Why Molycorp Inc. Stock Plunged Today

Is this meaningful or just another movement?

Travis Hoium
Travis Hoium
Jul 9, 2014 at 2:20PM
Energy, Materials, and Utilities

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of rare-earth mineral miner Molycorp (NASDAQOTH:MCPIQ) have fallen 14% today following speculation that the company would eventually go bankrupt.

So what: Bloomberg reported last night that Apollo Global Management is building a large position in Molycorp's convertible debt in an effort to take control of the company. For this to take place, Molycorp would have to go bankrupt, senior debt holders would be compensated or kept as debt holders, and equity would be split among convertible debt holders, of which Apollo reportedly intends to be the largest.

Now what: This means Apollo is betting that Molycorp will go bankrupt, which I think is certainly a possibility because its operations are burning through cash. At the end of its first quarter, Molycorp had just $236.1 million in cash on the balance sheet and had burned through $45.8 million in that quarter alone. This is a stock I'd avoid at all costs, and Apollo's purchase of debt is just another reason why.