Copper prices have cooled off considerably from their recent highs, with some analysts suggesting that the red metal's bullish price action drew so many speculators to the market that prices became temporarily untethered from the underlying fundamentals. That said, with copper futures (HGU24) starting to stabilize after a week-plus skid of lower closing prices - and the long-term bullish forecast for copper firmly intact - it's time for investors to start thinking about buying the dip.
And the fundamental case for copper hasn't changed. The global push for renewable energy and electric vehicles (EVs) is projected to double copper demand to 50 million metric tons by 2035, supported by supply constraints and geopolitical tensions.
One way to add exposure to the booming copper market is by investing in companies that already have strong positions - like Teck Resources (TECK), a leading Canadian resource firm that recently made strategic moves to enhance its focus on copper production.
Earlier this month, Teck completed the sale of its 77% stake in Elk Valley Resources, its steelmaking coal business, to Glencore (GLNCY) for $7.3 billion in cash. This strategic exit from coal operations allows Teck to sharpen its focus on copper and other critical metals, aligning perfectly with the growing importance of copper in the global economy. The company aims to increase its copper production by 30% by 2028, driven by developments such as the ramp-up of its Quebrada Blanca (QB) mine in Chile, which is fast approaching full production.
With TD Cowen resuming coverage of Teck at “Buy” on the basis of its strong copper focus, the company seems well-positioned to benefit from the base metal's bullish outlook. Let's see if TECK is a solid stock to buy on the dip.
Teck's Stock Shines
Valued at $23 billion by market cap, Vancouver-based mining giant Teck Resources (TECK) is shifting away from coal to focus on what it describes as energy transition metals - namely, copper and zinc.
Over the past year, TECK has gained 5.1%, and the shares are up 8.5% on a YTD basis. With the shares down about 18% from their May highs, it's possible to buy the dip on Teck stock at current levels.
Teck looks reasonably valued, with a price/cash flow ratio of 9.79 that's in line with the materials sector median. This suggests that the market might not fully appreciate Teck's copper-focused strategy and extensive assets. Analysts are optimistic, expecting significant earnings growth driven by increased copper production and favorable market conditions.
Management's commitment to shareholders is clear. The Board has authorized up to $2.75 billion in additional buybacks following the coal asset divestments, potentially boosting the stock price and earnings per share.
Plus, Teck continues to reward its investors with dividends. Recently, the company declared a $0.625 per share dividend, which included a $0.125 base dividend and a $0.50 one-time supplemental dividend. With an annual yield of 1.1%, Teck offers a solid mix of growth and income.
Teck's Fundamental Strengths and Growth Catalysts
Teck's Q2 2024 earnings report is a testament to its strong position. The company achieved record quarterly copper production of 110,400 tonnes, with QB producing 51,300 of those. QB production continues to ramp up to full production, and also produced first molybdenum during Q2. Copper prices (LME) averaged $4.42 per pound in the second quarter.
Zinc production at Red Dog increased 4% from a year ago to 139,400 tonnes, while lead production jumped 23% to 28,900 tonnes.
Teck's adjusted profit arrived at C$413 million, or C$0.80 per share, which surpassed expectations. Liquidity at quarter-end stood at C$14.3 billion, including C$8.7 billion of cash. Cash flows from operations totaled C$1.3 billion in Q2.
"In early July, we completed the sale of our steelmaking coal business, and we now move forward as a pure-play energy transition metals company with leading copper growth," said Jonathan Price, President and CEO. "With cash proceeds of $7.3 billion we will reduce debt, retain cash to fund our near-term copper growth, and return significant cash to our shareholders."
Analysts Are Optimistic on TECK Stock
Analyst optimism for Teck Resources is sky-high, reflecting the bright prospects for copper. The company's future looks promising, with 2024 guidance projecting copper production between 435,000 and 500,000 tonnes.
Wall Street's enthusiasm for Teck is clear. Out of 19 analysts, 13 recommend a “strong buy,” four suggest a “moderate buy,” and only two advise a “hold." This overwhelmingly positive sentiment shows confidence in Teck's strategic direction and growth potential.
The average price target is $54.66, representing a solid 19% upside from current levels.
Analysts are growing more bullish on Teck's valuation amid its green energy transition. Along with TD Cowen's recent bull note, BMO Capital Markets just initiated coverage with an “Outperform” rating and a price target of C$85.00, representing roughly 34% upside from here. This shift reflects growing confidence in Teck's copper-focused strategy and its potential to capitalize on the bullish copper market outlook.
The Bottom Line on This Copper Stock
Teck Resources is a strong player in the copper mining industry, and seems to be making the right strategic moves. With its dedicated focus on copper, strong financial performance, and positive evaluations from analysts, this stock might be a valuable addition to your investment portfolio needs. If you're searching for a company that can offer exposure the growing copper market, with some passive income to boot, this mining behemoth could be a standout choice for your investment strategy.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
