Big Nick

Asset Sales May Weaken Teck Cominco - BMO

Is "Buy High-sell Low" the new "buy low-sell High?"

The craziest metric to look at here is not a traditional one such as PE, Debt ratios, asset to book or the like, it’s the simple calculation of what Teck could've done with all the cash they blew on overpriced acquisitions. Take the 4 Bln on Aur, 20 Bln on FDG, and another 1.5 Bln on minor stakes. That’s about 25 Bln on about 450 Mln shares (pre FDG) that paid out as a dividend would've been approx $55 per share, but even half that would've left the company with cash in the bank today, and the shareholders happy.

So the value destruction here is say ~40 in cash and ~50 in equity, a 90% annihilation. Nice try to camouflage this with the market, given other majors have only seen a fraction of the loss, even single commodity types, so much for the commodity diversification mantra. It is irrelevant when you go all in and bet the farm..the sickest thing is, tck already had 52% exposure to whatever FDG's upside was in the first place, so it was a greedy exercise all in all.

Staggering for a company with a share price hovering in the $4-5 range, and having cancelled its dividends. Apparently many even sr. employees of the company are outraged, at the new management brought in, especially long term people at seeing the company devastated with the banker style egocentric investment and speculation, as opposed to the shrewd, frugal, conservative and above all, smart acquisition and activity teck has historically been known for.

If you look thru the records, you will see that Teck paid next to nothing for their stake in the EV coal patch back in 1992, that basically funded the majority of the 52% stake prior to this FDG move, and also for the 1/3 stake in HVC that generated Bln's in FCF in the past few years. The "OLD Teck" would've been sitting on the Blns, waiting to snap up assets at these garage sale prices, not overpaid so grossly and foolishly as has been the case.

I'm shocked that heads haven't rolled over this! Seriously, does it really take a harvard MBA to figure out that basing a long-term valuation on commodity prices that are triple or quadruple the cost of production is probably a bed bet, and that at an all time peak commodity price, the value assigned should've had a fwd PE of 2 or 3 not the typical 6 to 10. A high-schooler knows its buy low sell high, not buy at twice the highest price in history!!!!!!!!!

Teck was looking to be poised to take a strong-hold among the top ten elite group of supermajors, and now are a joke and a shell of the company it was in the last century.





On Dec 11 02:02 PM toomuchgas wrote:

> Teck has to be the worst case of a clueless management trashing a
> great company. Oh yeah, I forgot AIG.