NEW YORK (AP) — Shares of Molycorp climbed more than 4 percent on Friday as a Goldman Sachs analyst said that a distribution deal may have helped to ease some investor concerns about its cerium capacity.
THE SPARK: On Thursday the company announced that Molycorp Advanced Water Technologies LLC entered an exclusive five-year North American agreement with Univar USA Inc., a subsidiary of Univar Inc. The Univar subsidiary will distribute the cerium-based water treatment product SorbX-100, formerly known as XSORBX, to municipal and industrial wastewater treatment plants in North America.
Financial terms were not disclosed.
Cerium is a rare-earth element used to help reduce fuel emissions and to change the color of glass and enamels, among other uses.
Molycorp Inc. also reported a fourth-quarter adjusted loss of 45 cents per share on revenue of $134.3 million. Analysts polled by FactSet expected a loss of 30 cents per share on revenue of $165.4 million.
THE BACKGROUND: Last month Molycorp said it needed more time to file its annual report to account for a hefty impairment charge. The Greenwood Village, Colo., company's filing delay was yet another blow to the business. In January Molycorp said that its revenue and cash flow would be significantly lower than expected in the first half of 2013 and that it will sell a combination of stock and notes to cover an expected cash shortfall this year of about $250 million. The company has also been dealing with declining prices for the rare earth minerals it produces, which is hurting sales.
THE ANALYSIS: Goldman Sachs analyst Brian Lee said in a client note that the Univar deal seems to position Molycorp to sell out almost its entire Phase I cerium production by 2015. The analyst said that this "should help quell some investor concerns around excess cerium capacity."
Lee also said that he views the company's targeted cash production costs of $6 to $7 per kilogram by 2013 as a sign of some operational confidence in the near- to medium-term, even though the company has been dealing with liquidity and management issues recently.
The analyst kept a "Neutral" rating and $6 price target on Molycorp.
Piper Jaffray's Mike Ritzenhaler started coverage of Molycorp at "Neutral" rating with an $8 price target. The analyst said that Univar may be the answer to unlocking potential volumes for cerium, adding that he would consider becoming more positive on the company if customer trials end well and when there is a better understanding of the SorbX deal's margin profile.
SHARE ACTION: Molycorp rose 23 cents, or 3.8 percent, to $6.22 in afternoon trading. Over the last 52 weeks, the shares have traded between $5.60 and $35.79. The stock is off 37 percent for the year-to-date.