Molycorp Takes on China With Rare Earth Firm Deal

The industry that mines and processes rare earths has had a busy year.

Perhaps the busiest company on the planet has been Colorado-based Molycorp.

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It not only has seen its stock gain over 500-percent in the last 52 weeks, but also has become aggressive with acquisitions, working quickly to try and establish itself as the world's top rare earth company outside of China, which controls about 95-percent of the global market but has increasingly restricted exports.

Earlier this month, the company announced it will take a controlling stake in AS Silmet, one of only two rare earth producers in Europe.

And on Monday, Molycorp made another deal, buying Arizona-based Santoku America, Incorporated. The subsidiary, which will be called Molycorp Metals and Alloys, makes rare earth metals and alloys.

According to Molycorp, it will now immediately begin making alloys for rare earth magnets, which will go into products ranging from hybrid cars to defense equipment.

"This puts us in a unique position in that we will be making alloys as Molycorp on US soil," CEO Mark Smith told CNBC.

Make no mistake; this activity is all about China.

"We are watching what the Chinese are doing very, very carefully," Smith said. "They are moving downstream into these rare earth businesses as well. That's where the real competition will be. If we are not capable of competing beyond (rare earth) oxides, we will lose out in the long run."

So, in less than a month, the company took a major step toward its goal of having a vertically integrated company that can take the rare earths from the mines and see the process through all the way to magnet production.

At the same time, the Silmet deal allows Molycorp to retain more pricing power in a violently volatile marketplace.

If prices remain near current levels, the deals could translate into tremendous revenue growth once Molycorp's new mine and processing facility are at full capacity late in 2012.

All for a combined price of just over $100 million. The Silmet deal was for a shade under $90 million, while Santoku America cost $17.5 million.

Molycorp is expected to begin moving feed stocks from its Mountain Pass, Calif. facility to the Arizona operation, marking the first time a rare earth metal and alloy producer is getting its material from some place other than China.

And in terms of acquisitions, Molycorp may not be done.

"Opportunities continue to be endless," Smith told CNBC. "I want to continue to build this supply chain for mines to magnets.

"We will go as far down stream as we have to, to make sure we are a legitimate blue chip player in this industry," Smith said.