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The biggest rare earths miner outside of China survived a tough Q4 to post strong 2011 results, and could be on track to hit its targets in 2012.
By Robert Sullivan — Exclusive to Rare Earth Investing News
Strong FY 2011 results released by Molycorp Inc.(NYSE:MCP) last month have revealed that the Colorado-based rare earth miner managed to survive a tough Q4 for the rare earth sector, and confirmed that the company still expects to hit its 2012 ramp up plans ahead of schedule.
Both rare earth prices and the shares of miners in the sector soared during the first half of 2011, but a drop off in demand over the second half of the year dragged down many high fliers in Q4, including Molycorp.
Over the final quarter of the year, Molycorp saw its stock value trimmed by 27 percent, an abrupt reversal following a record Q3 for sales and profits.
But even though net income was down by 39 percent in Q4, Molycorp still managed to beat performance forecasts for the quarter, with an adjusted net income of 41 cents per share topping estimates by one cent.
And while Q4 may have been underwhelming, Molycorp’s FY 2011 figures tell a much different story. Net income was up by $169.1 million over the previous year, while net sales soared by 1,127 percent to $396.8 million. Sales volume at Molycorp’s core property, Mountain Pass in California, was reported to be 3,050 tonnes of REO equivalent.
Molycorp also produced 52 tons of rare earth alloy from its Tolleson property in Arizona during Q4. President and CEO Mark Smith cited alloy sales as a key contributor to the company just edging out the bleak estimates for Q4.
2012 ramp up underway
The bullish 2011 results for one of the leading rare earth miners outside of China may ease some of the misgivings that have been growing among investors since the downturn of Q4.
Molycorp is looking to at least double production this year to 8,000 to 10,000 tons, and announced in its report last week that it has successfully launched the sequential start up of its new Project Phoenix rare earth manufacturing facility at Mountain Pass.
When phase one is completed at the end of Q3 this year, the Project Phoenix facility will have an annual production capacity of 19,050 tonnes of REO.
At the end of 2012, the capacity of the facility will be doubled to produce up to 40,000 tons of REO per year.
A transition year
Despite the promising outlook, Smith noted in a conference call on February 23 that 2012 will be a transition year for the company, with a number of one-time expenses as operations are ramped up at the Project Phoenix facility.
And with most of the anticipated growth in output not expected to occur until after the completion of phase one of the facility, it may be a long and uneasy wait for investors should the rare earth market prove to be as volatile as it was last year.
One sign that the year is already shaping up to be an active one in the rare earth market surfaced in an interview last Monday with Wang Caifeng, a former official overseer of the rare earth industry with the Ministry of Industry and Information Technology.
Caifeng told Bloomberg that “export quotas may be met this year as overseas demand recovers,” adding that “high prices last year had deterred purchases and led to inventories’ depletion.”
At 31,130 tonnes of REO, China’s initial export quotas for 2012 are virtually unchanged from last year’s. Should China’s full allotment be exported overseas this year, world supplies of REO would effectively double, as only 49 percent of last year’s quota was exported over the first eleven months of the year.
Securities Disclosure: I, Robert Sullivan, hold no direct investment interest in any company mentioned in this article.