Despite Production Shortfall, Thompson Creek Still a 'Buy'

Jan.16.08 | About: Thompson Creek (TCPTF)

Thompson Creek Metals Co.'s (TC) announcement that its 2007 production targets have been revised downward put investors in a tizzy Thursday, and sent the stock down more than 10% by the end of the trading day.

As shares continued to fall on Friday, analysts on the Street, including Versant Partners' Ian T. Parkinson, weighed in to provide perspective on the production shortfall to their clients.

Mr. Parkinson said in a research note that,

From an operational perspective, it has to be understood that delays in large scale mining efforts are to be expected. The news of a rock slide or the difficulty in reaching high grade ore can be heard across the metals sector on any given day.

The one concern we would have is how much caution is built into the forecast – and on that note would prefer to see a more conservative ramp up for production, with discounts for items beyond the control of experienced operators.

So, taking a conservative stance, Mr. Parkinson revised his estimates for the molybdenum miner by further decreasing targets from Thompson's revised production forecasts of 17.5 and 24 million pounds for 2007 and 2008 down from 20.5 and 27 million pounds "in order to capture the risk of not achieving targets to date and the pace to ramp-up."

His estimates, including production, net asset value and cash flow, also exclude any upside from Thompson's Davidson mine coming online, the Endako mine expansion and any further potential at the Thompson Creek mine.

As such, Mr. Parkinson reduced his price target from C$26.50 to C$24.25 but still maintains his "buy" rating.