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EBITDA Breakdown
WHY IS THIS OUR #1 TOP PICK? We believe Teck has all the critical factors to support
revaluation in the medium term. Teck has a compelling, capital-efficient copper growth story that will
pivot the earnings mix away from lower multiple coal. Teck has an operational turnaround story in
coal as strip ratios decline and transportation costs benefit. The stock has derated from capex
escalation, macro concerns, and coal cost inflation and we view sentiment as near a trough.
INVESTMENT THESIS: There are multiple reasons we like TECK – 1) Coal is at Inflect Point: We
believe mid-cycle LV HCC is value near $160/tonne based on seaborne quality adj. cost curves and
Chinese arbitrage. Teck is set to see significant margin gains in coal (ASP constant) as the Neptune
terminal adds C$160mm, the Elkview mix shift adds C$150mm, and lower strip ratios add C$50mm;
2) Substantial Copper Volume Growth: Teck has the most copper growth pipeline relative to any other
large diversified mining company in the world. Teck copper production is set to double from 301kt in
2019 to ~600kt in 2023 once QB2 is fully ramped up; and 3) Liquidity Remains Strong: TECK currently
maintains C$6.8bn of liquidity, including ~C$400mm in cash. With no significant debt maturity before
2035 and no major funding needed from TECK for QB2 till 1H21, we believe the company is well
positioned to weather the near term market challenges.
CATALYSTS: Key catalysts could be updates on QB2 project development, improving met coal
market outlook, and any update on non-core asset sale (Project Satellite).
DEBATE / PUSHBACK: Key Investor concerns have been around QB2 capex escalation and coal
cost inflation.
OUR VIEW: We believe QB2 provides very capital efficient copper unit growth over the next decade
with low Opex+Sustain costs of ~1.38/lb for the first 10 years and at current share prices we believe
the market is awarding negligible NAV for the project. Coal operating costs should come down now
that the shift from Cardinal River to Elkview is completed and Neptune terminal is operational.
VALUATION: We see TECK as the most undervalued mining stock and believe current valuation
provides an optimal entry point. Teck trades at deep discount to mid-cycle NAV valuation and P/FCF.
On a normalized 2023 estimates, FCF yield is ~25%. Our C$34 TP is derived using our SOTP
framework. Key risks are prolonged downturn in steel production and global copper demand from
current deep recession levels.
LATEST RESEARCH REPORTS:
– TECK: The Three Pillars of Mining Alpha Generation – Teck Well Positioned, Reit. OUTPERFORM
Basic Materials
Metals & Mining
Teck Resources (TECKb.TO)
Curt Woodworth
curt.woodworth@credit-suisse.com
(212) 325-5117
TECK in HOLT
®
HOLT®: Consensus forecasts returns to be below cost of capital while market
expectations imply near zero returns in the long term not giving credit to
expected volume growth in copper and margins gains in coal.
Source: Company data, Credit Suisse estimates, Credit Suisse HOLT
TECK – Rating: Outperform | Target Price: C$34 | Market Cap: C$13.8B | Current Price: C$26.38 TECK in HOLT®