Thompson Creek slumps, but Mt. Milligan still on track

Thompson Creek Metals (TCM-T, TC-N) sinks deeper into the red as it continues to build 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 to 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 Mt. Milligan mine, reported a net loss of US13¢ a share, “which was weaker than our estimate of a loss of US9¢ and consensus of a loss of US8¢,” writes Scotiabank’s analyst Tom Meyer in a note.

For the three months ended September 30, the company recovered 6.1 million lbs. 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 lbs. with a realized price of US$12.85 per lb., down from the 9.6 million lbs. sold at US$15.64 a lb. a year ago, and 7.5 million lbs. sold at US$14.55 a 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 a third-quarter operating loss of US$37.4 million.

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

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

The producer anticipates milling about a third of Endako’s stockpiled ore through mid-2013, before restarting mining at the Denak West pit and then the Endako pit later that year. Endako is slated to produce 6.5-7.5 million lbs. moly at costs of US$13.50-$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 announced in early October that it will suspend stripping activities related to the next phase of production, known as phase eight and cut about 100 jobs.

Thompson plans to continue mining the current high-grade phase seven through 2014, deferring stripping until the price of moly picks up, cautioning if it doesn’t restart stripping activities by the end of the current phase, it may have to shutdown its namesake mine.  

This, along with the dipping moly price, led the company to take a goodwill impairment of US$47 million on its assets at the end of the quarter.

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

The company has reiterated its full-year guidance of 22.5-24.5 million lbs. at costs of US$9.25-$10.25 per lb., as it continues to build the Mt. 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 be the highest at roughly 89 million lbs. 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 said he plans to retire within the next 18 months, but will stay on until a suitable successor is named. The sixty-two year old has headed up 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 Mt. Milligan.”