Thursday, November 4, 2010

"The Money Man Behind America’s Rare Earth Minerals" (MCP)

The stock is up 5.6% today, at $35.99.
From Forbes' The Jungle blog:
Ross Bhappu is a little-known mining and commodities investor, but he leads an investment group that controls a company, Molycorp, that U.S. legislators and military planners increasingly believe is a vital strategic asset. Stock market investors have bid up the company’s stock by 124% in the last few weeks, making Bhappu look like a genius.

Molycorp and the rare earth elements it aims to produce have suddenly been receiving overwhelming public attention. Rare earth minerals are now an important national policy issue as politicians and media pundits discover the fact that rare earth minerals are required to produce things like electric cars, wind turbines, guided missiles, and iPods. On Monday influential New York Times columnist Paul Krugman voiced his concern that China mines 97% of the global supply of the 17 elements that make up the rare earth minerals group.
Molycorp owns what used to be the world’s most important rare earth elements mine in Mountain Pass, Calif. The mine was closed in 2002 amid environmental issues and low rare earth elements prices. Molycorp’s shares jumped by 10% on Monday after China’s Ministry of Commerce said China “may need to rely on imports sometime in the future for these minerals.”

Bhappu, a 50-year-old partner at private equity firm Resource Capital Funds, has known about rare earth minerals and Molycorp his whole life. As a child Bhappu used to spend his summers hanging around Molycorp’s mines while his father, a metallurgical engineering professor, did consulting work for the company. Decades later, in 2008, Bhappu put together a Resource Capital-led acquisition of Molycorp, based in Greenwood Village, Colo., that currently looks like a big winner.

Bhappu, Molycorp’s Chairman, has gotten Resource Capital to invest $110 million in the acquisition of Molycorp and to fund the reopening and expansion of the Mountain Pass mine. Two years later that investment has on paper increased eight times. Resource Capital Funds owns 34% of Molycorp, a stake currently worth $880 million. That kind of return is a private equity investor’s dream, but Bhappu is not gunning for a quick flip in Mountain Pass. In fact, Resource Capital recently put more money into the deal, $21 million in total, to buy stock when Molycorp conducted its initial public offering in July.

Concerns over China’s domination of the world’s rare earth mineral supply grew tremendously in September when China reportedly blocked the export of rare earth minerals to Japan after Japan detained a Chinese fishing trawler captain whose vessel had collided with Japanese Coast Guard ships. China denied it had imposed a ban or that it was using its domination over rare earth elements for political purposes.
For his part, Bhappu does not believe the Chinese want to politicize rare earth minerals. In fact, earlier this year he helped host a Chinese delegation at Molycorp’s Mountain Pass mine. “It has been surprising, the Chinese are extremely supportive of us starting this mine, they have told us they don’t want to be the world’s sole supplier,” says Bhappu. “They are concerned they are going to consume everything they produce internally and they won’t have excess production to export. I think they want to save their own strategic minerals, not just rare earth minerals, for their own internal consumption.”

Bhappu never expected to be at the center of a national security policy debate. After growing up in Socorro, New Mexico, Bhappu got degrees in metallurgical engineering at the University of Arizona, and a PhD in mineral economics from the Colorado School of Mines. He worked at mining firms like Newmont Mining, where he was director of business development, before joining Resource Capital in 2000, working out of its Denver office....MORE