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Thompson Creek Metals Company, Inc. (NYSE:TC)

Q1 2014 Earnings Conference Call

May 13, 2014 10:00 am ET

Executives

Pam Solly - Director, IR

Jacques Perron - CEO & Director

Pam Saxton - EVP & CFO

Mark Wilson - EVP & CCO

Scott Shellhaas - President & COO

Analysts

Dave Katz - JP Morgan

Tom Meyer - CIBC

Steve Bristo - RBC Capital Markets

Jorge Beristain - Deutsche Bank

Orest Wowkodaw - Scotiabank

David Charles - Dundee Capital Markets

David Olkovetsky - Jefferies

Melinda Newman - First Pacific Advisors

John Tumazos - Very Independent Research

Crystal Lin - John Hancock Investment Management

Daniel McConvey - Rossport Investments

Henry Boscoboinik - Fuller Research

Operator

Good day, and welcome to the Thompson Creek Metals Company First Quarter 2014 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 Pam Solly, Director of Investor Relations at Thompson Creek Metals Company. You may begin.

Pam Solly

Thank you, Operator. Good morning, everyone, and welcome to the Thompson Creek Metals Company first quarter 2014 financial results conference call. Today's call will take approximately 20 minutes, and we will then open the call for 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 risks and uncertainties. We refer you to our filings with the SEC and SEDAR for a discussion of our factors that could cause our actual results to differ materially from those in our forward-looking statements.

During the call we will also discuss certain non-GAAP financial measures. We refer you to the first quarter 2014 conference call presentation, which has been posted to our website for more information about these non-GAAP measures and reconciliations for the most directly comparable GAAP financial measures.

Today's agenda will be as follows: Jacques Perron will review the first quarter highlights; Pam Saxton, will provide the first quarter financial results; Mark Wilson will review the sales summary; Scott Shellhaas, will provide the operations overview; Jacques Perron will then provide closing remarks and 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. This is Jacques.

Pam Solly

Pam Saxton, Executive Vice President and Chief Financial Officer.

Pam Saxton

Good morning, everyone. This is Pam.

Pam Solly

Mark Wilson, Executive Vice President and Chief Commercial Officer.

Mark Wilson

Good morning. This is Mark Wilson.

Pam Solly

And Scott Shellhaas, President and Chief Operating Officer.

Scott Shellhaas

Hello, everyone. This is Scott.

Pam Solly

I'll now turn the call over to Jacques Perron.

Jacques Perron

Thank you, Pam. Welcome, everyone, and thank you for joining us this morning. During the first quarter we continue to focus on the execution of the Mt. Milligan ramp up and are pleased with our performance. Our new leadership team continued to focus on the optimization of the mine and mill which has led to positive results.

As reported earlier this year, we reached a significant milestone in February when Mt. Milligan achieved commercial production. Payable copper production for the first quarter of 2014 increased 52% from the previous quarter and by far the cash cost decreased 69%.

Payable gold production increased 118% from the previous quarter and gold product cash cost decreased 56%. Copper and gold sales for the quarter contributed $54 million to our total revenue of $161 million.

We have three shipments in the first quarter of this year and received payments for two of those shipments in the quarter. For our molybdenum operations we have a slight improvement in production and cash costs, which are in line with our 2014 guidance. As a result of all this we finished the quarter with positive operating cash flow.

As I’m sure some of you have read in our Form 10-Q that was filed yesterday, Thompson Creek mine experienced a wall slide earlier this month. I am happy to report that all of our employees are safe, which is most important and that there was no damage to equipment. Scott will discuss the wall slide in just a few minutes. I will now turn the call over to Pam Saxton to review the first quarter financial results. Pam?

Pam Saxton

Thank you, Jacques. In the first quarter of 2014, we generated revenue of $161 million, up 48% compared to the first quarter of 2013. This increase in revenue was driven by the addition of copper and gold revenues from the Mt. Milligan Mine offset by a slight decrease in molybdenum sales revenue primarily driven by lower average realized molybdenum sales prices which were almost entirely offset by higher molybdenum sales volumes.

For the quarter we had operating income of $13 million, a net loss of $39 million or $0.23 per diluted share, and generated $16 million of cash from operations.

The net loss for the first quarter was primarily related to non-cash unrealized foreign exchange losses of $47 million and interest expense of $24 million, partially offset by $13 million of operating income and an income and mining tax benefit of $15 million.

Non-GAAP adjusted net income for the first quarter, excluding the non-cash foreign exchanges losses net of tax impacts was $4 million or $0.02 per diluted share compared to adjusted net income for the prior year quarter of $18 million or $0.08 per diluted share.

Non-GAAP EBITDA for the 2014 first quarter improved significantly to $45 million compared to $31 million in the first quarter of 2013.

We ended the quarter with approximately $203 million of cash, $280 million of working capital, and approximately $1 billion of debt.

Cash capital expenditures for the first quarter of 2014 were $22 million comprised of approximately $12 million for the construction and development of the Mt. Milligan Mine, which primarily relate to the payment of amounts accrued as of December 31, 2013, related to the project; $5 million for the construction of the Mt. Milligan permanent operations residence; and $5 million of operating capital costs for all other operations combined.

We've included in today's presentation our previously disclosed 2014 production and cash cost guidance, as well as our 2014 capital expenditure guidance. Please refer to Slides 10 and 11 for this information.

At this time I will turn the presentation over to Mark Wilson who will provide the sales summary.

Mark Wilson

Thank you, Pam. I have two slides to update you on the sales completed in the first quarter.

