Thompson Creek Metals Company Inc. SELL

TCM : TSX : C$3.28

Target: C$2.70

Thompson Creek Metals is one of the largest
molybdenum producers in the world. The company owns
the Thompson Creek open-pit mine and mill in Idaho; a
75% share of the Endako open-pit mine, mill, and
roasting facility in northern BC; and a metallurgical
roasting facility in Langeloth, Pennsylvania. Thompson
Creek Metals is also developing the Mount Milligan Cu-Au
deposit near Prince George in B.C.

All amounts in C$ unless otherwise noted

Metals and Mining — Base Metals and Minerals
With TCM having now established a reporting format for Mount
Milligan, we have rebuilt our valuation model, and with TCM confirming
that in light of current molybdenum price strength it is reviewing the
decision to close the TC Mine at end-2014, we have returned the TC
Mine to our valuation model, with Phase 8 production from Q1/16E.
Our new 2014-16E adjusted (for Royal Gold stream payments) EBITDA
forecasts are US$184 million, US$222 million and US$270 million, from
previous US$197 million, US$217 million and US$218 million.
Action and valuation
We are maintaining our SELL recommendation but increasing our 12-
month target price to C$2.70 (from C$2.20). Our C$2.70 target is based
on the average of: i) 6x our 2015E EV/EBITDA, which would imply a
share price of C$2.89, and ii) our NPV8 estimate of C$2.48. We are
forecasting an end-2014 cash balance of US$213 million, providing
leeway for investment in additional Mount Milligan crushing capacity if
Next potential catalyst and investment risks
Given current net debt of US$799 million against a market cap of C$562
million, TCM’s equity valuation is extremely sensitive to assumed model
inputs. To demonstrate: i) were we to increase our molybdenum price
assumptions from US$11/lb to US$13/lb, our NPV8 would increase to
C$3.58, ii) however, were we to remove the TC mine re-start from our
model should moly prices fall again, our NPV8 would fall to C$1.19, and
iii) should we increase our steady state Mount Milligan cost forecast
from US$280Mpa (~US$10/t site costs) to US$300Mpa, our NPV8 would
fall to C$1.41

Imperial Metals Corp

English: 100 million dollar note after operati...

English: 100 million dollar note after operation Sunrise. Issued 2nd May 2008. (Photo credit: Wikipedia)

III : TSX : C$10.91
Target: C$16.50

Imperial Metals is a Canadian-based company with interests in two mature producing copper mines in British Columbia (Mount Polley [100%]; Huckleberry [50%]). More importantly, the future and value driver of the company resides in its 100% interest in the very large but undeveloped Red Chris copper-gold project in northwest BC, which is permitted and scheduled to enter production via an open-pit in late-2014.
All amounts in C$ unless otherwise noted
Imperial Metals reported Q1/13 EPS of C$0.14, in line with both our forecast and consensus. We calculate adjusted (to include Huckleberry)
EBITDA of C$23 million vs. our forecast of C$25 million. The end-Q1 cash balance was just C$97,000 (excluding III’s C$12 million share of
the Huckleberry JV’s cash balance).
Our 2013-15E adjusted EBITDA forecasts (accounting for Huckleberry as an equity investment) are C$100 million, C$116 million, and C$330
Action and valuation
We are maintaining our BUY recommendation, but decreasing our 12- month target price from C$17.00 to C$16.50, based on the average of: i)
10x our 2014E EV/EBITDA, which would imply a share price of C$10.55; and ii) our NPV10 estimate of C$22.13. Our NPV10 estimate of C$22.13 includes C$12.15 for Red Chris in-situ value.
Next potential catalyst and investment risks
Red Chris financing remains a key valuation risk, and in our view a potential catalyst for share price appreciation. Our current valuation assumptions are C$100 million of equity priced at C$10 per share, and new debt financing of $400 million at an interest rate of 10%. On this basis, we are forecasting an end-2014 cash balance of C$41 million

