Molycorp leadership change step in right direction, say analysts

Wed Dec 12, 2012 3:10pm EST

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(Reuters) - The change in leadership at Molycorp Inc (MCP.N) is a step in the right direction as it comes at a time when the rare earth miner is battling weak prices and is being investigated by U.S. regulators over the accuracy of its disclosures, analysts said.

Molycorp shares, however, fell as much as 7 percent to $10.52 as concerns remained over rising rare earth supplies and depressed demand. They later recouped most of those losses.

"That was a knee-jerk reaction from yesterday's close," Dahlman Rose analyst Adam Graf said.

Molycorp and Australia's Lynas Corp (LYC.AX), some of the few rare earth producers outside of China, are ramping up production even as prices have dropped sharply since early 2011, dragging shares of other producers as well.

"We remain very concerned about what will happen as new supplies from Molycorp and Lynas totaling 57k tonnes hit up against a ROW (rest of the world) demand estimated at 40k tonnes in 2011 ...," J.P. Morgan analyst Michael Gambardella said in a note to clients.

He said the management change at the company was a positive, given the concerns with the senior management's credibility, especially following the investigation by the U.S. Securities and Exchange Commission.

Molycorp said on Tuesday CEO Mark Smith had resigned. It named Constantine Karayannopoulos, the vice chairman of its board, as interim CEO. The company did not give a reason for the departure of Smith, its CEO of four years.

Graf linked Smith's resignation to the company's poor performance in the recent past.

"Mr Smith's departure is tied to Molycorp's recent weaker-than-expected performance, driven in part by falling rare earth oxide price, but also by disappointing operating results, unexpected additional capital expenditures and aggressive acquisitions," Graf said in a note to clients.

Greenwood Village, Colorado-based Molycorp reported a third-quarter loss in November as lower rare earth prices and higher production costs weighed.

Molycorp shares have lost nearly 80 percent of their value this year.

"While headwinds remain, we see this industry veteran appointment as a step in the right direction," Piper Jaffray analyst Jagadish Iyer said.

The mining industry has been through top management shuffles in recent times with companies such as Barrick Gold Corp (ABX.TO), Kinross Gold Corp (K.TO) and Newmont Mining Corp (NEM.N) changing their CEOs.

"We view his (Karayannopoulos') experience in downstream rare earth operations and industry relationships as valuable qualities in leading the company during the transition period, and believe Molycorp will not be in a rush to find a permanent replacement," Stifel Nicolaus analyst Paul Forward said.

(Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Saumyadeb Chakrabarty and Don Sebastian)

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