Thompson Creek Metals Company Inc. (NYSE:TC)
Wall Street Analyst Forum
March 27, 2008 10:30 am ET
Kevin Loughrey - Chairman and CEO
Good morning, ladies and gentlemen. In our ongoing attempt to adhere to the public schedule, I'd like to introduce the next company in this morning's program. We don't like to start meetings late, but we don't like to start early because the webcast attendees are tuning in, in a particular minute, in a particular hour to your particular company. So, if we start early, which would always tend to do, in some cases so that we don't keep the physical attendees waiting, then we hurt them.
We want to welcome not only the analysts, portfolio managers that are physically attending the conference, but investors who actually attend through three different new media channels beyond being here physically. This is the webcast for those of you that are here. If you want to re-attend the webcast or live, they are retrievable for 30 days. It's both 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 in person.
There's a firm in Israel with a website that's better known in the US called Seekingalpha.com. They actually do a transcript of every presentation and question and answer session, including the interactive that takes place here, and they have it on Yahoo! Finance six hours after the presentation, web searchable. So any investor that looks out for any company, and any of our conferences on Yahoo! Finance, just six hours or later, the next day or week or month, will find the transcript, word for word, of the presentation and question and answer session.
And the third new media channel we use, and about half the companies take advantage of it, and half don't, is a video of the webcast and a video of the 30 minute presentation. They edit it down 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 different distribution channels, new media distribution channels, which probably represent 97% of our overall attendees.
And the physical attendees might represent less than 10% or so of the actual number of attendees numerically. It's interesting, with the physical attendees being the guinea pig so to speak, for the rest of the attendees. They get to hear your question and answer session, even though they can't actually participate.
The next company in this morning's program, Thompson Creek Metals Company. It's one of the largest publicly traded, pure molybdenum producers in the world. I didn't know what molybdenum was five years ago, and now I'm an expert on it.
The company expects its production to grow by 100% in the next two years. This development, along with an expected continuation of historically high prices for moly, will be very positive for the company's cash flow and profitability. Moly has gotten a lot of attention in the last two years. It's funny. A lot of big Wall Street institutions had been a little bit behind the power curve in gaining a real sense of awareness of what its role is. Our keynote speaker even alluded to the fact that the Chinese are increasingly looking at this product, even in their own country, 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, Kevin Loughrey.
Thank you very much, and thank you all for attending. It's a pleasure to be here at the Wall Street Analyst Forum this morning and to be in this great Augusta building; this is a great spot. There is nothing like this in Denver. It's a fantastic old building. We are Thompson Creek Metals Company, as we were introduced, 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 the introduction, it is not particularly well known in the analytical world and the investment world because prior to our coming out in October 2006 and a company from China known as China Moly, which came out in that same year, there haven't been any pure molybdenum companies that were listed on any exchange. It was simply part of other larger mining companies or in private hands. But there really wasn't much investment interest in molybdenum until very recently, and it has taken some time for that interest to catch hold. But it has become a product that people know much more about. It doesn't really have residential applications or consumer applications that are used in industrial applications, which we'll discuss.
But as you'll see as we go through the presentation, molybdenum has come of age. It's a great time to be in the molybdenum business, and it is an especially good time for us because there are several smaller molybdenum companies out there who are planning mines and trying to build mines in a very difficult environment. We have two mines of long-standing duration that are producing significant amounts of moly now. We are going to have the opportunity to expand on all of our projects, and so it's a good time for us to be in the molybdenum business. I have a presentation here which can expand or contract from 10 or 15 minutes to over an hour, we have about 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 cautionary statement, which is to say we don't know anything more about the future than anybody else does, so you need to pay attention to the things we say about the future and think carefully about them. This is our stock price. It's been a little bit of an up and down ride since we have come out, in part because the commodities sector is very mercurial and we are as well. These are our assets;
Thomson Creek was a private company 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 see on the map.