First, looking at our copper and gold sales from Mt. Milligan we completed three shipments in the first quarter but did not receive the provisional payment for a March shipment until early April. So we recognize sales for two shipments. We intend to ship in units of approximately 10,000 dry metric tons and you can see from the slide that we sold 20,134 dry metric tons containing 10.8 million pounds of payable copper and 23,874 payable ounces of gold. These two shipments resulted in $29.8 million in revenue for copper at an average price of $3.01 per pound and $24.4 million for gold with a weighted average realization of $1,025 per ounce. The sale of the March shipment that was recorded in April will contribute sales revenue of $15.1 million for copper and $13.9 million for gold.

For the second quarter we plan to make three shipments of concentrate. In the first quarter we had molybdenum sales totalling 9.8 million pounds, which generated $102.9 million in sales revenue at an average realization of $10.45 per pound. As you can see from the bar chart the sales volume for the quarter was the highest it has been over the past five quarters and in fact was the highest unit sales since the second quarter of 2011. We saw very strong demand early in the year from several of our larger customers, principally in the United States and to a lesser extent in Japan. We are continuing to experience strong demand from our customers and our sales revenue is benefiting from the strong increase in pricing that has occurred mainly since the end of the first quarter.

With that, I will turn the presentation over to Scott Shellhaas.

Scott Shellhaas

Thank you, Mark. I'll begin with our safety record, which is always a very important aspect of our business. For the first quarter of 2014, Langeloth had no incidences but we had five loss times and 10 reportable incidences at our mining operations. These consisted primarily of strains, lacerations, and foreign substances in the eye. Safety is our number one priority and we are working continuing to work closely with all of our sites to improve our safety performance.

Moving on to our operating statistics. Our payable copper production for the first quarter of 2014 was 14.2 million pounds with cash cost on a byproduct basis of $2.29 per pound and on a co-product basis of $2.27 per pound.

Payable gold production for the first quarter of 2014 was 39,181 ounces with cash cost on a co-product basis of $606 per ounce.

Molybdenum production for the first quarter of 2014 was 7.9 million pounds, with an average cash cost of $5.75 per pound.

For the year first quarter, Thompson Creek Mine produced 5.7 million pounds of molybdenum at a cash cost of $3.86 per pound. And our 75% share of the Endako Mine production was 2.2 million pounds of molybdenum at a cash cost of $10.54 per pound.

As mentioned earlier, Thompson Creek Mine experienced a wall slide in the Phase 7 mining area on May 1, 2014. Monitoring systems identified a potential slide several weeks in advance and preventive measures were taken to remove employees and equipment from the pit. The company believes the slide resulted from pressure behind the wall due to seasonal runoff. As a result of the slide, access to Phase 7 wall has been temporarily cutoff. Once it has been established that it is safe to resume operations in the pit which we expect will be in the next few weeks, mining of Phase 7 ore will recommence. During this period, we are processing stockpiled ore and at this time we do not believe there will be any material impact on our 2014 guidance for the mine. However, we will be performing technical work to assess the full impact of the slide.

Moving on to Mt. Milligan, I am pleased to report that the ramp up continues to progress without any major issues and we are continuing to see steady improvements across the operation. As we have said before and continue to confirm as a result of the hardness of the ore, our current challenge is achieving design, SAG mill throughput with the current plant configuration.

Slide 20 reflects the daily SAG mill throughput from August 2013 through March 2014. As you can see, we have had steady improvement over the quarter achieving our highest monthly average in March with 36,354 tons per day. We will continue to make adjustments to our grinding and flotation circuits throughout the ramp up period. We will also continue to evaluate our crushing activities to determine if there is need for additional capacity.

As reflected on Slide 21, our tons per operating hour milled were relatively steady and averaged 1,665 for the quarter.

Mill availability through the first quarter of this year as shown on Slide 22 continued to improve and reached 91% in March. The decrease in mill availability in February reflects the scheduled mill shutdown through various adjustments in work to the grinding and flotation circuits.

Copper recoveries for the quarter averaged 79% and gold recoveries averaged 59%, both of which were slightly lower due to various test programs that were conducted during the quarter as part of routine recovery optimization analysis and the type of material process.

I'll now turn the call back over to Jacques.

Jacques Perron

Thank you, Scott. We had a good quarter and are pleased with the ramp up of Mt. Milligan. Our primary focus through 2015 will continue to be the ramp up of Mt. Milligan. We expect to reach 75% to 80% of design capacity by the end of 2014 and 100% during 2015.

As Scott mentioned earlier, we will continue to make the necessary adjustments to the grinding and flotation circuits, as well as assess Mt. Milligan's crushing capacity. We understand throughput will be our greatest challenge but fully expect to achieve designed throughput over time. We expect Mt. Milligan to be cash flow positive in the second half of this year and the company in the fourth quarter of this year, depending upon the timing of shipments and provisional payments from our off-takers.

Our goal is to maintain a minimum liquidity level of $75 million to $100 million. As a result of our performance in the first quarter and the recent increase in the molybdenum price which we will start to benefit in the second quarter, we are confident this will be achievable.

Thank you again for joining us this morning. This ends our formal presentation. And I will now open the call for questions. Operator, please review the instructions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions).

And we'll take our first question from Dave Katz with JP Morgan.

Dave Katz - JP Morgan

Good morning. So I was hoping to come back to 75%. By our calculations it looked like the copper production in first quarter was around 63%. If that's the case why is it taking so long after that to get to 75%? And I was hoping that you could tie that to the data that was on Slide 21 with the relatively flat hourly mill throughput that you have experienced since January?

