To those who observed with awe Molycorp's (NYSE: MCP ) astonishing five-bagger run within the first year after its 2010 initial public offering, the current share price would appear to have no context. Through that peak, the deep valley that followed, and now , well... the ever-dropping valley, it's been nothing short of a very wild ride.
Just when it appeared that Molycorp might be poised to spark a possible turnaround as phase-1 production capacity begins to ramp up at the company's Mountain Pass mine complex, along came devastating news Friday that Molycorp has been the subject of a formal investigation by the Securities and Exchange Commission since August 2012. The stock tumbled sharply before triggering a circuit breaker that halted trade, and by midday Friday more than 16 million shares, or about 13% of all shares outstanding, had exchanged hands during the session. At this time of this writing, Molycorp's stock is trading 8.5% lower to beneath $8 per share!
Until further clarity emerges with respect to the exact nature and scope of the probe, investors are not yet in a position to make an informed decision regarding the likely fallout. As it presently stands, according to the company's filing, even Molycorp itself "cannot predict the length, scope or results of the investigation or the impact, if any, of the investigation on the Company's results of operations." The announcement does unavoidably create uncertainty, though, at a moment when Molycorp's stock could least afford it. Just a few months ago, the company faced a potential shortfall in working capital as a continued collapse in market prices for the company's range of rare-earth products claimed a chunk of anticipated cash flow.
Molycorp warned back in August that capital expenditures could have potentially been on the chopping block in the event that the company failed to secure additional financing. Molycorp cautioned at the time: "We cannot assure you that we will be able to obtain any such financing on commercially acceptable terms or at all." By the end of August, though, the company had secured $414 million through an offering of senior notes, and it seemed as though crisis has been averted.
After Molycorp released its third-quarter earnings, the company's encouraging sales results were fueling upside momentum in the shares before news of the probe broke; reversing a Friday morning rally of 6.5% into to a midday rout of as much as 12%! With Molycorp as the fund's fifth-largest holding, the Market Vectors Rare Earth/Strategic Metals ETF (NYSEMKT: REMX ) dipped briefly on the news before turning to a slight intraday gain.
While I concede to being extremely intrigued by Molycorp's growth potential at this very key stage in the company's reemergence as a global leader in the rare-earth industry, Friday's revelation does force me to give pause until more details emerge. In the meantime, I will look to the miners of some other rather rare elements -- silver and gold -- for some enticing turnaround stories in the making. Kinross Gold (NYSE: KGC ) looks to be turning over a new leaf, while Goldcorp's (NYSE: GG ) low-cost production of one of the most sought-after metals in the world continues to make it an attractive choice for long-term investors.
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