Once again time to ask, Time to sell Thompson Creek Metals (TC)? I still don’t think so. It’s absolutely true that the commodities rally of has taken shares of this molybdenum miner way above my old Jubak Picks target price of $7 a share by December 2009. And it’s almost likely that the current rally is due for a correction at the least, which would probably see Thompson Creek and all other commodity stocks give back at 33% of the gain since the March 9 bottom. But I think this stock has more room to run in 2009 and it’s worth holding the shares through any correction.
First, because earnings and earnings expectations are up for Thompson Creek because the price of the molybdenum it produces from its Canadian mines has climbed off the floor. As of July 15 the spot price had moved up to $11.75 a pound. That’s still down 65% for the last 12 months but up 37%, according to National Bank Financial, from the 12-month high and lows, respectively.
 And second, because costs are running well below projections. In the first quarter of 2009, cash costs fell to just $5.93 a pound. That was way below the $7.25 to $8.25 a pound the company had earlier told investors to expect for 2009. It doesn’t look like falling costs are a one-time phenomenon either. The company has lowered its cost projections for all of 2009 to $6.25 to $7.25 a pound. As of July 17, I’m raising my target price for Thompson Creek Metals to $15 a share by May 2010. (Full disclosure: I own shares of Thompson Creek Metals in my personal portfolio.)
TC is raising 217m by selling stocks. They already have more than 260 m cash reserve. Do you think they are up for some acquisition? Any thoughts on this would be much appreciated.
“But don’t get carried away by short-term spikes in commodity prices. So many commodity producers have idled mines or wells or whatever that any big increase in price will be temporary as it will bring that idled capacity back into the market.” – Jim
TC is a very large position in my portfolio. I think 15 is a very conservative estimate and Jim may have to update the outlook again next quarter. At this rate I can see TC hitting 15 by September 2009, and if the momentum continues with global recovery and construction projects driving up demand for molybdenum. Its very realistic I think to see price in the 20s by May of 2010.
Jim,
good to have you back! I’ve been your regular reader on MSNMoney and I find it an excellent idea that you started your own site with a lot more content and frequent updates. I’ll be coming back here too.
I also hope there will be a good entry point for TC in the next 2-3 months (during a correction you mentioned) to pick up some shares.
Thanks for the good job!
Al
Jim,
Welcome back!
With all of the consolidation going on in the mining industry, do you think TC is a probable acquisition candidate? If so, would that be a good thing?
Jim,
It seems almost unfair we are getting this investing advice for free! You save a lot of homework for all of us and show us how intangibles that aren’t easily found on surface make huge price differences later down the road. It is a gift.
I think we will see EPS upped above the current 1.03 estimate with stimulus spending and the 14.7% reduction in cash costs. We could see a run up to $20 a share mid next year as prices start to recover.
Thanks Jim
I’m excited to see you back in the saddle, with more columns than ever! Really missed your wisdom and guidance in the scary world of investing. On your recommend, I bought TC @ $3.85 and sold a while back at $9.40. Nice ROI. Will buy again when the price retraces a bit.