This message isn't for everyone just for those who aren't sure how dollar weakness or strength will play into TC's future value.
When the economy tanked last time gold went up because the federal reserve started printing money like crazy to give to the banks to allow them to remain solvent and lend out to stimulate the economy. When you print more money and introduce it to the money supply the price of finite commodities such as gold goes up in dollar terms although its real value remains the same. Now if you decrease the money supply by raising taxes, then there are fewer dollars chasing those same finite assets and so the price of the commodity will fall. A lot of gold is purchased by India and China and if we raise taxes and cut spending and get serious about decreasing our debt and the world sees we are taking action because it is politically acceptable then the dollar will strengthen and gold in dollars will decline in value. So will other commodities such as moly and copper. Unless such commodities don't have sufficient supply to meet demand.
So if there is no resolution to the fiscal cliff either before or immediately after the end of the year then the products that TC produces could fall in value and the value of TC would be less than is currently anticipated. Gold would have to fall probably to its production cost of $500 or $600 and copper to $2 per pound (not exactly sure - haven't done the math) for TC to probably fall to breakeven levels. If gold or copper when lower, then TC might go bankrupt but I don't believe that will be possible if they secure this $350 Million at a good rate and can finish Mt Milligan and get the yields they immediately expect to get from the ore.
Simpson and Bowles said there is a 33% chance that we will hit the cliff and not resolve anything and basically have to live with the tax increases on everyone which would really decrease the money supply. Especially for those who are the most likely to spend it on goods because they have to which is 98% of america.
However, I don't think this very adverse scenario is likely. I am betting that the feds money printing polocies will continue. That tax loop holes will be minimized. That marginal taxes may or may not increase on earners over $250,000 but not for anyone earning less than $250k per year. That there will be spending cuts. It is only for this reason that I am long TC and see that it has huge potential. I am betting based on assumed probabilities of various events and expected commodity prices.
Also even if we do get serious about our debt and the dollar strengthens as a result, I think the money printing by the fed will continue to keep the interest in dollar terms on the debt down so that our debt in dollar terms does not grow. That is why the central banks were buying up gold because they believe money printing is going to continue.
If you hold gold and print enough dollars, you yourself are increasing the value of gold in dollar terms because the dollar is getting weaker so your debt in real terms (ounces of gold) shrinks. That is why I think the money printing will continue. It shrinks your debt and interest expense in real terms without anymore effort than printing the money.
So you have to decide what you think would win out in the worst case, taxes decreasing the money supply and cause deflation and/or money printing continues and we get inflation. These two forces will be tugging at each and one will win, you just have to pick which you think will prevail. I am betting on money printing for the long term. But in the short term, I could be very wrong with this looming event everyone is dramatizing and sensitizing people too known as the fiscal cliff, its just a big unknown. I just hope I am right in my long term analysis but I wouldn't be long if wasn't at least 50%+ confident that commodity prices will remain the same or go higher and that TC will hit $12 within the next 3 years. I am never 100% confident in what a stock will do.
Also, I am not trying to convince anyone to buy TC. That is a personal choice. I am just contributing to the discussion.
I slightly disagree on your concept of money supply being less with higher taxes. Two sides to this assumption.. first that as you raise taxes, an individuals' expendable (and investable) income goes down... which is what you presuppose.... leading to consumable hard products such as refigerators and dryers being less purchased .. leading to less material (commodity) procurement. But .. what you forget is the other portion of the GDP formula .. G .. government spending. As we previously discussed, government spending has NOT been a highlight of Obama's plan for economic policy. We can then point to ECON 101 that shows for every $1 the government spends to the interior, they receive back $100 in revenue growth or stimulus, My point is yes, individual expendable income will go down, but the major driving force and inflation will still push commodity prices higher (by design). And by the way.. the money supply isn't looked at by individual consumer.. but by world economics .. thus why Oil is currently traded in the world market in $US. So .. with all that .. I would still think that TC will be a good buy based on future commodity production.
Good analysis, but I really think you need to take bankruptcy off the table entirely. TC has never been at risk of going bankrupt, and it sure as heck isn't at risk when the markets are willing to give it $350 million dollars.
Markets were willing to lend mony to homeowners who lost their houses and couldn't repay the debts. Markets paid a two times premium for Facebook on IPO. So markets can be and are wrong often. But I agree, I really don't see much of a chance of TC going bankrupt after they get this $350 Million.
For TC to go bankrupt, they would have to not be able to sell assets to repay debt or service their interest expense on the 920M in long term debt that they will have. Commodity prices would have to go all the way back to where they were like 12 years ago when Copper was less than a dollar per pound. Gold was $300 per ounce. And moly was like $4 or 5 per pound. Back to when we had a very strong dollar during Clinton's time in office. And credit markets would have to freeze up. You are probably right that the chance of that happening is near 0.
Easy solution. Don't read the threads entitled Fiscal Cliff :)
Also didn't say it would go up no matter what. There is a probability that the fiscal cliff implications could really hurt TC but I believe that is highly unlikely.