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Molycorp: A Growing Rare Earths Producer Trading Below Book Value

July 25, 2014 | About:
maarnio

maarnio

2 followers

1 The Company

Molycorp (MCP) produces and sells rare earths and rare metal materials in the United States and internationally.

Number of shares

244,712,409

Share price

$2.12

Market cap

$518.8 million

Enterprise value

$1.7 billion

P/S

0.97

P/B

0.41

Ticker

MCP

1.1 History

Molybdenum Corporation of America began rare earths mining operations at the Molycorp Mountain Pass facility in 1952. On September 30, 2008, Molycorp acquired the Mountain Pass, California rare earths deposit and associated assets from Chevron Mining. Molycorp had its IPO in July 2010. On June 11, 2012, Molycorp completed the acquisition of Neo Material Technologies.

nimetön.png(Source: Investor presentation)

1.2 Business Model

Molycorp is a global rare earths producer that operates a vertically integrated, global supply chain that combines a world-class rare earths resource with manufacturing facilities on three continents that can produce a wide variety of custom engineered, advanced rare earth materials from all of the lanthanide elements, plus yttrium.

nimetön.png

(Source: Annual report)

1.3 Business Segments

Molycorp has four reportable segments:

  1. Resources
  2. Chemicals and Oxides
  3. Magnetic Materials and Alloys
  4. Rare Metals

nimetön.png

(Source: Investor presentation)

Molycorp’s vertically integrated manufacturing supply chain allows it to provide a variety of rare earth products for customers around the globe.

0001489137-14-000014_MOLYCORPPRODUCTOFFERING2.JPG

(Source: Annual report)

2 Management

The CEO Geoffrey Bedford has more than 10 years of industry experience. Geoffrey Bedford has been CEO since in December 2013. Collectively, Molycorp’s management team has over 100 years of industry experience.

2.1 Insider Ownership

Molycorp’s directors and executive officers own 2% of the company.

nimetön.png

(Source: Proxy Statement)

Here is a table of Molycorp’s insider activity by calendar month.

Insider buying / shares

Insider selling / shares

July 2014

0

0

June 2014

0

0

May 2014

50,000

0

April 2014

0

0

March 2014

650,000

0

February 2014

0

0

January 2014

0

0

December 2013

0

0

November 2013

0

0

October 2013

14,030,000

0

September 2013

0

0

August 2013

26,500

0

July 2013

0

0

June 2013

60,000

0

May 2013

0

0

April 2013

0

0

March 2013

0

0

February 2013

0

0

January 2013

15,016,667

0

There have been 29,833,167 shares purchased and there have been zero shares sold by insiders since January 2013.

2.2 Compensation

Here is a table of the management’s compensation.

nimetön.png

(Source: Proxy Statement)

The management’s total compensation has followed the share price.

chart.ashx.png

3 Financial Summary

3.1 Current Situation

Molycorp reported the first-quarter financial results on May 7 with the following highlights:

Revenue

$118.5 million

Net loss

$88.9 million

Cash

$236.1 million

Debt

$1.4 billion

Product sales volume

3,518 mt

The first quarter product sales volume increased 10% over the fourth quarter 2013.

nimetön.png

(Source: Investor presentation)

3.2 Historical Developments

Here is a table of Molycorp’s revenue and earnings since 2009.

Year

2009

2010

2011

2012

2013

Revenue ($ millions)

7.1

35.2

396.8

527.7

554.4

Net income/loss ($ millions)

-28.6

-50.8

+117.5

-481.2

-374.4

EPS

-0.72

-0.81

+1.29

-4.60

-2.21

Molycorp was profitable only in 2011.

4 Shares

Here is a table of Molycorp’s number of shares since 2009.

Year

2009

2010

2011

2012

2013

Number of shares (millions)

39.5

62.3

83.5

107.1

174.5

Molycorp’s number of shares have grown 342% since 2009, but revenue has grown 7,708%.

5 Outlook

Molycorp expects that it will achieve significantly higher production volumes in the second half of this year.

nimetön.png

(Source: Earnings presentation)

IMCOA forecasts demand for rare earths to grow at a modest compound annual growth rate of 6-10% per annum for 2014-2017.

nimetön.png

(Source: Investor presentation)

6 Risks

The two main risks are negative earnings and the price of rare earths. Molycorp has been profitable only in 2011, when the price of rare earths peaked.

nimetön.png

(Source: Investor presentation)

7 Conclusion

Molycorp is currently trading at a P/B ratio of 0.41. I believe the stock could have at least 100% upside potential during the next 12 months.

Disclosure: The author is long MCP

About the author:

maarnio
I have 15 years of investing experience. I have traded stocks, commodities and Forex markets.

Rating: 0.0/5 (0 votes)

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