Jacques Perron

Thank you. And this is Jacques speaking. I think we -- as we explained in the previous call and during our most recent presentations, we expect like any other big mill startup to take about 18 months to 24 months before we can get the full design. When we look at our progress so far, we're very happy with the performance, especially on the recovery side. At this time, in the ramp up process, we are much ahead of what we were expecting to be on the recovery side. So that's one of the reason why you see our copper production being that high at this time of the ramp up as well our grades have been pretty good. Over the last two quarters we are experiencing good grade. So that’s giving us the plus on the recovery side.

But we always want to be careful on the guidance and our projections and we feel that 75% to 80% is a good target for the end of this year. As far as the throughput on a tonne per operating hour basis, we have been making some improvements steady over the last two quarters. We have been a little bit flatter in the last couple months. As Scott mentioned we are doing a lot of tax and trials and we’re making some adjustments to circuits some of which are giving us good results and some of which are giving us not so good results and on that note I like Scott to give you a little more color on the changes we’ve made recently and explain partially what -- why we’re seeing some kind of a steady performance but we’re still confident we’re going to be able to improve that performance over the next quarters. Scott?

Scott Shellhaas

Sure, Jacques. First of all Dave just addressing design throughput and tonnes per operating hour in the first quarter, you might recall we indicated in the last call that we were doing a mill down in February to make some adjustments to both the flotation circuit and the grinding circuit. As part of that work we put in on both ball mills retainer rings we started up the operation after that down and we discovered that actually the retaining rings were too big and we were holding up slurry unduly in the ball mills and so we had to slow down the grinding circuit to handle that. Subsequently we have trimmed those ball mill retainer rings and we believe have rectified that situation.

This is a modern processing facility that's highly computerized and we still continue to get gremlins in the control system and during the quarter we had several what I call false signals in the computer system that runs the SAG mill that caused the SAG mill to trip out such things as false ground, false signals, and things like that. We think we’ve got the systems talking to one another properly now.

We have had issues as you would expect and some of the -- just the equipment for example in our cyclones which are all rubber line we’ve had some adhesive problems with the rubber liners which have caused blocking them cyclones and we’ve fixed that. And also this was really our first spring experience with handling wet and freeze/thaw ore and we had some learning to do on material handling which we’ve gotten behind us there. So that gives you some of the color for the quarter as far as throughput.

I will say this we did in March run some test work on -- in the floatation area of the plant on different types of material we get batch processing of high gold, low copper grade material, and then vice versa high copper low gold grade material just to see how to best treat that material in the plant. So it's pretty routine startup exercises that you’ve seen in this first quarter.

Dave Katz - JP Morgan

Okay. And given that we’re now in to May, in April did you see an improvement in that hourly mill throughput?

Scott Shellhaas

We have seen in April and May an improvement in hourly throughput as well as recoveries as well availability. So yes we’ve seen improvement in those key areas.

Dave Katz - JP Morgan

Okay. Does that -- I guess coming back to the very first part of the question then does that mean that the annual guidance for the mill may be low and if not what do you anticipate could occur, what other gremlins you used the phrase that you could occur that would cause you to come in towards I guess in the middle of the guidance as opposed to above it?

Jacques Perron

Dave, this is Jacques again. I think we have put our guidance out there to make sure that it’s a realistic guidance; it's a number we can achieve. As we explained in the past, the company had an history of missing on guidance and we want to make sure that in the future we’re going to hit guidance. So the guidance is 75% to 80% that's what we said we would achieve you can track our performance so far and make your own deductions, but we’re confident to be able to get to the 75% to 80%.

Operator

And we will take our next question from Tom Meyer with CIBC.

Tom Meyer - CIBC

My question just around the comment on assessment of additional crushing capacity. I understand Jacques that there is another shutdown may be this month or may be in June I think I understand changing out of some grades. Is that the point where you guys are going to have a better handle on if additional crushing capacity is required?

Jacques Perron

Well, thank you, Tom. What we are seeing right now as we said in the past that the material is really hard and we need to do a number of tests where we are not sure we don’t know yet where we’re going to go with all this and what's going to be the outcome at the end of the day. We are going to continue to work on the plan to improve the performance of the existing plant. We are going to make changes to the configuration and yes you’re correct we are going to have shutdowns in the summer we’re going to have -- we have a major shutdown coming and I believe it’s going to be September for a number of other modifications to the float circuit and the grinding circuit and whatnot.

We just want to reiterate that our challenge at Mt. Milligan will be the throughput and we’re going to be conducting tests throughout this summer to see if there would be modifications or changes we have to make to the crushing circuit to get better performance. But again we are just confirming here today that the throughput is the challenge. We don’t have all the answers to all your questions, but this is something we are looking at and we’re going to continue to lecture out this summer.

I would expect Tom by the end of the summer or early fall that we’re going to have all the answers to these questions or most of these questions.

Tom Meyer - CIBC

Okay. Perfect that's all clear. And then a question to Mark just on the moly market. Coming back to your comments in February where you indicated that you saw a pickup and an improvement in Japan and also the U.S. market with some of your customers. I’m curious where does Europe fit into the equation and are we looking for a significant supply shortfall in the overall moly market in 2014.

Mark Wilson

The demand in Europe has picked up definitely in the second quarter. It wasn’t so present in the first quarter. But from our perspective we have really backed away from the European market. So that it's just not as important as part of our portfolio for sales as it has been in the past. So for our company we are less focused on Europe, although Europe is a critical consumer for molybdenum and we have as I said, seen definitely a pickup in the second quarter.

