According to Desjardins Securities:
Thompson Creek Metals Company Inc.
1Q13 results beat expectations with higher sales volume; reiterating C$4.75 target and Hold recommendation
The Desjardins Takeaway
We are reiterating our C$4.75 target on Thompson Creek after the company reported stronger-than-expected 1Q13 operating and financial results. Reported EPS broke even compared with our forecast of -US$0.10 (consensus of -US$0.01). Molybdenum sales volumes of 8.8m lbs exceeded our expected
6.8m lbs, resulting in an earnings ‘beat’. We maintain our Hold–Above-average Risk recommendation.
1Q13 adjusted EPS breaks even—better than expected. Yesterday, Thompson Creek reported EPS of US$0.00, compared with our estimate of -US$0.10 and consensus of -US$0.01. The variance between adjusted EPS and our estimate was primarily due to higher-than-expected molybdenum sales volumes. The company operates the Thompson Creek mine (100% owned in BC) and the Endako mine (75% owned in Idaho). Key highlights of 1Q13 results include:
- Strong molybdenum sales volume of 8.8m lbs vs our forecast 6.8m lbs.
- Molybdenum production of 7.7m lbs provides a forecast production average of 7.1m lbs/qtr for the nine months ending December 31, 2013.
Balance sheet debt levelling out. During 1Q12 the company’s debt to debt plus equity was maintained at 0.40, compared with 0.29 on September 30, 2012. The majority of the increase in debt is related to the funding of the Mt Milligan project. Spending remaining on the US$1.5b project is US$285m. Cash at the end of 1Q13 totalled US$494m, and management forecasts a cash balance of US$169m (US$0.75) at December 31, 2013.
Mt Milligan copper/gold project in BC—approaching initial production. The capital cost estimate for the project of US$1.5b remains unchanged, of which ~US$285m (including US$45m for permanent residences) has yet to be spent (as at March 31, 2013).
- Construction is now 89% complete, including spending of US$1,294m.
- The 89m lbs/yr copper and 262,000ozs/yr gold project (first six years of mine life) remains on schedule, with commissioning and start-up expected during 3Q13, followed by commercial production in 4Q13.
- The timeframe for gold production ramp-up to capacity starting 4Q13 is roughly one year, whereas we expect copper production capacity should be reached during 2Q14. Recall 52.3% of gold production is tied up in a gold stream sale (at US$435/oz).
2013/14 molybdenum production guidance unchanged. Management is maintaining molybdenum production guidance of 29m lbs (mid-point) during each of the next two years at an average cash cost of US$7.00/lb vs US$5.91/lb during 1Q13.
We are maintaining our one-year target on the shares of Thompson Creek of C$4.75. We remain cautious regarding the pending potential shutdown of the company’s two producing molybdenum mines. We arrive at the earnings-based valuation by applying a 5x multiple to our unchanged 2014 EPS estimate of US$0.95.
We maintain our Hold–Above-average Risk recommendation.