Interesting idea. If they are negotiating warrant prices based on market price then a short position makes money in the long run. Say the "natural" price would be $2.50 ... they could have 25 million shares at that price, for $62.5 million with a warrant at that "natural" market price. But say they short 5 million and drop the price to $2. Then they have 25 million shares for the market $2 price-tag, for a $50 million price. If they cover for a loss of less than $12.5 million (which would be $2.5 per share for the 5 million share short), then they end up ahead.
That is just fun with numbers, not a reality. Presumably, when they close the deal, the warrants will have a price tag that is an incentive for the deal, based on the market price 10-day average (or some other time length). But it is also generally true that Oaktree could not make that trade ... the negotiations present an insider trade situation. And there is generally a pre-deal contract that says while the deal is being negotiated neither company will be trading for an advantage.
But you are correct, there is a deal that is going to be finished, and the market price is likely in it, as a warrant price. And 25 million warrants is something the market can predict. Maybe there is a mechanism ... I only see an advantage for Oaktree short.
I kind of doubt it tho. A deal like this requires a non-disclosure-agreement, as Molycorp opens the books, and answers questions that are too much insider info. That NDA generally spells out that Oaktree cannot take a stock position. And the insider trading potential also weighs against it.
"Bankruptcy would have been a better option for management"
Huh? Where did that come from? BK is terrible for management. You sound like you think they lose NOTHING in bankruptcy. Other than their stock position value. And possibly their jobs. And reputations.
They went with financing because there is cash burn, and their job is to make the company survive.
I may have understated the "energy-return-on-investment". A quick google indicatses it as more like 1-barrel used to produce 3-barrels. Alberta oil sands costs are about $40 to $50.
The energy-return-on-investment is improving with optimization (yay optimization). I see a claim that they are actually getting closer to 1-barrel used to produce 6.4 barrels (900,000 BTUs of energy (Natural gas) to produce 5.8 million BTUs of oil).
The Canadian oil sands are net energy positive. It takes something like 2 barrels of oil energy to extract 3 barrels of oil. People often phrase that as two-barrels-to-get-one-barrel, but the one barrel is NET.
I was contemplating the solar cell as a source of hydrogen (from water).
I'm not dismissing the chemistry. It sounds like good catalysis investigation.
"That future, of course, will be determined by a variety of factors, including economics. "Our basic research studies are focused on the science-the discovery of how such catalysts work, and the use of this knowledge to improve their activity and selectivity," Rodriguez emphasized"
Reacting CO2 with hydrogen to make CH4 and O2 will always be endothermic, just as reacting CH4 with O2 will always be exothermic (my stove cooks very nicely with this heat of combustion). There may be chemistry reasons to use this reaction. But energy reasons have to account for the energy in.
The only problem with this is the energy involved. It is a "futile cycle" in many ways. Say you take Methane (CH4) and burn it. You get energy (heat, converted to electricity), CO2, and H20. If you want to make methane from CO2, it takes at least as much energy as you got in the combustion with oxygen.
It may be that the catalyzed reacion is more efficient, but it will always be an energy consuming reaction. There might be some applications. Say use a solar hydrogen generation. Then with electricity and CO2, make methane to store the solar, recovering it by burning it later.
Sorry, that came off much more argumentative than it should have. OPEC gets away with it but China will figure out a way to comply with WTO rules and maximize their own advantages.
I agree that prices will increase. I don't see any other effective China policy. Oil is just a whole 'nother market. I agree that China can and will push prices up, but I'm leery of comparisons with oil markets ... sorry that still sounds like I'm being an argumentative #$%$ ... ahh well, I agree and have a pointed technical issue that keeps sounding like it is more important, and it isn't ... just bad writing.
OPEC members are not WTO members. It is just that simple. If they wanted to join the WTO, they would have to abide by the rules for quotas.
China IS in the WTO and the WTO rules help China in many ways. But in this case the rules work against them. They can indeed choose to ignore the rules, and then the WTO rules would no longer apply to trade between China and the other WTO countries. Any could put protective tariffs in place, which they currently cannot do.
