By Nathan Slaughter, Scarcity & Wealth

Just twelve short months ago, rare earth play Molycorp (MCP) posted third-quarter 2010 revenues of $8.5 million.

For the same period this year, sales just spiked 16-fold to $138 million. More important, net income swung from a steep $10 million loss to a hefty $48 million profit, or $0.52 per share.

Of course, surging rare earth prices deserve some of the credit. Molycorp's average REO (rare earth oxides) sales price touched $131 per kilogram for the quarter, a 75% increase from just three months earlier.

But the company is also moving more of its products out the door. The flagship Mountain Pass, California, mine sold 1,002 metric tons of REO, nearly double the sales volume from this time last year.

And production is still just getting cranked up. Instead of sifting over old stockpiles, management has accelerated its "Project Phoenix" expansion project.

That will pull forward 3,500 tons that would have stayed in the ground until 2013 ahead to 2012. So next year's REO production forecast has been raised to between 8,000 and 10,000 tons.

By next September, Molycorp expects to reach full phase 1 capacity of 19,000 tons per year. Compare that with the 1,400 tons that were sold to customers last quarter, and it's easy to see that revenues are about to explode.

Within the next 12 months, even assuming REO prices retreat by half to $65 per kilogram, annual sales could soar to $1.2 billion.

For context, the company's market cap has been reduced to just $2.3 billion. And even if gross margins contract from current record-shattering levels, earnings are still expected to reach $3.65 per share in 2012.

That leaves the stock trading at just 7.7 times earnings, a discounted value price for one of the market's top growth prospects.

And that doesn't include a penny of contribution from last month's discovery of heavy rare earth ores such as terbium and dysprosium.

These oxides routinely command 10 to 15 times the price of lighter oxides, and Molycorp might be sitting on one of the only viable sources in North America.

Action to Take --> Nobody knows Molycorp better than CEO Mark Smith, who invested a quarter-million of his own cash to buy 4,200 shares on August 15. Those shares were bought at $59.02, which Smith clearly felt was an attractive price.

Now, you can get them for what is essentially a two-for-one sale. Of course, they could get even cheaper if rare earths continue to fall, but they could just as easily rebound while you wait to act.

Remarkably, Molycorp is cheaper today than it was one year ago, even though revenues are up 1,500% and earnings have spiked dramatically. Those disconnects don't happen often.

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