The company came about in 1993 when Cyprus Minerals Company and Amax merged, and they owned most of the molybdenum production in the United States. The Justice Department looked in askance at that, and so indicated there has to be a viable competitor before that merger could be completed. I was the General Counselor for Cyprus at the time, and I sold the Langeloth metallurgical roasting facility in the Thomson Creek mine to an individual, who used to work for Cyprus, and he started Thompson Creek Metals Company at that time. In 1997, we then went up and bought the Endako Mine from Placer Dome and Endako's mine in British Columbia. So those three assets represented Thompson Creek Metals Company.
In 2005, a company by the name of Blue Pearl approached us to take material from their Davidson Deposit, up there also in British Columbia, and truck that ore down the road to our Endako facility for further milling and roasting. We agreed to that and those negotiations grew until finally, Blue Pearl made an offer for all of Thompson Creek.
On October 26, 2006, we had what amounted to a merger between the two companies. Blue Pearl, the small Canadian junior publicly traded company purchased Thompson Creek, the much larger private company headquartered in Denver. We have changed the name back to Thompson Creek, since that's the name known in the business generally. So now we are a listed company. We listed initially on the Toronto Stock Exchange on November 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 Stock Exchange. We are also listed on the Frankfurt Stock Exchange.
As you can see, we are one of the largest publicly traded pure molybdenum companies, and there is only one other pure molybdenum company. We have 1 billion pounds measured in indicated reserves. We have established North American operations, and we have a really strong ongoing mining company, in a very good market.
Here you see a graph of our production over the past several years and projected into the future. I am going to spend a minute discussing 2007. I know it's hard for some of you to see the slides, and I apologize for that. But 2007 was something of an anomalous year for us in terms of our production at the Thompson Creek Mine, and the reason for that was that the prior owner for I think what were good and valid reasons at the time, in 2004 and early 2005, had to make a decision about forming a stripping program. In the mining business, stripping is the removal of overburden to 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 and 2005.
He was uncertain where he wanted to go with the company at that time, and he waited a while to make the decision again, not a bad decision, simply a decision he made at that time. But the results of the delay in making that decision was that when we got to the second half of 2007, we didn't really have any ore uncovered. We were done with what we call Phase 5 at the Thompson Creek Mine. We were still in the midst of the stripping program for Phase 6, so we simply didn't have available ore to mine and to sell.
We did have what we euphemistically refer to as a low-grade stockpile, and what the people who have to run it call junk, at the mine. And we accessed that and were able to get material out of that. But it was at a much higher cost, and it was very low-grade material so there was less molybdenum contained in the available stockpile. Not only was it low grade, but because it was low grade, as you put it through the mill, you have a recovery factor, and traditionally at Thompson Creek, that recovery factor is about 90%, meaning, if there 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 much lower. 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 had to put it through the mill twice to get the molybdenum out. Consequently, all those factors worked against us and we produced much less molybdenum in 2007 then we normally would.
The reason I go into that detail is because when you see these charts and you see this very dramatic growth. In the case of the Thompson Creek Mine especially, that's not the typical hockey stick curve that you see with some companies where they project here is where we are today, but here is where we hope to be. These are the projections levels this year that we have exceeded in the past. We've produced as much as 20 million pounds, many times at the Thompson Creek Mine and will do so again. So it's very predictable I think, what we can do there, and the unusual situation was the second half of 2007. The production we hope to get going forward is not unusual as something we haven't achieved before.
This is a picture of the Thompson Creek Mine, which is located high in the mountains in central Idaho. It's a beautiful spot. It's got great infrastructure; power, water, we've got a good land position, and it's fully permitted.
As we say, we think we'll get 16.5 million to 17 million pounds of production out of Thompson Creek this year and we have proven and probable reserves of over 200 million pounds.
