Teck Resources Limited TECK and its wholly-owned subsidiary Teck Namibia Ltd. have entered into an agreement with Deep-South Resources Inc. to amend its past outstanding dues from the latter, regarding the sale of the 70% interest in Haib Minerals Ltd.
Deep-South will issue 4,352,941 shares at an implied price of 8.5 cents per share to Teck in order to settle pending amounts. Following closing, Teck will hold 22,579,608 shares of Deep-South representing, 26.9% undiluted share capital of Deep-South. Currently, Teck holds 23% of Deep-South share capital.
Apart from this, Teck owns a convertible debenture of $389,117, convertible at 14 cents per share with maturity on Aug 31, 2020. Both parties have agreed upon modifying the convertible debenture by extending the maturity date to Dec 31, 2021 at a new conversion price of 9 cents per share.
On Feb 14, 2017, Teck entered into an agreement to sell its interest in the Namibia-based Haib Copper project to Deep-South for $400,000. The agreement stated that Deep-South will make cash payment of $200,000, within a year of the deal’s closure, while another $200,000 on completion of the second year of the agreement. However, Deep-South has made a cash payment of $30,000 out of $400,000.
Teck is poised to gain from the Neptune Bulk Terminals facility upgrades and construction of the Quebrada Blanca Phase 2 copper project (QB2). The Neptune Bulk Terminals project will strengthen the steelmaking coal-supply chain and meet the long-term requirements of customers for high-quality products.
The QB2 copper project will transform the company’s copper business, making it a major global copper producer. Though it has temporarily suspended construction activities on the QB2 project amid the coronavirus crisis, there are significant opportunities to increase production and mine life in future phases. Furthermore, expansion of the Elkview Operations plant will boost the overall steelmaking coal production capacity. However, disruptions at mine sites due to the pandemic will likely hurt Teck’s mine production in the second quarter.
The company has signed a new two-year revolving credit facility of $1 billion. This new credit facility, coupled with the current credit facility of $4 billion and project financing facility of $2.5 billion for the QB2 project, places the company well to boost its liquidity position as it completes the QB2 and the Neptune expansion project.
Teck has implemented a cost-reduction program to lower operating costs and deferred some of the planned capital projects in a bid to counter the uncertain economic conditions. It has increased the total targeted cost reductions to $610 million through the end of 2020 compared with the $500 million previously announced. Given the coronavirus crisis, Teck has further increased its total targeted cost reductions to $1 billion for the current year. This will bolster the company’s margin for 2020.
Price Performance
The company’s shares have gained 43.4% over the past three months, outperforming the industry’s growth of 32.2%.
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Zacks Rank & Key Picks
Teck currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are Sandstorm Gold Ltd SAND, Harmony Gold Mining Company Limited HMY and AngloGold Ashanti Limited AU, all carrying a Zacks Rank #2 (Buy) currently. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Sandstorm Gold has an expected earnings growth rate of 33.3% for 2020. The company’s shares have surged 71.8% in the past year.
Harmony Gold has a projected earnings growth rate of 28.6% for fiscal 2020. Its shares have soared 87.7% in a year’s time.
AngloGold has an estimated earnings growth rate of 109.9% for the ongoing year. The company’s shares have appreciated 71.3% in the past year.
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