When I first purchased shares of Teck Cominco several years ago, I was targeting a base metal play with a golden kicker. It's a completely different company today, and I no longer hold shares ... but golden prospects remain, even if most gold assets do not.
The rebranded Teck Resources
Teck reported fourth-quarter profit this week of $384 million, rebounding from a prior-year loss that long-term investors would just as soon forget. Notching new company records for both fourth-quarter and full-year revenue, Teck's business is booming. Once its $773 million sale of the Waneta Dam closes in February, Teck will have reduced its net-debt-to-net-debt-plus-equity ratio from prior death-defying levels to a reasonable 26%. The company's financial foundation has been rebuilt, cash flow is pouring in at a rate of more than $650 million (in the last quarter), and the company is poised to reap substantial rewards from the very deal that cost it an arm and a leg.
Even operating at reduced capacity, following the deep paralysis in global trade markets that persisted into early 2009, Elk Valley's production of coveted coking coal raised coal's proportion of Teck's total revenue from 36% in 2008 to 46% in 2009. That proportion, I suspect, is heading higher still for 2010, as the company restores capacity to satisfy the virtually unquenchable demand emanating from China and the Pan-Asian economies.
After producing just 18.9 million tonnes of coal in 2009, Teck is rolling out a boisterous 25% to 30% production increase for 2010 to target 25 million tonnes. That would imply a sizeable revenue surge in a stable price environment, but as I explained last week, the met coal market is sending powerful signals of further pricing strength looming for as far as the eye can see. Far more than mere tidal undulation, the transformations ongoing in the global coal markets represent a sea change that will permanently alter the dynamics of the commodities markets worldwide.
Can you hear me now?
I don't know what more I can do to raise awareness among investors of the opportunities presented by this improved clarity for continuation of the multiyear bull market in commodities. The $60 billion coal export deal inked between a Chinese utility and an Australian mine developer over the weekend offered one of those seminal, watershed events to erase doubts about the sustainability of Pan-Asian coal demand, and yet an empty comments section suggests to me that Fools are perhaps focused on other sectors. Export-ready miners like Teck and Peabody Energy
Monster resource grabs by Chinese entities like CNOOC