Teck Resources Ltd posts $2.1 billion loss

Teck Resources Ltd (TSE:TCK.B, Mkt cap 5.19B, P/E – , Div/yield 0.15/3.34, EPS -3.27, Shares 566.80M) has reported a quarterly loss due to an asset impairment charge in its steel-making coal business, the Financial Post reports.

Teck Resources Red Dog Mine Alaska

Teck Resources Red Dog Mine, Alaska. The company posted $2.1 billion loss

The Vancouver-based company, the largest producer of steel-making coal in North America, reported a net loss attributable to shareholders of C$2.1 billion ($1.60 billion), or C$3.73 per share, in the three months to end-September.

In the same period last year, Teck reported earnings of C$84 million, or 14 Canadian cents a share.

However, despite the big writedown, investors appeared to give the company credit for continuing to deliver solid operating results. On the day the results were posted (22 October), the stock rose 43 cents or five per cent to $8.79 as Teck reported an adjusted profit of $29 million, or five cents a share, exceeding modest forecasts.

“The commodities cycle continues to provide a very challenging environment, but we are responding,” chief executive Don Lindsay said on a conference call.

Lindsay’s optimism is backed-up by the company’s cash position, with it ending the quarter with $1.8-billion in cash, which is more than the $1.5-billion it estimates is required to fund its share of a major oil-sands project.

Teck has maintained respectable margins in its coal and base metals businesses by continuing to cut costs. It has also profited from low oil prices and a weaker Canadian dollar.

Regardless, weak commodity prices (particularly for steel-making coal) are sapping the company’s profitability. Teck’s realized coal price was just US$88 a tonne in Q3, down from US$285 in the same period in 2011, when the market was at its peak. Teck’s adjusted profit in that quarter four years ago was US$742 million – an unimaginable figure in today’s market.

Teck Resources Limited is engaged in the business of exploring, acquiring, developing and producing natural resources. The Company is focused on steelmaking coal, copper, zinc and energy. The Company exports seaborne steelmaking coal and produces mined zinc. The Company also produces lead, molybdenum, silver, and various specialty and other metals, chemicals and fertilizers. It explores for copper from its interests in Antamina in Peru, Quebrada Blanca and Carmen de Andacollo in Chile and Duck Pond in Newfoundland. The Company has around 97.5% interest in Highland Valley Copper. The Company produces mined zinc, primarily from its Red Dog mine in Alaska, the Antamina mine in northern Peru, and its Pend Oreille mine in Washington State. Its energy assets in the Athabasca oil sands region of northeastern Alberta include its interests in the Fort Hills oil sands project, Frontier oil sands project in various other oil sands leases in the exploration phase, including the Lease 421 Area. More from Reuters »

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TOP STOCK PICKS – Sprung Somewhat Of A Contrarian

By Stuart Weinberg
June 13, 2006

TORONTO (Dow Jones) – When it comes to picking stocks, Michael Sprung isn’t interested in the flavor of month.

“To tell you the truth, we find that often our investment positions are somewhat contrarian,” he said.

Sprung, president of Sprung & Co. Investment Counsel, invests with a three-to-five-year time horizon in mind. He tries to determine if a stock’s current valuation is merited based on a company’s projected return on equity. “Basically, what you’re trying to find out is what are you paying for what you’re getting,” he said.

That question coupled with Sprung’s buy and hold philosophy accounts for the portfolio’s contrarian flavor. Lumber stocks, for instance, haven’t exactly dominated discourse on the Canadian stock market lately, yet the largest holding in the C$30-million portfolio is a lumber stock – International Forest Products Ltd. (IFP.A.T)

Sprung said he began establishing a position in International Forest, or Interfor, about a year ago. He said the strong U.S. housing market made the environment favorable for building products. In addition, demand for lumber in the U.S. was heightened due to damage wrought by by Hurricane Rita and Hurricane Katrina, he said.

Furthermore, if the softwood lumber dispute between the U.S. and Canada is resolved in Canada’s favor, Interfor could be reimbursed a significant sum for duties being held on deposit in the U.S., Sprung said. Intefor stands to gain as much as C$2 a share, or about C$100 million, he said. But even without this potential windfall, Interfor is attractive, he said. The manager is forecasting a 10% increase in return on equity for Interfor in each of the next three to five years.

Missed Run-Up And Pullback In Gold Sector

While Sprung’s investing style helps him find value in unlikely places, it sometimes results in missed opportunities.

For instance, the portfolio’s only exposure to gold during the sector’s recent run-up was Teck Cominco Ltd. (TEK.SV.B.T). “Unfortunately, gold is one area where I haven’t had significant exposure and I guess the reason for that has been it has always appeared to be ahead of what I was willing to pay,” Sprung said.

Sprung noted that gold was trading at less than US$600 an ounce just several months ago, yet gold-stock valuations suggested the metal was going to increase in a straight line for years. While that may or may not happen, gold equities surged in April and May as the price of gold shot past US$600 and briefly exceeded US$700.

While he missed the run-up, Sprung also avoided the subsequent decline, as the price of gold – and gold equities – has pulled back substantially. Gold is now trading just slightly above US$600 an ounce and Sprung said he still believes gold stocks are overvalued.

Regarding Teck Cominco, Sprung said he is confident the firm won’t overpay for Inco Ltd. (N). Teck made an unsolicited cash-and-stock bid for Inco in May. Sprung said he doesn’t own any Inco stock. “I’m sorry I don’t,” he said.

Sprung said the portfolio is slightly underweight the energy sector, noting he has been taking profits recently. One holding that he pared down was Imperial Oil Ltd. (IMO), although he said the recent pullback in energy may afford an opportunity to add back some integrated plays. Other energy holdings in the portfolio include Petro-Canada (PCZ), Talisman Energy Inc. (TLM), Pengrowth Energy Trust (PGH) and Parkland Income Fund (PKI.UN.T).

Regarding Pengrowth, Sprung said he likes the company’s balance of oil-and-gas assets, as well as its “sustainable” payout ratio. He said he also likes the firm’s production profile and the fact that its assets have a longer reserve life than the assets of other trusts with similar yields.

Sprung said Parkland Industries, which operates gas stations and convenience stores in rural areas of western Canada, is often the “only game in town.” While the firm’s profitability depends on the spread it can obtain between the retail and wholesale price of gas, it also makes a decent profit from the convenience store side of the business, he said. He said he also likes the company because it’s expanding. In the last couple of years, Parkland has gone from 200 outlets to more than 500, he said. “I think they’ll continue to do quite well,” he said.