A couple of weeks ago I had an extended exchange with a friend of mine who is an oil man in Oklahoma...
Sell Thompson Creek Metals (TC)
05/04/2011 1:57 pm EST
The market seems to be rotating away from commodities and materials stocks as fears about an economic slowdown in the United States, China, Brazil, India or the economy of your choice move to the fore. I don’t think the bottom is about to fall out of the sector in a replay of 2008, but I do think it will be hard for stocks in this sector to move up significantly against this tide. A month or two back it seemed like it would be time to look for a bottom in a commodity such as copper in July or so.
I think global economic growth is on a less certain path today than it was a month or two ago. I’d still start looking for a bottom in selective commodities in July but I wouldn’t be completely surprised if I didn’t see one arriving on that schedule like the 4:10 to Yuma.
I think there are also stock specific reasons to give Thompson Creek a rest right now. The company is scheduled to report earnings after the markets close on Thursday May 5. (The company has scheduled its conference call for 8:30 a.m. I don’t think the company is going to report a clear road map to future growth.
On April 25 Thompson Creek announced that it had ended an option it had signed in 2008 to buy a stake in the Mount Emmons molybdenum project in Colorado from U.S. Energy. Ending the option won’t have any material effect on the company’s financial results but it is likely to focus attention on the company’s difficult transition in 2012.
By the company’s own guidance production at its big Thompson Creek mine will go from 22-24 million pounds of molybdenum in 2011 to 15-16 million pounds in 2012. Costs will go up at the mine, the company notes in its most recent investor presentation, to $8.50-$9 a pound in 2012 from $6-$7 a pound in 2011.
Eventually, as in 2013, Thompson Creek will bring new mines into production, such as the mixed copper/molybdenum Mt. Milligan mine projected to begin operation that year, that will replace most of the production from the Thompson Creek mine and lower costs again. The new Berg mine, still in development, could follow shortly on that.
But until Thompson Creek Metals gets closer to production at those new properties, one of which (Mt. Milligan) it only acquired in 2010, the company is going to strike a lot of investors as one caught short by production trends that the company should have been able to anticipate.
I’d like to let that kind of dissatisfaction among investors build—while I sit on the sidelines—and then move back into the stock when it has either broken down further in price (the current range is a very tight $12.09 for support and $12.55 for resistance) or the company is closer to production at Mt. Milligan. (And maybe in the best of all worlds, both.)
I’m selling these shares with a 24% loss since I added them to the portfolio on June 26, 2007.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Thompson Creek Metals as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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