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Thompson Creek Metals (NYSE:TC)

2013 Earnings Call

February 21, 2014 11:00 am ET

Executives

Pamela Solly - Director of Investor Relations and Corporate Responsibility

Jacques Perron - Chief Executive Officer

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

Mark A. Wilson - Chief Commercial Officer and Executive Vice President

S. Scott Shellhaas - President and Chief Operating Officer

Analysts

Brett M. Levy - Jefferies LLC, Fixed Income Research

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

Tom Meyer - CIBC World Markets Inc., Research Division

Orest Wowkodaw - Scotiabank Global Banking and Markets, Research Division

Steve Bristo - RBC Capital Markets, LLC, Research Division

Craig Miller - TD Securities Equity Research

Jorge M. Beristain - Deutsche Bank AG, Research Division

Zachary Zolnierz

Oscar Cabrera - BofA Merrill Lynch, Research Division

Gary Lampard - Canaccord Genuity, Research Division

Daniel Kecskes - Global Credit Advisers, LLC

Brian MacArthur - UBS Investment Bank, Research Division

Operator

Good day, and welcome to the Thompson Creek Metals Company 2013 Financial Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Pamela Solly, Director of Investor Relations. Please go ahead.

Pamela Solly

Thank you, operator. Good morning, everyone, and welcome to the Thompson Creek Metals Company 2013 Financial Results Conference Call. Today's call will take approximately 20 minutes, and we will then open the call to questions and answers.

Before we begin, I would like to caution you that we expect to make forward-looking statements on this call. Please be aware that actual results may differ materially from these forward-looking statements due to the risk of -- future risks and uncertainties. We refer you to our filings with the SEC and SEDAR for a discussion of factors that could cause our actual results to differ materially from those in our forward-looking statements. Today -- today's agenda will be as follows: Jacques Perron will provide the 2013 overview; Pam Saxton, will provide the fourth quarter and full year financial results; Mark Wilson will provide sales summary; Scott Shellhaas, will provide the operation summary; Jacques Perron will then provide closing remarks. Following Jacques' remarks, we will open the call for questions and answers. On the call with us this morning, we have Jacques Perron, Chief Executive Officer and Director.

Jacques Perron

Good morning, everyone. This is Jacques Perron.

Pamela Solly

Pam Saxton, Executive Vice President and Chief Financial Officer.

Pamela L. Saxton

Good morning, everyone. This is Pam Saxton.

Pamela Solly

Mark Wilson, Executive Vice President and Chief Commercial Officer.

Mark A. Wilson

Good morning. This is Mark Wilson.

Pamela Solly

And Scott Shellhaas, President and Chief Operating Officer.

S. Scott Shellhaas

Hello, everyone. This is Scott Shellhaas.

Pamela Solly

I'll now turn the call over to Jacques.

Jacques Perron

Thank you, Pam. Welcome, everyone, and thank you for joining us this morning. I would like to begin with the exciting news that on February 18, we reached commercial production at our Mt. Milligan Mine. As a reminder, the company's definition of commercial production is 60% of design throughput or 36,000 tonnes per day for 30 days. This is a great achievement for our company, and I would like to thank our employees for their hard work and dedication in achieving this goal.

2013 was a year of significant milestones for our company. In August, we completed the construction of Mt. Milligan Mine for a total capital expenditure of CAD 1.57 billion. In November, we shipped our first load of concentrate and recorded our first copper and gold sales. We experienced continued improvements at our molybdenum operations with increased production and significantly decreased cash cost and achieved design capacity at the Endako mill.

As expected, our fourth quarter financial results were negatively impacted as a result of Mt. Milligan revenue and cost being reflected in operating income as we are required by U.S. GAAP, rather than in start-up cost. For those who had the time to scrutinize our 10-K, we have -- you have noticed that we unfortunately have to report a material weakness in relation to Mt. Milligan as of December 31, 2013. I want to remind everyone that Mt. Milligan just recently started operations and a number of procedures still need to be fully implemented. However, we completed the necessary procedures in January and February to ensure that our financial statements, as of December 31, are materially correct. In addition, we had 2 pretax noncash write-downs in the fourth quarter, which Pam Saxton will discuss in a moment.

Management has made the decision to put the TC Mine on care and maintenance when Phase 8 is completed, which is expected to be in the fourth quarter of 2014. Nevertheless, we will continue to evaluate potential economically viable options for Phase 8 and Thompson Creek Mine. Scott will talk more about that in later in the call. And finally, we finished the year with positive operating cash flow. I will now turn the call over to Pam Saxton to review the 2013 financial results. Pam?

Pamela L. Saxton

Thank you, Jacques. In the fourth quarter of 2013, we generated revenue of $117 million, up 18% compared to the fourth quarter of 2012. The increase in revenue was driven by the addition of copper and gold revenues from Mt. Milligan Mine and higher molybdenum sales volumes, partially offset by lower average realized molybdenum sales prices.

For the quarter, we had an operating loss of $214 million, a net loss of $211 million or $1.24 per diluted share, and used $35 million of cash from operation. The net loss for the fourth quarter was primarily the result of a $195 million pretax noncash write-down of the property plant and equipment assets and materials and supplies inventory at the Thompson Creek and Endako Mine.

