Monday, January 24, 2011

Molycorp: Here Comes the Secondary Offering (MCP)

After being halted at down $1.14 for the dissemination the stock has reversed course and is up $2.46.
The thinking is the stock will have much less influence on the supply demand picture as an offering than if it had been dribbled into the market by the early investors.

Too funny.
It seems like just 20 days ago we were posting "With the Stock Up Four-fold Look For Molycorp to Sell More Shares (MCP)":
Following up on this morning's Bloomberg story "Pre-Market: Molycorp up 7.5% on Wild Ass Speculation (MCP)"
At current prices it makes more sense to dilute the stock a bit than to jv the deal but hey, that's just me....
Here's the press release via BusinessWire (a Berkshire Hathaway company), I'll cut to the offering bit. : 
Molycorp Announces Approval of Phase 2 Expansion at Mountain Pass, a Proposed Mandatory Convertible Preferred Offering by the Company and Proposed Secondary Offering of Common Stock
...The proposed secondary offering will help facilitate the liquidity objectives of the selling stockholders via an orderly underwritten offering and will provide additional public float with respect to the Company's common stock. The principal selling stockholders are affiliates of Resource Capital Funds, Pegasus Capital Advisors, L.P., and The Traxys Group, which are the three main investors that led the purchase of the Mountain Pass Rare Earth Facility in 2008. These selling stockholders will remain substantial investors in Molycorp immediately after the offering.

"Without the foresight and long-term, strategic commitment of Resource Capital Funds, Pegasus Capital Advisors, and The Traxys Group, Molycorp would not be in the position we are today," said Mark Smith, a member of Molycorp's Board of Directors and the Company's Chief Executive Officer. "Their willingness to take on significant, early stage risk has positioned Molycorp, and all of our stakeholders, to continue to benefit from the very positive fundamentals of the rare earth sector." 
J.P. Morgan Securities LLC and Morgan Stanley & Co. Incorporated will act as joint book-running managers for the proposed offerings. Each of the offerings will be made only by means of a prospectus. When available, copies of the preliminary prospectus relating to each of the offerings may be obtained from J.P. Morgan Securities LLC; c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, New York 11717; or from Morgan Stanley & Co. Incorporated, Attention: Prospectus Department, 180 Varick Street, New York, NY 10014 (1-866-718-1649, email address:
See also:
UPDATED-Rare Earth: "Molycorp Looks Like One Of The Greatest Private Equity Deals Ever" (MCP)

"The Money Man Behind America’s Rare Earth Minerals" (MCP)
Here's our Jan. 7 post: "Rare Earth Stocks: What to Look For Next Week (MCP; AVL; REE)"
...I'll focus on Molycorp but the thinking is similar for the whole group.
These are capital intensive businesses, the companies are generally underfunded.
What to do? If you find yourself a market darling you sell stock.

How do managements suddenly thrust into the spotlight react? They want the stock up.

None of the U.S. and Canadian names are in production which, paradoxically, means they can achieve higher prices for the stock than if they were tethered to earthly reality by discounted cash flows or proven reserves.
You can go with "inferred" which pretty much means "pick a number". Managements will let their investors dream, not disabusing them unless they are required to by securities law.

Because there are no metrics that make any sense you need to be as much a psychologist as a wonk, take the measure of the market's aggregate emotions and bet accordingly....

...I'd look for a whole bunch of "news" releases from the whole group over the next week or ten days, starting with the smaller names, their attorneys usually aren't as squeamish. But the NYSE listed issues will be sending stuff to BusinessWire (a Berkshire Hathaway company) and you'll see the fear and greed thing play out.

In the case of MCP they, in addition to wanting the stock up for possible financings they also have the lock-up period for insider sales ending on the 20th.

I'm guessing their releases will read really well.
More later.