Molycorp, Inc. (NYSE: MCP) has only been public three days.  The company’s stock debut was met with much of the same “sell the IPO” reaction by investors who secured shares.  This is of course not a biotech stock as it is a “rare earth” materials and metals stock.  The difference between this IPO and just about every other IPO in the metals and mining sector is that this is a story that goes out to 2012 and beyond
before significant operational changes that could reward investors.  It has the same time frame as many biotech stocks which come public.  Still, there may be some huge promise here if you are a long-term investor and if things continue to operate normally in the world.

Molycorp is effectively the only rare earth oxide producer in the Western Hemisphere.  The problem in the “today versus yesterday” scenario is that it generated only $7.1 million of revenue from sales of products manufactured from stockpiled feedstocks in 2009.  That figure for sales was $2.9 million during the first quarter of 2010.  The company stated right up front that the 2009 and current level of revenue is not representative of its planned level of operations after it restarts mining operations.

The “rare earths” are required to make many of the key components in green energy technologies, high tech applications and defense systems.  Companies using these materials today are almost entirely dependent upon China for the materials.  This REO and REE sector applies to components and processes of polished glass, water treatment, “green” vehicles, lasers, alloys, magnets, optics, and on and on.

Here is what the company says in its description:
“…estimate total proven reserves of 88.0 million pounds of REO contained in 0.480 million tons of ore, with an average ore grade of 9.38%, and probable reserves of 2.12 billion pounds of REO contained in 13.108 million tons of ore, with an average ore grade of 8.20%, in each case using a cut-off grade of 5.0%, at our Mountain Pass mine. Based on these estimated reserves and an expected annual production rate of 19,050 mt of REO, our expected mine life is in excess of 30 years. According to Roskill, global REO production in 2008 was about 119,220 mt, of which only approximately 4,220 mt originated from outside of China, with Molycorp producing approximately 1,700 mt from its stockpiles and Russian producers producing approximately 2,500 mt. This contrasts with total demand outside of China in 2008 of approximately 50,000 mt, according to Roskill, with rapid growth expected by industry analysts. Upon completion of our modernization and expansion efforts, we will have the ability to produce 19,050 mt of REO per year to supply this non-Chinese demand and expect to have the capability to increase production to approximately 40,000 mt of REO per year, if warranted by market conditions.”

Also noted:
” At our Mountain Pass facility, we have the ability to mine, crush, mill and separate rare earth ore to produce individual REEs. We hold a 30-year mine plan permit and an associated environmental impact report, both of which were issued in 2004. Since our acquisition of the Mountain Pass facility, we have been producing and selling REOs from stockpiled feedstocks to significantly improve our solvent extraction technologies and capabilities. We are now achieving greater than 98% recovery in our solvent extraction units at commercial scale for lanthanum, didymium and a heavy rare earth concentrate composed of samarium, europium, gadolinium, dysprosium and terbium, or SEG concentrate, which we believe is one of the highest recovery rates in the world. We have also developed the expertise to produce the following REEs in many usable forms: bastnasite concentrate; cerium; lanthanum; neodymium; praseodymium; europium; samarium; gadolinium; dysprosium; and terbium. When used to describe the current recovery rate for our solvent extraction units, the term “commercial scale” means that the solvent extraction units are operating at such a production rate that the scale-up factor required to achieve the desired production rate is less than 10 times the current production rate.”

As noted, this story sounds a lot like an emerging biotech if you forget about the sector and just look at its business plan.

It is preparing to recommence mining operations in late 2010, which is expected to coincide with a process modernization to efficiently produce at a rate of 19,050 metric tonnes of REO per year BY THE END OF 2012.

The company’s prospectus cited a study noting that government and industry officials said it can take from 7 years to 15 years to bring a property fully online, largely due to the time it takes to comply with multiple state and federal regulations.  It goes on to note that its Mountain Pass facility is NOT an early stage rare earth project and should have a significant time line advantage as it has a well-defined ore body, an existing open pit with over 50 years of production history, an existing mine and reclamation plan, proven reserves, substantial permitting, and all the necessary technology to successfully process and separate the rare earth elements at a commercial-scale.