We also had negative operating margins from Mt. Milligan due to the start up. $23 million of interest expense as a result of significantly reduced capitalized interest due to the Mt. Milligan project completion, as well as noncash foreign currency losses of $41 million on intercompany notes. The net loss was partially offset by a consolidated income and mining tax benefit of $66 million and higher molybdenum sales volumes. Non-GAAP adjusted net loss for the fourth quarter, excluding the asset impairments and noncash foreign exchange losses net of tax was $29 million or $0.17 per diluted share compared to an adjusted net loss for the current year quarter of $12 million or $0.07 per diluted share.

For the year ended December 31, 2013, we generated revenue of $434 million, up 8% compared to 2012. The increase in revenue was driven again by the addition of copper gold revenue from the Mt. Milligan mine and higher molybdenum sales volumes, partially offset by lower average realized molybdenum sales prices.

For the year ended December 31, 2013, we had an operating loss of $175 million, a net loss of $215 million or $1.26 per diluted share, and we generated cash flow from operations of $45 million. The net loss for the year was also the result of the $195 million pretax noncash asset impairments, negative operating margins from Mt. Milligan due to the start-up, and $71 million of noncash foreign currency losses, and the $23 million of interest expense as discussed previously.

The net loss was partially offset by a consolidated income and mining tax benefit of $64 million and lower moly operating expenses. The non-GAAP adjusted net loss for the year ended December 31 was $5 million or $0.03 per diluted share, again, excluding the asset impairments and noncash foreign exchange losses net of tax effects. We ended the year with approximately $234 million of cash, $315 million of working capital and approximately $1 million of debt.

As a result of management's discussion to put TC Mine on care and maintenance, once they Stage 7 ore is completed, the company recorded a pretax noncash write-down of Thompson Creek's property plant and equipment assets and materials and supplies inventories of $129 million, representing a write-down to the asset's estimated fair value as of December 31.

During the fourth quarter of 2013, the company revised the proven and probable reserves for both of its moly mines using a $10 per pound moly oxide price, which resulted in a significant reduction in reserves at the Endako Mine. Scott will talk further about this in a moment.

As a result of this, the company recognized a pretax noncash property plant and equipment and materials supplies inventory write-down of $65 million, which represents the company's 75% share of the Endako Mine asset's estimated fair value as of December 31, 2013. Cash capital expenditures for the year ended December 31, 2013 were $429 million, comprised of $389 million for the construction and development of the Mt. Milligan Mine; $18 million for the construction of the Mt. Milligan permanent operations residence; $12 million from Mt. Milligan operating capital; and $10 million of operating capital cost for all of our other operations combined.

We have provided 2014 production and cash cost guidance as you will see on Slide 11. We currently estimate copper and gold concentrate production of 135,000 to 150,000 wet tonnes or 120,000 or 140,000 dry tonnes; copper payable production of 65 million to 75 million pounds; gold payable production of 165,000 to 175,000 ounces; copper unit cash cost, on a by product basis, of $1.55 to $1.70 per pound; total estimated 2014 moly production of 24 million to 28 million pounds, at an average cash cost of approximately $6.50 to $7.75 per pound.

Our cash capital expenditure guidance for 2014, as shown on Slide 12, is approximately $60 million plus or minus 10%. It is comprised of $20 million for the Mt. Milligan permanent operations residence, $30 million for Mt. Milligan operations and $10 million for all of our other operations.

Again, all of these numbers are plus or minus 10%. Additionally, we had $22 million of accruals for Mt. Milligan capital as of 12/31/13, that will be paid in 2014. As the ramp-up of Mt. Milligan continues through 2014, we expect that our estimated cash balance during 2014 will not decline below $75 million to $100 million. At this time, I will turn the presentation over to Mark Wilson, who will provide the sales summary.

Mark A. Wilson

Thank you, Pam. I have 2 slides to update you on the sales completed during the fourth quarter for both molybdenum and copper gold concentrates from Mt. Milligan.

In the fourth quarter of 2013, our molybdenum sales were very strong with our selling 9.7 million pounds from our 2 mines and from the molybdenum that we purchased as concentrate, processed at Langeloth and sold as finished product. While we sold an equivalent amount of product during the fourth quarter as we did during the second quarter, the revenue realized in the fourth quarter of $97.7 million was substantially lower than the $112 million in the second quarter, owing to the lower average price of $10.11 per pound realized in the fourth quarter, down from $11.60 per pound during the second quarter.

For the year, the molybdenum sales generated approximately $400 million in revenue on sales of 36.5 million pounds. Except for the price of molybdenum, which averaged $10.97 per pound for the company, it was a fairly strong sales year for us with significant volume increases in all of our major markets.

Turning to our copper and gold concentrate from Mt. Milligan. We were very pleased to realize our first sale of product this past November. Our first shipment was just over 5,000 dry metric tonnes, where from now on, we expect to ship in 10,000 dry metric tonne increments. We sold 2.8 million pounds of copper and 5,541 ounces of gold in our first shipment. This resulted in sales revenue of $8.7 million from copper and $5.6 million from gold. Note the average gold realization of $1,006 per ounce, reflected the lower price sale of gold to Royal Gold for their 52.25% of our gold priced at $435 per ounce.

