Teck Resources Ltd.: Time to Buy?

Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) is hitting new 2016 highs. Will the rally continue?

| More on:
The Motley Fool

Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) is breaking out again, and investors who missed the staggering rally in the first half of the year are wondering if the trend will continue.

Let’s take a look at the current situation to see if this is a safe time to step in to Canada’s largest diversified mining company.

Coal, copper, and zinc

Teck produces metallurgical coal, copper, and zinc. These three commodities have been in a downward spiral for the better part of five years, although recent strength suggests a bottom might have been reached.

Teck says it is finally seeing a turnaround in the coal market as Asian demand is beginning to improve just as widespread mine closures have taken supply off the market. Spot prices have actually drifted higher than the Q2 contract settlement agreements, and Teck expects the back half of the year to continue in a positive direction.

Copper is also showing signs of a turnaround. Prices have bounced around in a tight range for most of 2016, and the current price of US$2.16 per pound is above Teck’s average realized sale price for the first quarter. Pundits have mixed views on the next move for copper, but the downward trend appears to be broken.

Zinc is having a fantastic 2016. The metal has surged 30% in the past six months, and most analysts see continued strength as reduced output bumps into rising demand.

The role of oil

Teck doesn’t produce oil, but the company has a 20% stake in the Fort Hills oil sands project, which is scheduled to begin production in late 2017.

Fort Hills has been a huge drain on Teck’s resources since 2013 and a large part of the stock’s nasty sell-off can be attributed to the plunge in oil prices. In fact, investors pretty much threw in the towel earlier this year when WTI oil dropped below US$30 per barrel.

Now that WTI oil is back up to US$50 per barrel, more investors are feeling better about the project’s long-term viability. Whether or not oil will reach a breakeven price by the time Fort Hills starts production is anyone’s guess, but the facility has a 50-year lifespan and the partner companies are all betting their investment will deliver strong returns over time.

Should you buy?

Teck remains a risky bet and new buyers have to believe the commodity recovery will continue. If you are in this camp and have a contrarian investing style, Teck still looks attractive.

Remember, the last time Teck rallied off the $4 mark it hit $60 in less than two years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker owns shares of Teck Resources.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »