Holy Molycorp: Stock Soaring

Wall Street likes the sound of what rare earth mining company Molycorp is selling. Or plans to soon sell. On the back of a series of positive news for the recently-public Colorado-based company, Molycorp’s stock is soaring at above $50 per share this morning. That’s up from its New York Stock Exchange debut price of $13.25 in July.

What has almost quadrupled the company’s stock over the past weeks and months? Most recently news from China. China provides 95 percent of the world’s rare earth metals, but announced this week that it will significantly cut its exports of these metals, which are used for a variety of growing markets including hybrid vehicle batteries, wind turbines, compact fluorescent light bulbs and magnets for electric vehicle motors.

Molycorp previously mined these types of metals from a 50-year-old rare earth mine in Mountain Pass, Calif., but stopped removing ore in 2002 after it had problems with radioactive waste spilling into a nearby lake. Molycorp plans to use the proceeds of its IPO to start mining again in 2011 after modernizing and expanding the project. Basically Molycorp is one way that the U.S. can avoid being so reliant on China for the growth of these greentech markets.

The other bits of news came from Molycorp itself. Last week Molycorp announced a joint venture with Japanese mining giant Hitachi Metals, which followed on a $130 million financing deal with another Japanese conglomerate Sumitomo Corp. Japan also wants a way to be less dependent on China for rare earth metals.

The $50 price point is quite a difference from Molycorp’s almost rocky debut. The company reined in its IPO ambitions on its first day of training and priced its shares at $14 apiece, down from the $15-$17 per share price range estimated. The stock then debuted on the New York Stock Exchange at $13.25, and hovered mostly between $12.10 and $13.00 during the first day.

With a higher stock price, does Molycorp have a better chance of securing a Department of Energy loan guarantee? Its first loan guarantee application was  “summarily rejected” by the DOE, and Molycorp filed a second request in June for a $280 million guarantee, with the hopes that its IPO would help strengthen that application by “substantially [alleviating] equity funding and liquidity concerns that the DOE might have.”

Well, it will need either a loan guarantee, more contracts, more partners or just more funding to ramp up to full scale mining. Molycorp plans to reach full-scale production (40 million pounds of finished rare earth products per year) in 2012, and says it expects to spend as much as $511 million to get there.

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