Teck Resources Limited, Set For Further Success In Q4

Teck Resources Ltd TECK, the diversified mining, smelting, and refining company based in Canada, had a stellar, record-breaking third quarter as it capitalized on the increasing global commodity prices. According to predictions, the firm is on the right way to overtaking the stellar results heading into Q4.

Don Lindsay, chief executive of Teck Resources, said in a conference call with analysts: “It was a record quarter, but it will likely be exceeded by Q4… If you look at the pricing we’ve experienced in October, it’s higher than it was in September, right across the board.”

Keys To Success

The economic rebound triggered by ceasing Covid restrictions and successful vaccination rollouts around the world sent commodity prices to sky-high levels.   

This means that, in the third quarter, Teck resources could increase the price of its key products, especially steelmaking coal, which jumped to $237 per ton, significantly up from $102 in the same period of 2020. 

Further, the company’s realized zinc price went up from $1.05 a pound to $1.36, as the realized copper price reached $4.28 per pound.

Regarding such results, Lindsay said: “This is a very exciting time for our industry and for Teck in particular. There are opportunities ahead with global growth and the transition to a lower-carbon economy will drive new copper metal demand. And in the near term, given the current commodity outlook, we have the ability to generate significant EBITDA and free cash flow.”

Quebrada Blanca 

Adjusted earnings per share were $1.88 above the RBC estimate of $1.42 and consensus of $1.46, while adjusted EBITDA hit $2,096 million above the estimated $1,899 million and consensus of $1,768 million. “The stronger financial results were driven by a higher realized coal price, and higher copper and zinc sales,” the firm asserts.

Further, according to an analysis by RBC Capital Markets, Teck reiterated its 2021 guidance and noted that the construction of the Quebrada Blanca Stage 2 (QB2) mine in Chile remains on track with first production expected in the first half of 2022. 

Still, due to challenges at the port and tailings facility, the company expects to increase QB2 CAPEX guidance by up to 5% with Q4 results “and could see its Covid-related cost guidance be increased as well.”

According to circulating information, Teck expects to provide updated CAPEX guidance for QB2 with Q4 results in February, and it expects its CAPEX costs to jump 5% above the current $5.26 billion estimate, due to challenges at the port and tailings facility. 

Inflationary Pressures

“The company also noted its Covid-related costs of $600 million could be higher. We currently estimate $6.0 billion in CAPEX for QB2 including Covid costs vs. the current 5% inflated CAPEX number plus Covid-related costs of $6.1 billion,” RBC Capital Markets states in the report. 

Although QB2 remains the company’s cash cow and main project, Teck pointed to cost burdens given the soaring diesel prices, and ensuing issues with supplies and labor that are affecting the supply chain.

“We don’t know how it’s going to evolve. Obviously, there’s supply disruptions in the global economy all over the place. And so we want to make sure that we flagged that... We’re going to hit with it, too,” Lindsay said.

The RBC report states that, While Teck reiterated its guidance, the company noted it expects inflationary pressures to impact Q4 and 2022 operating costs and expects its coal site costs and transportation costs to be at or above the higher end of the range for this year.

“Teck's total liquidity as of October 26, 2021 is $5.4 billion including $0.4 billion in cash as of the end of Q3.”

Disclosure: No positions in any companies mentioned