Teck Resources Ord Shs Class A T.TECK.A

TD Action Note Summary this morning

[Dogsbreakfast4U]

Event

We have revised our estimates to reflect Q4/20 results, 2021 guidance, and our updated coal-price assumptions. Impact: POSITIVE

We have increased our realized 2021 coal price forecast by ~17% to US$140/t from ~US$120/t. The upward revision to our coal-price estimate reflects stronger FOB Australia and CFR China prices than we expected in early-January. Our Teck realized price assumes that China's ban on Australian imports will remain in place through Q2/21.

Neptune is on track for first coal shipments in early-Q2/21. However, the revised base capex has increased by 10% to ~$880mm ($310mm in 2021), with COVID-19 costs adding a further $80mm-$100mm. Management expects that the terminal will ramp-up to its nameplate capacity by the end of Q3/21 and could exit 2021 at a loading rate that is meaningfully above the 18.5Mtpa rated capacity. In the past, management has suggested that Neptune's capacity could reach as high as 21.5Mtpa

QB2 hits 40% overall completion; US$5.2bln initial capex (excluding COVID-19 impacts) and H2/22 start-up timing unchanged. The base-case capex estimate remains at US$5.2bln, assuming a Chilean peso/U.S. dollar exchange rate of 775 (currently ~712; a 25 CLP change affects capex by US $80mm). QB2 COVID-19 costs have been increased to US$450mm-US$500mm (+US$50mm). The on-site workforce is back to pre-COVID-19 construction levels and first production is still expected in H2/22. 2021 QB2 capex is budgeted at $2.5bln (100% basis). TD Investment Conclusion We are maintaining our ACTION LIST BUY recommendation and increasing our target price to $34.00 (from $30.00). Our near-term thesis is based on improving coal prices and continued strength in copper price, combined with lower costs in the coal business driving an improving operating margin. We also believe that there is a strong medium-term thesis, driven by a re-balancing of Teck’s product mix and asset base as QB2 ramps up and doubles the company's consolidated copper production to ~600kt per annum, copper takes over from coal as the dominant driver of cash flows, and the company likely exits the Energy business. We have increased our target EV/2022 EBITDA multiple to 5.5x (from 5.0x) to reflect current market multiples and our increasing confidence in Teck's outlook.