4Q12 Preview: Key Issue Remains Progress of Mt. Milligan
While 4Q12 earnings should be a reflection of molybdenum prices, we believe the key issue on investors' minds remains the status of TC's Mt. Milligan copper and gold project. We expect project construction should be completed in 2013, with no need for additional funding.
Thompson Creek Metals plans to report 4Q12 earnings before the market open on February 25 and host a conference at 8:00AM to discuss the results (877-719-9801; no pass-code).
Mt. Milligan: We believe the main investor focus will be on TC’s ability to fund Mt. Milligan. Despite management's previous upward revisions for project capex (currently C$1.5 billion), we think the project is adequately funded through TC’s gold stream agreement with Royal Gold combined with cash on the balance sheet ($359.7 million as of 3Q12) and raised capital. To date, through TC’s gold stream agreement, Royal Gold has invested $876.5 million into Mt. Milligan, and is scheduled to pay an additional $111.9 million through three quarterly payments ($62 million on March 1, 2013; $37 million on June 1, 2013; $12.9 million on September 1, 2013). During 4Q12, TC raised $350 million through the issuance of senior secured notes (due 2017). As of 3Q12, C$935 million has been spent on the project, which is estimated to be 75% complete.
Estimates: We estimate 4Q12 EPS of $0.03 (vs. Street consensus of negative $0.04) and EBITDA of $39.9 million (vs. Street consensus of positive $9 million).
Valuation: Our $4.75 target price is based on 0.9x our 8%-NAVPS (12% assumed for Mt. Milligan) estimate.
Target Price Methodology/Risks
Our $4.75 target price is based on 0.9x our 8%-NAVPS (12% assumed for Mt. Milligan) estimate. Risks to our target price include lower-than-expected moly prices, a decline in global steel production, input inflation risks, oversupply as new projects come on line, and permitting delays.
Thompson Creek Metals Company Inc. is an integrated molybdenum producer with two primary moly-producing mines, the Thompson Creek mine in Idaho and a 75% stake in the Endako mine in British Columbia, as well as a metallurgical roasting facility in Langloth, PA. Additionally, Thompson Creek owns the Mt. Milligan copper/gold deposit in BC, Canada.