Molycorp: Ripe For The Picking?

Molycorp: Ripe for the Picking?

The markets have been abuzz with rumors that Molycorp's (NYSE: MCP ) recent fall below its net asset value is turning the high-potential firm into a prime takeover target.

Earlier this year, the company, which boasts the largest rare earth element (REE) deposit in the western world, increased its proven and probable reserves of rare earth minerals at its Mountain Pass, California facility by 36 percent. The updated estimate expands Molycorp's reserves to 18.4 million short tons of rare earth ore. An independent verification estimates that the proven and probable component of Mountain Pass' ore body contains approximately 1.3 million metric tons of contained rare earth oxide equivalent.

However, the company had its fair share of trouble in 2012, including slumping prices, exorbitant costs at its flagship mine and a regulatory probe; it also recorded its lowest ever share price. Those factors ensured that Molycorp's investors experienced a torrid time in the markets, with circumstances eventually snowballing to the point that the company's CEO, Mark Smith, resigned in what the board of directors described as “a natural inflection point" as the firm transitions its focus from development to ongoing operations.

Even after rebounding from a record low in November, Molycorp shares are still trading at a 19-percent discount to their book value, according to data compiled by Bloomberg. With the company currently trading well off its one-year high of $35.79 per share, many are of the impression that its currently depressed valuation could jumpstart interest from potential takeover candidates.

Potential candidates

While Molycorp has so far declined to comment on whether there is any truth to the rumors, most investors will be looking to historical market sentiment for guidance.

The company's current valuation could very well result in manufacturers, such as Nissan (TSE:7201) putting in a bid, according to a Bloomberg article that cites information from Byron Capital Markets. On a different note, Robert W. Baird & Company's recent analysis outlines that after expanding its refining and processing operations with the purchase of Neo Material Technologies, Molycorp may even appeal to private-equity firms.