Time For Molycorp To Shine?

Todd Shriber
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With Molycorp, the largest U.S.-based rare earths miner, due to report earnings Wednesday after the close, I figured it might be a good time to take another look at the company. For those interested, I wrote on Molycorp two months, which can be found (HERE).

Shares of Molycorp were trading around $53 when I wrote that piece and now hover around $50, but that is still good enough to give the company a market value of around $4.1 billion as of Tuesday's close. That is pretty hefty in the rare earths universe and a piece run by Bloomberg News last weekend notes that Molycorp's rising market value equates to a valuable currency that can be used for mergers and acquisitions. Rival Avalon Rare Metals (AVL), among other firms, was mentioned in the Bloomberg piece as a possible Molycorp target.

The way things are going in the rare earths space, consolidation may be a good thing for the both the buyers and the sellers. China is still the dominant force in terms of rare earths exports, controlling 95% of that market, but as the chart from CIBC Capital Markets shows, China is not being shy about paring its rare earths export quotas in an effort to curb pollution.

China Rare Earths Export Quotas

While rare earths prices have risen recently, shares of Molycorp have not. Erring on the side of caution, I do not want to hazard guesses as to why that is the case or when the trend will abate, but the CIBC report highlights Molycorp and Avalon as two companies that are poised to take advantage of continued demand for rare earths and their soaring prices. CIBC featured a nifty map in its report that shows where the major rare earths mines are across the globe and it indicates that a Molycorp/Avalon marriage has the potential to be compelling for investors on both sides of the deal.

Rare Earths Projects

Remember that Molycorp (MCP) is not yet profitable, but analysts are forecasting the company will earn $2.60 a share in 2012 and $4.79 a share in 2013. That is pretty stout growth and it may not be far flung if the company can ramp up its production and add an accretive acquisition to its arsenal. The demand side is likely to take care of itself as consumers across the globe keep snatching up smartphones, tablets and other devices that are prime destinations for rare earths metals.

And if you just cannot live without some analyst price targets, back in January I noted Dahlman Rose has an $85 price target on Molycorp. CIBC put an $80 price target on the stock on Monday and JPMorgan was out Tuesday with a $65 price target. No matter how you slice it, all three represent substantial upside from $50.

Oddly enough, it was supposedly the Chinese that said ''may you live in interesting times.'' Indeed these are interesting for Molycorp and its rare earths brethren.