Better days ahead for Thompson Creek

Thompson Creek Metals (TCM-T, TC-N) like many mining companies has had a tough ride over the last year. Slowing metal demand from China and falling prices have teamed up to hammer the company’s share price. In mid-January 2011 the diversified miner was trading above $15.00 per share but today its shares are struggling to stay above the $2.50 mark.

Now some mining analysts are saying the company — with two large operating molybdenum mines, a large copper-gold mine under construction, a stand-alone metals roasting facility, and a number of additional metals properties in various stages of development — is poised for better fortune.

New York-based analysts at Dahlman Rose & Co. have upgraded the company from a hold to a buy rating and raised their target price to $4.00 per share. Not only do the analysts believe that the company has enough capital to complete its Mt. Milligan copper-gold project, which should produce significant profits in 2014, but molybdenum prices have already jumped by more than 10% in the last two weeks to about US$10-12 per lb. and they see further upside in the price. Over the medium term, they forecast, molybdenum prices could rise to the US$14-$15 per lb. range.

Dahlman’s Anthony Young, Anthony Rizzuto and Joseph Giordano do not rule out further challenges at the Mt. Milligan project as it ramps up and say they “would not be surprised to see further delays” at the project and “cannot rule out the possibility of another cost overrun,” but still argue that the benefits of the project outweigh the risks.

“The diversification that Mt. Milligan should provide, along with substantial cash flow generation, should meaningfully increase the share price over the next 12-18 months, particularly as the market begins to focus on 2014 earnings power,” they wrote in a research note today.

The analysts add that the “potential negative outcomes” at Mt. Milligan are already reflected in the company’s current share price and reason that Mt. Milligan should be completed in late 2013.

The copper-gold project about 145 km northwest of Prince George in central British Columbia will be based on a conventional truck and shovel open-pit mine of about 60,000 tonnes per day copper flotation concentrator. Average annual metal production over a 22-year mine life is forecast to be 81 million lbs. copper and 194,500 oz. gold.

Earlier this month Thompson Creek amended its gold stream agreement with Royal Gold (RGL-T, RGLD-Q) to sell an additional 12.25% of future gold production from Mt. Milligan for $200 million, plus US$435 per oz., or the prevailing market rate, if lower than US$435 per oz, when the gold is delivered. The additional 12.25% brings Royal Gold’s share of Mt. Milligan’s refined gold production to 52.25%.

For the second quarter of 2012, Thompson Creek reported operating losses of $18.4 million — primarily due to higher operating costs at its Endako and Thompson Creek mines due to lower production volume. Production and costs during the quarter were negatively impacted by lower than anticipated ore grades and recovery at the Endako mine and the pit-wall slough at the Thompson Creek mine in May. The averaged realized sales price for molybdenum in the quarter was US$14.55 per lb., compared to US$17.28 per lb. in the same quarter last year.

In Toronto at presstime Thompson Creek was trading at $2.47 per share within a 52-week range of $2.23 and $9.43 per share.