Some rumors actually do come true, or at least close to true.  Molycorp Inc. (NYSE: MCP) was rumored to be getting an investment from Sumitomo for a stake of close to 10%.  A press release from the company is confirming a deal between the two which is a bit different than many suspected.

Under the pact, Sumitomo and Molycorp entered into a Memorandum of Understanding where Sumitomo will assemble an equity and debt financing package that comes to $130 million to be used to complete its rare earth “mine-to-magnets” manufacturing supply chain.

As a part of the pact, Molycorp will provide Sumitomo with several rare earth products over the next seven years in quantity.  Sumitomo will purchase $100 million of Molycorp’s common stock and it will provide Molycorp $30 million in debt financing at a low interest rate.

Sumitomo is seeking financial support from a Japanese government entity in connection with this effort. The transaction is of course subject to finalization of the agreements and is expected to close in February 2011.

We had originally heard something of a 10% stake, but this looks less.  The $100 million in equity financing compares to a market cap of $2.53 billion.

Keep an eye on the speculative competitor Rare Element Resources Ltd. (AMEX: REE) and then also the ETF of Market Vectors Rare Earth/Str Metals ETF (NYSE: REMX).

Molycorp is indicated up 3.4% at $31.85 this morning in pre-market trading.

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JON C. OGG

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