TECK RESOURCES LTD. $27 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 576.3 million; Market cap: $15.6 billion; Price-tosales ratio: 1.6; Dividend yield: 3.3%; TSINetwork Rating: Average; www.teck.com) is down 27.0% since we made it our #1 pick for 2013.
That’s mainly because slowing industrial activity, mainly in Asia, has hurt demand for Teck’s metallurgical coal, a key ingredient in steelmaking.
The company sold a record 7.6 million tonnes of metallurgical coal in the third quarter of 2013, up 36.5% from a year earlier. However, coal prices fell 28.0%, to $139 U.S. a tonne from $193. The uncertain economy has also hurt prices for Teck’s other products, including copper and zinc.
In response, Teck has delayed plans to reopen a coal mine in B.C. and expand a copper project in Chile. It is also aggressively cutting its costs, and expects to save $330 million annually. To put that in context, Teck earned $252 million, or $0.44 a share, in the third quarter of 2013.
The company’s balance sheet remains sound. Its long-term debt of $7.4 billion is a high 47% of its market cap, but its repayments are spread out from 2015 to 2043. It also holds cash of $2.25 billion, or $3.90 a share.
As well, the stock is attractive at 15.2 times the $1.78 a share Teck likely earned in 2013. The $0.90 dividend seems safe and yields 3.3%.
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