Blog on the Fool.comBelow is a blog written by Christopher Barker, my favorite blogger for the Fool.com. His knowledge on the mining sector is second to none on the Fool.
https://www.fool.com/investing/general/2010/09/22/smooth-terrane-for-thompson-creek.aspx
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After a decidedly rough ride through the plummeting molybdenum prices of yesteryear, Thompson Creek Metals(NYSE: TC) now basks in the promise of smoother terrain ahead.
Alongside molybdenum prices that rebounded some 80% by the company'smid-year earnings report, Thompson Creek rapidly expanded itscash-on-hand from just $77.5 million to $482 million in one year's time.All the while, the company remained essentially unhindered by debt,leading forward-looking Fools to wonder where that accumulating capitalwould be invested to fund future growth.
The answer that emerged in July likely came as a surprise toonlookers everywhere. Rather than scooping up pure-play molybdenumassets to pad the production pipelines from the company's maturingmines, Thompson Creek dove into diversification mode with theacquisition of Terrane Metals for approximately $630 million.
Terrane's primary asset, the fully permitted Mt. Milligan project inBritish Columbia, boasts an alluring 6 million ounces of gold and 2.1billion pounds of copper in proven and probable reserves. As a long-standing Terrane Metals shareholder,I have considered the Mt. Milligan project one of the more excitinginvestment opportunities among the world's pre-construction mineprojects. The project enjoys meaningful support from major stakeholder Goldcorp(NYSE: GG), and the notorious playmaker will end up with a 7% stake in Thompson Creek following the transaction.
Additionally, Terrane's simultaneous deal with Royal Gold(Nasdaq: RGLD)for 25% of future gold production added a timely infusion of more than$300 million in capital to fund mine construction. Not precisely a goldroyalty transaction, this construction financing mechanism actuallymimics the highly successful "silver stream" model employed by my top stock pick for 2010: Silver Wheaton(NYSE: SLW).
In this way, Thompson Creek will retain some of that hard-earnedfinancial flexibility while pressing forward toward production at Mt.Milligan by 2013.
Fools delving deeper into this Terrane transaction are likelydiscover an attractive bonus that has this far garnered littleattention. Just as the equity markets clearly failed to take notice of Taseko Mines' (AMEX: TGB) Prosperity project until relatively recently,I perceive a similar failure to account for the value of Terrane's Bergproject also acquired through this deal. Sporting measured andindicated resources of copper, molybdenum, and silver that equates tomore than $19 billion worth of buried treasure at present metal prices,this Berg property is a likely driver of long-term shareholder valuethat I consider to have been very deeply discounted within the pendingtransaction.
Despite the noteworthy diversification into copper and gold, ThompsonCreek Metals remains a primary molybdenum producer whose stockperformance remains likely to track trends in the global steel market.For Fools who share my bullish long-term outlook for both gold andcopper, however, this molybdenum play stands upon favorable terrain."