Thompson Creek Metals: Tomorrow's Monster Stock?

Stocks climbing to 10 times their original price are rare breeds. But they're not impossible to find -- especially when you have Fools for friends.

The market's best stocks include companies that have risen dozens of times in value by taking advantage of the market's weaknesses. These aren't penny stocks; they're viable companies with sound business prospects that are achieving phenomenal returns. Finding just one or two of these monstrously successful firms can help you establish a winning portfolio.

Stalking the monster
To find tomorrow's winners, we've enlisted the help of the monster-trackers at Motley Fool CAPS, the 180,000-member-driven investor community where informed opinion is translated into stock ratings of one to five stars. We'll be peering in on the picks of those who have successfully chosen stocks that doubled, tripled, or even quadrupled in price, and this week All-Star member Roach75 gives us molybdenum miner Thompson Creek Metals (NYSE: TC  ) as his next monster pick. He made his mark with Atlas Energy, which rose more than 1,000% after he picked it to outperform the indexes, compared with the S&P 500's 47% increase.

Of course, you shouldn't jump into the breach just because an All-Star stock picker did. Just consider this as a starting point for your own research of extreme buying opportunities.

Idle hands
Molybdenum, which is used to strengthen steel, saw prices rocket from $2 a pound in 2002 to $40 a pound in 2005, but they've fallen back below $12 a pound today. Considering the operational issues Thompson Creek was experiencing and the low-grade ore it was producing at its Endako mine in British Columbia, the low price no longer made it economical to continue operations there, and Thompson Creek shut down activity at the mine last August. Two months later it suspended stripping activity at its eponymous moly mine in Idaho, which was preparing the mine for the next stage of production. It will continue mining operations there through next year, but if pricing hasn't improved, it will idle the Thompson Creek mine as well.

That's a likely outcome, as Freeport-McMoRan -- the world's largest molybdenum miner, with more than 3.4 billion pounds in proven and probable reserves -- is modeling the metal's price at $11 per pound for 2013.

Persistent low prices could also be a problem for General Moly (NYSEMKT: GMO  ) , which is trying to get its new Mount Hope molybdenum mine in Nevada operational. It completed its permitting process late last year and has now begun the construction phase at the site, which contains 1.3 billion pounds in proven and probable reserves, 1.1 billion pounds of which is deemed recoverable.

Offsetting the low-price risk is the five-year supply agreement the General entered into with ArcelorMittal to purchase 6.5 million pounds of molybdenum annually at prices that are currently above the spot market. It can be extended for another 10 years as well, but the steelmaker will need to own more than 11 million shares of General Moly's stock. Thompson Creek's agreements for its Endako mine were typically annual supply contracts that were based on moly prices at the time of the sale.

A mulligan on Milligan
Thompson Creek achieved a milestone of its own by also gaining approval for the last permits it needed to get its Mount Milligan copper and gold mine operational. The project is on track to be commissioned by this year's third quarter, and it will begin production by the end of the year. Once it gets going, Mount Milligan should be profitable. since the feasibility studies on it used copper at $1.60 per pound and gold at $690 an ounce. With the bronze metal trading today at $3.73 and the yellow one at $1,666, the miner should realize some healthy profits from the get-go.

Yet to get to this stage, Thompson Creek had to almost give away the store. In exchange for a total of $781.5 million in much-needed financing, the miner sold more than 52% of the output from Mount Milligan at a significant discount to gold streamer Royal Gold (NASDAQ: RGLD  ) . The $435-an-ounce price -- or the market price if it's lower  -- has weighed on the stock, but with the light at the end of the tunnel on getting the project up to speed, Thompson Creek has at least diversified its asset base and will no longer be dependent upon a single commodity.

Perhaps the main risk is its debt profile. While it largely financed the project with cash through its arrangements with Royal Gold, taking on only $350 million worth of senior secured debt at 9.75% at the end of last year (and cancelling its revolver because it no longer had a need for it), with production at its moly mines constrained, Thompson Creek is in a bit of a straitjacket financially should it run into unforeseen operational problems at Mount Milligan.

The long-term outlook for molybdenum remains strong, even if near-term pricing presents problems. China and India will undoubtedly continue to invest in their infrastructure, which will necessitate greater steelmaking opportunities, causing producers to need the metal in greater amounts.

For that reason, I think investors will find Thompson Creek's current $4 per share an attractive entry point, particularly as Mount Milligan goes live and molybdenum prices recover in the future. But let me know in the comments box below whether essentially putting all its eggs into the copper and gold mine's basket makes the miner too risky.

A chance for scary growth
After putting together a blockbuster deal to expand into the oil and natural gas industry, Freeport-McMoRan will have plenty on its plate as it tries to adapt to the new industry, as expanding into oil and gas carries plenty of inherent volatility. FCX had a profitable copper business, and on top of this foray into a new industry it still has to contend with mining industry bellwether BHP Billiton. To help investors determine whether Freeport-McMoRan is a buy or a sell, we've compiled a brand-new premium report on the company! Click here now to gain instant access!

 


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  • Report this Comment On February 13, 2013, at 8:08 PM, matty0454 wrote:

    Very poor research regarding General Moly. Once the mine at Mt. Hope begins producing, the first 5 years have a guaranteed minimum price of $15.00/lb. There are few greater values with upside potential than GMO. This article does not accurately portray this potential

  • Report this Comment On March 09, 2013, at 3:58 PM, jollyviking30 wrote:

    I believe that the risk in TC is quite low. If this stock has any more setbacks companies like FCX will come in & buy them.

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