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They don’t call these stocks cyclical for no reason.

Shares of Thompson Creek Metals (TC), the world’s largest publicly-traded, pure-play molybdenum producer, are down almost 40% from their April 5 high on fears that the world economy, and especially China’s part of it, is slowing. A slowdown would mean less steel production, lower demand for molybdenum, and falling molybdenum prices.

Thompson Creek’s first quarter earnings, reported on May 5, were solid. The company earned 17 cents a share (excluding a charge due to the Canadian company’s conversion to U.S. accounting standards), up from 9 cents a share in the first quarter of 2009. Molybdenum production in the quarter was a record 8.3 million pounds with sales of 6.7 million pounds. (The company built inventory by 1.5 million pounds in the quarter in preparation for a maintenance shutdown at one of its plants used to process third-party ore concentrates in the second quarter.) The cost of production fell to $5.36 a pound and the company saw an average realized sale price of $14.50 a pound.

Revenue for the quarter came to $128 million.

For the rest of 2010 management projected that the cost of production will average between $6 and $7 a pound. Production for the year will be 29 to 32 million pounds. And molybdenum prices will continue their upward trend—up 43% from the first quarter of 2009—for the rest of 2010. Market prices for the first quarter had averaged $15.73 (Thompson Creek’s sale price usually trails the market price by a month or two).

So what has gone so wrong with the stock?

It’s not so much anything that has happened so far but fears of what might happen. The cash price for molybdenum was above $17 a pound last week—pretty much exactly where I thought it would be when I updated this stock after its fourth quarter—but the fear is that orders from China’s huge steel industry for molybdenum, used in producing high performance steel and stainless steel alloys used in things like the condenser units of power and desalination plants, will fall off and prices will decline.

Could happen, of course. Although at the current price of $8.80 a share the stock is discounting a drop well below $14 a pound. And notice the target prices from the Wall Street investment banks that turned sour on the stock in March or April. Deutsche Bank, for example, cut its target price from $21 to $15.

That’s roughly about 70% above the current share price. (For more on how to handle this drop, see my post )

As of May 25 I’m lowering my target price slightly on Thompson Creek Metals to $16 a share from my previous target of $18 and stretching out the schedule to March 2011 from September 2010.

Full disclosure: I own shares of Thompson Creek Metals in my personal portfolio.