Thompson Creek Metals (TC), a Canadian molybdenum producer, has been saying it would do an acquisition if it found a deal the company liked. Well, I guess Thompson Creek found that deal. On July 15 the company announced that it will acquire Terrane Metals (TRX.V in Canada and TRXOF.PK on the U.S. OTC market) for $624 million in cash and stock.

I think this is a good deal for Thompson’s shareholders. Terrane is a copper and gold miner that owns the Mt. Milligan project in British Columbia. Mt. Milligan, a relatively low-grade ore body, is forecast to produce 90 million pounds of copper and 260,000 ounces of gold annually beginning in 2013. The cost of getting Mt. Milligan to production is projected at $850 million. Thompson Creek has reduced its own need for capital to fund the project by selling 25% of the gold stream to Royal Gold (RGLD) for $311 million.

The economics work out—using $2.25 a pound and $1,100 an ounce as the long-term price of copper and gold, respectively—to add to shareholder value even after counting the shares that Thompson Creek will issue in the deal. The acquisition, calculates Paradigm Capital, will add about 2% to Thompson Creek’s net asset value.

Doesn’t seem like much, does it? 2% isn’t much of reason to do a deal.

And it wouldn’t be enough if that were all that Thompson Creek and its shareholders got out of the deal. Maybe the biggest advantage to Thompson Creek is diversification. The company will continue to be the second largest publicly traded molybdenum producer in the world, but it will now also produce and sell copper and gold. The price of those metals doesn’t track the price of molybdenum exactly—especially the price of gold—and that will take some of the volatility out of Thompson Creek’s revenue stream.

But not a whole lot, mind you. The ores at Mt. Milligan are relatively low grade and that will make the profitability of the mine very sensitive to swings in the price of gold and copper. (At prices now too much lower the mine wouldn’t be profitable at all.)

Thomson Creek will still be a volatile stock best owned by patient investors with high pain thresholds. But it just got a little less volatile.  I’m leaving my target price at $16 by March 2011.

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