In this bull market where valuations are often disregarded and many investors believe this time is different, there are few places for bears to hide. The broader market, whether it deserves to or not, keeps making new highs on the back of quantitative easing and a recovering economy. 

As one of the biggest losers in the stock market, Molycorp, Inc (NYSE: MCP) is no doubt a bear favorite as its share price does actually follow the fundamentals. Shares of the rare earth miner have done nothing but go down over the past couple of years as the company burns through cash. With the bear thesis of the prices of rare earth metals below production costs for the foreseeable future in full force, Molycorp shareholders are leaving in droves. 

Shares of the company are down 61% year to date; is this the last chapter for Molycorp?

Looking for a lifeline
Well, there will likely be one more chapter for Molycorp -- the rare earth miner can still raise money through another secondary because management is authorized to issue up to 350 million new shares (compared to the 244 million shares in Molycorp's present float). While the equity raise would cause significant dilution for shareholders, it would also give the company some more time for rare earth metal prices to increase. 

Since Molycorp has no control over rare earth metal prices, like all businesses with untenable business models, Molycorp's best chance for survival is to lobby the government to help it. Molycorp does have a case for help: having an operating domestic rare earth mine does improve U.S. national security. And the probability of the government intervening is greater than zero. The U.S. government, for example, recently levied tariffs on imported Chinese solar panels. The U.S. has also granted generous subsidies to farmers to buffer them from the boom/bust cycles caused by unpredictable weather conditions. The government can do the same for Molycorp through a mixture of tariffs or subsidies.

The problem for Molycorp common shareholders is that the government has not helped Molycorp before, leading the market to believe it won't help this time around either. 

Because of this, some believe that the government may step in only after Molycorp declares bankruptcy and tries to restructure its debt, similar to the government letting Lehman Brothers declare bankruptcy before it bailed out the rest of the financial sector. It just wouldn't look good otherwise. Also, as government intervention generally correlates with the amount of mass media coverage on a particular issue, the mass media coverage of a Molycorp restructuring/bankruptcy may cause the government can step in as well. 

The bottom line
The Molycorp story is not over. There is at least one chapter left, but given the fact that rare earth prices are below production costs and likely to stay that way, Molycorp stock will only go down over time as it burns through the cash that it raises. 

The only hope for Molycorp common shareholders is if the government steps in, but this is unlikely because the government has not helped before. Ultimately, as a long term investor, rare earth miners such as Molycorp or Lynas Corporation (OTC:LYSCF) are not worth investing in. It's much better to be on the sidelines on this one.