The race for rare earth miners is on, and one of the lead horses is making some major headway on the financial front. Yesterday, Molycorp (NYSE: MCP) reported that revenue was up 154% from the third quarter to $21.7 million as rare earth oxide prices continued their meteoric rise.
In the fourth quarter, Molycorp realized $34.02 per kilogram for its material, up from $16.10 in the third quarter and $4.72 a year earlier. And the hot streak has continued in 2011, so we should see even higher prices in the first quarter of this year.
After adjusting for stock compensation and an asset impairment, the incredible jump in sales brought Molycorp to an adjusted net income of $0.03. Holy cats, Batman, if Molycorp is making money now just wait until it's selling 40,000 metric tons in a few years.
Will prices stay high?
The fourth-quarter results are impressive, but the only question investors need to ask themselves is how high will prices be when Molycorp's facilities come online? Lynas Corp. out of Australia will be online this year with 22,000 metric tons of capacity. Once Molycorp's 40,000 metric tons of capacity is fully online, where will prices go? Supply and demand is so out of whack right now that anyone with rare earth minerals can basically name their price, but that won't last forever.
Molycorp estimates there are 60,000 metric tons of demand outside of China in 2011 and Chinese exports will be below 30,000 metric tons. A few years down the line, Lynas and Molycorp alone will add 62,000 metric tons to the market. Add in Rare Element Resources (AMEX: REE), Avalon Rare Metals (AMEX: AVL), and a slew of junior miners popping up from Canada to South Africa, and the market is going to change significantly. Any of these mines are still five to 10 years from production, but they put a cloud over rare earth mineral prices going forward.
For now, these results are outstanding and the Mountain Pass manufacturing facilities, code-named Project Phoenix, appear to be ahead of schedule. So far so good, but what is the future for this rare earth mineral powerhouse?
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