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Thompson Creek Metals (NYSE:TC)

Q1 2013 Earnings Call

May 09, 2013 8:30 am ET

Executives

Kevin Loughrey - Chairman and Chief Executive Officer

Pamela L. Saxton - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

David Adam Katz - JP Morgan Chase & Co, Research Division

Garrett S. Nelson - BB&T Capital Markets, Research Division

Kevin J. Cohen - Imperial Capital, LLC, Research Division

David Charles - Dundee Capital Markets Inc., Research Division

Oscar Cabrera - BofA Merrill Lynch, Research Division

Kevin Kuzio

Jorge M. Beristain - Deutsche Bank AG, Research Division

Zachary Zolnierz

Gary Lampard - Canaccord Genuity, Research Division

Pierre D. Vaillancourt - Macquarie Research

Matt Heckler

Craig Miller - TD Securities Equity Research

Steve Bristo - RBC Capital Markets, LLC, Research Division

Operator

Good day, and welcome to the Thompson Creek Metals Company First Quarter 2013 Financial Results Conference Call. Today's conference is being recorded.

The slides for the webcast may be accessed through the corporate website and through the webcast link.

At this time, I would like to turn the conference over to Kevin Loughrey. Please go ahead.

Kevin Loughrey

Thank you, operator and good morning, everyone, and welcome to the first quarter financial results conference call for Thompson Creek Metals Company. I'm Kevin Loughrey, and I'm the Chairman and CEO of Thompson Creek, and I'm joined here today by Pam Saxton, our Executive Vice President and Chief Financial Officer; and Pam Solly, our Director of Investor Relations. We're coming to you from our headquarters office in gray and rainy Denver, Colorado, this morning.

I'm going to start by just making a few comments about our quarter. We had a lot of good things happen to us, especially operationally, in the first quarter. Moly production increased 74% to 7.7 million pounds from the first quarter of 2012, and our cash cost declined to $5.91 per pound of moly from $12.95. That improvement came as a result of very good performance at the Thompson Creek Mine, finally starting to see improved operational performance at Endako. And frankly, we're comparing it to a quarter where we started the Endako mill in the beginning of 2012, and so we had very low volumes and, consequently, high costs. So we're comparing it to a very high-cost quarter.

Our sales volumes, also, were up by 18% to 8.8 million pounds of moly sold, but the negative in the quarter is the sales price for those realized pounds was down 19% to $11.87. And moly market that is struggling to get legs underneath of it is probably the difficult news from the first quarter.

Our important Mt. Milligan project is very much on schedule. This week, in fact, we've started the primary crusher and it is crushing waste and creating a base with that waste for the stockpile we will build over the next several weeks and we are on schedule to the guidance previously given. We believe now that we'll start the mill running in August of this year with commercial production still slated for the fourth quarter of 2013, which is very good news for us.

And now we're going to depart a little further from the tradition we have established. Winston Churchill said, "To improve is to change and to be perfect is to change often." And if that's the case, by Winston's standards, we haven't been perfect because we've done the exact same format for 26 quarters in a row. And so, today, instead of me giving the presentation, I'm going to ask Pam Saxton to do the rest of it. She lives with these numbers and knows them as well as anyone. So I'll ask Pam to take it from this point. And then when she is done, we'll take questions. Pam?

Pamela L. Saxton

Thank you, Kevin. The PowerPoint presentation that I'll be referring to this morning is available on our company's website under the Investors section tab, as well as through the webcast link.

As a preliminary matter, we wanted to mention that today's discussion and presentation will contain forward-looking statements within the meaning of applicable U.S. and Canadian securities law. You should carefully review the disclosures we make on Slide 2 of the presentation about the types of forward-looking statements we may make. There are important factors that could cause actual results and events to differ from those in such forward-looking statements. In our public filings, we have attempted to identify those factors that could cause actual results or events to differ from those described in such forward-looking statements. However, there are may be other factors that cause results or events to differ from those anticipated, estimated or intended.

So moving on to Slide 4, is our safety. Our safety record, which is always a very important aspect of our business, continues to improve. I'm pleased to report that our company's All Incidence Recordable Rate through March 31, 2013, is 1.37, which is below the industry standard of 1.8 at the end of 2012. Additionally, the Mt. Milligan project has achieved more than 4 million work hours without a lost time incident. Safety is our #1 priority, and we congratulate all of our employees for making our the operations safe.

If I could move on to Slide 5, our first quarter financial results. We generated $109 million in revenue, $15 million of cash flow from operations and net income of $900,000. Our net income of $900,000 reflected operating income of $17 million and an income tax benefit of $3 million, which was almost entirely offset by a $19 million non-cash unrealized foreign exchange loss. Our financial performance this quarter compared to the first quarter of 2012 was positively affected by higher production, higher sales volumes, lower operating expenses and lower depreciation, depletion and amortization, partially offset, as Kevin mentioned, by declining molybdenum market prices and unfavorable changes in the exchange rates between the U.S. dollar and the Canadian dollar. We ended the quarter with $469 million of cash on our balance sheet and approximately $1 billion of debt.

Moving on to Slide 6. As Kevin mentioned, we had a very strong operational quarter in the first quarter with moly production of 7.7 million pounds and cash cost declining significantly to $5.91 per pound from $12.95 per pound. Again, this performance reflects maximizing the value of the Thompson Creek Mine and continued operational improvements at Endako. As Kevin also mentioned, sales volumes increased to 8.8 million pounds, which were offset by a 19% lower average realized molybdenum sales price of $11.87 per pound.

Moving on to Slide 7, we are very pleased with the first quarter performance of our Thompson Creek Mine, with total production of 5.9 million pounds at a cash cost of $4.18 per pound. Again, those cash costs were positively affected by significantly higher ore grade from Phase 7, resulting in higher production and higher mill recovery. Additionally, our Thompson Creek Mine cash cost benefited from the suspension of the stripping cost associated with Phase 8.

We expect to continue to maximize the value from the Thompson Creek Mine, with mining operations and production expected to continue as planned through 2014 in the current Phase 7 of the mine. We will make a decision to recommence stripping or to put the mine on care and maintenance when market conditions warrant.

Now moving on to Slide 8. At our Endako Mine, we've been focused on numerous initiatives to improve the overall operating and cost performance. Despite water management issues in the first quarter, which have now been resolved for future winter seasons, our 75% share of the Endako mine production was 1.8 million pounds at a cash cost of $11.75 per pound. During the first quarter, we updated and revised the Endako Mine plan, and, as a result, we expect to resume mining in the Endako pit in the second quarter, which is earlier than we had originally planned. We continue to make progress in reducing overall cash cost and improving mill performance through process control optimization and reagent enhancements. Additionally, as part of the cost-reduction effort beginning in February of 2013, all milled material from the Endako Mine has been transported to our Langeloth facility to be roasted.

