Teck Resources (TCK, Financial) is a Canadian miner that focuses on coal, copper and zinc. The company is one of the largest miners in the world and has most of its operations in the Americas. The stock was in the $2 range not too long ago and is now almost $25. For every one penny Canadian change in copper and zinc (dollar for coal), Teck expects to make an additional 20 million Canadian dollars ($14.8 million) in coal, CA$5 million in copper and CA$9 million in zinc.
The company has 574.4 million shares, the stock trades at $24.95 and the market cap is $14.3 billion. The forward dividend is eight cents and the dividend yield is 0.3%. Teck lost money last year so the earnings per share is negative.
For the first nine months of 2016, Teck put up CA$5.74 billion in revenues versus CA$6.124 billion last year. However, the company earned 60 cents per share (Canadian) versus a loss of CA$3.50 last year. Cash flow from operations was CA$1.566 billion minus CA$999 million in capital expenditures for a free cash flow of CA$567 million.
The balance sheet shows CA$1.113 billion in cash and CA$1.025 billion in accounts receivables. The liability side shows CA$1.583 billion in payables and CA$8.542 billion in debt. So far in 2016, CA$1.567 billion in debt was issued and CA$2.024 billion has been repaid. I do like to see that management is paying down debt. The debt is B+ stable from S&P. I agree with S&P’s rating.
In the last three months, steelmaking coal accounted for 38% of revenues, copper 20% and zinc 43%. Of course, this is based upon dollars and output. As prices rise and fall, these percentages will change. Earlier this year, coal was less than $100 a metric ton (2,200 pounds). Now, it is over $300. The election of Donald Trump has certainly helped prices too. Also, China has decreased its working days for miners from 330 to 276. Now that is a centrally planned government! Copper was $2.10 a pound just a few weeks ago and has since jumped to $2.54. Zinc is another winner. It has gone from $1 a pound just a few weeks ago to $1.15.
I strongly recommend you read this report from a recent Goldman Sachs conference. Guidance for 2016 is to produce 27 to 27.5 million tons in met coal (cash costs of $86 to $92 a ton), 310 to 320 thousand tons of copper ($1.61 to $1.71 cash costs) and 645 to 665 thousand tons of zinc.
There are also CA$4 billion in loss carry forwards and CA$1.77 billion in development savings incentives. If a Canadian tax is similar to an American, this can be used to offset taxes in profitable years.
Yesterday, Teck agreed to buy the remaining 70% of Peruvian copper miner AQM (AQM, Financial). Shareholders of AQM will receive 23 Canadian cents. The stock was trading at 15 cents last week. Now you understand why people invest in penny stocks that are in the mining industry.
Teck and Goldcorp (GG, Financial) have a 50-50 joint venture named NuevaUnion that will be one of the largest copper and gold mines in the Americas. It has 16.6 billion pounds of copper and 8.9 million ounces of gold. Teck also has a joint venture in the Canadian oil sands named Fort Hills. It is estimated to produce 13 million barrels of bitumen a year.
I am not going to pretend to be an expert in the three principal commodities mentioned. Each one has its own deep, unique story. There is so much to know about supply (mining), distribution (refining and shipping) and demand (end user). One also has to know about substitutes, like natural gas for coal in the use of electrical production.
The long and short of Teck is that its main three commodities have gone up, especially coal. The shares have gone up too. Will they continue to go up? Stay tuned.
Disclosure: We do not own shares.
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