Bubble Exit: Insiders Keep Dumping Molycorp Shares (MCP)

Molycorp, Inc. (NYSE: MCP) still appears to be on the backside of a bubble in rare earth elements and rare earth oxides.  The company has already seen insider selling after an exponential rise in its stock price since last year’s IPO.  After the close came two announcements, one is a sale of more shares by shareholders and the second a sale of convertible senior notes.

The first sale is from selling stockholders.  They intend to offer 10,000,000 shares of common stock and they will grant the underwriters an overallotment option to purchase an additional 1,500,000 shares.  Morgan Stanley and J.P.Morgan will act as joint book-running managers for the proposed offering.

Molycorp’s second announcement was that the company intends to sell $200 million in convertible senior notes.  These notes will be due in 2016 but they are private placement notes which are “exempt from the registration requirements of the Securities Act of 1933” and are being offered only to qualified institutional buyers under Rule 144A.  The company is offering the initial purchasers of the notes an option to purchase an additional $30 million in notes.  In this offering, they will pay interest semi-annually with a June 15, 2016 maturity and will be convertible into shares of Molycorp’s common stock, cash, or a combination thereof.

As far the proceeds from the note offering, Molycorp said it plans to use the net proceeds to fund its original Phase 1 production capacity plan as well as its Phase 2 expansion plan at its Mountain Pass processing facility. The remaining proceeds, if there are any, were given the standard earmark of “for general corporate purposes.”

It is still no secret that the rare-earth bubble became too inflated earlier this year.  In April, we noted that the new crack or meth for Wall Street was being formed in rare earths.  Timing is always tricky in calling any bubble and there are never any assurances that shares can’t rise even further.  That being said, one 24/7 Wall St. reader emailed us this message on May 16, 2011: “I was wise to heed your warning. I sold (Molycorp) on April 29 at $73.52 and locked in a 25% gain. Thank you. You may have damn near called the top.”

Molycorp shares closed up 1.3% at $58.70 and its post-IPO range from last summer is $12.10 to $79.16.  The after-hours has shares down almost 4% at $56.03 and there have been about 177,000 shares traded since the closing bell.

There are two very key levels to watch on Wednesday.  Molycorp saw an intra-day low of $55.82 back on May 17 before shares recovered to back above $65 before a recent sell-off.  The lowest close was actually on May 16 at $57.52.

JON C. OGG