Coal is the Headline but Copper and Oil are the Story

Teck Resources just announced earnings for 2013, coal is the headline number but watch the story in copper in 2014 and oil over the long term.

Feb 20, 2014 at 10:09AM

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. 

Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers