Is Thompson Creek Metals Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Thompson Creek Metals (NYSE: TC  ) fit the bill? Let's look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Thompson Creek's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's look at Thompson Creek's key statistics:

TC Total Return Price Chart

TC Total Return Price data by YCharts

Passing Criteria

3-Year* Change

Grade

Revenue growth > 30%

(23.4%)

Fail

Improving profit margin

(445.7%)

Fail

Free cash flow growth > Net income growth

(10,370%) vs. (364.7%)

Fail

Improving EPS

(327.1%)

Fail

Stock growth (+ 15%) < EPS growth

(80.2%) vs. (327.1%)

Fail

Source: YCharts.
*Period begins at end of Q3 2010.

TC Return on Equity (TTM) Chart

TC Return on Equity (TTM) data by YCharts

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(292.8%)

Fail

Declining debt to equity

7,820%

Fail

Source: YCharts.
*Period begins at end of Q3 2010.

How we got here and where we're going
Things don't look good at all for Thompson Creek in its second assessment as the upstart miner has failed to earn even a single passing grade for 2013, losing the underwhelming two passing grades it earned last year. Miners of all stripes have been plagued by persistently low commodity prices and generally disappointing demand, but Thompson Creek appears worse off than most. Is there any hope left for Thompson Creek today? Let's dig a little deeper to find out.

In its latest quarter, Thompson Creek's top and bottom lines both improved significantly on the heels of higher sales volumes and lower cash costs for molybdenum. Aggregate molybdenum sales surged 47% to 8.3 million pounds, while average cash costs declined by 37% to $5.93 per pound. However, Thompson Creek continues to suffer from low molybdenum-oxide prices, which are currently dawdling at levels between $8 and $10 per pound, compared to levels of $25 to $40 several years ago. Fool contributor Dan Caplinger notes that molybdenum miners have been hard-hit by low commodities prices around the world, which has hurt Thompson Creek, Taseko Mines (NYSEMKT: TGB  ) , and Molycorp (NYSE: MCP  ) more than most other stocks of any stripe (Thompson Creek has lost roughly the same amount of value as Molycorp):

TC Total Return Price Chart

TC Total Return Price data by YCharts

Fool contributor Sean Williams points out that costs associated with the development of Thompson Creek's massive Mt. Milligan copper-and-gold mine exceeded Thompson Creek's original budget by a whopping $750 million, which has already pushed the beleaguered miner to sell off 52% of its gold royalty interests to Royal Gold (NASDAQ: RGLD  ) in lieu of cash for the completion of the mine. The mine boasts approximately 2.1 billion pounds of copper reserves, which might help Thompson Creek drive cash flow levels back up once it starts commercial production – note on the chart above that only copper specialist Southern Copper has avoided a share-price meltdown.

Thompson Creek and Royal Gold expect to produce 262,000 ounces of gold per year at Mt. Milligan, but if gold prices continue to deteriorate, this may not be as beneficial as once imagined -- Newmont Mining recently took a $1.77 billion writedown on its Australian mines amid falling gold prices. Taseko Mines also suffered a Mr. Milligan-esque setback at its New Prosperity copper and gold project, after the Canadian Environmental Assessment Agency rejected Taseko's long-awaited proposal on the grounds of severe environmental concerns.

Thompson Creek also recently named Jacques Perron as its new CEO, replacing retiring head honcho Kevin Loughrey. Dan Caplinger notes that the company hopes molybdenum prices will recover enough to allow it to pay off significant debts maturing over the next four to six years. According to the CIBC World Markets, Thompson Creek and Molycorp would have to restructure their debts if the metal's price doesn't increase by at least 30%.

Putting the pieces together
Today, Thompson Creek has none of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Don't chase yesterday's gains ...
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!


Read/Post Comments (1) | Recommend This Article (0)

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 December 26, 2013, at 1:32 PM, techpatriot wrote:

    I have some issues with your accuracy in this article.

    1) "The mine boasts approximately 2.1 billion pounds of copper reserves, which might help Thompson Creek drive cash flow levels back up once it starts commercial production"

    The mine started commisioning in August. Typical ramp up phase to 100% is 18 months (final eta Dec 2014). It is already in commercial production, and has already made the first concentrate shipment. The company has stated that everything is working very well, and that the recovery rates are ahead of schedule. TC has not "fornally announced" commerical production yet, as the company's goal (not the industry metric) is 60% throughput for 30 consecutive days. They are fine tuning systems and should "announce" this in Q1. The CEO has also stated that MT Milligan WILL be cash flow positive by mid 2014.

    --

    2) "Thompson Creek and Royal Gold expect to produce 262,000 ounces of gold per year at Mt. Milligan, but if gold prices continue to deteriorate, this may not be as beneficial as once imagined"

    Royal Gold gets 52.5% of the gold stream from TC at a fixed price, it does not matter WHICH direction gold goes in. The prices realized from the remaining 47.5% would need to drop precipitiously to drive Mt Milligan down to break even levels, a sustained drop between $900 and $1000 could do it if copper either similarly declines, or does not rise...

    However at those prices, gold is below the all in cost of nearly all gold mining companies to produce it.

    The cure for low prices are always low prices (IE the supply will dry up...).

    ---

    3) "According to the CIBC World Markets, Thompson Creek and Molycorp would have to restructure their debts if the metal's price doesn't increase by at least 30%."

    From an accounting point of view this is a totally incaccurate statement.

    "Restructuring debt" implies legal methods such as reorganization. At today's low interest rates, with the cash flow from Mt Milligan (even in a low priced metals environment) TC should have no issue at all "refininancing" it's debt to much more advantageous terms.

    "Refinancing" is the correct and proper term, and it carries a totally diffferent connotation than does "restructuring".

    ---

    4) TC is really a commodities play secondarily, it is primarily a bet on the company (and the new CEO) to control costs and execute the Mt Milligan production ramp up properly on on time, so it can produce the required cash flow to deleverage TC of it's aquired debt load so it may refinance the remainder....

    Higher metal prices (in order of importance - copper, moly, and gold) will serve as a very strong "kicker" to it's valuation, should they occur, but it's not a neccesity for TC. Much more important economically are having fairly stable metal prices, over the next year or so, especially copper prices, as Mt Milligan achieves ful ramp up.

Add your comment.

DocumentId: 2773949, ~/Articles/ArticleHandler.aspx, 4/20/2014 12:45:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement