Molycorp Update: Common Vs. Preferred

Jun. 4.12 | About: Molycorp, Inc. (MCPIQ)

Common vs. Mandatory Convertible Preferred

This is an update on the valuation between Molycorp common stock and the Molycorp Mandatory Convertible Preferred (MCP-PA).

In the May 21st article it was suggested the Molycorp preferred was overvalued versus the common stock. The article contains some history of the mandatory convertible preferred and its conversion features.

The common stock showed a modest gain of 1.12% while the preferred stock showed a more noticeable decline of 6.80%. The common stock outperformed the preferred issue by 792 basis points. The preferred issue was not entitled to the dividend when the original article was published. A few days can make a big difference when it comes to the dividend.

Common Stock

  • $19.64 May 18, 2012
  • $19.86 June 01, 2012
  • 0.22 $Change
  • 1.12 % Change

Preferred (MCPpA)

  • $56.00 May 18, 2012
  • $52.19 June 01, 2012
  • (3.81) $ Change
  • (6.80) % Change

Current Yield June 1, 2012

  • None - Common
  • 10.54% - Preferred
  • $12.47 - Current Conversion Premium: (52.19 - (2*19.86))
  • $9.625 - Income from Preferred

Remaining Dividends on Preferred

Estimated

Record

Date

Estimated

Pay

Date

Div
08/15/2012 09/01/2012 1.375
11/15/2012 12/01/2012 1.375
02/15/2013 03/01/2013 1.375
05/15/2013 06/01/2013 1.375
08/15/2013 09/01/2013 1.375
11/15/2013 12/01/2013 1.375
02/15/2014 03/01/2014 1.375
Source data: SEC 424(b) filing
Click to enlarge

Value of Preferred at various Common Stock prices. Common @ $19.86 and Preferred @ $52.19.

Common Price 10 15 19.86 25 30 49.99
# shares per Pfd 2.0 2.0 2.0 2.0 2.0 2.0
Pfd value in Common Stk 20.00 30.00 39.72 50.00 60.00 98.98
Income Pfd 9.625 9.625 9.625 9.625 9.625 9.625
Total Pfd Value 29.625 39.625 49.345 59.625 69.625 109.605

Common $ P/L

(9.86) (4.86) 000 5.14 10.14 30.13
Common % P/L (49.6) (24.5) 0.0 25.9 51.1 151.7
Pfd P/L $ (22.57) (12.57) (2.85) 7.44 17.44 57.42
Pfd P/L % (43.2) (24.1) (5.5) 14.2 33.4 110.0
Advantage Pfd Pfd Common Common Common Common
Click to enlarge

Conclusion:

At current levels the Molycorp preferred issue appears to be slightly overvalued. It offers modestly better protection to the downside. Given current level of interest rates the discounting of cash flow does not make much of a difference in the valuation.

If you like Molycorp for the longer-term, then the mandatory convertible preferred (MCP-PA) might be the ticket. The common stock does not currently pay a dividend, thus investors have no cash-flow. The mandatory convertible preferred pays $5.50 a year, or roughly 10.54% at current levels.

The preferred issue would be more attractive at slightly lower prices should the common remain stable or if the common shares moved slightly higher.

Source for price data: Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.