Thompson Creek Raises Production Guidance; Pullback Is Buy Opportunity

In an article dated June 7, 2009, based on the increasing demand for molybdenum, I predicted that Thompson Creek Metals Company (TC) would announce actual molybdenum production near the high end of its 2009 forecast. Just a day later, on June 8, Thompson Creek stated in a press release that it was making operational improvements and now expected to produce between 22 million and 26 million pounds of molybdenum, revised from a previous estimate of 20 to 24 million pounds. Further, it reduced its 2009 cash production estimate from a previous guidance of $6.25 to $7.25 a pound to a revised estimate of $5.75 to $7 a pound. It should be noted that the production cost estimates were reduced once before on May 7, 2009 when TC declared its 1^st quarter results.

Based on this update from TC, I have revised by estimates for the current financial year. Assuming an average molybdenum price of $10 a pound for the rest of the financial year, a production of 24 million pounds and cash production costs of $6.5 a pound, I now expect Thompson Creek to report an EPS of $0.34. My 2010 EPS estimate remains unchanged ($1.10).

As mentioned in my previous article, my current price target for TC is $13 a share. With TC trading at approximately $12 a share, I would not add to my position at these levels. During the last month, the stock price has increased by approximately 54%. With the projected weakness in the markets (some analysts predict a 10% correction), TC can be expected to give back some gains and I see such a pullback as a buying opportunity. At these levels, I am downgrading my rating of TC from BUY to HOLD.

Disclosure: Long TC

Comments

[Mills17:]

Nadeeem,
You seem very optimistic about TC's 2009 performance (even predicting a higher EPS than most of the major analysts), but why do you see 2010 as such a big loss? What will be different?

Mills

Jun 17 05:02 PM

[Nadeem Moulvi:]

Sorry about the confusion. I dont expect TC to report a lpss next year. I project a 2010 EPS of $1.10.

Thanks,
Nadeem

On Jun 17 05:02 PM Mills17 wrote:

> Nadeeem,
> You seem very optimistic about TC's 2009 performance (even predicting
> a higher EPS than most of the major analysts), but why do you see
> 2010 as such a big loss? What will be different?
>
> Mills

Jun 17 11:44 PM

[Mills17:]

Nadeem,
Thompson Creek releases Q3 earnings tomorrow morning. Any thoughts on what you expect to see in the report?

Mills

Nov 05 01:20 PM