Teck Resources Ltd TECK is gaining from solid project pipelines like Neptune Bulk Terminals facility upgrade project and Quebrada Blanca Phase 2 (QB2) copper project. Cost-reduction initiatives, innovation-driven efficiency programs and higher principal product prices will also drive growth. Rising material costs, especially diesel, labor and mining equipment, might dent Teck’s margin.
The company’s shares have gained 30.7% in the past year against the industry’s fall of 20.3%.
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Growth Drivers in Place
Teck is poised to gain from the Neptune Bulk Terminals facility upgrade project, completed during the fourth quarter of 2021. This facility upgrade helps strengthen the performance of the steelmaking coal-supply chain, increases terminal loading capacity and enhances the capability to meet delivery commitments to customers while lowering overall logistic costs. TECK’s steelmaking coal segment will continue to benefit from record steelmaking coal FOB Australia prices, higher CFR China prices and increased mine site steelmaking coal inventories.
The flagship QB2 copper growth project is recovering from the Omicron-led workers’ absenteeism reported earlier. The first copper production from Line 1 is expected in the fourth quarter of 2022. Once completed, QB2 will transform the company’s copper business, making it a major global copper concentrate producer. The project’s next phase will be the Quebrada Blanca Mill Expansion (QBME), increasing concentrator throughput by approximately 50%. The QBME feasibility study, including all environmental baseline activities, is progressing well, with completion targeted in 2023. QBME is expected to significantly contribute to the company’s near-term copper growth portfolio, with the first production targeted for 2026.
Teck continues to expect current-year zinc in concentrate production (including co-product zinc production from the copper business unit) to be 630,000-665,000 tons. The projection calls for an increase from 2021 level of 607,400 tons. Sales of Red Dog zinc in concentrate are expected in between 215,000 and 240,000 tons in the third quarter of 2022, reflecting the normal seasonal pattern of Red Dog sales.
The company's partners of Fort Hills have resumed the second Fort Hills train during fourth-quarter 2021. Due to a planned two-week maintenance outage scheduled over September/October of 2022, the company expects production to decrease to one-train rates during this period. Teck continues to expect its share of Fort Hills’ annual bitumen production will be around 33,000-39,400 barrels per day. The mid-point of the guidance suggests an increase of approximately 85% from 2021 production levels. Bitumen production for 2022 is expected to be between 12 million barrels and 14.4 million barrels, up from 7.3 million barrels produced in 2021.
Teck implemented a company-wide cost reduction program to lower operating costs and deferred some of planned capital projects in bid to counter uncertain economic conditions. The company has no significant debt maturities prior to 2030. Additionally, TECK’s innovation-driven efficiency program — RACE21 is expected to boost productivity across the business.
Teck’s QB2 Copper project is suffering from higher capital costs due to the impact of inflation on labor costs, impacts of the Omicron in the first quarter of 2022 and ongoing inefficiencies due to COVID-19 absenteeism. Due to these factors, this project will likely produce 10,000-11,000 tons of copper in 2022 compared with 11,500 tons of copper produced in 2021. Also, estimated COVID-19-related capital costs of $1.4-$1.5 billion are likely to impact QB2 project’s performance.
Steelmaking coal production for the current year is now expected in the band of 23.5-24.0 million tons, down from prior guidance of 24.5-25.5 million tons. In 2021, the company produced 24.6 million tons of steelmaking coal. Production shortfalls due to plant reliability and workforce challenges experienced in the first half of 2022 are likely to impact current year steelmaking coal production.
The company is bearing the brunt of inflationary cost pressures mainly due to higher diesel prices. Cost of certain key supplies, including mining equipment, fuel, tires and explosives, are also high due to price increases for underlying commodities such as steel, crude oil and natural gas. These factors will continue to put pressure on the company’s margin in the remaining period of the current year.
Zacks Rank & Stocks to Consider
Teck Resources currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks worth considering in the basic materials space include Albemarle Corporation ALB, Daqo New Energy Corp. DQ and Sociedad Quimica y Minera de Chile S.A. SQM.
Albemarle has a projected earnings growth rate of 425.7% for the current year. The Zacks Consensus Estimate for ALB's current-year earnings has been revised 67.9% upward in the past 60 days.
Albemarle’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 24.2%, on average. ALB has gained around 25% in a year and currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Daqo New Energy, currently carrying a Zacks Rank #1, has an expected earnings growth rate of 177.5% for the current year. The Zacks Consensus Estimate for DQ's earnings for the current fiscal has been revised 20.8% upward in the past 60 days.
Daqo New Energy’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, the average being 10.8%. DQ has gained around 22% over a year.
Sociedad has a projected earnings growth rate of 517.6% for the current year. The Zacks Consensus Estimate for SQM’s current-year earnings has been revised 33.4% upward in the past 60 days.
Sociedad’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, the average being 28.2%. SQM has rallied roughly 105% in a year. The company carries a Zacks Rank #2 (Buy).
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