Unlike most dotcom balance sheets, Molycorp has no debt and has secured all the funding for the half-billion dollar Mountain Pass project, which received positive news on Monday.
"We've received all our permits for the construction project. We plan to start early now," CEO Mark Smith told CNBC. "We were originally planning to start the first week of January, but we'll be starting to strip material just in the southwest side of the pit within the next week or two."
That means full production of rare earth elements could come before the 2012 target date. And, literally, the world is waiting.
Wide Range of Uses
Rare earths are particular elements on the periodic table that have valuable uses in a host of products—from industrial magnets in wind turbines, to certain components in your iPhone. The title is a misnomer because the elements aren't "rare."
They are everywhere, but in small concentrations and in places difficult to mine. The Mountain Pass mine has some of the highest concentrations outside of China. So, as demand continues to grow—and China continues to hoard—Molycorp seems well-positioned to capitalize.
Prices have skyrocketed, and companies like Molycorp have become equity success stories. There simply aren't many players on the rare earth field. Outside of China, only Molycorp and Australian company Lynas are even close to bringing large quantities to market. Several companies are working on a smaller scale to profit from the phenomenon, but they are either too small to move the proverbial needle right now or are simply too far away from mining usable material.
If an investor wants a broader play in rare earths, there is an ETF (exchange traded fund),but it's not as much of a pure play on rare earths.
"The ETF is based on some very small cap companies with assets in South Africa and Greenland and Canada," said Young, who also notes that names like Molycorp are in there, too. "They are much further away from production. Molycorp is the best way to participate in rare earths for North American investors."
Potential Pricing Problems
The biggest potential problem is pricing. If rare earths become cheap, Molycorp's stock could suffer.
"The downside risk is that you have China beginning to export large amounts (again)," said Young. "You could see the price collapsing."
He did not see that as likely in the near-term, but that is where the risk lies.
CEO Mark Smith agrees: "The Chinese exports are down. They're expected to go down again in 2011. Prices are going to go up as long as supply is high and demand is high."
Of course, it's almost impossible to predict when supply will begin to eclipse demand—other than the price falling.