We completed our second shipment in the second half of January, which, based on preliminary shipping data, was for 10,066 dry metric tonnes of concentrate, containing 5.5 million pounds of payable copper and 10,475 ounces of payable gold. We have also scheduled shipments for similar concentrate volumes in each of February and March.

Finally, we can report that our concentrate grades for both copper and gold are as expected, and our concentrates are very clean with no penalty elements. And with that, I turn the presentation over to Scott Shellhaas.

S. Scott Shellhaas

Thank you, Mark. I'll begin with our safety record, which is always a very important aspect of our business.

For 2013, our company's All Incident Recordable Rate was 2.48, which was slightly higher than the current U.S. industry average of 2.1. Safety is our #1 priority and we are working very closely with all of our sites to improve our safety performance.

Moving on to our operating statistics. Our payable copper production for the fourth quarter of 2013 was 9.3 million pounds. Payable copper production for the year ended December 31, 2013, was 10.4 million pounds, with unit cash cost on a by product basis of $7.76 per pound. Payable gold production for the fourth quarter of 2013 was 18,446 ounces; payable gold production for the year ended December 31, 2013, was 20,374 ounces.

Molybdenum production for the fourth quarter of 2013 was 7.2 million pounds, with an average cash cost of $6.91 per pound. For the year ended December 31, 2013, our mines produced a total of 29.9 million pounds of molybdenum with an average cash cost of $6.49 per pound.

For the year, from our mines, we sold 31.5 million pounds of molybdenum at an average realized sales price of $10.97 per pound. As a reminder, average cash cost is a non-GAAP measure, and we've included a reconciliation to production cost at the end of this presentation.

Looking at our molybdenum operations for the fourth quarter of 2013, the Thompson Creek Mine produced 4.8 million pounds of molybdenum at a cash cost of $4.69 per pound. And for the year, produced 20.9 million pounds at a cash cost of $4.57 per pound.

For the fourth quarter of 2013, our share of the Endako Mine production was 2.4 million pounds of molybdenum at a cash cost of $11.44 per pound. And for the year, 9.1 million pounds at a cash cost of $10.93 per pound.

As mentioned earlier, management has made the decision to put the Thompson Creek Mine on care and maintenance at the end of this year. Once the processing of Phase 7 ore is complete, we will continue to evaluate potential economically viable options for Phase 8.

2013 was a year of transition for our company. With the completion of Mt. Milligan Mine, we have moved from a pure molybdenum producer to a diversified producer with the addition of copper and gold. Mt. Milligan milestones are shown on Slide 23.

Looking at the ramp-up of Mt. Milligan and as Jacques mentioned earlier, we are pleased to announce that we have reached commercial production at Mt. Milligan, and we continue to see steady improvements. Designed throughput as shown on Slide 24 is 60,000 tonnes per day, and you can see the steady ramp-up to commercial production over the past 6 months.

Slide 25 reflects the ramp-up of tonnes per operating hour and mill availability. Our current mill availability is 92% and our average tonne per operating hour through February 18 is 1,650, which, again, is steadily moving towards the design of 2,750 tonnes per hour.

We are very pleased with our recoveries to date. As you can see on Slide 26, design recovery for copper is 84%, and we are currently at about 82%. Design recovery for gold is 71%, and we are currently at 63%. These results are above our expected ramp-up schedule.

Turning to the company's reserves. During the fourth quarter of 2013 the company revised the proven and probable reserves for both of its molybdenum mines using a $10 per pound molybdenum oxide price. This resulted in a significant reduction in reserves at the Endako Mine and the pretax noncash write-down that Pam talked about earlier. Our current proven and probable reserves include approximately 2.1 billion pounds of copper; 6 million ounces of gold; and 198 million pounds of molybdenum. I'll now turn the call back over to Jacques.

Jacques Perron

Thank you, Scott. So although we have seen improvement in our moly operations, the market still shows no signs of improving in the near term. We will continue to work hard to optimize our molybdenum operations, and continue to assess options for Phase 8 and Thompson Creek Mine.

As expected, our fourth quarter financial results were negatively impacted as a result of the total Mt. Milligan operating cost being included in operating expenses. We expect this to occur again, in the first quarter of 2014, but anticipate to see improvement in our financial results by the second half of the year. We are pleased with the Mt. Milligan ramp-up progress to date. Recoveries continue to be better than expected, and we are seeing significant operational improvement since putting the new senior operations team in place.

We understand there will be challenges along the way until we reach design capacity but we fully expect Mt. Milligan to be a world-class operation overtime. This ends our formal presentation. And I will now open the call for questions. Angela, could you please review the instructions?

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Brett Levy with Jefferies.

Brett M. Levy - Jefferies LLC, Fixed Income Research

Can you just sort of give us an update in terms of when you expect to be 100% of full production? And then on a previous presentation, you guys had mentioned that, while the ore grades have been good at Mt. Milligan, that you'd redeployed a certain amount of management talent to that mine and that you were having some difficulty with the processing end of the business that needed to be worked out. Can you talk about sort of the people you've redeployed and the progress on the processing?

