EDITOR: | May 9th, 2014 | 4 Comments

Molycorp’s shares plunge to an all-time low

| May 09, 2014 | 4 Comments
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Molycorp (NYSE: MCP) has posted significant losses for the first quarter of 2014 (1QFY14, ended: March 31, 2014). The company said that production could be expanded, however, sales declined due to changes in its product mix. Nevertheless, Molycorp did increase production compared to the first quarter 2013 up to 3,518 tons (from 3,274 tons) at an average sale price of USD$ 33.69/kg but still lower than expected – some 13% lower than the previous year. In 2013, by no means a bountiful year, Molycorp was selling at an average retail price of USD$ 42.26/kg. Revenue fell from the fourth quarter of 2013 by four percent to USD$ 118.5 million. The net loss was $ 88.9 million; it had been USD$ 39 million a year earlier. Molycorp has blamed the poor results on lower rare earth and magnetic powder prices (at least insofar as light rare earths – LREE – are concerned) noting that interruptions at its Mountain Pass facility accounted for the lower than expected production volume.

The market reacted as expected. On Thursday, Molycorp’s shares crashed on the NYSE in after-hours trading, dropping 12% in the wake of a net quarterly loss of 40 cents per share, which was even higher than predicted by the most pessimistic analysts. Nevertheless, Molycorp’s stock is very popular among speculators and has certainly become one of the most actively traded securities on the NYSE. Despite the sharp early losses, at the end of its regular trading session on Wednesday just before the earnings announcement, Molycorp had hardly changed at USD$ 4.55/share with 5.6 million shares having been traded. The share price had bottomed at USD$ 4.01, almost 12% and then rebounded. But today, May 9, the stock has been dropping ever closer to its all time low of USD$ 3.11/share. At the time of writing the shares are edging ever closer to that unenviable level.

Since the beginning of 2014, Molycorp has lost 41.02% of its value and 22.22% in the last 30 days. In 2011, the stock was listed at more than USD$ 70/share. Molycorp’s share losses have come just as the Dow Jones index is approaching its all time high of 16,631. That cannot be good news and the reasons for Molycorp’s drop cannot be blamed simply on the action of short-traders and wily speculators: there are fundamental issues involved.

Molycorp-1-year

There’s not much that Molycorp can do to change the situation. Even if it manages to increase production it would face the headwind of insufficient demand for its products – it is still not able to produce the critical rare earths that are needed to produce the magnets needed for high-tech and military applications. The market, as many companies have discovered has its own logic and it remains beyond Molycorp’s control. Noted rare earths expert, Jack Lifton, Founding Principal of Technology Metals Research, LLC said “Perhaps the great decoupling, which I have hoped for, is now underway. Investors want always to have skin in the game, but to murder a metaphor; they don’t want their necks stretched. I think the market is now and should be focusing on the right size development projects, such as RER (Rare Element Resources), TRER (Texas Rare Earth Resources), UCORE (Ucore Rare Metals), and Tasman (Tasman Metals). They are all in the process of becoming producers of reasonable quantities of the critical rare earths and are all looking at the downstream for their products so as to add enough value to assure immediate as well as long-term profitability. If Molycorp (and/or Lynas) should succumb to market forces then I doubt whether their projects will be picked up even at bargain prices; their overheads will remain too high. The future belongs to the right sized projects for the market.”

Sadly, Molycorp remains the only active rare earth project in North America and the market has not – yet – shown sufficient demand for its product mix. Molycorp has bounced back from ‘defeat’ before and 2013 was kinder to the Company than 2012, when its market value dropped by more than 60%. Since 2012, Molycorp has faced a series of setbacks. Its mine construction costs were higher than expected and the CEO that resurrected it, Mark Smith was forced to resign. Yet, Molycorp is still operational and it continues to control the all important Magnequench patent, which enables it to use rare earths powder to produce neodymium-iron-boron magnets – even if in China. Yet Molycorp has not proven being capable of producing heavy rare earths and it is still experimenting or refining a new rare earths processing technology, which translates to more risk than opportunity.

Note: Stock closed at $ 3.05 with trading volume of 24,846,898.

MCP-May


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Comments

  • Tracy Weslosky

    I have a piece on where rare earth prices are heading done by Jon Hykawy that I decided to wait until this weekend to publish, as this is indeed the news of the day. MCP closed at USD$ 3.05, down 17.79% for the day.

    May 9, 2014 - 5:02 PM

  • Veritas Bob

    To which all important Magnequench patent which Molycorp controls are you referring? US 5,645,651 (Hitachi Patent – Exclusive Licensee; expires July, 2014) : This patent covers RE-(Fe,Co)-B compounds having tetragonal crystal structure. Cobalt free alloys and cobalt containing alloys are both covered by ‘651. As a result this patent covers all products manufactured and sold by Magnequench.

    This expires July 2014. Magnequench (Molycorp) will still have some patents after July 2014. See http://www.molycorp.com/wp-content/uploads/mq_patent_info_guide_11june08.pdf .

    May 9, 2014 - 8:35 PM

    • Jack Lifton

      Magnequench has been lowering powder prices for months in anticipation of fierce competition as Chinese magnet powder makers explode onto the scene after July. Thus this particular aspect of MCP’s revenue loss was very predictable. How many quarters of losses and worsening market conditions does it take to expose a losing situation? I am surprised that investors let Molycorp go this long, and I don’t think that Molycorp can borrow any more money in this market and with its history. My colleague, Hongpo, believes that the rare earth permanent magnet market will expand by 25-50% in the next year. I do not believe that, but even if it happened it would be to the benefit of the lowest cost raw material suppliers and fabricators, and that is not now, nor has it ever been, Molycorp.

      May 9, 2014 - 10:53 PM

  • Venture capitalist

    To put TRER in the same sentence with Tasman Metals and Ucore doesn’t generate much credibility.

    May 12, 2014 - 5:19 AM

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