Thompson Creek shutters Endako

VANCOUVER — Rough commodity markets are forcing miners to make tough decisions, and Colorado-based Thompson Creek Metals (TSX: TCM; NYSE: TC) is the most recent operator driven to place a struggling asset on temporary care and maintenance due to low metal prices. 

On Dec. 10 the company announced it is suspending operations at its Endako molybdenum mine, 190 km west of Prince George, B.C.

The move isn’t entirely surprising, given the state of moly oxide markets. After bouncing back to a US$15 per lb. high in early June the industrial metal has retreated near 52-week lows of US$9 per lb. CEO Jacques Perron acknowledged during Thompson Creek’s third-quarter conference call that Endako “remained challenged” due to declining ore grades, and that the company was “closely monitoring the situation and reviewing options for the mine.”

Thompson Creek operates Endako and holds a 75% interest in the mine alongside Vancouver-based joint venture partner Sojitz Moly Resources. Perron added that he “expected that the operational improvements that we implemented in 2014 would have been sufficient to keep [Endako] operating profitably during this prolonged volatility in the molybdenum market,” however, operating costs continued to be unsustainable.

Endako was expected to produce 15 million to 17 million lb. moly this year at cash costs between US$10.50 and US$12 per lb. 

The partners are shuttering the mine despite having invested US$650 million in a mill expansion that hit commercial production in February 2012. The mill boosted processing capacity by 77% to 55,000 tonnes daily. Endako has operated for over 40 years, and had an 18-year mine life at the time of the expansion.

The shutdown will most affect the residents of the nearby town of Fraser Lake, which has a population of 1,200. Thompson Creek indicated that half of salaried employees would be terminated, resulting in estimated severance costs of $1.7 million. Hourly employees at the mine were notified that their employment would be temporarily suspended in 60 days.

According to B.C. government figures from early 2012, the expanded mill was expected to generate between $90 million and $100 million annually in economic activity, such as direct wages, purchases and taxes for the region. The mine reportedly has provided direct employment for 420 skilled and professional workers, and indirect employment for another 600 workers.

“We’ve said in the past we believe it would cost us anywhere between $8 million and $10 million a year to keep Endako on temporary suspension until the market recovers, and we’re ready to go back into production,” Perron speculated in November. “We saw softening demand and additional supply come into the market in the second half of the year, but I do believe that there is upside potential in the next six months in the [moly] price. It really depends on how quickly quality product will be introduced into the market, and there is no way to know.”

BMO Capital Markets analyst Aleksandra Bukacheva has a “market perform” rating on Thompson Creek, but cut the company’s price target by $1 after news of Endako’s closure to $2.50 per share.

“The temporary suspension at Endako could become a permanent shutdown, triggering reclamation costs. These costs could potentially exceed reclamation bonding in place of US$15 million, but will likely be manageable given Thompson Creek’s cash balances,” Bukacheva wrote on Dec. 10. “With the Thompson Creek moly mine also going on care and maintenance, [the company’s] leverage to moly prices would be eliminated in 2015, while its leverage to copper and gold prices would increase.”

Thompson Creek has traded within a 52-week window of $1.57 to $3.46, and closed down 5% after news of the Endako suspension  at $1.61 per share at press time. The company has US$270 million in cash and 214 million shares outstanding, for a $347.9-million market capitalization.