Thompson Creek Metals's (TCPTF) CEO Jacques Perron on Q2 2016 Results - Earnings Call Transcript

| About: Thompson Creek (TCPTF)

Thompson Creek Metals Company, Inc. (OTCQX:TCPTF) Q2 2016 Earnings Conference Call August 9, 2016 11:00 AM ET

Executives

Pam Solly - Director, IR

Jacques Perron - President and Chief Executive Officer

Pam Saxton - EVP, Chief Financial Officer

Analysts

Patrick Fitzgerald - Baird

Brian Charles - RW Pressprich

Operator

Welcome to the Thompson Creek Metals Company Second Quarter 2016 Financial Results Conference Call and Webcast. [Operator Instructions] At this time, all lines are in listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded today, Tuesday, August 9, 2016 and will be available within two hours after the call.

I would now like to turn it over to Pam Solly, Director of Investor Relations of Thompson Creek Metals Company. Please go ahead.

Pam Solly

Thank you, Operator. Good morning, everyone and welcome to the Thompson Creek Metals Company second quarter 2016 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 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 today's second quarter 2016 conference call presentation which has been posted to our website and furnished as an exhibit to the Form 8-k dated August 8, 2016, for more information about these non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures. Unless specifically noted, all comparisons of results for the second quarter of 2016 are made against the corresponding period in 2015.

Joining us on the call today will be Jacques Perron, President, Chief Executive Officer and Director.

Jacques Perron

Good morning, this is Jacques Perron.

Pam Solly

And Pam Saxton, Executive Vice President and Chief Financial Officer.

Pam Saxton

Good morning everyone, this is Pam Saxton.

Pam Solly

I will now turn the call over to Jacques Perron.

Jacques Perron

Thank you, Pam. Welcome, everyone. And thank you for joining us this morning. We begin this morning as we always do with our Company’s safety report. Our safety performance for our combined operations continues to outperform the mining and metal processing industry average incidence rate. But we did see an increase an increase in incidents during the second quarter of this year.

Fortunately these were not serious or life-altering injuries, and our work day is lost to injury, continues to be extremely low. Our teams are committed to continually improving our safety performance. We thank all of our employees for their continued dedicated toward achieving our safety objectives.

For the second quarter, we reduced unit cash cost on a byproduct basis by 23% compared to the second quarter of 2015. We generated net cash flows from our molybdenum business of approximately $3 million and ended the quarter with working capital of approximately $130 million including approximately $120 million of cash.

Our copper and gold payable production decrease quarter-over-quarter which I will discuss later in the call. But based on our forecast for the balance of the year, we expect annual production to be in-line with our 2016 guidance with payable copper production near the high-end of the range and payable gold production at the low-end of the range.

During the quarter, we completed four shipments of copper and gold concentrates from Mount Milligan. Copper and gold sales from these shipments contributed approximately $102 million in total revenue with approximately $38 million from copper and $65 million from gold.

Construction activities in connection with the Mount Milligan permanent secondary crushing circuit proceeded as planned and remain on schedule.

During the quarter, we continued to contain cost at our molybdenum operations and generated a total of $26 million in sales revenue, approximately $22 million from molybdenum sales and the $4 million from tolling, calcining and others.

As previously announced on July 5, we entered into an arrangement agreement with Centerra Gold, pursuant to which Centerra will acquire all of the outstanding common shares of Thompson Creek. We will discuss the proposed transaction later in the call.

I will now turn the call over to Pam Saxton to review the financial results. Pam?

Pam Saxton

Thank you, Jacques. During the second quarter of 2016, we generated revenue of $129 million, operating cash flow of $6 million and non-GAAP EBITDA of $24 million. For the quarter, we had an operating loss of $4 million and a GAAP net loss of $28 million or $0.13 per diluted share.

Excluding the non-cash foreign exchange loss, net of tax impacts, the non-GAAP net loss was $27 million or $0.13 per diluted share. The net loss for the quarter was primarily due to interest expenses of $20 million and the operating loss of $4 million.

During the first half of this year, we had total revenues of $226 million, cash drained from operations of $9 million and non-GAAP EBITDA of $49 million.

We had operating income of $4 million and GAAP net income of $7 million or $0.03 per diluted share. Excluding the non-cash foreign exchange gains net of tax, we had a non-GAAP net loss for the first half of the year of $46 million or $0.21 per diluted share. The net loss for the first half of 2016 was primarily due to interest expenses of $42 million.

Cash capital expenditures for the first half of 2016 were $32 million which were primarily related to the construction of the permanent secondary crusher circuit at Mount Milligan.

We ended the quarter with approximately $120 million of cash, $130 million of working capital and $873 million of debt including our capital lease obligations.

