Molycorp (s MCP), which mines of a group of metals known as rare earth elements used in hybrid vehicle batteries, wind turbines, compact fluorescent light bulbs, magnets for electric vehicle motors, consumer electronics and other technologies, filed with regulators Friday afternoon to raise up to $350 million in an initial public offering.
Rare earth elements (REEs) aren’t actually as uncommon as the name implies. Some of them are about as abundant as industrial metals like nickel, copper, zinc and lead. For comparison, the two least abundant REE (thulium and lutetium) are almost 200 times more common than gold. What is rare is for these metals to become concentrated in deposits that are easy to tap, and as a result, most of the world’s supply comes from just a few sites. Molycorp controls one of them.
Using proceeds from the IPO, Molycorp plans to modernize and expand its Mountain Pass, Calif. rare earth project, and also acquire a rare earth metals and alloys producer. The Mountain Pass project has been around for more than a half century (at times owned by Chevron), and Molycorp calls it the largest, most fully developed site of its kind outside of China — a country that accounts for all but about 5 percent of the world’s REE output.
Some of the world’s largest known deposits of REE are located stateside, but the U.S. has been importing most of its REE from China since the 1990s, according to the U.S. Geological Survey. The prospect of China’s government limiting exports of the metals, Lux Research analyst Jacob Grose has told us, “is indeed a concern for the hybrid vehicle industry.”
That’s because rare earths are used in nickel metal hydride batteries, like those in the Toyota Prius and Honda Insight. “Even though…hybrids use only a fraction of the worldwide output of these metals,” Grose explained, “if there is a shortage and prices rise, it will definitely lead to cost increases in today’s hybrids.”
The supply shift traces back partly to new Chinese companies coming online and ramping up production, helping to drive down prices to a point where U.S. companies have found it difficult to compete. But Molycorp itself also had a role in the shift: The company stopped removing ore from the Mountain Pass site in 2002 after it had problems with radioactive waste spilling into a nearby lake and the company’s permit expired.
Molycorp notes in its prospectus today that it secured a 30-year permit in 2004, and it plans to re-start mining operations at Mountain Pass in late 2010, reaching full-scale production (40 million pounds of finished rare earth products per year) in 2012.
The company, which reportedly needs to raise $450 million to $500 million to start mining fresh ore again, recognizes that it will need to bring down costs. According to today’s filing, Molycorp plans to implement new production technologies, developed in-house, that it claims will reduce the amount of water, energy and raw materials that go into its operations, as well as the amount of waste water that comes out.
After completing its modernization and expansion efforts — upgrading equipment, setting up capacity to produce some of its own raw materials, and installing a natural gas co-generation power plant at the Mountain Pass site, for example — Molycorp anticipates its biggest operating costs will be natural gas and labor.
According to Molycorp’s filing today, it saw $28.6 million in losses last year, more than double its $14.1 million loss in 2008. Sales reached $7.1 million in 2009, when Molycorp’s mining was on on hold but it was able to sell manufactured products and feedstocks stockpiled from earlier mining campaigns.
Graphics courtesy of the U.S. Geological Survey
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