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What: Shares of rare earth mineral miner and processor Molycorp Inc (NASDAQOTH:MCPIQ) jumped as much as 21% today after skyrocketing 76% yesterday.
So what: The excitement is over a supply deal with wind turbine maker Siemens' (NASDAQOTH:SIEGY) rare earth magnet supplier Shin-Etsu Chemical Co., Ltd., which agreed to buy rare earth materials from Molycorp over the next 10 years. This gives some demand stability, but there were no details about pricing or financial support that could keep the company afloat.
Now what: I can't help but see this as a dead cat bounce for Molycorp, which hasn't been able to make a profit the last three years. In fact, in 2014 its gross margin was a 21%, a terrible sign for any company. I just don't see how this supply deal will turn around the company's fortunes.
As an investor, I'd rather see momentum in revenue and earnings rather than announcements like this, because with $1.6 billion in debt and capital lease obligations compared to $212 million in cash I don't see how Molycorp can survive for long given the losses it reports quarter after quarter.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.