China's control of the rare earth market has come under increased scrutiny since 2010. Over the past several years, China has slashed its export quotas of rare earth minerals to cope with their growing domestic demand. U.S. industry officials suggest it is an unfair trade practice, against rules established by the World Trade Organization [WTO], a group that includes China as a member. Currently, China produces about 95 percent of global rare earth supplies. In this article, I will cover three rare earth companies with production outside of China. All three of these companies had major announcements last week.
1. Molycorp (NYSE:MCP) is a leading rare earths and rare metals company, and combines a world-class rare earth resource at Mountain Pass, California, with world-class ultra-high-purity rare earth and rare metal materials processing capabilities. With 26 locations across 11 countries, Molycorp is vertically integrated across the global rare earth mine-to-magnetics supply chain. It produces rare earth magnetic materials as well as a variety of high-purity, custom engineered products from 13 different rare earths (lights and heavies) as well as five rare metals (gallium, indium, rhenium, tantalum and niobium), and the transition metals yttrium and zirconium. Through its Molycorp Magnequench subsidiary, the company is a leading global producer of neodymium-iron-boron (NdFeB) magnet powders used to manufacture bonded NdFeB permanent rare earth magnets. Through its joint venture with Daido Steel and Mitsubishi Corporation, Molycorp expects to begin manufacturing next-generation, sintered NdFeB permanent rare earth magnets in early 2013.
New production start-up
The company is on track to achieve a Phase 1 production rate in the fourth quarter of this year and mechanical completion of its Phase 2 facilities by the end of this year.
Molycorp announced on August 27 the start-up of its new Project Phoenix heavy rare earth concentrate facilities at Mountain Pass, California, which will produce heavy rare earth concentrate from freshly mined Mountain Pass ore that will then be processed into high-purity, custom-engineered heavy rare earth products in Molycorp's globally integrated production facilities.
Mark A. Smith, Molycorp's President and Chief Executive Officer, commented on August 27:
We have launched operations of Project Phoenix's heavy rare earth concentrate facilities on schedule, our combined heat and power plant is set to begin powering our new facilities this week, and we remain on track to achieve full Phase 1 production rates at Mountain Pass in the fourth quarter of this year. The heavy rare earth concentrate we will produce at Mountain Pass will support our production of a full range of high-purity, custom-engineered materials from light, medium, and heavy rare earths. Such vertical integration strongly positions Molycorp to compete successfully across multiple markets.
The company reported the second-quarter financial results on August 2 with the following highlights:
|Net loss||$0.71 per share|
Earnings decreased substantially from the prior-year period as a result of lower product volumes, lower prices, costs related to the Project Phoenix transition, and other transaction costs related to acquiring Molycorp Canada. Adjusted loss per diluted share of $0.03 reflects operational expansion items, out-of-ordinary business expenses, and certain non-cash items as compared to U.S. GAAP loss per share, such as $52.8 million related to the acquisition of Molycorp Canada, $19.5 million in consolidated inventory write-downs, and $8.4 million in purchase accounting adjustments impacted earnings, among others.
Molycorp announced on August 29 the closing of its previously announced public offerings of $414 million aggregate principal amount (which includes the exercise by the underwriters in the offering of their $54 million over-allotment option in full) of its 6.00% Convertible Senior Notes due 2017 and 12,000,000 shares of its common stock at a price per share of $10.00. Molycorp's two major shareholders, a number of directors, including President and Chief Executive Officer Mark A. Smith, and other company executives invested in the offerings. This financing package of convertible senior notes and common stock provides Molycorp with net proceeds (before offering costs) of more than $528 million.
With the successful completion of these offerings, the company has built a strong cash position that will allow Molycorp to complete its capital expenditure plans. I believe the company will be profitable again for the full-year 2013 with the increased production. Gabelli upgraded Molycorp from Hold to Buy on August 29. The firm has a 2013 PMV target of $21.
