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Report From the Molycorp Mountain Pass Mine
Report From the Molycorp Mountain Pass Mine. When I heard that Molycorp (MCP) had just cratered by $22 from $53 to $31 in two days, I did what I usually do when a mining company I follow gets in trouble. I jumped into an airplane and flew over the pit, making sure that it was still there. I also go into the local bar and talk to the workers with my antennae out to detect any unreported problems.
For good measure, I threw a compass and a few extra bottles of water into the cockpit in case I crash landed in the desert and had to hike out. This is far and away the most remote part of California, and the sands are littered with the bleached bones of a century and a half of unfortunate travelers. Please excuse my shaky pictures, but it is tough holding a stick during severe heat turbulence in a desert mountain pass with one hand while taking pictures with the other.
Long term readers will recall that I pleaded with them to by Molycorp just after the 2010 IPO at $12.50 before its rapid ascent to $78 (click here for “Rare Earths Are About to Become a Lot More Rare” at http://www.madhedgefundtrader.com/may-3-2010-4.html ). But anything can go wrong with a mine, including, strikes, nationalizations, floods, permitting delays, opposition from environmentalists, engineer shortages, cave ins, missing spare parts, and SEC securities fraud investigations.
It turns out the plunge was due to a downgrade by JP Morgan (JPM) that reduced its target from $105 to $66. The esteemed Wall Street firm was concerned that the recent flight out of hard assets everywhere, especially rare earths, would eat into (MCP’s) profitability. Since the July peak, Cerium (Ce) has plunged by 48%, Lanthanum (La) by 36%, and Neodymium (Nd) by 22%.
The bet here is that Molycorp will complete its $781 million Mountain Pass project on time, producing 19,000 metric tonnes of rare earths per year by the end of 2012. An investment of several shots of Jack Daniels with a local Caterpillar operator revealed that work was proceeding at full speed ahead, with crews working nights and Sundays.
On the way out he gave me a bone crushing shake with a hand that was heavily calloused, sunburned, and with grease under the fingernails. There are not a lot of hedge fund managers in this part of the world. Once outside, I immediately called an associate in China who informed me that the rare earth sell off in the Middle Kingdom was indeed done, and that prices were headed back up.
The supply demand squeeze that I predicted in my piece, “Rare Earths Are Heating Up Again” (click here for the piece at http://www.madhedgefundtrader.com/august-31-2011-3.html) is still in the cards . A Chinese clampdown on illegal mining will seriously restrict supply before the Molycorp mine comes on stream, sending prices skyward. The real kicker here is that if congress opts for a rare earths strategic reserve for national defense, which is already being mooted. Remember what the Strategic Petroleum Reserve did for oil prices? Stand by for takeoff!
The bottom line here is that (MCP) will be a great hold once the world goes back into “RISK ON” mode. Play this through the long dated options and you could get a ten bagger.
For those who wish to participate in Macro Millionaire, my highly innovative and successful trade mentoring program, please email John Thomas directly at madhedgefundtrader@yahoo.com . Please put “Macro Millionaire” in the subject line, as we are getting buried in emails.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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"Please bid this turkey back up, so I can try to get out at maximum recovery."
xoxo, MHFT
MHT trades that come to mind ----- oh yeah --- buy dollar/yen, buy TBT, and, just a few weeks back,
BUY THE DIP IN CORN.
What happens when JP Morgue starts shorting rare earths like they do Gold and Silver? We all know Silver should be $100 an ounce more than today’s spot. The only difference between rare earth's and Gold/Silver the criminals over at JP Morgue know is they can all be criminally manipulated with the blessing of the Government. When the SHTF the Government will simply walk in with a SWAT team and nationalize that mine, simply stealing it. What do they care? The only people that get hurt are those 'evil' speculators that caused the 'problems' they created.
all too likely a scenario as you wisely propose, so sell out when you get a 7 bagger and let the greater fool hang on for ten X excitement generator. Is in the money calls the smartest approach or should we be just slightly longest dated OOM for an initial buy?