As for the overall market there is a real shortage of molybdenum available and it’s common sense I would say it’s cut the trade by surprise the extent to which difficult to get nearby molybdenum. So in the phase of improving demand from steel customers we’ve really seen a run up in pricing. And at this point as long as the steel demand remains where it is, we’re going to see continued output pressure and pricing I suspect.

Operator

And we will take our next question from Steve Bristo at RBC Capital Markets.

Steve Bristo - RBC Capital Markets

First on depreciation I was wondering if you could give us an idea what kind of a full year depreciation you will have at Mt. Milligan once it's ramped up?

Pam Saxton

The depreciation is certainly calculated on our proven and probable reserves that you see so and it's really a function of the production. For the quarter from a -- we do the calculation, it goes into the balance sheet and then, as we sell the copper and gold then it flows through the income statement. And so that's -- you can do the calculations and understand what the depreciation will be for the year.

Steve Bristo - RBC Capital Markets

Okay. Thanks. And then, secondly, on the Streaming Arrangement with Royal Gold I noticed you booked 20, almost 24,000 ounces of sales but only delivered 5,000 ounces to Royal Gold. I was wondering if you could explain to me a bit more detail how that streaming process works. And also, if you could--

Pam Saxton

Sure. With the Royal Gold, The Gold Stream Arrangement, as we for the first 12 shipments, as we received the payments from the off-takers then we owe Royal Gold for the first four shipments we actually owe them 75% of the gold that we received upon the sale. For the next four shipments its 50%, the next four it goes down to 25%, and then at the end its 0. And so there is a lag certainly with the production. It's all tied to the sales and when we receive the cash and then when we're not giving a 100% to them on the shipments.

Steve Bristo - RBC Capital Markets

Okay. So if you're going into the market to purchase this gold to satisfy your obligation of physical delivery, do you book those additional purchases and sales as additional volumes and revenue?

Pam Saxton

No, we don't. It's all on a net basis. So when we go, when we purchase the gold to deliver to Royal Gold that’s all going on in the balance sheet and so when you look at our sales number and the deliveries to Royal Gold it -- the sales number we actually use on that sales number, we mark down the gold for the 52.25% to the 435 per ounce plus the amortization of what's coming out of the balance sheet. And then the deliveries of gold, of course is delayed based on when we buy it and deliver to Royal Gold.

Steve Bristo - RBC Capital Markets

Okay. So you -- of those sales volume 52.25% are already in there at 435 an ounce?

Pam Saxton

That's correct.

Steve Bristo - RBC Capital Markets

Okay. Perfect. And the very last question. Just the changes you are making on the SAG grinding and flotation circuits, are those are included in your CapEx assessment so far?

Mark Wilson

Yes, they are.

Operator

And we'll take our next question from Jorge Beristain from Deutsche Bank.

Jorge Beristain - Deutsche Bank

My question I guess is related to the bullet point on your second last page considering opportunities to strengthen the balance sheet, could you elaborate on what your thinking is given that as you said your first payment is four years out? And may be touch upon the theme of monetization of assets or particularly, surplus equipment that you many have?

Jacques Perron

Good morning, Jorge. I think as we -- we always said in the past, our focus -- our number one focus is to continue to ramp up Mt. Milligan and make sure we achieve our objectives at Mt. Milligan. But as we've said, we want to make sure that we start to think about how we’re going to deal with the debt on a long-term basis. So we are focusing on Mt. Milligan, that's where we spend most of our effort and time. But Pam and his team is starting to look at opportunities and thinking about what's going to be the best way forward regard the debt. So we don't have any known plans right now. But we're going to start to think about that and see especially with the increase, the recent increase in the moly price, if now we can do things that would help us in the future. So I don't have any specifics to discuss today. But I -- we want again to reiterate that first, is Mt. Milligan and second step is to start to think about how we are going to direct the debt on the long-term basis.

As far as disposing of equipment and material, we've been doing work in the first quarter and the last -- fourth quarter of last year as well. But in the first quarter, on looking at all over inventory levels and all the equipment that we have and -- we're having good success on reducing the level of inventories at some of our sites. We’ve been doing pretty well at Thompson Creek Mine, reducing inventory in light of the upcoming potential care and maintenance program. So we’re working hard there to make sure that we lower our level of inventories. We are looking at number of items at Endako. We still have to sometimes identify buyers for our surplus material which is not always obvious. But we are looking at all these aspects. We have made a little -- some progress on some fronts and we are going to continue to work on it in the coming months. And may be Pam now can give you a little more color on what we've been doing so far.

Pam Saxton

Yes. So you may recall at the end of the year we did have some write-downs of our materials and supplies inventory to what we estimated to be our salvage value that we could sell the inventory for. And so we have had success in particular up at our Endako Mine of liquidating that and getting what we had estimated at the end of year in terms of what the salvage value was for that equipment.

We'll continue those efforts through the remainder of the year to liquidate that equipment. There is some pieces of inventory that we actually are returning to the vendors as well so good success. And we -- that's one of our focuses is certainly on our cost and on our inventory to -- for this year.

Jorge Beristain - Deutsche Bank

Great. Thanks. And if I could have a follow-up with Scott. Could you comment on the design per hour on Page 21? We just noticed that that's now quoted at 27/15 and in presentation it was 27/50, three months ago, so I was wondering if you could explain why the design per hour is down about 10%.

