TSX:TECK.A - Post by User
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retiredcfon Oct 28, 2021 8:19am
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TD 2
TD 2 Teck Resources Ltd.
(TECK.B-T, TECK-N) C$34.51 | US$27.93
Q4/21 on Track for Second Record Quarter in a Row
Event
We have adjusted our forecasts following the release of Teck's Q3/21 results.
Impact: POSITIVE
Q4/21 on track for second record quarter in a row. Teck has already booked two- thirds of Q4/21 coal sales at FOB Australia prices of ~US$370/t and a CFR China price of ~US$560/t. If similar prices are sustained through the end of November, we estimate that Teck's realized Q4/21 price would be ~US$365/t, assuming coal sales of 6.7mmt (1.6mmt into China and 5.1mmt ex-China). We have assumed that there will be some modest downward movement in coal prices over the next several weeks and we are now forecasting Teck's realized Q4/21 coal price at US$350/t, or US $113/t higher q/q (+147%). Based on our forecast for higher q/q realized coal price (and other minor adjustments), we are forecasting Q4/21 EPS at $2.99, EBITDA of $2.99bln, and FCF of ~$1.1bln.
Opex inflation pressure not seen as structural. Teck is experiencing upward operating cost pressure in the order 5% on a y/y basis heading into 2022. Most of the pressure is the result of higher input costs (fuel, reagents, explosives, and steel) and logistical/supply-chain challenges. Management stated that it sees most of the cost pressure as transitory. The company's RACE21 innovation/efficiency program is helping to offset a portion of the higher costs. Management also noted that it is seeing the benefits of investments in its coal transportation system (e.g. Neptune port expansion) generating cost benefits and delivery flexibility/reliability.
QB2 base capex seeing 5% upward pressure. Management noted that it has experienced some challenges at the QB2 port construction site and the tailings management facility related to civil/geotechnical issues; however, they are not on the critical path. There is modest upward pressure on the US$5.26bln base capex (~5%) and on the US$600mm COVID-19-related costs. We have increased our total capex estimate for the project to US$6.25bln from US$6.03bln (+3.6%). Our NPV-8% for Teck's 60% interest in the project has declined slightly to $5.293bln, or $9.80/share (-2.4%).
TD Investment Conclusion
We are maintaining our ACTION LIST BUY recommendation and $47.00 target price.