UPDATE: JPMorgan Downgrades Molycorp (MCP) Citing Funding Risk, Shares Pummeled

August 3, 2012 7:16 AM EDT
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(Updated - August 3, 2012 11:18 AM EDT)

Molycorp (NYSE: MCP) investors continues to see their rare earth gains turn into dust. Shares tapped new 52-week low levels on Friday following disappointing second quarter financial results and getting a downgrade from JPMorgan's Michael Gambardella, considered the ax in the stock.

Gambardella downgraded Molycorp from Neutral to Underweight and slashed his price target from $19.50 to $11.50.

Spooking investors was comments from the analyst that the downgrade reflects "new funding risks" in addition to the significant rare earth market risks.

Commenting on the funding risk, Gambardella notes: "While MCP reiterated its capex guidance for Mountain Pass of $895mm (though did state it is encountering cost pressures) with $289mm for the remainder of 2012 on an accrual basis, the company also warned that it will need to secure additional financing for a substantial portion of its remaining capital expenditures and other capital requirements. While the company commented on the call that its models outlined cases where they would require additional funding and where they would not, MCP did not state exactly how much in additional funds they would look to secure. This warning by the company is concerning to us, however, as it is tough to determine whether they will be able to raise enough funds and/or at what cost especially after recent, significant financings."

Adding the the pressure on the comapny is the decline in rare earth prices. Since March 31, current export Ce prices are down 15% (to $23.50/kg), export La down 11% (to $24.50/kg), and export Nd down 33% (to $97.50/kg).

The firm lowered 2012E EPS to $0.30 from $0.56 and 2013E EPS to $0.75 from $1.38.

For an analyst ratings summary and ratings history on Molycorp click here. For more ratings news on Molycorp click here.

Shares of Molycorp last traded down 26 percent to $11.77.

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