S. Scott Shellhaas

Brett, this is Scott Shellhaas, I'll be happy to answer those questions. First of all, with these big milling facilities, you expect a ramp-up of anywhere between 18 and 36 months. We are expecting, given the current state of the ramp-up at Mt. Milligan, to be at design for the facility in 2015. As far as the deployment of new management at the mine, of course, Mt. Milligan our -- is one of our, if not, our core asset, and we want to be sure that we have all of our top operational expertise totally focused on that operation. And that was the reason we decided to move some of our senior operating management to Mt. Milligan to continue with the ramp-up schedule.

Really, you mentioned processing and mechanical issues at Mt. Milligan. I would say that we haven't seen anything unusual in one of -- in a ramp-up of this nature. We recognize when we brought Mt. Milligan online that we would have certain optimization work to do and tweaking with -- from the front to the back of the plant. And really, that's what we're in the process of doing today.

Brett M. Levy - Jefferies LLC, Fixed Income Research

Just a -- you mentioned at design in 2015, can you give a rough sense, obviously, at Feb. 18, you've gotten to 60% of full design capacity. You mentioned second quarter would be better, second half would be better still. Can you just sort of give a rough sense like, where are you guys targeting? Maybe like 70% in the second quarter or 80% in the third, 90% in the fourth? At what point in 2015 do you want to get all the way up to 100%? If you can give us a little bit more clarity in terms of what the ramp-up speed and timeline is.

S. Scott Shellhaas

Sure, Brett. It really, we kind of look at this plant in segments, so we look at the mine and you go from mine to mill. And we're looking at a few optimization efforts in the mine, but the mine basically has been operating as expected. No surprises in the resource model. Really no surprises in the amount of tonnes we can move there. If you look then at the grinding section of the operation, mill throughput, we continue to optimize. We're doing some minor modifications of such things as the screens and the grates, which you would expect in one of these big mills. And we're really learning how to operate this big grinding facility, working out the gremlins and the electrical and instrumentation around one of these high-tech operations. And then really, the tail-end of the plant, there's optimization work regarding the mass flow through the flotation circuit. So I guess that's a long-winded way to say each one of these sections has its own ramp-up schedule, as you will. And it's hard to say, on a quarter-by-quarter basis, generally where we will be other than our expectation is, as I said, in 2015 to be at full design of the facility.

Jacques Perron

Maybe, Jeffrey, (sic) [Brett] this is Jacques speaking. Just to give you a little more color. I think right now, as Scott mentioned, we're still learning a number of specifics about the circuit. When we look at objectives, I think we, as Scott mentioned, we expect this mill to take 18 to 24 months to go to full design. So by the end of the second quarter of 2015 it's our goal to be at full capacity. As far as the end of this year, we think that the realistic target for us is to reach about 75% to 85% of design by the end of 2014 and that's what we're looking for. I mentioned on previous calls -- on the previous call that we had some modifications to make, as Scott pointed out. Next week, we're shutting down for about 4 days to make minor modifications in the grinding circuit. Some of you may be aware that we have a number of modifications to make in the flotation circuit, changing some dart valves and piping and whatnot, that's going to occur next week, and other minor things that we have to do. But we really expect to see some improvement starting in March after this round of modification is done. But I also want to point out that we already know that we're going to have another round of modifications, which will occur in May, June, as we are operating the circuit. We can already see that there's other opportunities for improvement, and we're going to be working on that as we ramp-up the plant.

Brett M. Levy - Jefferies LLC, Fixed Income Research

Last question, and then I'll get back in queue. I know that Pam mentioned that cash would never fall below $75 million to $100 million. Any sense as to when that might occur? And do you see your cash balance as being significantly above those levels by the end of 2014 if you hit your 75% to 85% of production number?

Pamela L. Saxton

Yes. Thanks, Brett. Listen, with regards to that cash balance, because of the shipments of the copper and gold and each off-taker has a little different payment schedule in terms of when we get their provisional payments. It's a little difficult on a month-by-month basis to exactly hit how the cash is going to look. But as we have forecasted in our cash balance, the low cash point is sometime in the third quarter of this year as we go through. But again, I caveat that just on the timing on when we get the provisional payments from the off-takers.

Brett M. Levy - Jefferies LLC, Fixed Income Research

And any sort of provisional plans to either do debt -- debt would be hard to do, streaming transactions or additional equity to...

Pamela L. Saxton

No, Brett, actually, as we look at our cash balance, that's really why we're -- we had set ourselves a target that we don't want our cash to go below that $75 million and $100 million. And as we go through the year, we do have higher cash balances on that other than as we come in to the third quarter. We really believe we have significant or sufficient liquidity to go through and don't have any intentions of more debts or more gold streaming or any of that.

Operator

And we will now go to Dave Katz with JPMorgan.

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

When I work out the math on the guidance for the -- for 2014 it appears that Mt. Milligan's cost will be around $258 million. Understandably, there's some start-up costs going on in there offset by lower variable cost regarding mining, transportation, reagents, et cetera. In the past, the company had provided guidance that once fully ramped up, the mine would have cost of around $280 million. Would you be able to reaffirm those costs, as well as the fully ramped up production expectations?

