June 20, 2011 / 5:33 PM / 8 years ago

Molycorp sees Sumitomo deal closing by September

* Sees $130 million deal closing in Aug or Sept

* Mountain Pass redevelopment already fully financed

* Analyst upgrades share price target, earnings estimate

* Shares up 7.9 percent at $52.81 in New York (In U.S. dollars unless noted)

TORONTO, June 20 (Reuters) - Molycorp MCP.N expects a $130 million debt and equity deal with Sumitomo Corp (8053.T) to close in August or September and said it continues to see strong demand for all its rare earth products.

The Colorado-based miner added that the $781 million redevelopment of the Mountain Pass mine in California is fully funded even if the Sumitomo deal were to fall through, but said that the financing will provide some needed cushion.

“There’s very little doubt in my mind that the deal is very strong still between the two parties and that this deal will close,” Molycorp Chief Executive Mark Smith told Reuters.

“I think it will be sometime between mid-August and mid-September.”

The financing, which was announced last December and was expected to close in February, will see Sumitomo buy $100 million of Molycorp’s common stock and provide $30 million in debt financing.

Last week, a Sumitomo spokesperson said it would close the delayed financing arrangement once it had secured Japanese customers for Molycorp’s rare earth products.

Sources told Reuters that Sumitomo was struggling to find customers as Japanese demand for light rare earths has plunged and prices were seen as too high. [ID:nT9E7H2010]

China produces about 95 percent of the world’s supply of rare earths, used in high-tech electronics such as smartphones and wind turbines. The Asian nation has clamped down on exports of the group of 17 oxides and metals, sending prices soaring.

The average oxide export price has risen almost threefold so far this year.

“We have certainly not seen any slowdown in the demand for our products, regardless of price right now,” said Smith.

He added that Molycorp had faced some hiccups in processing the rare earths to meet customer standards, but that products had been delivered and the qualification process was underway.

“As the product gets qualified, we are ready, willing and able to make those products immediately,” said Smith.

Molycorp currently produces around 3,000 tonnes of rare earths a year from stockpiled concentrate. With the reopening of the Mountain Pass mine, it plans to to ramp up to 19,050 tonnes annually next year, with an expansion to 40,000 tonnes planned for 2013.

Shares of the company rose on Monday, boosted in part by J.P. Morgan analyst Michael Gambardella, who raised his target price for Molycorp to $105 from a previous $87 and bumped up his earnings estimates for the rare earth miner.

The shares rose as much as 10 percent to $54.10 on the New York Stock Exchange, before easing to $52.81. The stock is still down more than 30 percent from a high of $79.12 set in early May.

Other rare earth stocks also rose on Monday, with Avalon Rare Metals (AVL.TO) up 6.63 percent at C$6.27 on the Toronto Stock Exchange and Great Western Minerals GWG.V up 10.34 percent at 64 Canadian cents on the TSX Venture Exchange.

$1=$0.98 Reporting by Julie Gordon; editing by Rob Wilson

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