Teck Tries Another Buy

Canadian miner Teck Cominco (NYSE: TCK  ) is a cash monster. The commodities boom, which dates back to 2002, has taken Teck's free cash flows from the $200 million range to the $2 billion range in pretty short order. The company ended 2006 with more than $3 billion in net cash, which is remarkable for a miner of its size. Teck's only problem lately has been deploying that cash. Boo-freakin'-hoo, right?

While a miner like Teck will take a boom over a bust any day, this environment presents a conundrum when it comes to boosting reserves. Both exploration and acquisitions become a lot more expensive thanks to the sudden increased competition for resources. The longer one waits, the more expensive it gets to grow, until it gets so late in the cycle that the chance of overpaying is higher than Tommy Chong atop Mount Everest.

Last year, Teck shimmied its way into the big base-metals mating dance with a cash-and-share bid on Inco, a nickel producer roughly equal in size. Companhia Vale do Rio Doce (NYSE: RIO  ) stepped in with an all-cash offer and walked away with that prize. Refusing to get roped into a bidding war, Teck's CEO stated, "There is tremendous value in our shares, and we will be cautious about using our shares."

That's not just blather -- Teck has been extremely sparing in its share issuance over the years, and it announced a significant share buyback earlier this year. But growth, rather than return of capital, is what the company really needs, and it's found another acquisition target it deems worthy.

Teck's recent bid for Toronto-listed copper miner Aur Resources makes sense, given its stated desire to transform its growth profile, though the timing seems less than ideal -- Aur shares were trading for half their present level in early March. Still, they could do a lot worse. Aur brings various stages of producing and undeveloped properties into the fold, which should be worth their weight in copper. Its long-lived Chilean Andacollo mine alone looks set to ramp up copper output severalfold over the next few years.

Teck is paying up a bit for growth, but it seems like the right move if it wants to be able to compete with the likes of CVRD, Southern Copper (NYSE: PCU  ) , and Freeport McMoRan (NYSE: FCX  ) .

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Fool contributor Toby Shute doesn't own shares in any company mentioned. The Motley Fool's disclosure policy has zero tolerance for blather.

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