Molycorp disappoints; shares pummeled on Wall Street

Wall Street punished rare-earth miner Molycorp on Friday after second-quarter results produced another disappointment.

The stock closed down 72 cents a share, or 9.7 percent, at $6.69 after being down as much as $1.20 during the day.

Once a high flier because of an expected booming demand for the rare earth ores dug up from its mine just south of Primm, Molycorp hit its all-time low of $4.70 on April 17 after a string of bad news and has only slightly recovered since then.

During the quarter, the company’s $136.9 million in revenues marked a 30.9 percent gain from one year ago. The net loss of $70.7 million, or 44 cents per share, compared to $71.1 million, or 71 cents a share, one year ago.

When subtracting what the company deems one-time items, the 34 cent per share loss missed the consensus estimate of analysts polled by Yahoo Finance of 23 cents a share.

While the volume of material shipped from the mine at Mountain Pass, Calif., rose 37 percent from the first quarter, according to company chief financial officer Michael Doolan, prices per ton declined nearly 30 percent.

In part, said President and CEO Constantine Karayannopoulos, slack demand has hit the market as industrial companies have worked off their rare-earth inventories rather than buy fresh. Rare earths, used in minute quantities, enhance the power of industrial magnets that are critical to a wide range of applications from smart phones to electricity-producing windmills.

At this point, he said, the company has seen “some strengthening of prices for various rare earths in recent weeks. As someone who has lived through too many rare-earth pricing cycles, I tend to take a fairly conservative view of these trends.”

What might help this time around are Chinese government initiatives to reduce rare-earth smuggling, he said. China controls more than 90 percent of the world’s rare-earth market, but has set decreasing export quotas in the past couple of years to take care of domestic industries. This caused an upward spike in prices, but unofficial exports combined with tepid economies drove prices back down to the detriment of mining companies such as Molycorp.

“(T)he comments and declarations of fairly senior folks, primarily at the Ministry of Industry as recently as (Wednesday) … announcing a crackdown is a very serious and very public declaration that all political levels in China are taking this very seriously,” said Karayannopoulos. “So I’m fairly optimistic that this effort will be effective.”

In addition, production is limited at Mountain Pass because an on-site system to handle toxic waste has not gone into operation, forcing the company to truck it off the site. This increases the mining cost by about $5 per kilogram, so higher volumes would increase losses.