Jacques Perron

Yes, Dave, this is Jacques. Yes, I think your analysis is pretty good. I can see that you went to a good school. You're correct that there's additional cost this year as we're ramping up but we're not at full production. So as we go to full production, we'll incur higher cost. But at the same time, we'll be more efficient and those start-up costs will be eliminated. So what we're expecting right now for 2015, and again, this is an expectation. It's not guidance, I want to repeat that clearly because I remember, past experiences, you guys will remind me what I've said at the end of the year, but our expectation right now is our cost in 2015, which will be much closer to steady-state cost will decrease, our unit cost will decrease by 30% to 35%, and our production will go up by 20% to 25%. So that's what we're expecting for 2015 and we'll have to see how the plant perform and how things go with the ramp-up and the operation at Mt. Milligan for the future years. But that gives you an idea where we're -- what level of cost and production we're looking at for the coming years.

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

Okay, and with regards to Langeloth, with the shutdown or the care and maintenance of Thompson Creek, what's your expectation of what will occur there? Is it going to maintain operations and interiorly pulling [ph] processing or do you expect to shut it down as well?

Mark A. Wilson

This is Mark Wilson, I can answer that. We are -- we've been treating all of Endako's concentrate at Langeloth since February of last year, and we intend to continue that process. So Endako contributes approximately 15 million pounds or so to the feedstock at Langeloth, and with Thompson Creek's production plus purchased material, we intend to operate it at full capacity of 36 million pounds in 2014. With the closure, or care and maintenance, rather, of the Thompson Creek Mine next year, obviously, the feed from our own properties will decrease considerably. But we have always maintained an active program of tolling, as well as purchasing of concentrates, so that we're able to operate the facility at roughly full capacity, which before, we were able to achieve on Thompson Creek plus third party material alone. We have purchased and tolled as much as 15 million pounds a year in the last several years on -- at certain times. And so we'll just resume that activity during the time when by we're operating the Endako Mine. So with the Langeloth facility, it has a lot of capability for upgrading materials. So we think that it's well-positioned as the competitive's tolling, as well as servicing purchased material.

Operator

And we will now go to Tom Meyer with CIBC.

Tom Meyer - CIBC World Markets Inc., Research Division

Just a follow-up on a prior question. The modifications to take place in the shutdown in the next week or so, I'm assuming you have all parts required for that. And I am just curious about the May, June comment that was made about further modifications, is the timing of that -- is it just part of the schedule that you have? Or was it dictated by the requirement to have parts get delivered and shipped to site?

Jacques Perron

That's a good question, Tom. I think the main reason that we're waiting for the second round of modifications is delivery of parts we're -- we've reengineered the new design for the grate's discharge of the SAG, and they have to be fabricated, and we won't get them until mid-June, so we have to wait for the new grates to come in before we can install them.

Tom Meyer - CIBC World Markets Inc., Research Division

Now here's a question for Mark. What the heck is going on in the moly market? And does it make it easier to toll material at Langeloth once Sierra Gorda is up and running?

Mark A. Wilson

Well, the first of the issue is the molybdenum market. Well, it's hard to answer that briefly, I guess. Last year, there was an unexpected -- to my point of view, unexpected weakness in the molybdenum market because of a -- really, a decline in demand from steel production from Western markets, notably in the U.S. and Europe. In the last several months, first in Japan, and then, more recently in the United States, we've seen considerable improvement in the offtake from steel companies, witnessed our strong sales in the fourth quarter of last year. And so we've seen considerable improvement in several months in the past and are anticipating that this year, the market does have a sort of a bearish bias because of the anticipation of the supply coming from Sierra Gorda. This is not really consistent, actually, with the current market balance where there really is not an excess supply of molybdenum. But for the absence of stronger demand, we would expect to see much stronger pricing in the near term. And so, we are quite hopeful that we will see continued improvement, most particularly in Europe, which is a large molybdenum consumer, and it's been a laggard for the past couple of years, and we have seen that strengthening in the United States, so we're quite hopeful. As for Langeloth's future position, we are anticipating considerable increase in supply in the global market of molybdenum concentrate without a commensurate increase in the roasting capacity. So we fully anticipate that there will be a significant market position for the Langeloth capacity.

Operator

And we will now go to Orest Wowkodaw with Scotiabank.

Orest Wowkodaw - Scotiabank Global Banking and Markets, Research Division

I wanted to touch on 2 more subjects. First of all, just getting back to the cost at Mt. Milligan. Can you let us know sort of what your expectation is on a cost per ton basis for both mining and milling in Mt. Milligan this year and, say, life-of-mine?

Jacques Perron

Orest, I think, that's, for us, the target that, right now, we have for our mining cost per ton is in the range of $2 and slightly below $2 over time. And we're looking at about $6 per ton milled for the milling operations over time. It's going to be slightly higher than that this year as we ramp up, as you can understand. But over time, those are the type of numbers that we're looking at for Mt. Milligan.

Orest Wowkodaw - Scotiabank Global Banking and Markets, Research Division

Okay. And then, just finally, with the reserve breakdown at Endako, should we now assume that, that mine will close when those reserves are exhausted in about 4, 5 years from now?

