Teck to Primarily Be a Copper Miner After Selling Its Metallurgical Coal Business

Equity Analyst

Jon Mills

China plays a defining role for Teck Resources as the biggest buyer of everything the company digs out of the ground: metallurgical coal, copper, zinc, and lead. With the exception of lead, demand for these commodities is tied to fixed-asset investment. We expect a rebalancing of China's economy from investment to household consumption will mean weaker demand growth for investment-oriented commodities and lower prices than the favorable 2023 levels. 

Teck produces high-quality metallurgical coal. The price of met coal, which is used in steelmaking, benefited from China's fixed-asset investment boom. Amid weaker Chinese steel demand, we expect China's met coal import needs to decline, particularly once supply-side reforms on domestic coal mines are complete and recycled scrap rates grow. We expect global seaborne demand growth to shrink. India is expected to be the main source of incremental demand; however, we forecast that this will be insufficient to offset the falls we expect from China, with domestic supply taking share and shrinking overall demand, given forecast declines in steel consumption and greater scrap usage. With its decent cash cost position, we expect Teck to remain profitable, though much less so. Teck has agreed to sell its coal business, with the deal likely closing in the third quarter of 2024.

There are considerable differences in cash costs within the company's copper portfolio: The high-grade Antamina mine in Peru is viable under nearly any reasonable copper price, while its Quebrada Blanca 2 mine sits comfortably within the bottom half of the cost curve. However, its other mines in Canada and Chile have higher costs. 

Teck's zinc/lead business has historically generated solid profits, thanks to attractive ore grades at the massive Red Dog mine in Alaska. The asset's high grades and relative capital efficiency should see this business comfortably in the black.

Business Strategy & Outlook

We assign Teck Resources a no-moat rating. As a commodity producer, Teck is a price taker and needs low-cost mines with long lives and a low installed capital base to support the longer-term excess returns needed to justify an economic moat. With a few notable exceptions including Red Dog (zinc/lead) and Antamina (copper/zinc), most of its mines aren’t low enough on their respective cost curves to be considered moatworthy assets, with much of its operations having elevated invested capital bases. 

We note that the company generated average ROIC of around 6.5% for the five years ended 2022 and around 5.5% for the 10 years ended 2022. We estimate that Teck will generate midcycle returns well below the company’s cost of capital. 

Despite its moatworthy, low-cost, long life Antamina and Red Dog mines contributing around half of midcycle EBIT, Teck’s other lower quality, higher cost and more capital intensive copper mines and steelmaking coal businesses offset their contribution and are the reason for the very low midcycle ROIC, which is far below Teck’s weighted average cost of capital, or WACC, of 9.4%. Accordingly, we don’t assign a moat to Teck. 

In terms of commodity prices, our midcycle assumptions for metallurgical coal and copper are roughly USD 150 per metric ton and USD 3.10 per pound, respectively, from 2027 based on our estimates of the marginal costs of production. We also assume zinc prices of about USD 1.15 per pound from 2024 based on spot. 

In calculating ROIC, we have added back to invested capital CAD 9.4 billion in asset and goodwill write-downs taken over the past decade on the basis that these amounts relate to assets developed or acquired in the ordinary course of business and so should be included when calculating ROIC. Some of the more material amounts we have added back include CAD 6.2 billion in relation to its oil sand investments in Canada (since sold), CAD 2.1 billion relating to the company’s steelmaking coal mines, and CAD 500 million relating to its Carmen de Andacollo copper mine in Chile. Even if we instead chose not to add back any write-downs, Teck’s midcycle ROIC would still be materially below its WACC.

None

Economic Moat

Teck Resources

Teck Resources Limited is a resource company, which engages in mining and development of mineral properties. It organized into business units focused on steelmaking coal, copper, zinc, and energy. The firm also offers lead, silver, molybdenum and various specialty and other metals, chemicals and fertilizers. It focuses on its project operations located in Canada, Peru, Chile, and U.S. The company was founded on September 24, 1951 and is headquartered in Vancouver, Canada.

Earnings data Q1 2024

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Teck Resources Limited is a resource company, which engages in the exploration, acquisition, development, production, and sale of natural resources. Its products include steelmaking coal, copper, zinc, industrial products and fertilizers, and other metals. Its project operations are located in Canada, Peru, U.S., and Chile. The company was founded on September 24, 1951 and is headquartered in Vancouver, Canada.

