December 28, 2010 / 5:28 PM / 8 years ago

Molycorp shares yoyo on China rare earth quota cut

CHICAGO (Reuters) - Shares of rare earth mining company Molycorp Inc MCP.N rose as much as 11.6 percent on Tuesday after China announced new cuts in exports of the minerals, the latest step in a clampdown that has sent users scrambling to find alternate suppliers.

But the surge, which extended the nearly 10 percent jump that Molycorp shares posted on Monday, proved temporary.

By mid-afternoon, shares were down about 1.2 percent. The company’s market value has tripled in the last five months as China moved to more tightly control rare earth exports.

The stock’s yo-yo move came after China cut its first batch of rare earth export quotas for next year by more than a tenth in the face of a threat by the United States to complain to the World Trade Organization over the export limits.

China produces about 97 percent of rare earth elements, which are used in high-technology, clean energy and other products that exploit their properties for magnetism, luminescence and strength.

China’s Commerce Ministry allotted 14,446 tonnes of quotas to 31 companies, which was 11.4 percent less than the 16,304 tonnes it allocated to 22 companies in the first batch of 2010 quotas a year ago.

The Ministry said in a statement on its website at that it had added more producer companies to the quota list, but cut volumes allocated to trading companies for the metals used in high-tech goods.

The export quotas were based on export volumes from the beginning of 2008 to October 2010, it added.

Prices have surged for these minerals, used in everything from Apple Inc’s (AAPL.O) iPods to fluorescent light bulbs, since authorities in Beijing slashed their rare earth exports by 40 percent this summer, saying China needed them for its economic development.

Japanese companies, which bore the brunt of China’s action, have been scrambling to secure reliable supplies of the minerals.

Last week, Hitachi Metals Ltd (5486.T) signed a joint venture with Molycorp to help ensure a steady supply — an announcement that sent its shares up 15 percent in a single trading session.

That followed word earlier this month that Sumitomo Corp (8053.T) agreed to invest $130 million in Molycorp to secure a seven-year supply of the materials.

Since debuting in late July at $14, Molycorp’s stock price has nearly quadrupled.

Molycorp owns a rare-earth mine in Mountain Pass, California, which is scheduled to come back on line next year.

The Mountain Pass facility, which it bought from Chevron (CVX.N) in 2008, has not mined or milled rare earth oxides since 2002, according to an S1 that the company filed with the U.S. Securities and Exchange Commission this spring in association with its initial public offering.

The company is modernizing and expanding the facility, but does not plan to reach full planned production rates before 2012.

China’s actions have lifted the shares of Rare Element Resources RES.V REE.A, Tasman Metals TSM.V, Avalon Rare Metals (AVL.TO) and Lynas (LYC.AX).

Demand for rare earths is set to more than double in less than five years, from 120,000 to 250,000 tonnes by 2015.

That demand comes from a variety of companies. General Electric (GE.N) uses rare earths in wind turbines. Toyota (7203.T) and Nissan (7201.T) use them for their hybrid and electric cars. Research In Motion RIM.TO RIMM.O and Apple need it for their smartphones and tablet computers .

Particularly in demand are oxides like dysprosium, terbium and neodymium, which are used in permanent magnets.

This is a market gap that mines like Molycorp’s Mountain Pass facility and Lynas’s Mount Weld in Australia will try to fill. But even if they make it to market in the next 12 to 18 months, Molycorp and Lynas’s deposits are skewed to light rare earths such as cerium and lanthanum, meaning major holes in the supply chain will remain.

In mid-afternoon trading, Molycorp shares were down 1.6 percent at $48.66 after trading as high as $55.22 earlier in the day.

Reporting by James B. Kelleher in Chicago and Julie Gordon in Toronto. Editing by Dave Zimmerman and Robert MacMillan

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