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How Teck Resources Could Bounce Back From Gold's Plunge

By Dan Caplinger - Apr 20, 2013 at 2:40PM

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The miner faces many of the same problems that the entire industry is dealing with right now.

On Tuesday, Teck Resources (TECK 2.42%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

This past week, gold prices plunged, sending mining stocks throughout the industry into a free-fall. Even though Teck Resources primarily mines coal and industrial metals like copper, lead, molybdenum, and zinc, its stock has dropped as investors question whether demand for commodities will survive slowing growth rates in former hotbeds of economic strength. 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

$0.37

Change From Year-Ago EPS

(57%)

Revenue Estimate

$2.23 billion

Change From Year-Ago Revenue

(12.6%)

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Why Teck Resources has dropped so far
In recent months, analysts have gotten a lot less excited about Teck Resources and its earnings prospects, slashing estimates for the just-ended quarter by more than a dime per share and knocking more than $0.50 off their earnings-per-share consensus for the full 2013 year. The stock has shared in that pain, dropping 35% since mid-January.

As much as gold's plunge brought mining companies into the spotlight, Teck has been struggling for a lot longer than the past week. Weakness in steel production was largely responsible for hammering shares of metallurgical-coal rival Cliffs Natural Resources (CLF 4.73%) last quarter, which had to take a massive dividend cut in light of poor demand and rock-bottom prices for its coal and iron ore. Slower growth in overseas construction and infrastructure activity has also sent copper prices downward, adding to Teck's coal woes and leaving it with few short-term bright spots.

Moreover, Teck has had to deal with cost challenges with its mining properties. The miner could face $600 million in capital expenditures to resolve issues with selenium contamination at its Elk Valley coal mines, with a substantial increase in annual operating costs adding further pressure to long-term margins. Meanwhile, Teck's joint venture with NovaGold (NG 0.70%) at Galore Creek has promising prospects for copper, gold, and silver production. Yet NovaGold has been looking to sell off its interest there in favor of its other mining opportunities, and high production costs threaten Galore Creek's economic viability, especially with metals prices tumbling.

In Teck's quarterly report, watch for how the company responds to its having received a management plan order from the British Columbia Ministry of Environment on Elk Valley earlier this week. The key for the company will be to keep its permitting activities on other projects moving forward even as the environmental plan takes shape. Otherwise, Teck could face yet more disruptions in its attempt to outlast the downturn in commodities.

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Stocks Mentioned

Teck Resources Limited Stock Quote
Teck Resources Limited
TECK
$43.21 (2.42%) $1.02
Cliffs Natural Resources Inc. Stock Quote
Cliffs Natural Resources Inc.
CLF
$24.57 (4.73%) $1.11
NovaGold Resources Inc. Stock Quote
NovaGold Resources Inc.
NG
$5.76 (0.70%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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