Executives
Kevin Loughrey - Chairman and CEO
Thompson Creek Metals Company Inc. (TC) Wall Street Analyst Forum March 27, 2008 10:30 AM ET
Moderator
Good morning, ladies andgentlemen. In our ongoing attempt to adhere to the public schedule, I'd like tointroduce the next company in this morning's program. We don't like to startmeetings late, but we don't like to start early because the webcast attendeesare tuning in, in a particular minute, in a particular hour to your particularcompany. So, if we start early, which would always tend to do, in some cases sothat we don't keep the physical attendees waiting, then we hurt them.
We want to welcome not only theanalysts, portfolio managers that are physically attending the conference, butinvestors who actually attend through three different new media channels beyondbeing here physically. This is the webcast for those of you that are here. Ifyou want to re-attend the webcast or live, they are retrievable for 30 days. It'sboth the audio and the PowerPoint component of the program. So we have three,four, five, six times as many investors attend the webcast than attend inperson.
There's a firm in Israel with a website that's better known in theUScalled Seekingalpha.com. They actually do a transcript of every presentationand question and answer session, including the interactive that takes placehere, and they have it on Yahoo! Finance six hours after the presentation, websearchable. So any investor that looks out for any company, and any of ourconferences on Yahoo! Finance, just six hours or later, the next day or week ormonth, will find the transcript, word for word, of the presentation and questionand answer session.
And the third new media channelwe use, and about half the companies take advantage of it, and half don't, is avideo of the webcast and a video of the 30 minute presentation. They edit itdown to three minutes, and they put that up on AOL Finance, MSN Money, Investopedia,their website Wall Street Media as well. So there are three differentdistribution channels, new media distribution channels, which probablyrepresent 97% of our overall attendees.
And the physical attendees mightrepresent less than 10% or so of the actual number of attendees numerically. It'sinteresting, with the physical attendees being the guinea pig so to speak, forthe rest of the attendees. They get to hear your question and answer session,even though they can't actually participate.
The next company in thismorning's program, Thompson Creek Metals Company. It's one of the largestpublicly traded, pure molybdenum producers in the world. I didn't know what molybdenumwas five years ago, and now I'm an expert on it.
The company expects itsproduction to grow by 100% in the next two years. This development, along withan expected continuation of historically high prices for moly, will be verypositive for the company's cash flow and profitability. Moly has gotten a lotof attention in the last two years. It's funny. A lot of big Wall Street institutionshad been a little bit behind the power curve in gaining a real sense ofawareness of what its role is. Our keynote speaker even alluded to the factthat the Chinese are increasingly looking at this product, even in their owncountry, as a strategic asset looking out into future. Anyhow, without any further introduction,I'll introduce the Chairman and Chief Executive Officer of the company, KevinLoughrey.
Kevin Loughrey
Thank you very much, and thankyou all for attending. It's a pleasure to be here at the Wall Street AnalystForum this morning and to be in this great Augusta building; this is a great spot. Thereis nothing like this in Denver.It's a fantastic old building. We are Thompson Creek Metals Company, as we wereintroduced, and the product we produce is molybdenum. It is a metallic element,which is used in the alloying of steel. As was indicated there in theintroduction, it is not particularly well known in the analytical world and theinvestment world because prior to our coming out in October 2006 and a companyfrom China known as China Moly, which came out in that same year, there haven'tbeen any pure molybdenum companies that were listed on any exchange. It wassimply part of other larger mining companies or in private hands. But therereally wasn't much investment interest in molybdenum until very recently, andit has taken some time for that interest to catch hold. But it has become aproduct that people know much more about. It doesn't really have residentialapplications or consumer applications that are used in industrial applications,which we'll discuss.
But as you'll see as we gothrough the presentation, molybdenum has come of age. It's a great time to bein the molybdenum business, and it is an especially good time for us becausethere are several smaller molybdenum companies out there who are planning minesand trying to build mines in a very difficult environment. We have two mines oflong-standing duration that are producing significant amounts of moly now. Weare going to have the opportunity to expand on all of our projects, and so it'sa good time for us to be in the molybdenum business. I have a presentation herewhich can expand or contract from 10 or 15 minutes to over an hour, we haveabout 25 or 30 minutes, so I'll try to fit it in that amount of time. Consequently,I will move through some of these slides a little quickly. But we have copies,which you can take with you, if you'd like to.
This is the mandated cautionarystatement, which is to say we don't know anything more about the future thananybody else does, so you need to pay attention to the things we say about thefuture and think carefully about them. This is our stock price. It's been a littlebit of an up and down ride since we have come out, in part because thecommodities sector is very mercurial and we are as well. These are our assets;
Thomson Creek was a privatecompany that owned two mines: the Endako Mine in British Columbia, the Thompson Creek Mine in Idaho;and a metals processing facility in Langeloth, Pennsylvania, which you can seeon the map.
The company came about in 1993when Cyprus Minerals Company and Amax merged, and they owned most of themolybdenum production in the United States. The Justice Department looked in askanceat that, and so indicated there has to be a viable competitor before thatmerger could be completed. I was the General Counselor for Cyprus at the time, and I sold the Langelothmetallurgical roasting facility in the Thomson Creek mine to an individual, whoused to work for Cyprus,and he started Thompson Creek Metals Company at that time. In 1997, we thenwent up and bought the Endako Mine from Placer Dome and Endako's mine in British Columbia. Sothose three assets represented Thompson Creek Metals Company.
In 2005, a company by the name ofBlue Pearl approached us to take material from their Davidson Deposit, up therealso in British Columbia,and truck that ore down the road to our Endako facility for further milling androasting. We agreed to that and those negotiations grew until finally, BluePearl made an offer for all of Thompson Creek.
On October 26, 2006, we had what amountedto a merger between the two companies. Blue Pearl,the small Canadian junior publicly traded company purchased Thompson Creek, themuch larger private company headquartered in Denver. We have changed the name back toThompson Creek, since that's the name known in the business generally. So nowwe are a listed company. We listed initially on the Toronto Stock Exchange onNovember 29, 2007. We listed on the New York Stock Exchange under the symbol, TC.So we are TCM on the Toronto Stock Exchange and TC on the New York StockExchange. We are also listed on the Frankfurt Stock Exchange.
As you can see, we are one of thelargest publicly traded pure molybdenum companies, and there is only one otherpure molybdenum company. We have 1 billion pounds measured in indicated reserves.We have established North American operations, and we have a really strongongoing mining company, in a very good market.
Here you see a graph of ourproduction over the past several years and projected into the future. I amgoing to spend a minute discussing 2007. I know it's hard for some of you to see theslides, and I apologize for that. But 2007 was something of an anomalous yearfor us in terms of our production at the Thompson Creek Mine, and the reasonfor that was that the prior owner for I think what were good and valid reasonsat the time, in 2004 and early 2005, had to make a decision about forming astripping program. In the mining business, stripping is the removal of overburdento get access to the ore you need, to obtain the molybdenum. There was about a$45 million to $50 million stripping program that needed to begin in 2004 and2005.
He was uncertain where he wantedto go with the company at that time, and he waited a while to make the decisionagain, not a bad decision, simply a decision he made at that time. But theresults of the delay in making that decision was that when we got to the secondhalf of 2007, we didn't really have any ore uncovered. We were done with whatwe call Phase 5 at the Thompson Creek Mine.We were still in the midst of the stripping program for Phase 6, so we simplydidn't have available ore to mine and to sell.
We did have what weeuphemistically refer to as a low-grade stockpile, and what the people who haveto run it call junk, at the mine. And we accessed that and were able to getmaterial out of that. But it was at a much higher cost, and it was very low-gradematerial so there was less molybdenum contained in the available stockpile. Notonly was it low grade, but because it was low grade, as you put it through themill, you have a recovery factor, and traditionally at Thompson Creek, that recovery factor is about 90%, meaning, ifthere are 10 pounds of molybdenum in the ore, you will get 9 pounds out of it.But in this case, because it was so low grade, the recovery was also muchlower. Finally, it had been set aside and left out in the open for many years,and so it was very difficult to mill. It took longer to mill and sometimes we hadto put it through the mill twice to get the molybdenum out. Consequently, all thosefactors worked against us and we produced much less molybdenum in 2007 then wenormally would.
The reason I go into that detailis because when you see these charts and you see this very dramatic growth. Inthe case of the Thompson Creek Mineespecially, that's not the typical hockey stick curve that you see with somecompanies where they project here is where we are today, but here is where wehope to be. These are the projections levels this year that we have exceeded inthe past. We've produced as much as 20 million pounds, many times at the Thompson Creek Mine and will do soagain. So it's very predictable I think, what we can do there, and the unusualsituation was the second half of 2007. The production we hope to get goingforward is not unusual as something we haven't achieved before.
This is a picture of the ThompsonCreek Mine, which is located high in the mountains in central Idaho. It's a beautiful spot. It's got greatinfrastructure; power, water, we've got a good land position, and it's fullypermitted.
As we say, we think we'll get16.5 million to 17 million pounds of production out of Thompson Creek this yearand we have proven and probable reserves of over 200 million pounds.
Let's see, when we bought that shovela couple of years ago, that's a Bucyrus shovel. It's a $17 million piece ofequipment. The equipment for the mining business is very expensive, andnowadays it's very hard to get as the natural resources sector is going verywell. There is another picture of the mine. There you can see the individual atthe base that gives you an idea of the scope of that shovel. It's a significant piece of equipment.
You have a mill at Thompson Creekwhich takes the material that we get out of the mine. You put it through themill to extract the molybdenum, and what you get at the Thompson Creek Mine is productconcentrate, molybdenum disulfide, and it's not the salable product. To get thesalable product, you truck the molybdenum concentrate, which we produce at theThompson Creek Mine, across the country in trucks to the Langeloth facility in Pennsylvania. That seems expensive, in fact, it's probablyin the range of $0.15 a pound now, it used to be less than that before dieselprices went crazy on us. But the product sells for about $34 a pound, so the$0.15 isn't really significant. The Thompson Creek Mine has operated since 1983.
This slide shows the current mineplan as we have expanded the reserve base there. And what's interesting atThompson Creek is that we have done a reserve study. As a private company, wedidn't spend too much time on published reserves because it wasn't somethingthat the market paid us for. We always assumed that we had a 20-25-year minelife there. But what we have done now, since the last time reserve was done manyyears ago, we performed a reserve study last year based upon the drillinginformation we had in the red area of that slide. That was the existing drilling information.That increased our reserve to about 25% to 213 million pounds.
This year what we had scheduledis to do additional drilling on the outside and underneath that red area, so webelieve it's highly likely that the area of the ore body will not stop there at6,000 feet where the drilling happened to stop, but it will be contiguous at depth,it will expand perhaps vertically, so we expect to get great reserve growthfrom that new reserve study.
We can't of course predict what'sgoing to happen there, and we can't know what's going to happen until thereserve study is done. But our anticipation is that there is a high likelihoodof increased reserve capability at Thomson Creek, which will then expand theexisting 10-year mine plan to something beyond that. And that should come outin late 2008, we should have detail on that.
And here is the slide showing thegrades, the important thing to talk about when you talk about the molybdenumbusiness or any mining business, frankly, is that there are lot of numbers upthere. The one I think you should pay attention to is contained molybdenum inmillions of pounds. We start out with inferred reserves and implied reserves. Wetalk about molybdenum disulfide in the ground, but we use the 213 millionpounds number, because that number is the product we sell.
There is one further adjustment thatneeds to be made to that, which is the recovery factor I was telling you about.If you have contained molybdenum 213 million pounds in the ground and you have arecovery rate of 90%, which we do, that means you obviously have a 10%reduction. And so, as you look at every mining company, it's important to tryto understand and to get there the numbers down to the salable product that thecompany has available.
This is our other operation. Thisis the Endako operation in British Columbia. It is much like ThompsonCreek in a conceptual sense. It's a large open pit mine. It's been in operationsince 1965. So it's well understood, very predictable, very littlegeologic risk, and no completion risk. We own this mine; 75% ourselves and 25%is owned by the large Japanese trading concern, Sojitz Corporation. They helpedus buy the mine from Placer Dome in1997,and they have been excellent partners with us at this mine ever since.
We just did a reserve study at Endako and we extended the mine life therefrom 5 or 6 years when we purchased it, to 26 years. However, our Board of Directorsjust this month approved a plan to expand the milling capacity from 28,000 tonsper day to 50,000 tons per day. So we will be able to now shrink that 26-yearmine life down to about 16 or 17 years. In other words, we will be able tomanage the mines for that deposit more quickly, which of course is economicallymore desirable. So we have a large growth opportunity.
There's about a $280 million project for our share of that, and fortunately,we are in a position in a very difficult financing environment, where our cashflow is sufficient for all the growth plans I talked about today; the expansionof the reserves at Thompson Creek, the expansion of the mills and mine capacityat Endako. We are going to talk about the Davidson project which we hope to startand complete later in the year. All of that expansion and our sustainingcapital can be done with our existing cash flow, so we don't need to go to themarkets to raise money because the cash flow from our operations is so positiveover the next several years.
Again truck and shovel operation, the mining business is not a hi-techoperation, you take rocks, you blast them into smaller rocks, you put a mill, youmill them down into even smaller rocks, abstract the valuable piece. Andthen the one other piece that we have to do, at Endako, we're able to do there because we have a roaster onsite. As Imentioned, from Thompson Creek, we take the materials to Langeloth. The last piece of the operation is to takethe moly disulfide concentrate and put it in a roaster and you essentially heatthe material until it is hot enough so that the disulfur is burned off,and then you collect the sulfur and turn it into sulfuric acid. That gives youthe final product which is moly tech oxide, which is the product we sell intothe marketplace.
