Better days ahead for Thompson Creek?

Thompson Creek Metals (TCM-T, TC-N), like many mining companies, has had a tough ride over the last year. Slowing metal demand from China and falling prices have teamed up to tackle the company’s share price. In January 2011 the diversified miner was trading above $15 per share, but at the end of August 2012 its shares struggled to stay above the $2.50 mark.

Now some mining analysts are saying the company — with two large operating molybdenum mines, a large copper-gold mine under construction, a stand-alone metal-roasting facility and a number of additional metal properties in various stages of development — looks to be poised for better fortune.

New York-based analysts at Dahlman Rose have upgraded the company from a “hold” to a “buy” rating, and raised their target price to $4 per share. The analysts believe that the company has enough capital to complete its Mt. Milligan copper-gold project, which should produce significant profits in 2014 — but molybdenum prices have also jumped by more than 10% in the past few weeks to US$10 to US$12 per lb., and they see further upside in the price. Over the medium term, they forecast, molybdenum prices could reach the US$14 to $15 per lb. range.

Dahlman analysts Joseph Giordano, Anthony Rizzuto and Anthony Young say they “would not be surprised to see further delays” at the project and “cannot rule out the possibility of another cost overrun,” but still argue that the project’s benefits outweigh its risks.

“The diversification that Mt. Milligan should provide, along with substantial cash-flow generation, should meaningfully increase the share price over the next twelve to eighteen months, particularly as the market begins to focus on 2014 earnings power,” they write in a research note.

The analysts add that the “potential negative outcomes” at Mt. Milligan are already reflected in the company’s current share price, and reason that Mt. Milligan should be completed in late 2013.

The copper-gold project, about 145 km northwest of Prince George in central B.C., will be based on a conventional truck and shovel open-pit mine with a 60,000-tonne-per-day copper flotation concentrator. Average annual metal production over a 22-year mine life is forecast to be 81 million lb. copper and 194,500 oz. gold.

In August, Thompson Creek amended its gold-stream agreement with Royal Gold (RGL-T, RGLD-Q) to sell an additional 12.25% of future gold production from Mt. Milligan for $200 million — plus US$435 per oz., or the prevailing market rate — if it’s lower than US$435 per oz. when the gold is delivered. The extra 12.25% brings Royal Gold’s share of Mt. Milligan’s refined gold production to 52.25%.

For this year’s second quarter, Thompson Creek reported operating losses of $18.4 million — primarily due to higher operating costs at its Endako and Thompson Creek mines due to lower production volume. Production and costs during the quarter were negatively impacted by lower-than-anticipated ore grades and recovery at the Endako mine, and the pit-wall slough at the Thompson Creek mine in May.

The averaged realized sales price for molybdenum in the quarter was US$14.55 per lb., compared to US$17.28 per lb. in the same quarter last year.

In Toronto at press time Thompson Creek was trading at $2.47 per share, within a 52-week range of $2.23 and $9.43 per share.