Thompson Creek to sell off more gold to cover funding shortfall

Thompson Creek Metals Co. Inc. likely will sell forward more gold produced at its Mount Milligan copper-gold mine to cover a funding shortfall caused by expiring warrants, falling molybdenum prices and rising project costs, the company’s top executive said. “At a time when we had two major capital projects, the exercise of those warrants would have generated about $220 million which we could very well have put to use, and that has created somewhat of a financial situation coupled with lower revenues due to somewhat lower moly prices,” chairman and chief executive officer Kevin Loughrey told investors during a presentation in New York.

The warrants were not exercised because of a drop in the company’s stock price, Loughrey said.

Costs for the Mount Milligan project and a mill expansion at the company’s Endako molybdenum mine in British Columbia have increased recently due to higher construction costs, with costs at Mount Milligan shooting up 38.3 percent to C$1.27 billion ($1.25 billion), while costs at Endako rose 15 percent to C$632.5 million ($623.2 million) (AMM, Aug. 11).

The resulting funding shortfall totals more than $100 million, Loughrey said, and the company likely will plug the gap by selling forward more of its gold production as a pickup in molybdenum prices—which could help the company fully fund the project without a gold sale—seems unlikely in the current market. “We see buyers as very cautious about going into the market today,” he said.

Denver-based Thompson Creek has already committed 25 percent of the gold production at Mount Milligan to Royal Gold Inc., a move that garnered the company $311.5 million (AMM, Nov. 20, 2010).

The company might be helped by a recent uptick in gold prices due to the international financial turmoil. “We believe that we will be able to achieve much more advantageous terms going forward,” Loughrey said.

Mount Milligan is scheduled to start up in late-2013 with an annual production capacity of 81 million pounds of copper and 194,000 ounces of gold. “We expect a full year of production in 2014,” Loughrey said.