There is the ball mill at theEndako. One of the things we're going to do at Endako is take these threeexisting pits and put them all together, remove the walls that separate themand have one what we call "super pit". This is part of our enlarged, expandedplant at Endako. That will make our mining more efficient and give us moreflexibility in the mining plant. If you experience a problem in one part of thepit, you can easily move to another part of the pit, and so that's what we hopeto be able to do with Endako as we go forward with the expansion.
Again, here we had 310 millionpounds in contained molybdenum. The recovery rate at Endako is not as good asthe recovery rate at Thompson Creek. That's due primarily, simply to the natureof the ore bodies. Some ore recovers better than others. At Endako, we don'tget the kinds of recovery that we get at Thompson Creek, we get about 78%. Butas we put in the new mill, we expect that through enhanced process controltechniques, which we used in the brand new mill, the old mill was 43 years oldby this time. The new mill should be able to get us somewhat greater recoveryof about 82%, and that's like found moly. So that's a nice importantimprovement for us.
This is our Langelothmetallurgical roasting facility in Pennsylvania.It's an old plant, but it's very functional. It's been operated for a longtime. One of the things that we have a great advantage of when we did the BluePearl, Thompson Creek transaction, was that we kept all the management at allthe operating locations. So, not only did we have mines which had operated fora long time, but the same people who operated them before Blue Pearl camealong, operate them now. So we've had great continuity of operations withoutsignificant problems because of our transition.
The Langeloth operation has sixroasters which can roast up to 35 million pounds of moly. That's more than themoly we provide to them from our mines. So we also take on what's called totalroasting. We roast the material that other people own, and in addition, we’llpurchase third-party material and sell it. And that’s something, as you lookthrough our numbers; it's something you need to be aware of. Last year becausewe knew we'd be down a little bit in production at Thompson Creek, we purchasedover 10 million pounds of material from third parties and then sold it.
We purchased that at a slightdiscount to the market, because we are going to upgrade the product through theroasting procedure. But, if you look at our numbers, we'll have about, in thatcase if you say $30 a pound and 10 million pounds, we have $300 million ofrevenue which is showing very little or no profit because we are only gettingthe roasting charge on that, unlike the material that we mine at $5 or $6 or $7a pound and sell for $30. So we explain that in our numbers, but it's somethingto be aware of because it does skew our revenues and our net income a littlebit.
These are the products we sell.Molybdenum is used in the alloying of steel and it comes in these big sackscalled super sacks or in the drums typically, which will have a powder or abriquette form of material. The last producing asset, or soon to be producingasset we hope, is the Davidson Deposit in British Columbia that is the asset that BluePearl had when they initially approached Thompson Creek in 2005.
It is a long-life, high-gradeunderground deposit in British Columbia. This is not yet a producing asset, it's aproject. We have just recently received a completed feasibility study on this.We hope to go to our Board in the second quarter of 2008 to present this tothem. It will be about a $100 million to $110 million project. We will get 4million pounds of molybdenum a year for 10 years in that project.
And here you can see, theseunderground workings are pretty much done. This 1066 adits done, we need tobuild the 700 adit entry into the mine and then build the small load-outfacility. Because all we are going to do at Davidson; it's an unusual way todevelop a mine. We are going to go in and truck the ore out of the mine, put iton trucks and take the ore, not the concentrate. We are not going to mill it atall at the Davidson site and take, because we have proximity to Endako. It's120 miles distance from the Endako mine. So we'll take the ore in trucks downto the Endako Mine, mill it at Endako, roast it at Endako, and sell it fromthere. So we are able to that. Since we are able to do that, it enables us tobring this material on to the market quite quickly at a time when moly pricesare high. So we think it's a very good way for us to develop this mine.
We hope to develop this mine inconjunction with our partners, Sojitz who owns 25% of Endako. Since we aretaking the product down to Endako and putting it through the Endako process. IfSojitz owns 25% of the Davidson material and 25% of Endako, then we don't haveto campaign the material separately, account for it separately, and treat itseparately. Both parties will own 25% of everything that went through. So wethink that makes great sense for them. They are very happy with theirinvestment at the molybdenum business and that's what we hope to be able to dowith them.
So our objectives areenvironmental and safety compliance. Obviously those are primary objectives forus and we give them maximum priority. We want to maximize our operatingperformance which we've done. We reduced debt when we started. We have $404million worth of public debt. We owed the prior shareholders $64 million. Weowed them a contingent payment of a $100 million, depending upon the price ofthe molybdenum in 2007. Since fortunately that price was high, we owed him that$100 million. And in January of 2008, we paid him a $100 million. We paid himthe $64 million. We owed for accounts receivable and reduced the $404 milliondebt to $220 million. So we paid over $330 million of debt since October of2006. And this is a year when our production was quite a bit a lower from whatit ordinarily is and what it will be. So we are generating a lot of cash andwill generate of lot cash going forward.
This is the management team. It'san experienced management team, and what this slide doesn't point out, is thefact that I was just making, that the operations management has remained thesame and that has enabled us to continue apace without difficulty, a veryimportant fact. So those are our assets. We have, we think very good assets. Weproduced molybdenum at an average cost at the Thompson Creek Mine this year atabout $6 a pound or $6.50 a pound. It's higher than that at Endako because it'sa lower grade, it will be about $9.50 a pound to $10 a pound this year atEndako, and the molybdenum price right now in the marketplace is about $34 apound. So we are going to make 16.5 million pounds to 17 million pounds atThompson Creek. We'll make 6.5 million pound to 7.5 million pounds of Endako,sell it we hope at $34. There are some factors, you don't get $34 for everypound, but we’ll sell it at very good realizations and produce it at thoseprices. So it should be a very profitable business for us.
Those are assets and the otherthing that excites us about being in this position right now is that themolybdenum business is quite good at this time, and our expectations are thatit will remain so for sometime into the future. There has been tremendous underinvestment in molybdenum over the past several decades, as there has been a lotin the natural resources areas. And the last open -pit moly mine build in North America was ours, the Thompson Creek Mine, whichwas built in 1983 so there hasn't been that kind of investment. It's also verydifficult to bring new molybdenum mines into fruition in today's climate.
As many of you know, the miningbusiness is not an attractive business for some people. The environmentalistslook askance at it, and so we have difficulty finding, permitting andcompleting new mines, and so there simply hasn't been a lot of new developmentsin mines in North America. It's also difficultto get these things permitted on the time frame and then the financing becomes difficult,because you can’t sell molybdenum forward. There is no forward market formolybdenum as there is for copper. So when you try to finance it, you arefinancing a project for which you cannot state what the price will be, three,five, seven years into the future when the project finally gets completed. Sothe molybdenum supply/demand basics we'll discuss here in a minute, we thinkare quite good.
Molybdenum is a metallic element,number 42 on the periodic table. It has a high melting point and it strengthenssteel, it makes steel stronger and more resistant to changes in shape andstructure in high temperature and low temperature environments. In addition, itis anticorrosive. So it's used a lot in stainless steel, in applications ofsteel that are near the water, in applications where petroleum, for example hassulfur in it, which we will talk about. Molybdenum is anticorrosive in there,and those are the properties that make it so attractive.
These slides simply show, and youcan take some time to look at those later, what we do and what we don’t do. Weare a mining company. We take moly to the tech oxide stage and then we do onefurther process and we take it to ferromolybdenum, a product used in thealloying of steel. We don't do downstream products. Those are more likemanufacturing. We mine molybdenum, take it to that sellable product and then wesell it.
This is the molybdenum pricesince 2004. You can see it's about a $34 a pound today. It was at $10 backthere in March, probably something over $10 has been the historic average pricefor the last several years. But as we'll describe in the supply and demandsituation, there is something of a structural change in molybdenum demand. Ithas become a product much more in demand of late.
This is the worldwide demand formolybdenum. It's about a 440 million pound market. The two major components ofuser construction steel, which is oil field tubular goods and a number of otherstructural components of steel in bridges, and other kinds of infrastructurewhere steel is used near water and then stainless steel, but it's not used inall stainless steel. It's is used in high-end stainless steel. Stainless steel thatyou have in your home will not have molybdenum in it. Food processing plants andchemical processing plants are very high in stainless steel applications.
So when you see the residentialslowdown in building here in this year, that doesn't really affect themolybdenum business. There is no molybdenum in your home. Another big andgrowing component of molybdenum use is the chemical use. That's for pigmentsand lubricants and now and a very growing part of that is catalyst material.Molybdenum attracts sulfur out of petroleum, and so it is used as a catalyst inpetroleum hydro cracking, and as more and more petroleum is high sulfur and asthe regulations require that sulfur be removed, the molybdenum catalystbusiness is another growing one.
This just further details thekinds of things molybdenum is used for. It's used in power projects, all kindsof power projects, especially in nuclear, large amount of molybdenum in nuclearpower plant. A growing area is desalination, as more and more desalinizationplants in areas that are somewhat non-traditional, plus it's always been used alot in the Middle East, but now thedesalination need is expanding and molybdenum is used there, because of itsanticorrosive properties in a very corrosive environment.