So moving on to the next slide, that's really Slides 9, 10 and 11 I'm going to cover at once. But generally, since the first quarter of 2012, as you see on these slides -- through the first quarter of 2013, production from both of our mines generally have traced an upward trend with higher production and lower cash cost per pound produced. In 2013, we anticipate the production in the second half of the year at the Endako Mine will improve because of the resumption of mining in the second quarter, together with continued operating improvements at Endako. We also expect that the Thompson Creek Mine will experience steady production from Phase 7 as the year progresses. So consequently, we have reaffirmed our 2013 production and cash cost guidance of 27.5 million to 30.5 million pounds of molybdenum with a with weighted average cash cost of $6.50 to $7.50 per pound.

Now moving on to our cash capital expenditures on Slide 12. Cash capital expenditures for the first quarter were $155 million, most of which was for the development construction of the Mt. Milligan Copper-Gold project. Again, we have reaffirmed our cash capital expenditures guidance for 2013 to be approximately $440 million to $480 million, again most of which relates to Mt. Milligan.

Moving on to Slide 13 on the cash outlook. Our remaining 2013 cash capital expenditures are estimated to be approximately $325 million, with total in place funding of $532 million. The forecasted net cash flow from operations, less debt service, reclamation and all other cash uses, is currently estimated to be a cash use of approximately $38 million, leading a forecast cash balance of approximately $169 million at the end of 2013.

Now moving onto Mt. Milligan. This is Slide 14. Total estimated project capital expenditures for the Mt. Milligan project remains at approximately $1.5 billion, of which 95% has been spent or contractually committed.

Looking at Slide 15. We have shown this slide many times, but again, just a reminder, Mt. Milligan represents a significant revenue growth and diversification opportunity for Thompson Creek. Again on this slide, at current commodity prices, Mt. Milligan could generate approximately $520 million in annual cash revenue during the first 6 years of full production at estimated annual cash cost of approximately $280 million, which includes refining and transportation cost.

Looking at Slide 17 on the Mt. Milligan project development update. We're pleased to report that as of March 31, 2013, the estimated overall project completion is approximately 90%. The schedule remains as planned with commissioning and startup of the Mt. Milligan mine expected in August of 2013 with commercial production of copper and gold in the fourth quarter of 2013. You noticed recent achievements, I just want to highlight a couple of things, recent achievements include the mine pit being in full operation as all mobile equipment, including 2 electric shovels and a fleet of trucks, is fully operational in the pit. The mine is currently stripping waste material, which is integral to continued construction of the tailings dam and exposing ore in advance of the mill start up. As Kevin mentioned, just this week, we've completed all checks of the primary crusher and have started crushing waste material to create a bed for the coarse ore stockpile.

This SAG mill and the ball mills are ready for pre-commissioning, and the primary focus of the activity right now and the concentrator is electrical and piping. The operations senior management team is in place and a large portion of the operating team is hired and on site, completing operational readiness, reviews and training.

So we do have some photos for you beginning on Slide 18. Many of you who are on the call I know have been up to Mt. Milligan and the pictures just don't do this thing justice, but for the others who haven't been there, just want to give you an overview of these pictures. The first one you see is a picture of the mine. You can see the benches as they're beginning to develop. Again, we've been in the mine pits now for just about a year. The next picture is the coarse ore stockpile. It's the crusher, building the coarse ore stockpile. The next picture is the 40-foot SAG mill that is ready for pre-commissioning. It's just a matter of getting the electrical power to the SAG mill so we can do a -- start the commissioning of it. The next picture is 2 24-foot ball mills, again, all ready for pre-commissioning once the power is connected.

And then the last one is the truck shop, warehouse and administration building. On the truck shop, we have one bay that's operational and it should be fully operational by the end of the month. The admin building is occupied on the second floor. And the warehouse, we're putting in material, as we speak, in the warehouse. So it should be, again, fully operational by the end of the month.

So then going to Slide 23, is the future critical milestones. This is a slide that we have shown every single quarter, just reporting against the milestones that we have made. As you can see on here, we continue to make progress to achieve first ore feed in August of 2013 and full commercial production, again, expected in the fourth quarter. A couple of things I'd like to note on these critical milestones. As I mentioned before on the truck shop, we are using one bay, which will be fully operational at the end of the month. On the reclaim water, ready for pre-commissioning, the barge is ready and just awaiting to be hooked up to power. And same with SAG mill, west and east ball mills, they're ready for pre-commissioning, just awaiting to be hooked up to power. Again, the focus right now on the concentrator plant is power and piping.

So now I'd like to make a few brief comments regarding the metals market and moving on to Slide 25. So the molybdenum market has continued to find pricing weakness, as the price reported by Metals Week at the end of the year was a price of $11.60 per pound and we ended the first quarter at $10.78 per pound. The weakening of the price primarily reflected softness in the moly demand. Steel production in U.S. and Europe over the first quarter, for example, has been down 2% to 5% from a year ago. We are continuing to see strength from the aerospace and automobile market segments and some strength in the oil and gas demand, although this demand is down somewhat from last year. We are seeing weakness in large industrial capital projects such as for chemical processing plants and infrastructure projects, as well as from off-road vehicle demand such as for mining equipment. Regionally, Europe is the softest market area where demand is down from last year. In the last 6 weeks, we are seeing some very modest improvement in demand from both Japan and the United States.

So turning to the copper market, we're also seeing a little softness in this market for the first time in several years, as the market turns from a deficit to a balanced market. The price of copper at the end of 2012 was $3.59 per pound and had declined to $3.43 per pound by the end of the quarter. The main reason for this decline, we believe, was the slight slowdown in China's GDP growth. China is a very important driver for the copper market with over 40% of the annual consumption. This slowdown of growth combined with rising stock levels caused some modest correction in pricing. However, we continue to be very bullish on the copper market for the long term.

Slide 26, turning lastly to gold. We see ongoing strength in this market as the underlying fundamentals are quite strong especially over time. During the first quarter, we did see some volatility in the gold price, however, we have not seen any reason to change our view going forward in the strength of this market due to the risks that faced financial markets, such as political instability, currency weakness and anticipated inflationary pressures to the U.S. dollars and other currencies.

So with that, I'd like to turn the call back to Kevin Loughrey for to wrap this up.

