TORONTO (miningweekly.com) – Molybdenum-miner Thompson Creek Metals is on the hunt for near-production acquisitions, and would consider adding copper/moly assets to its pure molybdenum portfolio, CEO Kevin Loughrey said on Friday.
Still, the company is not putting itself under too much pressure to get a deal signed, because the already-decimated market values of potential targets are likely to shrink even further, he added.
Thompson Creek produces molybdenum from its Thompson Creek mine, in Idaho, and the Endako mine, in British Columbia.
However, the firm has had to curtail output and reduce capital expenditure this year, in an effort to conserve cash and match production to weakened demand.
Molybdenum, which is used to strengthen steel, traded on the spot market above $30/lb during the first half of last year, but fell off sharply in October, and has dropped to below $9/lb, as global demand for steel declines.
Share prices for molybdenum producers and explorers have also fallen, and Loughrey said on Friday he expects that market values in the industry, particularly for smaller firms, will likely continue low, or possibly even decline further, making potential deals more attractive.
“So we are anxious to do something, we are looking to do something, but we don't feel a sense of urgency to do something today or tomorrow for the sake of getting things done.”
Thompson Creek will be “very cautious” about assuming any significant debt, and is also reluctant to issue shares while its own value remains low.
However, there are several publicly traded companies the shares of which have depreciated to an even greater extent, which means that the relative valuations have changed in Thompson Creek's favour, Loughrey commented.
“And we think that under the right circumstance, consideration of the use of shares for that type of acquisition is appropriate. Because on a relative basis it would be the same, or actually better than buying that same property when our share price was much healthier.”
The company continues to focus on molybdenum, but is “not averse” to looking at a copper/moly property.
Priority will be given to acquiring assets that are close to production, and promise to improve cash flow in the near term.
Thompson Creek has more than $260-million in cash in the bank and long-term debt of only $17-million.
DRIFTING NEAR BOTTOM
Loughrey said that he did not expect molybdenum prices to fall significantly further.
“My sense is that we are near the bottom...that we are drifting near the bottom,” he said.
Demand for the metal has been devastated by the global economic slowdown, as large infrastructure and industrial projects are postponed, and steelmakers slash production levels.
However, Loughrey said that a lot of destocking has taken place over the last three or four months, which means that molybdenum inventories are low levels, at most of Thompson Creek's customers, at least.
“Our sense is that much of that destocking has run its course, and that we will see a modest increase in demand from steel companies, even to meet reduced levels of demand.”
One important deciding factor will be the levels of demand from China, which has historically been a net exporter of molybdenum, but has now entered the market as a buyer, possibly because the “plethora” of small molybdenum mines in the country found themselves unprofitable after the sharp decline in prices.
Thompson Creek sold its first ever molybdenum to Chinese buyers earlier this year, Loughrey said.
Shares in the company fell 6,8% on Friday, to C$4,95 apiece by 16:10 in Toronto.