Thompson Creek piles up cash in Q3

Thompson Creek Metals (TSX: TCM; NYSE: TC) is improving its operations and balance sheet, despite ending the third quarter in the red.

The Colorado-based firm — which operates three mines — posted a headline loss of US$11 million, down from a US$14-million profit a year ago. The recent quarter included a US$60-million foreign exchange loss, compared to a US$24-million gain in the same period last year.

Excluding one-time losses and gains, adjusted earnings were US$38 million, or US$17¢ per share, up from a year ago and above the expected US9¢ per share.

“We are very happy with our performance and our results this quarter,” CEO Jacques Perron said on a conference call. 

Revenues were US$229 million, up from US$91 million in the third quarter of 2013, as the firm ramped up its Mt. Milligan copper-gold mine in northern B.C., which reached commercial production in February.

 Copper and gold sales at Mt. Milligan contributed US$101 million to the total revenue, while molybdenum sales from Thompson Creek in Idaho and the Endako mine in B.C. added US$124 million.

Mt. Milligan sold 16.5 million lb. copper and 57,974 oz. gold at average realized prices of US$3.02 per lb. and US$952 per oz. Molybdenum sales volumes were 8.9 million lb., similar to the year ago, but the average realized price improved 35% to US$13.94 per lb. 

“The better-than-expected result was due to higher moly price realizations and an improving cost structure,” CIBC analyst Tom Meyer commented on the adjusted earnings beat. 

Quarterly production at Mt. Milligan totalled 16.3 million lb. copper and 60,366 oz. gold at US$1.80 per lb. and US$477 per oz., on a co-product basis. Copper costs on a by-product basis was US77¢ per lb., up slightly from the second quarter, due to lower realized gold prices.

Scott Shellhaas, the company’s president and chief operating officer, says minor mechanical and electrical issues as well as routine scheduled maintenance affected quarterly throughput at Mt. Milligan, which averaged 40,445 tonnes per day. On a positive note, copper and gold recoveries increased to 83% and 67%.

The Mt. Milligan mill should reach 80% of its designed throughput of 60,000 tonnes per day by year-end. “As we continue to increase throughput and stabilize the operation, we expect our unit cost to decrease, making Mt. Milligan one of the lowest cost copper producers on a by-product basis,” Perron says.

The company is also testing alternatives to increase throughput to 60,000 tonnes per day and above, with a decision due in January 2015.

“We believe a secondary crusher is the most likely outcome, with a potential budget of US$50 million to US$75 million, expected to be funded with cash balances,” BMO analyst Aleksandra Bukacheva writes.

During the third quarter ending in September, molybdenum production totalled 6.6 million lb. at average cash costs of US$6.77 per lb. The Thompson Creek mine contributed 4.1 million lb. at cash costs of US$4.54 per lb., while the Endako mine pitched in 2.5 million lb. at cash costs of US$10.34 per lb. 

At the Thompson Creek mine, the company expects to process stockpiled ore for the rest of 2014. In intends to place the mine on care and maintenance in early 2015, after which it will conduct limited stripping operations with a reduced workforce for the next phase of mining. 

During the quarter, the miner generated a US$60-million positive free-cash flow, boosting its cash position by US$51 million over the quarter to US$267 million, BMO’s Bukacheva says. She has a $3.50 target and a “market perform” rating on the stock.

CIBC’s Meyer has a 12-to 18-month target of $4 and a “sector performer” rating. While Meyer expects the share price will pick up after Mt. Milligan’s ramp-up, he’s concerned about the company’s high debt levels in the medium-term.

Thompson Creek exited the quarter with US$977 million in total debt, down from US$1 billion on Dec. 31, 2013. Perron says that Moody’s upgraded the company’s credit rating to B3 from Caa1 in September, meaning the credit rating agency believes the firm could meet its financial commitments. 

Thompson Creek has maintained its full-year capital expenditures at US$65 million and production guidance at 65 million to 75 million lb. copper, 185,000 to 195,000 oz. gold and 24 million to 27 million lb. moly. It forecasts cash costs of US$1 to $1.50 per lb. copper on a by-product basis and US$6.75 to US$7.75 per lb. moly.

The stock ended Nov. 12 down 10¢ at $2.33, after gaining 19¢ a day earlier on the financial results.