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Gold/Mining/Energy : MP Systems Corp. (formerly Molycorp) -- Ignore unavailable to you. Want to Upgrade?

To: feedmindanaochildren who wrote (39)	2/26/2013 3:41:07 PM
From: sense	Read Replies (1) \| Respond to of 111

I was going to mention the oil market cycles as a proxy for the similar features in the REEs yesterday, but opted to shorten the post instead. It's a proper view, IMO... in part. That makes it investors responsibility to be able to parse the risks versus rewards when the primary basis and the assumptions on which the investment is made viable... are under the control of competitors, in some degree. Oil prices controlled by OPEC have cycled, over the years, with a deliberate effort that over-prices oil by some margin, for a time... and, while oil is over-priced, you will see a lot of venture capital money being invested in development of alternatives to oil that "work" only if the artificially high prices are sustained. Then, after a time, the price of oil drops back again... and all the companies fostering alternatives go broke. A couple of years to a decade later... rinse and repeat. China appears to have adopted something of a similar strategy in pricing of REEs... It's a simple matter to realize that long term economic viability depends on being able to compete based on sustained costs of production, and not based on artificially inflated pricing that is controlled by others. In oil, you will see alternatives displacing oil as a primary source of energy only when the cost of the alternatives competes with the cost of oil at the level of the cost of producing oil... not when it competes with oil only on the basis of price at market peaks. The rest, is about niche competition at the MARGIN... and not competition that addresses the core. The spike in REE prices had no fundamental driver behind it other than China's changing policies that altered access to supply. It was pretty obvious, even at the time, that the policy inputs in China would not be able to sustain the silliness in pricing that resulted from implementing the policy changes. The only reason China ever ended up with a near monopoly in REE production was the pairing of lower Chinese labor costs, with others prior changes in policy that resulted in shifting all the production to China... when others forced their own production to shut down. There's no other reason that Mountain Pass ever quit production... other than the gross inefficiency inherent in the stupidity in Nimby driven policy changes that forced it to close... knowing demand would be met instead by Chinese production with lower labor costs and lower costs resulting from slack environmental standards ? However, as is true in oil also, there is no real "shortage" in REEs... there's simply been a particular balance in the market resulting from a lack of will in developing the resources that do exist to be accessed... at a price point... which price in REEs is paired with growing demand as technology has found new uses. China may be exploiting the accidental monopoly they had forced on them, now... but, it's not like its a natural monopoly, and its not like they did anything themselves to create it, rather than having it forced on them ? That you DO see Mountain Pass being put back in production now... when (for most people) that would have been unthinkable a decade ago... is only one of the "corrections" the market has developed to address the belated awareness of the problem that the price spike created... But, in your analysis of the changes that have occurred since the price spike... it would be a mistake to ignore that moving Mountain Pass back into operation... is not the only response the market has generated. REE's are not that much like oil... that the same sort of cartel based pricing scheme can be sustained in the long term. REE's today... are perhaps more like what oil was in the early days... back when the technology of exploitation shifted from digging holes with shovels to drilling ? MCP management appear not to have considered well and fully the implications of renewed competition in the market... ignoring that their own effort to restore access to a legacy supply... would not be the only possible market response to the opportunity that policy changes in China and price changes in the markets revealed... And, that leaves investors considering the market now having to note that China is as fully dependent on development of new supply outside of China in meeting future demand in HREE's and some other minerals, as others are... while the effort required to meet those specific HREE needs is naturally going to tend to drive some of the other REE's into surplus ? Bigger is not always better. MCP management have grossly misdirected most of their efforts and $$$... largely as a function of having failed in properly parsing the NATURE of the changes that would occur in the market... losing control over focus... which has them still apparently planning on basing the business on assumptions that clearly were not sustainable when they made them... Investors choices now boil down to betting on the clueless guy with money and an unsustainable plan... that requires more money... or betting on the other guy with less $, more of a clue, and a much better idea. I don't find it a difficult choice.