Mark Smith was one of the biggest cheerleaders for the rare-earth mineral industry while CEO of Molycorp (NYSE: MCP). He went on a spending spree that built an immense amount of capacity in rare-earth minerals, and bought up downstream capacity to get exposure to more of the value chain. But just as Molycorp is transitioning from a speculative play to a real revenue producer, Smith is leaving the company.
The timing is suspicious, to say the least, but Molycorp is trying to brush it off as business as usual.
Reaching an "inflection" point
The press release announcing Smith's departure points to an "inflection" point in the company's history, indicating a need for new leadership.
But the problem for Molycorp isn't leadership, it's simple supply and demand. Last year, when the rare-earth industry exploded, there wasn't nearly enough supply and prices went through the roof. Countries started to stockpile minerals, which only made the problem worse, and it forced companies like Molycorp to spend more to move up production. It's no wonder the company spent more to expand than it originally had anticipated.
Below is a table that is published by competitor Lynas with daily updates on rare-earth pricing. The bottom row shows Lynas' average composition, but the three oxides called out are also produced by Molycorp. Just look at how far prices have fallen.
|
2010 |
2011 |
Q3 2012 |
12/10/12 | |
|---|---|---|---|---|
|
Lanthanum Oxide |
$22.40 |
$104.10 |
$19.54 |
$13.00 |
|
Cerium Oxide |
$21.60 |
$102.00 |
$20.38 |
$15.00 |
|
Neodymium Oxide |
$49.50 |
$234.40 |
$105.31 |
$83.00 |
|
Av. Mt. Weld Composition |
$31.35 |
$147.96 |
$53.28 |
$40.79 |
Source: Lynas Corp
There's simply nothing that shows the price plunge stopping any time soon. At least Molycorp has production, companies like Rare Element Resources (NYSEMKT: REE) and Avalon Rare Metals (AVLNF 2.09%) are basically doomed because prices are so low.
This isn't the death of the rare-earth mineral industry, but it's another sign that it's in trouble. Smith was one of the people who brought Molycorp to the forefront; now, he's been forced out as the company's challenges mount.
Don't bet on a comeback
I don't think Molycorp is a great bet right now, but a global economic recovery could help demand. Still, there are better ways to play a recovery than betting on rare-earth minerals.