CITI: Commodity Forecasts

Nov 27


Citi is bearish on Brent prices and thinks the oil market is in the process of normalizing

Citi is bearish on Brent prices and thinks the oil market is in the process of normalizing


2012 average year price:

2013 average year price:

2014 average year price:

We’re seeing a “supply cornucopia” at a time of heightened geopolitical tensions.  The American energy revolution also heightens geopolitical tensions, since it reduces dependence on West Africa, Middle East, Venezuela, Mexico and oil prices decrease. OPEC and other oil producing countries  will see their fiscal breakevens – price at which oil contributes to balancing budget – rise.

WTI Crude oil prices should decline as demand for oil is subdued

2012 average year price:

2013 average year price:

2014 average year price:

Commodities indices are expected to add to Brent positions put less weight in NYMEX WTI. But WTI prices are also likely to be impacted by subdued demand for oil.

Natural Gas prices are expected to rise because of lower inventory levels, lower expected imports from Canada, and higher exports to Mexico.

Natural Gas prices are expected to rise because of lower inventory levels, lower expected imports from Canada, and higher exports to Mexico.

Natural gas compressor station

Aluminum is expected to see modest consumption growth in 2013

2012 average year price:

2013 average year price:

2014 average year price:

Aluminum has seen rising production and inventory, but demand has kept it from having an overly negative impact on prices.

Aluminum consumption growth is expected to be a modest 1.3 percent in 2013 because of the slowdown in China and Europe’s sovereign debt crisis.

Read more:


2012 average year price:
$2.75/ million BTUs

2013 average year price:
$3.55/ million BTUs

2014 average year price:
$4.10/ million BTUs

Natural gas prices will are subject to seasonality. As winter approaches prices could increase on lower inventory levels at the end of October, lower imports from Canada, and higher exports to Mexico.

Domestic production could fall but not by much. The fiscal cliff could however have a huge impact on natural gas prices.

Copper prices are projected to decline as supply increases and demand slides

2012 average year price:

2013 average year price:

2014 average year price:

2013 is a “year of transition for copper” in terms of supply and demand. 2013 signals the next wave in terms of copper supply according to Citi analysts who think that mine supply growth will be up 6.7 percent.

On the demand side, China isn’t expected to have a major stimulus in early 2013, and with many markets in Europe expected to be in a recession, demand from the region is also expected to be weak.

Nickel prices are expected to rise because supply is tighter than everyone thinks

2012 average year price:

2013 average year price:

2014 average year price:

Nickel suffers from a “reputational deficit amongst many in the analytical community” because of certain assumptions made about its over supply.

“In the short term, the combination of low consumer stainless inventories , particularly in Europe and China, and low nickel inventories with stainless mills, makes the nickel market is indeed increasingly vulnerable to a technical short covering rally perhaps prompted by index fund rebasing. However, unlike a similar rally in January 2012, it is likely that such a move in early 2013 is likely to spark consumer restocking, helping push prices towards $21,000/t during the first quarter.”

Demand for zinc is expected to rise modestly pushing prices higher

2012 average year price:

2013 average year price:

2014 average year price:

The market faces weak fundamentals since LME inventory has jumped since the start of 2012. Demand for zinc is slowing especially viz-a-viz China but is expected to improve modestly in 2013. Mine supply is healthy

Gold prices will rise in 2013, before declining again in 2014

2012 average year price:

2013 average year price:

2014 average year price:

Despite investors turning less bullish on gold, Citi continues to be bullish on gold. President Obama’s victory was expected to be positive for gold since it would benefit from “a continuation of dovish monetary policy”. Gold prices have also been supported by central bank gold purchases. Moreover muted gold demand in India is expected to have picked up during Diwali.