Let's see, when we bought that shovel a couple of years ago, that's a Bucyrus shovel. It's a $17 million piece of equipment. The equipment for the mining business is very expensive, and nowadays it's very hard to get as the natural resources sector is going very well. There is another picture of the mine. There you can see the individual at the 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 Creek which takes the material that we get out of the mine. You put it through the mill to extract the molybdenum, and what you get at the Thompson Creek Mine is product concentrate, molybdenum disulfide, and it's not the salable product. To get the salable product, you truck the molybdenum concentrate, which we produce at the Thompson Creek Mine, across the country in trucks to the Langeloth facility in Pennsylvania. That seems expensive, in fact, it's probably in the range of $0.15 a pound now, it used to be less than that before diesel prices 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 mine plan as we have expanded the reserve base there. And what's interesting at Thompson Creek is that we have done a reserve study. As a private company, we didn't spend too much time on published reserves because it wasn't something that the market paid us for. We always assumed that we had a 20-25-year mine life there. But what we have done now, since the last time reserve was done many years ago, we performed a reserve study last year based upon the drilling information 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 scheduled is to do additional drilling on the outside and underneath that red area, so we believe it's highly likely that the area of the ore body will not stop there at 6,000 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 growth from that new reserve study.
We can't of course predict what's going to happen there, and we can't know what's going to happen until the reserve study is done. But our anticipation is that there is a high likelihood of increased reserve capability at Thomson Creek, which will then expand the existing 10-year mine plan to something beyond that. And that should come out in late 2008, we should have detail on that.
And here is the slide showing the grades, the important thing to talk about when you talk about the molybdenum business or any mining business, frankly, is that there are lot of numbers up there. The one I think you should pay attention to is contained molybdenum in millions of pounds. We start out with inferred reserves and implied reserves. We talk about molybdenum disulfide in the ground, but we use the 213 million pounds number, because that number is the product we sell.
There is one further adjustment that needs 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 a recovery 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 try to understand and to get there the numbers down to the salable product that the company has available.
This is our other operation. This is the Endako operation in British Columbia. It is much like Thompson Creek in a conceptual sense. It's a large open pit mine. It's been in operation since 1965. So it's well understood, very predictable, very little geologic risk, and no completion risk. We own this mine; 75% ourselves and 25% is owned by the large Japanese trading concern, Sojitz Corporation. They helped us 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 there from 5 or 6 years when we purchased it, to 26 years. However, our Board of Directors just this month approved a plan to expand the milling capacity from 28,000 tons per day to 50,000 tons per day. So we will be able to now shrink that 26-year mine life down to about 16 or 17 years. In other words, we will be able to manage the mines for that deposit more quickly, which of course is economically more 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 cash flow is sufficient for all the growth plans I talked about today; the expansion of the reserves at Thompson Creek, the expansion of the mills and mine capacity at Endako. We are going to talk about the Davidson project which we hope to start and complete later in the year. All of that expansion and our sustaining capital can be done with our existing cash flow, so we don't need to go to the markets to raise money because the cash flow from our operations is so positive over the next several years.
Again truck and shovel operation, the mining business is not a hi-tech operation, you take rocks, you blast them into smaller rocks, you put a mill, you mill them down into even smaller rocks, abstract the valuable piece. And then the one other piece that we have to do, at Endako, we're able to do there because we have a roaster onsite. As I mentioned, from Thompson Creek, we take the materials to Langeloth. The last piece of the operation is to take the moly disulfide concentrate and put it in a roaster and you essentially heat the 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 you the final product which is moly tech oxide, which is the product we sell into the marketplace.
There is the ball mill at the Endako. One of the things we're going to do at Endako is take these three existing pits and put them all together, remove the walls that separate them and have one what we call "super pit". This is part of our enlarged, expanded plant at Endako. That will make our mining more efficient and give us more flexibility in the mining plant. If you experience a problem in one part of the pit, you can easily move to another part of the pit, and so that's what we hope to be able to do with Endako as we go forward with the expansion.
