Vancouver-based Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) is the largest diversified resource company in the country, with nearly 11,000 employees and operations in Canada, the U.S., Chile, and Peru.
The company focuses primarily on copper, steel-making coal, zinc, and energy.
Let’s take a look at Teck and the factors that investors should take into account when considering the stock.
How is Teck currently doing?
Teck currently trades at under $9, down over 40% year-to-date. Just like other commodities companies, the stock is down considerably for the year—approximately 50%—but has recently shot back up over 30% in a week. Even with the recent jump in price, the company is still shy of the 52-week high of $9.44.
In the most recent quarter, Teck reported an adjusted profit of $79 million, or $0.14 per share, which was an increase over the $72 million and $0.13 per share for the same quarter last year.
Despite the weak economy for commodities, the company remained cash flow positive with $531 million from operations for the quarter, up from $520 million from operations for the same quarter last year.
The company also reported $6.5 billion in liquidity, with $1.5 billion in cash. This is in line with the stated goal for the company completing the year with at least $1.0 billion in cash.
Business agreements and commodity prices
Teck recently signed a streaming agreement with Franco-Nevada that will fund the Antamina mine in Peru for $610 million. Franco-Nevada, in turn, will also pay 5% of the silver spot price per ounce delivered under the streaming agreement.
Copper and oil are two of the main commodities that Teck focuses on, and both have recently been subjects of price changes, sending Teck along for the ride.
In the case of copper, a decision by Glencore PLC last month to shut down two mines in Africa that account for nearly 2% of the world’s supply have added a degree of uncertainty to the price of the metal. Copper accounts for roughly 41% of Teck’s business, with the company producing 330,000 tonnes last year across four mines. The slowdown in China has decreased demand for copper.
Profitable despite commodity pricing variations
The current market condition is anything but predictable. Commodities of all types are constantly on the move, making companies that rely heavily on those commodities such as Teck that much more vulnerable.
That being said, Teck is still in a profitable position. During the most recent quarter, the company sold coal at $116 per tonne, whereas the cost associated with that coal was only $83.
In terms of copper, Teck was able to sell the metal for $2.76 per pound on average, whereas the cost of producing the metal was just $1.49.
In my opinion, Teck represents an opportunity for the investor who is not easily swayed by market fluctuations in the short term. The company is priced at a bargain, despite the current increase. Furthermore, Teck is on sound financials and is incredibly efficient and profitable, even in the current market.
