Thompson Creek Metals Company (TSX: TCM; NYSE: TC)
Q4/12 Results Beat Expectations; Negative 2013 Guidance Revisions
Above Average Risk
Price Target: 4.50
We have updated our estimates following the Q4/12 results and conference call.
• Q4/12 results beat expectations: Thompson Creek reported adjusted fully diluted Q4/12 EPS of $0.04 versus our estimate of ($0.04) and consensus of ($0.06). TCM’s reported adjusted EPS number of ($0.11) included ($0.05) for FX losses and stock-based compensation, ($0.08) for inventory writedowns, and ($0.03) in interest and finance fees associated with the termination of the revolver. The outperformance vs. our estimate was due to higher sales volumes, lower costs, higher prices, and a larger tax recovery than we were assuming.
• Mt. Milligan on track for Q3/13 start-up, but more capex due to scope change: Mt. Milligan is now 81% complete. Total capex is still estimated to be C$1.5B; however, there is an additional C$40–50M for construction of a permanent operations residence. See p. 3.
• Endako fixed asset impairment of $530.5M: See p. 3.
• Cash cushion of $217M for 2013 capital spending: See p. 3.
• Guidance reduced: Due to tailings management issues, TCM lowered its 2013 production guidance for Endako, and total consolidated production is now expected to be 27.5–30.5M lbs in 2013 versus 29.0–32.5M lbs previously, with cash costs of $6.50–7.50/lb, up from $6.25–7.25/lb previously. Total capex is now $440–480M, up from prior guidance of $295–335M.
• No plans to resume stripping activity at Thompson Creek mine: Unless moly prices increase substantially from the current price of $11.20/lb, TCM has no plans to restart stripping. If stripping is not restarted by the third quarter, there will be an interruption in production from the Thompson Creek mine.
• Estimate revisions: See Exhibit 3 on p. 3.
• Investment rationale: The recently announced offering of senior notes, combined with cash conservation from suspending stripping activity at Thompson Creek Mine and mining at Endako, should eliminate the need for additional financing for Mt. Milligan under our base case assumptions. However, a small amount of financing risk remains given the current macro environment, weak moly prices, the possibility of cost overruns, and completion and start-up risk.