And as you'll find that more andmore industrial process are going to high speed applications and high speedprovides efficiency and high productivity. The tools used in those high speedapplications have to contain molybdenum, because of the heat generated,likewise the vessels in which the processing takes place, use molybdenum, againbecause of its resistance to the changes in shape due to the high heat. And soin the high speed tools area, and in all industrial applications, molybdenum isbecoming more useful.
Molybdenum is a product ofindustrialized development, so Western Europehas been the largest consumer of molybdenum for many years, and still is. Andwe think that augurs quite well for the future, because of the BRIC countries, Chinais a great example, are growing in the areas that need molybdenum. As they getmore power plants, more automobiles, molybdenum is used, almost depends onmolybdenum in automobile, as they develop more infrastructure needs, thoseinfrastructures will require molybdenum. So, we think there is great growthpotential in the growing areas of the world's economies.
There is also limitedsubstitution of molybdenum, and the things that molybdenum does. It's about theonly product that does do it. Therefore, when we have even higher prices thanwe have today, we’ve had $40 prices for molybdenum in 2005 and there was almostno substitution of other products for molybdenum. Likewise and somewhatcounter-intuitively, molybdenum represents 1% to 2.5% by weight of the inputinto most of the products in which it's used. And that turns out to be anadvantage, because when the price of molybdenum goes up, it doesn't cause aconcomitant rise in the end product to the same extent than would have if molybdenumwas used in a greater percentage. So as we see these higher prices, we don'tsee resistances to the higher prices from our buyers, especially since what itdoes is so essential to the product.
And a good example, if you lookat these two pieces of metal at the bottom of the slide, the one on the leftdidn't contain molybdenum, and the one in the right does. Those two pieces ofmetal were put outside near the ocean and left there for 40 years and you cansee the extensive corrosion on the non-moly bearing pipe. And so, what happensis that molybdenum is used in a recipe to create that stainless steel and thatrecipe is what producers of stainless steel are touting as the benefit of theirproducts. And the only way you can know that happens is by the passage of time,so they are very reluctant to change that recipe, there isn't a substitutionfor it, so the need for molybdenum is essential in almost all the products inwhich it is used.
These are other discussions we'vehad of the growing uses of molybdenum. Here you can see the molybdenum demand It'sbeen kind of rocky in the past, but what has happened now, and you can see asteadier growth over the last several years, the demand for molybdenum hasexpanded beyond its transitional uses, into many of the uses we have talkedabout, such as in the industrial applications, the catalyst market, in thestainless steel market, which is growing The world's economies are growing to now encompass the need formolybdenum products, which weren’t used in the past.
So we are projecting, in this 440million pound market, a growth rate of 4%. We think that's conservative, it hasgrown a little faster than that in the last several years. And we think it'sapt to grow faster than that in to the future.
Got to hurry up here, I am takingmore of my time. We've already talked about this it's very difficult to buildmines right now. There are several projects on the board. Our sense of thesupply/demand dynamic is quite good. We don't think that the 20 million to 22million pounds that need to be added to the market every year, in aconservative growth scenario, are able to come on at anytime soon. There is onemajor product which we feel will certainly come on, that's the Climax mine ownby Freeport in Colorado. They have the financial capitaland it's an existing mine, but it has taken them five years or more simply tobuild a new mill and append it to an existing facility. If it takes the companywith that kinds of capital five years just to build the mill, you can imaginethat the companies that are trying to build the new mine, a new mill, a newtailings facility, get it all financed, get it all permitted, then it's goingto take them at least as long as it's going to take Freeport. So we don't seeany big new projects coming on stream anytime in the near future.
Here you can see that about 40%of the mine, the moly supply in the world comes from mines like ours, primarymines. 60% comes from copper mines that produce moly as a byproduct. And mostof those mines have high-graded their molybdenum, and are now reducing theirmolybdenum supply for the next couple of years, as they attempt to get back tomore rational ratios in their production of copper and moly. So for a number ofreasons we don't see the supply/demand situation changing much in the nextseveral years.
This is a listing of the majorproducers. Chinais an interesting component in the moly business. They, in the past, have beenexporters of molybdenum, but as they have indicated, they are looking atmolybdenum and all their natural resources as more strategic elements, and theyare committed by philosophy, by tax policy. They have imposed quotas. They aregoing to reduce the exportation of molybdenum into the western world. At thesame time, their own consumption of molybdenum is growing at a rate of 15% to20%, as best as we can determine. It's hard to know the numbers too preciselyabout China.So, they are going to be much less of the factor than they have been in thepast in moly production in the western world as well. And there you can see thenet exports from Chinaare going down.