Kevin Loughrey

Thank you very much for that good description, Pam. We appreciate it. I just want to make a couple of additional comments. Pam talked about Endako and improving performance, yet we still have costs there higher than the market prices for the molybdenum we sell. In large measure, that's due to the water problems we had this year and the resultant lower volumes and some grade issues as a result of some of the stockpiled materials we were accessing. As she said, we're moving into the mined ore material and the water issue is behind us now and will not reoccur in future winters because of enhanced tailings management issues. So as those volumes increase, we expect the prices -- the cost at Endako to stay down. Also, we want to underscore that Mt. Milligan is doing very well. If you look at future critical milestones chart, which have been showing every quarter, there are a couple of issues that Pam talked about there that look to be behind. Really, that represents, to some extent, some reordering of our own internal priorities and we're about where we want to be, waiting in most cases, the completion of the connection of the power to those items, so that's looking good.

We also used, in our moly section, the term off-road vehicles, which I think is a term we haven't used before, and what we're referring to there, really, is this major mining equipment, which has mining projects around the world because of the high cost that we have experienced are being curtailed somewhat. We're seeing a weakness in demand for those kinds of vehicles and that's where the price -- the pressure is not as great as it would be on the price there. So I just wanted to explain that because we have not used the off-road term before.

Other than that, I think that's all we had to say. We're pleased with the operational performance that we've had. We're very pleased with the progress we're making at Mt. Milligan. As I said, we expect to turn that mill on in August of this year and we're extraordinarily pleased with the safety record that we've achieved throughout the company, especially at the Mt. Milligan project, which is, I think, approaching 5 million hours now without a lost time accident.

So with that, we will turn the call over to questions from the audience.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Brett Levy with Jefferies.

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

Can you guys talk a little bit about kind of what commercial production means? I mean, my sense is that's like 65% or 70%. And then when is the ramp up to kind of like 100% production according to your schedule at this point?

Pamela L. Saxton

This is Pam. Yes, you're correct. To hit commercial production, it's somewhere between 60% to 65%. And in our projections, we believe the copper will come up pretty quickly in terms of recovery. This is a conventional mill for copper, and copper should flow pretty easily. On the gold side, we're projecting it to ramp up a little slower probably over a year period or so on that front. So that's what we're looking at.

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

So it's probably 4Q of 2014 before you hit like 100% production?

Pamela L. Saxton

Correct.

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

All right. And then I don't know if you put this number out there, but sort of assuming that the Thompson Creek Mine is at some point put on care and maintenance, as you look at kind of sustaining CapEx or 2014 CapEx, once everything is up and running, what is kind of a sustaining CapEx number?

Pamela L. Saxton

For the operations? All the operations?

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

Right. If you combine sort of Thompson Creek Mine on care and maintenance, Endako and Mt. Milligan.

Pamela L. Saxton

Yes. It should be in the range of $20 million to $25 million sustaining CapEx. The only thing I would mention is with regards to Mt. Milligan. As we move forward and continue to build the tailings, increase the height of the tailings dam, there'll be some expenditures on that, that will be capitalized in the range of $7 million to $10 million a year.

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

Got it. And then you mentioned that you're targeting year-end cash, I believe, of $169 million. As you continue the ramp up into early 2014, do you see that cash level falling further?

Pamela L. Saxton

No. No, the cash will grow. I mean, once we are selling the copper and gold concentrate, that cash should grow. So from our projections, that's the low point.

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

All right. And then I guess, the other thing is that kind of the 2014 is somewhat of a critical year. Have you guys considered putting any kind of price hedges in place for late 2013 or '14 for either gold or copper production?

Pamela L. Saxton

Yes. That's certainly something that we're currently assessing and we're working through. And as you correctly state, we need to certainly minimize the downside risk on copper and gold. So we haven't put anything in place yet, certainly, because we would not do it until the operation is up and in production, but certainly something we will consider.

Operator

And next we'll hear from Dave Katz with JPMorgan.

David Adam Katz - JP Morgan Chase & Co, Research Division

Looking at the $38 million of net other cash that you expect in 2013. I was curious if that includes the working cap build necessary for Mt. Milligan?

Pamela L. Saxton

Yes, it does.

David Adam Katz - JP Morgan Chase & Co, Research Division

Okay. And then the Thompson Creek Mine costs, obviously, were fantastic in the first quarter but -- and they were $4.18, which is below the range for the entire year. Can you talk about what's going to drive the entire year back up into that range?

Pamela L. Saxton

Well, as you go through the year, there is certainly variability in just the ore body in Phase 7 and so we had an extraordinarily good first quarter. The ore grade was very high where we were in the pit. So it's really a function of the ore grade in the production, which then drives the cash cost per pound. The actual cash costs themselves are going to be pretty steady through the year, so it's really a function of the production levels that will vary during the year based on the ore grade.

David Adam Katz - JP Morgan Chase & Co, Research Division

Okay. And then how is that ore grade expected to flow throughout the year?

Pamela L. Saxton

It was -- I can tell you it's a very strong in the first quarter, and then it should level out the remainder of the year, but it will be steady the remainder of the year. And as we've mentioned, we are reaffirming the guidance and cash cost for Thompson Creek for the full year.

Kevin Loughrey

One of the things that happens, clearly, in any mine is that the natural variation you get in the ore body and timing of certain expenses creates differences that show up in one quarter or the other, and that's why we try to emphasize more of the yearly guidance and yearly costs. Because however you do it, the variations from quarter-to-quarter are going to be seen more impactful than they really will be as the year runs on. So Pam said, we're reaffirming our guidance for the entire year and think, where that's where we'll come out at Thompson Creek as a result of those natural variations.

Operator

We'll now hear from Garrett Nelson with BB&T Capital Markets.

Garrett S. Nelson - BB&T Capital Markets, Research Division

I want to ask about your propensity to resume stripping activities at both Thompson Creek and Endako. What does your current 2013 and 2014 cost guidance assume for both mines and what does that current mine plan look like?

Kevin Loughrey

At Endako, we're moving span set, we're moving back into the ore, which implies that we'll do additional stripping and we're doing that more quickly than we had thought. So that is included in our cost guidance for 2013 and 2014. At Thompson Creek, the opposite is the case. The guidance shows no resumption of stripping, which is not to say we won't do it, it's simply that that's the guidance we've given right now. And whereas, we've indicated in the past, we're watching the moly market to see what makes the most sense for us. We've got about $100 million stripping program that we need to commit ourselves to. So we watch that market in order to make that decision at Thompson Creek. If we make it before August or maybe September of this year, then we could continue on mining at Thompson Creek without interruption. If we wait longer than that, then we'd have some interruption in production at Thompson Creek, while the stripping gave us room out in front of the production.

Garrett S. Nelson - BB&T Capital Markets, Research Division

Okay. And then as your operating cash flow ramps and CapEx drops off, you should be generating some significant free cash flow. Is your first priority still debt paydown?

Kevin Loughrey

Yes.

Pamela L. Saxton

Absolutely.

