Strategy

Rare Earth Minerals Producer Files Chapter 11

Molycorp, once a Wall Street star with a $4 billion market cap, ran out of cash after the rare earth bubble burst.
Matthew HellerJune 29, 2015

Molycorp, whose stock soared amid a boom in demand for rare earth minerals, has filed for bankruptcy protection after running out of cash.

The U.S. producer of such rare earth minerals as cerium, yttrium and lanthanum once had a market capitalization of $4 billion, benefiting from China’s decision in 2010 to suddenly restrict rare earth exports. The minerals are used in such products as smartphones, electric cars and wind turbines.

But as Bloomberg reports, predictions of a shortage of the materials proved to be flawed and Molycorp “has become a cautionary tale for investors looking for the next hot thing, a lesson in how excessively high commodity prices can quickly reverse.”

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“In hindsight it was an absolute commodity bubble,” said Jon Hykawy, an analyst at Stormcrow Capital in Toronto.

In court documents filed last week, Molycorp listed assets of $2.49 billion and liabilities of $1.79 billion. A group of creditors has agreed to provide $225 million in financing, and the company said it plans to exit bankruptcy by the end of the year.

“The company expects to exit Chapter 11 with an appropriate financing framework to support our business going forward,” CEO Geoff Bedford said in a news release.

Molycorp bills itself as “the only advanced material manufacturer in the world that both controls a world-class rare earth resource and can produce high-purity, custom engineered rare earth products to meet increasingly demanding customer specifications.”

Investors who bought into the company at its July 2010 IPO at $14 a share saw the stock touch $79.16 in May 2011. But “the rare earth boom ended almost as quickly as it began,” Bloomberg noted, “with prices posting steep declines in late 2011” amid increased supply from Australia and Malaysia.

Despite the fall in prices, Molycorp acquired Neo Material Technologies, a Canadian metals processor, for $1.2 billion in 2012. Before the bankruptcy filing, its shares were trading at around 36 cents.