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Teck (TECK) Rides on Solid Project Pipeline & Cost Cuts

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 program, higher principal products prices, primarily steelmaking coal will also drive growth. Rising material costs, especially for diesel, labor and mining equipment, might dent Teck’s margin.

Q3 Earnings & sales Top Estimates: Teck reported adjusted earnings of $1.49 per share in the third quarter, beating the Zacks Consensus Estimate of $1.07. The bottom line also improved from the prior-year quarter’s earnings of 18 cents per share, driven by higher prices of its principal products, most significantly, steelmaking coal. Net sales of $3,153 million surpassed the Zacks Consensus Estimate of $2,744 million and increased 83% year over year.

The company has a trailing four-quarter earnings surprise of 17.4%, on average.

Price Performance

The company’s shares have soared 83.1% in the past year compared with the industry’s growth of 19.4%.

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Growth Drivers in Place

Teck is poised to gain from the Neptune Bulk Terminals facility upgrade project. The project was ramping up to full capacity during the quarter, which helps strengthen the performance of the steelmaking coal-supply chain, increases terminal loading capacity and enhances capability to meet delivery commitments to customers, while lowering overall logistic costs.  The company projects fourth-quarter steelmaking coal sales in the band of 6.4-6.8 million tons. The record increase in FOB Australia steelmaking coal prices, CFR China prices and a strong demand from steelmakers will support the segment in the fourth quarter. The company targets 7.5 million tons steelmaking coal sales to China by the end of this year.

The progression of flagship QB2 copper growth project crossed the two-third mark in the third quarter of 2021, despite the COVID-19 impact in Chile. The first production is expected in the second half of 2022. Once completed, QB2 will transform the company’s copper business, making it a major global copper producer. Copper production for the current year is expected in the range of 275,000-290,000 tons. The company produced 275.7 thousand tons of copper in 2020. Also, copper production from Highland Valley Copper (HVC) and Antamina is expected to improve from 2020 levels.

Teck continues to expect current-year zinc in concentrate production (including co-product zinc production from the copper business unit) to be 605,000-630,000 tons. The projection calls for an increase from 2020 level of 587,000 tons. Though the company faced shipping shortages in the third quarter, management expects to ship all Red Dog zinc concentrates during the current shipping season.

Teck has implemented a cost-reduction program to lower its operating costs and deferred some of the planned capital projects to counter the uncertain economic conditions. It continues to implement its innovation-driven efficiency program — RACE21 — that is expected to boost productivity across the business.

The company projects steelmaking coal production to be at the lower end of its current-year guidance of 25-26 million tons, as impacts from wildfire incident in the third quarter are not expected to be fully recovered by the end of this year. Refined zinc production from trail operations is expected to be between 285,000 tons and 290,000 tons for 2021. The projection suggests a decline from 2020 production of 305,000 tons, which is likely to be caused by the impacts of the wildfire incident.

Teck is bearing the brunt of inflationary cost pressures, particularly in diesel prices, supplies and labor costs. Costs for mining equipment, fuel, tires and explosives are also high due to price increases for certain commodities like steel, crude oil and natural gas. These factors are likely 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 in the basic materials space are Olin Corporation OLN, Nucor Corporation NUE and Bunge Limited BG. All these stocks currently flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Olin has an expected earnings growth rate of around 740% for the current fiscal year. The company’s shares have surged 229% in the past year.

Nucor has a projected earnings growth rate of around 583% for 2021. The company’s shares have soared 128% in a year’s time.

Bunge has an estimated earnings growth rate of around 26% for the current year. The company’s shares have appreciated 60% in the past year.

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