report yesterday is that Project Phoenix is on schedule and on budget and that rare earth mineral prices are still rising. The fact that Molycorp missed analysts' estimates of $0.10 in earnings per share is a footnote in the bigger story.

Revenue increased 21% sequentially to $26.3 million on the back of increased prices. Average sales price in the quarter was $37.73 per kilogram, hurt by a price-capped contract with a customer. Without that contract, which ends before the Mountain Pass mine goes into full production, average sales price would have been $65.95 per kilogram.

The other good news is that prices within China appear to be rising as there's been a crackdown on illegal mining. As Lynas' mine comes online later this year and Molycorp begins full production in 2012, supply will start catching up with demand and could put pressure on rising prices. Continuing restrictions of exports and the crackdown of illegal mining in China are key to make sure that doesn't happen.

The trajectory of rare earth mineral prices over the next two years is also key to smaller miners like Rare Element Resources (AMEX: REE  ) and Avalon Rare Metals (AMEX: AVL  ) who are years from production.

Foolish bottom line
I've had my doubts that rare earth mineral prices would remain high once more product starts hitting the market. So far, prices have gone nowhere but up, and the word out of Molycorp was encouraging today. Shares are down because the company missed estimates, but the much more important thing is that Project Phoenix is on schedule. Molycorp needs to get up and running ASAP so it can take advantage of high prices before someone else does.

Interested in reading more about Molycorp? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 11, 2011, at 3:05 PM, WhoSays123 wrote:

    Just in time for another pump article! When the stock is down 5% out comes a pump piece like this.

    "Just ignore the bad news of the earning estimates. No, really, it doesn't matter... "

    The price per share were based SPECIFICALLY on the earnings estimates now and going forwards. As it turns out, the estimates were wrong by 800%!! Not 5%, not 10%... 800%!! Don't you get it? Profit was off by 800%+! Now they want you to believe the rest of the year will be in line with expectations? Really?

    And who cares if the mine build is on time and on budget. What's MORE important will be "What will pricing on these Rare Earths be when the Mine opens?" The answer is... "SUBSTANTIALLY LESS" since supply will not have as much pressure.

    In addition, lockup expiration is TOMORROW.

  • Report this Comment On May 14, 2011, at 2:01 AM, nswanberg wrote:

    MCP management is a disgusting example of wild wild west capitalism that is out of control. It would even make Andrew Carnegie blush. Shame on the Fool.

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