Thanks for everything, ZH!
Green energy boondoggle. Solar that is not cost effective; wind power that wil triple electric rates, hybrids that cost way too much for the average family. All 3 dependent upon REEs to a greater or lesser extent. So is demand going parabolic or more likely to skip along the bottom along with the rest of the failed social/economic experiments in government control?
You guys, don't have to listen to the guy....relax...And long dated in the money options is the correct play for any high momo stock like MCP...but there is reason CVX sold the fucking place...and Toyota and other large companies are developing alternate sources of rares for their needs( Bloomberg had a good article last week) Plus a huge ocean discovery last summer was a hit to rares spot prices..Anyway.. JPM was an underwriter of MCP...so love or hate it beats watching CNBC ha ha
Also, Toyota and others are tired of getting squeezed by China and other owners of rare earths so they have begun engineering alterantives to there general use in products. Supply and demand at the end of the day always rules.
Did you actually have lunch with some of the mine workers?
Samariumwiches
I used to get all my tips at bars too. I also got drunk. But that's about it. The tips were all from other drunks. So they were worth about the same - 2 bucks a shot and lots a fake enthusiasm.
you were stealing the batender's tips?
"I jumped into an airplane and flew over the pit, making sure that it was still there. I also go into the local bar and talk to the workers with my antennae out to detect any unreported problems.
For good measure, I threw a compass and a few extra bottles of water into the cockpit in case I crash landed in the desert and had to hike out. This is far and away the most remote part of California, and the sands are littered with the bleached bones of a century and a half of unfortunate travelers. Please excuse my shaky pictures, but it is tough holding a stick during severe heat turbulence in a desert mountain pass with one hand while taking pictures with the other."
sweet mother of god.
I got fleeced 11 years ago by an O.C. Ponzi king (now serving time after 20 years of "serving" his clients) who claimed a similar modus operandi in his "due diligence"...
MCP has light REE's, no plan for heavy REE extraction. MHFT does'nt tell you that. If fact, you are most likely bailing out his underwater position by buying here.
Yeah, mining in California, now there's something that just screams extreme profit margin with incredibly little regulatory risk.
I went to the "career fair" here at the university yesterday, and Molycorp was one of the employers with a booth up, interviewing and advertising for hires. I spoke to them, the guy I talked to seemed knowledgeable about the rare earths (I use some of them in my research) and wanted a copy of my resume.
I might find a job with them in the spring; they certainly sounded (from a recruiter, true, but why send them out if you're not serious about hiring people?) like they were looking for a trainload of people from now to about forever; and they are looking into expanding their production, doubling it or better in the next few years.
If Molycorp is "in trouble" or " having problems" you couldn't tell it from the way they were talking to engineering, mining and metallurgy grads yesterday!
I commend you.
Why do we continue to see this dumb f__k here??????????????? He is just another MomoTrader with his two heads out of proportion.
anyone remember Commander McBragg from the 1960's cartoons. I think this writer is his reincarnation...
https://secure.wikimedia.org/wikipedia/en/wiki/Commander_McBragg
The segments opened with an image of a revolving globe and the title "The World of Commander McBragg." In each episode, the Commander would buttonhole a hapless member of his gentleman's club, and proceed to relate some story filled with unlikelihoods and outright impossibilities, always concluding with a hairbreadth escape. For example, McBragg would point to a map on the wall (or globe) and say: "There! Zanzibar! Did I ever tell you about the time I ...?" His colleague would, despite his initial reticence ("NO, Commander, but I-"), become very engaged in the exciting tale ("Good Heavens! What did you do?"), and at its conclusion would compliment the Commander on his cleverness—usually incorporating a terrible pun— to which the Commander would always respond, "Quite."
http://www.bcdb.com/cartoons/Other_Studios/T/Total_Television_Production...
Further "research"
how gullible do you have to be to sign up for something called "macro millionaires" ?
tyler:
i follow the homepage and the contributors page. how about a new page for john thomas, simon black, and various other self-promoters? and don't put the links on the homepage, least of all at the top.