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.
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.
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