Teck Resources Takes a Nosedive

If your computer starts acting strangely, you probably know whom to call. But when a promising miner takes an 8% nosedive, you come to The Motley Fool for Teck support.

Teck Resources (NYSE: TCK  ) delivered a solid 76% surge in adjusted net earnings for the fourth quarter of 2010. In Canadian dollars, it reached C$548 million on record revenue of C$2.8 billion. Cash flow from operations reached a staggering C$2.7 billion through the full year of 2010, which permitted the company to reduce its formerly troublesome debt burden by another C$3.1 billion.

Those pining for growth will find it here. Teck expanded met coal production by 22%, yielding 23.1 million tons during a year in which realized prices rose 15% to $181 per ton. As this Fool has reported, recent supply disruptions have exacerbated an already increasing tightness of physical supply in Pacific seaborne met-coal trade, and recent pricing of first-quarter production at more than $200 per ton suggests that coal operating margins are poised to expand handsomely from the 39% margin recorded for 2010.

An ongoing strike at Teck's Elkview mining complex could threaten a portion of the company's current 2011 guidance of 24.5 million to 25.5 million tons. That could conceivably permit eastern rival Alpha Natural Resources (NYSE: ANR  ) to surpass Teck's met-coal volume, if the former's integration of Massey Energy's (NYSE: MEE  ) assets proceeds smoothly. Alpha is targeting pro forma met production of 24 million to 26 million tons.

With Teck's coal fetching a cozy $63-per-ton premium over Alpha's product, however, Teck's outlook for met-coal profitability remains virtually peerless. With the Australian operations of BHP Billiton (NYSE: BHP  ) and others still digging themselves out of major flood-related disruptions, I believe Teck's competitive position in this market has never looked stronger.

Although Teck's copper production grew by only 1.6% in 2010, a 49% operating margin converted that unit's 28% share of consolidated revenue into a delectable 36% share of the miner's operating profit. As hot has the met-coal market has become, copper remains Teck's most efficient source of profit.

Fortunately, that's where the lion's share of Teck's future production capacity resides. Teck envisions a 12% increase to 350,000 tons for 2011, with a further expansion to 400,000 tons by 2012. Thereafter, a series of exciting development projects like Quebrada Blanca II and the Galore Creek joint venture with NovaGold Resources (AMEX: NG  ) typify the attractive state of Teck's long-term pipeline.

Considering Teck's 20% stake in the Fort Hills oil sands project -- which operator Suncor (NYSE: SU  ) intends to complete by 2016 -- and a feel-good 88MW wind farm project in Alberta that will deploy 55 General Electric turbines, I believe that any careful evaluation of Teck Resources will reveal a unique gem of immutable growth opportunities across a set of key commodities with bullish long-term fundamentals.

I have no interest in rationalizing the market's sell-off of Teck shares in the wake of fourth-quarter earnings. To the contrary, I welcome the opportunity to initiate a position without chasing this stock skyward. I'm once again 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, and I welcome your comments below.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of NovaGold Resources. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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