When Molycorp (NYSE:MCP) was a hot stock in 2010, it was because rare earth mineral prices were through the roof as China cut back exports. As the theory went, if Molycorp could open its mine in a timely manner, it could take advantage of those high prices and make a mint for investors.
But the inelastic demand for rare earth minerals that led to high prices in 2010 also resulted in a rapid drop in prices when Lynas in Australia and Molycorp opened their mines. Suddenly, the tiny rare earth mineral market was fully supplied and buyers didn't have to pay high prices for the materials they needed.
The resulting impact on Molycorp has been falling revenue, even with increased production and massive losses quarter after quarter. There seems to be no end in sight to the financial challenges and, before long, another share offering may be needed to stay afloat. In the video below, specialist Travis Hoium covers Molycorp's challenges and why this is an investment you should stay far away from.
Travis Hoium 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.