S. Scott Shellhaas

Orest, this is Scott Shellhaas. I think, we will continue to evaluate Endako as we have over the last year or so, and its operating results. But as you can tell, the reserves at Endako are very sensitive to molybdenum pricing and this is what we're seeing now based on molybdenum markets and our long-term -- our view of moly pricing over the next several years. If pricing ticks up, the viability of Endako ticks up also, as reserves are added back in at higher pricing.

Operator

And we will now go to Steve Bristo with RBC Capital Markets.

Steve Bristo - RBC Capital Markets, LLC, Research Division

I just had a few questions here. The first one is on Thompson Creek Mine. I'm wondering what you expect for your shutdown cost to be there and the annual care and maintenance cost thereafter.

S. Scott Shellhaas

Steve, this is Scott Shellhaas. Our current view on care and maintenance is annual cost will be approximately $8 million to $10 million. That really depends on the manning levels that we maintain at the mine, as well as equipment maintenance that is done at the mine and the processing facility. But right now, that's what we're looking at.

Steve Bristo - RBC Capital Markets, LLC, Research Division

Okay. And then, just following up on Endako. If the moly prices do not improve, how long do you guys anticipate continue to operate this at a loss? I saw costs were down in Q3 but then back up slightly in Q4. So I'm not sure how much more room for improvement there is there?

S. Scott Shellhaas

Well, based on the new reserve calculation at Endako, the mine life is 3 to 5 years, so that's the window that we're looking at. But as we have in the past, we'll say again, we really continue to take a hard look at Endako and the operating results at Endako, and its cost structure versus the molybdenum market.

Steve Bristo - RBC Capital Markets, LLC, Research Division

Okay. And then, just a couple of quick ones on Mt. Milligan. At Mt. Milligan, you've previously stated with the production report that throughput was below expectations and now in this release you just noted that it's improving. Is it still behind expectations? Or is it pretty much right in line now?

S. Scott Shellhaas

I guess, from our expectations, we would have liked to have seen the ramp-up a little further ahead with throughput. We're encouraged about the recent improvements, but I think as you look at the ramp-up, gold and copper recoveries are certainly above our expectation, as is copper concentrate quality. And that's why, right now, one of our primary focus is on that throughput to get it back up to our expected levels in the ramp-up.

Steve Bristo - RBC Capital Markets, LLC, Research Division

Okay. Sorry, just quickly going back to the Thompson Creek. Is there any onetime closure costs for that mine? And what would you estimate those to be?

S. Scott Shellhaas

There is not any onetime big hit that we're looking at for care and maintenance. And I want to stress, this is care and maintenance, and we're trying to keep a nimble posture at the mine so we can quickly take advantage of any improvement in the moly market should that occur.

Craig Miller - TD Securities Equity Research

Okay, perfect. And one very last quick one. On Slide 26, I noticed you were comparing recoveries to the life of the mine, design recoveries, but you previously stated you have a higher target for years 1 to 6 of 73% for gold and 87% for copper. Do you still stand by those higher targets for the first 6 years?

S. Scott Shellhaas

In the first 6 years, our expectation is to get higher recoveries, both copper and gold, due to higher grades of both copper and gold. So the ranges that we have given in the past still look good to us.

Operator

And we will now go to Jorge Beristain with Deutsche Bank.

Jorge M. Beristain - Deutsche Bank AG, Research Division

Hopefully, I went to a good school as well, because I backed into the same number that JPMorgan did earlier but I don't believe you should need an engineering degree to figure out what your guidance is at Mt. Milligan, given that this is the #1 overhang on your stock. So I just wanted to go back to that. Is it fair to say that of the sort of $250 million pre-by-product credit cost that you're targeting at that mine that, even that number does include some extraordinary start-up expenses? And I'm just trying to understand how we've come down from the $280 million prior guidance to the $250 million range right now. Is that mostly Canadian dollar weakness driven?

Pamela L. Saxton

No, Jorge. It really is because, for 2014, that mine isn't at full capacity yet. And so, yes, there are start-up costs in there, but we are just full capacity and that's why you're coming up with that number around $258 million or so. And as we ramp up, certainly, next year, into 2015, those costs will ramp up. But as we look at it, it's still going to be in the range that we had talked about before, previously, around $280 million. And as Jacques clearly stated, this isn't guidance, it's just really an indication of what we're looking at as we go into 2015.

Jorge M. Beristain - Deutsche Bank AG, Research Division

Okay. So my question is, why would we, by now, not be seeing some benefits from the recent 10% Canadian dollar devaluation? And secondly, could you give us an updated split as to what the fixed and variable cost component is within that sort of $280 million rough guidance?

Pamela L. Saxton

So, our guidance, I mean, you're spot on, Jorge. Our guidance, we used a foreign exchange rate of parity and so we will see some benefit. Our guidance was prepared on parity, so we will see some benefit coming through on those costs. And as you look at the costs themselves, I'd say, about 50% or so are in U.S. dollars and 50% in Canadian, and that's just a very, very, very rough estimate.

Mark A. Wilson

Yes. And to answer your other question, Jorge, at the -- we, right now, we still have to better understand our costs and as you mentioned, there's lots of onetime start-up costs in our numbers, but we're looking at about 60% fixed and 40% variable, right now, in our operating costs at Mt. Milligan. And as Pam pointed out, all the numbers we gave you today that we're basing all those numbers on parity. So you can have fun figuring out what you think the exchange rates will be in the future years, but the number we gave today and in our 10-K are based on parity.

