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Looking for a copper stock? Thompson Creek deserves a speculative peek

posted on December 13, 2012 at 7:24 pm
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copper wire

Shares of Canadian molybdenum miner Thompson Creek Metals (TC) closed up 6.9% today, December 13. When I looked this afternoon I couldn’t find any news but the company was scheduled to speak at a mining sector conference sponsored by Desjardins Capital today. I haven’t been able to find a copy of today’s presentation, but if it follows the script of the December 7 presentation posted on the Thompson Creek website http://www.thompsoncreekmetals.com/i/pdf/Presentation120712.pdf , I think the move in the stock is a reflection of continued progress at the company’s Mt. Milligan copper and gold mine.

On December 7 Thompson Creek said that project was on schedule and on budget. That has not been the history of this project. The company continues to project that production at Mt. Milligan will begin in the third quarter of 2013. And that would be a huge milestone for a project that almost swamped the company.

The total market capitalization for Thompson Creek Metals is just $567 million. But the company’s latest projection for the cash capital spending on Mt. Milligan is $1.5 billion.

If Mt. Milligan lives up to projections, the pain will have been worth it. The mine in British Columbia has proven and probable reserves of 2.1 billion pounds of copper and 6 million ounces of gold and would transform what has been a relatively pure play molybdenum miner.

But the project has stretched Thompson Creek to the utmost. In the third quarter the company recorded an operating loss of $37.4 million, bringing the loss for 2012 to $72.3 million. In October the company decided to curtail new stripping operations at its Thompson Creek mine in order to save cash. To raise capital to develop Mt. Milligan the company sold off a total of 52.25% of future gold production at Mt. Milligan to Royal Gold (RGLD.) The November sale of $350 million in 9.75% senior notes due in 2017 looks like it finally gave the company enough capital to complete Mt. Milligan but it was a near thing and the company is still at risk if molybdenum prices fall unexpectedly from current levels.

If Mt. Milligan stays on schedule/budget and if molybdenum prices don’t unexpectedly collapse, I’d expect the stock to move up gradually as the company gets closer and closer to production in the third quarter. I could see $5.50 or so a share by the third quarter, but frankly that’s very little more than a guess. The company is projecting that molybdenum production will recover to a range of 29 million to 32.5 million pounds in 2013 from 22.45 million to 24.5 million pounds in 2012. Cash costs are forecast to drop to $6.25 to $7.25 a pound in 2013 from  $9.25 to $10.25 a pound in 2012.

All that is very positive but so much depends on global demand for molybdenum.

A big thank you to reader Chapmame who poked me to take a look at Thompson Creek after my recent sell of Freeport McMoRan Copper & Gold (FCX.)

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Thompson Creek Metals as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

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  • emanas on 13 December 2012

    I’ve traded around this position since backin the day when it was a Jubak Pick. Enjoyed hearing your current take on it, thanks! I’m holding long term, long and strong.

  • chapmame on 14 December 2012

    Jim, I have followed this stock since you owned it in jubaks picks. As an engineer understanding the skilled worker shortage, I have been unable to buy this stock until the cost overruns end, but am surprised they have remained on schedule. I still think they will announce delays in the spring/summer, once they are sure that additional capital isn’t necessary. The economics of the mine still make TC a very attractive stock, although I am watching the weather in British Columbia. In the last cc, TC stated that an abnormally cold winter could delay the project. I think this will be there excuse for any schedule slippage at mt Milligan.

  • bonanza4000 on 15 December 2012

    Chapmame, you have no reason to believe that they are or will be behind schedule. To the contrary in fact. They have spent liberally and sacrificed their construction budget in order to stay on schedule. The reports they have given each quarter are crystal clear, they are on schedule and maybe even a little ahead of schedule. Furthermore they have not said that an unusually cold winter could cause delays. They have said that an unusually harsh winter could cause delays, which is of course an a obvious statement, and also has not yet occurred as the early part of the winter season has been fine. Another reason that they have stayed on schedule is that their original schedule had fluff/buffers built into it. Lastly, they are so far into the project at this point, about 75% I think, and engineering is about 100% done, that even if there would be a delay, it would very likely be very small. In fact, they could end up being a tad ahead of schedule.

  • greedibanks on 18 December 2012

    So you’re holding “long and strong” emanas? What is your cost basis? Unless you were brilliant enough to buy at $3/share or below — and it hasn’t spent much time in that region, as I can see from the 5 year chart — you’re looking at a serious loss here.

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