Thompson plans to save $100M in costs by 2014

Thompson Creek Metals (TCM-T, TC-N) has hatched a new plan for its namesake molybdenum mine in Idaho to reduce costs, giving it more financial wiggle room to continue developing its Mt. Milligan copper-gold mine in central British Columbia.

The revised plan for the Thompson Creek mine, announced before market open on Oct.3, includes suspending stripping activities for the next stage of production, dubbed Phase 8. The company expects this change from now to 2014 will save $100 million in operating costs, $8-$9 million in capital expenditures, and reduce its workforce by 100 employees.

Thompson Creek’s chairman and CEO Kevin Loughrey said in a statement the persisting uncertainty in the global economy caused the company to rein in its spending to strengthen its balance sheet as it continues to build the Mt. Milligan mine, estimated to cost roughly $1.5 billion and to be completed in late 2013.  

While the Denver-based firm anticipates restarting Phase 8 stripping when the price and demand for molybdenum picks up, it’ll carry on mining the current Phase 7 as planned through 2014, notes Scotiabank analyst Tom Meyers.

Commenting on the new mine plan, Meyers writes in a note it’s “a positive and rational response to the current price environment.” He estimates the company’s net cash flows will improve by US$57 million to the end of 2014.

This year’s production guidance and costs for the Thompson Creek mine remains at 16 million to 17 million lbs. moly at cash costs of US$7.50-$8.50 per lb.

For 2013, the firm bumped up the mine’s guidance to 20 million to 22 million lbs. from 19 million to 22 million lbs. and lowered cash costs to US$4.75-$5.75 per lb., from US$6-7 per lb.

It also provided the mine’s guidance for 2014, estimating Thompson Creek will produce 17 million to 19 million lbs. moly at cash costs of US$5-$6 per lb.

The producer expects to update the mine’s costs but not production targets if it recommences stripping before 2015, cautioning if it doesn’t continue by then it will have to place the Thompson Creek mine on care and maintenance.

“In our view, it is best to view the change as [an] exchange of cash from the future to today as an accelerated waste-stripping program would be needed likely before 2015 or else the mine would be placed on care and maintenance,” adds Meyers in the note.

Meyers has maintained his one-year target price of $6.50 and “2-sector perform” rating.  

Thompson Creek lost 2¢ or less than a percent to close Oct. 3 at $2.61 on 1.77 million shares traded.