Why Coal Could Ignite Teck Resources’ 4Q16 Profits



Teck Resources’ 4Q16 profits

There are several metrics you can use to measure an enterprise’s profitability like net profit. For companies in the commodities space like BHP Billiton (BHP), Freeport-McMoRan (FCX), and Southern Copper (SCCO), EBITDA (earnings before interest, tax, depreciation, and amortization) is generally used.

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EBITDA expected to surge

According to data compiled by Thomson Reuters, analysts expect Teck Resources (TECK) (TCK) to post adjusted EBITDA of 1,748 million CAD (Canadian dollars), or ~$1,331 million, in 4Q16. In contrast, the company posted adjusted EBITDA of 467 million Canadian dollars, or ~$355 million, in 4Q15 and 694 million CAD, or ~$528 million, in 3Q16.

As you can see, analysts expect Teck Resources’ 4Q16 EBITDA to rise steeply as compared to the previous periods. The optimism is not without reason. Commodity prices rose steeply in 4Q16 and have boosted the earnings of miners including Teck Resources. While zinc and copper, which rose after Trump’s election as the US president, would certainly contribute to TECK’s 4Q16 profitability, the real kicker could come from higher coal prices (KOL).

Coal prices

Coking coal prices rose sharply in 2016 on China’s capacity cuts and supply disruptions in Australia. The rally in coking coal prices took several market participants by surprise. Teck Resources reported average realized prices of $120 per metric ton of coking coal in 3Q16. However, looking at benchmark coal prices, we could see a significant jump in Teck Resources’ 4Q16 realized coal prices.

In the next article, we’ll look at the key updates markets are awaiting in Teck Resources’ 4Q16 earnings call.


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