March 7 (Bloomberg) -- China's control of rare-earth metals is providing Molycorp Inc., owner of the largest U.S. deposit of the minerals, with the most-valuable currency in the industry to pursue acquisitions.
Great Western Minerals Group Ltd. and Ucore Rare Metals Inc. may become targets after shares of Greenwood Village, Colorado-based Molycorp tripled since its U.S. initial public offering in July as China curbed exports, Byron Capital Markets' Jon Hykawy said. Molycorp is now valued at 117 times earnings before interest, taxes, depreciation and amortization this year, according to data compiled by Bloomberg that includes net debt, the highest of any diversified metals producer.
The surge in Molycorp's market value to $4.1 billion makes takeovers cheaper as it tries to compete with Chinese producers that control 95 percent of the world's supply of elements used to make magnets for Raytheon Co.'s Tomahawk cruise missiles and Toyota Motor Corp.'s Prius sedans. While Molycorp's mine in the Mojave Desert once met almost all the world's demand, it has yet to turn a profit and doesn't have substantial amounts of the "heavy" rare-earth metals that command the highest prices.
"Time is not on their hands," said Brian Hennessey, a Purchase, New York-based analyst for Alpine Mutual Funds, which oversees $6 billion. "Molycorp would do themselves a service by diversifying into heavy rare earth. There are a number of companies with much lower valuations in the marketplace. They can use their currency to do fairly accretive acquisitions."
Great Western, which plans to start production at a South African mine in 2013, and Canada's Quest Rare Minerals Ltd. and Avalon Rare Metals Inc., which control heavy rare-earth deposits, may be possible takeover targets for Molycorp, Hennessey said.
David Fuller's view This last comment presumably contributed to firmness in both Quest and Avalon today. For the record, I purchased small positions in these two shares last month. We can expect to hear plenty of rumours concerning takeovers and new discoveries while the sector remains in play. It could be an exciting and profitable ride while the cyclical bull markets continue.Back to top