This is a slide which I inviteyou to look at. It's a company we think is pretty comparable to ours, ChinaMoly. Their end market cap is $5 billion. Our market cap is $2 billion. Wedon't understand that differential, but we're working to close the gap. Hereyou can see another comparison. We have 113 million shares outstanding, 145million fully diluted. We have about 25 million warrants out there, which isthe major reason for that differential. Those warrants when exercised, wouldnet us about $200 plus million in cash. So, that's our capital structure at themoment.
So, why on Thompson Creek? We'reproducing moly in a very positive environment. We have very good operations. Wehave growth potential in all our operations that we can fund. We have anexperienced management team. We're generating a lot of net income and lot ofrevenue. And we're in what is a very optimistic market at the time.
So, that's a hurriedrepresentation of my presentation. I'm sorry for going through it so quickly,but I'm happy to take questions for a few minutes. Then we have a break outsession, I understand, in one of the other rooms for anyone who'd like moreinformation.
I also would like to introducehere Wayne Cheveldayoff, our Director of Investor Relations. Wayne has loads of material, he'd be happy toshare with you, and I can give you his card and we can get you on our websiteor help you if you have any questions about our company. So thank you very muchfor your attention. Yes.
Question-and-Answer Session
Unidentified Audience Member
The Idahomine you shipped to Pennsylvania and what isthe mine in Canada?
Kevin Loughrey
Endako.
Unidentified Audience Member
Endako. And that has its ownroasting faciltiy?
Kevin Loughrey
That has its own roastingfacility. It roasts all its own material.
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
Yeah. I have to repeat thisquestion for the webcast. And the question was, the Idahomine is able to roast its own material by trucking the products to Pennsylvania, but does Endako, the mine in Canadahave its own roasting facility? Answer to that question is yes. Endako has itsown roasting facility. So, we are able to take the concentrate, which comes outof the mill, put it into our roaster at Endako, produce molyoxide from theroaster at Endako, doesn't have to cross the border, we don’t have to doanything with that, other than take it to the Vancouver and ship it wherever wedo.
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
Yes. The follow-up question is,if one of those roasters was to go down, would we be able to use the other?Yes, to some extent, we would, there aren’t prohibitions against crossing theborder with that material. We have on occasion taken Thompson Creek material upto Endako for roasting, but we have really at Endako actually six roasters thatwork to reduce this material to the molyoxide. So, from time-to-time we've aproblem with one roaster or the other. We need to shut it down for repair ormaintenance. But there is always a roasting capability at Langeloth because ofthat. Yes, next question?
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
There were series of questionshere. Now I will try to go through them one by one the first one was …
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
Emissions from the roastingfacility. Are there problems with the emissions from the roasting facilities?The answer to that question is no. In the old days you see that stack there.Long ago those kinds of stacks were used to vent sulphur high into the airabove where people live. But that is antiquated technology and both ourroasters now have what are call acid plants. Where you trap the sulphur whichis burned off from the roasting process collect it and put it in an acid plantwhere you take sulphur gas and turn it into sulphuric acid, which you thensell. So, there are virtually no emissions from that. We have of course in bothcases, numerous agencies which monitor our performance in this area and we arein compliance with all those agencies. We are in compliance in allenvironmental aspects at all of our operations. We have a very good record ofenvironmental compliance.
The next question which may notin the right order was energy usage at those plants. The energy usage isn'twhat you think it is. It's a natural gas process, but I believe the term isexothermic. The roasting process generates its own heat, it goes forwardchemically. And so, the energy needs are not great.
Both the plants are quite modernin that respect, and the energy need isn't what you think, and as I was saying,the cost of that is cents per pound of the roasting process. And that'sreflective of the fact that there is not great energy usage required to do itfor the volume of work.
And so the next question was aboutthe green nature of our operations. We are looking at trying to reduce ourcarbon footprint, and stay in compliance with, even though it hasn't beenratified, Kyoto.And I guess I would say in respect to that that we have at each location anumber of people who are charged with the responsibility of remaining compliantenvironmentally.
We look to reduce because it'sefficient for us. It makes good sense for us, for our communities, for ourshareholders to try to be as environmentally conscious as we can. We have donea lot of work at all the operations to reduce the impact we've had. Obviously,it makes sense for us to reduce our energy uses as much as we can, and we'realways looking for ways to do that.
So we feel like our environmentalrecord is very good. And as it turns out, and this is not by design on ourpart, but by happenstance, molybdenum happens to be rather an inert metal interms of the way it's processed. You don't use cyanide leaching to get that asyou would in a copper facility. The Endako operation is very clean, as is theThompson Creek.
We have in both cases pre-fundedour reclamation liability, which is very unusual. We have a insurance policywhat's called a Finite Risk Insurance Policy in the amount of $20 million tohelp pay for the cost of reclamation as it occurs at Thompson Creek, another$15 million of insurance coverage on top of that beyond what we assume ourreclamation liability is going to be.
