UPDATE: Molycorp (MCP) Investors Cheer as Noted Bear Get Less Bearish Following Capital Raise

February 7, 2013 6:51 AM EST Send to a Friend
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Price: $4.77 +0.85%

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    5 Buy, 8 Hold, 0 Sell

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(Updated - February 7, 2013 10:51 AM EST)

Molycorp (NYSE: MCP) is higher Thursday following a Wall Street upgrade of the rare earth miner, which has seen a perpetual fall from grace.

JPMorgan's Michael Gambardella, a noted bear, raised his rating from Underweight to Neutral saying the recent capital raise removes near-term risk. Nonetheless, the analyst is far from bullish. His new price target is $6 (up from $5), which still suggests sharp downside from current levels of around $7.75.

"While risks remain in the form of even lower rare earth prices and completing Mt. Pass on-time and on-budget and significantly reducing its operating costs, we move from UW as the greatest risk we previously saw for the stock (MCP having to raise significant amounts of capital) has now passed," Gambardella states. "While we can't rule out MCP having to raise additional cash, especially in the currently weak rare earth price environment, we do believe it has sufficient capital to last it for most of 2013 assuming our Mt. Pass ramp and earnings recovery at heritage Neo Materials."

The recent stock and convertible senior note offerings plus a cash balance of $200mm as of 12/31/2012 give MCP total sources of roughly $631.25mm or $756.25mm assuming MCP is able to secure a $125mm revolver, the firm notes. JPMorgan estimate capex, interest expense and preferred dividends will be roughly $557mm in uses in 2013, though $60mm of capex related to Phase 2 could be delayed, creating a cash surplus of $199mm. Assuming a working capital build of $50mm would drop this surplus to $149mm. Given this, MCP sufficient capital to last it for most of 2013, although they won't rule out another raise.

The firm lowered 4Q12E EPS to ($0.21) from ($0.03) to reflect MCP's recent guidance for the quarter. Our 2013E EPS is going to ($0.16) from ($0.18) and our 2014E EPS is going to $0.30 from $0.29.

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

Shares of Molycorp closed at $7.57 yesterday.




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