Molycorp, Inc.(NYSE:MCP) has been downgraded to Hold from Buy by Dahlman Rose that questioned why the company would opt for a dilutive capital raise instead of choosing to finance via lines of credit.
Shares of Molycorp, owner of the largest rare-earth deposit outside China, fell as much as 12 percent to $9.96 and made a new 52-week low of $9.75. The company agreed to sell 12 million shares at $10 each and $360 million of convertible notes on Friday.
The company plans to re-open the Mountain Pass mine on California. The funds raised would be used for operating expenses, working capital and other capital expenditure, the company said in a statement.
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On the $450 million being raised, Dahlman even went as far as to ask whether the Mountain Pass project would be completed on time and within costs.
“The size of the capital offering raises questions whether this project will be completed on time and whether the previous operating cost metrics can be achieved in a timely fashion,” Anthony Young, an analyst at Dahlman Rose in New York, said in a note. “This mine will not ramp up as previously indicated.”
Molycorp plans to increase output at Mountain Pass to an annual rate of 19,050 metric tons in the fourth quarter.
Young also lowered his full-year earnings estimate for this year by more than half to 80 cents a share from $1.70 and cut his 2013 estimate to $1.20 from $3.50.
Shares in Molycorp, which have already fallen about 82 percent so far this year.