Benzinga spoke with Thompson Creek's CEO Kevin Loughrey in an
exclusive interview yesterday evening to get his take about
recent pressure on the share price, industry outlook, development
at Mt. Milligan, and molybdenum prices. But first let's start by
introducing the company's operations and its core business,
Thompson Creek Metals (NYSE:
) is a diversified mining company. It is a producer of molybdenum
and has copper and gold reserves. TCM operates in three segments:
US Operations Molybdenum, Canadian Operations Molybdenum, and
Copper-Gold, which is currently in development at its Mt.
Molybdenum is an important industrial metal with unique
properties. Molybdenum is increasingly being used in automobiles
and various industrial products. Adding molybdenum to steel gives
added strength and improves the strength-to-weight ratio --
meaning less metal is needed.
Its first use is as alloys in construction steels, as well as
in stainless steels and other alloys.
End use of Molybdenum is significant and growing in the
Chemical, Oil & Gas, and Automovie industries. For example,
project managers are favoring molybdenum-bearing duplex stainless
steel grades for their strength and lower cost in the
construction of large storage tanks.
The need for stronger steel alloys to handle higher pressures,
as well as to resist corrosion, explains why molybdenum is being
used more frequently and more intensely in oil and gas
Molybdenum is priced per pound and has fallen from grace since
the economic slowdown over the past handful of years; prices fell
from the mid-twenties to the mid-teens, currently priced around
$14 per pound.
"Prices (of molybdenum) are really set on the spot market
activity, and that has been so thin as of late because of the
cautious nature buyers are taking, which has taken the pressure
off the price, and that's why we've seen a slow decline in the
price," Loughrey said.
"Our belief is that longer term, the supply/demand balance is
pretty favorable for producers... we need something to generate
more demand. There is just a lot of either negative or neutral
signs in the market right now, and we need those to be resolved
principally of course Western Europe is creating a lot of
Shares of Thompson Creek Metals have been under pressure over
that last few months after the company announced capital raises
of over $400 million, even though the company continues to roll
out its low-cost copper and gold mine at Mount Milligan on
schedule and within budget.
Back in early May, Thompson Creek announced its intention to
offer, subject to market and other conditions, $200 million of
its Senior Notes due 2019, and 8,000,000 Tangible Equity Units
each with a stated amount of $25. The Company intends to grant
the underwriters a 13-day option to purchase an additional
Investors are likely concerned on multiple factors, including
lower molybdenum prices with weak demand, and the potential of
further capital raises or operational issues at Mt. Milligan.
"We have two very good moly mines and we think that the longer
term fundamentals are quite good, and on top of that, we have
this project (Mt. Milligan) that is very potentially profitable
for us," Loughrey said.
"I think the market is rewarding companies who are cautious
and retain big balance sheets, and really for the first time in
our company's history we got a balance sheet which is much more
heavily in debt than we would like in order to get this project
done. But we think it will be quite cash-generative for us and we
are very happy with the schedule we are on."
The Mt. Milligan copper-gold project is located 155 km
northwest of Prince George, and mid-way between the communities
of Fort St. James and Mackenzie in central British Columbia,
Construction is now in its second year and the mine is
expected to be operating in the latter part of 2013 with full
commercial production scheduled for 2014.
"I think we've positioned the company for growth, but we admit
it looks like we have 6 to 18 months of difficult time ahead of
us, but we will get through it. We are well funded now to
complete Mt. Milligan with a fair margin of cushion for us,"
Continuing on, Kevin Loughrey seemed very excited to talk
about the potential of the Mt. Milligan, saying that it will be
cash-generative, schedule was on time and within budget, and that
he believes that by the third-quarter of 2013 the mill will be
turn-on and by the fourth-quarter Thompson Creek will start to
see production and should be in production for all of 2014.
With shares very depressed, and the future solid potential of
the Mt. Milligan mine, Thompson Creek may be undervalued at
current prices. The stock is trading less than 6-times forward
price-to-earnings, and many analysts are very bullish on the
shares since the company's future potential is very strong if all
goes well at Mt. Milligan.
Currently, shares of Thompson Creek Metals are down over 2.5%
at $3.48 per share. The stock is also down over 50%
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