Why Teck Earnings Won't Look Golden This Quarter

Teck Resources (NYSE: TCK  ) will release its quarterly report on Thursday, and after big plunges in precious and base metals prices, shareholders are bracing themselves for the worst. For investors with a longer-term perspective, though, the more important issue is whether the plunge in Teck earnings will prove to be a temporary drop that presents a smart buying opportunity for the stock.

Teck Resources produces a wide variety of different metals, ranging from copper, coal, and zinc to silver, lead, and molybdenum. But it also has its fingers in the gold mining industry with projects that have substantial potential for gold production in the long run. Let's take an early look at what's been happening with Teck Resources over the past quarter and what we're likely to see in its quarterly report.

Stats on Teck Resources

Analyst EPS Estimate

$0.32

Change From Year-Ago EPS

(40%)

Revenue Estimate

$2.08 billion

Change From Year-Ago Revenue

(18.6%)

Earnings Beats in Past Four Quarters

2

Source: Yahoo! Finance.

Can Teck earnings hold up this quarter?
Deteriorating conditions in the metals markets have led analysts to pull back on their views on Teck earnings during the past few months, cutting 20% from their June-quarter estimates and reducing full-year 2013 and 2014 expectations by 15%-25%. The stock has largely stabilized after its bigger losses from earlier in the year, but shares are still down another 4% since mid-April.

Teck's woes have been going on for a while, especially given weak conditions in the metallurgical coal market that have persisted for years. Its first-quarter report showed weakness that's consistent with what we've seen from Cliffs Natural Resources (NYSE: CLF  ) , which also specializes in steelmaking materials like met coal and iron ore and has suffered the worst performance in the S&P 500 so far this year due to poor industry conditions. Yet even Teck's copper exposure didn't help it, as delays in its Chilean Quebrada Blanca copper-expansion project related to assessments of social and environmental impact will push back long-term plans for greater copper production.

But that hasn't stopped Teck from making moves to try to boost its prospects. In June, the company made an asset exchange with Royal Dutch Shell (NYSE: RDS-A  ) (NYSE: RDS-B  ) unit Shell Canada in the oil sands region of northeastern Alberta, trading blocks that it expects to boost Teck's project resources estimates and resolving some objections that Teck had with Shell's regulatory application for its projects in the area. Teck also made a minor purchase last month, paying C$2.4 million to sustain its 42.5% stake in Horizonte Minerals following a private placement of new Horizonte shares.

For investors, Teck scored a major victory by getting regulatory approval to renew its share buyback program. With the right to buy as many as 20 million shares, Teck will be able to take advantage of the cheap stock and provide some support to its flagging share price.

In the Teck earnings report, watch for the company to comment on its most recent joint venture with Copper Fox in which Teck committed $60 million to take a 75% stake in the Schaft Creek copper and gold exploration property. Such moves only increase the potential payoff for success, but they also reveal the risks that Teck and its mining peers are willing to take to survive in tough industry conditions.

For more gold-focused companies, the big question is whether gold's big declines are a value opportunity or a warning to get out of the yellow metal before further drops come. The Motley Fool's new free report, "The Best Way to Play Gold Right Now", dissects the recent volatility and provides a guide for gold investing. Click here to read the full report today!

Click here to add Teck Resources to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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