Garrett S. Nelson - BB&T Capital Markets, Research Division

And then it's pretty much been crickets in the moly market for the past year. Obviously, the market is absorbing some significant new supply from Climax, but prices are in the vicinity of marginal cost for some producers. So I want ask about your market view and when we might be able to expect a price recovery?

Kevin Loughrey

Well, that's a tough question. The market view today's is tough, as you've indicated. There hasn't been much demand growth as we had anticipated. And that, of course, sort of snowballs through the supply-demand dynamics so that the volume of overall demand that we would have anticipated by now is not there, and it's going to take some time for that to come back. What I think is going to take to see price recovery is some kind of catalyst that creates increased demand overall. Moly does well when the world economies are clicking along and large industrial commercial projects are being built and easily financed. And that is not happening right now. If you look at our 3 geographic markets, China is growing, but growing more slowly than we thought it would. The United States, North America, generally, are growing, but growing somewhat moderately. And of course, Western Europe, which has historically been a large consumer of molybdenum, is doing very poorly and the prospects are quite uncertain at the moment. So we need a catalyst in the marketplace to turn the moly price around. And I'm hard-pressed at the moment to see what that catalyst was going to be. The solace I take from that is that when things are going very, very well, it seems like they're going to go very, very well forever, but they don't. When things are going poorly, it seems like they're going to go poorly forever, and they don't. Something will happen to turn those markets around. I don't know what that's going to be, but that's what's going to take for the moly price to improve and to be able to absorb some of this new production.

Operator

We'll take a question from Kevin Cohen with Imperial Capital.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

When you look at the moly markets, do you think with pricing where it is today, do you think that will spur any sort of consolidation in the industry?

Kevin Loughrey

We've always thought that's a possibility, but it really hasn't happened too much in the moly business. I think it's a little bit different because you had so many byproduct producers that don't view themselves as moly producers, and so there are fewer players involved in that consolidation effort than there might otherwise be -- they most look like. So yes, I think the market is poised for some of that to happen, but I said that for some time and not much of it has happened. So I don't have any more startling insights than that, I'm afraid.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

And then the other question is, when you look at the cost of producing copper at Mt. Milligan, any sort of ballpark figures that you feel comfortable with in terms of guidance on that? I've seen some disclosure from Royal Gold, but just kind of wondering your latest thoughts on that.

Kevin Loughrey

Well, I haven't done the calculation at this somewhat lower moly price than we've seen before, but I think it's pretty good when -- if you count it -- if you think of it as a byproduct mine at the current gold price, the cost of copper is actually negative or close to negative as the gold production will cover almost all of the cost of operations. So on that basis, the cost of copper production is very low. As a byproduct, I don't know that I remember that number, $1...

Pamela L. Saxton

It's like $1.50, $2 -- between $1.50, $2. Again, it's so dependent on the pricing on a byproduct basis.

Operator

We'll hear next from David Charles with Dundee Capital Markets.

David Charles - Dundee Capital Markets Inc., Research Division

Yes. My question my answered, it was on the grade at Thompson Creek.

Operator

And now we'll move to Oscar Cabrera with Merrill Lynch.

Oscar Cabrera - BofA Merrill Lynch, Research Division

Just wanted to start with housekeeping. Your fully diluted shares increased quite a bit quarter-over-quarter. Can you please remind us what was the trigger for that, so that we can monitor and won't have issues with different numbers of shares going forward?

Pamela L. Saxton

Yes. Sure. I can address that. It really is the -- at the end of the year, of course, we had a loss and so it's the tMEDS shares, about 47 million shares that were not included in the fully diluted shares because it was anti-dilutive. And so this quarter with the income, those shares are included again. So it really is the tMEDS shares.

Oscar Cabrera - BofA Merrill Lynch, Research Division

The tMEDS, okay. Great. Now your comments with regards to Thompson Creek Mine, it is my understanding that Sierra Gorda is running into delays. And so I just wanted to hear your thoughts in terms of -- you said you're looking at the molybdenum market and, to me, this is probably one of the most important issues in terms of oversupply that we're facing over the next couple of years. And so if -- is this the catalyst that you're looking for or is there anything else with regards to just going ahead with stripping at the Thompson Creek Mine?

Kevin Loughrey

Well, I think the catalyst we're looking for is really a combination of things. It's a sense of clearly of the totality of supply that will be available, but also the other side of that equation, which is demand. We need to see demand pickup in a sense that we'll be able to believe that it's sustainable over time. And that's what we've missed in the moly marketplace over the past year to 18 months. And I think that's an important piece of the puzzle as well. So yes, we are looking at supply possibilities and where we think that's headed, but at least equally importantly, and perhaps more so, is the demand side.

Oscar Cabrera - BofA Merrill Lynch, Research Division

Okay. That's helpful. And then with regards to Mt. Milligan, I believe that the first question you got with ramp up on the production, are there any -- in terms of getting gold into the gold stream perceived by your partner, are there any issues with ramp up? Are they expecting certain amounts on the after-commercial production or is that just as you produce and you'll be able to receive that and everything moves on?

Kevin Loughrey

Yes. It's the latter. One of the reasons that we chose this method of financing is for that factor that the Royal Gold is entitled to their percentage of the gold if and when it is produced. So if we don't produce, which won't happen, but if we don't produce they wouldn't be entitled to everything. And if we produce twice as much, which also won't happen, they'll be entitled to their percentage share of that. So what happens as it occurs, we are obviously very anxious for their sake and for ours to get the production up as quickly as possible. But that is the manner in which they are paid.

Oscar Cabrera - BofA Merrill Lynch, Research Division

Okay. That's helpful. And then lastly, in terms of -- you described the first 6 years of production at Mt. Milligan as being, on average, higher than the life of mine. Gold has a significant growth. Could you give us an idea of the profile or has that profile changed from the feasibility study of the company you bought from?

Kevin Loughrey

No. That haven't changed significantly. Very roughly speaking, the copper is much more consistent throughout the 22-year mine life in the 80, 80-plus million pounds per year, slightly higher in the first few years. It's the goal that changes. And this is very rough, but it's about 250,000, 260,000 ounces in the first 6 or 7 years, then it goes to the average about 195,000 ounces, then it goes down to about 140,000 or 150,000 ounces in the next -- in the final 7 years. So again, that's rough math, but that's about what the profile looks. Now having experienced a lot of these mines over the years, the one thing we know about that profile has turned out somewhat different than that when we actually get to it. We believe there's a great chance that, that mine life will increase. We've talked often about the number of opportunities we think there are to expand the reserve picture there for both copper and gold. But as it stands now, that's the profile that we are looking at.

Operator

We'll now move to a question from Kevin Kuzio with First Eagle Investment Management.