Scott Shellhaas

Jorge, I think in the previous slide unfortunately that was a narrative. The design has always been 27/15, so apologies for that.

Jorge Beristain - Deutsche Bank

Okay. Thanks for clarifying.

Operator

And we'll take our next question from Orest Wowkodaw with Scotiabank.

Orest Wowkodaw - Scotiabank

Some more questions on Milligan, if I may. Obviously, grads have been kind of well above reserve grades. What do you expect them for cooper and gold to average for the year, this year?

Jacques Perron

We have always said that -- well, first of all, life-of-mine grades are for copper 0.2%. We've always said the first six years we expect higher grades 0.28%, 0.25% in that range. You also should keep in mind that the plant is basically designed around the copper grade of about 0.232%. For gold grades, the life-of-mine grades are 0.39 grams per tonne for gold. We've said during the first six years those will be higher. And because of those higher grades we expect higher than life-of-mine average recoveries.

Currently, we're seeing our recourse model perform well. We are actually getting grades slightly above resource model indications but not substantially. So I think what we've said in the past, in the first six years, the expectation is we will get higher grades of both copper and gold but life-of-mine 0.2% copper and 0.39 grams per tonne gold.

Orest Wowkodaw - Scotiabank

But do you expect those Q1 grades to be sustainable for the rest of this year before they start say tailing off next year or should we -- do you think that will pale off?

Jacques Perron

I think you should expect to see some tailing off of those grades and there might be some up and downs this year as we enter different areas of the PIP and we expand the benches in the PIP but order of magnitude there will be some up and downs.

Orest Wowkodaw - Scotiabank

Okay. And then in your disclosure you state that you don’t expect to reach your design recovery targets for gold until the first quarter of 2016. I’m just curious what you are seeing that makes you think that it might take another two years to reach design on gold.

Jacques Perron

It's a more looking at other startups of copper gold concentrate operations and typically in these operations you tend to achieve a design copper recovery before you do gold and so that was a basic assumption in our ramp up schedule. However, as you look at the slides in our presentation you will see that that actually our gold recoveries are increasing a little bit better than expected. And as I said earlier I mean we are continuing to try to do test work to reach an optimum point on recovery for both metals to maximize the recoveries of both those. So we have seen that certainly we can get higher gold recoveries but when we push gold recoveries we lose copper recoveries and vice versa. So it's just an optimization exercise that we will continue on.

Orest Wowkodaw - Scotiabank

Okay. So there is nothing you are physically seeing that makes you think it will take that long you’re just sort of almost sounds like I guess conservative guidance then?

Jacques Perron

Again just as we pointed out and as I said earlier in this call the company had the poor track record of meeting objective and guidance. So we want to make sure that we don’t overpromise on what we are going to be delivering in the coming months and years. So we are careful on how we guide the market. We want to make sure that we’re going to achieve results. We understand that there is a complex circuit there is lot of moving parts. So we think the approach we’re taking right now and looking at optimizing and getting the best revenues for our copper and gold production is the way to go about it and we want to be careful making sure that nobody thinks we are going to achieve these numbers in six months.

Orest Wowkodaw - Scotiabank

Okay. Fair enough. And just one follow-up for Pam in terms of the financials. Previously you guided to cost at Mt. Milligan in the sort of $280 million range on a sustainable basis. I think this year you had sort of indicated somewhere between $250 million to $260 million. Can you just confirm that cost including TCRCs and freight and say the number that you disclosed in the first quarter on a segmented basis the $44.9 million is that excluding TCRCs i.e. that a deduction of revenue I just want to make sure we are comparing apples-to-apples here?

Pam Saxton

It does include all the $250 million to $280 million that we talked about before does include all the TCRCs and there is actually in the 10-Q if you look in the back of the reconciliation of our cash cost you can see that it includes all the TCRCs as well so.

Orest Wowkodaw - Scotiabank

Sorry, but does that $45 million that you reported in Q1 for Mt. Milligan cost is that – does that include TCRCs and freight or not?

Pam Saxton

It does. Are you talking about what's flowing through the income statement?

Orest Wowkodaw - Scotiabank

Yes, in terms of your segmented disclosure?

Pam Saxton

That's correct. And of course just keep in mind that it's only for two shipments the sales of two shipments because the rest of it for the third shipment is in inventory, product inventory.

Orest Wowkodaw - Scotiabank

Okay. And as going forward TCRCs and freight will be added to cost to goods rather than being deduction revenues is that correct?

Pam Saxton

Yes.

Operator

We will take our next question from David Charles with Dundee Capital Markets.

David Charles - Dundee Capital Markets

Just a quick question on the Thompson Creek Mine. I’m wondering if the recent slide in the wall will have an impact on the studies, the ongoing studies on viable options for that mine. You seem to suggest on the call today that you’re still considering shutting down that mine at the end of the year. And I’m just wondering given the recent rally in moly prices how does that played into your views at this time?

Jacques Perron

Good morning, David. As we said in the past our plan was put together and we’re looking at going into current maintenance at the end of this year. However you are correct based on the recent increase in the moly price we’re putting things back on the drafting table as we speak and we’re looking at different alternatives and within our review we’re also doing work and assessing the wall failure and the impact it would have on Phase 8 and if it would have any impact.

So we are currently doing all this work and as we said before we’re going to continue to look at the options of alternatives and we make decide to change our plan but like so for the plan is to go into current maintenance at the end of the year but you are correct depending on what we see coming out of the queues we get from the market and the moly price in the coming months we may take a different approach.

