Thompson Creek Metals (TC)
Thompson Creek’s Revenue Increases 100% as Molybdenum Demand Increases
Shares of Canadian miner Thompson Creek Metals (TC: Charts, News, Offers) , a leading producer of molybdenum, have been pummeled to 52-week lows recently, with uncertainty about global growth thick in the air. Its shares now trade at 1.4x book value, with a trailing P/E of 8.49 and a forward P/E of 6.1. Molybdenum is a strengthening, heat resistant alloy applied to steel, necessary for a wide array of industries, ranging from aircraft to industrial engines. The price of molybdenum rises and falls with the metals market, which is catalyzed by the growth and expansion of the global economy. A stagnant economy, such as the 2008-2010 period, nets low prices and punishes a cyclical resource stock like TC.
Daily Chart
If you are not able to see the chart, your email client probably does not support javascript. To view it, please
click here
Stock Analysis
Prior to the crash of 2008, molybdenum sold as high as $36.50 per pound. Today it sells for $15 per pound. There is little of the euphoric excitement that had previously surrounded molybdenum as the next hot resource. Today molybdenum is in the stagnant doldrums, along with the rest of the metals market. A large number of executives unloaded a huge number of shares when TC rose briefly above $14 back in the first half of 2010, suggesting that there was little hope on the immediate horizon for the company. But now that it trades at such a low price, can the bullish case for TC be ignored?
Thompson Creek’s operations are spread throughout Canada and the northern United States. Its primary assets include an open-pit mine and mill in Idaho, a metallurgical roasting facility in Pennsylvania, and a 75% share in the Endako open-pit mine/mill/roasting facility in British Columbia, Canada. The remaining 25% of the Endako facilities is owned by Sojitz Corporation from Japan. Thompson Creek is estimated to produce 28,000 tons of ore daily. For the better part of the past long two years, TC consistently missed earnings due to a shrinking and fluctuating global industrial outlook, disappointing investors and analysts, who have consistently championed the bull case for Thompson Creek.
However, a week ago, Thompson Creek unveiled shocking numbers. For the second quarter of 2010, its revenue increased 100% and cash flow increased 575% to $41.2 million from the previous year. Net income totaled $126.5 million. Thompson Creek’s total cash assets total $482.8 million, but it still carries a debt of $10.5 million. TC also revised their anticipated costs down to $293 million from $298 million, or more specifically, $7.25 down to $6.25 per pound. The lowered operating costs, and the fact that molybdenum’s current $15 price is still 70% down from its 52-week high all suggest that this is the beginning of a dramatic turnaround for the Canadian miner.
Thompson Creek is also trying to diversify from being a pure molybdenum producer. In July, it acquired Terrane Metals, a copper and gold miner, for $650 million in order to expand into different metals. Terrane’s primary mine is in Mount Milligan, British Columbia and conveniently close to TC’s own Endako Mine. This acquisition is expected to add an average of 81 million pounds of copper and 194,000 ounces of gold yearly over the mine’s 22-year lifespan. By adding gold to its product line, TC will have a limited buffer against market volatility and the depreciating US and Canadian dollars, which it did not have in the past. In addition, Terrane owns several early stage mining projects – the Berg copper/silver/molybdenum deposit in British Columbia, investments in the Maze Lake gold project in Nunavut, and the Howard’s Pass Yukon joint-venture, which is the site of multinational investments for zinc and germanium. All these point to steady growth potential for Thompson Creek. Kevin Loughrey, the CEO of Thompson Creek, said of the acquisition of Terrane, “The upside from our existing asset base has been retained for our shareholders while structuring a transaction that we believe will be highly accretive on a cash flow basis once Mount Milligan is in production.”
For the patient investor, TC has huge upside potential and the current dips in the market may allow for several lucrative buying opportunities. There is little downside as the stock is hovering right above book value, and if fundamentals are to be believed, there is a chance it may rise to $14-$15 range within these two years.
VN:F [1.9.13_1145]
Rating: 0.0/5 (0 votes cast)
Other relevant articles you may like
Leo Sun is long-time market follower and finance writer. He regularly contributes to the
Stock of the Day analysis.