Kevin Kuzio

My question is regarding the working capital and needs for Mt. Milligan. And I think I understood from an earlier question that the $169 million cash cushion indicated on Slide 13 includes the working capital that would be needed there. If there's any more detail available, I guess, what I'm looking for is that number -- is the $169 million associated with end of year 2013?

Pamela L. Saxton

Yes. That's correct. It is at the end of 2013. And just a couple of comments on that. Included in the capital number for Mt. Milligan of $1.5 billion is $30 million of the first fills, spare parts and everything, as we start up the mine. And of course then, as you correctly stated in our forecast, cash balance at the end of the year, that does include additional working capital for the ongoing materials and supplies inventory and just the lag of when we produce the copper and sell it, copper and gold.

Kevin Kuzio

Okay. And then as you do ramp up over some -- it sounds like that it could be 2, 3 to 4 quarters approaching 100% -- is there a period where we would expect that project to be negative cash flow where -- just to pay the people and...

Pamela L. Saxton

No. No, in our projections, it's the first ramp up if you want to call it in the, really, in the fourth quarter of 2013. But then in 2014, it's positive cash flow as the thing ramps up.

Kevin Loughrey

We need to underscore that we haven't given, we've specifically not given guidance for Mt. Milligan for 2014. We think that's premature to do that when we haven't run a pound of copper, an ounce of gold through there yet. And so we want to make sure that we're not giving guidance here today, we're simply indicating what our expectations are. It could ramp up a little slower, a little faster, we'll just have to wait and see. So we have not giving guidance. We will do that as soon as we can. We hope at some point in 2013 we'll be able to give guidance for 2014.

Operator

We'll take a question from Jorge Beristain with Deutsche Bank.

Jorge M. Beristain - Deutsche Bank AG, Research Division

My question is regarding the startup of Mt. Milligan. Is there any type of insurance in place, either from the contract or in terms of indemnification or from an insurance company, in the event that the machine cannot work as promised?

Kevin Loughrey

There is no kind of insurance like that. We have general business interruption insurance, which has an exorbitantly high deductible. And I don't -- I can't predict whether that would apply here or not for a situation where we haven't yet started the operations. So generally speaking, the answer to your question would be no, that's not a risk we can insure.

Jorge M. Beristain - Deutsche Bank AG, Research Division

Okay. And so can you remind us again what exactly is the key date you're aiming for to achieve commercial production on the copper site?

Kevin Loughrey

We're saying we're going to achieve commercial production in the fourth quarter of this year.

Jorge M. Beristain - Deutsche Bank AG, Research Division

But you can't be more specific in terms of, December...

Kevin Loughrey

No. We have -- we've become more specifically -- prior to this, we've said we're going to start the mill in the third quarter. We're now saying, we're going to start the mill in August. So anticipating your very question, Jorge, we have said that we do it in August this year. But we want to give good guidance, and my sense was that to give a specific date for commercial production would not be giving good guidance because there are uncertainties in terms. And the uncertainty runs in both directions. It could start up perfectly and then reach commercial production very quickly or you could have issues as you try to run a new mill with thousands of parts and things can go wrong. So we're confident that we'll get it done in the fourth quarter, but we can't be any more specific than that.

Jorge M. Beristain - Deutsche Bank AG, Research Division

Okay. And just to recheck again, you had said earlier you expect the copper startup to go fairly smoothly and quickly. But just trying to understand if you're getting to the, say, the 65% range by the fourth quarter, how long do you think it would take to get to full 100%? Because someone had mentioned a year, which sounds a bit long, and I thought that was more related to the gold. So I was just trying to understand the latter of how you would view the gold operations ramping, and if or not those are defined within the copper achieving the commercial production because that's really the focus of the mill?

Kevin Loughrey

Yes. The commercial production is really described by a percentage of the throughput that goes through the mill. So it's unrelated to recovery as much it is to throughput at the mill. And your understanding is correct that it shouldn't take a year or anything close to a year for the copper production to ramp up. We anticipate that, that will ramp up more quickly, and that, as Pam said, that's kind of what these mills were designed to do. And so the copper production should come up pretty quickly. Again, without giving guidance as to what's going to happen in 2014, we think the gold will take longer than the copper. That's been the history of these mills as they've been started throughout the world. Could take as long as a year, could happen more quickly than that. But the copper, which should ramp up very quickly and be in full production pretty soon, the gold will take longer.

Jorge M. Beristain - Deutsche Bank AG, Research Division

And then lastly on the covenants, I mean we understand that you've had a lot of headroom raised in 2013. Do the covenants kind of come back on in 2014 in terms of net debt-to-EBITDA or are there any kind of covenants changes you could talk about?

Kevin Loughrey

There are no covenants left. The last -- the debt deals we have done has been specifically to get rid of the instrument that had the restrictive covenants, so we don't have covenants left.

Operator

We'll now hear from that Zach Zolnierz with GMP Securities.

Zachary Zolnierz

Just a few follow-ups. I guess, my first relates to the $79 million non-fixed cost. I was wondering if you could provide some more details on, specifically, what the non-fixed cost relates to?

Kevin Loughrey

You're talking about the Mt. Milligan expenditures to come, I presume.

Zachary Zolnierz

Exactly.

Kevin Loughrey

The fixed -- the non-fixed cost there represent primarily labor. Most of the materials we need of consequence have been purchased. There is clearly some material left to be purchased, electrical conduit, piping, things like that, but not big-ticket items. Those have been either purchased or committed for. Most of them actually are already there, purchased, paid for and installed. The non-fixed cost represent primarily labor, the cost of getting the final electrical, mechanical hookups completed. They are not fixed because they're a time contract based on the amount of time that people spend there. You can't pay them or fixed them in advance. We incur them as the work is done and pay them quickly. So that's the piece that's left and that's where the -- if there's a delay, then those costs continue on longer than they otherwise would, and that's the remaining level of uncertainty. So if you look at the overall project, you really see that the vast majority of the cost issues that we face are done. We've purchased the equipment, we've done the engineering, we paid for most of the equipment and it's on site. We have the cost -- the final cost to construct as the primary item that's left to be paid for, and that's where those $700 million worth of costs lie.

Zachary Zolnierz

That's very helpful. The second question relates to the net other cash use column that's $38 million. I believe that it's changed from the last presentation, presumably, maybe you had some sources of cash in the first quarter. But I'm wondering if the change there, going from a source to a use, is that largely just driven by the molybdenum price assumption?

Pamela L. Saxton

Yes. That's correct. As you noted in the footnote, we've brought down our forecasted moly price in that.

Zachary Zolnierz

And that's the impact?

Pamela L. Saxton

Yes.

Zachary Zolnierz

Third, relating to the offtakes for Milligan. Our understanding is you have 85% of production tied up for offtake. So what's the plan for the other 15%?