David Charles - Dundee Capital Markets

And maybe I can ask if I could another question and this one would be more for Mark. I mean Mark seems to suggest that the outlook for moly if I held them correctly said in the short-term the market is a little bit short of material. Can he, if you could give us sort of a view moving on let's say because we are all aware that Sierra Gorda comes on screen sometime this year hopefully and or not hopefully but anyway that's the plan. And I am wondering how that would impact his view on whether he thinks we will have a surplus or a deficit in 2015?

Mark Wilson

Yes. There is always two sides to it of course and the other one is the demand and we are finally seeing some more broad-based demand growth for molybdenum which is encouraging it's been absent for a number of years and then that has to be counterbalanced by at what rate -- when and at what rate we will Sierra Gorda come online which in our own experience it's challenging to predict with precision and since they are not yet operating now it’s really something I think still to revolve over 12 month period of time and so it really depends on what we see for demand growth in the interim and then in the outer years.

So what's clear to me that the market will be in the same degree of surplus as we might have thought a year or so ago? I think the market is more -- it's tighter at the moment clearly and the prospects for it being tied into the future have improved.

David Charles - Dundee Capital Markets

Can you comment maybe based on the demand growth that you’re seeing now and how that will compare to the if I remember correctly it's 3% demand growth that molybdenum has experienced in recent years.

Mark Wilson

It’s -- I never maintain any sort of precision with it that sort of insight when it comes to molybdenum consumption. It's so difficult to see it in real time. It's easier to understand it looking backwards because the amount of molybdenum in the fields is difficult to know frankly. I mean, the growth figures we've seen recently is well above the 33% but you can't extrapolate that into the future necessarily, David. So I really wouldn't want to venture. Last year, we saw softness. So you'd expect acceleration to follow the softness, I think we are seeing that now.

David Charles - Dundee Capital Markets

And then just one final comment maybe if you could, and the areas where you think this growth is coming from, I mean, is it being driven by oil and gas drilling and stuff like that or do you have any comment to make there?

Mark Wilson

Yes, oil and gas, automobiles, stainless steel markets, a lot of it too with the rise in the nickel price. It benefits from the pricing mechanisms for surcharges. In a rising market in a trailing pricing mechanism you often see accelerated consumption of stainless steel and I think we're seeing that now.

What's encouraging too, it's geographically spread, which in the past Europe had not shown this strength, and we're seeing movement there as well.

Operator

We'll take our next question from David Olkovetsky with Jefferies.

David Olkovetsky - Jefferies

Good morning, guys. So in your presentation you note that you're anticipating cash flow positive in 4Q '14 for the entire company. I just wanted to confirm that that's after CapEx, after interest, after capitalized interest, etc.

Jacques Perron

Yes, you're correct. We always said -- earlier this year we said that if we were confident to maintain the $75 million to $100 million there is always thoughts out there we're going to have liquidity issues. With the recent increase moly price and the performance and the cost at Mt. Milligan, we're more confident now and we're comfortable to say we're going to maintain that $75 million to $100 million. We're going to have good liquidity this year to next year, so we don't have any issue. And that's after CapEx and all expenses.

David Olkovetsky - Jefferies

And then also you reiterated that Mt. Milligan would be cash flow positive in the second half of '14. Can you just give me a sense for how much cash that operation burns this quarter?

Jacques Perron

We have to look at our notes to answer that question quickly, but yes, in the past we said that Mt. Milligan would be cash positive in the third quarter. We slightly changed it to saying that second half of the year because now with the timing of the sales and the shipments and the final payment it may shift a little bit between one quarter to the other, but we are still confident that Mt. Milligan will be cash positive in the second half of 2014. And I'm not sure if Pam has the number right now to give you on the burn rate for the first quarter at Mt. Milligan.

Pam Saxton

Yes, so when you look at the direct mining cost measured in U.S. dollars for the first quarter it was $50 million, refining and treatment cost were about $3 million and then transportation, warehousing and insurance was $3.6 million. And that was for the three months for the first quarter.

David Olkovetsky - Jefferies

Right, and insurance $3 million as well. Okay, and then, Jacques, you mentioned obviously and I think we're all aware of it, but moly prices are rising pretty rapidly here. How much of a benefit is that going to give you in the second quarter? You mentioned that you should see some benefit. I just wanted to understand if you can quantify that.

Jacques Perron

It's pretty easy to figure out, David. We're producing about let's say, to make it easy for everybody, we're producing about 30 million, 28 million pounds to 30 million pounds this year. So let's say, about just over 7 million pounds per quarter while every dollar of increase in the price gives us a $7 million increase in the revenues for the quarter. So that gives you a rough idea of how much we generate. We were expecting the 2014 prices to be in the $10, $11 range and now we're closer to the $13, $14 range. So the prices would remain there for the quarter. That means $2 to $3 more per quarter. So you can do the math and figure out how much more per quarter we would get.

David Olkovetsky - Jefferies

Yes, so -- no, I totally understand that. What I mean specifically was on the timing because as I look historically there seems to be a bit of a lag. Just wanted to get your view on what an appropriate lag would be for our modeling purposes. Is it something like six weeks?

Jacques Perron

Yes, at the moment, we are selling exclusively on a contract basis. Our contract customers have absorbed all our available molybdenum. So we are not able to sell on the daily spot market. As in the past we've typically averaged 80% on the contract and 20% on a space basis.

