Molycorp sees no impact from Japan crisis

TORONTO Tue Mar 22, 2011 3:20pm EDT

TORONTO (Reuters) - Molycorp Inc (MCP.N) has seen no impact on sales of rare earths to Japan in the aftermath of the country's massive earthquake and tsunami, and the company is on track to hit its first-quarter sales targets, Chief Executive Mark Smith said.

"None of the companies or facilities that we sell material to have reported any significant damage in any of their manufacturing facilities," Smith told the Reuters Global Mining and Steel Summit in Toronto on Monday.

"We have seen no impact to pricing whatsoever," he added.

Shares of the largest U.S. producer of rare earths fell as much as 11.7 percent last week, as the market worried that demand for rare earths could fall off as Japan struggles to deal with the disaster.

Japan is the world's second largest consumer of rare earths -- metals used in high-tech products ranging from handheld electronics to wind turbines. It lags only China, which is also the main producer.

"Our full year perspective on Japan is we will see little or no impact in the rare earth industry as a result of the disaster over there," said Smith.

He added that while some of the companies that use rare earths in their manufacturing could be hit by power issues, the overall market would still remain tight in 2011.

"The good news from the Molycorp standpoint is that first-quarter sales are right on plan and the average prices for these rare earths are significantly higher than we anticipated," said Smith. "We remain very bullish on pricing of these materials."

Rare earth prices have soared over the past year -- in some cases rising eightfold -- as China, which produces about 97 percent of global supply, has clamped down on exports.

There is a 20,000 to 30,000 tone deficit in supply outside of China, said Smith.

"This 20,000 to 30,000 tone per year gap is not going to be filled or eliminated any time soon," he added. "So we think 2011 is going to be a very challenging year for the industry."

Smith said he sees rare earth prices rising until Molycorp and Australian rival Lynas start up full production. Combined, the two companies will produce about 40,000 tones of rare earths in their first year of full operation.

Molycorp plans to produce 4,000 tones in 2011 from stockpiled concentrate.

"That could cause some level of price relaxation," said Smith, adding that he expects the price of common rare earths like lanthanum and cerium to settle around current levels.

With rare earth prices soaring, and governments around the world eyeing secure supplies of the 17 elements from producers outside China, the industry has seemingly blossomed overnight.

This presents a good opportunity for Molycorp to acquire new properties, as well as rare earth processing technologies, through the acquisition of smaller companies, said Smith.

"I have never, in my life, seen the number of opportunities that are available in this industry right now."

Molycorp shares closed up 1.59 percent at $44.68 on Monday on the New York Stock Exchange. The company listed at $13.25 in July 2010.

(Reporting by Scott Malone in Boston, Euan Rocha and Matt Daily in Toronto, Steve James in New York; editing by Rob Wilson)