It might very well have been filed in the “worst kept secrets” department, but it still took the markets by surprise.
Colorado-based rare earths player Molycorp (NYSE:MCP) today announced it will acquire Toronto’s NEO Material Technologies (TSX:NEM) for $1.3 billion, creating what it says will be “one of the most technologically advanced, vertically integrated rare earth companies in the world.”
At press time, shares of NEO Material were up 38% to $11, and the company was the top volume trader on the entire exchange. While the timing may have caught some unawares, the deal itself may seem like less of a surprise to those following the space closely.
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In November, Molycorp CEO Mark Smith told Bloomberg he is looking to “acquire downstream companies that can process rare-earth oxides and produce magnets in Japan, Europe, the U.S. or Canada”. Smith said he is considering some companies listed on the Toronto Stock Exchange.
Although he didn’t mention any names, the market made an educated guess. Shares of NEO Material rose nearly 10% on November 18th, the day of the Bloomberg interview.
Today’s agreement, which was approved unanimously by both boards, will have NEO Materials shareholders receive (CDN) $11.30 per share, which is comprised of (CDN) $8.05 per share in cash and 0.122 Molycorp shares based on Molycorp’s 20–day volume weighted average price of (US) $26.66. The transaction is expected to close in the second or third quarter of 2012.
Molycorp is acquiring an asset in NEO Material whose deep connections in China, where it has been since 1993, are translating to to the bottom line in a big way. The company’s recently reported Q3, 2011 was its tenth consecutive of revenue increases. NEO Material earned a whopping $81.64-million (U.S.) on revenue of $248 million.
Molycorp, meanwhile, expects to complete a $781 million expansion and modernization project called Project Phoenix at Mountain Pass, a mine in California that supplied most of the world wide rare earth metals, by the end of next year. From the 1960′s until as late as the 1990′s The Mountain Pass Rare Earth Mine, Molycorp’s primary asset, was the world’s leading producer. Molycorp, which was once known as the Molybdenum Corporation of America, began small scale production in 1952 until the mine was closed in 2002 around environmental concerns. The Company, now known by its current name, repurchased the mine from Chevron in 2008.
At press time, share of Molycorp were up 16.6% to $30.28.