Again, here we had 310 million pounds in contained molybdenum. The recovery rate at Endako is not as good as the recovery rate at Thompson Creek. That's due primarily, simply to the nature of the ore bodies. Some ore recovers better than others. At Endako, we don't get the kinds of recovery that we get at Thompson Creek, we get about 78%. But as we put in the new mill, we expect that through enhanced process control techniques, which we used in the brand new mill, the old mill was 43 years old by this time. The new mill should be able to get us somewhat greater recovery of about 82%, and that's like found moly. So that's a nice important improvement for us.
This is our Langeloth metallurgical roasting facility in Pennsylvania. It's an old plant, but it's very functional. It's been operated for a long time. One of the things that we have a great advantage of when we did the Blue Pearl, Thompson Creek transaction, was that we kept all the management at all the operating locations. So, not only did we have mines which had operated for a long time, but the same people who operated them before Blue Pearl came along, operate them now. So we've had great continuity of operations without significant problems because of our transition.
The Langeloth operation has six roasters which can roast up to 35 million pounds of moly. That's more than the moly we provide to them from our mines. So we also take on what's called total roasting. We roast the material that other people own, and in addition, we’ll purchase third-party material and sell it. And that’s something, as you look through our numbers; it's something you need to be aware of. Last year because we knew we'd be down a little bit in production at Thompson Creek, we purchased over 10 million pounds of material from third parties and then sold it.
We purchased that at a slight discount to the market, because we are going to upgrade the product through the roasting procedure. But, if you look at our numbers, we'll have about, in that case if you say $30 a pound and 10 million pounds, we have $300 million of revenue which is showing very little or no profit because we are only getting the roasting charge on that, unlike the material that we mine at $5 or $6 or $7 a pound and sell for $30. So we explain that in our numbers, but it's something to be aware of because it does skew our revenues and our net income a little bit.
These are the products we sell. Molybdenum is used in the alloying of steel and it comes in these big sacks called super sacks or in the drums typically, which will have a powder or a briquette form of material. The last producing asset, or soon to be producing asset we hope, is the Davidson Deposit in British Columbia that is the asset that Blue Pearl had when they initially approached Thompson Creek in 2005.
It is a long-life, high-grade underground deposit in British Columbia. This is not yet a producing asset, it's a project. 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 to them. It will be about a $100 million to $110 million project. We will get 4 million pounds of molybdenum a year for 10 years in that project.
And here you can see, these underground workings are pretty much done. This 1066 adits done, we need to build the 700 adit entry into the mine and then build the small load-out facility. Because all we are going to do at Davidson; it's an unusual way to develop a mine. We are going to go in and truck the ore out of the mine, put it on trucks and take the ore, not the concentrate. We are not going to mill it at all at the Davidson site and take, because we have proximity to Endako. It's 120 miles distance from the Endako mine. So we'll take the ore in trucks down to the Endako Mine, mill it at Endako, roast it at Endako, and sell it from there. So we are able to that. Since we are able to do that, it enables us to bring this material on to the market quite quickly at a time when moly prices are high. So we think it's a very good way for us to develop this mine.
We hope to develop this mine in conjunction with our partners, Sojitz who owns 25% of Endako. Since we are taking the product down to Endako and putting it through the Endako process. If Sojitz owns 25% of the Davidson material and 25% of Endako, then we don't have to campaign the material separately, account for it separately, and treat it separately. Both parties will own 25% of everything that went through. So we think that makes great sense for them. They are very happy with their investment at the molybdenum business and that's what we hope to be able to do with them.
So our objectives are environmental and safety compliance. Obviously those are primary objectives for us and we give them maximum priority. We want to maximize our operating performance which we've done. We reduced debt when we started. We have $404 million worth of public debt. We owed the prior shareholders $64 million. We owed them a contingent payment of a $100 million, depending upon the price of the 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 him the $64 million. We owed for accounts receivable and reduced the $404 million debt to $220 million. So we paid over $330 million of debt since October of 2006. And this is a year when our production was quite a bit a lower from what it ordinarily is and what it will be. So we are generating a lot of cash and will generate of lot cash going forward.
