Hedrick: Molycorp is Great News for the Rare Earth Industry

James Hedrick sat next to me at TREM 2012 in DC last week. While he retired from his position as the rare-earth commodity specialist for the U.S. Geological Survey in early 2010 after 31 years, he now runs Hedrick Consultants and is anything but retired. Off of the back of my hand, James or “Jim” as we call him sits on the Board for US Rare Earths, along with the Advisory Boards of numerous companies including Stans Energy, Great Western Minerals Group and Arafura Resources.

This morning he sent me some notes on Mark Smith’s presentation at TREM and gave us authorization to print them. His conclusion is that the start-up of Molycorp is great news for the rare earth industry. He did however say we should note some caution from the perspective that if an environmental issue or natural disaster should occur, as Mountain Pass is in an earthquake hazard area; this could easily shut down the mine, at least temporarily. And of course, we should all know (most RareMetalBlog readers do) that Molycorp is the only commercial-size company mining and processing outside of China.

Additional key takeaways and analysis from the presentation by Mark Smith, CEO of Molycorp by Jim included the following:
Molycorp’s recent $1.36 billion purchase of Neo Material Technologies was to acquire a high-quality product producer with 1,375 employees at 20 operations in 10 countries.

Neo Material had $306.8 million in cash and equivalents; assets of $850.5 million; and $198.2 million in long-term debt making it a reasonable cost acquisition. Molycorp saw it as a strategically valuable acquisition for their company.

Molycorp will get access to:

  • some heavy rare earth elements (HREEs);
  • both of Neo Material’s plants in China; the Zibo facility has been allocated a quota of 1,131 tons light rare earth elements (LREEs) and 142 tons HREEs for 2012; Neo Material’s other plant in Jiangyin is also expected to get an allotment.

And —

  • Molycorp’s 20,000 tonnes Mountain Pass rare earth oxide solvent extraction plant is expected to come on line 2012, however, it will take at least a year to get the plant balanced and running before Molycorp gets commercial rare earth product out.
  • Molycorp will have access to 11 Neo Material’s production centres broken down as follows: 2 rare earths & zirconium facilities, 7 rare metals facilities, and 2 Neo Material’s powders facilities.
  • Molycorp will also gain access to intellectual property as well as new markets in Asia and Europe — specifically Neo Material’s Magnequench facility and the intellectual property in China such as the production centers producing magnet powders, bonded magnets, and other rare-metal production facilities, including gallium, rhenium, indium, tantalum, and niobium. Mark Smith noted that Neo Material has 28 patents.
  • Neo Material’s Magnequench division has $800 million in sales per annum. The US taxpayer and job base really took a hit when the Government let China take this plant and intellectual property out of the US. A total of 39% of Neo Material’s revenues are from Magnequench and therefore the US suffered a huge negative cash flow, loss of jobs, loss of intellectual property, loss of a manufacturing facility, and loss of a direct pipeline for future neodymium production from a US mine to US buyer when this facility was sent to China.
  • The acquisition adds alloy and rare earth magnetic powder production to Molycorp’s pipeline and matches up downstream from Molycorp’s separated oxide products.
  • The purchase will allow access to China’s markets. Mark Smith announced he will send an additional 3,000 to 5,000 metric tons rare-earth oxide in bastnäsite concentrate to China, about 7%-12% of phase 2 expansion output. The material will go to the Zibo plant. Zibo has been allotted export quotas and has passed its environmental compliance.
  • Mark Smith also announced Molycorp has been producing 2,800 tons of ore per day since October 2011 according to Andy Davis of Molycorp. The new mill will start up in March 2012 producing rare earth cake (bastnäsite concentrate). He added that everything is on or ahead of schedule, including the crusher, the mill, the solvent extraction plant, and the combined heat and power plant that will power the mill, dryers, calciners and the solvent extraction plant.

Special thanks to James Hedrick who also is a member of the REE World Advisory Board, and is the editor of REEHandbook — the ultimate guide to rare earths.

Is Molycorp’s Cheap Price Attracting Mergers and Acquisitions in the Rare Earth Industry?

With Molycorp seen as undervalued, it is not surprising that the rare earth industry has seen an increase in merger and acquisition activity. The company’s attractively low price may be tempting for potential buyers looking to capitalize on the potential of the rare earth market.

What is the significance of China, Molycorp, and the attempt to return to 1984 in relation to the rare earth industry?

China’s dominance in rare earths has far-reaching implications, particularly in relation to Molycorp’s attempt to challenge it. The significance of this struggle goes beyond industry competition; it raises questions about global power dynamics and the potential for a return to a world resembling the dystopian vision of 1984.

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