Han Yang, Tianbai Wang, Honglu Liu, and Rui (Cindy) Deng April 12, 2012 Molycorp (MCP)

 Rare earth elements consisted 17 chemical elements – fifteen lanthanides, plus scandium and yttrium Source:

 Rare earths are moderately abundant in the earth’s crust, some even more abundant than copper, lead, and gold  REEs are not concentrated enough to make them easily exploitable economically

 Rare earths are critical inputs in many existing and emerging applications including: Clean energy technologies  hybrid and electric vehicles and wind power turbines High-tech uses  fiber optics, lasers and hard disk drives Defense applications  guidance and control systems and global positioning systems Advanced water treatment technology  industrial, military and outdoor recreation applications

 China owns more than 50% of the rare earth reserves in the world and produce about 97% of rare earth in  The total production in china is approximately 130,000 tons in 2010  The US does not produce rare earth and 93% of rare earth is imported from China

 China has tightened its exported by reducing the export quota for both economic and environmental reasons  The export quota has reduced from 60,000 tons/ year in 2007 to 30,000 tons/year in 2011  The export quota is expected to remain at current level  Regulation increased to reduce the illegal exporting

Source: Economists

 World demand for rare earth elements is estimated at 136,000 tons per year  World demand is projected to rise to 185,000 tons annually by 2015  China’s output by 2015 is estimated between 130, ,000 tons and China’s demand would rise to 111,000 tons.  Non-China annual output would need to be between 45,000 to 70,000 tons to meet global demand.  There is potential shortfall.

 Molycorp, Inc. is the only rare earth oxide (REO) producer in the Western hemisphere.  It owns and operates the world’s largest, most fully developed rare earth mine and oxide manufacturing facility outside of China, located in Mountain Pass, California.  It has been producing rare earth products for more than 59 years.

 Global demand for rare earth elements (REEs) is projected to steadily increase due to  Continuing growth in existing applications  Increased innovation and development of new end uses

Holder NameAmount held% Outstanding RESOURCE CAPITAL FUNDS13,843, MOLIBDENOS Y METALES S A12,500, MORGAN STANLEY INVEST MGMT8,647, PEGASUS PARTNERS IV LP7,970, Total42,961, Ownership Source: Bloomberg

Molycorp Mountain Pass in Mountain Pass, California Molycorp Tolleson in Tolleson, Arizona Molycorp Sillamae in Sillamae, Estonia Three operating facilities

Data Source: MCP Website

Phase 1 To produce at an annual rate of 19,050 metric tons of rare earth oxides by the end of the third quarter of Phase 2 To give an annual production capacity of 40,000 metric tons of rare earth oxides per year by the end of Project Phoenix (two expansion phases)  Modernizing and expanding the rare earth mine, mill, and rare earth oxide manufacturing facility at Mountain Pass

Data Source: MCP Website

“Mine-to-Magnets” Strategy  Vertical integration strategy  Ensure MCP can produce high quality rare earth materials in all five stages of the rare earth value chain Data Source: MCP Website

Mining Stage 1 Molycorp Mountain Pass Material Processing Stage 2 Molycorp Mountain Pass Molycorp Sillamae Metal Making Stage 3 Molycorp Sillamae Molycorp Tolleson Alloy Manufacture Stage 4 Molycorp Tolleson Magnet Manufacture Stage 5 Molycorp in joint venture with Daido Steel and Mitsubishi Corp. to manufacture NdFeB magnets “Mine-to-Magnets” Strategy

Profitability ROA% %-10.59%9.43% ROE% %-11.37%14.00% Margin Analysis Gross Margin% %-6.92%55.17% SG&A Margin% %135.15%16.23% EBIT Margin% % %38.52% NI Margin% % %29.82%

Asset Turnover Total Asset Turnover Inventory Turnover A/R Turnover Liquidity Total Debt/Total Equity 0.00%0.64%0.07% Cash Ratio Quick Ratio Current Ratio

 Current P/E Ratio:  Graham : g = 8.25  GreenBlatt : EBIT/Tangible Assets = 25.94% EBIT/EV = 6.02%  PEG Ratio : 0.79

Valuation: Methods Valuation P/E MultipleDCF Model

P/E Multiple: Comparable Companies US Domestic International Same BusinessSimilar Business Molycorp LYC AVL ARU RIO BHP MLM

P/E Multiple: Comparable Companies Lynas Corporation Ltd. (Yahoo: LYC.AX) Avalon Rare Metal Inc. (Yahoo: AVL.TO) Arafura Resources Ltd. (Yahoo: ARU.AX) International + Same Business

P/E Multiple: Equivalent P/E Market Data Center, Wall Street Journal Equivalent P/E = Original P/E x US Market P/E AUS Market P/E Example: Lynas is an Australian Company. Based on S&P/AUX 200: Based on S&P 500: 16.3 Share Market Report, Reserve Bank of Australia 2 Data Source:

P/E Multiple: Comparable Companies Lynas Coporation Ltd. (Yahoo: LYC.AX) Avalon Rare Metal Inc. (Yahoo: AVL.TO) Arafura Resources Ltd. (Yahoo: ARU.AX) International + Same Business Negative EPS

P/E Multiple: Comparable Companies Rio Tinto plc (NYSE: RIO) BHP Billiton Ltd. (NYSE: BHP) Martin Marietta Materials Inc. (NYSE: MLM) US Domestic + Similar Business P/E (ttm) Average $ 33.5 Molycorp EPS$ Valuation: Price Per Share Current Market Price (Apr 11, 2012) Data Source: Yahoo! Finance $ 31.68

DCF Model: Framework DCF Model Discount Rate = 15.6%Financial Projection WACC + 400bp = 15.6%ROE $ $ $ week range X $ 30 Price Per Share Data Source: Yahoo! Finance $ 31.68Mkt. 11.6%

Historical and Projected CAPEX, (Dollar Amount in Millions) DCF Model: CAPEX Projection Data Source: Annual Reports and Students Analysis Internal Financing By the end of FY 2011: Cash & Cash Equiv. = $ 419 mil. Additional $ 213 mil. Needed.

Historical and Projected Revenue, (Dollar Amount in Millions) DCF Model: Revenue Projection Data Source: Annual Reports and Students Analysis

 Han personally owns 110 shares of MCP. And he will not change the position in next 12 months.

DCF Model: Sensitivity Analysis Revenue = P X Q By 2012 Q3: 20,000 mt (Capacity) By 2012 Year-End: 40,000 mt (Capacity) 2011 : 5,000 mt (Real) Production

DCF Model: Sensitivity Analysis

Recommendation Buy 200 Shares At Market Price Cost = 200 x 30 = $ 6,000 2% of Our Portfolio