1 / 38

Molycorp (MCP)

Molycorp (MCP). Han Yang, Tianbai Wang, Honglu Liu, and Rui (Cindy) Deng April 12, 2012. Intro - What is rare earth?. Rare earth elements consisted 17 chemical elements – fifteen lanthanides, plus scandium and yttrium. Source: http://ilookchina.net/tag/rare-earth-minerals/.

bellae
Download Presentation

Molycorp (MCP)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Molycorp (MCP) Han Yang, Tianbai Wang, Honglu Liu, and Rui (Cindy) Deng April 12, 2012

  2. Intro - What is rare earth? • Rare earth elements consisted 17 chemical elements – fifteen lanthanides, plus scandium and yttrium Source: http://ilookchina.net/tag/rare-earth-minerals/

  3. Intro - What is rare earth • Rare earths are moderately abundant in the earth’s crust, some even more abundant than copper, lead, and gold • REEs are not concentrated enough to make them easily exploitable economically

  4. Uses and applications • Rare earths are critical inputs in many existing and emerging applications including:  • Clean energy technologies • hybrid and electric vehicles and wind power turbines  • High-tech uses • fiber optics, lasers and hard disk drives • Defense applications • guidance and control systems and global positioning systems  • Advanced water treatment technology • industrial, military and outdoor recreation applications

  5. Supply & Production • China owns more than 50% of the rare earth reserves in the world and produce about 97% of rare earth in 2010. • The total production in china is approximately 130,000 tons in 2010 • The US does not produce rare earth and 93% of rare earth is imported from China

  6. Export control in China • China has tightened its exported by reducing the export quota for both economic and environmental reasons • The export quota has reduced from 60,000 tons/ year in 2007 to 30,000 tons/year in 2011 • The export quota is expected to remain at current level • Regulation increased to reduce the illegal exporting

  7. China’sRole in Rare Earth Supply Source: Economists

  8. Rare earth demand • World demand for rare earth elements is estimated at 136,000 tons per year • World demand is projected to rise to 185,000 tons annually by 2015 • China’s output by 2015 is estimated between 130,000-140,000 tons and China’s demand would rise to 111,000 tons. • Non-China annual output would need to be between 45,000 to 70,000 tons to meet global demand. • There is potential shortfall.

  9. Company Overview • Molycorp, Inc. is the only rare earth oxide (REO) producer in the Western hemisphere. • It owns and operates the world’s largest, most fully developed rare earth mine and oxide manufacturing facility outside of China, located in Mountain Pass, California. • It has been producing rare earth products for more than 59 years.

  10. Company Overview • Global demand for rare earth elements (REEs) is projected to steadily increase due to • Continuing growth in existing applications • Increased innovation and development of new end uses

  11. Company Overview • Ownership Source: Bloomberg

  12. Company Overview • Three operating facilities

  13. Company Overview Data Source: MCP Website

  14. Company Overview • Project Phoenix (two expansion phases) • Modernizing and expanding the rare earth mine, mill, and rare earth oxide manufacturing facility at Mountain Pass

  15. Company Overview Data Source: MCP Website

  16. “Mine-to-Magnets” Strategy Data Source: MCP Website Vertical integration strategy Ensure MCP can produce high quality rare earth materials in all five stages of the rare earth value chain

  17. “Mine-to-Magnets” Strategy

  18. Financial Analysis

  19. Financial Analysis

  20. Financial Analysis • Current P/E Ratio: 25.00 • Graham : g = 8.25 • GreenBlatt : EBIT/Tangible Assets = 25.94% EBIT/EV = 6.02% • PEG Ratio : 0.79

  21. Valuation: Methods Valuation P/E Multiple DCF Model

  22. P/E Multiple: Comparable Companies Same Business Similar Business RIO US Domestic Molycorp MLM BHP LYC International AVL ARU

  23. P/E Multiple: Comparable Companies International + Same Business Lynas Corporation Ltd. (Yahoo: LYC.AX) Avalon Rare Metal Inc. (Yahoo: AVL.TO) Arafura Resources Ltd. (Yahoo: ARU.AX)

  24. P/E Multiple: Equivalent P/E Example: Lynas is an Australian Company. US Market P/E Based on S&P 500: 16.3 Equivalent P/E = Original P/E x 1 AUS Market P/E Based on S&P/AUX 200: 13.4 2 Data Source: 1 Market Data Center, Wall Street Journal 2 Share Market Report, Reserve Bank of Australia

  25. P/E Multiple: Comparable Companies International + Same Business Negative EPS Lynas Coporation Ltd. (Yahoo: LYC.AX) Avalon Rare Metal Inc. (Yahoo: AVL.TO) Arafura Resources Ltd. (Yahoo: ARU.AX)

  26. P/E Multiple: Comparable Companies US Domestic + Similar Business P/E (ttm) BHP Billiton Ltd. (NYSE: BHP) 12.54 Rio Tinto plc (NYSE: RIO) 17.62 Martin Marietta Materials Inc. (NYSE: MLM) 48.99 Average 26.4 Molycorp EPS $ 1.27 $ 33.5 Valuation: Price Per Share Current Market Price (Apr 11, 2012) $ 31.68 Data Source: Yahoo! Finance

  27. DCF Model: Framework Price Per Share $ 30 DCF Model Mkt. $ 31.68 Discount Rate = 15.6% Financial Projection 11.6% $ 79.16 X WACC + 400bp = 15.6% ROE $ 31.68 Data Source: Yahoo! Finance $ 23.15 52 week range

  28. DCF Model: CAPEX Projection Historical and Projected CAPEX, 2008-2022 (Dollar Amount in Millions) Internal Financing By the end of FY 2011: Cash & Cash Equiv. = $ 419 mil. Additional $ 213 mil. Needed. Data Source: Annual Reports and Students Analysis

  29. DCF Model: Revenue Projection Historical and Projected Revenue, 2008-2022 (Dollar Amount in Millions) Data Source: Annual Reports and Students Analysis

  30. Disclosure • Han personally owns 110 shares of MCP. And he will not change the position in next 12 months.

  31. DCF Model: Sensitivity Analysis Revenue = P X Q Production 2011 : 5,000 mt (Real) By 2012 Q3: 20,000 mt (Capacity) By 2012 Year-End: 40,000 mt (Capacity)

  32. DCF Model: Sensitivity Analysis

  33. DCF Model: Sensitivity Analysis

  34. DCF Model: Sensitivity Analysis

  35. DCF Model: Sensitivity Analysis

  36. Recommendation Buy 200 Shares At Market Price Cost = 200 x 30 = $ 6,000 2% of Our Portfolio

More Related