Update: Thompson Creek Metals' Earnings

Aug. 6.14 | About: Thompson Creek (TCPTF)


Thompson Creek Metals reported strong earnings of $22 million, with $51 million in cash flow on $278 million in revenue.

The company's gold and copper production was in line with my November expectations.

With production of all metals rising and the bear markets in gold and molybdenum apparently near an end, the tock appears compelling, although high debt remains a risk.

Thompson Creek Metals (TC) recently reported incredibly strong earnings. The company generated revenues of $278 million, adjusted net income of $22 million, and cash-flow of $51 million. For a company with a market capitalization of just $475 million these figures are incredibly strong for just one quarter. If we dig deeper into the numbers we see that the company grew its molybdenum production from 6.5 million pounds to 7.5 million pounds. Gold and copper production are up from 0 given that they are products generated by the company's newly operational Mt. Milligan Mine. However, gold production is expected to exceed expectations (185,000-195,000 oz. vs. estimates of 165,000-175,000 oz.) while copper production should be in line with the company's previous 65,000-75,000 pounds guidance.

These are excellent figures. The company is growing while it trades like a depressed asset thanks to the enormous amount of debt it assumed when constructing Mt. Milligan and the recent bear market in molybdenum, which seems to be coming to an end. In my November article I expressed concern that the company's Mt. Milligan expenditure had been way too high and that the company was forced to sell more than half of its gold production to Royal Gold (NASDAQ:RGLD) at $435/oz. while assuming a lot of debt, but the company seems to be positioned to overcome these problems while trading at just 2.3 times its annualized operating cash-flow.

The company certainly isn't out of the woods yet considering that molybdenum may not be out of its bear market, copper keeps running into resistance at $3.25/lb., and gold continues its bottoming process. In the event that these metal prices remain depressed we can see the company begin to lose money and investors become fearful. But the company can counter that as it brings Mt. Milligan up to full production, which is 260,000 ounces of gold (170,000 after 7 years) and 90 million pounds of copper production (78 million after 7 years). While Thompson Creek will be struggling with debt for some time unless metal prices rise I don't think it is at risk of bankruptcy, and it has a lot of upside potential, as the Q2 numbers demonstrate.

With this in mind I think Thompson Creek is a "buy" at current prices.

Disclosure: The author is long RGLD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.