Thursday, May 24, 2012
The Strange Case of MCP
On May 11, 2012, Wired magazine ran an online story discussing how the US government is quite concerned that China has a stranglehold on "rare earth mining." Rare earth refers to certain elements, such as neodymium, which are used in the manufacture of electronics. Apparently, much of the world has ceded this business to the Chinese. According to the Wired article, however, the concern over this Chinese hold on rare earth mining has become so great that an American company, Molycorp, has decided to reopen a large rare earth mine it owns in California. This was a compelling story to me. So I checked on Molycorp and discovered reasonably sound financials. Thinking that, once this story got wide distribution, the stock would shoot up, I immediately purchased Molycorp on the morning of the story. Well, the stock opened at $24.38 on May 11 and went as high as $26.10 that day before closing at $24.93 and subsequently closing at $25.43 on May 14, the next trading day. So far, so good. But then, the stock went into free fall. It plunged through it's 52-week low in the $22 range before eventually breaking below $20. There was some arguably bad news following the Wired story -- a downgrade by Street.com and, on May 14, the announcement that MCP would issue $650 million in secured notes. This latter point could as easily be interpreted as raising money to pursue this new rare earth opportunity. My point in all of this: I never try to explain short term market movement but this has a suspicious element to it. A possible pump and dump strategy by someone. In any event, I'm sticking with the stock long term.