Hits Keep Coming for Molycorp

A new development in rare-earths production could help the miner's path to profits, even though it could undermine its future.

Jun 10, 2014 at 4:55PM

It's an understatement to say rare-earth minerals miner Molycorp (NYSE:MCP) has had a rough go of it. Not only has pricing collapsed over the past few years and China's loss of quotas and tariffs before the World Trade Organization indicated they'll likely fall further, the miner has also had to contend with countries throwing their collective weight behind a search for new rare-earth resources exacting new competitive pressure on its operations.

However, the development of lab-made rare-earth metals may present a chance for it to reach its stated goal of profitability that much sooner, though it presents another looming headache for the miner.

Last week, the MIT Technology Review provided an in-depth look at a start-up called Infinium that's promising to revolutionize the rare-earths industry by creating the minerals in the lab cheaply and cleanly, initially producing a half ton of rare-earth metals annually before switching over to a machine later this fall that can produce up to 10 metric tons annually. While that's just about 1% of the 1,100 metric tons of rare-earth oxides Molycorp produced in the first quarter of 2014, it really marks a turning point for the industry as a whole.

The current process calls for dunking the metal oxides in a bath of molten salt and running an electrical current through, a procedure that generates carbon dioxide. Instead, Infinium's process swaps a carbon electrode for a ceramic zirconium one, which doesn't react and give off greenhouse gases, to produce the metal.

Infinium says it has the capabilities to produce other metals such as magnesium, aluminum, silicon, and titanium, but it's going to start with rare-earth metals neodymium and dysprosium because they command some of the highest premiums and are considered by the U.S. Department of Energy among the most critical energy materials, which are used in magnets for applications in vehicles and wind turbines.

Over the next five to 15 years, neodymium and dysprosium are seen as key in the criticality matrix.

Screen Shot

Source: U.S. Dept. of Energy "Critical Materials Strategy Summary," 2010. 

Molycorp's Silmet unit just last year began sourcing rare-earth feedstocks for the manufacture of its products from its Molycorp Mountain Pass facility. The main focus of Molycorp Silmet is on the production of rare-earth oxides and rare metals, including production of neodymium oxide, a critical component in the manufacture of neodymium-iron-boron, or NdFeB, permanent rare-earth magnets.

Its magnetic materials and alloys segment produces its Neo Powders that are used in the production of just such high-performance magnets and are found in micro motors, precision motors, sensors, and other applications. Neo Powders represented 41% of the division's revenues in 2013, which itself comprised nearly 46% of consolidated revenues. However, Molycorp actually sources most of the neodymium it uses in the MMA segment from the open market through multiple suppliers, though it has anticipated sourcing increasing levels of it through its own resources division in the future. 

Still lanthanum and cerium remain the rare earths in most abundance at Mountain Pass but they happen to have the least value among all the minerals because of their prevalence. According to Moylcorp, lanthanum traded at the end of last year at the same level it did in 2009, before the sector took off for the stratosphere following China's clamp down on their export, while cerium maintains a 50% premium. Even so, in comparison to neodymium, praseodymium, terbium, and dysprosium -- the most common rare-earth elements -- it lags far behind.

Screen Shot

Source: Molycorp 10-K filing.

If Molycorp is able to source neodymium from a cheaper source that could further improve the segment's profitability as MMA was the miner's only profitable segment last year.

Infinium, though, says its first customer will be the U.S. government so synthetic sources won't be available initially for Molycorp to take advantage of. However, investors also need to be concerned if the start-up moves into the other rare-earth metals as that could impact its own bread and butter. And by utilizing the lab-made alternative, it would be financing the very source of its future competition.

Synthetic rare-earth metals may help Molycorp overcome certain hurdles near term, but they could be a larger problem down the road.

Will this stock be your next multibagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year, his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252%, and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Rich Duprey has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers