Molycorp Inc, the largest rareearthsminer in the US and at one point one of the largest rareearthsminers in the world is reported to be close to bankruptcy.
Once worth around $6bn, Molycorps market value has fallen to just $114m. Soon, the company could be worth nothing.
Unfortunately, this reflects badly onRare Earth Minerals(LSE: REM). But all may not be as it seems
Molycorp is a global operation. The company has over 25 offices in 10 countries with more than 2,400 employees. Further, Molycorp has several joint-ventures with companies around the world that use rareearthsin their manufacturing processes.
Nevertheless, falling demand for Molycorps key rare earth metals has pushed the company over the edge.
Molycorp has been unable to turn a profit during the past three years. Since 2012 the company has racked up losses of around $1.5bn, debt has spiralled, and Molycorp is now struggling to fund interest payments.
A disasterwaiting to happen?
Rare Earth Minerals and Molycorp do have some similar traits. For example, Rare Earth MineralsYangibana Main andGreenland rareearthsprojects contain mineralssimilar to those mined by Molycorp.
However, unlike Molycorp, Rare Earth Minerals main projects are lithium mines. Molycorp had no real presence in the lithium market.
And this is where Rare Earth Minerals has an edge over Molycorp.
One of the key rare earth metals that Molycorp produces is lanthanum, which is used to manufacture nickel-metal-hydride batteries.
Lithium batteries are far superior to theirnickel-metal-hydride alternatives, giving Rare Earth Minerals an edge over Molycorp.
By managements own forecasts,Rare Earth Minerals estimates that the demand for lithium ion batteries for use in electric vehicles will more than quadruple by 2020. The demand for smart-grids to improve global electricity use will also drive the demand for lithium ion batteries.
According to figures already published by Rare Earth Minerals, the net present value(NVP) of all Rare Earth Minerals interests in theFleur El Sauz,Ventana,Yangibana andWestern Lithium projects amounts to $1.2bn.
Simply put, NPV is a profit figure that the company in this case, Rare Earth Minerals expects to receive over the life of the project after deducting investment costs and the companys required annual return. Or, to put it another way, this is the profit attributable to Rare Earth Minerals shareholders over the life of the mining projects.
And after taking into account the estimated value of Rare EarthMinerals resource base, coupled with the bright outlook for lithium, its easy to conclude that the company is better placed to succeed over the long-term than Molycorp.
Rare Earth Minerals market capitalisation is only 66m, a fraction of the companys resource base. The company could be one of the markets hidden gems.
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