Jorge M. Beristain - Deutsche Bank AG, Research Division

Understood. And in terms of your model, at full production, you should be producing around 257,000 ounces of gold by-product. You're tracking light this year. We had already been warned to expect a slower ramp in the good recoveries several quarters back, but I just wanted to understand, are you still confident that you can get those gold recoveries up to the sort of target rate of around 250,000 ounces? Because that is absolutely the key to driving your net cash cost down at that mine.

Jacques Perron

As Scott mentioned, Jorge, we're still -- the numbers we had issued in the public before, as far as production and recoveries and -- we're still confident that we're going to be able to hit those numbers in the future years, yes.

Operator

And we will now go to Zach Zolnierz with GMP Securities.

Zachary Zolnierz

I guess I just wanted to go back. You touched on the concentrate, I think you mentioned it was -- it's clean and you have no penalties. I'm just wondering, on the volume side, do expect to have any issues with minimum volume requirements under your contracts?

Jacques Perron

Yes, our contracts that we set for 2013 and 2014 were based on percent of production, and so they're not fixed in volume.

Steve Bristo - RBC Capital Markets, LLC, Research Division

Got it. And then, beyond this year and into next year, have you gotten any indication yet from your offtake partners as to extending the contracts? Because if I remember, I think they go through maybe 2015 '16?

Jacques Perron

Yes, they all go through 2016. And at the moment, we have a fixed volume commitment in '15 and '16 of 120,000 tons. And we really have not discussed extension at this point. We intend to have those discussions this year.

Zachary Zolnierz

Understood. And I guess outside of what you've answered so far, you gave the $280 million number for the cost at Milligan. I guess for maintenance CapEx, do you have any -- it might be a bit premature at this point, but do you have any updated sort of best guess, as far as that goes on in an annual basis?

Jacques Perron

Well, this year, as you saw in the guidance, we're spending about $30 million in the mine and $20 million in the -- for the completion of the permanent cap, and that's, again, plus or minus 10%. This year, we have a reduced level of activity on the tailings construction, the tailings dam construction, due to the fact that we're ramping up and then we're not at full production. So next year, when we go into a higher rate and we're closer to full capacity for the whole year, we think our capital expenditures will be anywhere between $50 million and $70 million. And right now, we see that level as the appropriate level for the coming years.

Operator

And we will now go to Oscar Cabrera with Bank of America Merrill Lynch.

Oscar Cabrera - BofA Merrill Lynch, Research Division

I want to get back to your molybdenum operations. And -- in Endako, you've said, mine life, with the new mine plan and the higher cutoff grades, between 3 and 5 years, assuming that the production will be sustained at what you're expecting in 2014, what happened to the cost? Can we expect those to decline?

S. Scott Shellhaas

Oscar, we have seen cost improvements to our structure. Some of those cost improvements have been offset by such things as higher power rates that will be coming into effect. But we continue to look at ways to pull down our cost at Endako. So I do expect to see improvement in 2015 -- the 2014 over to unit cost that we reported for 2014, 2013.

Oscar Cabrera - BofA Merrill Lynch, Research Division

All right. And as you mentioned, your -- the resource operations is up to your long-term assumption of molybdenum price. Based on what you described, the resource went down almost 70%. You have -- would it be possible to just set like a sensitivity to every $0.50 of molybdenum prices, are the pits well defined that you can have an -- we can have an idea of how much the resource can increase if molybdenum prices is improved?

Jacques Perron

Well, I think, Oscar, generally, I mean, if you look at Thompson Creek and because of the grade at Thompson Creek, it's less sensitive to pricing increases. But, for example, if the price of molybdenum went to $12 and we felt comfortable that, that was a long-term price, and we redid our reserves around $12, you would probably add back in at Endako perhaps half of the reserves that you have lost at $10. And perhaps, not quite that magnitude at Thompson Creek, but you would, at $12, add back substantial reserves at Endako.

Oscar Cabrera - BofA Merrill Lynch, Research Division

That's helpful. And then, lastly, I'm not sure if you could share with us your assumptions for -- on your supply/demand model. I'm assuming that the long-term $10 a pound is based on marginal cost. So what -- how do you see supply coming on in terms of secondary supply? And what mines do you see dropping out some -- most of the high-cost mines are in China?

Mark A. Wilson

This is Mark Wilson. As is well known, the increased copper production is bringing forward, out of Latin America, a lot of byproduct molybdenum. And as a byproduct, it has a low cost. And so, it is fully anticipated with the development of the copper mines, more molybdenum will come forward. And what we are anticipating is tension between price and supply and the highest cost units are in China. And so, we think that the net effect of the increased byproduct molybdenum will be China becoming a importer of molybdenum. And we saw that in 2013 when moly hit a low for the year of approximately $9.10 in August, and for the months of September, October and November, China became a net importer of molybdenum. And this is, as an importer, it's a -- contrary to their -- the history, the recent history of production of molybdenum, but we see that as the future, that you're going to have low price, low-cost units coming from the West, replacing high-cost production in China.

