Right now isn’t the best time for the miners. Low commodity prices across the board are impacting these companies’ bottom lines, but are there any good investment picks in the sector? Lets take a look at First Quantum Minerals Limited (TSX:FM) and Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) to see if an investment in either stock makes sense.
First Quantum Minerals
First Quantum Minerals’ primary asset is copper, but the company also has exposure to nickel, gold, zinc, and platinum group elements. The company recently posted its Q4 2014 earnings, and to much surprise, it beat analysts’ expectations on profit, thanks to increased copper output and lower production costs.
Teck Resources
Teck is Canada’s largest diversified miner, but its main asset is metallurgical coal. Teck’s other assets include copper, zinc, and energy.
Who has the best products?
Primary commodities for both companies are seeing tough times right now, but the long-term forecast for each product is promising. It’s a tough pick to choose between the most promising commodities (metallurgical coal or copper), but if you are hedging your bets on the company with the best commodities, I like the fact that First Quantum has both base and precious metals. Teck’s exposure to energy and base metals is a bit of a drawback.
Track records
Teck Resources is having a good year so far, with the stock up almost 9% since the first trading day of 2015. However, if you look at the long-term performance, the company has consistently disappointed its shareholders, with the stock down 59% in the last five years and 24% in the past 10 years.
Teck Resources is suffering from low prices for most of the commodities it produces, yet the stock still has experienced some recent strength. A great deal of this strength is being attributed to a lower Canadian dollar, which makes the company’s Canadian operations more profitable. In addition, the company has been effective in some recent cost-cutting measures, which have enhanced profitability.
First Quantum Minerals is down almost 9% this year and down 12% in the last five years, but up an astonishing 215% in the last 10 years. Clearly, the company is experiencing some near-term weakness, which can be attributed to a weak copper market and operational challenges that the company is facing.
Financials
Teck’s 2014 full-year results were mixed. Gross profit before depreciation and amortization was $2.9 billion compared with $3.7 billion in the prior year. The big positive was that the company closed the year with a cash balance of $2.0 billion.
First Quantum’s latest results were surprisingly positive. The concerning thing here is the company is over-leveraged with a large amount of debt.
Who should you buy?
In this situation it really is a toss-up. For Teck Resources, improving near-term financials and solid operating results are a positive. But concerns circulate around the fact that the company has consistently underperformed across a variety of economic climates.
On the other hand, First Quantum Minerals’ most recent results were inconsistent, and the company’s stock hit a five-year low early in the year due to concerns about taxation in its Zambian operations. While earnings were mixed, the main concern I have when it comes to First Quantum is the company’s rising debt. Rising debt in a low-price environment can be disastrous.
In the end, choosing one the two companies to buy is a hard choice. I’m more inclined to sit out of both stocks for now.