We can retaliate against OPEC counties with economic embargoes. We can place them on do not sell lists. We can turn trade into a diplomatic process rather than economic. When you say that members of the Organization of petroleum exporting countries act differently than the world trade Organization members ... of coourse. They are two different organizations. China is a member of the wtO not the Opec.
The way I read it, China lost the first WTO ruling but then appealed, and they claimed they were using quotas as an environmental regulation. That has now lost. Here are some quotes from an EU PR.
The Chinese export restrictions offer a competitive advantage to Chinese industries that benefit from lower input prices. At times, non-Chinese buyers have been forced to buy their raw materials at a price that is more than twice as high as that paid by Chinese firms.
In 2012, China already lost a first WTO case concerning its export quotas and duties imposed on other raw materials. The measures considered in the first dispute were very similar to those in today’s ruling. China claimed that the new case was different from the earlier one as the measures are now related to a comprehensive domestic resource conservation policy it put in place. But, as the WTO Panel found in a report published in March 2014, and the Appellate Body confirmed today, China cannot invoke its conservation policy to justify export restrictions if it places the burden of that policy on foreign users, while ensuring sufficient supplies of raw materials at lower prices to its domestic industry.
The WTO Panel and Appellate Body’s rulings as well as the WTO rules in general do not prohibit regulating or limiting mining activities. They do not affect either a country’s right to pursue its resource conservation or environmental protection goals. As a WTO member, China should however refrain from discriminating against foreign users of resources. Contrary to these principles, China placed the main burden of its alleged conservation goals on foreign users by restricting their access to crucial inputs, while ensuring sufficient supplies at lower prices to its domestic industry.
They've started talking about a resource tax. If they put a tax on RE's and raise the price, demand drops for exports. IMO, they can give tax credits to internal companies to incentivize internal demand.
The two-market system is a killer. RE's are cheaper IN China than to go. Any restaurant that had a 20% discount for eat-in vs to-go would see 99% eat-in. And China likes that other countries think the supply is not dependable.
Eventually, there will just be one market, and RE's will flow freely into and out of China. China needs higher resource taxes, simply because there is no reason to screw up the environment if there is not a monopoly driven power play available. China has some excellent RE sources, but they can't afford another attempt at gaining a RA monopoly. The WTO decision really shows them that. They can play games to gain small economic advantages, here and there, but if they want to have free trade with the world (and they have to have that), then they have to live with the agreements that keep goods flowing.
They should conclude that RE monopoly power was a crude political weapon, and was ineffective in the islands ownership conflict with Japan. The monopoly WAS economically valuable in creating a larger "eat-in" manufacturing industry. They can keep a small part of that competitive advantage with tax incentives to internal companies (every country does that) and taxes on the resources (also legitimate).
So I am in agreement that the response is towards higher prices.And that is a good thing for Molycorp. China will have a resource tax in place before they end the quotas. I'm not sure what deadlines for eliminating the quotas are (a "reasonable time").
I want to make another comparison with copper. A world class copper deposit is between 0.4% and 1% copper, and copper sells for about $3 per lb right now ... $6.60 per kg. Mt Pass ore is roughly 2.2% cerium, 3.2% lanthanum, 0.8% neodymium, and 0.3% praseodymium (per TMR, with a net 6.6% RE's).
The extraction of RE's is more difficult than copper, so the higher percentages are useful. Copper is higher than cerium and lanthanum in price, but lower than neodymium and praseodymium. We generally don't think of copper as scarce or rare. But the economics of mine indicate that an ore deposit with much lower grade than the Mt Pass grade, is very profitable for copper.
Copper demand is consistently growing, and the market is liquid and the commodity trades fungibly, on price. RE's are currently still a small market. Copper production exceed 20 MILLION tons. RE production is somewhere between 100 THOUSAND and 200 THOUSAND tons. You comment on the price environment and you are correct. The market and demand for RE's are a backwater, small time. I think the obvious magnet demand growth is the thing that needs to be considered ... that should drive the RE market to a more reasonable one, with better market pricing ... not higher or lower, but more transparent and with more fungible RE's.
Rare earth elements are relatively abundant in the earths crust. However, there is a sizable demand for purified rare earth elements which are not found in nature. Deposits of ore that are economically valuable are not common.
