Molycorp Plunges After Cutting Rare-Earth Forecast; Sales Miss Estimates

Molycorp Inc. (MCP), owner of the largest rare-earth deposit outside China, fell 14 percent after cutting its 2011 production forecast and posting third-quarter profit and revenue that missed analysts’ estimates.

The company will produce 4,586 to 4,975 metric tons of rare-earth oxide equivalent in 2011, Greenwood Village, Colorado-based Molycorp said yesterday in a statement. It said Aug. 11 that output would be 4,941 to 5,881 tons. Third-quarter production at its Mountain Pass mine was lower than forecast.

Chief Executive Officer Mark Smith said the volumes were lower than expected because of equipment outages related to the acceleration of work at Mountain Pass in California and the diversion of some output to Estonia, where Molycorp has a factory. The company in October resumed mining at Mountain Pass, which had been shut since 2002.

“We’ll have to take a few additional shutdowns,” Smith said in a telephone interview. “It will not affect our sales because we have material in inventory.”

Third-quarter net income was $43.7 million, or 52 cents a share, compared with a loss of $10.1 million, or 15 cents, a year earlier. Profit excluding inventory and consulting costs was 67 cents share, trailing the 68-cent average estimate of three analysts surveyed by Bloomberg.

Sales climbed 16-fold to $138 million from $8.5 million, missing the $161 million average of analysts’ estimates.

Record Sales

The shares fell to $33.45 in New York, the biggest intraday drop since Sept. 20.

“It’s certainly a disappointment when volumes come in low,” said Anthony Young, an analyst with Dahlman Rose & Co. in New York who has a “buy” rating on the stock. “Their sales were at record levels, but when you look at the actual amount of material that was sold, it was slightly less than the guidance they had projected.”

Rare earths -- 17 chemically similar metals used in products including batteries, electric cars and wind turbines -- have soared in price since China said it would cut exports by 72 percent in 2010. China controls 95 percent of global supply, according to the U.S. Geological Survey.

Prices may decline for the rest of 2011 as Chinese producers sell in advance of new rules limiting exports that will take effect in 2012, Smith said. Prices may jump again in 2012 as Chinese exports drop further, he said.

“You’re going to see the market turn back much more like we saw at the first part of 2011,” Smith said.

The Mountain Pass deposit accounted for a majority of the world’s rare-earths production from 1965 to 1985, according to an April report from the U.S. Government Accountability Office.

Stockpile Sales

Molycorp’s Mountain Pass unit produced 739 tons of rare- earth oxide equivalent in the third quarter. In August, it forecast sales of 917 to 1,321 tons.

Molycorp plans to double the mine’s annual capacity to 40,000 metric tons by the end of 2013. The company said last month it would spend $114 million to accelerate output at Mountain Pass by three months. It plans to produce at a rate of 19,500 metric tons of rare-earth oxides a year by Sept. 30.

Molycorp also sells rare earths from stockpiles left over from previous mining operations.

To contact the reporter responsible for this story: Sonja Elmquist at Selmquist1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.

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