We're inching closer and closer to Molycorp's (NYSE: MCP ) "Project Phoenix" opening, and if rare-earth mineral prices stay this way, we could be in for a profit explosion. Even though its flagship mine is still a year away from full production, the company has already been able to leverage ridiculously high prices to squeeze out a profit.
In the second quarter of 2011, rare-earth oxide sales volume grew 58% from the first quarter, and realized prices rose $91% to $72.10 per kilogram. Revenue grew almost 400% from the first quarter to $99.6 million, driven by higher prices. And when you're able to charge that much and realize a 57% gross margin, you can easily show a profit of $43.5 million, or $0.52 per share.
Molycorp is in such a strong position, in fact, that it was able to renegotiate higher prices with a major lanthanum buyer that was already under contract. But how long can these prices last?
The big question
The question about Molycorp, and rare-earth mineral miners in general, is still about what happens to rare-earth oxide and metal prices once more capacity is online. Lynas is ramping up its production in both Australia and Malaysia and will beat Molycorp to market by more than a year.
China still has a stranglehold on production, but we're not exactly certain what the country will do once competitors start coming online.
For now, if you believe rare-earth oxide and metal prices are going to remain even close to where they are now, Molycorp looks like a screaming buy. It'll take another year or so to figure out exactly where prices are going and whether Molycorp can continue to move higher.
Interested in reading more about Molycorp? Add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.