Molycorp minerals is at the forefront of American companies aiming to bring rare earth elements to the market.  The company not only has the California mine that is being revamped, but also has expanded to international operations.  As promising as its business may be, it’s important to have a well-rounded understanding of the company and business model, so you can assess to what extent future profits, if any, have been priced into the stock at present.  That’s one of the simplest share market tips there are.

Molycorp Minerals Helping Deliver The Raw Materials We Depend On

It’s not uncommon for folks to think that rare earth metals much have rare applications.  Indeed, not only have most people never heard about any of the rare earth elements, but they also generally cannot identify any common uses of rare earth oxides.  However, the fact of the matter is that rare earths are abundantly found in many things that make the world go round.  Technological devices of all sorts use rare earth elements to make them function, such as medical imaging devices, computers and other electronics, and televisions.  If you have ever used a digital camera or cell phone, there’s a great chance you’ve just leveraged rare earths to your benefit.  Everything from petrochemicals to fiber optics require rare earths to function.

And it’s not just the large number of applications that are great.  In some instances, the amount of rare earths needed is great.  For instance, modern windmills consume a few hundred pounds of rare earths.  Hybrid car batteries are quite heavy, and a hefty amount of that is rare earths.  As a specific example, the Toyota Prius is a common illustration, as the battery for a Prius can take around thirty pounds of Lanthanum.

Molycorp Minerals Helping Alleviate Dependence On China

Molycorp minerals can help eliminate the grand reliance the rest of the world has on China for its rare earth supply.  Ironically, China, which used to import rare earths from the U.S., is now supplying them.  China was blessed with the opportunity to process rare earths very cost effectively as a mere by-product of a base metal mining operation.  Having produced rare earths so cost-effectively, China could sell them at prices so low that virtually nobody could compete.  However, over time the applications for rare earths expanded, as did the number of people demanding the products that use them.  Inevitably, there was more and more buying pressure against a relatively fixed supply.  The result was unavoidable higher prices.  This opened the door for new explorers and producers to pursue rare earths once more.

The economic feasibility of pursuing rare earths couldn’t have come soon enough either.  China’s control over the rare earth supply can have crippling effects on the rest of the world.  With an estimated 95-99% control over rare earths both in China and abroad, China’s decreased exports leave other nations little alternatives.  China has begun significantly decreasing exports so as to feed their own need.  To really put things in perspective, China is particularly short on the so-called heavy rare earth elements, and could easily end up importing those before long.  As you can imagine, these actions only drive prices higher, which will benefit companies such as Molycorp minerals as they bring supplies online.

Molycorp Minerals Background & Fast Facts

Molycorp minerals has the distinct benefit of trading on the New York Stock Exchange.  This is atypical, as the bulk of all rare earth companies are on either the Australian or Canadian exchanges.  While these companies are foreign exchanges can be purchased in most cases using the Pink Sheets, not many investors are terribly familiar with trading Pink Sheet proxies of foreign-traded companies.  So, easy access to a rare earth play on the NYSE makes Molycorp an instant hit in that regard.  In short, there are basically no competitors.

Whether due to ease of access for many American investors, or other factors, the share price of Molycorp minerals has skyrocketed during the rare earth wake-up call the world has undergone.

At this point, Molycorp has a market cap of literally billions of dollars.  This seems a bit high, in light of a number of factors.  After all, the entire rare earths industry is valued at a total that the value of Molycorp is approaching.  Just one of the problems with this, of course, is that Molycorp doesn’t even produce anything at the moment.  To the extent that the market has “price in” to the company volumes of future production and earnings, the share price has moved way too far, too fast.  This type of valuation leaves the company set to trade flat for some time, if not pull back hard due to enlightened profit-taking.

To look closely at the facts, we can see why it’s safe to say Molycorp minerals may be a bit overpriced at the moment.  The mine in Mountain Pass, California is old, as is the plant.  It needs to be re-opened, if not somewhat re-built.  The infrastructure is from the 1970s.  So, at present, all it can do is sell stockpile ore from a decade ago.  But that revenue doesn’t justify a market cap of billions and billions of dollars, when active companies can be bought for the same share price that actually are generating that level of revenue.

That’s not to say that money can’t be made.  The price may go higher before correcting and heading lower.  Or it may just sit flat for a while.  The issue is not whether or not money might be made on the trading the company.  The issue is whether or not it’s worth the risk.

Molycorp Minerals – The American Company Going Global

One thing Molycorp minerals has done to broaden the scope of its operations is to go global.  It’s still a concentrated rare earth play.  However, it’s taken a massive stake in a rare earth elements plant in Estonia.  The company purchased a 90% stake in the Silmet facility for almost ninety million dollars.  The plant reconciles well with the deposits at Mountain Pass, California, as it is basilcally set up for processing the light rare earth elements, which is what Molycorp minerals is largely sitting on at Mountain Pass.  The Silmet plant gives the company something that is up and running right now, in real time.  The fair-sized plant handles approximately 3,000 tons a year of Russian ore.  The strategic benefit to Molycorp minerals is that it takes some of the heat off as it navigates the shark-infested waters of pacifying California authorities in ramping up the Mountain Pass operation, since California is not exactly the most user friendly locale.