Thompson Creek May Close Mines If Moly Price Falls MoreGerrit De Vynck
Thompson Creek Metals Co. may suspend production at its two molybdenum mines if the price of the steel-strengthening ingredient falls further.
Should prices of molybdenum oxide, a commonly traded form of the metal, drop to $9 or $9.50 a pound, the Littleton, Colorado-based company would consider closing the mines, Chief Executive Officer Jacques Perron said in an interview at Bloomberg’s Toronto office.
“We’ll continue to do our best to reduce costs and have very efficient operations,” he said. “But if the price goes to $9 a pound it’s going to be very difficult for us.”
Molybdenum has fallen 18 percent this year to $9.57, according to data compiled by Metal Bulletin. The metal also increases steel’s resistance to heat.
“It’s typical of these types of operations, you put them on care and maintenance and you wait for better days and when the price goes to $13 or $14 you restart them,” the CEO said.
Thompson Creek needs cash to pay back debt it took on when it diversified into copper and gold by buying the Mt. Milligan project in British Columbia. The first payment of $350 million is due in December 2017, Perron said. The company had long-term debt of $911 million at the end of the third quarter, according to a filing.
Although earnings for this quarter will be “horrible,” the new Mt. Milligan project will start to be profitable by the second half of 2014, Perron said in the interview on Dec. 6.
The shares fell 9.7 percent to $2.33 in New York on Dec. 4 after a report from Toronto-Dominion Bank that the miner may not have enough money to pay bondholders when its first payment is due. The shares closed unchanged at $2.25 in trading today.
Even with a copper price of $3 a pound and a gold price of $1,300 an ounce, Thompson Creek still wouldn’t be able to avoid a funding shortfall, Daniel Earle, a TD analyst, said in the report. Earle recommends investors sell the stock.
“I don’t see solvency issues in the coming years,” Perron said in the interview. If copper sinks to a below-consensus price of $2.75 and gold to $1,100, the company will still be able to pay off or refinance its debt, the CEO said.
“I don’t think anyone in the business, even the TD guys if you read their report, disagree with my view that we will make cash flow at Mt. Milligan for sure,” said Perron.
The company is considering hedging some of its sales to head off volatility, said Perron, who started as Thompson Creek CEO in October.
Once it has cash flow, Thompson Creek may choose not to pay off all its debt, but to refinance and use the cash to grow the company, said Perron.
“You’re going to have people who are very negative on our project and people that are very positive on our project and others in between,” Perron said. “Right now, it’s keep our head down, do the work, make sure we get the results.”