Teck Resources Is a Golden Ticket

With all the fanfare surrounding precious metals and the companies that mine them, it's easy for a base-metal giant like Teck Resources (NYSE: TCK  ) to get lost in the crowd.

Teck used to own a hefty pot of gold, but it gave up the goods to stabilize an acute debt crisis that struck after its costly consolidation of the Elk Valley coal operations. Today, Teck's sole noteworthy gold deposit is a 50% stake in the Galore Creek project with NovaGold Resources (AMEX: NG  ) . Investors may not look to Teck for gold anymore, but what's left behind could be their golden ticket.

Teck Resources grew adjusted earnings by 110% to C$376 million ($365 million U.S.) for the second quarter, while revenue came in ahead of estimates at C$2.1 billion. Undermining the appearance of headline earnings was a C$455 million swing from a C$413 million foreign exchange gain on U.S. dollar-denominated debt a year ago to a C$42 million loss this time around. In recent years, extreme volatility in the currency markets has raised the amplitude of debt-related currency revaluations considerably.

For some time now, I have emphasized Teck's coal operations as the primary driver of a strong operational outlook within an extremely promising sector. Teck's coal sales increased 29% year over year, and production rose 39% at a time when met coal prices remain among the most resilient in the commodities patch. Teck has locked in third-quarter pricing at a highly profitable average of $195 to $200 per tonne, and rival Pacific Rim exporter Peabody Energy (NYSE: BTU  ) noted a 12% sequential increase for the third quarter in the now-quarterly benchmark price for met coal.

Although it is correct to understand met coal as Teck's primary meal ticket, the miner's prolific copper and zinc production serves to remind Fools of the company's 100-year history as a base-metal specialist with a glint of gold. Luckily for Teck, copper has shown relative resilience as well during the recent dip in commodity prices. At an average realized price of $3.18 per pound for the second quarter (50% higher than the year before), Teck's 30% increase in sales volumes chipped in C$499 million in sales (for 24% of consolidated revenue). Teck's operating margin for copper production stood above 40% for the quarter.

Copper superstar Southern Copper (NYSE: SCCO  ) posted strong earnings of its own this week, and expressed confidence in the outlook for copper by revealing that the company has no significant copper hedges in place. Over the longer term, insightful mining equipment manufacturer Joy Global (Nasdaq: JOYG  ) believes that "all copper capacity, including higher cost capacity, will be needed to meet future demand expectations."

Awash in coal, copper, zinc, and a touch of gold, Teck has the goods that never go out of style. Following a 25% pullback over the past few months, I consider the shares attractively priced. Accordingly, I am adding the stock to my silverminer portfolio at Motley Fool CAPS. I invite you to join the free community of Foolish investors to cast your own vote for Teck Resources as well.

Fool contributor Christopher Barker is the commodore of copper and the Colonel Klink of zinc. He can be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He tweets. He owns shares of NovaGold resources and Peabody Energy. The Motley Fool's disclosure policy wears a helmet and a head lamp.


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