Labrador Iron Ore Royalty Corporation

Iron Ore Company of Canada

Iron Ore Company of Canada (Photo credit: Wikipedia)

Labrador Iron Ore Royalty Corporation 
LIF : TSX : C$29.22
BUY Target: C$39.00

Labrador Iron Ore Royalty Corporation’s (“LIORC”) primary assets are a direct equity interest in and royalties related to The Iron Ore Company of Canada (“IOC“). IOC operates mines, a concentrator and a pellet plant in Labrador City, Newfoundland. IOC also owns the 418 kilometre railway
between Labrador City and Sept-lles, and port infrastructure at Sept-lles.

Investment recommendation
LIORC’s primary assets are a direct equity interest in and royalties related to IOC. We believe LIORC will be able to increase distributions once the current IOC capacity expansions are complete and IOC resumes the payment of equity dividends to equity owners. In order to maintain the current C$0.375 quarterly distribution in the meantime, we forecast LIORC’s cash balance to trough at about C$10 million during 2013, before recovering during H2/13 upon our assumption of resumed IOC dividend payments.


Our C$39.00 12-month target price is based on a 5% distribution yield to our LT forecast distribution of C$1.95pa, which is based on a LT iron ore price forecast of US$95/t, (62% Fe, landed in China), much lower than the current spot of US$121/t. The current distribution is C$1.50pa. Our NPV8 estimate is C$27.10 per share.

We use an 8% discount rate for NPV valuation for more typical Canadian-based base metals producers. However, on the assumption that LIORC continues to distribute cash flow as it becomes available, we are comfortable setting our target price closer to our NPV5 of C$41.69. Our C$39.00 price target equates to dividend yields of 5.2% for 2013, 7.6% for 2014, and 6.3% for

Other than the iron ore price itself, we believe the main downside LIF share price risk is the possibility of a temporarily lower distribution.
Given that C$0.50pa of the current C$1.50pa distribution is presented as a “special distribution”, we see some risk that LIORC may decide to
eliminate the special distribution .

Imperial Metals Corp. BUY Target $ 20

A share entitling to 1/8 of the Great Copper M...

A share entitling to 1/8 of the Great Copper Mine. Dated June 16 1288. (Photo credit: Wikipedia)

Nov. 12


Imperial Metals Corp.

III : TSX : C$12.73

Imperial Metals is a Canadian-based company with interests in two mature producing copper mines in British Columbia (Mount Polley [100%]; Huckleberry [50%]). More importantly, the future and value driver of the company resides in its 100% interest in the very large but undeveloped Red Chris copper-gold project in northwest BC, which is permitted and scheduled to enter production via an open-pit in late-2014.

Q3 Results As Expected

Investment recommendation
Imperial Metals reported relatively in line Q3/12 results (adjusted EPS of $0.10 vs. our estimate of $0.08 and the First Call consensus of $0.06) and reiterated its 2012 guidance. The development of Red Chris is now well underway, with no material updates this quarter. We are reiterating our BUY rating and 12-month target of C$20.00 per share. Our C$20.00 target price is based on a 25/75 weighting of 5.0x our 2013E EV/EBITDA (C$5.05 per share) and 1.0x our 10% NPV estimate (C$25.61 per share). Our BUY rating is supported by the company’s 100% interest in the Red Chris Cu-Au deposit, which in our view, represents one of the only world class assets in the hands of a Canadian mid-tier producer. However, we believe the company’s relatively weak balance sheet and lack of secured funding for Red Chris is likely to overhang the shares in the near-term.
Investment highlights
With the development of Red Chris Phase I, we forecast annual average copper production to reach 135 million lbs at a cash operating cost of US$1.16/lb Cu beginning in 2015; this compares to 2012 Cu production of only 51 million lbs at cash costs of $1.77/lb.
Imperial is currently trading at a relatively compelling 50.4% discount to our 10% NPV estimate of C$25.61 per share versus a 33.2% discount for the mid-tier peer group.


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Freeport McMoran Update

Grasberg Mine Tailings - 2003

Grasberg Mine Tailings – 2003 (Photo credit: SkyTruth)

Oct 23

Freeport McMoran (FCX : NYSE : US$40.58)

Red metal update. 

Freeport-McMoran Copper reported Q3/12 net income of $0.86 per share, compared with net income of $1.10 per share for the same quarter last year. Consolidated sales from mines for Q3 totalled 922 million pounds of copper, 202,000 ounces of gold and 21 million pounds of molybdenum. Looking ahead, the company projects its annual copper production to increase by one billion pounds annually over the next three years through higher-grade ores at Grasberg in Indonesia and through the execution of brownfield expansions in the Americas and Africa.

The company commented that it has been in discussions with the Indonesian government to extend its contract of work agreement beyond 2021 and is considering listing a portion of PT Freeport Indonesia, its Indonesian unit, Chief Executive Richard Adkerson said on the company’s earnings call. Freeport is the world’s largest listed copper mining company and operates the world’s third-largest copper mine, Grasberg, in Indonesia. The company signed an agreement known as a contract of work, with Indonesia in 1991 for 30 years with options for two 10-year extensions. The current contract of work expires in 2021.



China Growth Hopes Rallies Copper

First Quantum Minerals

First Quantum Minerals (Photo credit: Wikipedia)

September 10

Freeport McMoran (FCX : NYSE : US$39.53)

First Quantum Minerals (FM : TSX : $21.98)

Inmet Mining (IMN : TSX : $49.08)

Teck Resources (TCK.B : TSX : $29.52)

Come and Get Me COPPER.

 Copper rallied after the Chinese government went on an infrastructure project announcement spree, worth more than $158 billion. According to Xinhua, the state-run news agency, 55 investment projects in the past couple of days have been  given the go-ahead. On top of rail and road construction, the National Development and Reform Commission (NDRC) announced approvals for a wide variety of other projects including: sewage treatment, power stations, wind farms, and waste incinerators.

On the heels of China’s poor PMI data reported last week, Credit Suisse Chief Economist for Non-Japan Asia Dong Tao said he believed the NDRC may speed up the approval process of infrastructure projects initiated by the local governments but thinks the ultimate success will depend on banks’ willingness to lend. China skeptics were out in full force on Friday, by saying some of these projects might already have been a part of local government stimulus plans and might not be “new”. In addition, China stimulus might not be a good thing, there is the risk that it could exacerbate the country’s bad debt problem.

Freeport McMoran Copper & Gold, the de facto proxy of Chinese economic health traded higher day that day. With Friday’s big move, shares of FCX are up 7.73% YTD. Other big copper movers on Friday included First Quantum Minerals, Inmet Mining and Teck Resources.



JP Morgan Top Stock Picks

August 22

United States Steel

Ticker: X

Industry: Metals & Mining

Target Price: $43.00

Short Interest as % of Float: 26.0%

United States Steel engages in the production and sale of steel mill products. It was founded in 1901 and is headquartered in Pittsburgh, Pennsylvania



Sean Gallup/Getty Images

Ticker: AA

Industry: Metals & Mining

Target Price: $12.00

Short Interest as % of Float: 9.0%

Alcoa engages in the production and management of primary aluminum, fabricated aluminum, and alumina. It was founded in 1888 and is based in New York, New York.


Cliffs Natural Resources

Cliffs Natural Resources

Cliffs Natural Resources operations in Michigan

Copyright 2011 Cliffs Natural Resources Inc.

Ticker: CLF

Industry: Metals & Mining

Target Price: $55.00

Short Interest as % of Float: 10.2%

Cliffs Natural Resources is a mining and natural resources company. It was founded in 1847 and is headquartered in Cleveland, Ohio.

Micron Technology

Ticker: MU

Industry: Semiconductors

Target Price: $8.50

Short Interest as % of Float: 7.2%

Micron Technology engages int he manufacture and marketing of semiconductor devices worldwide. It was founded in 1978 and is headquartered in Boise, Idaho.


