Commodities & Metals

Molycorp Takes Off Again (MCP, AVL, REE, SHZ, REMX)

Rare earth minerals miner Molycorp Inc. (NYSE: MCP) reported second quarter earnings last night that topped analysts’ estimates, and shares are trading more than 10% higher in the pre-market this morning. Competitors Avalon Rare Metals Inc. (AMEX: AVL) and Rare Element Resources Ltd. (AMEX: REE) are riding Molycorp’s coattails as well, with pre-market gains of more than 6% and 5.5%, respectively. Chinese rare earths miner China Shen Zhou Mining & Resources, Inc. (AMEX: SHZ) has not moved yet this morning, while the Market Vectors Rare Earth Strategic Metals ETF (NYSE: REMX) is up more than 2%.

Molycorp reported EPS of $0.52, compared with the consensus estimate of $0.39, and revenue of $99.6 million against an estimate of $98.4 million. The company produced 1,249 metric tons of rare earth oxides in the quarter and expects to raise production in the third quarter to 1,428-1,890 metric tons and in the fourth quarter to 1,468-1,946 metric tons. Molycorp is the only company in the US currently producing any rare earth oxides.

Last week Rare Element Resources announced that it had identified high grades of heavy rare earth elements at its project in northeast Wyoming.  The announcement was nearly indecipherable to mere mortals, and none of the US rare earth stocks got a positive bounce from it.

The current production from Molycorp is the result of processing a stockpile of some 40,000 metric tons of ore left behind when the Mountain Pass mine was closed. Molycorp is working through that stockpile to generate some revenue, and expects to hit its production target of around 20,000 metric tons by the end of 2012 and double that by 2013. The Mountain Pass expansion project is on-time and on-budget according to the company.

If Molycorp can make its production target by 2013, it will be producing at least as much of the rare earth oxides as China is currently exporting. What that will mean for prices of the metals is difficult to predict now, but with both Avalon and Rare Earth Resources also gearing up for production, the long-term outlook for rare earths could be another bust after a big boom.

The market has been open for about 15 minutes now, and Molycorp shares are trading up more than 13%, at $61.26, in a 52-week range of $13.13-$79.16. Avalon’s shares are up about 5.5%, at $4.47 in a 52-week range of $2.32-$10.11, and Rare Earth Resources’ shares are up more than 7.5% at $9.76, in a 52-week range of $2.69-$17.92. China Shen Zhou shares are up more than 7%, at $2.64, in 52-week range of $0.82-$10.84. Shares of REMX are up more than 3.3%, at $21.73, in a 52-week range of $18.56-$28.91.

Paul Ausick