Molycorp Shares Surge on European Acquisition

I didn’t think it was possible for the shares of rare earth mining company Molycorp (s MCP) to go much higher. But this morning, shares in Molycorp are up 9.37 percent to $64.80 in morning trading on the news that Molycorp plans to spend $89 million for a 90-percent stake in a European rare earth mining company called AS Silmet.

The acquisition gives Molycorp a door into Europe and doubles its rare earth manufacturing capabilities. These 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.

China provides 95 percent of the world’s rare earth metals, but announced in December that it will significantly cut its exports of these metals, opening a market for western alternatives like Molycorp and AS Silmet. Molycorp is one way the U.S. and other countries can avoid being so reliant on China for the growth in greentech markets.

Back in December, after China announced it would cut exports, Molycorp’s stock hit above $50 per share, up dramatically from its debut price of $13.25 in July. The company reined in its IPO ambitions on its first day of trading and priced its shares at $14 apiece, down from the $15-$17 per-share price range estimated. The stock then debuted on the New York Stock Exchange at $13.25, and hovered mostly between $12.10 and $13.00 during the first day. It’s now worth almost five times that initial price.

Molycorp’s most recent earnings (last month) were also solid, with a narrowed loss, and a jump in revenues. Molycorp recorded a loss of $7.9 million, compared with a loss of $9.1 million for the year earlier. Revenue jumped to $21.7 million from $2.2 million for the prior year.

Molycorp previously mined its metals from a 50-year-old rare earth mine in Mountain Pass, Calif., but stopped removing ore in 2002 after it had problems with toxic waste spilling into a nearby lake. Molycorp plans to start mining again in 2011 after modernizing and expanding the project.

Reuters reports (s tri) AS Silmet is one of two rare earth manufacturers in Europe, and it produces 3,000 tons of rare earth products and 700 tons of rare metal products per year. After the acquisition AS Silmet will reportedly get mining feedstock from Molycorp’s California plant and will be one of the first European rare earth metal producers not to source its metal mining feedstock from China.

Molycorp also has partners in Japan, including a joint venture with Japanese mining giant Hitachi Metals, and a $130 million financing deal with Sumitomo Corp. Japan also wants a way to be less dependent on China for rare earth metals.

Image courtesy of Molycorp.