According to Desjardins Securities:
Thompson Creek Metals Company Inc. (TCM C$3.43, TSX/TC US$3.34, NYSE)
Maintaining Hold rating but reducing target to C$4.75 (from C$5.70) as 4Q12 results underwhelm and operational issues continue
The Desjardins Takeaway
We are reducing our one-year target on Thompson Creek to C$4.75 (formerly C$5.70) following a larger-than-expected loss during 4Q12 and continued operational issues at the Endako mine. During 4Q12, management reduced the carrying value of Endako by US$530.5m (US$2.76/share), or 74%, as the operation struggles to meet target production levels. We maintain our Hold–Above-average Risk recommendation.
4Q12 adjusted EPS of -US$0.11 vs our forecast of -US$0.05. Yesterday, Thompson Creek reported a larger-than-expected adjusted loss following continued operational issues at the company’s 75%-owned Endako molybdenum mine in BC. In response to low molybdenum prices (currently US$14/lb) and continued operational challenges following a recent US$475m mill expansion (completed 1Q12), management reduced the carrying value of the Endako operation by US$531m, or US$2.76/share, during 4Q12. As a result, reported EPS was -US$2.87 for 4Q12 and -US$3.24 for 2012. Mining operations at Endako ceased during 3Q12 to minimize resource depletion during a period of low molybdenum prices.
Endako mine—operating problems during 4Q12. The mine experienced tailings management problems related to frozen water in the tailings pond, which restricted a water source to the new mill. As a result, production guidance at Endako has been lowered to 8,000 tonnes (mid-point) from 9,250 tonnes (mid-point) previously (see Exhibit 1). Recall, mining at Endako was halted during 3Q12 due to low molybdenum prices, and the milling process has been sourcing ore from stockpile material. As a result, we have lowered our 2013 EPS forecast to US$0.25 (from US$0.30).
Thompson Creek mine (TCM)—pre-stripping remains offline. Pre-stripping of waste for the next phase of development at TCM remains on hold due to low molybdenum prices. Mining and production are expected to continue as planned through 2014. We estimate the operation has until September 2012, after which continued deferral of the stripping program would build an ore ‘gap’ beginning in late 2014. In the event the price of molybdenum does not return to a sustainable higher level (undisclosed), which we estimate is US$16–18/lb, all operations at the TCM mine could be placed on care and maintenance by the end of 2014.
Balance sheet debt increasing. During 4Q12, the company’s debt to debt plus equity increased to 0.40 from 0.29 at the end of 3Q12. The majority of the increase is related to funding the Mt. Milligan project.
We are lowering our one-year target to C$4.75 (from C$5.70). We arrive at our earnings-based valuation by applying a 5x multiple (formerly 6x) to our unchanged 2014 EPS forecast of US$0.95.
We maintain our Hold–Above-average Risk recommendation.