Coal is the Headline but Copper and Oil are the Story

Canadian miner Teck Resources (NYSE: TCK  ) posted solid 2013 results despite weak commodity markets. That weakness was particularly prominent in the company's metallurgical coal operations. Met coal isn't likely to turn the corner in 2014, which is why you should watch the company's better positioned copper assets this year. Longer term, the expansion into oil holds great promise.

Steel coal troubles
Teck sold a record amount of met coal in 2013, reflecting, "continued demand for our coal products from customers in all market areas." It saw the largest demand growth in Asia, as you might expect. "However, new sources of supply have put downward pressure on coal prices."

That "downward pressure" amounted to a year-over-year price drop of over 20%. The gross profit in the division fell 45%. That is, understandably, an attention grabbing number. And 2014 looks like it will be another year of tough sledding for met coal. For example, first quarter sales contracts are still trending lower because of a, "well-supplied market."

Despite the negative trends, however, Teck was able to post a profit in 2013, unlike met-heavy U.S. counterparts like Alpha Natural Resources (NYSE: ANR  ) and Arch Coal (NYSE: ACI  ) . Both of these miners have been paring production and posting losses. The big culprit has been the price drop in met coal.

Diversification helps
One of the important differences between Alpha, Arch, and Teck is diversification. The only other thing that Alpha and Arch sell is thermal coal, while Teck has notable businesses in zinc and copper, among others. And that diversification is the real story at this Canadian miner.

In 2014, you should pay particularly attention to copper. The company set a new company record for copper production in the fourth quarter. While it expects copper volume to be lower in 2014, mining equipment maker Joy Global (NYSE: JOY  ) believes that copper supply and demand is relatively balanced, making the metal, "the most attractive investment in mined commodities."

Copper was pretty much the only bright spot that Joy could point to when it reported full-year results. That suggests that the equipment maker is going to see another tough year in 2014. However, if copper prices move higher, Teck could see copper revenues overtake coal on the top line. Copper already contributes more to the miner's gross profit.

Fellow copper miner, Southern Copper (NYSE: SCCO  ) , explains why this might come to pass with one word: China. Nearly two thirds of the copper used in the world goes to Asia, with China accounting for 41% of global consumption. Southern Copper expects that to increase to 45% over the next four or five years

What about the long term?
Over the long term, look for a rebound in met to be a big support. But watch Teck's continued diversification efforts, most notably into oil—a commodity that's held up particularly well relative to others. In 2013, the company announced that it was moving forward with its partners on the Fort Hills oil sands project. Impressively, "The mine has an expected life of greater than 50 years."

The nice thing about this expansion is that it is a Canadian oil sands mining operation, which keeps Teck well within its mining comfort zone. That's a far cry from copper mining competitor Freeport-McMoRan Copper & Gold (NYSE: FCX  ) , which bought its way into the oil drilling business last year. That said, Freeport's acquisition was producing oil from day one, and that division now accounts for a quarter of the company's sales. Teck is building from the ground up, and it won't see any oil until the end of 2017.

That's why this is something to watch for the long term. However, the oil sands mine is expected to reach 90% of capacity within a year and produce oil for five decades. So it will quickly add to the top and bottom lines once it's up and running and keep doing so for a long time.

The other story
There's no doubt that met coal is a big story at Teck. However you should look beneath the headlines when analyzing this diversified miner. Copper will be the sector to watch in 2014 and the company's oil plans will be a big issue over the longer term.

If you are looking for more great energy ideas...

Record oil and natural gas production has been revolutionizing the United States' energy position. Some might assume that it's too late to capitalize on investing in companies leading the charge. That couldn't be further from the truth. To find out which three companies are still worth digging deeper into, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Read/Post Comments (1) | Recommend This Article (2)

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 February 22, 2014, at 2:56 PM, Manhar wrote:

    TCK diversification covers copper and little gold and now they are entering in oil. If possible would you cover details of the gold seam that TCK partner is drilling now and also buying of ICO? How long it may take oil production if the deal go through this year? Thanks

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2846297, ~/Articles/ArticleHandler.aspx, 8/23/2014 3:56:36 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement