Molycorp (MCP) Pops on Upgrade at Dahlman Rose

October 23, 2012 5:52 PM EDT Send to a Friend
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Price: $1.26 -0.79%

Rating Summary:
    5 Buy, 6 Hold, 2 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 24 | Down: 28 | New: 14
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Shares of Molycorp (NYSE: MCP) are higher after-hours Tuesday after Dahlman Rose upgraded the stock from Hold to Buy and set a NAV of $14.07/share in assumed coverage.

"We believe the company, despite recent earnings disappointments, demonstrates long-term value through its planned 400% production ramp-up at the high-grade Mountain Pass and its ownership of key downstream facilities," new analyst Adam P. Graf said.

Graf notes that Mountain Pass operations are on track to produce 8,000-10,000 tons of REO equivalent by yearend. Ramp-up to Phase I, to be completed by 4Q12, is expected to increase production to ~20,000 tpa. Phase II, forecast to be complete by mid-2013, should increase production to 40,000 tpa. "Mountain Pass remains a premier rare earth deposit, with over 18MM tonnes of P&P reserves, at attractive resource grades of 7.98% TREO," the analyst notes. "While the mine's element distribution is weighted to the less valuable light rare earth elements (LREE), the high tonnage and high grades allow the company to achieve solid cash flow, which will allow the company to fund the mine's ramp-up internally."

The firm is also positive due to the fact that Molycorp owns downstream processing facilities in Arizona, Estonia, and Japan. "Thus, while development REE companies have to contemplate either building their own separation facility (a ~$1Bn capex requirement) or selling concentrate at a steep discount to contained oxide value, Molycorp is able to utilize its own separation facilities and sell marketable products at market prices. Outside of China, only Molycorp and Lynas currently appear capable of producing a saleable oxide product by way of their downstream facilities."

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 $10.90 yesterday.


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