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Thompson Creek delays new moly mine after precipitous price drop
November 12 2008 | News Articles | Miningweekly.com
Thompson Creek delays new moly mine after precipitous price drop
By: Liezel Hill
Published on 7th November 2008
TORONTO (miningweekly.com) – Molybdenum-producer Thompson Creek Metals has postponed the development of a new underground mine in Canada, after a “dramatic reduction” in molybdenum prices, chairperson and CEO Kevin Loughrey said on Friday.
The metal is used to strengthen high-end stainless steel, in steel pipes and drills, and other extreme high- or low-temperature applications, as well as to prevent corrosion.
While other commodities have had a more volatile time of it, molybdenum has traded reasonably consistently between $30/lb and $35/lb for most of this year – at least until late September, when it began a steep decline.
The price is currently at around $12/lb, which is still well clear of the company’s average production costs of around $6,63/lb in the third quarter.
Still, the speed and extent of the fall in demand was “unlike any of us have ever seen in the moly business”, Loughrey said during a conference call to discuss the group’s third-quarter results.
However, he argued that the fundamental supply and demand situation for molybdenum had not changed, and that the softening demand was linked instead to the global credit freeze, as companies were unable to finance construction and infrastructure projects.
“Our sense is that moly demand will come back relatively quickly when the financing mechanisms of the world’s capital market loosen up some.”
However, until conditions improve, the company will postpone the development of its C$109-million Davidson project, in British Columbia, Loughrey said.
Thompson Creek announced in April that it had completed a feasibility study for a mine at the Davidson deposit, which envisages building a four-million pounds a year underground operation.
Echoing comments by several other mining chiefs over the last couple of weeks, Loughrey emphasised that cash conservation would be a top priority for Thompson Creek in the short to medium term.
Despite C$244-million in the bank and a minimal long-term debt position, the company does not plan any share buybacks and will take a “hard look” at all its capital spending.
Further, if the market conditions do not turn around, the firm will consider operational changes next year to cut spending and possibly curtail production at its mines.
THE BEST OF TIMES, THE WORST OF TIMES…
Speaking to analysts and investors on Friday, Loughrey remarked on the irony that the company’s Endako and Thompson Creek mines, in British Columbia and Idaho respectively, operated at their best levels so far this year during the third quarter, just in time for the sharp fall in prices and demand.
“It was the best of times, it was the worst of times,” he quipped, invoking Charles Dickens’ well-worn antithesis.
Thompson Creek increased net earnings in the September quarter by 319% year-on-year, to a record $100,6-million, from molybdenum sales of $325,9-million, up from $195,9-million a year earlier.
The weighted-average direct production costs for molybdenum pounds produced from the company’s mines during the period were $6,63/lb, compared with $7,56/lb produced in the second quarter of 2008 and $11,63/lb produced in the third quarter of 2007.
The company also increased its full-year production guidance to between 25-million and 26-million pounds, compared with a previous forecast of between 23-million and 24,5-million.
Cash costs are expected to come in at between $6/lb and $7/lb.
About 55% of the world’s molybdenum is produced as a by-product from copper mines, and the balance is produced by primary molybdenum mines like Thompson Creek’s.
The company’s shares slid 15,34% on Friday, to C$4,47 apiece by 15:21 in Toronto.
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