Molycorp delivers on magnet-making jv

In August Molycorp‘s (MCP-N) proposed partnership with Hitachi Metals to create a joint-venture that would manufacture neodymium-iron-boron (NdFeB) alloy and permanent  rare earth magnets fell through when the two companies failed to reach an agreement on valuation and some industry watchers questioned whether the company would be able to negotiate a joint venture at all.

That risk was removed Monday when the U.S.-based rare earth producer announced a joint venture with Daido Steel and Mitsubishi Corp. to manufacture and sell the NdFeB permanent rare earth magnets in a three-way partnership with Molycorp’s capital contribution ratio set at  30%, Daido’s at 35.5% and Mitsubishi’s at 34.5%. The joint venture will be financed by the three companies and a subsidiary of the Japanese government’s Ministry of Economy, Trade and Industry.

The partners will build an initial 500 tonne per year magnet manufacturing facility in Nakatsugawa, Japan and operations are expected to start in January 2013. Molycorp said the companies plan to begin work on the new facility in December and eventually expand operations to the U.S. and elsewhere.

The sintered NdFeB permanent rare earth magnets will be manufactured with technology licensed from Intermetallics Inc., a partnership between Mitsubishi, Daido, and Masato Sagawa, one of the inventors of the NdFeB magnet, Molycorp says.

“The technology to be used by the joint venture is a new and novel approach that does not depend on the use of patents held by other magnet companies,” Molycorp stated in a press release.  “The technology allows for the manufacture of permanent rare earth magnets that deliver greater performance with less reliance on dysprosium, a relatively scarce rare earth. The process also results in higher production yields.”

Molycorp’s chief executive, Mark Smith, noted that the joint venture “can break ground almost immediately and will be able to produce some of the world’s most powerful rare earth magnets in as little as 14 months.”

“This is a positive development for the company as it continues to demonstrate its ability to execute on its mine-to-magnets strategy,” Brian Chin, an analyst at Gambelli and Company in New York, wrote in an email to The Northern Miner. “The Japanese subsidiary will be putting up approximately US$20 million and total capex for the project is expected to be US$80-90 million.”

News of the joint-venture agreement yesterday sent shares of Molycorp up 13.6% or US$3.67 to close at US$30.65 per share on 6.67 million shares traded.

Jon Hykaway of Byron Capital Markets in Toronto has changed his Hold rating on the stock to a BUY and raised his target price from US$37.50 per share to US$40 per share.  At presstime Molycorp shares were trading at US$30.99.  

“One of the biggest risks to our previous Molycorp Inc. target price was the uncertainty regarding a magnet-manufacturing JV partner,” he wrote in a note to clients. “Not only were we uncertain as to terms, there was always an outside chance that Molycorp management would be unable to negotiate a JV at all. That risk has now been removed…”

NdFeB magnets are made with the rare earths neodymium, praseodymium and dysprosium, or terbium, and are used in many advanced technologies such as high-performance motors used in the power trains of electric vehicles, hybrid vehicles and wind power generators, as well as in motors in home appliance and industrial applications.  Molycorp notes that using NdFeB magnets in motors can help reduce electric power consumption by 20% and would contribute to reducing carbon dioxide emissions by an estimated 1.2 billion tons.