Commodities & Metals

Molycorp to Feed European Rare Earth Stockpile (MCP, AVL, REE, SHZ, REMX)

US rare earths miner Molycorp, Inc. (NYSE: MCP) has had its ups and downs since going public in July of last year. Mostly ups, of course, though the current price is off the high by more than 25%. Earlier this year the company bought a controlling stake in an Estonian rare earths producer and it looks like that acquisition is going to pay off soon.

The European Union is mulling over a plan to build a stockpile of 3,000 tons of mixed rare earth concentrates, a form that can then be further refined into one of specific elements as needed. Perhaps by coincidence, Molycorp’s Silmet plant in Estonia is capable of producing 3,000 tons of rare earth concentrates annually. The plant processes ore sent to Estonia from Molycorp’s stockpiles in California and from its own operations.

The only other non-Chinese supplier of rare earth minerals is Australia’s Lynas Corp. Ltd., which began operations about a month ago and expects to produce about 11,000 tons of concentrate when fully operational. Other US producers like Avalon Rare Metals Inc. (AMEX: AVL) and Rare Element Resources Ltd. (AMEX: REE) won’t be producing for some years to come. China Shen Zhou Mining & Resources, Inc. (AMEX: SHZ) is the only Chinese rare earths miner that is publicly traded in the US.

Molycorp surprised investors by turning a profit in the second quarter of this year on production of 815 metric tons of rare earth oxides. The company expects to produce 977-1,321 metric tons in the third quarter and 1,017-1,377 metric tons in the fourth quarter of this year.

Prices for the metals have gone parabolic. A kilogram of lanthanum oxide sold for $8.71 in 2008 and cost $111 in early May of this year. Lynas has posted a couple of handy charts at its website that show the disparity between Chinese domestic prices and export prices. The same kilogram of lanthanum oxide produced and sold domestically in China was $23.02 in May.

Molycorp’s CEO, Mark Smith, held about 1.2 million shares in the company shortly after its IPO and sold about 260,000 shares through June of this year. In August, he bought 4,200 shares on the open market at $59.02/share. No other insider buying has been reported.

The CEO of Molycorp’s Slimet operations believes that rare earths prices will stabilize in the fourth quarter and barring a Chinese policy reversal that floods the market with rare earths, prices should remain at current levels for a while.

Molycorp’s shares are up about 5% in the early afternoon today, at $56.05, in a 52-week range of $20.50-$79.16. Avalon’s shares are up nearly 4%, at $4.33, in a 52-week range of $2.91-$10.11 and Rare Element’s shares are up more than 2%, at $8.47, in a 52-week range of $4.85-$17.92.  The Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is also up more than 3.5%, at $21.13, in a 52-week range of $18.56-$28.91.

Paul Ausick

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