Davy V. Bui

Selling Teck Cominco - I've Lost Confidence in Management

Jonathan: My completely subjective, non-scientific opinion would be that downside risk is probably low (though not low enough for my standards). I guess the risk:reward ratio is positive but not extremely favorable. Long-term, I'm skeptical management can build exceptional long-term value in their oil sands or gold assets. Galore Creek was a blow and now Petaquilla looks ominous. Red Dog is a world-class asset but even there, they face increasing royalties and questions abound about a possible water permit problem, with a remote chance that further development may have to be shelved. The company also has a dual-class shareholder structure along with a relatively small $17B market cap which makes TCK a likely buyer of smaller companies rather than getting a premium from one of the big boys.

All that said, I had made a mental note to sell at $40. But once I reviewed last quarter's results, I sold out. In the end, TCK is heavily exposed to copper & zinc so you're basically riding the commodities price but with a capped upside while adding operational downside risk. In my mind, there are probably better companies to leverage the metals or else, consider an index like RJZ.

Blah: @$28, downside would be pretty limited -- I almost doubled down when TCK hit $27 a month ago but doubts about management stopped me. I guess that would have been a winner but I try to view it more like a poker game: just because the money card hit on the river doesn't make it a good bet!