What to do with Molycorp?As former member of the Irregulars, based on a recommendation in one of your articles last year, I have made a mistake in investing a significant amount in MCP.PR.A (NYSE)in my RRSP portfolio in January 2012. The preferred shares lost about 60% of their value and seem to be in further decline until the mandatory conversion to common stocks in March 2014. My dilemma is to sell them right away, or wait for some possible rebound to minimize my loss. I would appreciate your opinion on this matter.
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I haven’t looked at the rare earths market at all in many months and don’t have an opinion on Molycorp right now.
If other folks are curious, I expect the article you’re talking about where I discussed the Molycorp Preferreds is this one from January 2012: http://stockgumshoe.com/reviews/oxford-club/what-is-the-black-ops-resource-%E2%80%93-51-times-more-valuable-than-gold/
That article, which was in the Friday File but has now been unlocked for everyone, was a teaser deciphering from an Oxford Club pitch that hinted at Molcyorp common — to summarize, I said that I liked the preferred better than the common but wasn’t particularly confident in either. Since then, the preferred is down about 50% (including dividends) and the common stock is down about 80%. I’m pretty sure I haven’t written about Molycorp since then, I don’t know what’s going on with the company at all right now. I know there are quite a few readers who follow these rare earths stocks and trade them, so hopefully someone who is more informed can chime in to give you other opinions to consider.
I am not familiar with this stock but I have a thought on the subject. It appears like this person is blaming Gumshoe for a loosing investment. First if the stock lost that much why not decide on a max loos point and cut it loose before it’s worthless? But to blame Travis is childish when everything I’ve seen in Gumshoe resoundingly advises investors to do their own due diligence and speak with their own adviser before investing. But to sit by and loose everything without a plan as to when to abandon ship to me is senseless. In Short, don’t blame Travis or anyone else for your mistakes.
Mining sector is the worst sector to be in right now. Rare earth bubble went bust back around the time you bought this stuff. Commodity prices are flat to negative and mine costs are out of control in many cases. Molycorp faces these and several other issues, if you do some research you will discover the uphill battle they are facing. They just diluted further, have accounting issues, have bungled their business plan, and the market for LREE’s is soft. They have essentially nil for HREE’s which is the one area now where you can get a little traction in a rare earth spec stock. As painful as it sounds, I might ditch the stock, take my lumps and move on.
It looks like you are in around 60/share or so, even if you wait until you are holding 2x common shares, you will likely be holding a sub-$10 stock that won’t see break even on your investment for many years, if ever, imho. It’s possible they could get bought by Molymet, a Chilean firm which bought into a recent pp and increased it’s stake to about 18% of MCP, but such a buyout might be sub-$10 at this point. There are political issues there as well, USA doesn’t want it’s only REE mine controlled by foreigners, supposedly.
Of course there is always a gambler’s approach. Wait til MCP common stock hits $3-4 and average down. It could get there in the next 2-4 weeks in fact. For an additional investment equal to your original but at $4/share you can get your average down below 10 bucks (figuring in the 2x conversion) and if there is takeover you might do ok. Or it might grind higher at some point and get you out. You’re gambling of course, doubling down on a current loser, but that’s investing at times. I’ve been there.
More info:
http://seekingalpha.com/article/1133441-molycorp-price-target-3-50-6-10-share-due-to-asset-impairment-risk
I did own this stock for a time. I had a 25% stop loss which kept me from losing more on this investment. Consider using 25% stop loss on any future investment.