The class action suit filed against Molycorp on Feb 3rd, regarding inaccurate reporting of their progress comes two days after Molymet invested USD $390 million in Molycorp. It was alleged in the lawsuit that during mid 2011, Molycorp exaggerated how soon their Mtn. Pass mine would be re-opened and supplying its customers. This resulted in the stock price falling in the second half of 2011.The timing of the sale of company stock by Molycorp’s Board is now looking suspicious to other investors. However, companies are always optimistic about timelines, REE stocks fell across the board in the latter half of 2011, and the filing coming two days after a large cash infusion also looks opportunistic.
The demand for REE’s and the limited supply has caused all miners outside of China to report, perhaps overly optimistic schedules for production. Lynas hoped to get their LAMP on line in September but have just received approval which means they won’t be able to produce until Q2 this year. Great Western Mineral Group, (GWMG) was quoted in the Globe and Mail in July 2011 as being 18 months ahead of schedule at their Steenkampskraal mine. It is likely that no one believes that but investors are not likely to sue GWMG for being too optimistic. Perhaps a reason for both Molycorp and GWMG being optimistic about their future is that both mines have operated previously but were shuttered due to cheap Chinese imports, not because they were depleted. So they know they have minable REE’s, and that these REE’s can be produced. They may also have been optimistic about production since both mines contained stockpiles.
Demand has gone back up since Q3 of 2011, and as a result Molycorp is said to have exhausted their stockpiles. Maybe they felt the decreased demand in mid 2011 due to the economic downturn that hit REE’s later than most industries would allow them to continue to supply customers. But if they are now out of stock and going to be producing new supplies later than thought, the gap in supply may be what is concerning investors now. GWMG has not gone through their stockpiles though and may be able to capitalize on this gap in supply. Or perhaps it will be Lynas that gets to market ahead of some estimates. Many are guessing about what these developments will do to supply and demand pressures on REE stocks in the very near future. But one thing is for sure, the race is on.
Disclaimer: Great Western Mineral Group and Lynas are sponsors of Rare Metal Blog.