Molycorp (MCP) hit its 52-week low of $0.28 on January 26.
Then, just seven days later, shares of MCP skyrocketed by more than 45.4%. The following day, the stock rose another 66.6%!
By February 17, MCP shares rose by 8.9% – ending the day at $1.06. That’s a whopping 278% gain since its January low.
The massive uptick came after the company announced increased Q4 production at its Mountain Pass Summit site.
Now, most companies (and investors) would be elated with a 278%-share-price increase inside two weeks.
Even after the recent triple-digit rise, the company’s fate still hangs in the balance.
From IPO to Penny Stock in Five Years
You see, a $1 share price is the magic number that can keep this company “above water.”
Back on January 2, the company announced that its common stock wasn’t in compliance with the NYSE’s listing standard, which requires a minimum average closing price of $1 per share over a period of 30 consecutive trading days.
So the company is hoping that production increases, in combination with lower costs, will improve the company’s perilous financial position and pathetic long-term stock performance.
And the company is making every effort to impress investors to keep its stock above $1… even if the company has to game press releases to make it happen.
Indeed, following a Moody’s downgrade, Molycorp used a June 19, 2014 press release to soften the blow… Similar to its announcement earlier this month to ease investor fears of a possible NYSE de-listing.
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In both cases, relatively inconsequential information was released in such a way to accomplish nothing more than stabilizing a stock price. But it’s nothing more than smoke and mirrors.
With no substantial information to tell investors, the firm is hanging on by a thread.
As you can see from the graph, MCP has declined more than 98% since reaching an intraday high of $79.16 per share in May 2011.
Making matters worse, the higher production that just boosted shares will only help to increase the company’s cash burn rate. After all, Molycorp’s selling, general, and administrative expenses (SG&A) and other costs still dramatically exceed the company’s revenue.
Molycorp Burning a Hole Into the Ground…
Ultimately, the volatility in share price implies that MCP has benefited from short covering as short sellers have tried to limit losses by exiting their positions, a significant hazard when shorting stocks below $1.
But the bounce won’t last…
MCP management is unable to properly address the core problems associated with the company.
The good news is, there’s a very deep hole in the ground at the company’s mining site in California for investors to bury their near-worthless shares.