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Chemical and Industrial Engineer from Purdue University. Has worked as a business consultant, and investment advisor, and at a multinational oil company.
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  • #5 - The Top 10 REEsons To Buy Molycorp

    5. Technology & Engineering


    FACT:

    Molycorp has developed technology to increase recoveries of REE from feedstock. This technology has been proven in their current 3000 mt/yr operation and is the enabler of their ability to produce REO's for 1/2 the cost of other mining companies. They also hold the patents on their XSORBX® technology that enables the removal of arsenic and other heavy metals from industrial waste water streams. Molycorp also had some engineering luck; they were in the right place at the right time to double capacity.

    OPINION:

    Molycorp's ability to double capacity so easily was just that, luck.  Now like any lucky company or person they did perform some good preplanning that happened to make it possible, but they were lucky that the market enabled the choice before their current plans were too far along. What a lot of people do not know is that it can take a year or two from the time a company places an order for a major piece of operating equipment in order to get actual delivery. Before the equipment is ordered a very long engineering phase also needs to be completed to determine feasibility and the exact specification that the equipment needs to be manufactured to. Molycorp made is own luck because they always had plans that they may want to increase production rates and as such had performed engineering studies that had involved multiple plant configurations. They choose the conservative route to start with less production, but this other work had still been completed. As prices rose Molycorp decided to look long term and instead of refurbishing some of their old mining facilities that would allow only for lower production rates they selected to build new facilities that would allow for full 40000 mt/year production.  As prices rose even further they only had a few large pieces of equipment that required detailed engineering in order to increase the equipment size and plant capacity.  Even so, not everything needed for double production will be on site at the beginning of 2012 which is why they will reach full production in 2013.

     

    Luckily they were able to increase their unit sizes before the fabrication shops started production. These larger unit sizes will also help to reduce future operating costs.  Molycorp's last bit of luck was that we are just coming out of a global recession.  There are not many large scale industrial fabrication shops in the world. During the recession many of the orders for these shops were canceled.  Molycorp got in while the line was short and in a few years when these other mines want to get their equipment produced the wait times will be much longer than they are today adding up to a year to delivery time. 
    Tags: MCP, REE
    Feb 07 2:15 PM | Link | Comment!
  • #6 - The Top 10 REEsons To Buy Molycorp
    #6 - Unforeseen Project Delays May Not Harm Profits

    FACT:
     
    Project delays is a very real worry that people should have. This happens all the time in industry.
     
    OPINION:
     
    This issue though may not change the profit equation very much. Since most mines are 4-5 years out, a delay in Lynas or MCP would only help bring current prices higher, which may help commodity supply contract negotiations. Since most of MCP future production is not contracted out a short term set back could be negated by a long term improvement in contract terms. Ironic, but true. Also due to other mines long lead time they are even more prone to extended delays.
    Tags: MCP
    Feb 04 11:21 AM | Link | Comment!
  • Marathon separating upstream and downstream operations will release great value.
     
    In mid January Marathon announced that they would be spinning off their refining segment.  This news was well received in the market due to the potential that the two separate entities would be valued greater than the whole.  Investment dynamics caused by the recent recession should make the upstream operations even more profitable in the near future.

    Many individuals outside of big industry do not understand the time frame that is involved with increasing drilling capacity.  Back when oil was $150/bl most every company was pursuing projects to grow their upstream operation.  The wait time at equipment fabrication shops was extremely long and engineering contractors were charging record prices to help assist with project execution.  

    Many companies had to rethink their project plans as oil prices crashed down to about 1/3 of their record levels.  Numerous drilling projects were canceled due to the uncertainty caused by the market correction and the potential supply glut was avoided.  Now that the global economies have rebounded from the recession market demand has returned at a fast pace and is poised to grow even faster.  

    In the short term (1-2 years) demand has the ability to grow faster than production.  As this happens Marathon's separated upstream operations will be generating record profits and will not have earnings averaged down by their more steady refining operations.  As such the multiple applied to the separated upstream operations will be even higher than today and will be applied to a higher earnings number.  

    Tags: MRO
    Feb 03 11:02 AM | Link | Comment!
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