Teck Resources’ growth drivers
Earnings of commodity producers Freeport-McMoRan (FCX), Glencore (GLEN-L), and Southern Copper (SCCO) are linked to underlying commodity prices. Teck Resources (TECK) produces coking coal, zinc, and copper. It’s the second-largest seaborne coking coal supplier. Higher coking coal prices were among the key drivers of Teck Resources’ upward price action in 2016. It capitalized on higher coal prices and the subsequent increase in its cash flows to strengthen its financial position by repaying some of its outstanding debt.
Let’s look now at 2018. Along with coking coal, zinc, and coking coal, Teck Resources could also start to realize earnings from its oil sands project. Its Fort Hills project, for which Suncor (SU) is the operator, started commercial production in 2017. According to Teck Resources, the project has reached 80% capacity and is on track to reach 90% of its nameplate capacity by the end of 2018. So what could the Fort Hills project mean for Teck Resources in 2018? Let’s look at that in perspective.
Energy prices have firmed up over the last couple of quarters. Fortunately for Teck Resources, its Fort Hills project has come online when crude oil prices are comfortably above their lows. Higher energy prices could benefit the Fort Hills project in 2018. Teck Resources’ earnings sensitivity to crude oil prices could increase this year after the commissioning of the Fort Hills project.
However, coking coal could still continue to be the key driver for Teck Resources, as we’ll see in the next part.