Teck Resources' (TECK) second-quarter 2023 steelmaking coal sales dip year over year but came within the company's guidance.

Teck Resources (TECK) Q2 Steelmaking Coal Sales Down Y/Y

VANCOUVER, British Columbia, July 10, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) will release its second quarter 2023 earnings results before market open on Thursday, July 27, 2023.

Teck to Release Second Quarter 2023 Results on July 27, 2023

Teck Resources has significantly outperformed the S&P 500 and most commodity companies in the past year. The mining company has a strong competitive advantage in copper production due to its deep project pipeline. The ongoing energy transition is boosting the demand for copper and zinc, which present significant tailwinds for the company.

Teck Resources: Well-Positioned To Ride Copper Tailwinds

VANCOUVER, British Columbia, June 29, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) today announced a $2.5 million contribution to help build a new wildlife overpass in the East Kootenay. The B.C. Ministry of Transportation and Infrastructure overpass project located south of Radium Hot Springs will reduce vehicle strikes with bighorn sheep, making that stretch of Highway 93/95 safer for residents and other highway users while protecting the iconic bighorn sheep herd.

Teck Announces $2.5 million for Wildlife Overpass to Keep Bighorn Sheep Safe

VANCOUVER, British Columbia, June 28, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) ("Teck”) has been named as one of Corporate Knights' 2023 Best 50 Corporate Citizens in Canada. This marks the 17th consecutive year Teck has been named as one of the Best 50 companies by Corporate Knights.

Teck Named to 2023 Best 50 Corporate Citizens in Canada

VANCOUVER, British Columbia, June 22, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) announced today that Teck's Trail Operations has been awarded the Zinc Mark.

Trail Operations is First Smelting & Refining Facility Globally to Achieve Zinc Mark Verification

VANCOUVER, British Columbia, June 15, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) today announced the following Vice President appointments.

Teck Announces Vice President Appointments

Glencore PLC

Teck Resources Limited (NYSE: TECK) is trading slightly down today after Glencore PLC (LON: GLEN) revealed interest in buying its steelmaking coal business. Glencore failed to fully acquire Teck Resources Remember that the world's most profitable mining company has already made two failed attempts to fully acquire Teck Resources.

Glencore makes an alternative bid for Teck Resources' coal assets

Glencore PLC (LSE:GLEN) confirmed that it has offered to buy Teck Resources Ltd (TSX:TECK.B)' steelmaking coal business (EVR) for cash in a departure from the commodities giant's previous proposal for a full-blown merger with Canada's biggest miner. The move is the latest salvo in the commodity giant's battle for Teck, which has so far met with resistance from the company's management.

Glencore steps up battle with cash offer for Teck Resources' steelmaking coal business

Teck has already rejected two full takeover bids from Glencore, and said last week that it has received several offers for its coal unit.

Glencore Offers to Buy Teck Resources' Coal Assets. It's the Deal That Won't Go Away.

Glencore PLC (LSE:GLEN) has made an alternative pitch to win over Teck Resources, offering to buy its steelmaking coal business. The FTSE 100-listed miner, which has already expressed in buying the whole of Teck, said under the new plan it would buy Teck's steelmaking coal business and then demerge the business unit together with its own energy coal assets 1-2 years after the deal closed.

Glencore makes alternative pitch to win over Teck

VANCOUVER, British Columbia, June 12, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) today commented on its previously announced engagement with several parties that have submitted unsolicited indications of interest regarding various forms of potential transactions involving Teck's steelmaking coal business.

Teck Confirms Glencore's is One of a Number of Proposals Under Consideration Related to Steelmaking Coal Business

The commodities giant is willing to buy Teck's unit as an alternative to a full merger.

Glencore Approaches Teck Over Its Coal Business

Teck Resources (TECK) indicates that it has received indications of interest for deals for its coal assets.

Teck Resources (TECK) in Talks With Parties for Coal Business

VANCOUVER, British Columbia, June 06, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) today announced a CAD$10 million donation to the Chilean Nature Fund (“FNC”) to support Chile's Protected Marine Areas program and protection of a critical global biodiversity area.