Ticker: SRCL

Industry: Commercial Services & Supplies

Target Price: $101.00

Short Interest as % of Float: 5.6%

Stericycle provides regulated waste management and related services. It was founded in 1989 and is headquartered in Lake Forest, Illinois.




Ticker: CTAS

Industry: Commercial Services & Supplies

Target Price: $46.00

Short Interest as % of Float: 5.2%

Cintas provides corporate identity uniforms and related business services to approximately 900,000 businesses globally. It was founded in 1968 and is headquartered in Cincinnati, Ohio.


F5 Networks

Ticker: FFIV

Industry: Comm. Equipment

Target Price: $99.00

Short Interest as % of Float: 4.8%

F5 Networks provides delivery networking technology that optimizes the delivery of network-based applications

Read more:




Jim Rogers On The Coming Fiscal ‘Catastrophe’

English: American investor Jim Rogers in Madri...

English: American investor Jim Rogers in Madrid (Spain) during an interview. Español: El inversor norteamericano Jim Rogers en Madrid (España) durante una entrevista. (Photo credit: Wikipedia)

Interview in The Fiscal Times

Renowned investor Jim Rogers is still worried. As the U.S. heads for the fiscal cliff at the end of the year, the chairman of Rogers Holdings has been outspoken about the consequences of the country’s growing national debt. From his perch in Singapore, he still doesn’t see much reason for real optimism. Rogers rose to investing prominence after starting the Quantum Fund with George Soros in the 1970s, generating an eye-popping and oft-cited return of 4,200 percent over a 10-year span that saw the S&P 500 climb less than 50 percent.

The Fiscal Times (TFT): You’ve we’re heading for financial “Armageddon.” Why that dire?
Jim Rogers (JR): The United States is the largest debtor nation in the history of the world. Our debts are skyrocketing every year and nobody’s doing anything about it. Every country in history that’s gotten into this situation has had a crisis or a semi-crisis, or both. In 2002 we had an economic slowdown, which was fairly serious, and then in 2007 and 2008 we had another one, which was worse because the debt was so, so, so much higher. The next time around the debt is going to be that much more catastrophic.

TFT: We are still hearing calls for another round of quantitative easing by the Fed. Bad idea?
JR: It’s an absurd idea. Printing money has never solved anyone’s problems. Maybe sometimes in the short term printing money has alleviated the situation, but anybody who has studied history or economics knows that printing money in the longer term doesn’t work. Maybe this time it’s different, but I doubt it.

TFT: What’s your assessment of the market? Are you still bullish on commodities long term?
JR: Yes. My view is if the world economy gets better, I’m going to make money in commodities because of the shortages that are developing and getting worse. And if the world economy doesn’t get better, then they’re going to print money. It’s the wrong thing to do but that’s all they know. They’re not very smart people. So they’re going to print more money, and when they [do],  historically you’ve always protected yourself – and made money – by owning real assets.

TFT: Are there some real assets that you prefer to others?
JR: On a historic basis, agriculture is still cheaper than others. But I own them all. I own more agriculture than I own of the others, but I own them all.

TFT: Have you been putting more money to work in commodities or in other areas?
JR: Not recently. I’ve been watching. I’ve got my positions. I’ve bought a few more Myanmar shares recently, but other than that I haven’t done anything.

TFT: What about China? You’re still bullish despite the concerns about how the economy there is doing – concerns that were reinforced last week with the weaker trade data that came out. Do you think those concerns about China and a potential hard landing have been overblown?
JR: I’m a little surprised anybody says anything about China. China has publicly announced for three years they’ve been trying to slow their economy down. They’ve announced almost every month or every quarter they were trying to slow things down,  so anybody who isn’t aware of this either hasn’t been paying attention or doesn’t know what they’re doing. China is slowing down, by design, properly, if you ask me. Some parts of [that] economy are going to have problems, such as property and real estate. Other parts are going to continue to do well. But anybody who deals with the West in China is certainly going to know something’s wrong. Anybody who deals with property in China is going to know something’s wrong. But part of that was by design – and proper design.

