Avalon has a good ore deposit that they have explored in Nechalacho. Meanwhile, Avalon is one of the larger exploration companies with a current market cap of about $86 million. They have about $11 million cash on hand and an ambitious plan to build a mine and processing facility for the Necahalacho ore deposit. Their first cut at financing that plan is still quite ambiguous, but they registered for a stock sale to raise $500 million.
They have a 2016 price prediction of:
$8.75 for Lanthanum oxide
$6.23 for Cerium Oxide
$75.20 for Praseodymium oxide
$76.78 for Neodymium oxide
They plan to mine 730,000 mt of ore, processing to produce 7000 mt of REO's. They estimate a cost of $362 per mined ton, a net of about $265 million operating costs. They expect the products to sell for about $645 million. $380 M less SG&A and overhead, they project to profit well over $300 million per year.
They project an upfront CapEx of about $1.45 billion for the Nechalacho project. They would market product in 2017.
So they will have a few stock offerings, lots of loans to arrange, and a long road of construction. Presumably, stock investors will have to put up half of the CapEx, so they will be buying $0.75 billion of stock, and waiting 4 years (if this schedule holds) for the payoff in 2017.
Of course Molycorp can be bought in entirety fo $1.2 billion. And the construction of a production facility is fully funded (they are arranging a credit facility, but should not need it). Molycorp revenues at the prices projected in 2016:
6300 mt LaO at $8.75 .... $55 M
9350 mt CeO at $6.23 .... $58 M
2300 mt NdO at $75.20 .... $173 M
820 mt CeO at $76.78 .... $63 M
That totals $350 M revenues and costs are projected at $134 M ($7 per kg). And that doesn't include the additional revenues from rare metals, alloys, magnets, SorbX, etc.
People have a tendency to toss off a claim about new supply entering the market. I really don't see that MCP has ramped up slightly. Lynas has produced a trivial amount. The only real non-Chinese RE's hitting the market are the RE's smuggled from China.
MCP claims they could run at 15,000 mt per year, with the facility still to add the Chlor-Alkali facility and the second stage cracking operation. When those are complete (September-October) they should be able to push the run rate to the expected capacity. Project Phoenix represent e the only real significant non-Chinese RE production in the world. New and online in 2013.
Avalon has a huge financial barrier to entry into production. I think that barrier is far too large. Molycorp has 2 large production facilites (counting Silmet as large), and smaller production in China. They are optimizing their production currently. They also have access to the Molymet technologists, with their expertise in metals isolation. There is a symbiosis between Molymet and Molycorp, with the large ownership stake of MCP by Molymet, and no real competition on any metals.
Avalon has a nice bit of ore. But it will be nicer when they are another subsidiary of Molycorp. I certainly hope they raise $500 M and make some progress on the plan for the mine and for the flotation concentrate production at the mine site (they plan to ship the concentrate to a processing facility elsewhere). If they have some cash and a set up like that, they would be a valuable acquisition later.
cb_cb480: I'm not sure what your point was in the second message. I agree that using the market cap as a purchase price for the entire company is inaccurate. It is proportional to the price investors should use when comparing the investment. Investors are typically NOT buying the entire company, just a small part of it. I'm not sure why that sounds like I'm disagreeing, because I'm not.
The post points out how much better a financial investment Molycorp with its mountain Pass mine and refinery is than the Avalon proposal. I think Avalon will have great difficulty getting funding for their project.
By far the better business plan is to build a mine and concentration plant ... similar to the processing facility at Lynas' Mt Weld. Then ship the bags of concentrate to an existing processing facility with large capacity.
Of course that plan exists if MCP eventually buys AVL. MCP won't be buying AVL anytime soon, but the reality is that AVL is going to find that they really shouldn't fund a $1.5 billion construction project. If the deposit has merit, it makes more sense as an acquisition by MCP.
In mining, there are the large companies and the junior/exploration companies. And the established companies buy the ore deposits (at their leisure and at their price). MCP is almost at the end of that construction road. And they have survived. They have adequate funding to carry thru the rest of their CapEx, and an achievable plan to reach positive profit margins. That mere survival is enough to guarantee a position of eventual dominance.
AVL would LOVE to have a Silmet facility right now. Or a LAMP facility (although that facility may have fatal flaws). Or the Project Phoenix facility. But all they can do is present the almost laughable idea that they can build a new facility. Two new major rare earth processing facilities have been built in the last few years: Project Phoenix and LAMP. The investment world is unlikely to pour another $billion+ into another such facility when the previous two are not yet successful.
2 years from now: MCP buys AVL for under 5 million shares of MCP. That is my prediction.