The London REE Report: Is this the Big One?

Everyone who is following REEs and HREs, is well aware of next week’s coming IPO from Molycorp Inc.

“Molycorp, Inc. is a rare earth oxide (REO) producer in the Western hemisphere and own most fully developed rare earth project outside of China. The Company has made investments, and focuses on investing in developing applications for individual rare earth elements (REEs). The Company estimates total proven and probable reserves of 2.21 billion pounds of REO, with an average ore grade of 8.24%, using a cut-off grade of 5%, at its Mountain Pass mine.

At its Mountain Pass facility, the Company mines, crushes, mills and separates rare earth ore to produce individual REEs. It holds a 30-year mine plan permit and an associated environmental impact report, both of which were issued during the year ended December 31, 2004.” (click here for full story)

So the question I keep getting asked is “is this the big one, the one to jump all over for the rare earths and metals ride?” The simple answer is I have no way of knowing. Priced at an expected $16 or so, the offering isn’t cheap, but then the sums involved in reactivating their Mountain Pass property to 2010 standards, are something right out of a New York investment banker’s dream bonus. $500+ million and counting, but the IPO doesn’t raise the full amount. To my old fashioned Scots conservative way of thinking, that suggests dilution at some point ahead. Despite my headline just two days ago “Getting in Early,” this is one that I think might be an exception. Of course every potential investor thinking about investing in Moly, needs to do their own due diligence and make their own up or down decision based on their own circumstances, they shouldn’t be swayed by my views or opinions, I’m only writing here about my style of decision making.

To me, this is one rightly or wrongly, I’d like to see how it trades once the offering closes. While time and tide wait for no man, least of all me, the corporate payoff in this doesn’t come around until 2012 or 2013. Stock jobbers might like the trading in and out gambling opportunities that go with our modern casino markets, to me an investment is more long term non gambling affair. An opportunity to get in on a sustainable long term growth and management play, but at price that takes the odds to my side of the table. In this case, in my case, I see no need to participate in the IPO or immediate aftermath. In fact I see no immediacy need to act at all. There will be other, hopefully better, entry opportunities in the twelve months ahead I think, as we get to see how well their timetable holds up and how well used the cash is. I have little doubt that the company’s management will in time, deliver a very good company with a first rate natural resource asset, US located, which in itself is an extra plus. To a well funded pension fund, stepping in at the IPO might seem to be the correct approach to take. But they deal in vast portfolios that dilute down the risk from any single investment, and they probably intend to add later to what will become a more substantial position. To me, the entry point on a single company is rather different. Patience is a virtue, so they say, and on this stock I will be patient and look to see what the management has to say over the next few weeks. “In the long run, we’re all dead,” famously quipped John Maynard Keynes, the dissolute English economist most responsible for the economic mess the west finds itself in today. But for him, deficit spending would still have retained its historic bad name. Profligate Kings and Republics borrowed and overspent all the time, and then defaulted with relative impunity. For now, Europe at least, is headed off down the road of “austerity.” For now, America isn’t, so our short term, six to nine months or so, global economic outlook is somewhat clouded. “If you can keep your head when all about you are losing theirs and blaming it on you,” you might just not know what all the others do, with apologies to Rudyard Kipling. But in uncertain times keeping one’s head and not acting rashly is the number one priority. While getting in early is still good sense in most rare earth and metals plays for the rest of our new decade, getting in at $16 dollars in uncertain times, isn’t a play for me at the present time. Good luck to any who think me an idiot and are going to step in at the IPO. For this summer, I’ll follow Warren Buffet’s advice:

The first rule is not to lose. The second rule is not to forget the first rule.

In opening news this morning, the new UK government has just confirmed the last government’s green subsidy for buying an electric car, starting next year.  GM rolls out the Volt. Shocking. As with cigarettes and trans fatty foods, we will all be forced to become greener like it or not.

Electric car subsidy spared cuts by government — (Source: BBC)
Motorists who buy an electric plug-in car from January next year will get a grant worth up to £5,000 from the government….the project was announced by Labour but placed on hold by the coalition until the autumn spending review….now the Treasury has taken the highly unusual step of agreeing to ring fence the money from any cuts….ow the government says the £43m earmarked for the scheme will be protected.

It means that anyone who buys an electric plug-in car from next year will get a 25% discount up to a maximum of £5,000.

"The coalition government is absolutely committed to low carbon growth, tackling climate change and making our energy supply more secure," said Transport Secretary, Philip Hammond.

"We are sending a clear signal that Britain is open for business and that we are committed to greening our economy.

"This will ensure that the UK is a world leader in low emission vehicles.