Recently, partners of Teck Resources Ltd TECK in the Fort Hills Energy Limited partnership agreed to restart the second Fort Hills train. Production will likely reach up to approximately 120,000 barrels per day by the end of the current year.
The company has tightened Fort Hills’ production guidance for the current year to approximately 105,000-115,000 barrels per day from the prior estimate of 100,000-120,000 barrels per day. Teck owns 21.3% in the Fort Hills’ annual production.
Moreover, the Fort Hills partners have reduced the unit operating costs guidance for the current year, which is now expected between CAD $35 per barrel and CAD$38 per barrel compared with the earlier estimate of CAD$37-CAD$40 per barrel. The partners project capital expenditure in its Energy business unit at $85 million.
Teck’s Energy business unit owns interest in a large producing oil sands mine in Alberta, and oil sands development assets. Its significant projects are Fort Hills and Frontier.
During first-quarter 2020, the company reduced Fort Hills to a single-train facility in order to reduce negative cash flow in light of the pandemic. Therefore, Teck’s share of bitumen production from Fort Hills was down 16,579 barrels per day on a year-over-year basis during the June-end quarter.
After a period of turbulent market volatility in the first quarter and in the second, global crude markets are now gradually stabilizing. The recovery in crude price is the result of improved market conditions with a better demand environment in the second half of the quarter.
During the second-quarter earnings call, the company issued its guidance for the second half of this year. The guidance reflects uncertainties related to the extent and impact of the pandemic on demand as well as commodity prices, suppliers and global financial markets.
Teck has implemented a cost-reduction program to lower its operating costs and deferred some of the planned capital projects in a bid to counter the uncertain economic conditions. Since the commencement of the program in the fourth quarter of 2019, it has so far achieved approximately $250 million in operating-cost reductions and $430 million in capital-cost reductions. Moreover, Teck continues to implement its innovation-driven efficiency program RACE21 that is expected to improve productivity across the business.
Price Performance
The company’s shares have lost 38.4% over the past year compared with the industry’s growth of 16.9%.
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Zacks Rank & Stocks to Consider
Teck currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space include Kinross Gold Corporation KGC, Eldorado Gold Corporation EGO and Yamana Gold Inc. AUY, each carrying a Zacks Rank #2 (Buy) currently. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Kinross has an expected earnings growth rate of 100% for the current year. The company’s shares have surged 71.7% over the past year.
Eldorado Gold has an anticipated earnings growth rate of 2.33% for the ongoing year. Its shares have rallied 14.5% in the past year.
Yamana has an estimated earnings growth rate of 76.9% for 2020. The stock has soared 73.6% in the past year.
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