Our monthly contracts are all priced on industry indices either for the current month or the month prior. And I would say about 65% of our sales is a month prior. So that's a month lag to the monthly average. And then 35% is basically the month of delivery. So for example, April's average price is $1.90 higher than the March average price. So we will see that level of increase in our May sales. So simply put, you could say there is a one month lag but it’s not quite a full month any longer because a lot of -- a third of our sales are roughly current month.

Operator

We'll take our next question from Melinda Newman with First Pacific Advisors.

Melinda Newman - First Pacific Advisors

Hello, couple of questions. So when you're saying $75 million to $100 million minimum liquidity, when I look through estimates given, increase in moly price for the last third quarters of the year and understanding that most of your cash coupons that they're all basically on the bond, second and fourth quarter. I'm missing something. Is that a very conservative estimate because it seems to me with the CapEx that you confirmed in the presentation my estimates of what your EBITDA which are pretty in line with the Street, cash interest and my working capital estimates including and then amortization on the Caterpillar equipment finances so that you shouldn’t really be burning that much more cash. What am I missing? Because it seems like you should end up with a lot more than $75 million to $100 million of liquidity.

And related to that I see Mike, can you tell us what the cash taxes were please for the quarter?

Pam Saxton

So yes, you're correct. I wanted to clarify a little bit. We have set an internal goal of not to go below $75 million to $100 million. That's kind of our minimum. That isn't us giving you guidance on that's what our cash balance is going to be, we're just letting you know that that's our minimum number. And as you stated, yes, given the rise in moly prices and everything we believe our cash balance will be higher than that but we will not drop below that level, if that helps.

Melinda Newman - First Pacific Advisors

Okay. Are you able to disclose cash taxes because it looked like it was pretty big for the quarter?

Pam Saxton

As you look at, it's actually in the 10-Q in our cash flow information note 16, its net of refunds. It was only about $0.5 million. And in terms of the income taxes paid net of refunds.

Operator

And we'll take our next question from John Tumazos with Very Independent Research.

John Tumazos - Very Independent Research

Thank you. How many tons as your best guess as the slide at the tops in mind, first question. Second question, if you improve crushing and grinding capacity at Mt. Milligan, what would be the best way to add it another crusher or a secondary, tertiary crusher, a SAG mill, a ball mill and what might the range of cost be and what might be the range of time to get it in store?

Scott Shellhaas

Hi, John, this is Scott. With respect to your first question, at Thompson Creek, the amount of material displaced based on our current best estimate is around 4 million tons of material. And for the most part, the area has stabilized.

In regards to your second question, we do not have any definitive thoughts at this time. I mean, we are conducting and we will be conducting various studies, but for those of you that have been to Mt. Milligan you know that there is plenty of room to put additional infrastructure if we need to, but we have not reached any conclusion, number one, that additional infrastructure will even be needed and, number two, if our test indicate that changes might be required exactly how we would institute those changes. Right now, really our goal is to use the current infrastructure and maximize the grinding capability of that before we jump to any conclusion that we need to invest additional funds in crushing infrastructure.

John Tumazos - Very Independent Research

Thank you. Either at the feasibility phase years ago or more recently, has the entire deposit can sampled for hardness or just more accessible parts of it?

Scott Shellhaas

John, the hardness would have been looked in the various core drilling that was done in the past and the hardness reviews that were done primarily during the pre-feasibility stage, and then at the time when terrain was updating their feasibility work. I mean, we continue to look at the way the material fractures. And the pure hardness of the ore doesn't necessarily dictate how the material fractures; it also pertains to where the material is lined within the deposit. And those that we are taking on an ongoing basis. So we continue to study that.

Operator

And we will take our next question from Crystal Lin with John Hancock Investment Management.

Crystal Lin - John Hancock Investment Management

Hi, thank you for taking my question. Just looking at the gold by product credit numbers, it's not a big difference but I just try to understand it. So the gold revenue based on your realized price and it is in to the $24.5 million and then that on your byproduct calculation the gold is $22.8 million and then the total byproduct part is $23.5 million, so there is a million dollars difference there. I'm just trying to understand what it is. I know it is not a big number but am I missing something here just so that I know in the future how to model it?

Pam Saxton

Sure. What we have done in our gold sales is the amortization of the deferred revenue that comes out of the balance sheet. And so we backed that out as a non-cash item because these are cash costs and so that's why you see the byproduct credits are little lower than what you see in the income statement.

Crystal Lin - John Hancock Investment Management

So the byproduct credit is actually less than the actual gold revenue.

Pam Saxton

Yes, because we are amortizing the amount of money we received from Royal Gold upfront, it's in the balance sheet. We are amortizing that into the income statement, and that's the difference.

Crystal Lin - John Hancock Investment Management

Okay. And so normally how much is that roughly the difference?

Pam Saxton

I don't think that's normal too but it’s really based on the gold sales and the gold deliveries. We are amortizing the deferred revenue over the life of mine, it's really like a unit of production and it's a unit of sales then that we amortize in.

Operator

And at this time due to the length of the call, we can only accept one question from the remaining questionnaires. We will move on to Daniel McConvey with Rossport. Please go ahead.

Daniel McConvey - Rossport Investments

Hi, and may be this question is, I just only have one. Mark, for the rise in the price, is this in your mind related to the stainless steel demand as a result of the rise in nickel prices? The timing is quite coincidental.

Mark Wilson

Yes, it's interesting that they are coincidental I think they actually are separate. And there is a coincidence related element in terms of perhaps because I mentioned the pricing that it exists in stainless steel. Nickel has kicked off because of the Indonesian government their action in terms of restricting exports. And molybdenum has accelerated due to the rising demand which we really saw in January in United States in the face of very limited inventory. And by the end of March that was widely understood within the marketplace that moly was not available to be had. And so I think largely its coincidental although in some sense there is a paired relationship, but it isn’t driven exclusively by stainless steel demand.

