Thompson Creek: A Molybdenum Stock to Strengthen Your Portfolio

Thompson Creek Metals Company (TC) is a Canadian mining company and is one of the largest pure molybdenum producers in the world. Molybdenum is alloyed with steel making the steel stronger and is widely used in the iron and steel industry. With declining steel demand owing to the global recession, the price of molybdenum fell from approximately $34 a pound to just under $8 a pound in the last quarter of last year and the during the first quarter of the current financial year.

Thompson Creek was adversely affected by the sharp decline in prices and resorted to production cuts in response to lower molybdenum demand. In January, it announced that its molybdenum production was expected to be in the range of 20 to 24 million pounds in 2009, revised from previous guidance of 31.5 to 34 million pounds. This was in line with the 10 million pound production cut announced by Freeport-McMoRan (FCX), the largest producer of molybdenum in the world.

On May 7, 2009, Thompson Creek declared financial results for the first quarter 2009 with an EPS of $0.09, down from $0.41 in first quarter 2008. It reaffirmed its production guidance and reported a decline in its average cash production costs in the first quarter from $8.29 per pound a year earlier to $5.93 per pound. It also reduced its cash production costs estimate for the current financial year to $6.25 to $7.25 per pound from previous guidance of $7.25 to $8.25 per pound. Further, the company announced that it was ready to modify its production and adjust to the market conditions if and when the situation improved.

With the sharp rebound in commodity prices in May, molybdenum has shown signs of recovery. Molybdenum has risen approximately 25% from its lows and is currently priced at little over $10 a pound. This increase, altough impressive, trails the percentage increase in price witnessed by several other commodities such as copper and oil. Thompson Creek has benefited from this rebound in commodity prices and the changing market sentiment with its stock rallying from a 52-week low of $2.44 a share to $10 a share. However, this is substantially lower than the 52-week high of $21.98 a share and I believe that the stock price can go higher from these levels.

Thompson Creek has a strong balance sheet with $260.6 million in cash, cash equivalents and short term investments and a total debt of $16.9 million at the end of the first quarter. Key financial information for TC is shown below:

• Market Cap = $1.2 billion
• Sales (TTM) = $835.5 million
• EPS (excluding extraordinary items) = $1.09
• Net Profit Margin = 17.7%
• Debt to Equity ratio = 0.01
• Return on Equity = 21.9%
• Current Ratio = 10.03

Analysts expect Thompson Creek to earn $0.07 a share during the current financial year and $0.94 a share during the 2010 financial year. These estimates are very conservative in my opinion and do not account for rising price of molybdenum and operational efficiencies at Thompson Creek.

During the current financial year, I expect the company to report actual production numbers towards the high end of its guidance. Assuming an average molybdenum price of $10 a pound for the rest of the financial year, a production of 23 million pounds, and cash production costs of $7 a pound, I expect Thompson Creek to report an EPS of $0.28. With improving molybdenum price and expanding production at Thompson Creek, I estimate a 2010 EPS of $1.10.

Based on my DCF model, assuming a long term growth rate of 10% and a discount rate of 15%, the fair value of TC is approximately $12 a share. On a relative valuation basis, I project a fair value of $14 a share by applying a multiple of 13 to my 2010 earnings estimate. By combining the two values, I am initiating coverage of Thompson Creek with a BUY rating and a 12-month price target of $13 a share.

Disclosure: Long TC

Comments

[User 276285:]

Thompson Creek was started in Smithers, B.C. and was named Blue Pearl Mining. Discovered Moly and good grades and then purchased a company in Idaho which was also a moly producer. They then changed their name to Thompson Minerals. Take a look at a small company called BARD( cbs.V which also has a large amount of Moly outside of a town called Houston, B.C. This is a fabulous buy.

Jun 07 05:34 PM

[optionsgirl:]

Check out Roca Mines (ROCAF.PK). It's on my watchlist.

