On November 5 Thompson Creek Metals (TC) reported third quarter earnings of 14 cents a share, 3 cents a share above the Wall Street consensus, and revenue of $114 million, well above analyst projections of $90 million. The upside came from lower costs at just $5.67 per pound of molybdenum and from higher sales volumes, up 17% from the second quarter although still down 12% from the third quarter of 2008. Molybdenum prices remained depressed at $12.75 a pound, down a huge 61% from the third quarter of 2008.
The best news, though, wasn’t in the numbers for the third quarter but in the company’s guidance for 2009 and 2010.
Thompson Creek Metals raised its projected production volume for 2009 to 24 to 26 million pounds (from previous guidance of 22 to 26 million pounds) and for 2010 to 29 to 32 million pounds.
At the same time the company lowered its estimates of the cost of production to a range of $5.80 to $6.30 a pound in 2009 (from $5.75 to $7.00). Â For 2010 the company estimated costs at $6 to $7 a pound.
In two other major announcements Thompson Creek also presented a new mine plan that increased the size of its mineral reserves by about 30% and noted that since U.S.-based investors now make up more than 50% of all shareholders, the company would convert to U.S. GAAP (Generally Accepted Accounting Principles) in the fourth quarter. That will result in a one-time charge to earnings of roughly 60 cents a share, according to estimates by Deutsche Bank.
The company also reported that it was looking for an acquisition. The company finished the quarter with $480 million in cash and just 14 million of debt. Any deal could, and probably would, add to the short-term volatility of the stock.
With molybdenum prices showing signs that they might creep up towards $15 or 16 a pound in 2010 with a gradual recovery in the global economy, as of November 24 I’m raising my target price just a tad to $16.50 a share by July 2010 from the previous $15 by May 2010. (I think Thompson Creek Metals is worth a look if you’re trying to increase your exposure to non-U.S. equities. For why you might want to do that see my post https://jubakpicks.com/2009/11/24/how-to-escape-the-next-lost-decade/ )
Full disclosure: Â I own shares of Thompson Creek Metals in my personal portfolio. Â
I hope moly prices recover more than the $16 you expect in 2010 and think TC looking for an acquisition is a shot of confidence that it will. I like the moly juniors that are sitting on a good moly resource and suggest Bard Ventures (CBS on the TSX Venture exchange) as they are about to start releasing drill results very soon and have already proven up a significant resource on their property .
I bought tc from 2.98 to 6.00 a share during the crash. thanks Jim! I’m holding on to them till 2010- appreciate all your advice!
I agree Ed. I’d buy back in if I could get a better price, especially since they diluted the shares a few months back.
Sorry Jim, but TC doesn’t impress me. The good news and bad news on this one blend to make a mediocre future picture. I might be interested at much less than $12+/share, but at that price it’s just not attractive, especially for a molybdenum miner. Now if they were a rare earth miner, you’d have my attention.
I was following TC when the crash happened. Such a good company and balance sheet. When it hit $2.60 I bought $1000 worth. Sold it for $11.50 a share. Thanks Jim!
I’m a happy shareholder of TC. Great pick.
Jim,
Thanks for the update on TC. I know that one of your Jubak Picks 50 is ECA. What do you think of their breaking up and what piece of the company would you hold on too?
Thanks