China's restriction on rare-earth materials and timing of Molycorp's acquisition of Neo Materials

Analyst Commentary, Miller Chu: Following Molycorp (NYSE: MCP) and Neo Material (TSE: NEM) potential M&A announcement earlier this week, the U.S., the EU and Japan are teaming up to fight against China’s restriction on rare-earth exporting. The three nations are fighting to have China remove its restriction on rare earth exports. According to Bloomberg, China accounts for over 97% of world’s output of rare earth metals. This could potential be a game changer for Molycorp in the long-run as Molycorp is the world largest producer of rare earth magnets outside China. In our opinion, the strategic plan to acquire Neo Material was fundamentally beneficial to both parties, especially Neo Materials as Neo Materials can reduce its reliance on China for raw material supply. With the potential for China to reduce its export restriction, however, would create supply that could increase market competition for Molycorp in the long run. In the short run, we think it is unlikely the decision by the three nations will have significant impact on Molycorp’s and Neo Material’s valuation because of the nature of these international claims.

News Summary: The U.S., the EU and Japan are preparing a case to present to the World Trade Organization, arguing that China's restrictions on the export of rare-earth materials violates international trade rules, senior White House officials said. President Barack Obama is expected to announce Tuesday that the U.S. will request talks with China over rare-earth export quotas, as a first step toward bringing the dispute formally before the WTO.

Source: Reuters (Mar 13), China Daily (Mar 13), International Business Times (Mar 13)

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