Monday, May 9, 2011

Molycorp Inc. (NYSE: MCP): Q1 Earnings Preview 2011

Molycorp Inc. (NYSE: MCP), owner of the world's largest rare-earth deposit outside of China, is scheduled to release its first-quarter earnings after the closing bell on Tuesday, May 10, 2011. Analysts, on average, expect the company to post earnings of 10 cents per share on revenue of $41.68 million.

Molycorp, Inc., a development stage company, focuses on the production and sale of rare earth oxides from stockpiled feedstocks. It operates the Mountain Pass mine, a non-Chinese rare earth deposit. Molycorp says it is currently the only rare earth oxides producer in the Western Hemisphere, producing about 3,000 metric tons per year.

In the preceding fourth-quarter, the Greenwood Village, Colorado-based company's net loss was $7.90 million, or 10 cents per share, compared to a loss of $9.07 million, or 22 cents per share, in the year-earlier quarter. On an adjusted basis, the company earned 3 cents per share in the fourth-quarter. Revenue surged to $21.70 million from $2.20 million last year. Analysts, on average, expected the company to post a loss of 7 cents per share on revenue of $13.47 million.

Prices for rare-earth minerals, a group of 17 elements used in renewable energy, magnets, electric cars and weapons, have surged since the world's leading supplier, China, slashed its export quotas by more than 70 percent last year. Also, effective April 1 2011, China imposed a heavier tax on rare-earth minerals.  It is estimated that China holds about 30 per cent of the world's rare earth deposits, but accounts for over 95 percent of global production. According to Molycorp, the creation of U.S. government stockpiles of rare-earth minerals would worsen a tight supply situation. Representative Mike Coffman, a Colorado Republican, introduced a bill in April to establish a strategic inventory of rare earths to supply government contractors and provide government-backed loans to fund new producers.

Rare earth elements are special due to their properties. They are found in many consumer products, including iPods, flat screen televisions, computers, tablet PCs, smart phones and electric hybrid vehicles, as well as industrial products ranging from oil-refining equipment to the high-strength magnets found in wind turbines. Also of importance are their military applications (missile guidance/propulsion systems) and their applications for other military gear, such as night vision goggles and their uses on aircraft. 

Molycorp plans to expand output as demand for rare-earths rises. The company recently acquired Arizona-based Santoku America, Inc. (SAI), one of the leading producers of high-purity rare earth alloys and metals outside of China, in an all-cash deal for $17.5 million. Last month, the company completed the acquisition of a 90.023% controlling stake in AS Silmet, one of only two rare earth processing facilities in Europe. The acquisition provides Molycorp with its first European base of operations as well as doubles the company's current rare earth production capacity from approximately 3,000 tonnes per year of rare earth oxide (REO) equivalent to 6,000 tonnes. Early this year, the company's board of directors approved a $250 million, phase 2 plan to increase production at its Mountain Pass facility in California to 40,000 metric tons per year by the end of 2013. Molycorp said "strong industry fundamentals" drove the decision.

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