Boston, MA 10/17/2013 (wallstreetpr) – Investors at Molycorp Inc (NYSE:MCP) are discovering that there may not be gold at the end of the rainbow. The rare earth scare of 2010 and 2011 saw producers of rare earths make money. Investors jumped in to get their share of the pie and invested in companies without looking at the long term demand prospects. China banned exports of rare earths used in the manufacture of electronic devices like mobiles and laptops. The prices of rare earths increased, and the supply was not able to sustain demand. Manufacturers shifted to other raw materials and China lifted the ban after some time.
Molycorp is expanding and modernizing its rare earth extraction unit at Mountain Pass. The company raised $414 million from the stock market in January this year to fund the drive. Finding that this was also short, it has decided to approach the market again to raise an additional $200 million. The price is a contentious issue as it plans to offer shares at $5. With the share price trading at $5.49 (after falling rapidly in the last trading sessions) new investors would prefer the new offering than picking up from the open market. The company has also declared that it may not be able to sell the production of 2014. Cesium, the main rare earth extracted by the company does not have a significant market. It is called a low demand product. This puts into question the whole rationale of the expansion project as well as the future of the company.
The shares of the company have tanked following the announcement. The shares are now in the “oversold” territory. There are more sellers than buyers. The volumes on October 16 were 44.49 million against average volumes of 7.49 million. The stock traded in the range of $5.15 and $5.49 before closing at $5.49 per share.
