teck resources
PLEASE NOTE: Our next Hotline will go out on Friday, July 9, 2010. GENNUM CORP., $6.60, Toronto symbol GND, earned $4.1 million, or $0.12 a share (all amounts except share price in U.S. dollars) in the three months ended May 31, 2010. That’s a big improvement over the $1.1 million, or $0.03 a share, it lost a year earlier. Gennum makes chips and other electronic equipment that lets television broadcasters store, edit and transfer video signals without losing picture quality. It also makes chips that improve the flow of data inside computer networks....
TECK RESOURCES LTD. $32 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 589.4 million; Market cap: $18.9 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.3%; SI Rating: Average) will develop the Aqqaluk Deposit at its Red Dog zinc mine in northwestern Alaska. This deposit will replace Red Dog’s nearly depleted main deposit. Environmental opposition has delayed this development. But Teck has received the necessary permits to begin work on this project. The company did not say how much the new mine will cost, or when it would begin production. However, Aqqaluk’s reserves should last 20 years. Teck Resources is a buy.
China Investment Corp. (CIC) continues to catch investors’ attention by making a number of big purchases in the resource sector, including crude oil stocks. CIC is the Chinese government’s “sovereign wealth fund.” Sovereign wealth funds have been around since the 1950s. They are state-owned investment funds that are usually financed by an economic surplus. Many Middle Eastern sovereign wealth funds, for example, are financed by state oil revenues. CIC is directly funded by the Chinese government, largely with U.S. dollar reserves accumulated through exports.
An aggressive move into the oil sands
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TECK RESOURCES LTD., $43.77, Toronto symbol TCK.B, earned a record $908 million in the three months ended March 31, 2010. That’s up 276.8% from $241 million a year earlier. Earnings per share rose 206.0%, to $1.53 from $0.50, on more shares outstanding. One-time items, including the sale of two gold mines in Turkey and a one-third interest in a B.C. hydroelectric dam, boosted the company’s earnings in the latest quarter. Without one-time items, Teck’s earnings would have fallen 4.2%, to $205 million from $214 million. Teck’s cash flow per share fell 42.5%, to $0.70 from $1.22. However, its revenue rose 13.8%, to $1.9 billion from $1.7 billion, largely because of rising copper prices....
Noranda Income Fund, $2.96, symbol NIF.UN on Toronto (Units outstanding: 37.5 million; Market cap: $111.0 million), was created in 2002 to buy the CEZ processing facility and some assets that belonged to Noranda Inc. Falconbridge bought Noranda in 2005. Switzerland-based Xstrata Plc then bought Falconbridge. Xstrata Canada holds a 25% interest in Noranda Income Fund. The fund first sold units to the public for $10 each, and began trading on Toronto in May 2002. The fund’s CEZ processing facility is located in Salaberry-de-Valleyfield, Quebec. It’s the second-largest zinc-processing facility in North America, and the largest in eastern North America, where the majority of its customers are located....
NovaGold Resources Inc., $7.56, symbol NG on Toronto (Shares outstanding: 220.2 million; Market cap: $1.7 billion) and its partner, Teck Resources, suspended development of the Galore Creek copper/gold project in northwestern British Columbia in 2007. That’s when the two companies concluded that the project would cost $5 billion to complete. That’s more than double an earlier estimate of $2.2 billion. The companies are now undertaking a new study of construction and production costs, and expect to have a new estimate in early 2011. Galore holds as much as 12.9 billion pounds of copper, 12.2 million ounces of gold and 203 million ounces of silver. NovaGold also owns 50% of the Donlin Creek gold project in Alaska. Barrick Gold owns the other 50%. The partners recently updated their estimate of the project’s gold reserves. According to the new estimate, NovaGold’s stake would give it 21.1 million ounces of Donlin Creek’s gold. The partners are now in the pre-permitting stage, and aim to build a mine that will produce more than one million ounces of gold annually over more than 25 years....
BOMBARDIER INC., Toronto symbols BBD.A $5.87 and BBD.B $5.88, continues to win orders for new passenger railcars. This week, the company received an order for 49 additional railcars from France’s regional public-transit authority. That’s in addition to the transit authority’s previous order for 80 railcars. In all, the 129-car order is worth $1.6 billion (all amounts except share price in U.S. dollars). That’s equal to 8% of Bombardier’s annual revenue of $19.7 billion. The company will deliver these trains from June 2013 to mid-2016. As well, Bombardier has started building a new plant in China that will make fuselages for its new CSeries regional jets. The company is also building a new plant in Northern Ireland that will make the wings, and Bombardier will assemble the planes in Montreal. So far, Bombardier has 90 orders for the new plane, worth a total of roughly $7 billion. It will begin delivering the CSeries in 2013....
TECK RESOURCES LTD. $42 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 589.1 million; Market cap: $24.7 billion; Price-to-sales ratio: 2.7; No dividends paid since July 2008; SI Rating: Extra Risk) is a leading producer of metallurgical coal, a key ingredient in steelmaking. Coal accounted for 46% of Teck’s 2009 revenue, and 54% of its earnings. Teck also produces copper (28% of revenue, 31% of earnings) and zinc (26%, 15%). The company has reduced its total debt by $6.7 billion since it borrowed $9.8 billion U.S. to buy Fording Canadian Coal Trust in October 2008. Sales of gold mines and other assets helped Teck raise cash for debt repayments. As well, Teck sold $1.7 billion of class B subordinate-voting shares (which carry one vote per share) to a Chinese sovereign wealth fund. This fund now owns 17.5% of Teck’s class B shares, and has a 6.7% voting interest. Insiders still control 61.8% of Teck’s total votes through class A multiple voting shares (100 votes per share). Despite the dilution caused by the extra shares, this investment is helping Teck win new supply contracts from Chinese steelmakers....
Resource stocks should move higher as the global economy continues to recover in the years ahead. But there will be inevitable declines along the way. So we think you should cut your risk in this volatile sector by investing mainly in stocks of profitable, well-established resource companies with high-quality reserves. Teck Resources is a good example. The company bought Fording Canadian Coal Trust in 2008, just before the recession and credit crisis. That forced it to sell shares and assets to raise cash for debt repayments. However, Fording’s coal mines in B.C. should last 20 years or more. And the company’s copper, zinc and other mines make it less reliant on a single commodity. Resource stocks like Teck also provide a hedge against inflation. That’s because they profit directly from rising commodity prices. However, resources is one of the most volatile economic sectors. That’s why conservative investors should limit their resource holdings to no more than 20% of their overall portfolios.
TORSTAR CORP., $9.03, Toronto symbol TS.B, rose 40% this week. That’s because the company reported greatly improved results. In 2009, Torstar earned $35.6 million, or $0.45 a share. That’s a big improvement over the $158.7 million, or $2.01 a share, it lost in 2008. However, the 2008 results included a $136.9-million writedown of Torstar’s 20% stake in CTVglobemedia, which owns the CTV television network, several specialty-TV channels and The Globe and Mail. If you exclude all unusual items, per-share earnings fell 4.3%, to $0.66 from $0.69. That beat the consensus earnings estimate of $0.64 a share. Torstar’s 2009 revenue fell 5.4%, to $1.45 billion from $1.53 billion. Revenue at the newspaper division (which accounts for 66% of Torstar’s total revenue) fell 9.7%. However, revenue at the Harlequin book-publishing division (34% of revenue) rose 4.3%....