Is there to be life after Molycorp? You bet there is.
As usual Adam Smith’s “invisible hand” is guiding the market place for rare earth producers and juniors in the right direction. I say this because Wall Street players (using other people’s money, of course) have long set their rare earth course by sighting upon Molycorp as the archetype rare earth “play.” But alas they have now lost most of the money entrusted to them by others and small investors have moved to right sized rare earth ventures as the drivers for future production of the right mix of products. Don’t despair for the Wall/Bay/Howe Street “boys’ they will just have to use their own money, built by taking trading profits and fees into their own pockets, for building penthouses in the sky, buying premier grand cru vintages, and getting the best medical care the NHSs and ACA cannot provide for their STDs and other afflictions.
I am delighted that the right sized rare earth ventures are moving up as Molycorp descends into no-more-perks (or sky high salaries for that matter) for executives’ territory and the up value of its share certificates for use as papier hygenique since the MCP paper will be less expensive than the same-use products of Georgia Pacific.
So as Molycorp’s share price heads down and Rare Element Resources’ share price heads up and probably will surpass that of MCP shortly let me spin a theory for you of what I think should ( or may ) be happening:
Molycorp overpaid for Neo Materials Technologies and the overpayment is part of or all of its debt. However it is most likely true that Neo is still worth today half of what it was sold to Molycorp for. So if I were Messieurs Karyannoupoulos and Black I would examine the scenario below
- Black acquires control of the equity in the company, Molycorp,
- Black dismisses Karyannoupoulos or K resigns as Chairman along with Bedford as CEO
- K offers to buy Neo from Molycorp for half of what Molycorp paid. This gives the company, Molycorp, a substantial amount of money to settle its debt most of which is due to the goodwill cost for the acquisition of Neo anyway
- Black arranges the financing for the Neo buyout and thus
- Makes the bankruptcy judge deliriously happy by paying off the creditors
- Gets a good operating mine very cheap
- Gets a state of the art traditional light rare earth separation plant with a large capacity for cheap,
- Black reconfigures Molycorp as a toll refiner thus making any and every other light rare earth project in the America’s vastly more likely to go forward and succeed at a lower capital cost
- Black produces just enough material from Mountain Pass to make breakeven for the new company and all toll refining is then very profitable.
- K continues Neo’s original business and retains an agreement to be the marketing agent of Molycorp for products and toll refining looking to a future when Chinese costs rise to the point that Molycorp can produce light rare earth products competitively enough to sell against the Chinese producers in their own markets-perhaps in the later part of this decade.
OK. This is fanciful, because it doesn’t take into account the details of the necessary financial and legal manipulations, which may make the above scenario impossible or too expensive. But, in fact, I said a few months ago, and I repeat that Molycorp, shorn of debt and Neo (and Boulder Wind if it still has it as well as of its small rare earth metal operation in Arizona) could be a profitable toll refiner backstpped by its own mining capacity. I realize that Molycorp might have to create a hydrometallurgical treatment arm to prepare other people’s feed stocks for its toll operations, but this could be profitable also as it would throw off SEG and HREE residues that would be very valuable to the southeast Asian market even now.
The new Molycorp would not be equipped to process SEGs and HREEs at Mountain Pass, but there may be other locations outside of China where that can be done in the near future.
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This is all speculation, and I’ll let you know if Mr. Black calls me. I’m pretty sure that I’ll never hear again from Mr. Karyannoupoulos.
Oh, and an even better fantasy: Black buys control of Lynas and thus owns the non-Chinese world’s largest toll refining capacity and the two largest non-Chinese light rare earth deposits. I’ll bet Goldman-Sachs would buy into that. I remember a time when it, G-S, had that very idea.
To paraphrase the purported Chinese curse: “We live in interesting times.”
At last the rare earths’ markets will be populated with the right sized ventures with the right distribution of rare earths. Who could have seen that coming?
Jack Lifton is the Sr. Editor for InvestorIntel Corp. and is the CEO for Jack Lifton, LLC. He is also a consultant, author, and lecturer ... <Read more about Jack Lifton>