Molycorp Directors buying own shares could signal Rare Earth Elements come back

Directors of rare earth mining giant Molycorp put their money where their mouths are last week, snapping up stock in the NYSE-listed company. The insider buying, which involved President and CEO Mark Smith, EVP and General Counsel John Ashburn and Director Charles Henry, follows August’s punchy $25m stock purchase by Chairman of the Board Ross Bhappu.

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This unequivocal demonstration of faith in the company – and, by extension, the outlook for the rare earth metals industry – could point to the start of a rebound for rare earth exchange-traded funds (ETFs).
While rare earth ETFs have sold off lately, as the price of rare earths metals has tumbled, investors would be wise to pay attention to this batch of insider buying, as large purchases can be interpreted as a bullish sign.
Directors are presumed to be well-informed of the company’s business and future prospects. They know everything that reasonably can be known about their company’s business prospects, employees, customers, suppliers and competitors.

Therefore, when insiders go into the market to trade their own company’s shares, they have deeper insight into their company’s likely future prospects than can be captured in the more definitive information appropriately released to the public.

Some investors have already acted on the story, with Molycorp shares jumping 19% on Friday. The buying also appears to have rubbed off on other rare earth companies, with Australia-based Lynas gaining more than 14% over Thursday and Friday. This has lifted rare earth ETFs, such as UBS’s UBS-ETF STOXX Global Rare Earth and Van Eck’s Market Vectors Rare Earth/Strategic Metals ETF, which both hold Molycorp and Lynas as major weights.

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