We have a cash deposit for agreedupon reclamation liability at Endako. We agreed with the problems with whatthat reclamation is, and then we have a cash deposit to fund that. So ourreclamation control funds are already arranged and in the bank, if you will,and we do concurrent reclamation as we go forward in those areas where wehaven't plans to mine anything in the future. We start reclamation as we'redoing the work out there. So we're very proud of our environmental record atboth operations.
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
The question was about ourwarrants. How many of them are there, are they in the money, how much would itraise, and if they were exercised, would we use them to reduce debt of ourcapital expenditures?
There are 25 million warrants.They were issued as a result of the equity raise we did at the time of the BluePearl transaction. If you bought a share for $5.50, the share price today is inthe $18 range, so they're well into the money. They extend for five years. Sothey run out in October, they have to be exercised by October of 2011. If theywere all exercised, forgetting what cost would be within that exercise effortif we go forward, that would be $220 million or in that range.
It depends of course where wewere in the process so that money would come in. Right now, we have a lot ofcapital projects out in front of us for the next couple of years, as we look atdeveloping the Davidson Deposit, expanding the Endako operation. So we have usefor that capital right now. But we are going to generate cash in significant amounts,enough to pay for all those.
So, at some point, that moneywould perhaps not be required for capital improvements, but we're looking atit. We're also looking at the possibility of finding out the properties outthere that we can acquire. It's a very active market in that sense. So, wecan't say with certainty how we'd use those proceeds. But if they happen thenext year or two, I would think we'll use them primarily to help fund thesecapital projects we have going forward.
Yes.
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
Yes. Molybdenum is used in as avital element in some people's minds in dietary requirements. But those areinfinite testimony uses because you're talking about extremely small numbers.So, we're not aware and it could be that it happens, but we sell primarily tochemical companies and to steel companies.
If one of those customers isselling to somebody who is producing health micronutrients, which is possible,we're not aware of that. And I'm not even aware of anybody who has broken downthe molybdenum consumption into that unit to see how much is used. It's used insuch small fragments that even if you aggregate all the uses, I think it's veryminimal compared to the sort of large pie chart segments that you saw outthere.
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
Yes, it's used again in verysmall amounts although somewhat larger there. And that comes from the, what wecall, the chemical component. There are uses in the chemical manufacturers, butto make nutrients for fertilizer, and molybdenum is one of those. But again,the use in both of those areas is quite small.
Yes.
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
The question was if we look atacquisitions, are we primarily looking in North Americawhere we are now or we look elsewhere?
We have something of a bias, Iguess I would say, toward North America. Ourexperience is primarily there, although I think everybody in our company hasexperience operating mines elsewhere in the world. But there is a low level ofpolitical risk in North America that we like.The labor pool in North America is very good for the kind of work we do, andthat would be our preference to look at America. But we have on occasiontaken look at properties elsewhere and we wouldn't hold that out of thequestion if there was an attractive property elsewhere in the world.
Yes?
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
Okay. This is the last question I'mtold.
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
As a percentage of the total,yes.
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
The question was why would thebyproduct production stay down if people are mining more copper?
The most efficient way to minecopper these days is what's call SX/EW, solvent extraction/electrowining. Thatdoesn't contain a moly circuit as the old copper moly porphyry deposits. Andso, people have explored for and found copper that's not necessarily associatedwith moly, and aren't building moly circuits when they build those new mines.
In addition, you have byproductmines, which in the past have high graded the moly production, trying to takeadvantage of these high prices. They are now in the downward cycle of that.They could, at some point, cycle back up and produce more moly. But for rightnow, they are actually producing less moly. CODELCO is the best example. Theyare the large Chilean copper company, which has a significant moly byproduct.
In addition, the big projects,for example, the next big project we think is going to come on will be theClimax mine in Colorado,which is the primary mine. So that again skews it towards the primaryproducers. So, it's not a necessary every year thing because things changequickly. But right now the trend has been and it's been this way for 20 yearsthat overtime the byproduct production is less of a factor in the overall molyproduction.
Unidentified Audience Member
(Question Inaudible)
Kevin Loughrey
The question was when does theClimax mine come on? The initial estimate was that it would come on in 2009.Phelps Dodge said that in there announcement in 2005. Last year, Freeport said it would become on in 2010. Whether they will be able to adhere to that, I don't know. So,2010 is when it's scheduled to come on.
I'm told that's the last questionI can have. We are having a breakout session in one of the rooms out here. Soif any one else has questions, I'd be happy to answer them. I would like tothank you very much for your interest and attention. I appreciate it.
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