Centerra, Kinross among firms mulling bid for Thompson Creek’s B.C. site

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Desperate for a buyer, Thompson Creek Metals Co. Inc. is banking on offers of about $1-billion for the company and its British Columbia mine when a second round of bids is due next week.

Thompson Creek, which operates the large Mount Milligan copper and gold mine in Western Canada, is under pressure to refinance its bonds or restructure its company because of looming debt-financing obligations.

The Toronto-listed miner used to be one of the world's largest molybdenum producers. But it was forced to suspend production at its two molybdenum mines in British Columbia and Idaho owing to low prices for the steel-hardening ingredient.

Now Thompson Creek is trying to sell its only viable asset – Mount Milligan – which has taken a hit from the slump in copper and gold prices.

The bump in gold prices combined with the dearth of assets in safe mining jurisdictions such as Canada has caused miners to give Thompson Creek a serious look.

Centerra Gold Inc., Kinross Gold Corp. and other miners are mulling a bid, according to people familiar with the matter. Mid-tier copper producer HudBay Minerals Inc. was shut out after its first bid came in too low. Barrick Gold Corp., the world's biggest gold producer, was invited to make a bid but was not interested, sources said. Centerra and Kinross have been actively looking for assets in North America. U.S.-based Stillwater Mining Co. has also been floated as a potential bidder, sources said.

But the sale is messy and Mount Milligan comes with lots of baggage.

More than $800-million (U.S.) of Thompson Creek's bonds are maturing over the next few years, with $300-million maturing at the end of 2017. That gives the company a window of opportunity to refinance its debt, find a buyer or file for bankruptcy protection.

But potential buyers are averse to taking on the debt. Most have no interest in Thompson Creek's molybdenum assets. And Colorado-based Royal Gold Inc. already has a deal with Thompson Creek to buy half of the company's future gold production at a discount.

An outright sale of Mount Milligan would likely kill the company given that its molybdenum mines are on suspension and will not be restarted unless the price of the metal increases. A sale might not even generate enough cash to satisfy the debt and equity holders.

"Thompson Creek is reliant on Mount Milligan for essentially all of its cash flows," Moody's Investors Service said in a recent note. "Should the company proceed with a debt restructuring, which is now formally being considered, a debt default would be likely," the note said.

The company's stock is trading at about 50 cents (Canadian) a share, down from a high of $25 in 2007.

The Colorado-headquartered company bought the Mount Milligan project in 2010 to help the miner weather the ups and downs in molybdenum prices. But the metal, used to strengthen steel, never rebounded like other commodities did after the Great Recession.

Metals from Mount Milligan have also lost significant value. Copper is trading close to $2 (U.S.) a pound compared with more than $4 in 2011. Although gold prices have risen 17 per cent this year, the precious metal has still fallen by a third from its peak in 2011. Gold is trading at about $1,250 an ounce today compared with $1,900 five years ago.

Thompson Creek's debt is already rated junk status and could be downgraded further if Mount Milligan runs into operational problems.

Bank of Montreal is running the sale process. Investment bank Moelis & Co. has been tapped to help deal with Thompson Creek's debt.

HudBay, Kinross and Stillwater each said they do not comment on market rumours and speculation. Centerra did not respond to a request for comment. Thompson Creek and Barrick declined to comment.

The bids are due on Monday, sources said. The company has said the goal is to "have a solution in place in advance of debt-maturity dates." It is expecting half a dozen bidders, the sources said.