Kevin Loughrey

Well, we can -- we have the ability to increase the 3 we have, the 3 sources that we have for that. We can increase that as production grows. We wanted to leave some room there for the ability to either use another refiner if that was necessary and not to commit to much early. So we have the ability to go 100% pretty easily if need be.

Zachary Zolnierz

And then just another one on Langeloth. I think it was Slide 28, you showed in other operations expense line, about $25 million. I was wondering should we be thinking, in terms of Langeloth, is that a cash-generating facility on like a free cash flow basis at this point?

Kevin Loughrey

It's kind a -- Langeloth operates as almost as an adjunct of the Thompson Creek Mine. If Langeloth were located at Thompson Creek, we wouldn't speak about it individually the way we traditionally have spoken about Endako, which has a mill and a roaster located on site, and Langeloth is operated on site. So it's hard to answer the question is it a cash generator. Thompson Creek and Langeloth together are big cash generators for us. And that's Langeloth primary function is to treat the concentrates from Thompson Creek. In addition, we treat some other material there. As we mentioned now, we're treating the material from Endako there and we treat third-party material there, which we believe that we treat and charge on a profitable basis.

Zachary Zolnierz

Got it. And then this will just be my final question. But probably for you, Kevin, in regards to the CEO transition, if there's any update there or any updates on the timing. I mean, it might be a bit premature but if you had any comments there?

Kevin Loughrey

Sure. The CEO search is going well. There's a committee of the board that is dedicated to doing this and we've hired a firm to help us look. We have identified some candidates. There will be interviews taking place over the next month or 2 to get a shortlist of candidates. So I think we're probably looking at late third quarter, something of a guess, as the time we might have a candidate identified, maybe early in the fourth quarter. We're tracking a good group of highly qualified, interested candidates.

Operator

And now we'll hear from Gary Lampard with Canaccord Genuity.

Gary Lampard - Canaccord Genuity, Research Division

My first one, moly production from your own mine has been significantly higher than sales for, I think, it's about 3 quarters in a row now. And I just wanted to know if you could give us a bit of color about that. Is it due to demand weakness, such that if that demand weakness continues then you might actually have to pull back your moly production this year? Or is this inventory build actually is something you're deliberately doing?

Kevin Loughrey

I'm afraid it's more the former than the latter. The moly market, as you know, is largely, at least for us and for most of the primary producers, a matter of annual contract sales supplemented by a relatively small percentage of spot sales. Our contract sales are about what they -- we expect them to be in the 80% to 85% range. But the spot market, as one would expect in a very difficult moly market, the spot market is fairly moribund right now. And consequently, there isn't a lot of spot activity and we're not selling actively into a spot market if our sales will be a negative factor in the marketplace. So we're not voluntarily building this. The question of how to deal with it if it continues on, is one that we'll face at the time. But right now, we have no plans to curtail the moly production.

Gary Lampard - Canaccord Genuity, Research Division

Okay. And just a quick second one, when should we expect to see a reserve update from Mt. Milligan? You point to the blue sky from the low price assumptions used in the initial reserve, so just wondering when we can see an update on that?

Kevin Loughrey

We will do that, but it's not going to be in the immediate future. I don't think it is going to be this year. It's a matter of prioritization. And right now, the prioritization is getting it done, getting it running effectively. All of our assets are being deployed to that end. And I think sometime next year, we'll put out new reserve numbers. Just let me finalize that question. One of the things that happens when you do that is that you expand the mine life. So traditionally, if you were going to add reserves, you'd say our mine life would go from 22 and if the current resource were turned into a reserve now, you'd probably have 29- or 30-year mine life, but it doesn't change the annual production. So in terms of priority, the first thing for us to do is to get the mine going, then we'll look at the reserve picture and see if we can expand that mine life, which I think is highly possible.

Operator

And now we'll hear from Pierre Vaillancourt with Macquarie.

Pierre D. Vaillancourt - Macquarie Research

Just a question if -- am I to assume that if the moly price stays where it is right now we can expect to see Thompson Creek Mine suspension of operations there?

Kevin Loughrey

Well, we haven't obviously made that decision yet. Clearly, the decision is highly price dependent, and it's also dependent upon a view of the market going forward, so it's not just a question of price. So I could foresee a situation where the market price was not higher, yet for a variety of reasons we believe the future look bright and we continue -- we'd resume stripping and continue operations. If nothing changed, if the market doesn't look any better, if the price doesn't improve, then, yes, I think we would make the decision to not resume stripping. So it's dependent upon not only the price at the moment, but our view of the price going forward. And that's something that we can't predict. We just have to watch the market and see.

Pierre D. Vaillancourt - Macquarie Research

Well, along those lines then, what moly price would give you enough comfort to keep going?

Kevin Loughrey

Yes. That's a fair question, but a hard one to answer, because I said it's dependent upon a sense of not only what the moly price is but what the moly price will be and what it can be -- sustains to be into the future. So I don't have that number there. Let's say, it's probably higher than today's price.

Pierre D. Vaillancourt - Macquarie Research

Sure. So let's just say it is suspended, how long does it take to put something like this back into production and resume stripping activities?

Kevin Loughrey

Well, yes, that's a good question. Let me describe that process a little bit for you, because there are a lot of factors that go into it, one of which is, how long the mine is down. The longer it's down, usually, the longer it takes to get it back. So as we said earlier, if production -- if we would start stripping in August, let's say, of this year, that would be enough time and that implies something like a 16- to 18-month time frame to perform the stripping. And that's true if we're operating the mine. If we're not operating the mine, and so let's say that we didn't resume the stripping and the mine ran out of ore in January of 2015 and then we resume stripping, we could probably do the stripping a little bit quicker then because all assets would be deployed to stripping and none to mining. So that's roughly a year. But then as it's down and as equipment is idled, and the longer it's idle then you have to take it -- you put that equipment back in place. You may have to do some other things to get the mine ready to, go and you've got to employ a workforce, which takes some time. So a year would be optimistic and it could take longer than that depending upon how long it's been.

Pierre D. Vaillancourt - Macquarie Research

Okay. So what are the carrying costs then while you're down?

Kevin Loughrey

Somewhere in the $7 million to $8 million annual basis.

Pierre D. Vaillancourt - Macquarie Research

So if it does get suspended, what's the impact on Langeloth? Clearly, it's a big supplier to Langeloth. Does that keep on going? Or do you have the ability to shrink that down a little bit as well? Or do you shut it down entirely? How does that work?

