Insiders Exiting Molycorp

If there's one thing Molycorp (NYSE: MCP  ) and its investors know, it's an opportune moment to raise capital. The rare-earth element miner is heading back to the market for cash from the debt market and stockholders are cashing in with a big stock sale.

The proposed debt offering by Molycorp is for $230 million, including overallotment, and will be the company's first big debt offering as a public company. But the stock deal is a little bigger news today.

Certain shareholders are putting up to 11.5 million shares of the company up for sale. At a price of $55 per share -- near today's price -- proceeds would be $632.5 million before fees. But what should be more concerning is that nearly 14% of the company's shares are being put up for sale by major stockholders. Talk about insiders running for the exits!

What's going on out there?
Molycorp is in great financial position with $492.5 million in cash on its balance sheet to end the first quarter and rare-earth element prices still through the roof. This may be a perfect time to head to the bond market for more cheap cash to continue acquisitions, so I'm not worried about the debt sale.

But the insider stock sale has to have even the most die-hard Molycorp investors worried. According to Yahoo! Finance, insiders have already sold 18 million shares in the last six months -- and this only adds to the mass exodus. This may be a sign that insiders see competition coming.

Avalon Rare Metals (AMEX: AVL  ) and Rare Element Resources (AMEX: REE  ) may be years away from production, but Lynas is months away -- and who knows what China will do with exports. The explosion of rare-earth mineral prices has been based on supply and demand being wildly out of whack, but by the time Molycorp opens its facility, 40,000 more metric tons will be on the market annually.

Management and other insiders know this, and reading between the lines I have to say that's why they're selling out now. I thought we would hit a stock peak in October, as I predicted here, but maybe I was a few months early. Now may be the time to jump ship. What do you think of the share offering?

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 (3) | Recommend This Article (4)

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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 June 08, 2011, at 1:42 PM, hongchang wrote:

    you kept bashing the company since when. The price of the stock is still a lot of higher than you first said that China is going to losen it's export policy. But in fact, China keeps tightening it's export and will cut off export all together in a couple of years. The REE price keeps going up from begining of the year and goes even higher in last of couple weeks. MCP insider just want to diversify their investment risk and they are still holding 27 million shares. This will be very much like the last offering. The price of stock will stay low for a while and shoot up to new highs by the end of the year when it will be clear that China will cut its export quota again and MCP start to make a log of money on its production. So stop the bull as I don't hear you were here when stock goes up!

  • Report this Comment On June 08, 2011, at 8:08 PM, tolymobile wrote:

    I don't hate Moly, I just don't understand them... They are a very nebulous company who seems to be just as confused as their investors... Are they going to tear down their existing facilities and totally rebuild or are they going to refurbish... The same questions apply to Estonia which has additional logistics problems... Their claim of 40mt remains unsubstantiated as far as I can tell other than they have developed proprietary "new" technology... While they may have the answers, they just seem disoriented in the execution of their confusing business plan...

    Tonight it is like somebody kicked the anthill on some of the Moly blogs... I like this Lynas... It is not perfect but it sure seems to be the best of the breed...

  • Report this Comment On June 17, 2011, at 6:00 PM, nobiology wrote:

    Good Call- the second one. Down down down it goes.

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