TFT: You say there are broader structural problems with our agriculture industry and that the U.S. may have a shortage of farmers. Are we going to have problems producing crops beyond the weather-related issues we’re seeing this year?
JR: Nearly every year, the world always has a problem somewhere with weather or something, since the beginning of time, and I suspect we will continue to. The problem now is it’s going to be more and more difficult to recover because of two things. One, we’ve consumed more than we’ve produced nearly every year over the last decade, so inventories are very low. But more importantly, we’re running out of farmers. The average age of farmers in America is 58. More people study public relations than study agriculture. We don’t have anybody going into agriculture. Something’s got to happen, such as much higher prices, or we’re not going to have any food at any price… We’ve got to do something to get farmers back into the field.We produce 200,000 MBAs in the U.S. every year. Some human being has to go into the field. Yeah, things are more automated, but still, somebody has got to get his hands dirty.

TFT: Average investors see what’s going on in the U.S. and hear about what’s happening in Europe, China and other areas in the emerging world. How should they position themselves ?
JR: Investors should be investing in and owning things they know about. If you don’t know what you’re doing or don’t have something you think is going to be a good investment, you should do nothing. The problem these days is even if you put your money in cash, what kind of cash? Some cash is better than others. But even if you don’t know any better, just put your money in U.S. dollars in the bank and wait until you find something you know a lot about. I happen to be invested in commodities and especially agriculture – and I own currencies and I’ve sold short stocks. But people – if they can’t spell commodities, they shouldn’t be listening to me. They should be doing what they know about.

Labrador Iron Mines Holdings Ltd. BUY Target $6


iron (Photo credit: Wikipedia)

Labrador Iron Mines Holdings Ltd.

August 16
LIM : TSX : C$1.85 | C$124.7M | Buy , Target C$6.00 
• Lower iron ore prices expected to bring forward financing requirement; maintaining BUY rating; decreasing target to C$6.00 (from C$7.50)
LIM’s Q1/FY13 loss of $0.16 per share missed consensus of C$0.05 (range -C$0.02 to C$0.19). C$0.13 of the C$0.16 miss versus
our estimate was due to depreciation. The remainder was due to higher operating costs from one-time items, offset by better-than-forecast unit revenue. We have also decreased our H2/CY12 LIM iron ore price forecasts in line with current spot and three-month forward prices.
We estimate that LIM needs C$40 million of debt financing before end-CY12. We have deferred our assumption of capital spend on the Houston project into CY13/14, and now assume a C$60 million equity issue next year at C$3.00 per share. In our view, financing requirements have increased from our previous C$30 million assumption due to a weak iron ore market impacting both iron ore prices and working capital requirements as LIM is currently unable to place its fifth and final shipment of direct-rail ore, upfront payments for participation in a
multi-user port, and our liquidity driven assumption of expansion delays beyond the timing of the second port payment and ongoing TSH railway contributions.
Action and valuation
We are maintaining our BUY rating, but decreasing our 12-month target price to C$6.00 (from C$7.50), based on the average of: i) our NPV12 estimate of C$5.70; and ii) 5x our FY16E EBITDA (essentially CY15E; prior to expansion to full 5mtpa, but with assumed access to a multi-user port) discounted back to 12 months from today, which would imply a share price of C$6.25.

We have increased our discount rate from 10% to 12% to account for increased liquidity and financing risk potential, and to reflect CY13 iron ore price forecasts currently higher than spot. Our CY13 iron ore price forecast of US$123/dmt (62% Fe, landed China) is higher than the current 15-month forward price of US$108/dmt.


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