Wednesday, January 12, 2011

UPDATED-Rare Earth: "Molycorp Looks Like One Of The Greatest Private Equity Deals Ever" (MCP)

UPDATE: The lock-up period for insider sales ends on January 25. The registration statement was declared effective July 29, 2010. Add 180 days.
It appears that both CI (Jan. 20) and Barron's (February) were wrong.
We regret the error.
Original post:
We last visited Resource Capital in November* with MCP at $35.99. Today it is changing hands at $52.70, down 54 cents on the day.
From Forbes' The Jungle blog:
Move over billionaires Stephen Schwarzman and David Rubenstein. Eat your heart out Goldman Sachs. One of the greatest private equity deals going, Molycorp, belongs to a little-known private equity firm based far from Wall Street. Resource Capital Funds is headquartered in Denver. Its chief and co-founder, James McClements, actually lives in Australia.

Resource Capital has not realized a penny from its investment in Molycorp, which aims to produce rare earth minerals at a previously shuttered mine in Mountain Pass, Calif. But on paper the investment is staggering. In the last two years, Resource Capital has invested $110 million in Molycorp. At Molycorp’s recent share price that investment is now worth $1.5 billion. In the private equity business, that doesn’t happen very often, especially with figures as big as these. By comparison, one of the most legendary private equity deals ever saw Thomas H. Lee buy Snapple for $135 million in 1992 and sell it two years later to Quaker Oats for $1.7 billion, reportedly making $900 million on the investment.

Resource Capital still needs to execute the selling part of this equation while keeping Molycorp successful, a detail not lost on Ross Bhappu, the Resource Capital partner who put the investment together and is the chairman of Molycorp. “We don’t want to count our chickens before they hatch,” says Bhappu. “It would be hard not to be excited about it, everybody is really pleased about the performance of Molycorp and that is shared around the office and our (investors) are also equally very happy and we get calls about it from them all the time.”

Resource Capital, which exclusively invests in metals and mining, may move soon to start to realize some of its paper gains. The lock-up preventing Molycorp insiders from selling shares expires in February and Bhappu says “if an opportunity arises we would look to monetize some of the position, but we don’t want to disrupt the company and the incredible run it has been on.”...MORE

We had pegged the end of the lock-up period as January 20 and in fact used that as the basis for an option trade recommendation with the stock at $61.02: "Rare Earth Mania: The Coming Opportunity for Buyers of Molycorp Puts (MCP)".
I shall make inquiries directly.

*Meanwhile here's the earlier story:
"The Money Man Behind America’s Rare Earth Minerals" (MCP)
See also:
UPDATED: Rare Earth Mania: What the Heck is Molycorp Worth? (MCP; SHZ; REE; AVL)