Molycorp discovers a new REE deposit

Molycorp (mcp-n) has found a once forgotten heavy rare-earth element (HREE) deposit near its Mountain Pass mine in California.

     North America’s sole producer of rare earths announced the discovery in a conference discussing the implications of global shortage in critical materials in Washington on Oct. 4. The news sent Molycorp’s shares up 6% to US$31.94.

The company’s chief executive, Mark Smith, was reported by the New York Times saying that Molycorp could start mining the deposit, which sits on its land claims, in a year or so. The deposit would require little stripping as it is near-surface, he said.

Before mining, the company will have to complete a drilling program, estimate the extent of the mineralization, conduct various analyses, develop a mine plan and secure permits for the deposit.

The Times article explained the outcropping was first discovered in the 1950s when geologists where mapping the Mountain Pass mine. The data was then put aside as the oil company Unocal bought the Mountain Pass mine mainly for its light rare earth elements.

 Only recently did Molycorp’s geologist dust off its archives, which also contained reports on potential rare earth deposits around the globe. This wealth of information fuelled the company’s interest to explore REE targets.

Molycorp says it still needs to do a lot of test drilling to figure out the quantity and quality of the deposit.

The company’s chief technology officer, John Burba, told Reuters the deposit is the first of the four HREE deposits that it is exploring and is also the closest to its Mountain Pass mine.

In an Oct. 4 presentation on its website, the company says the other three deposits are not in the U.S.  It outlines that all four deposits grade 4% or higher for rare earth oxide (REO) and contain significant HREE content. 

 “It’s a pretty encouraging deposit,” Burba was quoted saying. “We’re moving with great speed to get this thing defined and start processing.”

The announcement of the discovery comes only weeks after Smith told a U.S. House Foreign Affairs Subcommittee on Sept. 21 that the country needs to increase its own rare earth production as China continues to tighten its grip on rare earth exports. The Chinese control 95% of the global supply.

“The U.S. must roll up its sleeves and get to building its own domestic rare earth manufacturing supply chain,” stated Smith. “We must move as rapidly as possible to a position where our economy and our national security interests are no longer tied to declining Chinese rare earth exports.”

Smith made his testimony a day after JP Morgan revised its 2012 target price for the company from US$105 to US$66 a share and downgraded the stock to “neutral.”  It cited a “lack of clarity” that recent speculative buying had on the REO prices, which were retreating.  For the new target price, JP Morgan used a basket price for REO of US$48/kg, down from US$85/kg. Molycorp lost 20% of its market cap on the day.

For the year, the company expects to produce more than 4,500 tonnes of rare-earth products. It has a 52-week trading range of US$26.52-US$79.16.