Jun 07 11:18 PM

[Eugene Beukman:]

Bard Releases NI 43-101 Resource Estimate on Lone Pine Property

Bard Ventures Ltd. (“Bard” or the “Company”) commissioned the preparation of the first National Instrument 43-101 compliant resource estimate on the Alaskite Zone molybdenum mineralization from the Company’s Lone Pine Molybdenum Property, located in the Omineca Mining division approximately 15 kilometres north-northwest of Houston, BC. The report, dated January 12, 2009, entitled “Resource Estimate Lone Pine Molybdenum Project – Omineca Mining Division, British Columbia”, was prepared by Ronald G. Simpson, P.Geo. of GeoSim Services Inc., a “qualified person” for the purposes of National Instrument 43-101 – Standards of Disclosure for Mineral Projects.

Lone Pine measured, indicated and inferred mineral resource summary:


MEASURED INDICATED
Cut-off % Mo Tonnes ≥ Cutoff (000's) Mo% in-situ lbs Mo (000's) Tonnes ≥ Cutoff (000's) Mo% in-situ lbs Mo (000's)
0.02 43,767 0.078 75,262 107,769 0.066 156,809
0.03 40,450 0.082 73,125 99,967 0.069 152,069
0.04 33,356 0.092 67,654 76,984 0.079 134,079
0.05 26,676 0.104 61,163 58,193 0.090 115,464
0.06 22,486 0.113 56,018 43,968 0.102 98,871
0.07 19,625 0.120 51,919 35,077 0.111 85,839
0.08 17,699 0.125 48,775 29,884 0.117 77,084
0.09 15,853 0.130 45,435 25,703 0.123 69,698
0.10 13,922 0.135 41,435 21,053 0.129 59,875

MEASURED+INDICATED INFERRED
Cut-off % Mo Tonnes ≥ Cutoff (000's) Mo% in-situ lbs Mo (000's) Tonnes ≥ Cutoff (000's) Mo% in-situ lbs Mo (000's)
0.02 151,536 0.069 232,071 27,827 0.084 51,532
0.03 140,417 0.073 225,193 27,555 0.085 51,636
0.04 110,340 0.083 201,733 25,840 0.088 50,131
0.05 84,869 0.094 176,628 22,839 0.094 47,331
0.06 66,454 0.106 154,890 18,295 0.104 41,947
0.07 54,702 0.114 137,758 15,238 0.111 37,290
0.08 47,583 0.120 125,858 13,092 0.117 33,769
0.09 41,556 0.126 115,132 11,800 0.121 31,477
0.10 34,975 0.131 101,310 10,186 0.125 28,070
*Note: Bold indicates Base Case Scenario.

A full text version of the Lone Pine Property resource estimate is being filed on SEDAR today and will be available at sedar.com under the Company’s profile and can also be found by visiting the Company’s website at bardventures.com.

…/Cont’d.

Summary of significant work completed to date since optioning the Lone Pine Property in 2006:

• Completed historic database compilation and review.
• Line-cutting, Geological Mapping and Prospecting including rock sampling.
• Completed 3-D Inversion Induced Polarization and Magnetic Geophysical Surveying.
• A total of 27,012 m of diamond drilling in 55 holes completed on the Property.
• The majority of the drilling has focused on the Alaskite Zone which has been expanded in size from a small outcrop area to a plan view size of 550 m x 310 m and a depth of 800 m and still “open”.
• A total of 21,557.36 m of diamond drilling in 41 holes into the Alaskite Zone.
• Completed detailed airborne surveying and photography for resource modeling and survey control.
• Completed initial metallurgical testing with positive results of greater than 90% recovery to a concentrate grade of 43% Mo.

The Property has an ideal location for operations with established infrastructure including:

• Highway 16;
• a natural gas pipeline;
• a major hydro power transmission line and transformer sub-station; and
• is located only 15 kilometers from the CN rail line in Houston, BC.

A plan of the drill holes in the Alaskite Zone may be viewed on the Company's website at bardventures.com

Bard is earning a 100% interest in the Property under the terms of an option agreement (see News Release dated September 15, 2006). The Lone Pine exploration work is being conducted under the supervision of Qualified Person Jim Miller-Tait, P. Geo., a Director of Bard.

Sep 16 05:15 PM