Is There Something Wrong With This Top Stock?

So far, it looks like my pick for Best Stock in 2011 is a dud -- or at least, it has been since I wrote about it back in January. Shortly after I highlighted the bullish points about Thompson Creek Metals (NYSE: TC  ) , it peaked above $16 and began what has been a steady decline to less than $12. Given the 25%-plus haircut shareholders have endured in just the past two months, I was left wondering whether there was something wrong with Thompson Creek.

After researching the news driving this stock, I can honestly say that there aren't any underlying problems. In fact, Thompson Creek looks like as strong a buy as ever.

Thompson Creek's business revolves around molybdenum -- the white metal that when added to steel products makes them significantly stronger. Earlier in the year, the company forecast claimed that molybdenum prices could gyrate dramatically, but affirmed that the overall trend should be higher. So far Thompson's call has been correct, minus the gyrations. Since mid-December, the price per pound of molybdenum oxide has jumped by 6.2%, while its expense per pound in the fourth quarter dropped 12.1%. This looks like the perfect combination for Thompson Creek to produce significantly higher margins.

Thompson Creek has also come under selling pressure because copper is trading at a three-month low. If you recall, one of my bullish points on Thompson Creek was its recent purchase of Mount Milligan through its Terrane Metals acquisition, which grants the company roughly 2.1 billion pounds of copper reserves. Although production isn't slated to begin until 2013, this hasn't stopped it from trading down in sympathy with the rest of the copper sector. Freeport-McMoRan (NYSE: FCX  ) and Southern Copper (Nasdaq: SCCO  ) have shed 22% and 23%, respectively, from their highs in January.

The thing to remember is that copper, while down from an all-time high of $4.65 a pound, is still trading well above its historical average. It's an extremely lucrative time to be mining or own mines involved in copper production, and nothing has intrinsically changed here since January. China continues to be a net importer of copper, and as long as China's GDP is expected to grow near double-digit rates, I continue to see nothing but bullish prospects for Thompson Creek.

We have to remember that Thompson Creek is a long-term metals play. I didn't expect it to appreciate overnight, but my own impatience is weighing on me. My bullish perspective from the beginning of the year is still perfectly valid, and molybdenum prices have moved even more in Thompson Creek's favor. I'm going to give Thompson Creek a clean bill of health and let the fundamentals do all of the talking from here on out.

What's your take on Thompson Creek Metals? Do investors have a reason to be cautious about falling copper prices, or have they simply overreacted to a still-bullish market? Share your thoughts below and consider tracking my top stock for 2011 with our free and easy-to-use My Watchlist.

Fool contributor Sean Williams does not own shares in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's stronger than steel.


Read/Post Comments (7) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 15, 2011, at 4:25 PM, dave2764x wrote:

    I think TC is a terrific investment over the next two years or so. It is getting strong support around 12 in this weak market. It has an excellent balance sheet, is very profitable, and moly is in demand for the foreseeable future. I'm expecting it to double over the next 18 months.

  • Report this Comment On March 16, 2011, at 12:38 PM, truleuneek wrote:

    Thoughts on the points raised in Jim Jubak's recent post on TC?

    http://jubakpicks.com/2011/03/10/update-thompson-creek-metal...

  • Report this Comment On March 17, 2011, at 3:57 AM, TMFUltraLong wrote:

    In the short-term this super spike in oil would need to cripple US travel for it to have a major impact on Thompson Creek, so i don't really buy that point until oil peaks $125.

    Longer-term Mt. Milligan will be in place to pick up the slack when their primary mine begins to suffer from ore depletion. Jubak has valid points, but he's looking three to four years too far down the road and not paying attention to the results we're seeing now. By the time costs come up, moly may be up over $22 a pound and margins could be even higher. I still think the company is a solid buy.

    TMFUltraLong

  • Report this Comment On March 24, 2011, at 12:56 AM, jlanganki wrote:

    The estimated remaining mine life of Thompson Creek is 8 years. They do have some development mines available, but it's tough to justify the current price unless there is a massive increase in molybdenum prices or a huge discovery in a new assets to offset that loss.

  • Report this Comment On March 24, 2011, at 1:07 AM, jlanganki wrote:

    I haven't taken the time to look at the NPV's of all of their assets, but I suspect they may not add up to enough to justify the stock price. Anyone care to come up with some numbers? General Moly, in comparison, has potential NPV levels around the $1.4 bln and higher. Their current diluted value is about $550 mill, which still leaves some upside potential.

  • Report this Comment On March 26, 2011, at 10:04 AM, robertcrobinson wrote:

    In December of '08, my supervisor's boss came to me and asked if I knew of "Thompson Creek". I knew of the name though at the time, I couldn't recall from where--I hadn't fished in many years and while I followed the metal markets and had been a shareholder in other mining companies in the past, I knew nothing of "molly"--couldn't even say it. He asked me to take the weekend to look 'em over. I told him I'd take a look and have an answer in ten minutes or less as I believe that if you are at least familiar with the business and can read a balance sheet, you don't need to study it to death. Ten minutes later I was on the phone with my broker to place an order. It was selling for under $ 3.00 per share and by estimate at the time was conservatively worth 7-8. Nearly two and a half years later I still hold those shares and see no compelling reason to sell. How's that for long term?

  • Report this Comment On April 01, 2011, at 11:50 AM, sparky0604 wrote:

    TC is well respected in the metals community as the source for moly. With the construction plans in China and the rebuilding of Japan, there will be increasing demand for steel products worldwide that will increase demand for TC's products.

    I sure don't understand the short-term, but I do very much believe in the long-term prospects and just bought TC.

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