Oscar Cabrera - BofA Merrill Lynch, Research Division

Okay. That helps. And then, lastly, if that is the trend, though, like, is there a significant difference between the payables in China? Because my understanding is, there's a number of mining companies that are unwilling to send their concentrate over there.

Jacques Perron

Well, they could be -- I'm expecting they'll be importing oxide, in actual fact. I think that's what -- that's largely what you're going to see, so.

Operator

And we will now go to Gary Lampard good Canaccord Genuity.

Gary Lampard - Canaccord Genuity, Research Division

The first one, I wanted to go back a bit to some of the previous questions on the operating costs at Mt. Milligan. I don't think you've quite said this, but you may have implied it. Is it fair to say that steady state, you still think that USD 280 million total cash cost is a good number to think about? And that would be assuming, Canadian/U.S. dollar parity?

Jacques Perron

You're correct.

Gary Lampard - Canaccord Genuity, Research Division

Okay, perfect. And my second question, with the Thompson Creek Mine, I'm assuming that the stripping you'd have to do to continue operations would be about $100 million capital project. And would it be fair to say that the decision not to do that at the moment -- you've worked out your NPV based upon this CapEx at a $10 per pound moly price, and the NPV is positive, therefore, there is still a reserve. But at the moment, the return is not great enough to justify the investment and/or you're still nervous about moly prices, and you want a bit more comfort that they will stay above $10 a pound for -- at a decent length of time.

Jacques Perron

Gary, that's a -- there's a number of variables we have to consider here. We -- if you use $10, you get an answer. But we also run sensitivities on these scenarios, plus or minus. We also look at various risks that we're facing by doing this pushback. So there's a number of items we're considering, as we mentioned numerous times at the -- at December 31, we have -- not find a solution for Phase 8 at Thompson Creek Mine. And we made the decision that the plan we have right now on our books is to go into care and maintenance by the end of the year. However, as we pointed out, we're going to continue to work on ideas and alternatives and if we come up with something that works, well, then, we'll revise our plan. But for now, our plan is to go into care and maintenance at the end of the year based on all of the analysis that we've done so far.

Operator

[Operator Instructions] And we'll now go to Dan Kecskes with Global Credit Advisers.

Daniel Kecskes - Global Credit Advisers, LLC

I just wanted to follow up on the cost. You mentioned that there was a 35% reduction going into 2015. What is that off of?

Jacques Perron

It's a reduction in our unit by-product cost. So we set 30% to 35%. We expect through to 2015 our unit by-product cost at Mt. Milligan to go down by 30% to 35%, and our production to go up by 25% to 30%. So if you look at the ranges that we have disclosed for guidance for this year, you can do the math to figure out the answer.

Daniel Kecskes - Global Credit Advisers, LLC

I got you. So it's not so much a movement on the $280 million, although that will benefit from the Canadian dollar, that's more a function of higher gold recoveries for your byproduct credit, right?

Jacques Perron

Correct.

Operator

And we will now go to Brian MacArthur with UBS.

Brian MacArthur - UBS Investment Bank, Research Division

Not to go back to the $280 million, again, but can you remind me exactly what you're using for TCRCs in that?

Mark A. Wilson

Hi, Brian. Mark Wilson. Our budget was based on $95 and $9.50, so it's $95 smelting and $9.50 refining. And that's U.S. dollars.

Brian MacArthur - UBS Investment Bank, Research Division

Right. Okay, great. My second question is, we want to go out to Endako a little differently. Obviously, this is an option on the moly price going forward, maybe a little bit of a Canadian dollar option. But do you think of it -- you obviously want to keep it going, so you're trading dollars at the moment or making maybe a little bit of cash at $10, is there any tax option in there, too, from the point of view that maybe keep it running a little longer because that can -- losses there helped the profits at Mt. Milligan when it becomes profitable? Or do you think it as individual events or maybe I'm wrong and there's no tax efficiencies there at all, either. Can you just clarify that?

Pamela L. Saxton

Yes, Brian. This is Pam. So with regards to our entities up in Canada, we don't -- in Canada, you don't file consolidated tax returns. And so, each of the entities stand on their own. And so, there's no interplay between Endako and Mt. Milligan, again, because they're on a stand-alone basis.

Mark A. Wilson

And Brian, one thing, too, Mark Wilson here, I just wanted to clarify, our contracts for smelting this year will be at benchmark, which, indeed, is $92, so there is a very modest anticipated savings based off of the treatment terms.

Brian MacArthur - UBS Investment Bank, Research Division

Right. And that's where I was going with this going forward, depending on what you think you may get a little better there, too, on the $280 million going forward.

Mark A. Wilson

Yes.

Operator

And it appears there are no further questions. I will now turn the call back over to Mr. Perron for an additional or closing remarks.

Jacques Perron

Well, again, I thank everyone for being on the call this morning,and thank you for all your questions and interest in our activities. As we indicated, we -- I think we're on the right track at Mt. Milligan. We're happy with the programs. Things are moving in the right direction, and we're really excited to what's happening there. And we're looking forward to report on our results at the end of the second quarter. And finally, for all the Canadians on the call today, I hope the men will do as well as the women did earlier this week. So have a nice weekend. Bye, now.

Operator

Ladies and gentlemen, this concludes today's conference. We thank you for your participation.

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