Abundance in nature is not the entire determinant of price. There is the demand side, and the cost of extraction and purification. Copper at a 1% concentration, in an open pit amenable ore body is economical to mine and purify. Copper prices are lower than the ASP of Mt Pass RE's which are present at about 7%.
The most recent two facilities for purification and isolation of RE's are LAMP and Project Phoenix. Both are quite expensive. The cost of these modern facilities has yet to be felt in the price side, as the single source for RE's in recent decades has been the State of China.
I don't think it is profound to say that rare earths are not rare. Very few elements are "rare". But other than gold, almost none are found pure in the natural world. How abundant are purified rare earths? Answer: They don't exist at all in the natural world. They are man-made. They only exist because of modern chemistry, modern industrial processing, and modern geological exploration. The abundance of rare earths in impure states is relatively unimportant.
I have yet to give a thumbs up or thumbs down, or pay any attention to that system.
Of course, sometimes I wish I DID technical analysis. There is still short-term/daytrading money to be made, but the long side is where you want to be.
No mention. That is to be expected as the terms were sealed. A settlement could be at any time. But no details on how much or when.
Umm, that is worthless garbage. Anyone incapable of using a phone, but expecting public message boards are a venue for billion dollar deals is a useless idiot.
But yes, I plan on emailing everyone in the company that alexsgabor has billions of dollars ready to commit, but just needs the deal to be handled via the Yahoo MB. A 10 year contract for purchase of 40,000 metric tons per year will certainly be good news for MCP. I can't wait for this to be finalized and announced. Thank you so very much for this generous offer.
I'm offering to buy the entire output of the WORLD for 10 years. Please contact the WORLD for me.
I am even more generous than you. I will buy the entire Mt Pass for $3 billion, and lease it back to the company. I only require a 10 year lease, and a 40% equity position (terms of lease: $3 billion per year, paid in advance). I also will buy all the bonds for 75-cents on the dollar. Especially the senior secured ones trading near 100-cents on the dollar. Of course the company doesn't own those, so offering that deal to MCP is futile.
I've got to remember how pointless it is to post to CB. I don't understand the mental outlook that makes one take an unsupportable position, then delete it when it draws refutation. The financing deal is still not fully laid out. The details matter. It may be the sweetest deal that proves the fantastic value of MCP, or it could be an ordinary deal with costs and benefits.
The cash available to MCP is $400 million. That is a lot. And if later MCP pays nothing back, and Oaktree has a 10% equity ownership, then of course, CB is correct that Oaktree values 10% of MCP at $400 million. I just think that without full information, that would be an unlikely expectation for the deal. There will be costs and there will be benefits. If you find those persuasive enough, you can act on them with an investment decision, long or short.
Wow, you really like to post irrationally and then delete those posts, don't you?
I'm long. I'll reply here even tho the topic will be deleted.
I don't need to make a bear case. I presume the bear case would be that the stock will go down in value, based on a decline in the companies performance. Anyone can understand that. I don't agree with it, but MCP DID lose money. They DID just go borrowing again. They DID report that June production was hurt by problems. They DID say that July was also bad. They DID say that August is also effected.
Molycorp has a good business plan. If they deliver on it, longs will make a lot of money. If they fail to deliver on it, then the company will fail, and shorts will make money. So far, the failure side has been right. I don't see why facts are so anathema to you.
If I have a house worth $1 million and debt of $0.5 million, I have net worth of $0.5 million. If I sell the house for anything, it will be for $1 million. That asset sale doesn't reflect the current net worth value. You know that ... don't be a fool.
The equity position is warrants for stock purchase. We don't yet know the purchase price, or the time window. But the $400 million currently being made available is for a combo of assets and interest and warrants.
NOT 10% of the current value of the company. For a combo of assets and interest and warrants. That combo is worth $400 million to Oaktree.
I'm not saying it is a bad deal. But the deal is NOT $400 million paid for 10% of the equity. That is just ignorant.
LOL. My point is to provide the facts and the source. But you will delete your post quick enough. That is a direct copy-and=paste from note-17 in the 10-Q. The questions are things that I don't have answers for.