Favourable commodity prices and a focus on cost control last year drove revenue and cash flow from Teck Resources’ (TSX: TECK.B; NYSE: TECK) operations into record territory.
The company reported revenue of $12.1 billion, up from $9.3 billion in 2016, along with cash flow from operations of $5.1 billion, up from $3.1 billion in 2016.
“This exceeds the record we set in 2011, when commodity prices for both steel-making coal and copper were significantly higher,” Don Lindsay, Teck’s president and CEO, told analysts and investors on a conference call. “This serves to reinforce the results of our ongoing focus on cost control and on optimizing production from our core assets. Most importantly, we set this record while … improving our safety and environmental performance.”
The full-year results saw Teck’s adjusted profit attributable to shareholders surge to $2.6 billion, or $4.45 per share, from to $1.1 billion, or $1.91 per share, in 2016.
In addition, the company’s liquidity remains strong, standing at $4.8 billion, which includes US$3 billion of undrawn, committed credit facilities and $1 billion in cash as of Feb. 13.
The company also retired US$1.3 billion of term notes and returned $344 million to shareholders in 2017 through dividends. In the fourth quarter, Teck spent $175 million to repurchase 5.9 million Class B subordinate voting shares.
“We are returning significant cash to shareholders. We paid $260 million in dividends in the fourth quarter, including our first supplemental dividend. We also committed to $230 million in buybacks through Q1 of 2018, of which $175 million was completed by year-end,” Lindsay said. “Having achieved our debt-reduction targets, and with our substantial cash generation, our financial position is very strong.”
Meanwhile, Fort Hills produced its first oil on Jan. 27 and remains on track to reach 90% capacity by the end of 2018.
“It’s going very well,” Lindsay said. “This is the culmination of the hard work of thousands of people since the project was sanctioned by the Fort Hills partners in 2013. We look forward to the ramp up to full production and to the continued growth of our energy business. Fort Hills is a long-life asset that will generate significant value for the company for decades to come.”
Strong prices for Teck’s base metal products contributed to the company’s solid operating results. Copper averaged US$2.80 per lb. in 2017, up 27% year-on-year, and touched a three-year high at year-end, finishing at US$3.27 per pound.
Teck attributed the higher copper prices to stronger-than-expected consumer and infrastructure demand in Asia, Europe and North America, as well as sentiment “positively influenced by expectations of future use in clean energy initiatives and electric vehicle production.”
Zinc prices touched a 10-year high in October of US$1.51 per pound.
Teck forecasts its steelmaking coal production in 2018 will reach between 26 and 27 million tonnes, compared with 26.6 million tonnes in 2017.
Copper production could be 270,000 to 285,000 tonnes, slightly lower than the 287,300 tonnes in 2017. Between 2019 and 2021, Teck forecasts copper production will range from 270,000 to 300,000 tonnes.
As for zinc, Teck expects that production of zinc-in-concentrate — including zinc production from its copper business — will range from 645,000 to 670,000 tonnes in 2018, compared with 658,700 tonnes last year. For 2019–2021, the company forecasts zinc-in-concentrate production of between 575,000 and 625,000 tonnes (excluding Pend Oreille).
“You know 2017 was a pretty good year — it was an excellent year, really — and we’re feeling pretty good about 2018, and we’re certainly off to a good start,” Lindsay said in his closing remarks. “You talk about synchronized global growth and we’ve all heard a lot about that, but if you dig down to different levels, you see over 45 different countries growing above trend. This is very widespread growth. Most of us forget what this feels like, but it’s very good for commodity markets, and they are now demand driven, rather than supply driven. We see continued strength in commodity prices, and Teck is certainly well positioned to take advantage of that attractive market backdrop.”
Mining analyst Brian MacArthur of Raymond James has raised his target price on the company to $41 per share from $38.50, while Alex Terentiew of BMO Capital Markets has hiked his to $43 per share from $41.