TECK RESOURCES LTD. $26 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 576.3 million; Market cap: $15.0 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.5%; TSINetwork Rating: Average; www.teck.com) is a leading producer of metallurgical coal, a key ingredient in steelmaking. It also produces copper and zinc.
The stock is down 29.7% from $37 when we named it our top pick for 2013. That’s mainly because slowing industrial activity, mainly in Asia, has hurt commodity prices.
In quarter ended June 30, 2013, earnings fell 50.5%, to $197 million, or $0.34 a share. These figures exclude unusual items, such as foreign exchange losses and writedowns. A year earlier, Teck earned $398 million, or $0.68 a share.
Revenue fell 16.0%, to $2.2 billion from $2.6 billion. Coal sales, which account for 47% of Teck’s revenue, declined 26.4%. The company shipped 6.3 million tonnes in the latest quarter, down 6.4% from a year earlier. As well, prices fell 22.8%, to $156 U.S. a tonne. Copper sales (32% of the total) fell 5.2%, while zinc sales (21%) declined 2.6%.
In response to the weaker prices, Teck has delayed reopening its Quintette coal mine in B.C. If prices improve, this mine could begin operating in mid-2015.
Teck has also postponed an expansion of its Quebrada Blanca copper mine in Chile until 2016. That will give it time to sort out some environmental issues at the project.
The company continues to do a good job of controlling its operating costs. It now expects to save $300 million a year, up from its earlier target of $250 million. It should realize most of these savings by the end of 2013.
We feel Teck’s high-quality mines and cost controls put it in a good position to increase its earnings when commodity prices improve. It also owns undeveloped oil sands projects with strong long-term potential.
Teck’s stock trades at 16.0 times the company’s likely 2013 earnings of $1.63 a share. However, its earnings should improve to $2.11 a share in 2014, and the stock trades at a more reasonable 12.3 times that forecast. The $0.90 dividend yields 3.5%.
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