Thompson Creek Metals Co. Inc. reported record production of 26 million pounds of molybdenum in 2008, record revenues of $1.01 billion, record cash flow from operations of $417.6 million and record earnings before special non-cash charges of $276.3 million.
That’s all before the final quarter of the year, when both moly’s price and the amount of metal that could be sold collapsed around the firm that bills itself as “one of the world’s largest publicly traded pure molybdenum producers.” But Thompson Creek’s problem isn’t a lot different that the one plaguing all of the world’s base-metal miners: not enough demand.
Haulage truck loading at the Thompson Creek mine near Challis, Idaho.
“Thompson Creek achieved strong operating performance in 2008, with total molybdenum production and sales volume exceeding guidance given earlier in the year,” Kevin Loughrey, chairman and CEO said today.
One advantage Thompson Creek has over many of its peers is its debt and cash position. “Cash flow generated by operating activities rose by 129% to a record $417.6 million in 2008,” Loughrey said, “which contributed to the company’s success in paying off bank debt and building substantial cash balances of $258 million by year-end.
“As a result of last year’s strong financial performance and our recent actions to conserve cash, Thompson Creek is well positioned to continue operating its mines during the economic downturn and to consider possible acquisitions that will benefit shareholders.”
Matching production and sales
For 2009, in order to conserve cash in a period of lower prices and reduced demand for molybdenum, the company has reduced planned production to match the expected level of molybdenum sales for the year and has significantly reduced capital expenditures.
Thompson Creek said it is planning to produce 20 million to 24 million pounds of molybdenum from its own mines this year at an average cash cost ranging between $7.25 and $8.25 per pound. Capital expenditures are expected to be $60 million.
“Our molybdenum sales have kept pace with production so far in the first quarter of 2009 and this suggests that we are on the right track operationally at this time, but we intend to remain flexible and ready to adjust our production higher or lower if there are substantial changes in market conditions in the future,” Loughrey stated.
Milling moly ore at the Thompson Creek mine.
“While the short-term market outlook is uncertain and dependent to a large degree on how long our traditional steel customers will continue with inventory destocking and low production, we expect molybdenum demand to improve and prices to strengthen in the medium-term future as the world economy recovers from recession.”
Decline in the fourth quarter
The company’s revenues were $181.6 million in 4Q08, compared with $331.1 million in 3Q08 and $197.8 million in the 4Q07. The reduction in revenues from 3Q08 was due to a decrease in the average realized price to $21.72 per pound from $32.85 per pound and in total sales volume to 8.1 million pounds from 9.9 million pounds.
Sales of molybdenum from the company’s own mines were 6.6 million pounds in 4Q, down from 6.9 million pounds in 3Q, while sales of third-party molybdenum purchased, processed and resold were reduced to 1.6 million pounds in 4Q from 3 million pounds in 3Q.
The year-over-year decline in revenues reflected a decrease in the average realized price, offset to a large degree by generally higher production volumes and sales from the company’s mines in 2008 compared with 2007, Thompson Creek said.
Total sales in 4Q07 were 6.2 million pounds, comprised of sales from the company’s own mines of 3.2 million pounds and sales of third-party molybdenum of 3.1 million pounds. The average realized sale price for molybdenum products in 4Q07 was $31.08 per pound.
After the deduction of operating, selling, marketing, depreciation, depletion and accretion costs, Thompson Creek generated income from mining and processing operations totaling $88.5 million 4Q08, down from $159 million in 3Q but up from $47.9 million in 4Q07.
Net income before special non-cash charges in 4Q08 was $68.5 million. After deduction of special non-cash charges, the company recorded a net loss in 4Q of $24.6 million, compared with net income of $100.6 million in 3Q08 and $28.8 million 4Q07.
Some further numbers
Special non-cash charges in 4Q08 totaled $93.1 million, comprising the write-down of goodwill assets of $68.2 million, a change in tax valuation allowances of $23.1 million (related to the realization of tax assets for alternative minimum tax and stock compensation) and an after-tax valuation allowance against the carrying value of finished goods inventories of $1.8 million.
Cash flow from operating activities was $181.0 million in 4Q08, compared with $110.3 million in 3Q and $45.7 million in 4Q07.
Cash balances were $258 million at Dec. 31, 2008, compared with $151.7 million at Sept. 30 and $113.7 million at Dec. 31, 2007. Cash balances as of Feb. 28 were $255 million.
The company’s total debt last Dec. 31 was $17.3 million in equipment loans.
Moly production grew rapidly
Thompson Creek’s mines produced 7.8 million pounds of molybdenum in 4Q08, up from 6.5 million pounds in 3Q and 3.4 million pounds in 4Q07. The Thompson Creek mine in Idaho produced 4.8 million pounds in 4Q, up from 4.3 million pounds in 3Q and 2.0 million pounds in 4Q07. The company’s 75% share of the Endako mine’s production was 3.0 million in the recent quarter, compared with 2.2 million pounds in 3Q and 1.5 million pounds in 4Q07.
Aerial view of the Endako mine in British Columbia.
The production amounts reflect molybdenum produced at the Thompson Creek and Endako mines but do not include molybdenum purchased from third parties, roasted and sold by the company.
Production costs
The weighted-average cash costs were $6.01 per pound produced in 4Q08, compared with $7.33 per pound produced in 3Q08 and $13.58 per pound produced in 4Q07. The decline was primarily due to increased production as a result of higher ore grades, recoveries and throughput at the company’s mines.
The cash costs include production costs for the mining, milling, roasting and packaging of molybdenum oxide and high-performance molybdenum disulfide (HPM) and deferred stripping costs (mining costs related to future planned production phases).
