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Molycorp: Ripe for the Picking?

Details: Category: Rare Earth News; Published on Tuesday, 15 January 2013 18:51; Hits: 2781

The markets have been abuzz with rumors that Molycorp’s recent fall below its net asset value is turning the high-potential firm into a prime takeover target.

Earlier this year, the company, which boasts the largest rare earth element (REE) deposit in the western world, increased its proven and probable reserves of rare earth minerals at its Mountain Pass, California facility by 36 percent. The updated estimate expands Molycorp’s reserves to 18.4 million short tons of rare earth ore. An independent verification estimates that the proven and probable component of Mountain Pass’ ore body contains approximately 1.3 million metric tons of contained rare earth oxide equivalent.

However, the company had its fair share of trouble in 2012, including slumping prices, exorbitant costs at its flagship mine and a regulatory probe; it also recorded its lowest ever share price. Those factors ensured that Molycorp’s investors experienced a torrid time in the markets, with circumstances eventually snowballing to the point that the company’s CEO, Mark Smith, resigned in what the board of directors described as “a natural inflection point” as the firm transitions its focus from development to ongoing operations.

Even after rebounding from a record low in November, Molycorp shares are still trading at a 19-percent discount to their book value, according to data compiled by Bloomberg. With the company currently trading well off its one-year high of $35.79 per share, many are of the impression that its currently depressed valuation could jumpstart interest from potential takeover candidates.

Potential candidates

While Molycorp has so far declined to comment on whether there is any truth to the rumors, most investors will be looking to historical market sentiment for guidance.

The company’s current valuation could very well result in manufacturers, such as Nissan putting in a bid, according to a Bloomberg article that cites information from Byron Capital Markets. On a different note, Robert W. Baird & Company’s recent analysis outlines that after expanding its refining and processing operations with the purchase of Neo Material Technologies, Molycorp may even appeal to private-equity firms.

A Roland Berger Strategy Consultants rare earth study, published last year, also supports the idea that a manufacturer may put in a bid. It notes that more and more manufacturing companies are implementing a wider range of measures to counteract volatile REE prices. It adds that while some manufacturers are seeking alternatives, others are going directly to the source; in fact, half of all enterprises surveyed have already set up task forces dedicated to designing strategies aimed at securing supplies of raw materials. This mindset gained even more credibility when Toyotsu Rare Earth Canada, a subsidiary of Toyota Tsusho moved closer to securing its own REE supply by paying Matamec Explorations for an interest in the company’s Kipawa deposit.

Any manufacturer involved in a takeover of this scale would ensure its own REE supply for the foreseeable future and in doing so would give itself a massive boost in relation to its competitors.

However, while a guaranteed supply of raw materials is appealing, another mining company might be better positioned to take over the project.

Luisa Moreno, an analyst at Euro Pacific Capital, told Bloomberg that Molibdenos y Metales, Molycorp’s largest shareholder, and also the world’s largest molybdenum processor, could seek to increase its holding.

However, Michael Gambardella, an analyst at JPMorgan Chase & Company who is also quoted in the Bloomberg article, argues that potential acquirers within the space might hold off because Molycorp’s new plant is employing a refining technique that differs from that of most other mining companies.

One step forward, two steps back

While the company has come up against a number of issues, Molycorp is twice as sophisticated as it was two years ago, when its share price was six times the level it is today.

The company provides a unique buying opportunity in that its shares are currently trading at 0.77 times their actual book value, while one of its largest competitors, Lynas Corporation — which has been involved in a long and drawn out regulatory battle — is trading at a price-book multiple of about 2.1 times.

Despite these factors, the company’s near-term future was once again brought into question last week when its shares plummeted on the back of confirmation that its 2013 revenue will come in lower than previously expected. That’s the result of a drop in selling prices and a delay in achieving full production at its California processing plant.

In a press release, Molycorp noted that all key production components of its new manufacturing complex at the Mountain Pass mine are operational and that the facility has begun ramping up to its full-scale “Phase 1” run rate. However, concerns mounted when it added it will not proceed with the next planned phase of development until it sees an improvement in rare earth demand and prices, in addition to easier access to capital.

As much risk as opportunity

In a market rife with rumors, there will never be a shortage of both bears and bulls, but investors will do well to realize that Molycorp is far from the finished product. It is still developing its mine, has not proven capable of producing heavy rare earths and is still experimenting with a new processing technology. In other words, the stock presents as much risk as it does opportunity.

At the same time, if prices are to rebound, the company remains uniquely poised to ride a wave of opportunity. The fact remains that this project boasts astounding potential, and while investors focused on the short term may be against Molycorp’s decision to hold back on its second phase of development, its willingness to hold out for a more attractive market environment is a plus for long-term investors.

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Shortage of Rare Earth Metals Dealt by The Department of Energy

Details: Category: Rare Earth News; Published on Tuesday, 15 January 2013 18:41; Hits: 2684

In order to deal with domestic shortages of rare earth metals, The Department of Energy (DOE) has established a research hub that will develop strategies and find solutions to preserve the depleting resources.

The rare earth elements are 17 in total and include scandium, yttrium and the 15 lanthanides (lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium). They are called ‘rare’ because they are never part of easily exploitable deposits, due to their specific geochemical properties.

These elements are of a crucial significance to the U.S energy security. They are used in a number of devices that contribute to the national security and high-tech economy. These include computer components, high-power magnets, wind turbines, solar panels, mobile phones, electric vehicle batteries, LCD screens, among others.

The hub is expected to take into account the entire cycle of these elements in order to establish new sources, improve the existing ones, optimize material development and deployment, suggest strategies to improve the efficiency of the manufacturing process, and accelerate recycling and reuse.

The initiative was established in 2010 by Lawrence Livermore from the Ames Laboratory in Iowa, together with Ed Jones and Adam Schwartz. In year 2011, DOE reported that problems with the supply of dysprosium, terbium, europium, neodymium and yttrium, might affect the development of clean energy projects.

A new research center will be set up, called the Critical Materials Institute (CMI), which will bring together researchers from academia, four DOE national laboratories and members of the private sector.

According to David Danielson, assistant secretary for Energy Efficiency and Renewable Energy, the new initiative will work to find technology solutions to prevent the supply shortage and protect the clean energy industry and security interests.

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Galileo Confirms Zambia Rare-earth Project Tenure

Details: Category: Rare Earth News; Published on Monday, 14 January 2013 18:15; Hits: 2756

JOHANNESBURG – London-listed Galileo Resources on Friday said it had completed due diligence at the Nkombwa Hill rare-earth project, in Zambia, after confirming tenure.

The emerging rare-earth exploration and development company intended issuing 5.25-million shares at 5p or $0.08 a share to Rare Earth International (REI) following the findings that the large-scale prospecting licence was the sole existing exploration right over the Nkombwa Hill deposit.

Last year, Galileo entered into a heads of agreement with joint venture partner REI to earn an interest in the rare-earth project, but delays in the completion of due diligence ensued when the Zambian Mines Development Department’s administration centre declined to release key licensing documentation, owing to a moratorium on licences held.

A Zambia-based legal practise, contracted by Galileo, also found that the licence was in “good standing” with, and recognised by, the Zambian Ministry of Mines and Mineral Development.

"We are extremely pleased that the due diligence report is now finalised and that it confirms that the Nkombwa prospecting licence is in good standing and unencumbered,” said Galileo executive chairperson Colin Bird.

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KGHM to Look for Rare Earth Metals

Details: Category: Rare Earth News; Published on Tuesday, 15 January 2013 18:30; Hits: 2744

Polish copper and silver mining group KGHM Polska Miedź plans to undertake activities to explore and extract rare earth elements. The company's chief executive Herbert Wirth announced that KGHM plans to purchase attractive exploration licenses in different countries.

Currently the bulk of KGHM's profits come from mining copper (the company is in the top 10 of copper producers in the world), and silver (in 2011 it was the world's biggest producer), but it wants to diversify its production.

“We want to be a multi-metal company, one that focuses not only on copper and silver but also on other metals,” said Mr Wirth to newseria.pl. Rare earth metals, such as scandium and yttrium, are used in wind-farm construction, as well as in electronic and electrical equipment. Mr Wirth said that KGHM feels it has a responsibility to supply these materials for the Polish and European industry.

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DOE Launches Rare Earth Metals Research Hub

Details: Category: Rare Earth News; Published on Monday, 14 January 2013 18:07; Hits: 2592

The U.S. Department of Energy (DOE) has launched a research hub that focuses on solutions to the domestic shortages of rare earth metals and other materials critical for U.S. energy security.

Housed at Ames Laboratory in Iowa, Lawrence Livermore National Laboratory (LLNL) has been involved in establishing this Energy Innovation Hub since its conception more than two years ago. In 2010, on behalf of DOE, LLNL hosted the first U.S.-Japan workshop on rare earths elements. Ed Jones and Adam Schwartz have been closely tied to the initiative.

The initial team, made up of Ames, LLNL, Colorado School of Mines, and Molycorp Inc., established a 'national network' that eventually resulted in the proposal team; helped DOE on its critical materials strategy; and continued interactions on behalf of DOE at the international level.

The rare earths comprise 17 elements in the periodic table—scandium, yttrium, and the 15 lanthanides (lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium). Despite their name, the rare earths (with the exception of promethium) are not all that rare, but are actually found in relatively high concentrations across the globe. However, because of their geochemical properties, they seldom occur in easily exploitable deposits.

Rare earth elements are essential for American competitiveness in the clean energy industry because they are used in many devices important to a high-tech economy and national security, including computer components, high-power magnets, wind turbines, mobile phones, solar panels, superconductors, hybrid/electric vehicle batteries, LCD screens, night vision goggles, tunable microwave resonators—and, at the Laboratory, NIF's neodymium-glass laser amplifiers.

A DOE report said in 2011 that supply problems associated with five rare earth elements (dysprosium, terbium, europium, neodymium, and yttrium) may affect clean energy development in coming years.

The new research center, which will be named the Critical Materials Institute (CMI), will bring together leading researchers from academia, four DOE national laboratories, as well as the private sector.

"Rare earth metals and other critical materials are essential to manufacturing wind turbines, electric vehicles, advanced batteries and a host of other products that are essential to America's energy and national security, " says David Danielson, assistant secretary for Energy Efficiency and Renewable Energy. "The Critical Materials Institute will bring together the best and brightest research minds from universities, national laboratories and the private sector to find innovative technology solutions that will help us avoid a supply shortage that would threaten our clean energy industry as well as our security interests."

The hub will address challenges across the entire life cycle of these materials. This ranges from enabling new sources; improving the economics of existing sources; accelerating material development and deployment; more efficient use in manufacturing; recycling and reuse; and developing strategies to assess and address the life cycles of new materials.

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