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Why This Miner's Stock Sank 14% in October

By Reuben Gregg Brewer – Nov 6, 2018 at 9:17AM

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Investors pushed Teck Resources' shares lower after a purchase agreement was canceled and the company reported earnings.

What happened

Shares of Teck Resources Limited (TECK -7.20%) dropped roughly 14% in October, according to data provided by S&P Global Market Intelligence. Most of the decline, however, came after Oct. 22. In fact, between that date and Oct. 29, just eight calendar days and six business days, Teck's stock fell a whopping 20.5%.

So what

The big news on Oct. 22 was that GoldOn had terminated an agreement to purchase the Kir Vit gold project, which is located in Canada near the Ontario-Quebec border. The two companies had only agreed in late August on a deal, so the cancellation was something of a shock.   

A coal miner in a mine

Image source: Getty Images

The up-front value to Teck from selling Kir Vit to GoldOn would have been minimal, at just $200,000, with another $200,000 due on the one-year anniversary of the deal. However, the long-term benefit had the potential to be quite substantial. Along with the cash, Teck would have received a 1% smelter royalty and up to $7 million in milestone payments based on the progress of the project. In addition to these benefits, Teck would have received stock in GoldOn equal to 9.9% of the company's outstanding shares. In other words, Teck would have benefited right along with GoldOn if the project proved successful. It would have been a great way to monetize a non-core asset. 

And then on Oct. 24, Teck announced earnings, highlighting that commodity price declines since the second quarter had resulted in sequentially lower financial results. Year-over-year earnings were lower as well, also driven by weaker commodity prices. This wasn't an unexpected outcome, of course, since commodity price changes in the steelmaking coal, copper, and zinc markets that Teck operates in aren't a secret. But the relatively weak showing certainly didn't help to shift the mood after the GoldOn news.   

Now what

All of that said, Teck's shares finished the month with a small rebound. The stock advanced 13% between Oct. 29 and Nov. 1, largely driven by commodity prices. While the GoldOn news appears to have been the main cause of the stock's late-October swoon, commodity prices are the real long-term driving force at Teck Resources.     

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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