Why Molycorp's Shares Plunged Today

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Molycorp dropped another 20% today after announcing a share offering and cost overruns at its only mine.

So what: The company will sell $200 million of stock, or up to $230 million if underwriters exercise an overallotment option, further diluting shareholders that were diluted in January of this year. The Mountain Pass project is already $100 million over budget and with prices and demand weaker than expected management doesn't think it has enough cash to complete the project and run operations.

Now what: This has been a long-running story for Molycorp and the whole rare earth industry over the past two years. Prices are plummeting as supply hits the market, which cuts expected returns and leaves the very viability of Molycorp in question. I warned that the company faces an uphill climb late last week and many of my fears came true during this announcement today. I don't expect a good earnings report and until Molycorp can prove the ability to turn a profit I'd stay far away from this stock.

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The article Why Molycorp's Shares Plunged Today originally appeared on Fool.com.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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