Molycorp Earnings: Hit or Miss?

Rare-earth miner Molycorp reported record profits on Thursday, but it might not be enough to bolster confidence from investors — at least in the near term.

Rare-earth mine and processing facilities for
Photo: AlanM1

The $72 million in earnings translates into 67 cents a share, 3 cents below expectations. A year ago, the company

lost 14 cents a share.

This is where the analyst community comes into play when analyzing Molycorp. It's only followed by a handful of analysts, and the consensus estimate was sharply increased after Piper Jaffray assumed coverage late last month with an earnings per share estimate of 84 cents.

If that estimate wasn't there, the consensus estimate would have been 5 cents lower, and we would be talking about a Molycorp beat.

Revenues pose another dilemma for investors and analysts. In its fiscal third quarter, Molycorp's sales were $138.1 million. That's well below estimates, which ranged from $142 million to $192 million.

The company did not include $37.2 million it earned from selling material to its subsidiary in Estonia. If that's included, revenues would have been above consensus.

The company chose to be conservative, and says although the omission might hurt now, it will help in subsequent quarters when the Estonia plant produces high-end material from the stock shipped out of Molycorp's mine in Mountain Pass, California.

"That $37 million, Wall Street will see the results of that in the next few quarters," said CEO Mark Smith.

Other numbers worth noting: Gross margins jumped from 57 percent to 63 percent. A major factor involved a 75 percent jump in sale prices from the previous quarter.

"We're doing exactly what we need to do as a company to maximize revenue and maximize margins," said Smith. "I don't know how the company could have done better."

There are major questions moving forward. What will happen with pricing? Smith told CNBC that prices will be volatile — and possibly soft — into the new year, but he expects prices to firm up in 2012 for a specific reason.

"China announced a new invoice system which starts next year," said Smith, who added this will streamline and tighten the Chinese market for rare-earth elements. China still produces more than 90 percent of the global supply. "Companies (in China) are scrambling to get rid of product, and you could see some fluctuation in prices."

"When the invoice system comes into play, things are going to get very tight very quickly and prices are going to go up," he said.

If so, that will serve as a solid lead into the launching of its new mining and processing facility in the second half of 2012, which is expected to result in explosive production ... and revenues.