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Short-Selling with the O'Neil Disciples: Turn to the Dark Side of Trading by Chris Kacher, Gil Morales

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CHAPTER 9

Case Study #5: Molycorp (MCP) in 2011

Market history is filled with examples of compelling, hot investment themes that drive huge upside moves in groups of stocks. In Chapter 8, we saw how the disruptive technology of 3-D printing created a group move in the 2012–2014 market, but before that investment craze hit the market there was another mania that arrived in the form of what were known as rare earth metal stocks. Rare earth metals, technically known as rare earth elements, consist of seventeen chemical elements in the periodic table. Fifteen of these names are known as the lanthanides; and the other two are scandium and yttrium. The lanthanides are lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium. What these metals all had in common was not that they were rare per se, but that they tended to be geologically dispersed and hence not found in concentrations great enough to make the economics of mining such metals ideal.

Because of this, they are not so much rare as they are scarce. And because they were critical to a number of industrial and technological processes and applications, they were considered to have strategic value. Throw in fears that China was attempting to control supplies of rare earth metals as they shut out the rest of the world, and you had the ingredients for a boom in rare earth metal mining stocks.

One key factor driving the upside in rare ...

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