A Miner with a Heart of Molybdenum

11/24/2009 3:47 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

On November 5, molybdenum miner Thompson Creek Metals (NYSE: TC) reported third quarter earnings of 14 cents a share, three cents a share above the Wall Street consensus, and revenue of $114 million, well above analysts’ projections of $90 million.

The upside came from lower costs at just $5.67 per pound of molybdenum and from higher sales volumes—up 17% from the second quarter, although still down 12% from the third quarter of 2008. Molybdenum prices remained depressed at $12.75 a pound, down a huge 61% from the third quarter of 2008.

The best news, though, wasn’t in the numbers for the third quarter, but in the company’s guidance for 2009 and 2010. Thompson Creek Metals raised its projected production volume for 2009 to 24 to 26 million pounds (from previous guidance of 22 to 26 million pounds) and for 2010 to 29 to 32 million pounds.

At the same time, the company lowered its estimates of the cost of production to a range of $5.80 to $6.30 a pound in 2009 (from $5.75 to $7.00). For 2010, the company estimated costs at $6 to $7 a pound.

In two other major announcements, Thompson Creek presented a new mine plan that increased the size of its mineral reserves by about 30% and noted that since US-based investors now make up more than 50% of all shareholders, the company would convert to US GAAP (generally accepted accounting principles) in the fourth quarter. That will result in a one-time charge to earnings of roughly 60 cents a share, according to estimates by Deutsche Bank.

The company also reported that it was looking for an acquisition. It finished the quarter with $480 million in cash and just $14 million in debt. Any deal could, and probably would, add to the short-term volatility of the stock.

With molybdenum prices showing signs that they might creep up towards $15 or $16 a pound in 2010 with a gradual recovery in the global economy, as of November 24, I’m raising my target price just a tad to $16.50 a share by July 2010 from the previous $15 by May 2010. It traded at around $12 Tuesday.

I think Thompson Creek Metals is worth a look if you’re trying to increase your exposure to non-US equities. (For why you might want to do that, see this recent post.)

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

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