Vox Rationalis

Asset Sales May Weaken Teck Cominco - BMO

Interesting. Consider:

Teck is trading at roughly 1/4 book value. Granted, book value has not fallen as much as it should to reflect current market conditions.

Teck is trading at a forward PE of less than 1.5. Granted, these estimates are likely to come down somewhat, but the company has contracts in place that should provide some stability in earnings.

Teck is expecting to pay half of the $5.8B bridge by the end of Q1 from cash flow and a big tax refund. At that point, their hedged contracts that pay them much higher than current market prices for copper and coal run out, and the rest of the year is much murkier.

Teck has long talked of selling certain non-core gold-related assets; this is not a new development related to the bridge debt.

Any management worth its pay will do contingency planning such as the potential Citi sale. This should be seen as an indicator of management's competence, not as one of the company's weakness.

Credit markets continue to be horrific. If you expect them to continue to be so through October, perhaps Teck's got problems.

My guess is that the Canadian government would back Teck's refinancing if it came to that, and might even extend the loan itself. This is a historically conservative company that made a mistake in purchasing the balance of Fording at the peak, but its long term prospects are still quite good - assuming copper and coal don't remain at 2002 levels indefinitely.

As for Robson's comments, I wonder if you're providing a fair reading of them. I mean, you paraphrase him as saying "it will be difficult for Teck’s asset sales to match the roughly C$20-billion that it paid."

Well, no kidding. Is this insightful? But more importantly, is it meaningful? Is there ANY indication that Teck might raise more case than is needed to meet the bridge debt obligation in October?

Then: “Asset sales may weaken the company’s long-term cash generation capability and reduce future growth options.” Again, no kidding - did Robson write anything that's not intuitively obvious to the casual observer?