RPT-IPO VIEW-Molycorp returns long bet for investors

(Repeats IPO-view issued on July 23)

* Full mine production not expected until 2012

* Cost of production ramp outstrips IPO proceeds

* Plans to list on NYSE under symbol “MCP”

By Clare Baldwin

NEW YORK, July 23 (BestGrowthStock) – Mining and mineral processing
company Molycorp Inc (MCP.N: ) hopes to fill a growing need for
scarce “rare earth” minerals and products, but its $450 million
initial public offering, planned for next week, asks investors
to take a big leap of faith.

It will take about two years and more than half a billion
dollars for the company to upgrade its equipment in the Mojave
desert in Southern California and ramp up production. Until
then, the rare earth miner offers only a loss-making hole in
the ground.

Rare earth oxides get buzz because they are used in
electric vehicles such as Toyota Motor Corp’s (7203.T: ) Prius,
wind power turbines and hard disk drives, and demand for the
silvery metals is increasing.

China produces more than 95 percent of the world’s rare
earth oxides, but with fears of a supply shortfall due to
rising export quotas and domestic use, Western companies such
as Molycorp could find a market, even if their costs exceed
China’s.

But Molycorp — previously owned by oil major and eventual
Chevron Corp (CVX.N: ) takeover target Unocal — was shut down in
2002 after unsuccessfully struggling to compete with Chinese
rivals on price and having problems with tailings disposal
capacity and permit delays.

It restarted some processing in 2007 and was later sold to
private investors, but its sales figures are tiny and its loss
is widening. Molycorp’s revenue grew 72 percent in the first
quarter to $2.92 million from a year earlier, while its net
loss widened 38.4 percent to $7.75 million.

“It’s 2012 before they make a dime,” said IPO Boutique
Senior Managing Partner Scott Sweet. “Why buy it now?”

To be sure, Molycorp’s total liabilities only amounted to
only $23.86 million on a pro forma basis as of March 31
compared with total assets of $526.71 million.

Furthermore, the Greenwood Village, Colorado-based miner
says it has one of the largest proven reserves of rare earth
oxides outside of China. It estimates it will churn out 19,050
metric tons of rare earth oxides per year by 2012. That would
work out to about 16 percent of global production, based on
2008 figures.

The Mountain Pass Mine has an estimated 88 million pounds
of total proven reserves and a life span of 30 years.

But it will be nearly two years before Molycorp gets up to
speed and even the full IPO amount — before subtracting
underwriting discounts, commissions and expenses — will fall
short of the $511 million the company needs to gear up.

“They have to spend half a billion dollars over two years
to get there and it may or may not come in on budget in that
time frame,” said IPOdesktop.com President Francis Gaskins.

Research firm Independent International Investment Research
Plc said in a report it only expects Molycorp to generate
positive cash flow from fiscal year 2013 onward.

The firm puts the company’s fundamental value at $14.19 per
share, 11.3 percent below the $16 midpoint of the range.

A spokesman for Molycorp declined to comment, citing a U.S.
Securities and Exchange Commission “quiet period.”

Still, there are signs of a pickup in global demand for
rare earths. If investors are willing to wait, Molycorp could
prove a major player in a fast-growing market.

“They still have the same deposit under their control and
they still have the mining equipment and they still have the
technology for processing rare earths,” said U.S. Geological
Survey mineral commodity specialist Dan Cordier, adding
Molycorp used to be one of the biggest rare earth producers
globally.

The price for neodymium, the main component of rare earth
magnets, has tripled over the past 12 months, said
Detroit-based rare metals market analyst Jack Lifton. But he
warned there was no shortage and that the price gain may not be
warranted.

Lifton also warned that competition from other early stage
companies in the United States, Canada and Australia could pick
up.

Molycorp plans to sell 28.13 million shares for $15 to $17
each. The shares are expected to trade on the New York Stock
Exchange under the symbol “MCP.”

Stock

(Reporting by Clare Baldwin; editing by Andre Grenon)

RPT-IPO VIEW-Molycorp returns long bet for investors