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

MBAC Fertilizer Corp. Buy Target $5.35

MBAC Fertilizer Corp.  MBC ( TSX)  $ 3.15

Sept. 14

Investment recommendation

Although preliminary in nature, the PEA highlights a robust project, the result of a very high grade REO deposit that is at surface and adjacent to existing infrastructure. Due to the risk surrounding the timeline and the financing of the project, we have applied a discount rate of 20% on Araxa. Given that the company will be looking to finance the Santana project in H2/13, estimated for initial production in 2015 at a cost of $445 million (our estimate), MBAC will likely require a financial partner for the Araxa project if it expects its timeline to be met. Initial discussions with potential financial partners (which consist of Japanese and Korean electronics companies – the end users of REOs) have identified several entities that are interested, but would prefer a further de-risking of the project through feasibility studies and pilot plant testing. To that end, given that MBAC intends to conclude both its pilot testing and PFS during Q2/13, followed by a bankable feasibility study expected by the end of 2013, we should be provided with greater clarity on financing options and better timelines and cost assumptions at that time. Given the metrics provided by the PEA, coupled with our own assumptions, and assuming a 20% discount rate on the Araxa project, our NAVPS estimate for the company increases by 15% as a result of the PEA release.

Investment highlights

Production planned fro Q1 2016 – increased capacity over time .

 PEA estimates Phase I CAPEX at US$406 million (which includes US$105 million in contingencies) with an additional US$214 million for the Phase II expansion (a sulphuric plant upgrade) for a total forecast CAPEX of US$620 million.


We continue to rate the shares of MBAC a BUY, but have increased our 12-month target price to C$5.35 from C$4.70, based on 1.0x our NAVPS estimate of C$5.37.

Rare Earths Molycorp (MCP : NYSE : US$11.83)

English: Ashwani Kumar, Indian politician and ...
English: Ashwani Kumar, Indian politician and Minister of State, speaks at a plenary session titled Big Bets on Technology and Manufacturing held at the World Economic Forum’s India Economic Summit 2008 in New Delhi, India. (Photo credit: Wikipedia)

Rare Earths
Molycorp (MCP : NYSE : US$11.83)

August 15
Window of opportunity? While China, the world’s largest producer of rare earths, is clamping down on exports, the world’s
second-largest producer is planning to increase its output.

The Wall Street Journal highlighted that, while China bickers with the U.S. and other major rare earths consumers of export limits, India, currently the world’s second-largest producer of rare earths and home to large deposits of rare earths, has been presented with a window of opportunity to boost production to fill the drop  ff in China’s exports.

The WSJ reported that state-owned Indian Rare Earths, which suspended mining in 2004 due to its inability to compete with China on price, is building a rare-earth processing plant in the eastern state of Orissa. A company official said the plant should begin operations in September. The government also has two ships prospecting off the southern coast of India for reserves on the seabed.

Rare earths deposits are abundant on the ocean floor but have never been mined on an industrial scale. India’s rare-earth strategy appears to be driven not just by economic considerations, but also by the country’s rivalry with China, the WSJ stated. In July, Ashwani Kumar, India’s minister for earth sciences, said China was using deep-sea mining with a strategic purpose,” Kumar said.

mining as a way of staking territorial claims in ocean areas. India, he told local media, was being forced to do the same.
“Countries like China have taken to deep-sea mining with a strategic purpose,” Kumar said.

Good Goly Miss Moly – Profits at Thompson Creek

Molybdenum, ebeam remelted macro crystalline f...
Image via Wikipedia

I am following this stock in part ,because one of the first participants at my seminars was a miner at TCM. It has had a rocky road but there is a turnaround in place.

THESIS: This mid-sized mining company, traditionally a molybdenum producer, is riding the rise in copper and gold prices

The stock steadily declined to the $6 area last fall and made a low of $5.79 on October 4, 2011

TCM turned around in late December and has slowly but steadily crept higher. Lately the stock has been sprinting up, as it becomes clearer that U.S. industrial production is rising and domestic growth may not be as bad as thought.

European ferro-molybdenum prices have stabilized in the $ area for roasted 57% moly concentrate.

Thompson’s Q3 2011 was somewhat weak with cash flow before working capital changes of $48.8 million U.S. (29 cents per share) on $154.8 million U.S. in revenues.

The company generated $209.3 million in cash flow in the first nine months of 2011.

Cash costs were high due to mine sequencing and heavy overburden removal. This situation should rectify itself in 2012/2013.

Molybdenum production is scheduled to decline from 30 million lbs in 2011 (midpoint of company estimated range) to 27 million lbs in 2012, but then rebound to 34 million lbs in 2013.

Molybdenum 2P reserves at the two mines total 560 million lbs with mine lives of 15 years at TC and 18 years at Endako.

We expect another weak quarter when TCM reports Q4, to be released in late February. Five analysts expect a loss of on average of 7 cents per share on $108.2 million in revenues.

TCM has sold forward 40% of the gold to Royal Gold (RGLD) from the future mine to pay for its development, almost recouping the purchase price, receiving $581.5 million in stages. In addition, TCM will sell the contracted gold to Royal at $435/oz, providing additional revenue.

The Mt. Milligan deposit contains 2.1 billion lbs of copper and 6 million oz of gold in 2P reserves, plus 711 million lb copper and 1.48 million oz of gold in M&I resource.Mt. Milligan will cost another 800 million to complete after spending of $383 million YTD Q3 2011.

The company expects production to begin at the end of 2013. The project is fully funded and permitted, although some First Nations are appealing the permit issuance with the federal and provincial government.

The company will fund CAPEX with cash on hand, the Royal gold stream transaction, a $135 million lease financing for equipment made with Caterpillar, and $295 million in revolving credit facility.

TCM had Goldcorp (GG) inherit stock from the Terrane transaction, and has added to that, owning 8.9% of the outstanding. BlackRock owns 5%. There is a short position on the NYSE of 11.3 million shares as of January 13, 2012, or 6.7% of the 168 million shares outstanding.

In addition TCM is a potential buyout candidate. 

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