Molycorp Earnings: An Early Look

Earnings season is now starting to wind down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Molycorp (NYSE: MCP) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Molycorp was a market darling when rare-earth metals looked to be the next long-term strategic commodity play. Yet as prices have plunged, so too have Molycorp's prospects. Let's take an early look at what's been happening with Molycorp over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on Molycorp

Source: Yahoo! Finance.

Will Molycorp dig up gains?
Analysts have soured badly on Molycorp's prospects in the past few months, with their consensus loss estimate for the just-ended quarter widening by $0.25 per share and their 2013 full-year estimate swinging from a modest profit to a loss of $0.55 per share. The stock has been similarly ugly, with the share price down 28% from its late-November levels.

The entire rare-earth space has taken a major hit recently as declining demand combined with substantial production from China has sent prices plunging. Yet even though Rare Element Resources (NYSEMKT: REE) and Avalon Rare Metals (AVLNF 1.99%) are further away from potential production than Molycorp, their shares haven't fared nearly as badly over the past year as Molycorp's stock has.

In particular, Molycorp has had to deal with some company-specific issues. In December, CEO Mark Smith left the company, with conflicting reports about whether the decision was voluntary. In early January, Molycorp said that its 2013 revenue would be much lower than investors had expected, as the company delayed its expected phase-1 production from its Mountain Pass mine until the middle of the year.

Facing those challenges, Molycorp issued about $350 million in new stock and convertible debt last month. Although the new capital will help the company finance operations and capital expenditures, it comes with the potential for substantial dilution. The shares were offered at $6, and with the debt convertible at $7.20, shareholders have seen their upside significantly limited.

In its report, look closely to see if Molycorp mentions anything about the takeover rumors that have surrounded the company. With weak current prices for metals, however, an acquirer would have to have a long-term mind-set to see the value of picking up Molycorp in its current condition.

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