Molycorp Tumbles 14% on First Day After Reducing Rare-Earth Stock Offering

Molycorp Inc., owner of the world’s largest non-Chinese deposit of rare-earth metals, declined in its first day of trading after chopping the size of its initial public offering by 18 percent.

Shares of the Greenwood Village, Colorado-based company lost 8.2 percent to $12.85 in U.S. composite trading. Molycorp sold 28.13 million shares at $14 each after its underwriters failed to attract enough buyers at $15 to $17 apiece, according to Bloomberg data. The mining company’s owners purchased about 8.9 percent of the shares available in the IPO.

Molycorp will use the $394 million in IPO proceeds to fund plans to restart operations at a mine that holds deposits of rare-earth metals used to make magnets for everything from smart bombs to hybrid cars. The producer, which hasn’t made a profit since acquiring the site two years ago, will compete with Chinese companies that currently supply 97 percent of the metals globally, according to its regulatory filing.

“It seems like a lot of money to ask,” said Robert Auer, a manager at Indianapolis-based SBAuer Funds LLC, which oversees about $200 million. “It’s a bet on something so unknown, and in this market where there’s fierce competition for dollars, there may be better buys.”

Morgan Stanley and JPMorgan Chase & Co. in New York led the company’s offering, while Molycorp turned to Jones Day in Cleveland for legal advice.

Neodymium, Ytterbium

Molycorp’s mine near Mountain Pass, California, once met almost all the world’s rare-earth metals demand before closing down eight years ago as China, which has the world’s biggest deposits, increased low-cost production.

The mine may yield 19,050 metric tons of rare-earth oxides annually at full production, equal to 38 percent of the amount that China exported last year, Molycorp’s filing with the Securities and Exchange Commission showed. The site, about 60 miles southwest of Las Vegas in the Mojave Desert, may lose money for two more years before becoming profitable.

The company’s first-quarter net deficit widened 38 percent to $7.75 million from a year earlier after selling its stockpiles at a loss. It lost $28.6 million in 2009.

The rare-earth elements are 17 chemically similar metals, such as lanthanum, cerium, neodymium and ytterbium. They are used in magnets for everything from cell phones and electric cars to guided missiles and targeting systems for tanks.

About 80 percent of magnets made from neodymium are produced in China, with most of the remainder coming from Japan. Almost none are produced in the U.S.

Existing Owners

Molycorp’s biggest shareholders include private equity firms Resource Capital Funds of Denver and Pegasus Capital Advisors in New York. No existing stockholders sold shares in the IPO, and owners such as Resource Capital bought 2.5 million of the shares in the offering, a filing showed.

Four IPOs by U.S. companies were postponed, delayed or reduced in size this week after three of the previous four companies raising money through initial share sales convinced buyers to pay more than they originally sought.

SurgiVision Inc., the Memphis, Tennessee-based developer of medical equipment and software for magnetic resonance imaging, postponed its IPO yesterday after cutting the size by 40 percent. Trius Therapeutics Inc., the San Diego-based developer of antibiotics being taken public by Citigroup Inc. of New York, has twice delayed its $84 million sale this week.

“You have an environment where a lot of companies are going public that shouldn’t be because they aren’t ripe yet,” said Ed Butowsky, managing director at Chapwood Capital Investment Management LLC in Addison, Texas. “It highlights how unstable some of these companies going public are.”

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Kristen Scholer in New York at kscholer@bloomberg.net.

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