Molycorp, a company that controls one of the largest deposits of rare earth elements (a group of metals used in many green technologies) outside of China, is off to a rocky start on the public markets after pricing its shares below expectations, raising $393.8 million in its IPO on Thursday.
The company reined in its ambitions and priced shares for its IPO this morning at $14 apiece, down from the $15-$17 per share price range estimated earlier this month. The stock debuted on the New York Stock Exchange at $13.25, and has hovered mostly between $12.10 and $13.00 during today’s trading so far.
Based in Greenwood, Colo., Molycorp aims to use proceeds from the IPO to modernize and expand its Mountain Pass, Calif. rare earth project (a more than 50-year-old mine where Molycorp stopped removing ore in 2002 after it had problems with radioactive waste spilling into a nearby lake), and also acquire a rare earth metals and alloys producer. The U.S. has, since the 1990s, imported almost all of its rare earths from China.
These rare earth metals are used for a variety of growing markets including hybrid vehicle batteries, wind turbines, compact fluorescent light bulbs and magnets for electric vehicle motors, as well as consumer electronics and defense technologies like smart bombs and guided missiles. But U.S. lawmakers and government authorities have been concerned that China’s government could limit exports of the metals.
Most recently a group of 20 senators sent a letter to Secretary of Energy Steven Chu calling for the Department of Energy to open and expedite its loan guarantee program for projects meant to increase U.S. production of rare earth elements, warning that a “crisis” in the supply of these metals could “jeopardize our ability to deploy key clean energy technologies and reach our broader energy policy objectives.”
After seeing its first loan guarantee application “summarily rejected” by the DOE, Molycorp filed a second request in June for a $280 million guarantee, and the company is hoping today’s IPO will help strengthen that application by “substantially [alleviating] equity funding and liquidity concerns that the DOE might have.”
But as Molycorp’s reined-in pricing for today’s IPO indicates, the company debuted in a difficult market. While battery maker A123 Systems delivered the largest IPO of 2009 (raising $371 million) and electric car maker Tesla Motors’ $226 million IPO in June was the largest venture-backed public debut of the second quarter, several other greentech IPOs have been canceled or postponed this year.
Solar company Solyndra, for example, which had been aiming to raise as much as $300 million in an IPO, said last month that it had opted to raise $175 million from existing investors instead due to “going uncertainties in the public capital markets.” Other greentech companies that have withdrawn plans to debut on the public markets in recent months include geothermal developer Nobao Renewable Energy and amorphous-silicon solar panel maker Trony Solar.
Molycorp, which plans to re-start mining operations at Mountain Pass in late 2010 and reach full-scale production (40 million pounds of finished rare earth products per year) in 2012, says it expects to spend as much as $511 million through 2012. And as the company acknowledges in its latest SEC filing, selling its shares at $14 apiece in the IPO “will not be sufficient to fully fund our business plan……and there can be no assurance that we will be successful in raising the incremental capital needed to fully execute our business plan on terms acceptable to us, or at all.”
In contrast with A123, Tesla and the renewable energy companies that have pulled IPO plans, Molycorp is very far from a pure greentech play. It’s even further from the venture capital model of growing a business. The company’s history traces back to 1950, when a firm named Molybdenum Corporation of America (MCA) bought mining claims at the Mountain Pass site. After about 25 years of production, MCA changed its name to Molycorp, Inc. and by 2005 it had merged with Chevron Mining. Then in 2008, a new Molycorp — this one privately held — was formed to purchase the Mountain Pass deposit from a Chevron.
Yet as with A123 and Tesla, an investment in Molycorp’s stock is still partly a bet that nascent greentech markets will take off. All three companies have a history of losses and not one profitable quarter between them. Molycorp has run its business at a loss since inception in June 2008, including $28.6 million in losses last year, and it expects to “incur substantial losses for the foreseeable future.”
And as Molycorp notes in its filing, lack of growth, delays in commercialization or unexpected costs in the markets for electric vehicles, wind power equipment, compact fluorescent bulbs and other clean technology products (as well as “the general automotive and electronic industries”) could adversely affect the company’s revenue and financial condition.
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