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Teck Resources (TECK) Exits Coal to Focus on Copper, Stock Up
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Shares of Teck Resources Limited (TECK - Free Report) have gained 2% after the company sold its 77% stake in its steelmaking coal business, Elk Valley Resources (“EVR”), to Glencore plc (GLNCY - Free Report) , signaling a full exit from coal. The $7.3 billion proceeds from the sale will be used to pay down debt, return cash to shareholders and invest in growing TECK's copper portfolio.
Background of the Sale
On Nov 13, 2023, Teck Resources announced that it agreed to sell its steelmaking coal business for an implied enterprise value of $9 billion. The majority stake (77%) was to be made to Glencore and 20% to Nippon Steel Corporation. The remaining 3% stake was agreed to be taken up by POSCO (PKX - Free Report) .
Per the agreement, on Jan 3, 2024, Nippon Steel acquired the 20% interest in EVR in exchange for its prior 2.5% interest in Elkview Operations and a payment of $1.3 billion in cash to Teck Resources on closing. Nippon Steel had also agreed to pay $0.4 billion to Teck Resources out of cash flows from EVR. Also, on the same date, Posco exchanged its previous 2.5% interest in Elkview Operations and its 20% interest in the Greenhills joint venture for a 3% stake in EVR.
Allocation of the Proceeds From the Deal
Debt Repayment & Share Buyback: 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 its outstanding public notes. The company also intends to repurchase up to $2 billion of Class B subordinate voting shares.
Grow Copper Portfolio to Ride Energy Transition Trend: 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 the 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.
Price Performance
Shares of Teck Resources have risen 21.9% in the past year compared with the industry's 0.2% growth.
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Zacks Rank & a Stock to Consider
Teck Resources currently carries a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for fiscal 2024 earnings indicates year-over-year growth of 281.6%, CRS beat the consensus estimate in each of the last four quarters, with the average earnings surprise being 15.1%. The company's shares have soared 92.7% in the past year.
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Teck Resources (TECK) Exits Coal to Focus on Copper, Stock Up
Shares of Teck Resources Limited (TECK - Free Report) have gained 2% after the company sold its 77% stake in its steelmaking coal business, Elk Valley Resources (“EVR”), to Glencore plc (GLNCY - Free Report) , signaling a full exit from coal. The $7.3 billion proceeds from the sale will be used to pay down debt, return cash to shareholders and invest in growing TECK's copper portfolio.
Background of the Sale
On Nov 13, 2023, Teck Resources announced that it agreed to sell its steelmaking coal business for an implied enterprise value of $9 billion. The majority stake (77%) was to be made to Glencore and 20% to Nippon Steel Corporation. The remaining 3% stake was agreed to be taken up by POSCO (PKX - Free Report) .
Per the agreement, on Jan 3, 2024, Nippon Steel acquired the 20% interest in EVR in exchange for its prior 2.5% interest in Elkview Operations and a payment of $1.3 billion in cash to Teck Resources on closing. Nippon Steel had also agreed to pay $0.4 billion to Teck Resources out of cash flows from EVR. Also, on the same date, Posco exchanged its previous 2.5% interest in Elkview Operations and its 20% interest in the Greenhills joint venture for a 3% stake in EVR.
Allocation of the Proceeds From the Deal
Debt Repayment & Share Buyback: 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 its outstanding public notes. The company also intends to repurchase up to $2 billion of Class B subordinate voting shares.
Grow Copper Portfolio to Ride Energy Transition Trend: 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 the 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.
Price Performance
Shares of Teck Resources have risen 21.9% in the past year compared with the industry's 0.2% growth.
Zacks Rank & a Stock to Consider
Teck Resources currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the basic materials space is Carpenter Technology Corporation (CRS - Free Report) , which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for fiscal 2024 earnings indicates year-over-year growth of 281.6%, CRS beat the consensus estimate in each of the last four quarters, with the average earnings surprise being 15.1%. The company's shares have soared 92.7% in the past year.