Molycorp Inc (NYSE:MCP) has successfully acquired a massive contract to supply rare earth metals, for the next 10 years, to Siemens. The materials are targeted to be used in Siemens direct drive wind turbines. The company has chosen its Mountain Pass facility in California for this purpose. The deal directs Molycorp to supply the rare materials to Shin-Etsu Chemical Co. Ltd. Shin-Etsu will then develop rare earth magnets from these materials and supply them to Siemens for the generators.
The announcement of the deal propelled the MCP stock by 77%. Officials at Siemens indicated that Molycorp was chosen due to its ability to provide global diversification and reliability in its supply. Additionally, the company has attractive environmental and process innovations built into its Mountain Pass facility. The facility makes use of recycled water, regenerated chemical reagents. Even the power is produce with the help of a high efficiency natural gas cogeneration plant. Additionally, the company disposes of mine tailings through a paste tailings system.
The partnership between the two companies is one that can add to the betterment of the environment. Siemens provides power generation/transmission to smart grid solutions and efficient applications. The last quarter saw Siemens reporting $14.8 billion in revenues, with $1.5 billion in profits. Currently, the companies wind power and renewable sources contribute 4% to the profit. With these numbers on the rise, there is a great prospect for Molycorp to make billions through this deal.
The problem for Molycorp, however, is the shortage of cash. Recent financial results had indicated that the company might run out of cash by the end of this year. The company might be able to save itself through stock dilution, but the agreement of the contract reflects that Siemens believes that MCP would be around for the next 10 years. Dilution of MCP is definitely on the cards, but as the deal progresses it could very well bounce back very quickly.
Molycorp Inc (NYSE:MCP) closed at $0.801, gaining a 2.55% on April 20. The company currently trades 277.96 million shares in the market, with a 52-week range of $0.28-$5.15.