This is the management team. It's an experienced management team, and what this slide doesn't point out, is the fact that I was just making, that the operations management has remained the same and that has enabled us to continue apace without difficulty, a very important fact. So those are our assets. We have, we think very good assets. We produced molybdenum at an average cost at the Thompson Creek Mine this year at about $6 a pound or $6.50 a pound. It's higher than that at Endako because it's a lower grade, it will be about $9.50 a pound to $10 a pound this year at Endako, and the molybdenum price right now in the marketplace is about $34 a pound. So we are going to make 16.5 million pounds to 17 million pounds at Thompson 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 every pound, but we’ll sell it at very good realizations and produce it at those prices. So it should be a very profitable business for us.
Those are assets and the other thing that excites us about being in this position right now is that the molybdenum business is quite good at this time, and our expectations are that it will remain so for sometime into the future. There has been tremendous under investment in molybdenum over the past several decades, as there has been a lot in the natural resources areas. And the last open -pit moly mine build in North America was ours, the Thompson Creek Mine, which was built in 1983 so there hasn't been that kind of investment. It's also very difficult to bring new molybdenum mines into fruition in today's climate.
As many of you know, the mining business is not an attractive business for some people. The environmentalists look askance at it, and so we have difficulty finding, permitting and completing new mines, and so there simply hasn't been a lot of new developments in mines in North America. It's also difficult to 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 for molybdenum as there is for copper. So when you try to finance it, you are financing 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. So the molybdenum supply/demand basics we'll discuss here in a minute, we think are quite good.
Molybdenum is a metallic element, number 42 on the periodic table. It has a high melting point and it strengthens steel, it makes steel stronger and more resistant to changes in shape and structure in high temperature and low temperature environments. In addition, it is anticorrosive. So it's used a lot in stainless steel, in applications of steel that are near the water, in applications where petroleum, for example has sulfur 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 you can take some time to look at those later, what we do and what we don’t do. We are a mining company. We take moly to the tech oxide stage and then we do one further process and we take it to ferromolybdenum, a product used in the alloying of steel. We don't do downstream products. Those are more like manufacturing. We mine molybdenum, take it to that sellable product and then we sell it.
This is the molybdenum price since 2004. You can see it's about a $34 a pound today. It was at $10 back there in March, probably something over $10 has been the historic average price for the last several years. But as we'll describe in the supply and demand situation, there is something of a structural change in molybdenum demand. It has become a product much more in demand of late.
This is the worldwide demand for molybdenum. It's about a 440 million pound market. The two major components of user construction steel, which is oil field tubular goods and a number of other structural components of steel in bridges, and other kinds of infrastructure where steel is used near water and then stainless steel, but it's not used in all stainless steel. It's is used in high-end stainless steel. Stainless steel that you have in your home will not have molybdenum in it. Food processing plants and chemical processing plants are very high in stainless steel applications.
So when you see the residential slowdown in building here in this year, that doesn't really affect the molybdenum business. There is no molybdenum in your home. Another big and growing component of molybdenum use is the chemical use. That's for pigments and 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 in petroleum hydro cracking, and as more and more petroleum is high sulfur and as the regulations require that sulfur be removed, the molybdenum catalyst business is another growing one.
This just further details the kinds of things molybdenum is used for. It's used in power projects, all kinds of power projects, especially in nuclear, large amount of molybdenum in nuclear power plant. A growing area is desalination, as more and more desalinization plants in areas that are somewhat non-traditional, plus it's always been used a lot in the Middle East, but now the desalination need is expanding and molybdenum is used there, because of its anticorrosive properties in a very corrosive environment.
