Teck Resources (TSX:TECK.B)(NYSE:TECK) is a Canadian mining company that operates several mining facilities across Canada, Peru, Chile, and the United States. It produces copper, zinc, and steel-making coal and has an economic interest in energy assets. This year, the company has returned over 50%, outperforming the broader equity markets. Rising commodity prices and solid first-quarter performance have driven its stock price higher. So, will the uptrend in Teck Resources continue? Let’s first look at its first-quarter performance in detail.
Teck Resources’s first-quarter performance
Teck Resources reported a solid first-quarter performance last month, with its revenue growing by 97.5% to $5.03 billion. Supported by higher commodity prices and increased sales volume, its sales grew across all its four business segments. The top-line growth also expanded its adjusted EPS, which grew by 395% year over year to $3.02. It also generated an adjusted EBITDA of $3 billion compared to $967 million in the previous year’s quarter.
The expansion in gross margin due to higher commodity prices and higher sales volume drove Teck Resources’s EPS. However, the increase in operating expenses due to inflationary cost pressures and profit-based compensation offset some of the gains. Supported by its solid first-quarter performance, the company has announced a new share-repurchase program of $500 million in addition to its previously announced $635 million for share repurchases and dividends. After analyzing its first-quarter performance, let’s look at its growth prospects.
Outlook
Analysts are bullish on copper and zinc. Due to geopolitical tensions, falling global inventories, and rising demand, analysts expect copper and zinc to trade at elevated levels in the near to medium term. Amid rising prices, Teck Resources continues to construct its Quebrada Blanca Phase 2 (QB2) facility, with the extraction of copper from its line one facility expected to begin from the fourth quarter of this year.
Meanwhile, the company’s management projects to produce 273-290 thousand tonnes of copper this year compared to 287.3 thousand tonnes last year. Its zinc production could increase from 607.4 thousand tonnes to 630-665 thousand tonnes. Further, the production of steel-making coal could also rise. So, increased production and higher prices could boost the company’s financials in the coming quarters.
Further, the company is also pursuing its next development phase with its Quebrada Blanca Mill Expansion (QBME), which is currently undergoing a pre-feasibility study and could start production in 2026. So, Teck Resources’s near- to medium-term outlook looks healthy.
Valuation and dividend
Despite delivering over 50% of returns this year, Teck Resources is trading at an attractive valuation. Its NTM price-to-sales and NTM price-to-earnings multiples stand at 1.5 and six. Last month, it also announced a dividend of $0.125/share.
Bottom line
With the dragging of the Russia-Ukraine war, rising demand, and underinvestment over the last few years, I expect commodity prices to remain elevated in the near to medium term. So, I believe Teck Resources is an excellent buy in this inflationary environment.
Analysts are also bullish on Teck Resources, with 17 of the 20 analysts covering the stock having issued a “buy” rating, while the remaining three have given a “hold” rating. Their consensus price target represents an upside potential of 1.6%.
