The metals and mining space had experienced some turmoil over the last couple of years. Low commodity prices and high leverage ratios have put many growth projects on hold. The move wasn’t surprising. Many miners were fighting a real battle for survival, so growth could have been the last thing on their minds.
But Teck Resources (TECK) continued to invest in growth projects during the downturn. The Quebrada Blanca Phase 2 and Fort Hills projects are two key growth projects for Teck Resources. Quebrada Blanca Phase 2 is expected to catapult Teck Resources into the league of major copper miners in the next decade. The Fort Hills project (SU), which is an oil sands project in Alberta, Canada, is expected to start production as early as 4Q17.
Notably, Teck Resources’ strategy during the downturn was different from some of its peer companies. While the company slashed its dividend like some of the other miners, it didn’t issue equity. On the other hand, Glencore (GLNCY) and Freeport-McMoRan (FCX) issued shares to raise cash.
Teck Resources is expected to have higher per-share production in the coming years, unlike Freeport, whose copper production is expected to taper down starting in 2017. Teck Resources could have more diversified operations once the Fort Hills project starts commercial production.
But will these growth projects pay off? The energy market has come under pressure again despite the cuts major producers announced. Lower oil prices don’t bode well for TECK’s oil sand operations. As for copper, the company’s growth projects are expected to come online only in the next decade. Most market observers expect copper markets to experience a supply shortfall by then, which could boost copper prices (SCCO).
In the next and final part of this series, we’ll see how markets are valuing Teck Resources amid the current dynamics.