How Thompson Creek Earnings Could Turn Profitable

Thompson Creek Metals (TC +0.00%) will release its quarterly report on Wednesday, and like many mining stocks, the company has taken a big hit during 2013 from the plunge in prices of gold and other important metals. Yet unlike many miners, Thompson Creek earnings appear poised to deliver profits to shareholders as the company has rebounded somewhat from the worst of its losses.

Thompson Creek has been in a transition period for a long time, as the company now primarily produces base metals like molybdenum, zinc, and lead. But its Mt. Milligan copper and gold mine, which has been under construction for years, should soon start giving investors more exposure to the potential rewards of the gold and copper markets. Let's take an early look at what's been happening with Thompson Creek over the past quarter and what we're likely to see in its quarterly report.

Stats on Thompson Creek

Source: Yahoo! Finance.

Can Thompson Creek earnings really go positive?
Despite calls for a profit, analysts have cut back on their prospects for just how positive Thompson Creek earnings will be. In recent months, they've cut their June-quarter estimates by a penny per share, and more importantly for long-term investors, they've cut their full-year 2013 and 2014 earnings predictions by more than half. Yet the stock has gained 1% since early May.

Thompson Creek has suffered from decreased demand for base metals, with molybdenum prices having fallen by more than 15% over the past three months. Weak steel production activity has particularly hurt the market for molybdenum, which is used as a key component in producing stronger steel alloys.

But the bright spot on Thompson Creek's horizon is the opening of its Mt. Milligan gold and copper project. With the mine on schedule to open in the very near future, investors hope that it will deliver on expectations for production of more than 260,000 ounces of gold annually during its first six years. Thompson Creek won't reap all the benefit of that gold, as it entered into multiple financing deals with streaming company Royal Gold (RGLD +2.29%) that will send more than half of the mine's production to Royal Gold for $435 per ounce. Nevertheless, those deals actually worked to Thompson Creek's favor, as they were priced based on higher gold prices and therefore cost Royal Gold more than a similar deal now would have gotten.

What many investors are forgetting, though, is the value of Mt. Milligan's copper resources. Copper prices have also dropped in light of slowing global economic activity, but prices have held around the $3 per pound level. More encouragingly, as Europe starts showing some signs of coming out of the worst of its recession and U.S. home-building activity climbs, copper could stage a comeback that will lift prospects for Thompson Creek. Already, Freeport-McMoRan Copper & Gold (FCX +2.83%) has started gaining ground from its June lows as its key Grasberg mine has gotten up and running after having been closed following two fatal accidents. Yet results from Yamana Gold (AUY +0.00%) last week showed that even diversified gold and copper producers haven't all seen significant recoveries, as Yamana lost money in the quarter due to a sharp drop in copper production amid higher copper-production costs and weaker gold prices.

In the Thompson Creek earnings report, the biggest single piece of news will be whether the Mt. Milligan project remains on schedule. The sooner production begins, the sooner investors will have hard numbers to go with their speculation about just how lucrative the mine could be for Thompson Creek's long-term prospects.

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