Lifton on why Molycorp failed.
What makes a successful mining venture? The answer is the bringing into production of a mine the products of which sell for a profit. It’s as simple as that. Yet when you look at the web site entry “about us” on almost any junior mining venture you are told only that this corporate officer or that director has top school credentials and professional credits and has already made money for shareholders of previous ventures. But upon examination it almost always turns out that the money was made for those others who bought the shares low and sold high. Just about none of these previous ventures became successful producers of profitable products. This classic smoke and mirrors approach reached an all-time high with Molycorp, which was not only started with the very best credentials but was the best seller of sizzle with no steak that anyone ever saw, and I think, was more responsible for the rare earth boomlet than any other single factor.
Factors such as the commodity super-cycle and the manipulation of markets by inscrutable villains from the Far East pale before the psychological impact of “It was started by a major Wall Street investment bank, you know!” “They MUST know what they are doing.” They did and they do.
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Junior mining ventures can not make money by producing goods, so their shareholders can realize short term gains only by themselves manipulating the share price through announcements of resource size advances or predicted low cost operations or “understandings” with downstream customers, who themselves are stock market darlings. Mines take 10 years from resource discovery to production, so there’s NO way to make profits during the first 10 years of a venture other than to buy the shares low and sell them high.
I personally look upon Molycorp as a flawed business model and in my opinion, a perfect illustration of how money cannot buy success. In fact Molycorp’s glaring error was that it did not “war-game” either the long term availability of markets for its products or the probability of success of its attempt to build the largest ever rare earth separation plant to jump over the heads of all of its competitors in economy of scale.
Again, in my opinion — I think that Molycorp’s failure was due to its control by financial engineers rather than mining and chemical engineers and a good marketing staff.
The addition of Constantine Karayannopoulos to Molycorp’s management was the right idea but it was too late. Project Phoenix was already sinking, perhaps had already sunk, under the weight of poorly thought out decisions by financial managers looking down on the chemical engineers who were trying to make a silk purse from a sow’s ear.
Institutional investment awards its highest accolade “a good long term investment” only to those startups with good, financial and technical operations management and with a good marketing plan.
Mining is a long term investment. If you are investing only for the short term and you invest in mining then that’s just the category you have picked to play in the stock market’s casino.
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>