At the Thompson Creek mine, cash costs in 4Q08 were $6.30 per pound produced (including deferred stripping costs of $1.64 per pound), compared with $7.38 per pound produced (including deferred stripping costs of $1.79 per pound produced) in 3Q and $14.48 per pound produced (including deferred stripping costs of $4.57 per pound) in 4Q07.
The Endako mine’s cash costs were $5.54 per pound produced in 4Q08, compared with $7.23 in 3Q and $12.39 in 4Q07. There were no deferred stripping costs at Endako.
Numbers for the year 2008
Thompson Creek’s revenues were a record $1.01 billion in 2008, up 11% from $914.4 million a year earlier. The revenue gain reflected higher molybdenum sales volume and higher average realized sales prices in 2008.
Total molybdenum sales rose to 33 million pounds from 31 million pounds. Molybdenum sold from the company’s mines in 2008 increased to 22.3 million pounds from 19.5 million pounds in 2007, while sales of third-party molybdenum purchased, processed and resold declined to 10.7 million pounds in 2008 from 11.5 million pounds a year earlier.
The average realized sales price was $30.04 per pound in 2008, compared with $28.77 per pound in 2007.
After the deduction of operating, selling, marketing, depreciation, depletion and accretion costs, the company generated income from mining and processing operations totaling $430.2 million in 2008, up 43% from $301.0 million a year earlier.
Net income before special non-cash charges in 2008 was $276.3 million. After deduction of $93.1 million in special non-cash charges, the company recorded net income of $183.2 million in 2008, compared with net income of $157.3 million in 2007.
Cash flow from operating activities was $417.6 million in 2008, compared with $182.6 million a year earlier. The increase in cash flow from operations was mainly due to the higher revenues and net income before special non-cash charges, together with working capital adjustments related to the collection of accounts receivable and the drawdown of product inventory.
Capital expenditures totaled $114 million in 2008, comprising $71 million of sustaining capital expenditures at the operating sites and $43 million of capital expenditures for the 75% share of the mill expansion at the Endako mine. In 2007, capital expenditures were $14.6 million.
2008 production numbers
The company’s mines produced 26 million pounds of molybdenum in 2008, up from 16.4 million pounds a year earlier. The Thompson Creek mine produced 16.8 million pounds in the latest year, up from 9.3 million pounds in 2007, while the company’s 75% share of Endako mine’s production rose to 9.3 million pounds from 7.1 million pounds a year earlier.
At the Davidson project, only permitting is moving ahead.
The weighted-average cash costs were $7.54 per pound produced in 2008, compared with $10.03 per pound produced in 2007. The decline was primarily due to increased production as a result of higher ore grades, recoveries and throughput at the company’s mines.
At the Thompson Creek mine, cash costs in 2008 were $7.75 per pound produced (including deferred stripping costs of $1.71 per pound), compared with $10.91 (including deferred stripping costs of $3.69) in 2007. The Endako mine’s cash costs per pound produced were $7.15 in 2008, compared with $8.89 in 2007. There were no deferred stripping costs at Endako.
On Dec. 31, 2008, Thompson Creek had working capital of $356.3 million, including $258 million of cash balances, $55.0 million of receivables, no borrowings under its $35 million line of credit facility and $5.6 million as the current portion of equipment loans.
Thompson Creek’s outlook
Thompson Creek said it believes the long-term outlook for its business and the molybdenum market is positive. However, in order to conserve cash during the current economic uncertainty, the company said its 2009 plans have been modified to reduce molybdenum production, cost profile and capital expenditures.
The company said it believes that these actions will ensure that adequate working capital levels are maintained.
Thompson Creek has reduced its planned level of molybdenum production for 2009 to match its expectations of sales volumes. It expects moly production to be in the range of 20 million to 24 million pounds this year, down from previous guidance of 31.5 million to 34 million pounds.
Production at the Thompson Creek mine is expected to be 15 million to 17 million pounds (down from previous guidance of 24.5 million to 26 million pounds) and the company’s 75% share of the Endako mine production is forecast at 5 million to 7 million pounds (down from previous guidance of 7 million to 8 million pounds).
The planned production reductions include a reduction in mill operation at the Thompson Creek mine to 70% capacity (10 days on, four days off schedule), which began in March, a reduction in the Endako mine production capacity to 80% and a temporary summer suspension of operations for abouty one month at both the Thompson Creek and Endako mines.
Capital expendures in 2009
For 2009, total capital expenditures at the company’s operating sites are expected to be about $60 million, including estimated sustaining capital spending at both mines and the Langeloth metallurgical facility totaling $38 million and the company’s 75% share of the estimated mill expansion at the Endako mine totaling $22 million.
Thompson Creek previously had planned capital expenditures of about $300 million for 2009, including $149 million for its share of the mill expansion at the Endako mine, $50 million for the Davidson project and $101 million for sustaining capital expenditures at the operating sites.
The Endako expansion project has been suspended until economic conditions improve. While the company also has decided to delay the development decision for the Davidson project, it is proceeding with environmental permitting.
Costs in 2009
The company said it estimates its 2009 cash costs will be $7.25 to $8.25 per pound of moly produced. The Thompson Creek mine’s cash costs are expected to be in the range of $7 to $8 per pound and include about $40 million (equivalent to $2.30 to $2.60 per pound produced) of stripping costs related to future planned production phases.
The company’s previous 2009 cash cost guidance, which excluded such stripping costs, was $5 to $6 per pound at the Thompson Creek mine. At Endako, cash costs are estimated at $8 to $9 per pound, which is unchanged from previous guidance and assumes a US$/C$ exchange rate of 1.20 (also unchanged from previous guidance). The revised 2009 Endako mine operating plan does not anticipate any stripping costs.
