Big Nick's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/318532/comments http://seekingalpha.com/article/114981-s-p-gives-teck-cominco-lowest-investment-grade-rating?source=feed#comment-371539 371539



On Jan 26 02:42 PM User 135840 wrote:

> I am only finding 4.88 billion in total debt, 7.2 bil assets--were
> are they getting the 14 billion in debt ?]]> Fri, 30 Jan 2009 17:14:19 -0500



On Jan 26 02:42 PM User 135840 wrote:

> I am only finding 4.88 billion in total debt, 7.2 bil assets--were
> are they getting the 14 billion in debt ?]]> http://seekingalpha.com/article/114981-s-p-gives-teck-cominco-lowest-investment-grade-rating?source=feed#comment-358133 358133
A more likely scenario is that a gross blunder of value destruction has been made at Teck, in the form of a long shot gamble - that being the Forging transaction, that put a value of about 25 BLN +/- on that entity, or a FWD PE of 8 at the peak (and unsustainable) coal price, but more importantly and realistically a FWD PE of 50 at realistic margins like 50% (or $50) per tonne of coal sold. (note that the market puts a value of only 2.5 BLN on Teck in its entirety at the moment) Anyone who knows anything about valuation, or acquisition knows that this FWD PE was absolutely ridiculous, even the biggest gold companies in the world don't get these multiples, at even the lowest point in the cycle. But we're talking coal here, not gold.

The debtload at the onset of the FDG transaction was 14B, and has not been as rapidly paid down as expected. It's is most likely still in the 10B range, and even with the hedge effects, combined with the market taking less coal than output from EVCC, and rumored to be offering coal in the $100 range for next coal year.

In looking forward, specifically at debt serviceability, as would be the concern of S&P, even TCK bosses would likely admit the short-term debt can not be covered internally thru cash flows. There are 2 questions: 1) who will, or even would consider, refinancing the 6 Bln? and this leads to question 2), that is essentially the same as question 1, can they even cover the interest on the debt with cash flows at these margins. if you pull out a calculator and look at the last earnings results with today’s prices, you will see the answer is "not likely" The best that could be hoped for under current structure, would be a break even scenario, and even that would depend on favorable cdn exchange, metals not tanking even further, and most importantly a decent coal price like $130 to 150.

If you model the company’s cash flows from operations, you will see that there is in fact a risk, of not being able to service debt, at an estimated cost of 0.5 to 1 Bln per year. The only business unit at today’s prices that is providing significant cash flows is EVCC, but that is on last years prices. The Cdn exchange is also something that is keeping margins positive, but there are not guarantees there. If coal were to go back to $100, as seems to be rumored, or even with $130 and a par exchange (both very realistic outcomes), then Teck will be in deep trouble as S&P has correctly surmised.

The valuation question is how much leverage will the financiers of the massive debt loads have when it comes time to pay? and what "vultures" will come onto the scene? Another relevant question is will the BOC come to the rescue, as they seem to have for other staple canadian large industry? These answers will determine the most likely fate of TCK. Some optimists and bosses of TC seem to deflect pessimism with simple solutions like selling of Teck top tier assets, like its share of antamina, or the coal patch, or others. But the list is limited. For tier 1 assets (long life, low cost) TCK really only has a few and it’s doubtful that they would garner the 5-8 BLN in this market, that the company needs to get back on track. The important thing to recognize here, is that the asset disposal decisions and pricing may be forced upon teck management, and may be one way negotiations.

The market only values the entire company at 2 or 3 BLN right now, so who is going to come along and offer top dollar to a distressed company at this stage in the game. TCK has no leverage and it's going to have to shed its best assets, likely cropping a substantial if not a lions share of its asset value. These tier one assets are the very thing that investment grade shareholders valued TCK for, that took the past 20 years to build and acquire. "We don't need to keep the entire share of the coal patch" they claim? Ludicrous, as they already had 52% pre-FDG!!, imagine the irony of selling of the asset at today’s value of about 20 to 40% value per share instead of the $90, and being left with the same 52% interest or less, but shy about 14BLN?? The other irony here is that the original FDG teck merger brought question as the Elkview (teck) mine contributed not only more, but higher quality resource to the deal than all 5 of FDGs mines put together, and at higher margin as well, and FDG "hit the grand slam" and may as well have been awarded the "stanley cup" figuratively speaking as the deal also precluded their capital from one of the worst short term thrashings in market history. The whole deal really stinks of misguided acquisition behavior and major speculation.

Predictions of the author:
- After the next earnings release, TCk will be downgraded, off the investment grade scale at S&P to "speculative"
- The US CDn exchange spread will thin or be eliminated, even further reducing Tecks ability to refinance its debt and survive in the form its known as today.
- It will shed anywhere from 20% to 50% of its production capacity to finance / reduce / eliminate the debt, in the only business units that are projected to have any real margin near term, thereby reducing the company out of the respected status of a major and become just another mediocre asset holding mid tier mining company.