Teck Donates $10-million to Chilean Nature Fund to Support Chile's Protected Marine Areas Program and Juan Fernández Archipelago

VANCOUVER, British Columbia, June 06, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) today confirmed that it has received a number of inbound indications of interest regarding various forms of potential transactions involving Teck's steelmaking coal business.

Teck Engaging with Multiple Counterparties Regarding Interest in its Steelmaking Coal Business

Two catalysts for Teck Resources Limited: underlying business growth in servicing the energy transition and potential acquisition of Teck Metals (copper business). Management's focus on unlocking shareholder value for Teck's copper business.

Teck Resources: 2 Catalysts Happening (Rating Upgrade)

VANCOUVER, British Columbia, May 25, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) today announced the following executive and vice president appointments:

Teck Announces Executive and Vice President Appointments

VANCOUVER, British Columbia, May 25, 2023 (GLOBE NEWSWIRE) -- Vancouver Coastal Health (VCH), Teck Resources Limited (“Teck”) and VGH & UBC Hospital Foundation are partnering to study how antimicrobial copper can be used to prevent infections and improve health outcomes in three long-term care homes across the VCH region. Funded by Teck, it will be the first study of its size in Canada.

Vancouver Coastal Health and Teck Partner to Study How Bacteria-killing Copper Can Reduce the Risk of Infection Transmission in Long-term Care Homes

Toronto, Ontario--(Newsfile Corp. - May 25, 2023) - American Eagle Gold Corp. (TSXV: AE) (OTCQB: AMEGF) ("American Eagle" or the "Company") is pleased to announce that it has closed the previously announced strategic investment in the Company by Teck Resources Limited (TSX: TECK.A) (TSX: TECK.B) (NYSE: TECK) ("Teck") through a structured charity flow-through financing on a private placement basis. The Company has issued 14,400,000 common shares on a flow-through basis (the "Charity FT Shares") at a price of C$0.205 per Charity FT Share for issue proceeds of approximately $2.96 million (the "Offering").

American Eagle Gold Closes C$2.96 Million Financing

VANCOUVER, British Columbia, May 18, 2023 (GLOBE NEWSWIRE) -- A collaborative cross-Canadian partnership between infection control researchers, transit authorities and private industry has demonstrated the effectiveness of antimicrobial copper to reduce the spread of bacteria and viruses in public spaces. The results of a successfully completed, one-year study, led by the medical microbiology research team at Vancouver Coastal Health and hosted by TransLink and Toronto Transit Commission, found that select copper products on public transit can eliminate up to 99.9% of bacteria.

First of its Kind Joint Study Demonstrates Copper's Effectiveness at Killing Bacteria and Viruses on Public Transit

(Kitco News) - Teck Resources (TSX: TECK.A and TECK.B) (NYSE: TECK) announced today that the Zafranal copper project in Peru has received regulatory approval from SENACE, Peru´s National Service of Environmental Certification for Sustainable Investments.

Teck announces regulatory approval for the Zafranal copper project in Peru

VANCOUVER, British Columbia, May 12, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) announced today that it has completed the previously announced plan of arrangement under the Canada Business Corporations Act to introduce a six-year sunset for the multiple voting rights attached to the Class A common shares of Teck (the “Dual Class Amendment”).

Teck Completes Plan of Arrangement Introducing a Sunset for Dual Class Share Structure

VANCOUVER, British Columbia, May 12, 2023 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) announced today that the Zafranal copper project in Peru has received regulatory approval from SENACE, Peru´s National Service of Environmental Certification for Sustainable Investments. Zafranal is a highly competitive, mid-sized copper-gold development project located in the porphyry copper belt of Southern Peru in the Arequipa Region. The deposit is owned by Compañía Minera Zafranal S.A.C. (“CMZ”), of which Teck owns 80% and Mitsubishi Materials Corporation (“MMC”) owns 20%.

Teck Announces Regulatory Approval for the Zafranal Project

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR RELEASE, PUBLICATION, DISTRIBUTION OR DISSEMINATION DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES. VANCOUVER, BC / ACCESSWIRE / May 9, 2023 / Hannan Metals Limited ("Hannan" or the "Company") (TSXV:HAN) announces the closing of its non-brokered unit private placement financing (the "Offering") announced on April 24, 2023.

News for Teck Resources Stock (TECK)