A mulligan on Milligan
Thompson Creek achieved a milestone of its own by also gaining approval for the last permits it needed to get its Mount Milligan copper and gold mine operational. The project is on track to be commissioned by this year’s third quarter, and it will begin production by the end of the year. Once it gets going, Mount Milligan should be profitable. since the feasibility studies on it used copper at $1.60 per pound and gold at $690 an ounce. With the bronze metal trading today at $3.73 and the yellow one at $1,666, the miner should realize some healthy profits from the get-go.
Yet to get to this stage, Thompson Creek had to almost give away the store. In exchange for a total of $781.5 million in much-needed financing, the miner sold more than 52% of the output from Mount Milligan at a significant discount to gold streamer Royal Gold, Inc USA) (NASDAQ:RGLD). The $435-an-ounce price — or the market price if it’s lower — has weighed on the stock, but with the light at the end of the tunnel on getting the project up to speed, Thompson Creek has at least diversified its asset base and will no longer be dependent upon a single commodity.
Perhaps the main risk is its debt profile. While it largely financed the project with cash through its arrangements with Royal Gold, taking on only $350 million worth of senior secured debt at 9.75% at the end of last year (and cancelling its revolver because it no longer had a need for it), with production at its moly mines constrained, Thompson Creek is in a bit of a straitjacket financially should it run into unforeseen operational problems at Mount Milligan.
The long-term outlook for molybdenum remains strong, even if near-term pricing presents problems. China and India will undoubtedly continue to invest in their infrastructure, which will necessitate greater steelmaking opportunities, causing producers to need the metal in greater amounts.
For that reason, I think investors will find Thompson Creek’s current $4 per share an attractive entry point, particularly as Mount Milligan goes live and molybdenum prices recover in the future. But let me know in the comments box below whether essentially putting all its eggs into the copper and gold mine’s basket makes the miner too risky.
The article Thompson Creek Metals: Tomorrow’s Monster Stock? originally appeared on Fool.com and is written by Rich Duprey.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of ArcelorMittal and Freeport-McMoRan Copper & Gold.
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