Molycorp's Last Hurrah

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An old boss of mine once remarked that the standard workplace attitude was one of, "It's not so much that I succeed, but that you fail." Though sadly true, it also seems to apply to the rare earth elements market, where calls for the closure of one producer's refinery sent other stocks soaring.

Over the weekend Lynas suffered a tragic fatal accident at its Malaysian refinery that led to calls by opponents for the plant to be shut down during an investigation into what happened. While the facility has long been a lightning rod for controversy, the latest development sent shares of Lynas' rivals higher, with U.S.-based Molycorp jumping 5%, Rare Element Resources up 5.6%, and Avalon Rare Metals running 10% higher.

Lynas Advanced Materials Plant, Malaysia. Source: Lynas. 

Lynas and Molycorp supply the bulk of rare earth minerals outside of China, which, with reserves of 55 million tonnes, supplies some 86% of the world's rare earths needs. If Lynas stumbles just as Molycorp is set to expand production, it would seemingly be to the latter's benefit.

Molycorp is already on record as saying, in the light rare earths niche it plans on specializing in, there's really no room in the market for more than three primary players outside of China. And when it comes to heavy rare earths, there are but just one or two projects needed. 

Yet that outlook highlights the precarious position Molycorp and all rare earth companies find themselves in. Because of China's dominance and its willingness to impose export quotas on the minerals that are used in essential products and technologies globally, their price skyrocketed exponentially two years back, sending the valuations of companies with even the most tangential relationship to the industry soaring as well. When it became clear there was no imminent danger of the world running out of the rare earth elements anytime soon, pricing collapsed once more.

Yet it served to spur the industry forward in developing the resource so that China no longer dominated the market. New projects have sprung up and new life was seemingly breathed into Molycorp. Unfortunately, cerium and lanthanum, the two elements most abundant at its Mountain Pass mine, also happen to be among the least valuable of the 17 different rare earth elements. 

And just two weeks ago privately held SRE Minerals announced it will develop the world's largest deposit of rare-earth elements that's ever been discovered. The resource would more than double the current known deposits of rare-earth-element oxides. In another blow for Molycorp, the new deposit is said to be replete with excess amounts of cerium, lanthanum, and praseodymium.

Which is why it's not enough for Molycorp to succeed in its own mine development, expansion, and production -- Lynas must also fail. The stage isn't big enough for all the players to stand on, so a weakened rival bolsters its own chance for success.

Lynas has locked horns with the Malaysian government before over permits, and its advanced materials refinery is still only operating with a temporary license secured in 2012. As local peoples and environmentalists challenge its release of toxic chemicals, the facility has been marked for protests and confrontations.

While it may seem that every setback at a rival is a win for Molycorp, the miner has its own host of concerns to deal with, suggesting an investment here is still too risky.

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