Molycorp: An Intriguing Prospect

 | Feb 11, 2013 | 1:30 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

mcp

At the end of January, Constantine Karayannopolous, vice chairman and acting CEO of Molycorp (MCP), bought $100,000 worth of the company's stock on the open market, part of a cluster of insider purchases at the Greenwood Village, Colo., company in the past few months.

Mark Smith spent $120,000 in November to beef up his holdings before stepping down as CEO and now owns more than a million shares. Charles Henry, a director, spent more than $300,000 in November to increase his holding in the rare-earths producer to 110,593 shares. Two more directors also purchased shares. Molibdenos y Metales SA, a Chilean company that already owned about 10% of Molycorp, spent $110 million in January to increase its stake to 18%.

These buyers are increasing their holdings in a company that I regard as an intriguing speculation. It owns the Mountain Pass rare-earths mine in California's Mohave Desert, believed to be the richest deposit of rare earths outside of China, which produces more than 90% of the world's rare earths -- 17 scarce substances used in aerospace products, wind turbines and hybrid cars. The world's second-largest economy has lately become stingier about exporting the substances.

That doesn't make Molycorp a safe bet. The company said in November that the Securities and Exchange Commission is investigating the accuracy of its financial statements. That's a huge risk factor.

Also significant, the company issued a lot of debt and stock recently to fund the development of its mine. Long-term debt stood at $1.18 billion as of Sept. 30, up from less than $200 million six months earlier. To feed the hungry mine, the company also issued more than 37 million common shares in January at $6 a share, only a few months after its previous share offering of about 14 million shares at $10 in August 2012.

One more risk factor: Though the company was profitable in 2011, it wasn't in 2012.

These risks deserve to be taken seriously; however, the insider purchases give me some confidence that the company now has the capital it needs and that its prospects are good. Meanwhile, revenue is ramping up. In 2012, Molycorp booked about $561 million in revenue, compared with about $397 million the year before.

A safe stock? No. A good speculation? Probably so.

Columnist Conversations

There were nice reversal-type candles on the weekly charts of the major indices. The DOW and the S&P forme...
A number of stocks on my watch lists are attempting to form positive candles a key support levels. I noted th...
Lang:
While last week was a day to pull the plug and contemplate where the market was headed, I waited for some conf...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.