Teck Resources (TCK, Financial) delivered solid performance in 2014 with excellent delivery against its guidance. Considering the entire year, Teck also had significant production at Red Dog, impressive throughput at Antamina and record production of Steelmaking Coal.
The way ahead
For Steelmaking Coal, Teck achieved significant half of its production guidance and marked a new record annual production of 26.7 million tonnes. Regarding the production at mines, fresh yearly production records were made at both Greenhills and Elkview.
The 2015 outlook for metallurgical coal looks stable with slight price appreciation being expected. However, the demand from China which is the major importer of Teck’s coal is forecasted to remain poor with the economic growth declining to 5.5% in the coming five years.
The significant increase in the full year 2014 production performance of Teck suggests the robustness of its operations and effectiveness of its solid cost-cutting strategies.
For zinc, Teck largely exceeded the concentrate production guidance at Red Dog. Teck reported reduced production in the beginning of the year before its new asset plant turning operational, which clearly is estimated to make a huge difference which was later reflected in the second half when production held robust at 143,000 tonnes. Teck also significantly lowered its CapEx and much below its expectations in the beginning of the year.
Strong growth
Teck delivered record fourth quarter overall production for coal at 6.8 million tonnes at Fording River and Elkview. There was a significant growth in Zinc production as well, and Teck redeployed its Pend Oreille mine within the specified timeframe and well under budget. Moreover, Teck achieved significant lowering of its operational costs.
The significant increase in the company’s overall Zinc and Coal production, along with the strategic cost reductions, highlights the robust health of Teck daily operations.
The base metal sales starting with copper declined 13,000 tonnes, depicting reduced production. Antamina registered a solid throughput for the entire year and Highland Valley recorded an extremely solid throughput rate post mill optimization project implementation. But, production declined in the quarter owing to poor recoveries and grades.
Considering the fiscal years 2015 and 2016, Teck presently estimates a slight increase in copper production of nearly 2% of the markets worldwide. Therefore, the company remains hugely positive regarding its outlook for copper.
Teck achieved significant improvement in copper sales at some of its key base metal mines which was slightly offset by lower grades and recoveries for the quarter. Going forward, the mining company remains highly optimistic about the expanding demand for the shining metal.
Teck declared a 21% growth in lead and zinc sales volumes at Red Dog. The production of zinc concentrate enhanced by 13,000 tonnes and the production of leaden concentrate grew by 12,000 tonnes, or nearly 50%. The improved production at Red Dog was primarily due to enhanced mill throughput owing to better recoveries and softer ores.
The mining major has exceeded a year’s time since sanctioning and construction of the well at Fort Hills. The development of the well is still in progress.
The improvement in the sales volumes of Zinc and Lead at Red Dog is estimated to significantly benefit the company’s bottom line in addition to the major benefits gained from the Fort Hills well after its key deployment in the near future.
Canaccord Genuity downgraded Teck Resources Ltd. primarily driven by the reduction in the company’s coking coal volume and price estimates influenced by the declining market conditions.
The consensus forecast among 35 polled investment analysts analyzing Teck Resources Ltd suggests investors to hold their position in the company. The investment analyst sentiments declined on Feb. 13, 2015 which earlier suggested that Teck Resources Ltd should outperform the market.
Conclusion
Overall, the investors are advised to hold their position into the company looking at the satisfactory growth levels depicted by the PEG ratio of 1.15, below the robust industry’s average of 0.23. The profit margin of 4.21% is only nominal. Diluted EPS of 0.50 indicate poor shareholder earnings. The company’s valuation is also very average with the trailing P/E and forward P/E ratios of 31.69 and 9.36 respectively. Further, Teck has a hugely debt-laden balance sheet with total debt of $6.75 billion against total cash of $1.62 billion only, thus restricting the company in making prospective strategic investments.
