Thompson Creek may need more cash to finish British Columbia copper mine: bank
New York (Platts)--6Aug2012/555 pm EDT/2155 GMT
US molybdenum producer Thompson Creek Metals may not have enough cash to complete its Mount Milligan copper and gold mine, which is under construction in British Columbia, US investment bank Dahlman Rose said Monday.
In a research note, the bank said that, with molybdenum prices below $12/lb, "we do not think that Thompson Creek will have enough cash to complete its Mt. Milligan development project, unless the company is able to finish the project at the lower end of its [cost] expectation."
The bank said in the recent history of mining there have been few examples of projects completed at the lower end of cost expectations.
A spokesman for Thompson Creek said the company was unable to make any comment ahead of its second-quarter results, which are due Wednesday.
The bank added: "Given our belief that molybdenum prices will not recover over the next 24-36 months, we believe that it may be necessary for management to raise additional capital in order to have adequate cash to fund operations and complete the expansion of this crucial project."
It said Thompson Creek could run out of money in the first half of 2013, given its current cash-burn rate, which the bank did not detail, "as the company will have a significant build in working capital as it looks to ramp up the Mt. Milligan asset."
But the bank said the company declaring bankruptcy was a highly unlikely scenario.
In May, Thompson Creek said construction of the mine was 45% complete and was on schedule to be finished in Q3 2013, with commercial production beginning in 2014.
Dahlman Rose said that to address the cash shortfall, management could sell a portion of the Mt. Milligan asset, which the bank described as "our preferred solution," issue additional equity, or look to sell the entire company to an entity with a stronger balance sheet.
The bank said Thompson Creek could sell a 25% stake in Mt. Milligan and look to take about $300 million in cash, "use $100 [million] to buttress the balance sheet and possibly use $200 [million] to buy back shares to compensate shareholders."
Thompson Creek's shares were trading at $2.60/share, up 30 cents from Friday's close, or 1.18%, at 312 p.m. EDT (1912 GMT) and off a 52-week low of $2.47/share and a 52-week high of $9.50/share seen in early February. MOLYBDENUM PRICES FELL SHARPLY LAST WEEK
Molybdenum prices have been under downward pressure since mid-April, when they were still above $14/lb and fell sharply last week. The Platts daily dealer molybdenum oxide assessment fell to $11.10-11.30/lb Monday from $11.20-11.50 on Friday and is down from $11.80-12.00 last Monday, July 30. On April 12, prices were around $14.20-14.30/lb.
In May, Thompson Creek raised $200 million in bonds and $30 million in tangible equity units with the intention of using the proceeds to complete the Mt. Milligan mine.
At the time, president and CEO Kevin Loughrey told analysts that around 70% of the projected capital cost at the upper end of its estimate of C$1.5 billion ($1.5 billion at May exchange rates) had been spent.
A further C$300 million of non-fixed costs remained and C$37 million of contingency, which represented 46% of the non-fixed costs remaining, Loughrey said in May.
The Mt. Milligan mine is expected to produce 89 million lb/year of copper and 262,000 oz/year of gold in the first six years of operation. Over the projected 22-year life of the mine, Thompson Creek is forecasting average annual copper production of 81 million lb/year and 194,000 oz/year of gold output.
Mt Milligan became an asset of Thompson Creek with the $653 million acquisition of Terrane Metals, a Canadian exploration and development group, in 2010.
Wall Street analysts are expecting Thompson Creek to report a Q2 2012 loss of 8 cents/share on Wednesday, compared with 33 cents/share in net income for Q2 2011, according to Yahoo Finance. Dahlman Rose is forecasting a Q2 net loss of 13 cents/share.