And as you'll find that more and more industrial process are going to high speed applications and high speed provides efficiency and high productivity. The tools used in those high speed applications have to contain molybdenum, because of the heat generated, likewise the vessels in which the processing takes place, use molybdenum, again because of its resistance to the changes in shape due to the high heat. And so in the high speed tools area, and in all industrial applications, molybdenum is becoming more useful.
Molybdenum is a product of industrialized development, so Western Europe has been the largest consumer of molybdenum for many years, and still is. And we think that augurs quite well for the future, because of the BRIC countries, China is a great example, are growing in the areas that need molybdenum. As they get more power plants, more automobiles, molybdenum is used, almost depends on molybdenum in automobile, as they develop more infrastructure needs, those infrastructures will require molybdenum. So, we think there is great growth potential in the growing areas of the world's economies.
There is also limited substitution of molybdenum, and the things that molybdenum does. It's about the only product that does do it. Therefore, when we have even higher prices than we have today, we’ve had $40 prices for molybdenum in 2005 and there was almost no substitution of other products for molybdenum. Likewise and somewhat counter-intuitively, molybdenum represents 1% to 2.5% by weight of the input into most of the products in which it's used. And that turns out to be an advantage, because when the price of molybdenum goes up, it doesn't cause a concomitant rise in the end product to the same extent than would have if molybdenum was used in a greater percentage. So as we see these higher prices, we don't see resistances to the higher prices from our buyers, especially since what it does is so essential to the product.
And a good example, if you look at these two pieces of metal at the bottom of the slide, the one on the left didn't contain molybdenum, and the one in the right does. Those two pieces of metal were put outside near the ocean and left there for 40 years and you can see the extensive corrosion on the non-moly bearing pipe. And so, what happens is that molybdenum is used in a recipe to create that stainless steel and that recipe is what producers of stainless steel are touting as the benefit of their products. 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 substitution for it, so the need for molybdenum is essential in almost all the products in which it is used.
These are other discussions we've had of the growing uses of molybdenum. Here you can see the molybdenum demand It's been kind of rocky in the past, but what has happened now, and you can see a steadier growth over the last several years, the demand for molybdenum has expanded beyond its transitional uses, into many of the uses we have talked about, such as in the industrial applications, the catalyst market, in the stainless steel market, which is growing The world's economies are growing to now encompass the need for molybdenum products, which weren’t used in the past.
So we are projecting, in this 440 million pound market, a growth rate of 4%. We think that's conservative, it has grown a little faster than that in the last several years. And we think it's apt to grow faster than that in to the future.
Got to hurry up here, I am taking more of my time. We've already talked about this it's very difficult to build mines right now. There are several projects on the board. Our sense of the supply/demand dynamic is quite good. We don't think that the 20 million to 22 million pounds that need to be added to the market every year, in a conservative growth scenario, are able to come on at anytime soon. There is one major product which we feel will certainly come on, that's the Climax mine own by Freeport in Colorado. They have the financial capital and it's an existing mine, but it has taken them five years or more simply to build a new mill and append it to an existing facility. If it takes the company with that kinds of capital five years just to build the mill, you can imagine that the companies that are trying to build the new mine, a new mill, a new tailings facility, get it all financed, get it all permitted, then it's going to take them at least as long as it's going to take Freeport. So we don't see any 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, primary mines. 60% comes from copper mines that produce moly as a byproduct. And most of those mines have high-graded their molybdenum, and are now reducing their molybdenum supply for the next couple of years, as they attempt to get back to more rational ratios in their production of copper and moly. So for a number of reasons we don't see the supply/demand situation changing much in the next several years.
This is a listing of the major producers. China is an interesting component in the moly business. They, in the past, have been exporters of molybdenum, but as they have indicated, they are looking at molybdenum and all their natural resources as more strategic elements, and they are committed by philosophy, by tax policy. They have imposed quotas. They are going to reduce the exportation of molybdenum into the western world. At the same time, their own consumption of molybdenum is growing at a rate of 15% to 20%, as best as we can determine. It's hard to know the numbers too precisely about China. So, they are going to be much less of the factor than they have been in the past in moly production in the western world as well. And there you can see the net exports from China are going down.
