Why Molycorp, Inc. Stock Crashed 71% in 2014

January 1 was a high point for rare earth metals miner Molycorp . Literally.

Its stock entered the new year riding higher on the wave of woes buffeting its biggest competitor outside of China, cresting at $6.33 per share on the first day of trading in 2014. Since then, however, it's all been one downhill ride, and there doesn't seem to be any way to stop the slide.

Still going for an extreme discount, Molycorp's most abundant minerals can't gain pricing traction. Data: Molycorp.

A rising tide of red ink

That's taking a toll on Molycorp's financial position. Even though it's been able to increase its sales volume for several quarters, revenues continue to slide because REE prices continue to drop.

Even where Molycorp is seeing prices rise, such as in neodymium and praseodymium, which were up 25% in the second quarter from the year ago period, it wasn't enough to offset the decline in cerium and lanthanum, which fell 32% and 30%, respectively. As a result, net losses widened in the quarter to $84 million from $70 million a year earlier.

Even China's new REE mining monopoly, Inner Mongolia Baotou Steel Rare Earth Group, reported in its quarterly results that profits plunged 72%. And the impact on Molycorp's value was just as dramatic: the stock lost 18% when it reported earnings

Not exactly money in the bank

The twin forces of falling prices and widening losses are causing investors to bet against Molycorp.

Last month, Apollo Global Management purchased more than a fifth of the miner's 3.25% convertible notes due in 2016, a move that was largely viewed as a bet Molycorp would need to restructure its heavy $1.5 billion debt load. It's burning through cash at the rate of about $50 million a quarter, and was estimated to have less than a year's worth of cash on hand if it didn't do any further issuances of debt or equity.

Molycorp's rare earths facility in Mountain Pass, Calif. Photo: Molycorp.

Yet not everyone sees the situation as so dire, or rather that Molycorp isn't worth saving. Oaktree Capital gave the rare earth metals miner something of a vote of confidence last month by securing for Molycorp a commitment for $400 million in financing.

That may not be enough to staunch the loss of value for its stock. The loan is expensive -- Bloomberg estimates interest rates are 12% -- and the private equity firm gets warrants to buy 10% of the miner. Although the alternative meant it might have run out of cash eventually, it's still a steep price to pay. Nor do the economics of the industry suggest it won't simply find itself in the same predicament later on down the road..

Foolish takeaway

In short, Molycorp's woes this year are a combination of still-too-high expectations, a glut of supply and competition, a dearth of demand, and an overall weak financial structure. Despite analysts and pundits saying at numerous times throughout the year that this is the bottom for Molycorp, the rare earths elements miner has managed to find a way to prove them wrong.

A domestic supplier of these strategic elements is essential for our economy, but for investors, Molycorp remains -- as it always has been -- a stock much too risky to place a bet on.

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The article Why Molycorp, Inc. Stock Crashed 71% in 2014 originally appeared on Fool.com.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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