2. Great Western Minerals Group (OTCQX:GWMGF) is an integrated rare earth processor. Its specialty alloys are used in the battery, magnet and aerospace industries. Produced at the company's wholly-owned subsidiaries Less Common Metals Limited in Birkenhead, U.K. and Great Western Technologies Inc. in Troy, Michigan, these alloys contain aluminum, nickel, cobalt and Rare Earth Elements. As part of the company's vertical integration strategy, GWMG also holds 100% equity ownership in Rare Earth Extraction Co., which owns a 74% equity interest in the Steenkampskraal Mine. In addition to an exploration program at Steenkampskraal, GWMG also holds interests in four active rare earth exploration and development properties in North America.
New production start-up
Great Western Minerals Group said on August 30 it was on track to complete the refurbishment of the previously producing rare earths mine Steenkampskraal, in South Africa's Northern Cape province, by mid-2013.
The surface refurbishment of the Steenkampskraal project is moving toward its scheduled completion with the construction of containment ponds and the finalization of the headgear, winder and associated electrical equipment.
As communicated during the CEO Conference Call of August 22, 2012, the final DRA report on capital expenditures, operating expenditures and time lines for the mixed chloride production plant and solvent extraction plant is expected to be received in September 2012.
GWMG was obligated to confirm that at least 20,000 metric tonnes of Total Rare Earth Oxides including Yttrium, in the sum of the Measured, Indicated, and Inferred resource categories, are present at the Steenkampskraal property using a one per cent cutoff grade on May 31.
The NI 43-101 Report indicates the presence of 13,823.64 metric tonnes of TREO including Yttrium under the Indicated resource category and 14,147.76 metric tonnes under the Inferred resource category each using a one per cent cutoff grade.
The company reported the second-quarter financial results on August 29 with the following highlights:
|Net loss||$3.9 million|
The next catalyst for the stock will be the final DRA report on capital expenditures, operating expenditures and time lines for the mixed chloride production plant and solvent extraction plant, which is expected to be received in September 2012. I believe the company could be profitable for the full-year 2014 after the expected production start in mid-2013.
3. Lynas Corporation (OTCPK:LYSCF) is an ASX 100 listed company, with the strategy to create a reliable, fully integrated source of Rare Earths from mine through to market, and to become the benchmark for the security of supply and environmental standards in the global Rare Earths industry. The foundation of this strategy is Mount Weld in Western Australia, the richest known deposit of Rare Earths in the world, and a state-of-the-art Rare Earths processing plant, the Lynas Advanced Materials Plant (LAMP), currently under construction near Kuantan in Pahang, Malaysia.
New production start-up
Lynas announced on August 28 that it has completed Phase One construction of the Lynas Advanced Materials Plant in Malaysia.
Lynas Executive Chairman, Nicholas Curtis commented on August 28:
Like everyone at Lynas, I am eagerly anticipating the commencement of operations at the LAMP and being able to supply our customers with product later this year. I would like to acknowledge the dedication of our staff and contractors, the patience and understanding of our investors and customers, and the diligence of the Malaysian regulators and international experts.
Lynas recognizes that there has been a very open and vigorous debate within parts of the Malaysian community about the Lynas Project. Despite the scientific data and intensive scrutiny from international experts demonstrating that the project is safe, certain sections of the community remain anxious about the project.
The principal cause of the community anxiety has to do with storage and management of residue resulting from the refining process. To address this community concern, Lynas undertakes to ensure that all the material that is causing the major concern to the Malaysian public is removed through conversion into co-products, and exported in a form acceptable for international markets and in accordance with all Malaysian regulations and international conventions.
Construction of the Phase 2 expansion of the LAMP continues and is on track for construction completion in early 2013.
The company reported the second-quarter financial results on July 31 with the following highlights:
|Net loss||A$98.1 million|
The next catalyst for the stock will be the commencement of operations at the Lynas Advanced Materials Plant in Malaysia, which is anticipated later this year. There is still a regulations risk regarding the commencement of the operations.
Disclosure: I am long MCP, OTCQX:GWMGF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.