Another "liquidation list" name: Thompson Creek

I have written positively about Thompson Creek (TC) before and now TC has landed on my "liquidation list" (ie trading at a P/B ratio of less than 1). In fact, when I initially wrote about TC in August I marveled at how cheap it was:

TC's 2009 EPS growth is around 40% (it's forward PE is less than 8!). I like stocks with these types of margins of safety; I mean what's it going to do? Trade down to a 5 PE? TC is not Wamu or Citigroup :-)

Interestingly, using a VERY CONSERVATIVE forward EPS estimate of $1.75 the stock finds itself trading at an obscene P/E ratio of 3.5! In case you're wondering, a $1.75 2009 EPS estimate implies a 22% DROP in earnings even though the underlying mineral that TC mines (molybdenum) is still trading well above $20 dollars a pound as of Friday.

This fact hasn't been lost on the TC's management, who announced a massive stock buyback plan in September:

Thompson Creek Metals Company Inc. (the "Company"), one of the world's largest, publicly traded, pure molybdenum producers, today announced that the Toronto Stock Exchange (the "TSX") has accepted the Company's Notice of Intention to make a Normal Course Issuer Bid (the "Bid") to purchase for cancellation, from time to time, as the Company considers advisable, its issued and outstanding common shares (the "Shares"). There are 125,046,072 Shares issued and outstanding on the date hereof. Of this amount, 123,066,702 constitute "public float" calculated in accordance with the rules of the TSX. The Company intends to purchase for cancellation up to a maximum of 12,300,000 Shares, being approximately 10% of the Company's "public float" outstanding on the date hereof. Of this amount, the Company may make purchases under the Bid of up to 6,252,303 Shares through the facilities of the New York Stock Exchange (the "NYSE"). The daily trading limit is 986,669 Shares until October 2, 2008, unless further extended, and 246,667 Shares thereafter, subject to block purchase exceptions. The Company plans to fund its share purchases under the Bid from free cash flow. The Company has not purchased any of its Shares during the preceding 12 months pursuant to a normal course issuer bid.

Purchases under the Bid may commence on September 29, 2008 and may be made until September 28, 2009, or such earlier time as the Bid is completed or terminated at the option of the Company. Purchases will be made on the open market through the facilities of the TSX in accordance with its policies and may also be made through the facilities of the NYSE in accordance with its rules. The price to be paid will be the market price at the time of acquisition.

The Company believes that from time to time its Shares have been trading at prices that do not reflect the underlying value of the Company. As a result, the Company believes that its Shares are a good investment at their current and recent trading prices and that the purchase of its Shares will help create value for its shareholders.

Here's the best part of Thompson Creek's stock buyback: TC is using the money it raised from a June 2008 stock offering (this when the stock was trading above $21 dollars a share!)

Thompson Creek Metals Company Inc. (the "Company") announces that it has closed its previously announced "bought deal" equity financing for aggregate gross proceeds of C$215,000,000. A syndicate of underwriters, co-led by GMP Securities L.P. and UBS Securities Canada Inc., and including Scotia Capital Inc., Cormark Securities Inc., Desjardins Securities Inc., Macquarie Capital Markets Canada Ltd., Blackmont Capital Inc., Paradigm Capital Inc. and Versant Partners Inc. (collectively, the "Underwriters"), purchased 10,000,000 common shares of the Company at a price of C$21.50 per share. The Underwriters have an option, exercisable in whole or in part at any time up to 30 days after the closing of the offering, to purchase up to an additional 1,000,000 common shares. In the event that the option is exercised in its entirety, the additional proceeds would be C$21,500,000.

This means TC management perfectly timed this market (ie selling high and buying low). Here's the breakdown: in June, TC sold/raised $215,000,000 dollars of stock (issuing 10,000,000 shares x $21.50 a share) and now TC is buying back its sold shares at <$10 a share (TC is currently trading below $6 as I write this). Assuming TC buys all 12.3 million at $10 a share (very conservative estimate again) that means TC's perfect market timing netted their shareholders a profit of around $92,000,000 (almost $1 per share) in less than 6 months! Did I already mention the stock is trading at less than book value...yeah I am going to buy some TC on Monday ;-)