Teck Resources Ltd (TSX:TECK.B) reported a year-over-year decline in revenues and profits for the third quarter of 2023 but analysts at Jefferies remain positive on the miner at its current stock price.
For the quarter, the company reported revenue of C$3.56 billion, compared to C$4.26 billion in the year-ago quarter and below the Street estimate of C$3.6 billion.
Its adjusted profit fell from C$923 million to C$399 million or earnings per share (EPS) of C$0.76, down from C$1.74 in the year-ago quarter. Analysts had expected EPS of C$1.08.
Additionally, the company raised its capital cost guidance for its Quebrada Blanca Phase 2 (QB2) project in Chile from a range of US$8.6 billion to US$8.8 billion from its previous guidance range of US$8 billion to US$8.2 billion due to delays in the construction of the molybdenum plant and port offshore facilities, slower than planned demobilization progress, and contract claims risk.
It also decreased its 2023 annual guidance for copper due to a localized geotechnical event at Highland Valley Copper in August, for molybdenum due to the delay in the construction of the QB2 molybdenum plant, and for steelmaking coal production due to plant challenges.
Analysts repeat 'Buy' rating
“All things considered, we reiterate our ‘Buy’ rating on Teck Resources at the current price,” the Jefferies analysts wrote in a note to clients following Teck’s 3Q results.
They awarded the stock a C$80 price target. Teck shares had fallen 5.8% to C$50 late morning on Tuesday.
“On our estimates, Teck trades at a 2024 price-to-earnings ratio of 7.7x and enterprise value to earnings before interest, taxes, depreciation and amortization ratio of 3.9x,” the analysts wrote.
“While cyclical risk is a near-term concern in mining, there are company-specific factors that stand out regarding Teck. These include the ramp-up of QB2, a potential sale of EVR, and other potential M&A activities.”
The analysts noted Teck’s announcement of another capital expenditure (capex) increase at QB2.
“Capex blowouts and delays have been problematic for Teck at QB2. This is an especially important point as part of the standalone investment case for Teck is the value of its organic growth. Delivering projects on a timeline and budget that drives good returns in a normalized price environment is key,” they wrote.
“On our estimates, QB2 will need a normalized copper price of well above $5 per pound to generate a 15% internal rate of return.”
The Jefferies analysts noted that Teck’s lowered coal production guidance from a range of 24 to 26 million tonnes to a range of 23 to 23.5 million tonnes was not surprising after the miner recently reported lower-than-expected 3Q volumes.
“Higher prices in 4Q should be a significant offsetting positive, however, we expect met coal prices to be strong through the winter, and we also believe the longer-term outlook for high-quality met coal is exceptionally positive,” they wrote.
They wrote that, aside from its lower copper production guidance and increased capitalized stripping cost guidance from C$295 million to C$395 million, all of Teck’s other guidance remained unchanged, noting “although we believe risk to production guidance in copper and met coal is to the downside and risk to cost guidance is to the upside.”
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