Our 2016 guidance remains unchanged. We currently expect that our 2016 payable copper production will be on the high-end of our guidance range. And our 2016 payable gold production, byproduct cash cost and capital expenditures to be at the low-end of our guidance. Please note that all of the guidance assumes a foreign exchange rate of $1 equals CAD128 for 2016.

At this time, I will turn the presentation back over to Jacques to provide the sales summary and operations review.

Jacques Perron

Thank you, Pam. Looking at our copper and gold sales from Mount Milligan in the second quarter we completed four concentrate shipments. In total, we sold approximately 43,000 tons of concentrate containing approximately 20 million pounds of copper and 62,000 ounces of gold.

These forward sales resulted in $38 million in revenue from copper at an average realized price of $2.15 per pound and $65 million in sales revenue from gold with a weighted average realized price of $1,041 per ounce after recognizing the sale of gold under the gold stream arrangement with RELGOLD.

For the first half of this year, we completed seven concentrate shipments. In total, we sold approximately 74,000 tons of concentrate containing approximately 35 million pounds of copper and 107,000 ounces of gold.

The seven sales resulted in $66 million in revenue from copper at an average realized price of $2.16 per pound and $110 million in sales revenue from gold with a weighted average realized price of $1,035 per ounce after recognizing the sale of gold under the gold-stream arrangement with Vera Gold.

In the second quarter of this year, we sold approximately of molybdenum sourced entirely from third party product which generated approximately $22 million in sales revenue at an average realized price of $7.38 per pound.

Our revenue from molybdenum toll processing, calcining and others for the second quarter totaled just over $4 million. For the first half of the year, molybdenum sales totaled 6 million pounds and generated $42 million in sales revenue at an average realized price of $6.92 per pound.

Our revenue from molybdenum toll processing, calcining and others for the first six months of the year totaled approximately $9 million.

Moving on to our production results during the second quarter, Mount Milligan had payable copper production of approximately 15 million pounds with a cash cost on the byproduct basis of $0.37 per pound and a co-product basis of $1.84 per pound. Payable gold production for the second quarter was approximately 46,000 ounces with a cash cost on the co-product basis of $728 per ounce.

For the first half of the year, payable copper production was approximately 34 million pounds with a cash cost on the byproduct basis of $0.60 per pound and on a co-product basis of $1.59 per pound. Payable gold production for the first half of the year was approximately 100,000 ounces with cash cost on a co-product basis of $618 per ounce.

Our copper and gold payable production decreased quarter-over-quarter as a result of lower recoveries resulting mainly from lower ore rates together with operational inefficiencies in the mill from higher throughput.

The performance for the quarter was also impacted by lower mill availability due to a scheduled relining of the SAG mill and the planned relocation of the reclaimed barge.

Additionally, the operation incurred some unscheduled downtime associated with a tear to the main conveyer belt feeding the mill and electrical issues with one ball mill. For the remainder of 2016, our primary operational focus will be to continue to optimize the mine and mill with the expectation to gradually increase recoveries.

Before proceeding to our discussion on the proposed transaction with Centerra Gold, I would like to reiterate a few key points.

We continued to optimize the Mount Milligan operation by making enhancements to the mill to better process the increased throughput. We are also completing the construction of the permanent secondary crushing circuit.

In the third quarter, we will have an approximately 8-day shutdown for the tie-in of the new conveyer system. To date, the project is on schedule and we expect total CapEx to be less than $60 million inclusive of approximately $22 million incurred during the first half of 2016 and approximately $15 million incurred in 2015.

Once the permanent crusher is completed and commissioned, we expect average daily mill throughput to increase the 62,500 tons per day and above. For the remainder of 2016, we will continue to focus on optimizing the Mount Milligan operation with the expectation to gradually increase recovery.

And finally, our molybdenum business is expected to generate sufficient revenue in 2016 to substantially cover the care and maintenance cost at our Thompson Creek and Endako mines which will enable us to maintain the option value of these assets.

With that, I will turn my discussion to this proposed transaction with Centerra Gold. Since November of last year, we’ve been engaged in an extensive process with our advisors to evaluate all available alternatives to address our company’s high debt level amid the ongoing and challenging commodity price environment. Following an extensive process to evaluate all available restructuring, refinancing and sale alternatives, we have entered into an arrangement agreement with Centerra Gold pursuant to which Centerra will acquire all of the outstanding common shares of Thompson Creek.

Slide 19, of the presentation provides a summary of the proposed transaction. Throughout this robust process, our objective has been to find a solution that would be in the best interest of all our stakeholders. Under the terms of the proposed transaction, all of our outstanding notes will be paid off in accordance with their terms, and our shareholders will receive value in the form of Centerra shares at a premium to our stock price.

Going forward, our shareholders will have the opportunity to participate in the potential value of two flagship gold assets, Mount Milligan Mine and Kumtor Mine as well as a portfolio of high quality development and exploration opportunity.

The closing of the proposed transaction is subject to certain conditions including approval by Thompson Creek’s shareholders, approval by the Supreme Court of British Colombia and other customary closing conditions.

If the proposed transaction is not consummated, we will have little time to refinance or restructure our 2017 notes by the end of this year when these notes become current debt. At that point there would be substantial doubt about our ability to continue as a growing concern which would put increased pressure on our liquidity and raise the possibility of bankruptcy in which case our security holders could lose their entire investment in our company.

We have filed a preliminary proxy statement on EDGAR and SEDAR. We expect to file and mail a final proxy statement in the coming weeks which will disclose the record date and meeting date for the special meeting at which we will seek our shareholders’ approval of the deal. We anticipate the proposed transaction to close in the second half of 2016 subject to shareholder approval.

Before I turn the call to the question-and-answer period, I’d like to remind everyone that we had a number of objectives over the last few years. The first one was to continue to operate our operations as a responsible safe and environmentally friendly operator, which we believe we have achieved and continue to strive to do better all the time.

We wanted to stabilize our moly business and transform the business in order to be able to keep the options value at no cost to the company. And we’re happy to say that we have reached that point.

We wanted to get Mount Milligan up and running and maintain cost at a very low level, while we continue to increase throughput and continue to work on recoveries. We have plans to continue to advance the performance at Mount Milligan and we’re confident that we will achieve great results at that operation over time.

And our last objective was to find a solution to our balance sheet issues. In the current commodity context, we believe we have found the best possible solution for all our stakeholders and are very happy with our proposed transaction with Centerra Gold.

I will now open the call for questions. Please be aware that until we file our final proxy statement, we have unfortunately limited, we are limited in what we can discuss. But we will do our best to answer your questions. Thank you. Operator, could you please review the instructions?

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from Patrick Fitzgerald from Baird. Your line is open.

Patrick Fitzgerald

Hi guys, congrats on the transaction. When do you expect to send out the final proxy?

Jacques Perron

Patrick, this is Jacques speaking. As you know we are U.S. filer and we have to go through some process with the U.S. SEC, the Securities and Exchange Commission. We’re in the process of finalizing all these steps. One we have full approval by the SEC. We’ll be in a position to mail the information which should be in the next week.

Patrick Fitzgerald

Okay. So, you’re still targeting mid-August to send out the final proxy?

Jacques Perron

Well, it’s difficult for us Patrick to give a date. But we expect to be able to finalize all the steps that we have to go through with the SEC in the coming weeks and then be in a position to mail all the information to all the shareholders.

Patrick Fitzgerald

Okay. So, the SEC chose to review the preliminary proxy filing, is that true?

Jacques Perron

Again, we have to go through the process with the SEC and they have to clear our proxy statement. So we’re in that process right now. And once that is done then we’ll be able to mail. But again we have very little ability to give a precise date right now because we’re in the process where we don’t know exactly how much time it’s going to take to finalize everything with the SEC.

Patrick Fitzgerald

Okay. And then from there, the shareholders would have 30 days with the final proxy before the date that the vote would happen - would occur, is that correct?

Jacques Perron

Yes, when we mail the proxy information, as I mentioned earlier, we will - the record days will be disclosed in there. And the date for the Shareholders Meeting for the special meeting of shareholders, so, will be all disclosed - and the information and the proxy that we will mail to the shareholders as soon as we have finalized again the steps with the SEC.

Patrick Fitzgerald

Okay. All right, I think that’s it from me.

Jacques Perron

Thank you.

Operator

[Operator Instructions]. Your next question comes from Brian Charles from RW Pressprich. Your line is open.

Brian Charles

Hi, good morning. As far as regulatory approval from Canada is concerned, do you have any color on that on how that’s progressing I guess the Investment Canada Act and the Competition Act?

Jacques Perron

Well, we’re in the process of going through this approval as well. I would say I’m not aware of anything special going on at this time. But it’s in the process. And it should line-up with all the other steps that we have to execute to get that done before the shareholder vote.

Brian Charles

Okay. So, that’s for C&A essentially as expected, those approvals should be forthcoming by the time you send out the proxy I guess, the final proxy?

Jacques Perron

Yes, we don’t expect any issue from that side.

Brian Charles

Okay, great. Thank you very much. That’s it.

Jacques Perron

You’re welcome.

Operator

We do not have any questions at this time. Mr. Perron, I turn the call over to you.

Jacques Perron

Okay. Well thank you Sharon. Again, I just like to thank everyone for being on the call. We’re very happy with the achievements we’ve been able to execute on over the last years. And I want to say that this would not be possible without the hard work of all our employees at all our operations and at the corporate office here in Denver.

It’s been a very challenging time but we’re happy that we have solutions to our debt issue and a solution that will provide future growth and future value to all our shareholders. So thank you again. And have a good day. Bye now.

Operator

This concludes today’s conference call. You may now disconnect.

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