According to Bank of America Merrill Lynch:
Thompson Creek Metals Co Inc.
PO hike on lower development risks. Maintain Underperform
Increase PO 18% to $2.60/share on lower risk at Mt Milligan
We maintain our Thompson Creek Metals Co. (TCM) Underperform (U/P) rating but are increasing our price objective (PO) to $2.60/share from $2.20 as development risks (i.e. capex overruns, delays) at the company’s Mt Milligan copper-gold project have been reduced. The increase to our PO is mainly driven by a reduction to our Mt. Milligan discount rate to 10% from 12% as the overall project completion is at an estimated 81%. This was offset by TCM’s announced $80-$110 mn in additional capex for the project in 2013-14. While we are increasingly constructive on the start-up of Mt Milligan and its diversification effects (increased copper/gold exposure vs. primary molybdenum), we are concerned with continued problems at TCM’s existing molybdenum operations (TC and Endako mines).
Endako issues lower 2013 molybdenum operating outlook
TCM lowered its 2013 molybdenum operating outlook to production of 27.5 - 30.5 mn lbs at $6.50 - 7.50/lb Mo cash costs, weaker than the 29.0 - 32.5 mn lbs at $6.25 - 7.25/lb Mo cash costs guided to in 3Q12. Tailings management issues at the Endako mine, reduced TCM’s 2013 Endako production outlook 18% to 7.5-8.5 mn lbs at higher cash costs of $10.75-$12.25/lb (vs. $9.25– $10.75/lb previously). Also, a TC mine restart decision appears unlikely in the current pricing environment (TC mine to be put on care and maintenance, end of 2014).
Maintain U/P as FCF under pressure until Mt. Milligan starts
We continue to expect negative free cash flow yield and returns in 2013, however, a successful startup of the Mt. Milligan project in 2H13 should result in a positive 2014 FCF yield (albeit modest at 6%) and positive returns (Table 7). We still see potential capex overruns at Mt. Milligan with the project’s pre-strip/tailings dam preparation, but solvency is not a significant risk any longer, in our opinion.