China’s control of rare-earth metals is providing Molycorp with the most valuable currency in the industry to pursue acquisitions.
Great Western Minerals and Ucore Rare Metals may become targets after shares of Greenwood Village-based Molycorp tripled since its U.S. initial public offering in July as China curbed exports, Byron Capital Markets’ Jon Hykawy said. Molycorp is valued at 117 times earnings before interest, taxes, depreciation and amortization this year, according to data compiled by Bloomberg that include net debt, the highest of any diversified metals producer.
The surge in Molycorp’s market value to $4 billion makes takeovers cheaper as it tries to compete with Chinese producers that control 95 percent of the world’s supply of elements used to make magnets for Raytheon’s Tomahawk cruise missiles and Toyota’s Prius sedans.
While Molycorp’s mine in the Mojave Desert once met almost all the world’s demand, it has yet to turn a profit and doesn’t have substantial amounts of the “heavy” rare- earth metals that command the highest prices.
“Time is not on their hands,” said Brian Hennessey, an analyst for Alpine Mutual Funds, which oversees $6 billion. “Molycorp would do themselves a service by diversifying into heavy rare earth. There are a number of companies with much lower valuations in the marketplace.”
Great Western, which plans to start production at a South African mine in 2013, and Canada’s Quest Rare Minerals and Avalon Rare Metals, which control heavy rare-earth deposits, may be possible takeover targets for Molycorp, Hennessey said. Another would be Ucore of Halifax, Nova Scotia, for its Alaska mine that contains both heavy and light rare-earth materials.
Molycorp chairman Ross Bhappu declined to comment about potential acquisitions.
