Thompson Creek Metals Company Inc. is within a dire financial position. After September, the formerly high-flying miner had cash of US$217 million and a debt load of US$832 million, including $314 million of notes due in 2017.
“(Thompson Creek) is easily approaching an end-game,” Deutsche Bank analyst Jorge Beristain said inside a note.
Beristain thinks Thompson Creek should put all its concentrate on fixing its balance sheet. So he’s mystified that the company is thinking of investing about US$53 million inside a permanent crusher at its Mount Milligan mine in British Columbia. Management has spent some capital around the crusher already, but Beristain said hello should consider that a “sunk cost” and never a rationale to spend more.
Instead, he explained Thompson Creek should buy back its distressed unsecured bonds, which are trading at roughly 25 cents on the dollar. Then your firm could attempt to refinance its secured debt and salvage some value for equity holders.
“We estimate if all available cash on hand were used to purchase 100 percent of their US$517-million of personal debt, while paying for permanent crusher (is) deferred to 2018, this might produce a nine-fold positive impact towards the company’s (net present value),” Beristain said.
He cut his price target on Thompson Creek in half to 25 cents U.S. a share. The stock was more vital than US$24 at its peak in 2008.