1 Stock Underperforming the Banks

With major bank stocks striking new lows, it takes a special kind of pain to be outperformed by the likes of Bank of America (NYSE: BAC  ) . With a larger percentage decline over the past year, welcome to the agony of Teck Cominco (NYSE: TCK  ) .

Several readers inquired about the company recently, wondering whether opportunity is concealed by lingering debt concerns. Teck's massive restructuring continues, but a $607 million net loss for the fourth quarter and a credit rating demotion from Moody's to junk grade at Ba3 present challenges that may require more drastic measures to come.

Teck has moved quickly to sell its portfolio of gold assets, but the company's tenuous position has provided little leverage in the pricing of those sales. Kinross Gold (NYSE: KGC  ) walked away with the Lobo-Marte project in Chile, acquiring both Teck Cominco's and Anglo American’s (Nasdaq: AAUK  ) stakes for a mere $42 per ounce of gold in reserves. Barrick Gold (NYSE: ABX  ) scored a sweeter deal yet, acquiring full ownership of the Hemlo Mines joint venture with Teck Cominco for a mere $65 million. Particularly in the context of gold's favorable outlook, acquiring a working gold mine for just over $100 per ounce of gold in the ground is truly remarkable for Barrick. Buenaventura (NYSE: BVN  ) picked up Teck's stake in the El Brocal base-metal venture for an easy $35 million.

Unlike some of the more questionable deals within the banking sector, Teck could scarcely have imagined the events that turned an exciting acquisition into a recurring nightmare. Unfortunately, as alternatives fade, Teck may be forced to sell a stake in the very same asset which the company sacrificed its fiscal health to acquire: the Elk Valley Coal project. Although painful to consider, such a move could be Teck's only means of survival.

So far, asset sales have offered little progress against the $9.4 billion in remaining debt. Highlighting the degree of pessimism built into the present share price, though, Teck's cash stash of $1.4 billion amounts to more than 92% of the company's entire market capitalization. Like the ravaged bank stocks, Teck Cominco is being priced for failure. As long as the credit markets remain impaired, this Fool is in no position to second-guess that prevailing sentiment, and views any move into Teck Cominco at this juncture as extremely speculative.

Further Foolishness:

Over at CAPS, more than 1,100 members have rated five-star pick Teck Cominco an outperform. Whether you think Teck will succeed or fail at repaying this debt, please come share your thoughts and counsel with our community of investors. CAPS is free and fun!

Fool contributor Christopher Barker is the commodore of copper and the Colonel Klink of zinc. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Anglo American, Buenaventura, Kinross Gold, and Teck Cominco. The Motley Fool has a disclosure policy.


Read/Post Comments (11) | Recommend This Article (29)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 03, 2009, at 4:39 PM, Seano67 wrote:

    Yeah. As you noted, these are extraordinarily difficult times for Teck Cominco. They find themselves in the terribly unfortunate position of having no choice but to sell off productive assets to their competitors for literally pennies on the dollar, simply in an effort to try and keep their heads above water. So they're weakening themselves, strengthening their competitors, and the real kicker is that this is barely even making an impact on the massive over-leveraging that landed themselves in this position to begin with.

    I feel kind of badly for them, I mean talk about your classic double whammy, no-win situation. It's like a punch to the gut. But they are far, far from the only company struggling with a burdensome debt problem at a time when credit lines are becoming more and more difficult to come by.

    Debt is the great destroyer in this type of economic environment, and Teck is buried in it.

  • Report this Comment On March 03, 2009, at 4:51 PM, njbrown113 wrote:

    Ive got alot of money invested in this company, I bought 30,000 shares at $4, I did my research and thought this would be a good buy, I am now second guessing myself big time. I reach out to the community for advice on this one, I dont mind taking a loss, What are some target prices that you think it might hit. Im comfortable with sellng at $3.50 but do you guys even think it will get back there. I see some runs here and there like last week, when it hit $4, but then has tanked again. Please, feel free to help me out on this one, should I hold it for a few more months and see what commodity prices do, or should I get out now and take a 26% loss. I would greatly appreciate all advice that is given, Thanks so much fellow fools.

  • Report this Comment On March 03, 2009, at 5:08 PM, njbrown113 wrote:

    ......any ideas?

