Friday, April 8, 2011

Molycorp (MCP) a Pretender or Contender?

All the hoopla surrounding rare earths after China said they're cutting back on exports brought attention to a vital, but little-known industry, which extremely important to devices like mobile phones. The biggest name emerging from the newly-found popularity is Molycorp (NYSE:MCP), which has become the face of the industry outside of China.

Molycorp announced recently it is acquiring AS Silmet to get a foothold in Europe, while it attempts to expand its U.S. domestic business.

Bizarrely, Colorado Congressman Mike Coffman has introduced the Rare Earth Supply-Chain Technology and Resource Transformation (RESTART) Act of 2011, in order to attempt to take advantage of the media-inspired fears that somehow the world is going to end if the government doesn't create a new department to face the "national security issue."

It appears this is the environmentalists and progressives getting all worked up about this, as rare earths supply needed elements to build solar and electric cars, among other things. Rare earths also are invaluable to mobile phones, although when China threatened to pull back on shipments to Japan not too long ago, Japan said they would simply use different materials, showing this is another "crisis" being used to control the market and expand government.

As far as Molycorp within that scenario, there are major concerns even with the soaring price of rare earths on skyrocketing demand.

Most of that centers around its decision to reconstructing its mine, mill and other facilities at Mountain Pass, California.

Molycorp say they're looking at a period of about 2 years to complete the project, which will cost somewhere around $500 million.

Add to that the anti-business and mining climate you get with California, and you have a lot of potential problems arising and quite possibly delaying the project.

This will be a major part of the success or failure of Molycorp, and it will pressure margins and earnings with that much capex.

Molycorp closed Thursday at $68.45, gaining $6.39, or 10.30 percent.

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