According to RBC Capital Markets:
May 9, 2013
Price Target CAD 4.00
Thompson Creek Metals Company
Mt. Milligan On Track and Financed But Little Room For Error
Our View: Mt. Milligan remains on track and on budget. Financing is in place, however there is little margin for error with only a $169 million cash cushion and one month of operating costs allotted to working capital. Start-up risk remains as project moves toward commissioning in August.
• Q1/13 results beat expectations: Thompson Creek reported adjusted fully diluted Q1/13 EPS of $0.10 versus our estimate and consensus of ($0.01). See our note "Solid Q1/13 Results and Guidance Maintained; Mt. Milligan on Track and Funded" for more detail.
• Mt. Milligan on track: TCM continues to expect to achieve commercial production (60% - 65% of planned capacity) in Q4/13 and ramp up to full copper production relatively quickly thereafter. Ramp up to full gold production is expected to be slower and take up to one year. TCM expects Mt. Milligan to be cash flow positive in 2014, with potential for average annual cash revenue of $520 million and cash costs of $280 million for the first six years of production.
• Mt. Milligan financing in place, but little margin for error and only one month of operating costs allotted to working capital: Of the project's $1.5 billion capex, 95% has been spent or contractually committed. Spending that remains non-fixed is related primarily to labour and the final mechanical and electrical hookups. The company expects to have a cash cushion of $169 million at $11.42/lb moly, but has only allotted $30 million, or just over one month of $280 million in annual operating costs, to working capital by our estimates. The capex estimate includes an additional $30 million for first fills, commissioning parts, and spare parts. See Exhibit 4 on page 3 for 2013 sources and uses of cash.
• Mining at Endako to resume earlier than expected: TCM expects to resume mining at Endako in Q2/13 compared to Q3/13 previously. As part of an effort to reduce costs, as of February 2013 all milled material is being roasted at Langeloth. Through process control optimization and reagent enhancements, recovery is improving. The resumption of mining and operational improvements will lead to a stronger H2/13 at Endako and the company believes continued operational improvements will help spread the mine's relatively large proportion of fixed costs over higher volumes of production, with the potential to reduce cash costs to the $8 to $9 per pound range eventually.
• Stripping at Thompson Creek mine remains on hold: Mining is currently going through a portion of the ore body that is higher grade material. Q1/13 had exceptionally high production and grades, and the mine should operate quite steady the rest of the year. If moly prices and the supply and demand outlook do not improve, the company is unlikely to restart stripping of Phase 8. Phase 8 would cost $100 million in prestripping to develop, and would have lower grades and production and thus be higher cost than Phase 7 currently being mined.