This company’s shares have recovered strongly since March 2020, primarily because the COVID-19 vaccine rollout should help economies rebound and push up commodity prices.
The firm also plans to expand its copper operations which in turn reduces its reliance on selling coal to steelmakers. We feel it’s set to outperform in 2021, as the stock trades at just 12.5 times the company’s 2021 earnings forecast.
TECK RESOURCES LTD. (Toronto symbol TECK.B; www.teck.com) remains a buy for investors seeking long-term gains from the Resources sector of their portfolio.
The company is a leading producer of metallurgical coal, a key ingredient in steelmaking. It also produces copper and zinc.
In addition, Teck owns 21.31% of the Fort Hills oil sands project of northern Alberta. Due to a weaker long-term outlook for oil prices, the company wrote down the value of this holding by $438 million. That was a non-cash charge that had no impact on its cash balances.
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Excluding that writedown and other unusual items, Teck’s overall earnings in the quarter ended December 31, 2020, rose 11.2%, to $248 million from $223 million a year earlier. Due to fewer shares outstanding, earnings per share improved at a faster rate of 15.0%, to $0.46 from $0.40. That beat the consensus estimate of $0.35.
The higher earnings are largely due to a successful cost-control plan, which saved $1 billion in 2020.
The lower costs helped offset a 3.6% decline in quarterly revenue, to $2.56 billion from $2.66 billion. That’s due to lower prices for coal (down 18.3%) and oil (down 16.6%). However, prices improved for copper (up 21.7%) and zinc (up 10.2%). The latest revenue also exceeded the consensus estimate of $2.52 billion.
Mining Stocks: Expanded copper production should pay off long-term
Teck is now cutting its reliance on coal (about 40% of its revenue) by expanding its copper operations (25%).
As part of that plan, the company is adding a second phase (called QB2) to its Quebrada Blanca copper mine in northern Chile. Teck owns 60% of QB2; the other investors are Japan’s Sumitomo Corp. (30%) and the Chilean government (10%). The project should increase Teck’s copper production by 60% when it begins operating in 2022. QB2 will also extend the production life of the complex by 28 years.
The company’s share of QB2’s projected cost is $3.1 billion U.S. It has secured a $2.5 billion U.S. credit facility to fund those outlays.
Teck’s projected earnings will probably jump from $0.90 a share in 2020 to $2.17 in 2021 as the global economy begins to recover from COVID-19. The stock trades at just 12.5 times that 2021 estimate. The $0.20 dividend yields 0.7%.
Why are the taxable amount of dividends higher than the actual amount I received? I know I receive a Dividend Tax Credit but it doesn’t come close to the amount I have to pay on the taxable amount. Why is that?
To claim the federal dividend tax credit, you must first “gross up” the amount of dividends actually received by 38% to determine the taxable amount of dividends. You then compute a dividend tax credit based on this inflated amount.
So, 138% of eligible dividends are included in taxable income for individuals. The additional 38% is called the “gross-up”, which is meant to represent the corporate income tax that has been paid on the income earned by the corporation. The dividend tax credit is then calculated, with the intention of providing a tax credit for the corporate income tax paid. The result is that the marginal tax rate for eligible dividends is quite a bit lower than the marginal tax rate for employment income, interest and foreign dividends. It is also lower than the marginal tax rate for capital gains, but only to a certain level of taxable income.
Learn everything you need to know in
'Juniors to Giants: The Complete Guide to Mining Stocks'FREE Special Report from The Successful Investor.
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Why are the taxable amount of dividends higher than the actual amount I received? I know I receive a Dividend Tax Credit but it doesn’t come close to the amount I have to pay on the taxable amount. Why is that?
To claim the federal dividend tax credit, you must first “gross up” the amount of dividends actually received by 38% to determine the taxable amount of dividends. You then compute a dividend tax credit based on this inflated amount.
So, 138% of eligible dividends are included in taxable income for individuals. The additional 38% is called the “gross-up”, which is meant to represent the corporate income tax that has been paid on the income earned by the corporation. The dividend tax credit is then calculated, with the intention of providing a tax credit for the corporate income tax paid. The result is that the marginal tax rate for eligible dividends is quite a bit lower than the marginal tax rate for employment income, interest and foreign dividends. It is also lower than the marginal tax rate for capital gains, but only to a certain level of taxable income.