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Here's Why This Stock Is a Core Holding in My Portfolio

Sean Williams
February 29, 2012

There are stocks that occasionally move in and out of my portfolio every few months -- and then there are my core holdings. Without question, Thompson Creek Metals (NYSE: TC  ) has cemented itself as a core holding based on its continued outperformance.

Thompson Creek last night reported its fourth-quarter and year-end results and provided investors with production guidance for 2012 and beyond.

For the quarter, Thompson Creek broke even on EPS, still beating analysts' expectations of a $0.07 loss, and reported revenue of $116.7 million, down from $156.8 million in the year-ago period. But as with most mining companies, Wall Street isn't too concerned with the present so much as it is with the future.

Thompson Creek hit all the right notes (at least with me) with regard to its production guidance. To list a few of the numerous optimistic points:

  • The company anticipates higher molybdenum ore grades in 2012. In short, this means that even with essentially flat forecasted production of only 26 million to 28 million pounds of molybdenum in 2012 (28.3 million pounds was produced in 2011), the company's yield efficiency will be higher.
  • Its Mount Milligan copper mine, which contains 2.1 billion pounds of copper and 6 million ounces of gold, is on track to come online in the third quarter of 2013. This mine is the primary reason I own Thompson Creek, as I think investors are hugely underestimating the profitability this mine will have on the stock once it's active. Over the projected 22-year life of the mine, it's expected to yield 81 million pounds of copper and 194,500 ounces of gold every year.
  • Despite a decline in molybdenum prices in 2011 from 2010, the company realized a 3.9% increase in price realization for the molybdenum it sold. Thompson Creek's management feels confident that moly prices will continue to rebound in 2012.

Of course, the thorn in the side of all mining companies is rapidly rising costs. Higher expenses have been hitting all miners without discrimination, including Kinross Gold (NYSE: KGC  ) , which recently curtailed its plans to build out the Tasiast Mine in Mauritania for up to nine months. In Ghana, Gold Fields (NYSE: GFI  ) may pass on further mine development if the corporate tax on mining rises to 35% from 25% and, on top of this, the government introduces a 10% windfall tax. Even Jaguar Mining (NYSE: JAG  ) is having issues getting its Gurupi project off the ground because it just doesn't have the proper capital.

Have no fear, Thompson Creek shareholders -- management has you covered. The company agreed with Royal Gold (Nasdaq: RGLD  ) to turn over a 40% stake in the gold production of the Mount Milligan mine in exchange for $270 million. Not a bad deal considering that capital expenditures in 2012 are expected to be in the range of $868 million to