Teck’s coal mines cash-flow positive despite world-wide glut

If there’s one thing Teck Resources Ltd. (TCK.B–TSX) knows how to do, it’s how to tread water.

That’s what Jorge Beristain, Wilfredo Ortiz and Jeremy Kliewer might tell you. They’re analysts with Deutsche Bank Markets Research in New York.

And they note that despite a worldwide glut of metallurgical coal, Teck, which mines that commodity, is continuing to look at ways of cutting costs until inventories shrink.

Mr. Beristain and his colleagues also note that Teck is trying to make its capital expenditures go farther at its six coal-mining sites.

The analysts note as well that should demand for metallurgical coal pick up, the company’s production could eventually hit 40 million tonnes.

Meanwhile, Teck continues to forecast fiscal ’14 coal output of 26-27 million tonnes. Moreover, all six of its coal mines remain cash flow-positive.

And given current spot coal prices of US$110 a tonne, Teck is clearing $20 a tonne of EBITDA (earnings before interest, taxes, depreciation and amortization), the analysts note.

Given the glut of coal on the market, it’s perhaps not surprising that Mr. Beristain and his colleagues are taking a wait-and-see approach to Teck.

They’re keeping the Vancouver-based mining giant on “hold”, while sticking with their 12-month price target of $25 a share.

Most of our market watchers this month were more charitable toward Teck than the folks at Deutsche Bank. Of the 14 analysts we polled, 10 rated Teck a “buy” and only four, a “hold”, putting the company in fifth place in our list of top-10 buys.

Besides coal, Teck mines copper, zinc and lead. It’s also involved in exploiting heavy oil in the Alberta tar sands. In addition to Canada, the company has operations in South America.

For the three months ended June 30, Teck’s net income fell to $80 million or $0.13 a share, from $143 million, or $0.34 a share, for the similar period in 2015.

Revenue was also lower, sliding to $2 billion from $2.2 billion, while gross profit tumbled to $295 million from $582 million. Cash flow, meanwhile, fell 36.8 per cent to $436 million.



Investor’s Digest of  Canada, MPL Communications Inc.
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