Tags: Molycorp Shares Jump on China Rare Earth Cutback

Molycorp Shares Jump on China Rare Earth Cutback

Tuesday, 28 Dec 2010 12:26 PM

Shares of Molycorp Inc. rose as much as 11.6 percent Tuesday after China said it would cut its rare earth mineral export quotas.

The surge, which extends the nearly 10 percent jump that Molycorp posted Monday, came after China cut its first batch of rare earth export quotas for next year by more than a tenth in the face of a threat by the United States to complain to the World Trade Organization over the export limits.

In late morning trading on the New York Stock Exchange, shares of the Greenwood, Colorado-based company were last up 7.4 percent at $53.11 after earlier trading as high as $55.22.

China produces about 97 percent of rare earth elements, which are used in high-technology, clean energy and other products that exploit their properties for magnetism, luminescence and strength.

China's Commerce Ministry allotted 14,446 tons of quotas to 31 companies, which was 11.4 percent less than the 16,304 tons it allocated to 22 companies in the first batch of 2010 quotas a year ago.

The Ministry said in a statement on its website that it had added more producer companies to the quota list, but cut volumes allocated to trading companies for the metals used in high-tech goods.

The export quotas were based on export volumes from the beginning of 2008 to October 2010, it added.

Prices have surged for these minerals, used in everything from Apple Inc's iPods to fluorescent light bulbs, since authorities in Beijing slashed their rare earth exports by 40 percent this summer, saying China needed them for its economic development.

Japanese companies, which bore the brunt of China's action, have been scrambling to secure reliable supplies of the minerals.

Last week, Hitachi Metals Ltd. signed a joint venture with Molycorp to help ensure a steady supply.

That followed word earlier this month that Sumitomo Corp. agreed to invest $130 million in Molycorp to secure a seven-year supply of the materials.

Since debuting in late July at $14, Molycorp's stock price has nearly quadrupled.

Molycorp owns a rare-earth mine in Mountain Pass, California, which is scheduled to come back on line next year.

The Mountain Pass facility, which it bought from Chevron in 2008, has not mined or milled rare earth oxides since 2002, according to an S1 that the company filed with the U.S. Securities and Exchange Commission this spring in association with its initial public offering.

The company is modernizing and expanding the facility, but does not plan to reach full planned production rates before 2012.

China's actions have lifted the shares of Rare Element Resources, Tasman Metals, Avalon Rare Metals and Lynas.

Demand for rare earths is set to more than double in less than five years, from 120,000 to 250,000 tons by 2015.

That demand comes from a variety of companies. General Electric uses rare earths in wind turbines. Toyota and Nissan use them for their hybrid and electric cars. Research In Motion and Apple need it for their smartphones and tablet computers.

Particularly in demand are oxides like dysprosium, terbium and neodymium, which are used in permanent magnets.

This is a market gap that mines like Molycorp's Mountain Pass facility and Lynas's Mount Weld in Australia will try to fill. But even if they make it to market in the next 12 to 18 months, Molycorp and Lynas's deposits are skewed to light rare earths such as cerium and lanthanum, meaning major holes in the supply chain will remain.

© 2015 Thomson/Reuters. All rights reserved.

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