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Teck Resources (TECK) Closes Sale of Its Steelmaking Coal Unit
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Teck Resources Limited (TECK - Free Report) has secured all necessary approvals for the sale of its remaining 77% stake in its steelmaking coal business, Elk Valley Resources (“EVR”), to Glencore plc (GLNCY - Free Report) . The transaction is set to close on Jul 11, 2024, and will yield total cash proceeds of $6.9 billion (CAD $9.5 billion). The proceeds will be used to lower debt while returning cash to shareholders. This move should help the company expand its extensive copper portfolio and capitalize on the energy transition trend.
On Nov 13, 2023, Teck Resources announced that it has agreed to sell its entire stake in its steelmaking coal business for an implied enterprise value of $9 billion. The majority of the sale (77%) was to be made to Glencore and 20% to Nippon Steel Corporation, which completed the acquisition of the 20% interest in EVR on Jan 3, 2024, with a payment of $1.3 billion in cash to TECK.
POSCO (PKX - Free Report) has taken up the remaining 3% interest in EVR. This was in exchange for Posco’s current 2.5% interest in Elkview Operations and its 20% interest in the Greenhills joint venture.
Proceeds to be Used in Debt Repayment, Share Buy Back & Copper Investment
From the sale proceeds, TECK will set aside $2 billion toward a debt reduction program. This includes the cash tender offer to purchase the $1.25 billion aggregate principal amount of Teck Resources’ outstanding public notes.
The company also intends to repurchase up to $2 billion of Class B subordinate voting shares.
Teck Resources is a significant copper producer in the Americas, with four operating mines in Canada, Chile and Peru, and copper development projects in North and South America. Its main projects are Highland Valley Copper in Canada, and Quebrada Blanca (‘QB’) and Carmen de Andacollo in Chile. The company also has an interest in Antamina copper/zinc mine in Peru. With the ramp-up of QB this year, TECK expects to double its annual copper production to approximately 600,000 tons.
For the long term, Teck Resources has a pipeline of brownfield and greenfield development options, including the Galore Creek project in B.C. and the potential expansion of Trail Operations to include an electric vehicle battery recycling facility.
Teck Resources plans to use the balance of its proceeds from the sale of the steelmaking unit to advance its copper projects including the Highland Valley Copper Mine Life Extension, Zafranal Project, San Nicolas Project and QB debottlenecking. The current estimated capital cost attributable to the company for these projects is in the range of $3.3-$3.6 billion. With this funding, it expects to increase copper production by 30% by 2028.
The long-term outlook for copper is positive as demand for the metal is expected to grow, driven by electric vehicles, renewable energy and infrastructure investments. Yet, the fate of this metal’s supply remains uncertain and challenging, given the declining ore grades and the lack of major discoveries. Miners are, thus, focusing on increasing their exposure to future-facing commodities, such as copper and nickel, which are the key components for the green energy transition.
Preliminary Update on Q2
Teck Resources also provided unaudited second-quarter 2024 steelmaking coal sales volumes and realized prices. Steelmaking coal sales were 6.4 million tons, near the high end of the guided range of 6.0-6.4 million tons. Sales improved 10.3% year over year and were 7% higher sequentially.
The realized steelmaking coal price averaged $237 per ton, lower than $264 in the year-ago quarter and $297 in the first quarter of 2024. The company expects to report a negative provisional pricing adjustment of $50 million in the second quarter.
TECK is slated to report second-quarter 2024 results on Jul 24, 2024. The Zacks Consensus Estimate for the quarter’s earnings is 47 cents per share, indicating a year-over-year decline of 48%. The estimate for revenues is pinned at $2.93 billion, which indicates a year-over-year increase of 11.88%.
Price Performance
Shares of Teck Resources have risen 23% in the past year compared with the industry's 2.4% growth.
Image Source: Zacks Investment Research
Zacks Rank & A Stock to Consider
Teck Resources currently carries a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for Ero Copper’s 2024 earnings is pegged at $1.66 per share. The consensus estimate for 2024 earnings has moved 20.3% north in the past 60 days. ERO has a trailing four-quarter average earnings surprise of 53.9%. Its shares have risen 14.9% in a year.
