Thompson Creek Metals: Turnaround Still in Store?

- August 6th, 2015

Thompson Creek Metals’ Q2 net income came in at $0.3 million, up significantly from a net loss of $87.2 million in Q1.

Thompson Creek Metals Company (TSX:TCM,NYSE:TC) hasn’t had the easiest time these past few years, but the company’s Q2 financial results, released Thursday, indicate that it may finally be getting closer to a long-awaited turnaround
The company reported revenues of $134.1 million, up from $123 million in Q1, but down from $248.4 million in the year-ago quarter. Net income came in at $0.3 million, up significantly from a net loss of $87.2 million in Q1, though down from net income of $61.6 million during Q2 2014.
While those numbers seem to indicate that Thompson Creek is getting back on its feet, they’re not what the company highlights in Thursday’s press release. Instead, its emphasis is on the work that’s been done at the British Columbia-based Mount Milligan copper-gold mine. According to President, CEO and Director Jacques Perron, the company made “significant progress” there during Q2, “improv[ing] throughput, recoveries and unit cash costs.”
And indeed, those improvements can be seen in the mine’s quarterly output. Q2 payable production from Mount Milligan came to 20.2 million pounds of copper and 59,917 ounces of gold, well up from the 16 million pounds of copper and 37,030 ounces of gold put out in Q2 2014.

Dealing with past issues

Thompson Creek’s emphasis on those positive figures is hardly surprising given the problems it’s faced at Mount Milligan in the past. The mine, which was initially praised for its potential to help Thompson Creek diversify away from moly, became an issue when building costs came in higher than expected, and then again when commercial production was delayed.
Of course, Mount Milligan isn’t the only issue that’s been troubling Thompson Creek. As those watching the company are no doubt aware, the poor moly price forced it to put both its Thompson Creek and Endako moly mines on care and maintenance at the end of last year. Moly production for Q2 (and Q1 as well) was thus nil.
Thursday’s press release addresses that issue, noting that during Q2 Thompson Creek’s consolidated operating income came in at $12.1 million, down from $57.3 million during Q2 2014. According to the company, during both of those quarters “[c]onsolidated operating income … was impacted by non-cash lower-of-cost-or-market molybdenum product inventory write downs of $1.9 million and $1.2 million, respectively.”
Furthermore, the release states that during Q2 2015 consolidated operating income “was also impacted by $12.1 million of costs related to [its idled moly operations], including … severance costs at Endako Mine of $6.7 million.”
That might sound negative, but in reality Thompson Creek can hardly be blamed for taking a step back from moly — and it may have done so just in time. As a recent Wall Street Journal article points out, “[t]he biggest casualty of the malaise affecting global steel markets isn’t iron ore, or even coal” — it’s moly.
The news outlet goes on to state that at the end of July, three-month moly futures on the London Metal Exchange had sunk 35 percent since the start of 2015, and were sitting at US$13,250 per metric ton (MT). By contrast, iron ore and coking coal had seen drops of 22 and 26 percent, respectively. Also by contrast, moly was trading at around US$30,000 per MT a year ago.

Better times to come?

In that light, Thompson Creek’s departure from the moly space and perseverance at Mount Milligan becomes particularly noteworthy — though it’s always good to see companies succeed when commodities prices are low, it’s definitely not bad to see one recognize when it needs to take a step back. It will be interesting to see if Thompson Creek’s efforts at Mount Milligan and in distancing itself from the moly business ultimately pay off.
At close of day Thursday, Thompson Creek’s share price was sitting at $0.74 on the TSX, up 2.78 percent, and at $0.565, up 2.73 percent, on the NYSE. Year-to-date it’s down 61.66 percent on the former and 66.16 percent on the latter.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
Related reading:
Thompson Creek Metals: Poised for a Turnaround?
Thompson Creek to Suspend Endako Mine on Moly Price Weakness
Moly Outlook 2015: First Half of Year May Bring Price Bump

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