This is a slide which I invite you to look at. It's a company we think is pretty comparable to ours, China Moly. Their end market cap is $5 billion. Our market cap is $2 billion. We don't understand that differential, but we're working to close the gap. Here you can see another comparison. We have 113 million shares outstanding, 145 million fully diluted. We have about 25 million warrants out there, which is the major reason for that differential. Those warrants when exercised, would net us about $200 plus million in cash. So, that's our capital structure at the moment.
So, why on Thompson Creek? We're producing moly in a very positive environment. We have very good operations. We have growth potential in all our operations that we can fund. We have an experienced management team. We're generating a lot of net income and lot of revenue. And we're in what is a very optimistic market at the time.
So, that's a hurried representation 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 out session, I understand, in one of the other rooms for anyone who'd like more information.
I also would like to introduce here Wayne Cheveldayoff, our Director of Investor Relations. Wayne has loads of material, he'd be happy to share with you, and I can give you his card and we can get you on our website or help you if you have any questions about our company. So thank you very much for your attention. Yes.
Unidentified Audience Member
The Idaho mine you shipped to Pennsylvania and what is the mine in Canada?
Unidentified Audience Member
Endako. And that has its own roasting faciltiy?
That has its own roasting facility. It roasts all its own material.
Unidentified Audience Member
Yeah. I have to repeat this question for the webcast. And the question was, the Idaho mine is able to roast its own material by trucking the products to Pennsylvania, but does Endako, the mine in Canada have its own roasting facility? Answer to that question is yes. Endako has its own roasting facility. So, we are able to take the concentrate, which comes out of the mill, put it into our roaster at Endako, produce molyoxide from the roaster at Endako, doesn't have to cross the border, we don’t have to do anything with that, other than take it to the Vancouver and ship it wherever we do.
Unidentified Audience Member
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 the border with that material. We have on occasion taken Thompson Creek material up to Endako for roasting, but we have really at Endako actually six roasters that work to reduce this material to the molyoxide. So, from time-to-time we've a problem with one roaster or the other. We need to shut it down for repair or maintenance. But there is always a roasting capability at Langeloth because of that. Yes, next question?
Unidentified Audience Member
There were series of questions here. Now I will try to go through them one by one the first one was …
Unidentified Audience Member
Emissions from the roasting facility. 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 air above where people live. But that is antiquated technology and both our roasters now have what are call acid plants. Where you trap the sulphur which is burned off from the roasting process collect it and put it in an acid plant where you take sulphur gas and turn it into sulphuric acid, which you then sell. So, there are virtually no emissions from that. We have of course in both cases, numerous agencies which monitor our performance in this area and we are in compliance with all those agencies. We are in compliance in all environmental aspects at all of our operations. We have a very good record of environmental compliance.
The next question which may not in the right order was energy usage at those plants. The energy usage isn't what you think it is. It's a natural gas process, but I believe the term is exothermic. The roasting process generates its own heat, it goes forward chemically. And so, the energy needs are not great.
Both the plants are quite modern in 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's reflective of the fact that there is not great energy usage required to do it for the volume of work.
And so the next question was about the green nature of our operations. We are looking at trying to reduce our carbon footprint, and stay in compliance with, even though it hasn't been ratified, Kyoto. And I guess I would say in respect to that that we have at each location a number of people who are charged with the responsibility of remaining compliant environmentally.
We look to reduce because it's efficient for us. It makes good sense for us, for our communities, for our shareholders to try to be as environmentally conscious as we can. We have done a 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're always looking for ways to do that.
So we feel like our environmental record is very good. And as it turns out, and this is not by design on our part, but by happenstance, molybdenum happens to be rather an inert metal in terms of the way it's processed. You don't use cyanide leaching to get that as you would in a copper facility. The Endako operation is very clean, as is the Thompson Creek.
