Teck Resources has successfully negotiated the sale of its coal business, Elk Valley Resources, for $9.0 billion U.S.
It’s now focused purely on zinc and copper as it looks to expand the second phase of a huge copper mine in Chile. The firm is even looking to apply its mining expertise to recycling EV batteries.
The market is appreciating the new focus with a massive 151.9% return over the last three years. That’s just one reason why it remains one of our favorite picks.
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Meanwhile, the stock trades at 21.0 times the company’s 2024 earnings forecast despite recent gains.
TECK RESOURCES LTD. (Toronto symbol TECK.B; www.teck.com) is a leading producer of metallurgical coal, a key ingredient in steelmaking. It also produces copper and zinc.
In November 2023, Teck agreed to sell its coal business, known as Elk Valley Resources (EVR).
Under the terms of the deal, Switzerland-based mining company Glencore plc (Over-the-counter Pink Sheets symbol GLCNF) will acquire 77% of EVR for $6.9 billion U.S. Teck expects to complete the sale in the third quarter of 2024.
In January 2024, Teck sold the remaining 23% of EVR to Japanese steel maker Nippon Steel Corp. (which holds 20%) and South Korea’s POSCO (which holds the remaining 3%). It received $1.3 billion U.S.
In all, Teck will receive cash of $9.0 billion U.S. for 100% of Elk Valley.
The remaining firm will focus on its copper and zinc operations. Those include the second phase of its Quebrada Blanca copper mine in northern Chile (called QB2). Teck holds a 60% stake in QB2.
Mining Stocks: Teck Resources’ prospects look strong despite short term earnings challenges
The long-term outlook for copper remains bright, as the shift to electric-powered vehicles (EVs) will spur demand for new charging infrastructure and transmission lines.
In fact, copper prices are expected to hit new highs in the coming years. That’s in part due to EV demand but also long-term scarcity due to smelter cuts in China, mine closures and protests in Latin America, and lower global inventories.
Teck is also considering building a lithium-ion battery recycling facility in British Columbia. It would process batteries from roughly 140,000 EVs each year.
The company did not say how much it would spend on this facility, but the facility would help Teck tap into the EV trend.
Teck’s revenue in the three months ended March 31, 2024, rose 5.4%, to $3.99 billion from $3.14 billion a year earlier. That missed the consensus forecast of $4.07 billion. The recent startup of QB2—copper production rose 74% in the quarter to 99,000 tonnes—helped offset lower coal sales and zinc prices.
However, earnings in the quarter, before unusual items, dropped 57.9%, to $0.75 a share (or a total of $392 million) from $1.78 a share (or $930 million). That missed the $0.85-a-share consensus estimate.
The lower earnings are largely due to higher operating and depreciation costs at the now-operating QB2 mine, as well as higher interest expenses.
Teck plans to use some of the cash from the Elk Valley sale to pay down its long-term debt of $6.17 billion (as of March 31, 2024). That’s equal to 17% of its $35.7 billion market cap. It also plans to buy back up to $500 million of its class B subordinate voting shares.
Recommendation in The Successful Investor: Teck Resources Ltd. is a buy.
