Thompson Creek Metals Company Inc. SELL

TCM : TSX : C$3.28

Target: C$2.70

Thompson Creek Metals is one of the largest
molybdenum producers in the world. The company owns
the Thompson Creek open-pit mine and mill in Idaho; a
75% share of the Endako open-pit mine, mill, and
roasting facility in northern BC; and a metallurgical
roasting facility in Langeloth, Pennsylvania. Thompson
Creek Metals is also developing the Mount Milligan Cu-Au
deposit near Prince George in B.C.

All amounts in C$ unless otherwise noted

Metals and Mining — Base Metals and Minerals
With TCM having now established a reporting format for Mount
Milligan, we have rebuilt our valuation model, and with TCM confirming
that in light of current molybdenum price strength it is reviewing the
decision to close the TC Mine at end-2014, we have returned the TC
Mine to our valuation model, with Phase 8 production from Q1/16E.
Our new 2014-16E adjusted (for Royal Gold stream payments) EBITDA
forecasts are US$184 million, US$222 million and US$270 million, from
previous US$197 million, US$217 million and US$218 million.
Action and valuation
We are maintaining our SELL recommendation but increasing our 12-
month target price to C$2.70 (from C$2.20). Our C$2.70 target is based
on the average of: i) 6x our 2015E EV/EBITDA, which would imply a
share price of C$2.89, and ii) our NPV8 estimate of C$2.48. We are
forecasting an end-2014 cash balance of US$213 million, providing
leeway for investment in additional Mount Milligan crushing capacity if
Next potential catalyst and investment risks
Given current net debt of US$799 million against a market cap of C$562
million, TCM’s equity valuation is extremely sensitive to assumed model
inputs. To demonstrate: i) were we to increase our molybdenum price
assumptions from US$11/lb to US$13/lb, our NPV8 would increase to
C$3.58, ii) however, were we to remove the TC mine re-start from our
model should moly prices fall again, our NPV8 would fall to C$1.19, and
iii) should we increase our steady state Mount Milligan cost forecast
from US$280Mpa (~US$10/t site costs) to US$300Mpa, our NPV8 would
fall to C$1.41


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