August 15, 2012

Cash infusion will fund remainder of mine construction

RICHARD GILBERT

staff writer

Thompson Creek Metals Company Inc. has raised $200 million in additional financing to complete construction on the $1.5 billion Mt. Milligan copper-gold mine in north-western B.C., after substantial financial losses and increasing capital costs in 2012.

“We are very pleased with Royal Gold’s increased investment and continued support in the advancement of our Mt. Milligan project,” said Kevin Loughrey, Thompson’s chairman and chief executive officer.

“We believe that the terms of this transaction and its timing make it the best alternative available to ensure that construction continues to proceed in accordance with our development plan.”

The Mt. Milligan project is a large gold/copper mine located about 155 kilometres north of Prince George.

Initially, mine construction was to be financed from a combination of sources, including current cash balances and internal cash.

However, the company recently reported operating losses of $18.4 million and $34.9 million for the second quarter and first six months of 2012. The operating losses were caused by higher unit operating costs at both the Endako and Thompson Creek mines, which were the result of lower production volume.

This, in turn, led to lower sales volumes, lower-of-cost or market product inventory write-downs, and lower average realized molybdenum prices compared to the same period in 2011.

Thompson also had to share the commissioning and start-up costs at the new Endako mill.

In response to this cash flow problem, Thompson announced it sold an additional 12.25 per cent of the refined gold production from the Mt. Milligan mine for $200 million, plus $435 per ounce to Royal Gold Inc.

The contract allows for gold to be sold at the prevailing market rate, if the price is lower than $435 per ounce, when the gold is delivered.

As a result of this transaction, Thompson will have agreed to sell to Royal Gold a total of 52.25 per cent of the refined gold production from the Mt. Milligan project, and Royal Gold’s aggregate investment in the project will have increased to $781.5 million.

In the first six months of 2012, Thompson incurred $405 million in capital costs, which includes $348.1 million for the development of Mt. Milligan, $45.3 million for the mill expansion project at the Endako mine and $11.7 million for other capital costs at the Thompson Creek and Endako mines and the Langeloth facility.

Loughrey said the mine is scheduled for completion in the third quarter of 2013 and the start of commercial production in the fourth quarter of 2013.

In February, Thompson Creek said construction costs for the Mount Milligan mine had increased from $1.3 billion to about $1.4 billion-$1.5 billion. At that time, the company said the cost escalation was caused by the scarcity of inputs and resources, in particular the cost of labour.

The cost to complete the project may be 10 to 20 per cent higher than previous estimates, depending upon weather conditions, labor availability and productivity, the timing of equipment deliveries and any unforeseen delays.

The Mt. Milligan Mine is expected to employ about 1,000 people at peak construction and the 30-month construction phase will provide an average of 370 jobs.

Construction involves an open pit mine, processing plant and associated infrastructure, a tailings pond, explosives factory, a 29 km access road and a 92 km transmission line.

Thompson Creek took over the Mt. Milligan mine in October 2010, when the company acquired Terrane metals Inc. for about $700 million, in order to diversify its asset base to include copper and gold production.

Thompson Creek is one of the largest publicly traded, pure molybdenum producers in the world.

A 2009 Feasibility Update Study forecast average annual production of 262,100 ounces of gold and 89 million pounds of copper for the first six years of operation.

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