Mining stocks remain some of the few places investors can go for major growth these days. The price of gold continues to climb past or near all-time highs, and other essential minerals have shown their place on the hierarchy as well. Yet one of the most exciting mining stocks right now has to be Teck Resources (TSX: TECK.B) after its merger with Anglo American.
Soon to form Anglo Teck, the deal positions the company as a future heavyweight. So let’s get right into why.
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What happened
As mentioned, the merger is now one of the most exciting Canadian growth stories right now. The deal positions the mining stock as a major player in critical minerals, especially copper. That’s huge considering the dependency many have on this mineral, given its use in the global energy transition.
While Teck is Canadian and Anglo is American, the combined company will be headquartered in Vancouver and led by Canadian management. This secures Canada’s place in the global mining ecosystem, while also giving Teck access to Anglo’s world-class copper assets. These include mines in South America and Africa. Together, the pair will produce 1.4 million tonnes of copper by 2027. That will make Anglo Teck a top five copper producer in the world.
More to come
What’s more, the merger is significant in other ways. Teck expects US$800 million in annual synergies, stemming from overlapping operations, supply chain efficiencies, and share infrastructure. What’s more, the pair project revenue synergies of US$1.4 billion annually between 2030 to 2049. This will largely come from massive projects such as Collahuasi and Quebrada Blanca in Chile.
So not only are you getting in on growth from the merger now, there’s so much more on the way. It’s a long-term play that lasts decades. Even near-term earnings volatility shouldn’t get in the way, as seen in the recent Teck report. Teck reported earnings that were down 43% year-over-year, though the company still delivered double-digit revenue growth with $4.8 billion in cash on hand. Plus, its debt of $9.4 billion remains manageable given its scale.
Considerations
There are a few items to watch for now. Teck trades with a forward price-to-earnings (P/E) ratio of 23.4. This shows that it looks quite reasonable once merger synergies are realized and copper production pumps up. It also provides a dividend, though modest at 0.89%. Therefore, the company is putting its value in growth for investors rather than income. This is a reasonable trade-off considering its long-term strategy.
Yet, of course, mergers come with many risks. So while Teck stock presents a strong investment opportunity, it will be one to watch while the synergies get underway. Still, at the same time, Teck stock could make a huge leap forward to become a copper giant at the centre of the global energy transition. For investors looking for major growth from a critical mineral, this could be the mining stock to watch.
Bottom line
Teck stock has been through a rough period, but now it’s an exciting time to get in on the mining stock. For investors willing to get through a period of volatility for the potential of major growth, now might be a great time to add this stock to your watchlist on the TSX today.
