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In a world in which previous assumptions about risk and reward have been absolutely shattered, and most investors are nursing financial wounds, the natural reaction is to adapt by paring perceptible risks.
In early March, Teck Cominco (NYSE: TCK ) was priced for failure, trading just above the value of cash holdings despite an impressive portfolio of resource assets featuring copper and coal. As shares plunged to their worst levels below $3, I encountered both long-term investors and speculators at a crossroads, trying to decide, like Kenny Rogers, whether to hold them or fold them.
Those who held on have been rewarded handsomely, most recently with a triple whammy of reworked terms for repayment of debt, passable earnings results, and Canada's own adoption of quantitative easing as fiscal stimulus. Shares gained more than 30% Tuesday, good for nearly a four-bagger from the recent 52-week low. The renegotiated debt terms provided the greatest cause for optimism, deferring $4.4 billion of the $6.3 billion that had been due during 2009. With a cash position of $1.6 billion, positive cash flow from all major operations, and strong pricing contracts for a big chunk of 2009 coal sales, Teck is certainly less of a wreck.
Teck's risk profile has improved materially with these developments, but let's refrain from calling this near-four-bagger a home run just yet. Fresh revelations from coal miners like Peabody Energy (NYSE: BTU ) and Cliffs Natural Resources (NYSE: CLF ) suggest some real persistence to the depressed North American demand for coking coal. Results from railroad operators like CSX (NYSE: CSX ) and Canadian National Railway (NYSE: CNI ) are confirming that weakness. While my long-term outlook for copper remains decidedly bullish, I expect near-term price volatility as global supply and demand continue to seek a clearer balance.
Teck will continue to pursue asset sales, including remaining gold projects and a stake in the same Elk Valley coal project that created this debt in the first place. Interestingly, the company revealed less interest than I anticipated in unloading its stake in the Fort Hills oil sands joint venture with Petro-Canada (NYSE: PCZ ) .
Like similarly challenged DryShips (Nasdaq: DRYS ) , risk has yielded reward for these two commodity plays as failure may have been averted. A play on either company at their worst levels required a speculative zeal that I do not possess, and I continue to advocate better positioned competitors in each of their respective sectors.