Kevin Loughrey

Well, we can operate Langeloth profitably at a much lower number than its full capacity of 35 million pounds of molybdenum. We also have a long history at Langeloth of buying third-party material and roasting it at Langeloth and selling it for our own account or toll converting material for other producers for a tolling fee. And we've also done something we called roasted metal products there. We take spent catalyst from producers of that, roast it to get the contained metal and give that material back to the producers. So there are quite a few things that we can do in Langeloth and we think we'll have the ability to do that. As we have said, we can take the Endako material and roast it there. So there are lot of kind of combinations, if you will, that we can experiment with to get the best mix of material at Langeloth. So we view Langeloth as a very important operation when it can stand on its own and generate income. And so our intent at the moment would be to keep it at Langeloth and to keep it open. And then one of the reasons we want to do that is not only because we can generate some income with it, but because we believe that even at shut down, the Thompson Creek Mine is a very important asset for us. I believe at that point, it's easy to say that, that the Thompson Creek Mine would be the -- if it were shut down, we would then look at it as the moly asset, which would be the easiest and cheapest to bring back into the market. If you look at the price of putting a new moly mine together, clearly, you're talking today about $1 billion to $1.5 billion. For $100 million plus, we could bring Thompson Creek back online and have an existing mine, existing infrastructure, a full fleet of mining equipment and a very efficient mill ready to go. So in order to make sure that that's available to us, having Langeloth available, enhances that case. And so we want to try to keep Langeloth open as a means, not only of generating income from Langeloth itself, as but a means of enhancing the value of the Thompson Creek Mine.

Pierre D. Vaillancourt - Macquarie Research

Okay. Great. And lastly, on Mt. Milligan, so you're saying that gold takes the better part of the year to get up to full capacity, is that right, the gold production, that is?

Kevin Loughrey

Yes. And we have to say that's the best number available. It's not a precise prediction about how long it's going to take. It shouldn't take any longer than that. But the point is, it will take longer than the copper will.

Pierre D. Vaillancourt - Macquarie Research

Okay. And just remind me, and the copper, to get to full -- like you're in commercial production in Q4 and full capacity by when?

Kevin Loughrey

Well, we'll give you a better answer to that at our next conference call when we've, hopefully, turn the thing on and have a little sense of it. But I think, the sense is that it's a matter of months to bring the copper up.

Operator

And we'll hear from Matt Heckler with Whippoorwill.

Matt Heckler

I just want to, I guess, ask what you've already talked about as far as the cadence of the copper and the gold production. Because I'm just looking at, and I know you haven't given guidance, but if it's going to take you until the end of 2014 to get any meaningful gold out of Mt. Milligan, so all you'll have is something less than run rate copper, just taking your $280 million of existing cash costs, it seems like, best case scenario, the best you could do in 2014 at Mt. Milligan is cover those cash costs with copper revenues. If I just take 85 million pounds of copper, which you won't produce based on it would take you a while to ramp production up at, call it, $3.50 per pound, you just barely cover your cash cost. So it still connects to saying Mt. Milligan almost has to be EBITDA neutral to only barely positive for 2014. What am I missing, generally speaking?

Kevin Loughrey

Well, I think a couple of things. First of all, with the relation to the copper production, if we start the mill as we expect in the August of 2013 and it takes several months to ramp up the copper production, we will have very meaningful copper production in 2013. And by 2014, we should be very close to the full run rate for the copper production. And when Pam said it could take up to a year to get the gold, that's not to get any gold. So your question said, you won't have any meaningful gold production, and that's not the case. We will have profitable gold production almost from the inception. It's the length of time it takes to get to the full run rate of 260,000 ounces of gold per year, and that could take some time, but we'll have gold credit immediately as soon as we turn the mill on because there's gold in every pound of ore that we produce. So I think you're understating probably the copper production and the gold production when you make that calculation. And our projections, and they're not guidance, but our projection is we will be significantly cash positive at Mt. Milligan in 2014.

Matt Heckler

Okay. That's helpful. Can I switch now to Endako?

Kevin Loughrey

Switch away.

Matt Heckler

I guess, I'm just scratching my head looking at Endako, and I'm wondering -- assuming moly doesn't really recover meaningfully from the trading range in the same area that we're looking at now, $10, $11, $12 a pound there. Tell me how I should be thinking about why Endako makes sense in the longer run? I mean, how are you going to actually get cash costs to a point where there's any meaningful cash flow that comes out of Endako? I think the guidance that I've got in my notes for 2014 is, what, $10.50 a pound. I mean, what am I missing strategically? Why is Endako even definitely the asset you're keeping running when it's unclear that it ever becomes terrible profitable in today's moly pricing environment?

Kevin Loughrey

Well, 2 things there. One is, we think we'll see significant improvement, and I'll talk about that in a minute. And we do -- we -- it's clear that we need a better moly price than we're seeing now and we expect that to occur over time. But primarily, the answer to your question is we expect considerably better performance from Endako. And let me just step back a minute to talk about that. As we talked about on these calls in the past, the cost at these mines are relatively fixed over time. So it's going to costs x to run the mine and it costs x to run the mine almost without regard to what you -- how much you produce. And so when you have a period, as Endako's had, of some struggles on the production side, that x remains the same, is divided among the smaller number of pounds and your unit cash costs are high. And that's clearly what we've experienced from Endako since the time of the initiation of the new mill in January of 2012. This quarter, we started to see some very meaningful improvement, and that's continued on. We had 2 issues, one, that we were in low grade, in some low-grade stockpiled material, so that even under grade production, they're simply isn't -- there aren't enough moly units there to get the production where we want to be. Secondly, as we've discussed before, we have the issue of water availability, which we have solved and won't recur in subsequent years. And so when you say that, that water issue will go away, that it will go back into the ore, the mined ore where the grade will be higher, and we're seeing significant improvement in the throughput and the recovery rates at the mill, then we think we have the real opportunity to move those costs meaningfully lower and to make Endako profitable and cash generative even at these lower moly prices. So I understand your question. The question makes sense if you look at the numbers, but we know the asset, we know the people running the asset, we believe we have a very good chance and that we will operate that at lower cash costs.

Matt Heckler

Okay. That's helpful. But then how should I think about -- what are the real levers there? Because I appreciate that there has been moving parts that's kept you from revealing the true cash cost potential of that business. But with 2014 cash cost guidance of $10.50, I assumed that, that was already having anniversaried some of these near-term operational issues. What's the right bogey then? How should I be thinking about what's the real cash cost potential at Endako?

Kevin Loughrey

The cash cost potential, I believe, there is clearly in the $8 to $9 range. I think that if we produce the way we think we can produce that, that will happen. We have given guidance based upon what we think is the best estimate going forward. What the cash costs could be. That's not to say we're not striving every day for cash cost considerably lower than that. So we do -- we have a lot of moving parts to be back into the ore. We have a new -- we've put enhancements into the mill in attempt to get higher recovery. We've seen some important benefits from that. And we are at a stage now where we think, as the weather improves and we get back into the mill, we'll be able to go through the higher throughput, which gives us more pounds. Well, as you say, you described it well, a lot of moving parts. Our guidance is what we realistically believe we can achieve and we're always working to do better.

