LBO

Brother, can you spare a couple mil? It’s been rough days on both the mol desk and on the exoplanet radial velocity desk. So far this year, TC’s stock price is down 20%, hitting molybdenum bugs where it hurts:

If that chart weren’t bad enough, 1,235 Kepler candidates have flooded the market, driving new planet prices to historical lows. In recent trading on the Oklo electronic exchange, uninflated hot Jupiters orbiting V=13-14 stars were changing hands for USD 1,200. Further price deterioration is expected as new production from the Persian Gulf region starts to come on line:

Rather than sit around and grumble, Philip Nutzman and I have been working out the details of a strategy that can take advantage of the depressed TC stock price, while dramatically increasing free cash flow in our core exoplanet businesses. The scheme? A roaring 80′s Barbarians-At-The-Gate inspired leveraged buyout of TC!

The full details, of course, are proprietary, but I can tip our hand a little bit: We’ll be issuing junk bonds paying ~10% to underfunded university pension plans. Despite their junk rating, our bonds will be quite attractive, as they’ll be contingent on the success of the deal. We’ll use the 2.6 billion in capital thus raised to initiate a leveraged buyout of TC at a ~20% premium over the current basement-level stock price. Once we’ve gained control, we’ll sell off the Mt. Milligan copper-gold project to a large-cap copper major for ~1.2 billion. We’ll use the cash thus obtained to start paying down the bonds, and help ourselves (or rather, we’ll help the exoplanet desk) to TC’s 300 million in cash. Continued operations at the Endako and Thompson Creek mines will be used to retire the remaining bonds over the next 5-7 years.

Now before the TC executives come at us with a pitchfork, let me remind everyone that I’m being strictly tongue in cheek. In addition, see also the web log disclaimer!

Disclaimer

Nothing on this site should be construed as a recommendation to buy or sell any specific security nor as a solicitation of an order to buy or sell any specific security. Before making any trade for any reason you should consult your own financial advisor. The author may hold long or short positions in any of the securities discussed either before or after publication of an article mentioning such a security.

Mol stox on the skids

When it comes to the pure-play molybdenum names, the past several weeks haven’t exactly presented an excuse for bottle poppin’. Here’s a chart of the stock prices for GMO (pure mol), TC (nearly pure mol), TCK and FCX (copper/gold/mol), and the SP500. In general, the more exposure you have to molybdenum, the worse you’ve been doing. The yearly WGMP, or world gross molybdenum product is ~8 billion dollars, meaning that mol constitutes ~0.0133% of the global economy — put another way, TC is exposed to the S&P, but the S&P isn’t really exposed to TC.

Extending the time horizon back a full year tells quite a different story. With the exception of TC, the molybdenum and metal names are all handily beating the stodgy ol’ S&P500. Calling all retail investors!

From what I can tell, TC’s trailing-year under-performance is due in part to the acquisition of Terrane metals, and the huge ongoing build-outs on the Endako expansion and the Mt. Milligan project. As a result of booming molybdenum sales, TC was sitting on 300 million in cash at the beginning of the year, but will spend nearly 600 million this year alone in funding ongoing operations and getting the new projects on-line for 2013. Meanwhile, production is starting to fall off at the flagship Thompson Creek mine in Idaho. TC’s guidance is that they will produce 30 – 33e+6 pounds of mol this year, falling to 26 – 28e+6 pounds in 2012. I think it’s likely that they’ll be starting 2013 with zero cash.

Now of course, if Mo, Cu and Au prices are holding firm at that time, then they’ll be completely set…