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3 Things to Watch With Thompson Creek Metals

Thompson Creek Metals (NYSE: TC  ) is a mining company whose primary interests include the Thompson Creek and Endako mines, which primarily supply molybdenum, and the developing Mount Milligan mine, which will diversify Thompson's portfolio of minerals to include copper and gold. Mt. Milligan was acquired when Thompson Creek purchase Terrane Metals in 2010.

Today, let's look at three things investors should be watching regarding Thompson Creek Metals, as they will provide us better insight into the company.

1. The development of Mt. Milligan
As a current shareholder of Thompson Creek Metals, let me assure you that Mt. Milligan is the cornerstone of this company's future growth.

Mt. Milligan holds proven and probable reserves totaling 2.1 billion pounds of copper and 6 million ounces of gold, which should yield a mining lifetime of 22 years. Based on interviews conducted with Thompson Creek's CEO, Kevin Loughrey, earlier in the year by the Fool's own Christopher Barker, the annual gold yield of 194,500 ounces at current prices is enough to cover all related production costs (fuel, labor, et. al); meaning that all copper produced will be at a negative cost. The mine remains on track to be completed for commercial production by the end of the third-quarter 2013.

If you haven't done so yet, I highly recommend reading Christopher Barker's multiple interviews with Mr. Loughrey, as they offer considerably more in-depth financial predictions than I can offer here.

2. Capital expenditures
The single greatest worry for shareholders is the rising cost of building-out and maintaining mines. Costs for labor, diesel fuel, and general expenses are going through the roof (no pun intended), which has forced Thompson Creek to adjust its capital expenditures forecast higher to $868 million-$948 million for fiscal 2012. However, keep in mind that this figure will drop by three-quarters next year following the Mt. Milligan build-out to just $205 million-$265 million.

Investors crushed Thompson Creek's stock just days after its first-quarter earnings report in May on news that it would be offering $200 million in debt to finance the Mt. Milligan build. While taking on more debt is not ideal, this puts Thompson among an elite few miners who are actually fully funded and able to build out potentially game-changing, mineral deposits. If you recall, Thompson Creek received $270 million from Royal Gold (Nasdaq: RGLD  ) in exchange for a 40% interest in Mt. Milligan's gold production. This latest round of financing, in addition to Thompson's regular operating cash, should give it enough to complete the build-out.

Now compare Mt. Milligan to Newmont Mining's (NYSE: NEM  ) Hope Bay mine in Canada, Kinross Gold's (NYSE: KGC  ) Tasiast mine in Mauritania, and Agnico-Eagle Mines' (NYSE: AEM  ) Meadowbank mine, also in Canada. Despite solid prospects for these mines, all three companies have taken massive writedowns on them recently as the costs to build them out are just presently too high.

3. China, China, China!
You may have heard about this country called China; it's kind of a big deal. In addition to completely supporting the global economy with its high single-digit-GDP growth, China is very much responsible for influencing metal prices because of its ongoing infrastructure projects.

Let's not forget that in addition to gold deposits in Mt. Milligan, the 2.1 billion pounds of copper and Thompson Creek's existing molybdenum mines are what will drive profits. Since China is the world's largest importer of copper, it holds a large importance over future copper prices. If China's economy weakens, it's quite possible that copper prices could fall. China's manufacturing growth is worth keeping in an eye on since molybdenum is a critical steel strengthening alloy. Weakness in manufacturing could disrupt the rebound we've witnessed in moly prices.

Foolish roundup
Now that you know what to watch for, it should be easier to analyze Thompson Creek Metals' successes and pitfalls in the future and hopefully give you a competitive investing edge.

If you're still craving even more info on Thompson Creek Metals, I would recommend adding the stock to your free and personalized watchlist so you can keep up on all of the latest news with the company.

Keep in mind that with gold prices near their decade-long highs, Thompson Creek isn't the only miner standing to benefit. Our analysts at Stock Advisor have identified a small miner that could be sitting on a fortune and whose stock price could catapult significantly higher in the coming years. Find out which gold miner has our analysts so excited by clicking here to get your free special report.

Fool contributor Sean Williams owns shares of Thompson Creek Metals but has no material interest in any other companies mentioned in this article. He likes the mining sector, but you won't catch him sporting a metal detector. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy that I'm sure you'll dig.

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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 June 27, 2012, at 10:21 PM, vireoman wrote:

    If you're looking for a perfect contrarian signal, Jim Cramer says to avoid TC because there is "nothing there." As I see it, it is incumbent upon TC management to report that capex is well under control at the next earnings call. Given that oil prices are on the decrease, hopefully that will provide the break that TC needs. I'm really get tired of catching this falling knife.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and investment planning. You'll often find him writing about Obamacare, marijuana, drug and device development, Social Security, taxes, retirement issues and general macroeconomic topics of interest.

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