Remember the rare-earth crisis?
In 2010 manufacturers and some members of Congress fretted that China had cornered the market for so-called rare-earth elements, which are used in hybrid-electric cars, missiles, and wind turbines. Prices spiked. Congress ordered the Pentagon to assess supplies.
The concerns helped revive Mountain Pass, a California mine that was mothballed in 2002 after Chinese producers undercut it on price. Mine owner Molycorp says it’s spent almost $1.6 billion to modernize and expand the mine, about an hour west of Las Vegas. The company’s stock soared fivefold within a year after Molycorp went public in July 2010.
Among the excited investors: Regis Philbin. The onetime host of the television game show Who Wants To Be A Millionaire promoted Molycorp during an appearance on CNBC last week. He’s been buying the company’s stock for years, often adding more when the price fell.
Perhaps he should’ve phoned a friend. Molycorp’s closing price yesterday was $2.81, down 96 percent from its peak in 2011. Far from skyrocketing, production of rare earths, a group of chemically similar metals, dropped to 110,000 metric tons last year from 133,000 in 2010, the U.S. Geological Survey says. Demand waned as manufacturers found alternatives and used less. Prices of neodymium oxide, used to make tiny, powerful magnets for motors, have dropped almost 80 percent since mid-2011.
Photograph by Jacob Kepler/Bloomberg
Mountain Pass has been hampered by delays and production bottlenecks. Molycorp lost $89 million on sales of $119 million in the first quarter. “Unsustainably high” debt could lead to a default next year if prices drop further and the company struggles to ramp up demand as planned, Standard & Poor’s credit analysts said in a May 16 report.
The TV host remains undeterred, telling CNBC that he talked up Molycorp to Greenlight Capital’s David Einhorn. The hedge fund manager wasn’t interested. “Nobody shows any interest in Molycorp!” Philbin said. On a May 28 segment, analysts advised him to dump his stake, take a tax loss, and instead trade in options that might pay off if the shares rose.
Regis, after consulting with Regis, appeared to have a different opinion. “Regis doesn’t sell anything until it’s his gain,” he said.