teck resources
TECK RESOURCES LTD. $30 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 487.1 million; Market cap: $14.6 billion; Price-to-sales ratio: 1.9; SI Rating: Extra Risk) has agreed to sell two of its gold mines in Turkey to Alamos Gold Inc. (Toronto symbol AGI). Teck owns 60% of these mines; Fronteer Development Group Inc. (Toronto symbol FRG) owns the other 40%. Alamos will pay $40 million U.S., plus four million of its shares to Teck and Fronteer. Teck’s share of the cash is $24 million U.S. It will also get $21.9 million worth of Alamos shares, using the current share price. Teck will apply the cash to its $9-billion debt. Teck Resources is a buy.
China Investment Corp. (CIC) has caught a lot of investors’ attention recently with a string of big purchases of commodity investments in the resource sector. 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 impressive string of commodity investments
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TECK RESOURCES LTD. $28 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 588.5 million; Market cap: $16.5 billion; Price-to-sales ratio: 1.6; SI Rating: Extra Risk) now gets about half of its revenue from metallurgical coal, which is used for making steel. That’s because Teck bought Fording Canadian Coal Trust for $13.6 billion last October. Fording owns six open-pit coal mines in B.C. and Alberta. At current production rates, these mines have an average reserve life of 23 years. Teck also mines copper, zinc and gold.
Credit crisis came at a bad time
Teck used $9.8 billion U.S. in short-term loans to pay for Fording. It planned to convert these into more manageable long-term loans, but the credit crisis lowered demand for new corporate bonds. Then the recession drove down commodity prices. This hurt Teck’s ability to repay the new debt....
Inmet Mining, $38.49, symbol IMN on Toronto (Shares outstanding: 56.1 million; Market cap: $2.2 billion), is a Canadian-based mining company that produces copper, zinc and gold. Inmet operates five mines: Cayeli in Turkey, Pyhasalmi in Finland, Troilus in northern Quebec, Ok Tedi in Papua New Guinea and Las Cruces, a high-grade copper deposit in Spain. Inmet recently started up production on this last site. Inmet also has a 100% interest in the pre-development stage Petaquilla copper project in Panama. Last November, Teck Resources opted out of the project, and development is suspended because the mine’s projected operating costs are above current copper prices. In the three months ended March 31, 2009, Inmet’s revenue fell 13.4%, to $239.2 million from $276.3 million a year earlier. Earnings fell 51.9%, to $51.3 million, or $1.06 a share, from $106.7 million, or $2.21 a share. Cash flow per share fell 27.5%, to $1.71 from $2.36. In the latest quarter, lower copper and zinc prices hurt revenue, profits and cash flow....
TECK RESOURCES LTD. $18 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 486.9 million; Market cap: $8.8 billion; Price-to-sales ratio: 1.2; SI Rating: Extra Risk) will see its coal-shipping costs fall by $70 million this year following a favourable arbitration ruling over CP Rail. The two companies could not agree to a new contract, so Teck opted for arbitration. To put these savings in context, Teck earned $227 million, or $0.47 a share, in the first quarter of 2009. Separately, Teck has reached a new deal with CN Rail that will see CN ship more of Teck’s coal. Being able to use both CP and CN should help Teck improve its efficiency. Teck Resources is a buy.
TECK RESOURCES LTD., $19.99, Toronto symbol TCK.B, will sell 101.3 million class B subordinate-voting shares (one vote per share) at $17.21 each to China Investment Corp., a sovereign wealth fund controlled by the Chinese government. Teck is selling these shares for 13.9% below the current market price. That’s because China Investment agreed to certain conditions, including holding onto these shares for at least a year and not selling them to one of Teck’s main rivals or customers. Despite the discount, Teck’s shares rose 8% on the news. That’s because Teck will put the $1.7 billion proceeds from the sale toward the $9.8-billion U.S. it borrowed to finance its $13.6-billion (Canadian) purchase of Fording Canadian Coal Trust last October....
First Quantum Minerals, $50.16, symbol FM on Toronto (Shares outstanding: 78.2 million; Market cap: $3.9 billion), is a mining-and-metals company that is listed in Toronto and London. First Quantum owns mines in Zambia, Mauritania, Finland and the Democratic Republic of Congo. Around 85% of its revenue comes from copper sales, with the remainder from gold. First Quantum’s Zambian assets include the 80%-owned Kansanshi open-pit copper/gold mine, the 100%-owned Fishtie copper project and the 100%-owned Bwana Mkubwa extraction and sulphuric-acid plants. First Quantum also holds a 16.9% interest in Mopani Copper Mines, operator of the Nkana underground copper mine and cobalt refinery and the Mufulira underground copper mine, smelter and copper refinery. As well, First Quantum owns a 16.32% stake in Equinox Minerals Ltd. (symbol EQN on Toronto), which operates the Lumwana copper mine. In the Democratic Republic of Congo, First Quantum operates the 95%-owned open-pit Frontier copper mine, and is developing the 65%-owned Kolwezi copper-cobalt tailings project. In Mauritania, First Quantum operates the 80%-owned Guelb Moghrein copper/gold mine....
TRANSCANADA CORP., $31.49, Toronto symbol TRP, will buy the 20.01% of the Keystone pipeline that it doesn’t already own from its partner, ConocoPhillips (New York symbol COP), for $550 million U.S. Keystone will pump crude oil from Alberta to refineries in Illinois. The first phase should start operating early next year. TransCanada plans to extend Keystone to the U.S. Gulf Coast by 2012. Aside from the purchase price, TransCanada will assume $200 million U.S. in related short-term debt. In all, Keystone will cost $12 billion U.S. to build. TransCanada and ConocoPhillips have spent $2.7 billion U.S. to date. To put these figures in context, TransCanada’s market cap is $19.4 billion (Canadian)....
Right now, Canadian income trusts pay out a high percentage of their cash flows to their unitholders. This lets them avoid paying corporate taxes. It also gives many of them significantly higher yields than a lot of dividend-paying common stocks.
Canadian income trusts face tax changes in 2011
In 2011, the Canadian government will begin taxing income trusts (with the exception of real estate investment trusts or REITs)....
Buying Canadian penny stocks can pay off extremely well when it succeeds. But the odds against business success are high. That’s because Canadian penny stocks are usually involved in riskier ventures, such as finding mineral deposits that can be mined at a profit, commercializing unproven technologies or launching new software. In addition, it’s much easier to launch and promote a stock than it is to start a successful business. So Canadian penny stocks attract more than their share of unscrupulous operators and stock promoters.