Teck Resources (TCK) reported first quarter results and had their quarterly conference call. As a proxy for the industrialization of China, Teck reported their strongest first quarter ever. Teck's position includes strong operating and financial results, a deep suite of growth assets while its largest division looks ahead to a bright 2012.
Fears of a slowdown in China's economic activity have had the materials stocks struggling. Meanwhile Teck's business indicates China will continue to march forward. Strong cash generation from current operations and a healthy balance sheet give Teck the strength to fund the capex on their world class developmental projects.
Leading off Teck's growth portfolio is Relincho, which looks to have the full feasibility study completed in the first quarter of 2013 with production possible in 2017. Earlier this year Teck consolidated their large oil sands resources with meaningful growth expected deep into next decade. However, CEO Don Lindsay spent much time talking about a world class copper project.
Copper prices in 2011 averaged over $4 a pound in 2011, yet the top five copper producing companies, including Freeport McMoran (FCX), each saw their copper output fall. Worldwide copper production is geologically challenged. Mr. Lindsay is excited about their Quebrada Blanca project. It ranks as the 15th largest copper resource in the world and 4th largest undeveloped copper project in the world. Being a large low cost operation in a stable jurisdiction it is the type of asset on which great mining companies are built.
Over the balance of 2012, steel making coking coal may drive strong result for Teck as its largest division. Over the past several quarters, pricing has been under pressure over slowdown fears, yet the tide seems to have changed. From the conference call:
We are seeing increased steel production…the top producers have increased their production 10% in March over February… the first 10 days of steel production in China in April were…at an annualized rate…that's an all-time record.
Benefiting from good weather, Teck produced 6.3 million tones in the first quarter and they are moving towards their target of 28 million tonne annual goal.
Meanwhile, Australian coking coal production has been under pressure. Poor weather and labor problems are hampering BHP Billiton (BHP). In the March quarter their coking coal production was down 14% from the previous quarter. Rio Tinto (RIO) reported weaker than expected coal output in the March quarter too.
Diversified mining companies have lumpy results. The pricing of each commodity varies while weather and the difficult operating conditions provide more randomness to short term results. Teck is in outstanding position. The stock is deep value on overblown China concerns. Current operations are cash cows with the coal business expected to have a banner year and the portfolio of growth is ready to be funded.
Disclosure: I am long TCK.