Matt Heckler

And one last thing, and I apologize, then I'll get off. But the 2014 guidance, I think, is a $10.50 on production and $7.50, I think, is the guidance for 2013. What's the real volume potential there and is that the biggest lever to getting to that cash cost per pound of $8 to $9?

Kevin Loughrey

Yes. The biggest lever is -- well, you're right, getting the maximum production. I said earlier, the overall costs at Endako pretty much don't change, whether it produced 10 million pounds or 16 million pounds. So 15 million to 16 million pounds total mine production, of which our share is 75% is what's doable there.

Operator

We'll move to a question from Craig Miller with TD Securities.

Craig Miller - TD Securities Equity Research

Pierre asked my first question on Langeloth's future with Thompson Creek shut down. But my second question is, you had a very large unrealized ForEx charge this quarter. Is that just from operations? It seems awfully high.

Pamela L. Saxton

This is Pam. We -- as you can understand, we have a lot of movement of cash to fund the Mt. Milligan operation and so we have these intercompany notes that are in place that, frankly, is being used from a tax-planning standpoint. And so those notes attract foreign exchange gains and losses. Again, they're non-cash, they're unrealized and it really is on those intercompany notes.

Craig Miller - TD Securities Equity Research

But did you take that out when you calculated an adjusted earnings number?

Pamela L. Saxton

No. We haven't, at this point, because we will continue to assess that. But we haven't taken it out because those things will continue to recur until Mt. Milligan is in operation and we begin to repay those intercompany notes, which will give us some tax benefits going forward.

Operator

And now we'll take a question from Chris Melendez [ph] with Lucidus Capital.

Unknown Analyst

My question had to do with the ramp up, again, as other people were asking. I'm trying to get the level of EBITDA that you're looking for in 2014 from Mt. Milligan. I know you said significant, but can you give any additional color onto that?

Kevin Loughrey

It's hard to be more precise, and I apologize for that. But we've been cautious. I'm trying to give guidance that we think is something that everyone can rely upon. So I will go back and say that I think we are looking at a year in 2014 where we should get very close to full copper production, and then the gold production will be meaningful but less than the full 250,000 or 260,000 ounces, which we think the mine will produce on a continuing basis going forward. What we're hoping to do is that with each quarter give more precision as we do this, and we will do that as best and as quickly as we can. But right now, it's hard to be more precise than that without running the risk of being inaccurate.

Operator

[Operator Instructions] We'll move to a question from Steve Bristo with RBC Capital Markets.

Steve Bristo - RBC Capital Markets, LLC, Research Division

Just going back to a discussion of Thompson Creek Mine versus Endako. It looks like Thompson Creek is much lower cost, regardless, even below where your target is at for Endako. Wondering why you're considering mothballing Thompson Creek and trying to keep moving forward with Endako?

Kevin Loughrey

I knew that question would come up. We asked ourselves that question some time. It's a very fair question. The Thompson Creek Mine, like most mines, goes through something of a cycle. And that cycle is that as you start out in any one phase, you experience peripheral ore of a lower grade, which results in higher unit costs. Then as you move through that portion of the ore body, you get into higher-grade material and get into, therefore, lower costs. We are now at the point of Thompson Creek and will be for some time. We're at the better ore grade, getting higher production, generating lower costs as a result. In 2015, we would be starting Phase 8, so we would be at a much lower grade, get much lower production, and we would have to pay $100 million to get there. So unlike Endako, where you don't have a massive stripping program but more or less a continuous stripping program that is more sequenced on an even basis, you have these large surges of costs at Thompson Creek that you have to overcome to get to what will be a much lower production year than we're seeing there now. And so given the costs situation that we faced, the question was, did it make sense to spend that $100 million at Thompson Creek to get to what we think will be a year much different than we're experiencing there now? And the answer to that question in today's moly market was, no, we should hold off on that expenditure until we got there. So that, in turn, had the effect of making this year and next year look even better than they would have looked, and they would have looked good, but they looked low. So these costs are somewhat artificially low because we're not spending the money we would ordinarily spend, and they would get higher yet because we would be in a less advantageous part of the ore body and we would have to spend $100 million to get there. So it's a very valid question and it's an issue we've struggled with, but we think from a standpoint of proper cash management going forward and given the fact that we believe that Endako's cost will continue to come down, we think it was the right decision.

Steve Bristo - RBC Capital Markets, LLC, Research Division

Okay. And then just moving on to -- well, actually, staying with Endako, I know you have the problem with the tailings dam freezing at Endako. I'm just wondering what was the difference between that and previous years, because you always sort of have the same freezing temperatures in the winters there?

Kevin Loughrey

Yes. We operated quite a bit differently. We used to have the ability to move back and forth between 2 tailings dams that -- but one of those tailings dams essentially got filled and so the ability to move back and forth no longer existed. And then I would have to say we probably didn't -- we didn't anticipate that as well as we could have, and the impact that would have. And so as we deposited more tailings into the one tailings dam that was unavailable, it created a different situation with respect to the accessibility to the processed water that we needed, and we simply didn't have enough water. And so we have now recognized that. We are managing that tailings differently, so we'll have sufficient free borrowed water in subsequent winters, and that issue should be behind us. You're right, your assumption is correct. The weather didn't change. Our ability to manage the tailings was different because of the unavailability of the second tailings disposal facility.

Steve Bristo - RBC Capital Markets, LLC, Research Division

And then lastly at Mt. Milligan. What exactly is the working capital requirements you have to build up there?

Pamela L. Saxton

We haven't given any guidance on that. But as I've mentioned before in the capital number for the startup, we have $30 million there for first fills and commissioning in part.

Steve Bristo - RBC Capital Markets, LLC, Research Division

Right. But you said that working capital is part of that $30 million and that others, so...

Pamela L. Saxton

That's correct.

Steve Bristo - RBC Capital Markets, LLC, Research Division

So what portion of that in the other is working capital for Mt. Milligan, could you put more light on that?

Pamela L. Saxton

No. We're really not giving specifics on that on our forecast.

Operator

And at this time, we have no further questions. So I'd like to turn the call back over to Mr. Loughrey for any additional or closing remarks.

Kevin Loughrey

All right. Well, thank you very much. We really appreciate all the interest and everyone's attendance on the call. We're looking forward to our next call on August where, hopefully, we'll be either already had started the Mt. Milligan mill or be very close to it, and we look forward to speaking with you then. Thanks very much.

Operator

Thank you, sir. That does conclude today's conference call. We do thank you all for your participation.

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