Teck Resources (TCK, Financial) is progressing well with the development of the Fort Hills oil project. This project has completed all the milestones set for 2014 and engineering activities of around 65% have been completed. Fort Hills is certainly a flagship asset for Teck Resources and the economy of this project is pretty strong. This project has life of about 50 years and is expected to have significant free cash flow yield, over a range of all prices and exchange rates, even at the current spot price.
Fort Hills will deliver about 15% of free cash flow during the capital recovery period, assuming the WTI price of $90 and Canadian to USD exchange rate of $0.90. And 12% free cash flow yield at WTI price of $70 with Canadian exchange rate of $0.80. The good news for investors and shareholders is that the company plans to start production during the second-half of fiscal 2017. The oil prices are expected to improve in 2016 and 2017, which should benefit Teck Resource significantly in the future.
More catalysts
Furthermore, the low oil prices should provide a positive macro-economic incentive to enhance additional metal consumption that should benefit its base metal businesses. Additionally, TCK is making significant progress with its costs cutting initiatives. TCK has managed to save over $640 million of annualized reduction in 2014. Teck Resources effectively reduced unit costs at most of its operations. Its unit costs for steel-making coal consisting inventory, transport and site have declined 3% with 0.1 Mt increase in production year-on year basis.
Apart from these strategic moves, its liquidity remains strong with a cash balance of $1.7 billion and has about $3.0 billion of credit facility available under its existing facility that will mature in 2019. Also, TCK remains focused to exit fiscal 2015 with over $1.0 billion in cash with no additional debt. This is positive news for its shareholders.
Conclusion
Teck Resources is a long-term bet with profitable returns, benefitting from its zinc business and expected to benefit tremendously from its oil business in the future. The Street expects the company's earnings to grow 55.10% this year and 40.50% by next year respectively.
The stock is currently trading at the trailing P/E ratio of 31.14 and forward P/E of 9.19. It has PEG ratio of 1.15 that continues to support its growth in the future. It has profit and operating profit margins of 4.21% and 11.55% for trailing twelve months. Its balance sheet carries a total cash of $1.62 billion and has a total debt of $6.74 billion. It has operating cash flow of $1.82 billion and levered free cash flow of $329.60 million.
