Mining stocks are cyclical, and their performance is tied to the prices of the commodities they mine. In the last two years, inflation and geopolitical tensions have raised commodity prices significantly, allowing mining stocks to realize outsized profits.
Earlier this week, prices for base metals spiked in London after regulators in the U.S. and U.K. banned the fresh trading of Russian-origin metals, including copper, aluminum, and nickel. Here is one quality mining stock that is set to benefit from sanctions levied on Russian metals.
The Bull Case for Teck Resources Stock
Valued at a market cap of $24.4 billion by market cap, Teck Resources (TECK) is among the largest mining companies in the world. A Canada-based diversified mining giant, Teck Resources produces copper (HGK24), zinc, and steelmaking coal.
Teck Resources is uniquely positioned to benefit from the rising demand for copper, which is expected to double by 2035. Copper is a base metal and plays a crucial role in the global transition towards clean energy solutions. For example, copper is used to manufacture electric vehicles (EVs) and other renewable energy products. It is the third-most consumed industrial metal, and can be used as a proxy to analyze economic output.
Teck Resources stock has surged 11.5% in 2024 and, given its expansion pipeline, should deliver inflation-beating returns to shareholders in the upcoming decade.
Recently, Teck completed a big-ticket mining project in northern Chile, which should add 320 million tons to annual production capacity, indicating a doubling of its copper output. Further, Teck expects to expand annual copper production to 1.9 billion tons in the next decade.
How Did Teck Resources Perform in Q4 of 2023?
A quarterly record in copper production allowed Teck Resources to report an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $1.7 billion in Q4. Moreover, it reported an EBITDA of $6.4 billion in 2024 due to robust prices for steelmaking coal and copper, as well as higher sales volumes.
The company’s operating profit stood at $3.9 billion in 2024, allowing it to return $765 million to shareholders in the last four quarters. Teck Resources reported an operating cash flow of $1.1 billion in Q4, allowing it to pay shareholders a quarterly dividend of $0.125 per share in March 2024.
As of February 2024, it had $7.9 billion in total liquidity, including $2.5 billion of cash, which provides it with the flexibility to reinvest in growth projects, target acquisitions, and navigate an uncertain macro environment.
Since 2019, Teck Resources has returned close to $3.9 billion to shareholders via buybacks and dividends.
The mining giant is set to report quarterly earnings again before the market opens on Wednesday, April 24.
Is Teck Stock Undervalued?
Out of the 18 analysts covering TECK stock, 13 recommend “strong buy,” four recommend “moderate buy,” and one recommends “hold,” for an overwhelming “strong buy” consensus. The mean target price for TECK stock is $50.73, indicating an upside potential of 7.6% from the current price.
Analysts tracking TECK stock expect sales to rise by 8.9% year over year to $11.8 billion in 2024. However, its earnings are forecast to narrow from $3.81 per share in 2023 to $3.43 per share in 2024.
Priced at 17x forward earnings, TECK stock might seem expensive given a decline in its earnings base. Notably, however, Morgan Stanley analysts think the Russian metals restrictions could be supportive of prices, which would give earnings a boost; the brokerage says a $0.10/lb increase in realized copper price would increase EBITDA at Teck Resources by $130 million.
On the date of publication, Aditya Raghunath 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.
