How Molycorp Went From Hero to Goat

The rise and fall of Molycorp (NYSE: MCP  ) , and other rare earth mineral stocks, has been a caution tale for investors speculating on high-potential and high-risk stocks. When China reduced exports of rare earth minerals, buyers of the materials couldn't reduce demand, and prices went through the roof. 

But when Molycorp and Lynas Corp in Australia began production, prices quickly fell. Their expansion plans continued as prices fell, and soon the market was flooded with rare earth minerals. Prices dropped, leading to massive losses. 

Now, Molycorp's operations are burning through cash at a rate of nearly $50 million per quarter, and the company may not last another year without further financing. Specialist Travis Hoium covers how Molycorp got here, and what investors can learn from its rise and fall.

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  • Report this Comment On July 13, 2014, at 1:45 PM, markims76 wrote:

    Interesting that one has to be a "member" in order to comment - but I will leave that issue for another day.

    I watched Mr. Hoium's article concerning Molycorp. His entire theory is illogical - if Molycorp and Lynas were actually producing meaningful quantities of rare earth products then I would have to agree with his logic that excess production caused prices to fall and hence, Molycorp and Lynas are losing money and burning cash. However, neither company is producing anything meaningful! The real problem, and it always has been the problem, is controlling the illegal mining, production and sale of rare earth products out of China - which are neither subject to export taxes or export quotas. Moreover, if the customers of rare earth products are truly concerned about their future, they would implement and enforce strong policies against purchasing the illegal rare earth materials. Diversity of supply is every rare earth user's best defense against the Chinese rare earth monopoly. Buying the illegal products simply because they are cheap (and illegal) is very short sighted.

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