Thompson Creek to cut costs, jobs

Thompson Creek Metals (TCM-T, TC-N) has hatched a new plan to reduce costs at its namesake molybdenum mine in Idaho, in order to gain more financial wiggle room to continue developing its Mount Milligan copper-gold mine in central B.C.

The revised plan for the Thompson Creek mine, announced before markets opened on Oct. 3, includes suspending stripping activities for the next stage of production, dubbed “phase eight.” The company expects that the change from now to 2014 will save $100 million in operating costs, up to $9 million in capital expenditures and reduce its workforce by 100 employees.

Thompson Creek’s chairman and CEO Kevin Loughrey says that uncertainty in the global economy made the company rein in spending to strengthen its balance sheet as it builds the Mount Milligan mine, estimated to cost $1.5 billion and be ready by late 2013.

While the Denver-based firm anticipates restarting phase-eight stripping when the price and demand for molybdenum picks up, it will mine the current phase seven as planned through 2014, Scotiabank analyst Tom Meyers notes.

Meyers writes that the new mine plan is “a positive and rational response to the current price environment.” He estimates the company’s net cash flows will improve by US$57 million to the end of 2014.

This year’s production guidance and costs for the Thompson Creek mine remains at 16 million to 17 million lb. moly, at cash costs of US$7.50 to $8.50 per lb.

For 2013, the firm bumped up the mine’s guidance to 20 million to 22 million lb. from 19 million to 22 million lb., and lowered cash costs to US$4.75 to US$5.75 per lb., from US$6 to US$7 per lb.

It also provided the mine’s guidance for 2014, estimating Thompson Creek would produce 17 million to 19 million lb. moly at cash costs of US$5 to $6 per lb.

The producer expects to update the mine’s costs, but not production targets, if it recommences stripping before 2015, cautioning that if it doesn’t continue by then, it will have to take the Thompson Creek mine offline.

“It is best to view the change as an exchange of cash from the future to today, as an accelerated waste-stripping program would be needed likely before 2015, or else the mine would be placed on care and maintenance,” Meyers adds in the note.

Meyers has maintained his one-year target price of $6.50, and a “two-sector perform” rating.

Thompson Creek lost 2¢, or less than a percent, to close Oct. 3 at $2.61, on 1.77 million shares traded.