Operator

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

Steve Bristo - RBC Capital Markets

Thanks. Just on the amortization of that deferred revenue. I previously thought that any excessive market price over the 435 was going to be used to reduce that deferred revenue. So I was wondering when that changed. And if you guys aren't booking that full excess that mean Royal Gold is booking some of that excess on their revenues.

Pam Saxton

So there is two different pieces, you can think about it this way. For financial reporting and for accounting purposes that deferred gold stream is amortized over the life of mine. But under the Royal Gold contract as we track it, you are correct; it's the difference between the spot price and the 435 price that for under the agreement that we are amortizing down that deferred revenue. So you can't look at the accounting and related that to what is going on in the agreement. And in the footnote itself we are tracking and we are telling you what the remaining balance is under the contract itself again taking difference between the 435 and the spot price.

Operator

And we will go next to Henry Boscoboinik with Fuller Research.

Henry Boscoboinik - Fuller Research

Great. Thanks for taking my questions. Actually I have three of them, all of them for Pam. First, you guys have the three shipments during the quarter and payments received towards them. Will there be a lag for every quarter or would you expect to get payments four payments in the next quarter? The second question is a clarification. On the sales revenue for copper, you guys booked $29.8 million, and that's $3.01 per pound but the copper sales were 10.8 million pounds in the quarter. So I can't seem to reconcile these two numbers and getting basically a difference of $3 million. I am hoping you can help me with that. And the last question is on the Caterpillar lease line. You guys have some comments on that line but I think it will be tested about 11 months from now. Some of them were relatively tight. When do you start looking at them and addressing that? Thanks.

Mark Wilson

Yes, this is Mark Wilson. I will answer the first question regarding the timing of shipments. It's quite likely that we will be seeing a variance of one, of recognizing price line or payments or sales of one shipment each quarter that in some quarters we will get the exact number that we shipped and others we won't. It has to do with number of things and when the materials available, when the ship arrives and then the terms of payment on the off-takers differ. So for example, we did recognize the one sale in April and we will have three shipments in the third -- in the second quarter. So we will have either three or four sales to be recognized in the second quarter. And that will really depend on the timing of the -- of June shipment, which at the moment is scheduled to be late in June. And so it's unclear at the moment as to whether or not that will be recognized in this quarter or the next. And that will be a phenomenon that will be ongoing where they'll be the last shipment in the quarter, may or may not have recognized in that quarter.

Pam Saxton

On your question on the sales revenue regarding the 301, both the copper and the gold sale are net of refining and treatment charges. And so as you look at the gold, the cooper sales at $29.8 million, you add back the refining and treatment charges you get to about $33 million divided by the 10.8 million pounds get you to $3.01.

And then, lastly, can you restate your question on the cap because I don't think I understood exactly what your question is?

Henry Boscoboinik - Fuller Research

Sure. There are some covenants on that line that I think have crossed the Fulton on other debt. I think one of the covenants is maximum leverage, I think it's tested on the 12 months basis starting with the quarter Q1 and takes 12 months from the end of Q1. The some of the covenants with fairly tight relative to where you guys are right now even were the guidance is. So when do you start thinking about the covenants? Is it something that is of concern today? Is it something that you will address when the time comes or somewhere in between?

Pam Saxton

When we did the secured bond offering, we took out any covenants on the Cat financing. So there are no maintenance covenants under the Cat financing. So I don't know if you are -- you need to look at the updated agreement on that which I am pretty sure is on file.

Operator

And we'll go next to Melinda Newman with First Pacific Advisors.

Melinda Newman - First Pacific Advisors

Hi. Just one more question. This is regarding Thompson Creek Mine. I know given the moly price and I'm sure you're going to want to watch it and see what happens. But let's say, you were to consider Phase 8 and safety and everything were non issue. Do you have any initial thoughts on -- because I know the company deferred overburden removal sometime ago? What might be the cost, CapEx or operating cost to get going again associated with going ahead on Phase 8?

Jacques Perron

If we were to go ahead I think as we mentioned in the past, we're looking for the initial stripping to go back into production. We're looking at about $80 million to $100 million to get that work done.

Operator

And this does conclude our Q&A session for today. At this time I'd like to turn the call back to Jacques Perron for any closing remarks.

Jacques Perron

Thank you. Well, I am sorry guys if we have to cut short on questions. We have our AGM starting in a few minutes, so we have to get going. And we really appreciate the fact that we have such a good following from you guys and all the questions. It’s not that we don't want to answer all of them but, as I said, we have to get going to our annual shareholder meeting and that's that we can't delay.

We're very pleased with the way things have been going in the first quarter. We're definitely happy with the increase the -- recent increase in the moly price, that gives us opportunities to look at what we can do with the company in the near future.

I want to reiterate that, as Pam mentioned, our objective is to have $75 million to $100 million. We're confident we're going to keep that level of cash and more, but that's our objective. And we're very confident with the performance so far and the performance in the moly price that we'll be able to achieve that objective and surpass it. So things are going well. We're going to continue to focus on Mt. Milligan. And we're going to be really happy to update you at the end of the second quarter on our progress. So thank you very much and have a good day everyone.

Operator

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

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Source: Thompson Creek Metals' (TC) CEO Jacques Perron on Q1 2014 Results - Earnings Call Transcript
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