MolyCorp And General Moly

Includes: FCX, GMO, MCPIQ
by: George Maniere

One of the best known names in the rare earth market is a company, Molycorp (MCP), is stealing headlines yet again. The company announced that it is exploring heavy rare earth elements (HREE) deposits surrounding the company’s Mt. Pass mine in California. Many analysts have been critical of Molycorp’s Mt. Pass mine because it is lacking substantial heavy rare earths which are some of the rarest and highest priced elements in the group of 17 elements that make up the rare earth block of minerals. While some of the light rare earths like neodymium and cerium may have greater demand, the heavy rare earths are more valuable.

By increasing the total HREE concentration the company is hoping to build the value of their company. However, many analysts are questioning not only the timing of this announcement shortly after the company’s share price took a nose dive, but also the time frame in which the CEO Mark Smith stated the company could produce on the deposit.

The news of the deposit started with an article in the New York Times in which CEO Mark Smith was quoted as saying “that the company might be able to begin producing heavy rare earths in a little over a year from now,” adding, “the ore is near the surface and would require very little strip mining.”

Dr John Burba, the company’s executive vice president gave a presentation in Washington DC about the new HREE deposits. According to Unocal, the three deposits all contain over 4 percent total rare earth oxide (TREO) with very significant HREE content. If correct, the percentage of TREO would make the finding a world class deposit.

What is a bit disconcerting to me is that as the shares fall – new discoveries emerge. Molycorp’s share price fell dramatically late last month as JP Morgan downgraded its rating, sending shock waves through many pother rare earth mining firms. Please see chart below.

(Click to enlarge)

As this chart shows Molycorp got knocked down by the J.P. Morgan downgrade but after selling off it seems to be trying to stage a breakout. After putting in a $79.16 52 week high it closed yesterday at $35.86.

If DR. Burba’s assertions of the HREE pans out this would be a very bullish sign for Molycorp.

I have written several articles on a fantastic stock, General Moly (NYSEMKT:GMO). General Moly is a U.S.-based mineral company engaged in the exploration, development and mining of molybdenum ("moly"). The company has two world-class assets, its 80% interest in the Mt. Hope project and the Liberty project. Both are located in central Nevada. These assets are two of the best primary molybdenum development properties in the world. Once production commences at Mt. Hope and Liberty, General Moly is expected to become the world's largest primary moly producer.

General Moly is in the home stretch of being permitted. Yesterday, General Moly announced that Final Draft Environmental Impact Study (EIS) on the Mt Hope Project would be completed by the end of this month (October).

I have written several articles about General Moly and to be sure they have had more than their fair share of Black Swans but to the credit of CEO, Bruce Hansen and the entire management team they have dealt with every problem with full disclosure and total transparency. There have been no mistakes made and no short cuts taken. The management team has performed spectacularly at every turn and I see no evidence of that changing. I conclude that the stock based on the fundamental analysis should be trading at the $10 to $12.00 range. Indeed the afore mentioned price of molybdenum that my analysis was based on was $15.00 a pound and as I write this, Freeport Mac Moran (NYSE:FCX) one of the largest copper producers in the world, reported that they had sold the molybdenum (which I said was a byproduct of copper mining) at a price of $18.00 per pound. I believe this is hedge funds continuing to try and drive the price down and judging by what I see on the tape they are beginning to run out of gas. Yesterday the stock closed at $3.00 but I do not see it trading there for much longer so I would encourage anyone who is interested in making a profit to take a look at this project and if you like what you see stake you claim at a very discounted price.

I have learned through bitter experience to “never say never” but as I have previously stated I see the probability of this project coming to fruition as 80 to 90%. Surely somebody in Nevada wants a billion dollar mine to operate there. Consider the tax revenues generated for the State and the town of Eureka and the thousands of good paying jobs this project will create.

Disclosure: I am long GMO, MCP.