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Teck Resources (TECK) Closes Sale of Its Steelmaking Coal Unit
Teck Resources Limited (TECK - Free Report) has secured all necessary approvals for the sale of its remaining 77% stake in its steelmaking coal business, Elk Valley Resources (“EVR”), to Glencore plc (GLNCY - Free Report) . The transaction is set to close on Jul 11, 2024, and will yield total cash proceeds of $6.9 billion (CAD $9.5 billion). The proceeds will be used to lower debt while returning cash to shareholders. This move should help the company expand its extensive copper portfolio and capitalize on the energy transition trend.
On Nov 13, 2023, Teck Resources announced that it has agreed to sell its entire stake in its steelmaking coal business for an implied enterprise value of $9 billion. The majority of the sale (77%) was to be made to Glencore and 20% to Nippon Steel Corporation, which completed the acquisition of the 20% interest in EVR on Jan 3, 2024, with a payment of $1.3 billion in cash to TECK.
POSCO (PKX - Free Report) has taken up the remaining 3% interest in EVR. This was in exchange for Posco’s current 2.5% interest in Elkview Operations and its 20% interest in the Greenhills joint venture.
Proceeds to be Used in Debt Repayment, Share Buy Back & Copper Investment
From the sale proceeds, TECK will set aside $2 billion toward a debt reduction program. This includes the cash tender offer to purchase the $1.25 billion aggregate principal amount of Teck Resources’ outstanding public notes.
The company also intends to repurchase up to $2 billion of Class B subordinate voting shares.
Teck Resources is a significant copper producer in the Americas, with four operating mines in Canada, Chile and Peru, and copper development projects in North and South America. Its main projects are Highland Valley Copper in Canada, and Quebrada Blanca (‘QB’) and Carmen de Andacollo in Chile. The company also has an interest in Antamina copper/zinc mine in Peru. With the ramp-up of QB this year, TECK expects to double its annual copper production to approximately 600,000 tons.
For the long term, Teck Resources has a pipeline of brownfield and greenfield development options, including the Galore Creek project in B.C. and the potential expansion of Trail Operations to include an electric vehicle battery recycling facility.
Teck Resources plans to use the balance of its proceeds from the sale of the steelmaking unit to advance its copper projects including the Highland Valley Copper Mine Life Extension, Zafranal Project, San Nicolas Project and QB debottlenecking. The current estimated capital cost attributable to the company for these projects is in the range of $3.3-$3.6 billion. With this funding, it expects to increase copper production by 30% by 2028.
The long-term outlook for copper is positive as demand for the metal is expected to grow, driven by electric vehicles, renewable energy and infrastructure investments. Yet, the fate of this metal’s supply remains uncertain and challenging, given the declining ore grades and the lack of major discoveries. Miners are, thus, focusing on increasing their exposure to future-facing commodities, such as copper and nickel, which are the key components for the green energy transition.
Preliminary Update on Q2
Teck Resources also provided unaudited second-quarter 2024 steelmaking coal sales volumes and realized prices. Steelmaking coal sales were 6.4 million tons, near the high end of the guided range of 6.0-6.4 million tons. Sales improved 10.3% year over year and were 7% higher sequentially.
The realized steelmaking coal price averaged $237 per ton, lower than $264 in the year-ago quarter and $297 in the first quarter of 2024. The company expects to report a negative provisional pricing adjustment of $50 million in the second quarter.
TECK is slated to report second-quarter 2024 results on Jul 24, 2024. The Zacks Consensus Estimate for the quarter’s earnings is 47 cents per share, indicating a year-over-year decline of 48%. The estimate for revenues is pinned at $2.93 billion, which indicates a year-over-year increase of 11.88%.
Price Performance
Shares of Teck Resources have risen 23% in the past year compared with the industry's 2.4% growth.
Image Source: Zacks Investment Research
Zacks Rank & A Stock to Consider
Teck Resources currently carries a Zacks Rank #3 (Hold).
A better-ranked stock from the basic materials space is Ero Copper Corp. (ERO - Free Report) , which sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ero Copper’s 2024 earnings is pegged at $1.66 per share. The consensus estimate for 2024 earnings has moved 20.3% north in the past 60 days. ERO has a trailing four-quarter average earnings surprise of 53.9%. Its shares have risen 14.9% in a year.