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Last week, Molycorp
Minerals (MCP)
went to bat before the House Foreign Affairs Committee, represented by CEO
Mark Smith. What was needed was a confident batter presenting an urgent case
for national survival. But instead of a strong slugger, all we got was a
little leaguer. Opportunities were missed and runners were left stranded. The
industry sent a very conflicted Mr. Smith to Washington.
First of all, Mr. Smith never questioned the categorization of the
metal class, namely that heavy rare earths (HREEs) are lumped in with the
more common, garden-variety light earths (LREEs). Not once were the members
of the committee informed of the importance of the highly critical dysprosium
and terbium minerals, or the serious consequences China’s supply
monopoly poses for American industry.
Indeed, the Machiavellian hand of China’s mining industry was
not merely overlooked, but praised. Mark Smith’s presentation before
the Congressional Committee read like an apologia for the nation’s
draconian quotas. Not once in his presentation did he make reference to
American sources of these valuable minerals. Instead, Molycorp
was hailed as king of the REE hill, as if there were no other viable rare
earth entities. It became an obvious case of not-too-skilled investor
relations.
In every missed opportunity there exists a valuable learning
experience. What else was omitted that would have made for a stronger
presentation?
1. Where does Molycorp get its heavy rare
earths? Smith claimed Molycorp possesses a complete
suite of rare earths at their Mountain Pass property. Assays have shown that
this mountain possesses predominately light rare earths with little or no
heavies.
2. Why does Molycorp venture to far-away
Estonia to process U.S. ore when it can be done more efficiently and
economically on American soil? A new industry could be created here offering
jobs to build a new, native industry.
3. What was the significance of the aborted deal between Hitachi (HIT)
and Molycorp? The Japanese claim that Molycorp did not possess sufficient heavy rare earths to
satisfy Japanese industrial needs. Smith glossed over the strategic
importance of heavy rare earths right here in the United States.
4. Why was no mention made of the Critical Minerals Act that has been
languishing on congressional desks for many months? Encouraging Federal
Government to support this act might have served to fast-track vital
legislation. What could be more pertinent than weaning the U.S. from its
dependency on China?
5. Chinese policy makers have stated that the nation needs strategic
rare earths for its own markets and that there are simply not enough of these
resources to go around. They’ve even said they would welcome American
firms to develop the sector on Chinese soil. Why not explore this opportunity
to assist our Chinese colleagues, thereby furthering a more harmonious
relationship?
Let’s hope that a more voluble and reasoned representative will
inspire Congress at the next opportunity. Sadly, only four committee members
were present at the hearing. Maybe someone else can send a slugger up to bat
to advance our indigenous rare earth industry. We should also think of our
neighbors in Canada and Europe struggling to advance their own assets.
It’s not just Congress who could use some enlightenment on this
oft-misunderstood market; even major investment firms demonstrate limited
understanding of the rare earth sector. J.P. Morgan recently downgraded Molycorp’s rating, slanting its sector thesis by
forecasting declining prices. Nowhere did they differentiate between the
heavies and the lights. Dysprosium and terbium prices have not gone much lower.
Investors fear that Molycorp will flood the rare
earth supply when they come online, but this is not the reality.
Right now, Molycorp is half a loaf. All
these two giants have to do is look to our recommendation list to find
suitable heavy rare earth additions to complete the catalogue, or else they
open themselves up to evisceration by bankers who may be playing both sides
of the field.
Finally, is it not passing strange that J.P. Morgan chose to issue
this negative pronouncement on the eve of Bernanke’s two-day conclave
in Washington? Keep in mind that J.P. Morgan is being sued by individual
silver investors who allege the bank “amassed an unfairly large
position in silver futures and then used its position to drive down prices of
silver and increase its own profits.” (Wall Street Journal) This
lawsuit may indeed throw into question good-old J.P.’s credibility as
an impartial observer. Do not forget that our rare earth stocks have an
incredibly large short-interest position. This is not the time to flee the
battlefields in this vital sector.
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