How Teck Resources Emerged Stronger from Its Downturn




As noted previously, leading miners such as Freeport-McMoRan (FCX) and Glencore (GLNCY) have raised cash by selling shares in bids to cut their debt levels.

However, while equity issuance is generally the easiest option available for raising cash, it has long-term ramifications. Equity issuance raises a company’s equity base, leading to earnings dilution. Both Freeport and Glencore issued shares at depressed valuations.

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No equity issuance

Meanwhile, Teck Resources’ (TECK) management was quite clear that the company wouldn’t issue shares at depressed valuations. The company also didn’t sell any stake in its core assets. Notably, Teck Resources continued to invest in future growth during the downturn.

Quebrada Blanca Phase 2 and the Fort Hills project are two key growth projects that Teck is currently pursuing. Quebrada Blanca Phase 2 could catapult TECK into the league of major copper miners within the next decade. The Fort Hills project (SU), an oil sands project in Alberta, Canada, is expected to start production as early as 4Q17.

What it means

Teck Resources could have higher per-share production in the coming years, unlike Freeport, whose copper production is expected to taper down starting in 2017. The company could have more diversified operations once the Fort Hills project starts commercial production. Teck Resources’ growth projects should pay off well if the current uptrend in commodity prices continues.

So far, we’ve looked at mining companies’ (SCCO) (BHP) net debt levels. Along with absolute debt levels, it’s also important to look at other leverage metrics. We’ll discuss these further in the final article of this series.


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