Thompson Creek slumps, but Mt. Milligan on track

Thompson Creek Metals (TCM-T, TC-N) is sinking deeper into the red as it builds the $1.5-billion Mount Milligan copper-gold mine in central B.C., posting a third-quarter net loss of US$48.2 million, or US29¢ a share, compared with a profit of US27¢ a share a year ago, and a loss of 9¢ per share in the second quarter.

On an adjusted basis, the Denver-based molybdenum producer — which is looking to diversify its portfolio with the Mount Milligan mine — reported a net loss of US13¢ a share, “which was weaker than our estimated loss of US9¢ and consensus loss of US8¢,” Scotiabank analyst Tom Meyer writes in a note.

For the three months ended Sept. 30, the company recovered 6.1 million lb. molybdenum from its 100%-owned Thompson Creek mine in Idaho and 75%-owned Endako mine in northern B.C. at a cash cost of US$9.46 per lb.

While production and cash costs improved over the year-earlier quarter, the miner’s revenue was hit by slumping sales and dipping average realized prices.

Consolidated revenue came in at US$74.9 million, down 52% from a year ago.

Sales totalled 5.6 million lb. with a realized price of US$12.85 per lb., down from the 9.6 million lb. sold at US$15.64 per lb. a year ago, and 7.5 million lb. sold at US$14.55 per lb. in the previous quarter.

The miner says sales were negatively impacted by a five-week scheduled maintenance at its Langeloth metallurgical facility in Pennsylvania, which contributed to the third-quarter operating loss of US$37.4 million.

The 5.6 million lb. sold was 34% lower than estimated, Meyer notes, adding that output also missed expectations by 17% due to ongoing recovery issues at the Endako mine.

Thompson Creek previously reported that because recoveries and ore grades at Endako were not meeting the design requirements of the new mill, it would stop mining and start processing stockpiled ore in the third quarter to bring down the average costs at the mine, Meyer explains.  

The producer anticipates milling a third of Endako’s stockpiled ore through mid-2013, before restarting mining at the Denak West pit and the Endako pit later that year. Endako is slated to produce 6.5 million to 7.5 million lb. moly at costs of US$13.50 to $14.50 per lb. during 2012, with the company guiding better production and costs for 2013 and 2014.

Also to save costs at its eponymous mine, Thompson Creek announced in early October that it would suspend stripping activities related to the next phase of production, known as phase eight, and cut about 100 jobs.

Thompson Creek plans to mine the high-grade phase seven through 2014 and defer stripping until the moly price picks up, cautioning that if it doesn’t restart stripping activities by the end of the current phase, it might have to shut down its namesake mine.  

Along with a dipping moly price, this led to a goodwill impairment of US$47 million on its assets at the end of the quarter.

The Thompson Creek mine should generate 16 million to 17 million lb. at US$7.50 to US$8.50 a lb. in 2012, with costs expected to improve by US$3 per lb. next year, before increasing between US$5 and $6 per lb. in 2014.  

The company has reiterated its full-year guidance of 22.5 million to 24.5 million lb. at costs of US$9.25 to $10.25 per lb. as it builds the Mount Milligan project.

So far, construction is 75% ­complete, with $935 million of the $1.5-billion budget spent. Commissioning should kick off in the third quarter of 2013, with commercial production to follow in the fourth quarter of that year.

During its first full six years, output is estimated to peak at 89 million lb. copper and 262,000 oz. gold a year. The mine has a 22-year life.

In a separate release, the company’s chairman and CEO Kevin Loughrey says he plans to retire within the next 18 months, but will stay on until a suitable successor is named. The 62-year-old has headed the company since 2006. 

In late-day trading, the stock was down 1% to $2.95, on 1.67 million shares traded.

Meyer has maintained a “2-sector perform” rating on the stock, but has lowered his one-year target price to $5 from $6.50, mainly noting “heightened caution on Endako recovery issues, and the higher operating-cost outlook at Mount Milligan.”