No End in Sight to Rare-Earth Element Collapse

Molycorp (NYSE: MCP  ) has seen deteriorating finances all year but the fourth quarter is when it all came to a head. Last night after the market closed the company reported a $362.4 million loss, or $2.91 per share, as it wrote off assets that aren't worth nearly what the company thought they were when the stock was a hot item.  

Despite the fact the company is now in full production, revenues are only up 1% year over year to $134.3 million, which is down 35% from a quarter ago. Molycorp also blew through $89.6 million of cash in 2012; with rare-earth mineral prices falling, that rate should increase in 2013. Hence the $414.2 million it needed to get from investors at the start of the year.

The price of common rare-earth minerals has been dropping since 2011, the year prices peaked, which is why revenue is slipping. The table below shows a few of these minerals courtesy of competitor Lynas, who is also dealing with similar challenges as Molycorp.

 

2011

Q3 2012

Q4 2012

3/11/2013

Lanthanum Oxide

$104.10

$19.54

$13.92

$11.00

Cerium Oxide

$102.00

$20.38

$15.31

$11.50

Neodymium Oxide

$234.40

$105.31

$87.46

$77.00

Source: Lynas Corporation

It's a wonder at this point that miners without production, like Rare Element Resources and Avalon Rare Metals, are still in business at all. If Molycorp can't make money now that it's in full production, then how could there be enough demand to support all of these companies?

Foolish bottom line
Fundamentals have only been getting worse for Molycorp over the past year, so unless prices improve dramatically I don't see a profit in the company's future. I'd stay away from this stock as well as Rare Element Resources and Avalon Rare Metals after this terrible fourth quarter.

A not-so-rare-metal purveyor to consider
Materials industries are traditionally known for their high barriers to entry, and the aluminum industry is no exception. Controlling about 15% of global production in this highly consolidated industry, Alcoa is in prime position to take advantage of growth that some expect will lead to total industry revenue approaching $160 billion by 2017. Based on this prospect and several other company-specific factors, Alcoa is certainly worth a closer look. For a Foolish investment perspective on this global giant simply click here now to get started.

 


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  • Report this Comment On March 15, 2013, at 3:06 PM, tinathi03 wrote:

    Molycorp's CEO in the earnings report last night guaranteed that the costs to produce one kg will go down to $6 to $7.

    So, comparing to the selling price at Lynas, which is about $10 to $11, MCP will still make a profit of AT LEAST $4/kg.

    MCP shares went down from $70 to less than $10 in less than two year due to the high costs and lower price

    But MCP managment found out the problems and will fix soon in next two quarters.

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