I am still trying to figure out exactly what to make of this: Last week, Molycorp issued its quarterly report to investors, in which it both announced a “master supply agreement” to provide Hitachi with didymium alloy (a neodymium and praseodymium mix) and lanthanum oxide for magnet manufacturing, but also announced it had cut off talks with Hitachi to form a joint venture to process rare earth raw materials and make magnets.
The cut off of the JV talks is surprising because Molycorp made a big deal about it nine months ago when it became public as part of Molycorp’s mines-to-magnets vertical integration strategy.
Molycorp’s Aug. 12 news release says, “The companies were unable to reach agreement on certain key matters affecting the value of the joint venture to each party. Mark A. Smith, president and CEO of the company is quoted in the release as saying, “We remain fully committed to producing rare earth permanent magnets and to capturing the highest value of our rare earth materials throughout the supply chain. In fact, we have been in advanced discussions with other companies regarding magnet joint venture opportunities for some time, and we look forward to sharing more details on these developments in the near future.”
A simultaneous news release from Hitachi Metals say, “Incidentally, Hitachi Metals has decided not to set up a previously contemplated joint venture to manufacture alloys for neodymium magnets and neodymium magnet products with Molycorp, Inc. of the United States. The decision was made after reevaluating its business strategy. Hitachi Metals will now study the possibility of manufacturing neodymium magnets on its own in the United States to meet increasing demand for neodymium magnets in North America and Europe, mainly for use in hybrid vehicles and electric vehicles.”
Does Hitachi need Molycorp more than Molycorp needs Hitachi? Or vice versa?
For what it is worth, Reuters news agency reported on how Molycorp’s stock price jumped quite a bit, based on its aforementioned quarterly report, but it seems that had more to do with the company’s exceeding analysts’ estimates of revenues by 30%.
To add even more grist to the speculation mill, Molycorp and another Japanese company, Sumitomo, have been dallying in regard to a stock investment–loan deal. Reuters, in the same story, says it was told back in June “that Sumitomo was struggling to find customers for Molycorp’s rare earth products as Japanese demand for light rare earths has plunged and prices were seen as too high.” But, again according to Reuters, Molycorp’s Smith now says, “There’s changed circumstances. But I still think the best thing to do, for both parties, is to move forward with the deal … It’s kind of a nice position to be in, because it gives us a bit better leverage to hold these negotiations.”
ADDING: Some people are weighing-in about these issues over at the Rare Metal Blog.