A stock that trades for less than 40 cents a share is proving to be a drag on the Market Vectors Rare Earth/Strategic Metals ETF (NYSEArca: REMX).
Shares of Molycorp (NYSE: MCP), once one of the highest-flying rare earths miners, are lower by 35.9% Thursday after the company announced it is filing for Chapter 11 bankruptcy protection. The announcement was made after the close of U.S. markets Wednesday.
REMX, which tracks the performance of companies that mine, refine and manufacture rare or strategic metals, came into Thursday with an almost 4% weight to Molycorp, making the stock 15th-largest of the ETF’s 22 holdings, according to Market Vectors data.
It is likely that REMX will eventually part ways with Molycorp because the stock is headed for over-the-counter trading where it will trade under the ticker “MCPIQ.” In a separate statement, the Colorado-based company said it “expects to be notified by the NYSE via delisting letter over the next several days.”
To its credit, REMX has somewhat endured Molycorp’s tumble this year as the ETF is lower by 5.2% compared to 58.3% plunge in shares of Molycorp. In March, Molycorp warned “may not be able to continue as a going concern,” unless the company restructured debt. The producer revealed that falling prices and production slowdowns have diminished its ability to meet obligations.
Rare earth producers have been weakening after China announced cuts to its export quotas, forcing other countries to build up their own projects.
In 2010, China, the world’s largest producer of rare earths minerals, cut back exports as part of a political dispute with Japan, pushing up prices on rare earths by 40% from the preceding year and raising concern over supply. The announcement helped push up Molycorp and other producers to new highs in the following year. [Supply Risk No Longer Supporting Rare Earth ETF]
Molycorp said Wednesday “that it has executed a restructuring support agreement with creditors that hold over 70% of the aggregate principal amount of the Company’s 10% senior secured notes. The agreement provides for a financial restructuring of the Company’s $1.7 billion in debt and provides up to $225 million in gross proceeds in new financing to support operations while the Company completes negotiations with creditors.”
The U.S. is the third-largest country weight in REMX at 15.7% of the ETF’s weight. China and Australia are the ETF’s largest country exposures at weights of 19.9% and 17%, respectively.
Market Vectors Rare Earth/Strategic Metals ETF
