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Molycorp (MCP) mining IPO valuation seems too high

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Molycorp (MCP) scheduled for July 29, Thursday
$1.3bb market cap at price range mid-point of $16

IPOreport, includes financials & valuation metrics

VALUATION
. Valuation seems high & somewhat greedy on the part of the private equity investors, especially because $511mm needs to be spent first to make the mine a viable economic entity
. Private equity investors bought the mine from Chevron June 12, 2008, about two years ago
. Pre-IPO valuation is 10.7 times pre-IPO net worth of $82mm
. 10.7 = $879/$82
. $879mm is the pre-money valuation
. Pre-money valuation = post money valuation less new investment =
= $1.3bb (post IPO market cap at price range mid-point of $16), less $421mm (IPO proceeds) = $879mm

BUSINESS
. Expects to be one of the world's most integrated producers of rare earth products, including oxides, metals, alloys and magnets
. MCP’s objective is to be a mine-to-magnet supply chain Mountain Pass Open Pit Mine
. Molycorp plans to invest $500 million to reopen and expand the mine Mountain Pass mine on the border of southern California & Nevada.
. The only rare earth oxide (REO) -- also known as rare earth elements (NYSEMKT:REE) -- producer in the Western hemisphere and owns one of the world’s largest, most fully developed rare earth projects outside of China
. The Mountain Pass Open Pit Mine -- in California 15 miles from the Nevada border is at an altitude of 4,728 feet.
. Upon reaching full planned production rates for REOs in 2012, MCP expect to be in a position to supply a substantial portion of the U.S. demand and also sell to export markets.

RESTART MINING OPERATIONS
. Expects to produce at the rate of 19,050 mt of REO per year by the end of 2012
. Expects to have the capability to increase production to approximately 40,000 mt of REO per year, if warranted by market conditions.
. Prior to the expected completion of modernization and expansion efforts by the end of 2012, expects to produce approximately 3,000 mt in the aggregate of cerium products, lanthanum concentrate, didymium oxide and heavy rare earth concentrates in each of 2010 and 2011 from stockpiled feedstock.
. In November 2009, entered into a non-binding letter of intent to acquire a third-party producer of rare earth metals and alloys in the United States, although has not yet been able to enter into a definitive agreement

PRICE HISTORY
. As a result of the global economic crisis, rare earth product prices declined by approximately 50% during 2008 and through the third quarter of 2009.
. According to Metal Pages, from October 2009 to mid-June 2010, prices for rare earths have risen by approximately 70% on average.
. Furthermore, over the same period, prices for some of the most common rare earths (cerium oxide, lanthanum oxide, neodymium oxide, didymium oxide and rare earth carbonate) have risen by more than 80% on average.

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