Thompson Creek Dusts Off Endako Plans

VANCOUVER — As the price of molybdenum shows ever stronger signs of life, Thompson Creek Metals (TCM-T, TC-N) has emerged from cash conservation mode to put a major moly expansion project back on the front burner.

About eight months ago, after moly prices fell off the precipice from more than US$30 per lb. to less than US$10 per lb., Thompson Creek announced heavy production cuts at its Thompson Creek and 75%-owned Endako mines (Sojitz, a Japanese company, owns the remaining 25%).

Before the price of moly collapsed, Thompson Creek had forecast moly production at 32-34 million lbs. for 2009. But with the slip of base metal prices deepening as Christmas approached last year, Thompson Creek slashed its forecast by a third to 20-24 million lbs. moly in 2009 (15-17 million lbs. moly at the Thompson Creek mine and 5-7 million lbs. moly at the Endako mine).

To achieve those cuts, it planned on shutting down both its mines for a month during the summer of 2009 and to reduce mill throughput to 70% at the Thompson Creek mine.

To bolster its savings and in anticipation of hard quarters to come, Thompson Creek also put its capital expenditure plans on hold at both the Davidson development project where it planned to spend around US$109 million and Endako, where it was in the process of a US$280-million mill upgrade designed to nearly double production capacity.

But by June 2009, as moly edged up above US$10 per lb. and some economic indicators showed a sustained economic recovery had begun, or at least that the worst was over, Thompson Creek nudged its 2009 production forecast up by 10% to 22-26 million lbs. moly.

To increase production, the company said it would only close its mines for two weeks in July instead of the planned monthlong hiatus.

And now, with moly prices pushing above US$15 per lb., Thompson Creek is adding to its rosier outlook on the moly market and says it wants to restart the Endako expansion project, pending Sojitz’s approval. As of June 30, 2009, Thompson Creek had already spent $52.9 million of its share of the expansion’s capital costs — estimated at US$252 million — and now says it will spend an additional US$42 million this year.

The expansion will decrease cash costs at the mine, which in the second quarter were US$4.94 per lb., and increase production to 50,000 tonnes per day from 28,000 tonnes. Reserves at Endako, near Fraser Lake, B. C., are 276 million tonnes grading 0.051% moly or 0.085% MoS₂. The expansion is slated for completion in 2011.

In the shorter term, Thompson Creek also sees healthier profits returning. During the next six months, it expects to get more than the average realized price of US$9.81 per lb. moly it received in the first half of the year. In the first half of 2009, Thompson Creek managed to eke out a profit of US$10.8 million.

One factor working against Thompson Creek as the price of moly improves, however, is the strengthening of the Canadian dollar relative to the U. S. dollar. In the first half of the year, Thompson Creek lost US$3.9 million due to foreign exchange losses. All other things being equal in the second half of 2009, for every dime that the U. S. dollar weakens, Thompson Creek stands to lose US$7 million in net income.

On the second-quarter results and plans to restart Endako, Thompson Creek shares lost 42¢ to $15.59. The company has 123 million shares outstanding.