Earnings Preview: Thompson Creek Metals Company Inc.

The hard-hit molybdenum miner has high hopes for the future of its Mt. Milligan copper and gold mine. Will it pay off?

Feb 18, 2014 at 10:44PM

Thompson Creek Metals (NYSE:TC) will release its quarterly report on Thursday, and investors are bracing themselves for another quarterly loss from the molybdenum miner. But with the company's Mt. Milligan copper and gold mine starting to ramp up, Thompson Creek hopes to become consistently profitable in the near future and reap the benefits of having a more diversified portfolio than former molybdenum rival turned rare-earth specialist Molycorp (NYSE:MCP), more closely resembling peer Taseko Mines (NYSEMKT:TGB) and its mix of copper and molybdenum production.

Even though it hasn't attracted the headlines that gold and silver get, molybdenum prices haven't fared particularly well lately, at levels that are more than two-thirds below where they traded before the commodities crash and financial crisis. With molybdenum being a raw material for steel production, the lack of construction and infrastructure-building activity has hurt demand for the metal and therefore Thompson Creek's bottom line. But the huge reserves of copper and ancillary gold and other metals at Mt. Milligan could transform Thompson Creek this year. Let's take an early look at what's been happening with Thompson Creek Metals over the past quarter and what we're likely to see in its report.

Tc
Mt. Milligan site. Source: Thompson Creek Metals.

Stats on Thompson Creek Metals

Analyst EPS Estimate

($0.07)

Year-Ago EPS

($0.11)

Revenue Estimate

$123.9 million

Change From Year-Ago Revenue

25%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

When will Thompson Creek earnings turn positive for good?
In recent months, analysts have cut back their expectations of Thompson Creek earnings, going from break-even expectations for the fourth quarter to their current $0.07 per share loss estimate, and cutting a nickel per share from their full-year 2014 profit projections. The stock has been volatile but is down 11% since mid-November.

Thompson Creek's third-quarter results showed the transition that the company is going through right now, as Mt. Milligan began its start-up phase in September, producing more than 1,800 tons of copper-gold-silver concentrate. That helped the company reverse a year-earlier loss in GAAP terms on 21% higher revenue, with molybdenum sales soaring 47% even as Thompson Creek managed to cut its cash costs by 37% to less than $6 per pound.

The key to Mt. Milligan's emergence is how it will change the mix of metal production at Thompson Creek. Based on preliminary fourth-quarter production measures announced in January, it's evident that copper will drive the bulk of revenue from Mt. Milligan, especially because Thompson Creek sold off streaming interests totaling slightly more than 50% of its gold production to Royal Gold (NASDAQ:RGLD) in exchange for financing for the mine during its development phase. With about 2.1 billion pounds of copper reserves, Mt. Milligan stands to benefit the most from rising economic activity that has historically driven copper demand higher, especially after ordinary early stage production challenges get resolved.

Last month, the company announced its second shipment of concentrate, which held 5.5 million pounds of copper and 10,475 ounces of gold, as well as more than 19,000 ounces of silver. As payments for Mt. Milligan's production start coming in, investors hope that Thompson Creek will be able to use the proceeds to pay down debt and get its balance sheet looking healthier.

In the Thompson Creek earnings report, watch for the miner to give its latest update on Mt. Milligan's development and future plans for further production increases. Eventually, Thompson Creek could well join Molycorp and Taseko Mines in having molybdenum make up only a small portion of its overall revenue stream.

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