We have in both cases pre-funded our reclamation liability, which is very unusual. We have a insurance policy what's called a Finite Risk Insurance Policy in the amount of $20 million to help 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 our reclamation liability is going to be.
We have a cash deposit for agreed upon reclamation liability at Endako. We agreed with the problems with what that reclamation is, and then we have a cash deposit to fund that. So our reclamation 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 we haven't plans to mine anything in the future. We start reclamation as we're doing the work out there. So we're very proud of our environmental record at both operations.
Unidentified Audience Member
The question was about our warrants. How many of them are there, are they in the money, how much would it raise, and if they were exercised, would we use them to reduce debt of our capital expenditures?
There are 25 million warrants. They were issued as a result of the equity raise we did at the time of the Blue Pearl transaction. If you bought a share for $5.50, the share price today is in the $18 range, so they're well into the money. They extend for five years. So they run out in October, they have to be exercised by October of 2011. If they were all exercised, forgetting what cost would be within that exercise effort if we go forward, that would be $220 million or in that range.
It depends of course where we were in the process so that money would come in. Right now, we have a lot of capital projects out in front of us for the next couple of years, as we look at developing the Davidson Deposit, expanding the Endako operation. So we have use for 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 money would perhaps not be required for capital improvements, but we're looking at it. We're also looking at the possibility of finding out the properties out there that we can acquire. It's a very active market in that sense. So, we can't say with certainty how we'd use those proceeds. But if they happen the next year or two, I would think we'll use them primarily to help fund these capital projects we have going forward.
Unidentified Audience Member
Yes. Molybdenum is used in as a vital element in some people's minds in dietary requirements. But those are infinite 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 to chemical companies and to steel companies.
If one of those customers is selling 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 down the molybdenum consumption into that unit to see how much is used. It's used in such small fragments that even if you aggregate all the uses, I think it's very minimal compared to the sort of large pie chart segments that you saw out there.
Unidentified Audience Member
Yes, it's used again in very small amounts although somewhat larger there. And that comes from the, what we call, the chemical component. There are uses in the chemical manufacturers, but to make nutrients for fertilizer, and molybdenum is one of those. But again, the use in both of those areas is quite small.
Unidentified Audience Member
The question was if we look at acquisitions, are we primarily looking in North America where we are now or we look elsewhere?
We have something of a bias, I guess I would say, toward North America. Our experience is primarily there, although I think everybody in our company has experience operating mines elsewhere in the world. But there is a low level of political risk in North America that we like. The labor pool in North America is very good for the kind of work we do, and that would be our preference to look at America. But we have on occasion taken look at properties elsewhere and we wouldn't hold that out of the question if there was an attractive property elsewhere in the world.
Unidentified Audience Member
Okay. This is the last question I'm told.
Unidentified Audience Member
As a percentage of the total, yes.
Unidentified Audience Member
The question was why would the byproduct production stay down if people are mining more copper?
The most efficient way to mine copper these days is what's call SX/EW, solvent extraction/electrowining. That doesn't contain a moly circuit as the old copper moly porphyry deposits. And so, people have explored for and found copper that's not necessarily associated with moly, and aren't building moly circuits when they build those new mines.
In addition, you have byproduct mines, which in the past have high graded the moly production, trying to take advantage 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 right now, they are actually producing less moly. CODELCO is the best example. They are 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 the Climax mine in Colorado, which is the primary mine. So that again skews it towards the primary producers. So, it's not a necessary every year thing because things change quickly. But right now the trend has been and it's been this way for 20 years that overtime the byproduct production is less of a factor in the overall moly production.
Unidentified Audience Member
The question was when does the Climax 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 be come 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 question I can have. We are having a breakout session in one of the rooms out here. So if any one else has questions, I'd be happy to answer them. I would like to thank you very much for your interest and attention. I appreciate it.
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