Thompson Creek reports solid 2007;Thompson Creek

Th o m p s o n Creek Metals’ (TCM-T, TC-N) year-end financials show the company is on solid ground a year and a half after completing a US$575 -m i l – lion acquisition that gave it producing molybdenum mines in Idaho and B. C. and assets in Pennsylvania.

The company, formerly called Blue Pearl Mining, posted revenue last year of US$914.4 million, up from US$150.8 million in 2006. Fourth-quarter revenue for the moly-focused miner was US$197 million.

Net income in 2007 came to US$157.3 million or US$1.24 per share, compared with a net loss of US$20.6 million or US36 per share in 2006.

Before its October 2006 takeover of private, U. S.-based Thompson Creek Metals, whose name it adopted following the acquisition, the company had no producing properties.

The company managed to pay $165.8 million of debt from the acquisition last year. At the end of 2007, $236.1 million remained.

The year-end returns were solid, despite problems at both of Thompson Creek’s mines.

Last year, a rockslide at Endako, in northern B. C., and lower-grade stockpile ore processed at the Thompson Creek mine, in Idaho, set back production by more than 2 million lbs.

But in a conference call, chairman and CEO, Kevin Loughrey said the company’s problems at the mines are in the past.

In fact, with reserve expansions at both its operations, the miner expects production to rapidly rise over the next two years, from 16.3 million lbs. last year to 23-24.5 million lbs. moly this year, climbing to more than 34 million lbs. in 2009.

And the company expects demand for molybdenum — a corrosion- resistant metal used in high-end steel alloys and oil and gas pipelines — to grow. Inventories of the metal are low, and China, one of the world’s main suppliers of moly, is reducing its exports, Loughrey said.

“We often in the natural resources business see the recession or economic downturns coming before many other industries because we’re selling to basic industries,” Loughrey said. “This year, so far, we’ve seen no evidence of that — our customers are all anxious to buy moly.”

The company sold 31 million lbs. moly (including third-party material processed) at an average realized price of US$28.77 per lb. in 2007– a year of soaring prices for the industrial metal.

To meet predicted demand, Thompson Creek is planning to pump up its moly output, expanding its Endako operation to handle 50,000 tonnes of ore per day starting in 2010, up from its current capacity of 28,000 tonnes.

The company will spend $280 million on the expansion, which involves joining three pits into one large super-pit. Under the plan, reserves will be mined out in about 16 years instead of 26-27 currently forecast.

The expansion will include a modernization of the mill, which has been in operation since 1965, with the installation of a new grinding circuit consisting of semi-autogenous grinding and ball mills, a new floating circuit and an upgraded roaster circuit.

Production at the open-pit mine, mill and roasting facility will increase to about 17 million lbs. initially, declining to about 16 million lbs. per year within a couple of years. Without the expansion, production would drop to about 8 million lbs. per year by 2012.

Assuming molybdenum prices of US$27 per lb. in 2009, US$23 per lb. in 2010, US$17.50 in 2011 and US$14 per lb. thereafter, the investment will yield an internal rate of return of more than 20% over the mine’s life.

The expansion will also lower production costs, from C$10.39 without the investment to C$7.93. Cash operating costs at both of Thompson Creek’s operations averaged US$8.39 last year.

“Our estimates show that the Endako expansion will add to Thompson Creek’s profitability and provide an attractive rate of return in the coming years, even using price assumptions that are well below the current price of molybdenum,” Loughrey said in a statement.

The expansion is expected to be paid for out of operating cash flows.

Thompson Creek holds a 75% interest in Endako, while Japan’s Sojitz Corp. holds the remainder. The expansion plan is subject to Sojitz’s approval.

The company is also developing the Davidson molybdenum deposit, near Smithers, B. C., where a draft feasibility has been completed; a final feasibility will be released shortly.

In response to a question about costs at the project, Loughrey acknowledged in the conference call that expenses have increased astronomically at other projects in Canada (most notably NovaGold Resources [NG-T, NG-X] and Teck Cominco’s [TCK. B-T, TCK-N] Galore Creek). But he said the company is in a different situation at Davidson, as it already owns the kinds of facilities that have caused cost overruns at other projects.

Thompson Creek plans to truck ore from the site to Endako for processing.

Loughrey said Davidson, a small, high-grade deposit, could begin production as soon as 2009.

Thompson Creek shares closed at $19.65 on the news, down 20. The stock has traded in a 52-week range of $10.19-25.58.