Update Thompson Creek Metals (TC)

01/25/2010 2:15 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Today Thompson Creek Metals (TC) confirmed what the market had long expected: that when the company reports its fiscal 2009 financial results in February, it will switch to U.S. GAAP from Canadian accounting rules. The big impact will be that the company has to mark its outstanding 24 million warrants to fair value each quarter and take a one-time charge or credit to adjust them to that fair market price.

 The result for fiscal 2009 will be a pre-tax, non-cash charge of about $93 million. The charge will be large enough, the company said, to turn net income for fiscal 2009 negative.

The change should have no effect on the price of the shares (no matter whether it should or not) since Wall Street analysts and institutional investors have 1) known this change was coming for months and 2) normally look past this kind of non-cash accounting charge anyway.

More significant is the price of molybdenum, which had rallied by about 25% in the four weeks through January 22 to reach nearly $15 a pound from $12 in mid-December. (Prices have retreated a bit since then on worries about when the Chinese government would slow the country’s economy.)

The  big questions for Thompson Creek Investors—and the stock is in my Jubak’s Picks, Jubak Picks 50, and personal portfolios—is why the price jump and where the price of molybdenum might be headed.

It looks, and I emphasize “looks,” like cuts in China’s molybdenum exports, an increase in U.S. steel production, and a new contract for molybdenum on the London Metal Exchange that has resulted in a small increase in demand for the metal from traders have all played a part.

I don’t see any strong reason to change my projection that molybdenum prices could reach $16 a pound in 2010, but I think the odds of that happening are now certainly much higher. And molybdenum could reach that price level in the first half of the year instead of in the second half as I was expecting.

As of January 25 2009, I’m raising my target price slightly to $17.00 a share by July 2010 from the current $16.50.

Full disclosure: I own shares of Thompson Creek Metals in my personal portfolio.
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