  • Report this Comment On March 03, 2009, at 5:16 PM, Seano67 wrote:

    njbrown, I'd ask the advice of the author of this article, TMFSinchiruna. I don't know anyone that's more knowledgeable on the mining sector than he is, so if there's anyone out there that has an answer for you, it would probably be him.

    Good luck. I hope your investment works out for you.

  • Report this Comment On March 03, 2009, at 5:23 PM, foolsfool811 wrote:

    Its crazy but a month ago I came across a similar article from this exact website which suggested Teck Cominco was a traders dream and that it was the way to make fortunes.. suffice to say I bought it at $ 5.32.. Now I know why they call it The Motley Fool..Never again

  • Report this Comment On March 03, 2009, at 5:31 PM, Seano67 wrote:

    "Its crazy but a month ago I came across a similar article from this exact website which suggested Teck Cominco was a traders dream and that it was the way to make fortunes.. suffice to say I bought it at $ 5.32.. Now I know why they call it The Motley Fool..Never again"

    Well, just consider yourself fortunate you didn't buy into Allied Irish Banks and Satyam back when the Fool was promoting them relentlessly. ;)

    They've had some very big whiffs with some of their picks, but so has everyone really. I don't know that any stock investment advice service out there truly saw the depth and breadth of the crash that was upcoming, or just how thin the ice was beneath some of these companies they were promoting.

  • Report this Comment On March 03, 2009, at 6:07 PM, XMFSinchiruna wrote:

    Seano67

    I feel badly for them too. This a very well-established and storied metals miner that simply made an ill-timed bet right before the world changed virtually overnight. I originally bought in the $30s in part because of the gold exposure, so it's particularly painful to watch the gold fly out the window for a song.

    njbrown

    I can not offer advice on specific trades, so I will defer you to the CAPS blogs or the discussion boards. If you're already a CAPS member, I suggest you go and post the very same question to the community of your fellow Fools using the blogs. No matter how you slice it, yours could be a difficult question to answer, but a number of varying viewpoints could prove useful.

    Here's what I can say:

    Take a close look at the Galore Creek project with NovaGold. I found it very interesting that Teck recently agreed to foot the bill for the project over the near-term. I'll let you make your own interpretations of that news, but I saw glimmers of a company that is perhaps looking farther afield than this calendar year.

    Teck also indicated that they have seen evidence of significant interest from potential buyers of a stake in the Elk Valley project. While it's unappetizing to say the least, selling a stake in the former Fording assets could certainly help alleviate a chunk of the company's debt crisis.

    If Teck were to survive, it would remain but a pale reflection of its former self, but priced near the cash balance I see shares priced for failure... so upside would be a given. I feel no sense of certainty about either outcome for Teck, so I'm afraid I'm not of much help in this case.

    So much depends upon what happens to demand, and prices, for copper and coal. Those factors in turn depend heavily, in my personal opinion, upon the impacts of China's stimulus spending and stabilization of industrial growth there from principally internal demand.

    foolsfool811,

    If you'd like to post a link to the Motley Fool article in question, let's discuss its content. The beauty of The Motley Fool is that we learn together as a community by weighing multiple viewpoints in a friendly and open-minded atmosphere. Again, as one who still holds some Teck shares that I picked up in the $30s before the huge collapse... I certainly share your sense of frustration.

  • Report this Comment On March 03, 2009, at 10:47 PM, mjonesy1985 wrote:

    njbrown......I would just hold onto them for the long run. Everything is up down right now making it tough to sell anything. Wait for the markets to stabalise and then you will be able to sell your TCK shares for a lot more than $3.50. I am a shareholder of thi company too and I am not selling any time soon. Good things come to those who wait.

  • Report this Comment On March 04, 2009, at 10:17 AM, njbrown113 wrote:

    Thanks for the advice guys

  • Report this Comment On March 04, 2009, at 2:37 PM, X3 wrote:

    Re:TCK comments on Tue, 3, 09. Your info/facts are missleading, and your researcher are not to be trustedespecially when it come to #s.

    X3

  • Report this Comment On March 11, 2009, at 3:30 AM, swissrobinson wrote:

    Bill Cara (caracommunity.com) has respected TCK for a long time. He's just talked with management, is going over the numerous analyst reports on Teck but at this stage he thinks the debt is doable. Don't be too hasty to sell yet and keep an eye on his website for an update on them.

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