]]> Fri, 16 Jan 2009 19:42:08 -0500
A more likely scenario is that a gross blunder of value destruction has been made at Teck, in the form of a long shot gamble - that being the Forging transaction, that put a value of about 25 BLN +/- on that entity, or a FWD PE of 8 at the peak (and unsustainable) coal price, but more importantly and realistically a FWD PE of 50 at realistic margins like 50% (or $50) per tonne of coal sold. (note that the market puts a value of only 2.5 BLN on Teck in its entirety at the moment) Anyone who knows anything about valuation, or acquisition knows that this FWD PE was absolutely ridiculous, even the biggest gold companies in the world don't get these multiples, at even the lowest point in the cycle. But we're talking coal here, not gold.

The debtload at the onset of the FDG transaction was 14B, and has not been as rapidly paid down as expected. It's is most likely still in the 10B range, and even with the hedge effects, combined with the market taking less coal than output from EVCC, and rumored to be offering coal in the $100 range for next coal year.

In looking forward, specifically at debt serviceability, as would be the concern of S&P, even TCK bosses would likely admit the short-term debt can not be covered internally thru cash flows. There are 2 questions: 1) who will, or even would consider, refinancing the 6 Bln? and this leads to question 2), that is essentially the same as question 1, can they even cover the interest on the debt with cash flows at these margins. if you pull out a calculator and look at the last earnings results with today’s prices, you will see the answer is "not likely" The best that could be hoped for under current structure, would be a break even scenario, and even that would depend on favorable cdn exchange, metals not tanking even further, and most importantly a decent coal price like $130 to 150.

If you model the company’s cash flows from operations, you will see that there is in fact a risk, of not being able to service debt, at an estimated cost of 0.5 to 1 Bln per year. The only business unit at today’s prices that is providing significant cash flows is EVCC, but that is on last years prices. The Cdn exchange is also something that is keeping margins positive, but there are not guarantees there. If coal were to go back to $100, as seems to be rumored, or even with $130 and a par exchange (both very realistic outcomes), then Teck will be in deep trouble as S&P has correctly surmised.

The valuation question is how much leverage will the financiers of the massive debt loads have when it comes time to pay? and what "vultures" will come onto the scene? Another relevant question is will the BOC come to the rescue, as they seem to have for other staple canadian large industry? These answers will determine the most likely fate of TCK. Some optimists and bosses of TC seem to deflect pessimism with simple solutions like selling of Teck top tier assets, like its share of antamina, or the coal patch, or others. But the list is limited. For tier 1 assets (long life, low cost) TCK really only has a few and it’s doubtful that they would garner the 5-8 BLN in this market, that the company needs to get back on track. The important thing to recognize here, is that the asset disposal decisions and pricing may be forced upon teck management, and may be one way negotiations.

The market only values the entire company at 2 or 3 BLN right now, so who is going to come along and offer top dollar to a distressed company at this stage in the game. TCK has no leverage and it's going to have to shed its best assets, likely cropping a substantial if not a lions share of its asset value. These tier one assets are the very thing that investment grade shareholders valued TCK for, that took the past 20 years to build and acquire. "We don't need to keep the entire share of the coal patch" they claim? Ludicrous, as they already had 52% pre-FDG!!, imagine the irony of selling of the asset at today’s value of about 20 to 40% value per share instead of the $90, and being left with the same 52% interest or less, but shy about 14BLN?? The other irony here is that the original FDG teck merger brought question as the Elkview (teck) mine contributed not only more, but higher quality resource to the deal than all 5 of FDGs mines put together, and at higher margin as well, and FDG "hit the grand slam" and may as well have been awarded the "stanley cup" figuratively speaking as the deal also precluded their capital from one of the worst short term thrashings in market history. The whole deal really stinks of misguided acquisition behavior and major speculation.

Predictions of the author:
- After the next earnings release, TCk will be downgraded, off the investment grade scale at S&P to "speculative"
- The US CDn exchange spread will thin or be eliminated, even further reducing Tecks ability to refinance its debt and survive in the form its known as today.
- It will shed anywhere from 20% to 50% of its production capacity to finance / reduce / eliminate the debt, in the only business units that are projected to have any real margin near term, thereby reducing the company out of the respected status of a major and become just another mediocre asset holding mid tier mining company.





]]> http://seekingalpha.com/article/110001-think-the-commodities-mining-boom-is-over-insiders-don-t?source=feed#comment-327890 327890

]]> Fri, 12 Dec 2008 17:54:21 -0500

]]> http://seekingalpha.com/article/110320-asset-sales-may-weaken-teck-cominco-bmo?source=feed#comment-327886 327886
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.]]> Fri, 12 Dec 2008 17:50:11 -0500
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.]]>