Sell Thompson Creek tMeds (TC-PT)   3 comments

There is one word you never want to hear with any of your stocks: “solvency”. That word was used on Thompson Creek today (from the Financial Post):

Thompson Creek Metals Co. Inc. appears to be running out of cash, Daniel Earle at TD Securities warned in a report Wednesday.

The analyst said the miner’s molybdenum operations are unsustainable at current metal prices, and noted that its Mt. Milligan project in central British Columbia is a very low-grade mine.

Thompson Creek shares were down 7.3%, or 20¢, to $2.53 in midday trading on the TSX. They’ve fallen 38% year-to-date.

Mr. Earle also pointed out Thompson Creek’s balance sheet is highly leveraged and all six of the comparable ramp ups of large milling operations in North America significantly underperformed.

“Whatever the ramp up, we believe that the company’s long-term solvency is a major issue,” the analyst told clients. “With a ‘bad’ ramp up and even lower metal prices, we could see the company pressured to refinance next year.”

His forecasts suggest Thompson Creek will not be able to generate enough cash to repay approximately US$1-billion in debt maturing between 2017 and 2019, assuming prices of US$1,300 per ounce for gold and US$3 per pound for copper.

Mr. Earle met with Thompson Creek’s newly appointed chief executive, Jacques Perron, on Dec. 2. These discussions left the analyst confident that the company has several options for resolving its debt obligations that could avoid a significant dilutive equity financing, including a refinancing of its outstanding debt and/or a renegotiation of gold-streaming deals with Royal Gold Inc.

However, Mr. Earle does not expect Thompson Creek to fully evaluate these options until the ramp up at Mt. Milligan is complete and it has made a decision on the long-term viability of its Thompson Creek and Endako mines.

He left his reduce rating and 50¢ price target on the stock unchanged.

The fact this analyst met with the CEO and still comes away with this view is quite concerning, to the point of making Thompson Creek unworthy of even a minimal risk. At this point, I question whether Thompson Creek will even be around to honor the tMeds (TC-PT) in a few years. I sold my position from my 401(k).

The final line on it:

TC-PT: -1.89 this month, -4.59 overall to $13.38 (-12.38% this month, -25.54% overall)–bought at $17.97

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Posted December 4, 2013 by edmcgon in 401(k), Portfolio Moves

3 responses to “Sell Thompson Creek tMeds (TC-PT)

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  1. I hope you are a little premature ed?

    They aren’t going bankrupt tomorrow and I’m going to wait a few days before I consider whether to reduce my position.

  2. everyone has to determine their own comfort with risk. I felt the solvency word has been tossed around a little too freely. I think the more likely outcomes are they have to raise more capital or sell some assets if prices stay depressed. While that is not an ideal situation, it is far from being insolvent. Their book value is north of $4. Granted, their assets may not be worth what they are carrying them at (property could have become worth less) on balance sheet. So you have to ask yourself at what point do you have a sufficient margin of safety? Per Fidelity, their book value (which appears to be all tangible assets) is 1,359,000. The market cap is $400m.

  3. My main takeaway was that their moly operations are unsustainable at the current price, and they won’t be able to pay their debt WITH an increase in gold and copper prices. Translated, TC no longer has control of their finances, completely relying on the market prices. If metals don’t rise in price, and soon, TC will end up just digging their hole deeper.

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