Why Molycorp's Shares Jumped


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 rare earth mineral miner Molycorp rose as much as 20% in early trading after Bloomberg put out an article that suggested the company could be a takeover target.

So what: The Bloomberg article (found here) says that since the stock has traded at a discount to book value recently it would make a good target for a big industrial company. The company pointed to Nissan and Siemens as potential buyers.

Now what: Molycorp may be trading at below book value, but that's because the amount of cash the company generates from its assets is deteriorating. The value of rare earth minerals has plummeted since a bubble formed in 2011, and there's simply not the same return from these assets as their once was. I doubt a new buyer would be able to increase return on assets, so why would anyone buy Molycorp when the prices of the minerals are falling like a rock?

Interested in more info on Molycorp? Add it to your watchlist by clicking here.

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

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Originally published