Global Industrial Trends And Copper Projects Will Strengthen Future Outlook

Key Takeaways

• Demand for copper and zinc, driven by global industrial policies and electrification investments, is expected to increase Teck's metal sales revenue.
  
• Project expansions and efficient cost management, including reduced copper production costs, are set to boost Teck's margins and profitability.
  
• Economic and geopolitical challenges, along with supply chain disruptions and commodity price reliance, threaten Teck Resources' revenues, margins, and project timelines.

Catalysts

Engages in research, exploration, development, processing, smelting, refining, and reclamation of mineral properties in Asia, the Americas, and Europe.

• Teck Resources is experiencing significant demand for copper and zinc driven by global industrial policies, electrification infrastructure investments, and the digitization of economies, which are projected to boost revenues from metal sales in the medium term.
  
• The ongoing ramp-up of the QB copper project is expected to enhance production levels and profit margins by transitioning to steady-state operations and optimizing throughput, which could contribute to higher earnings.
  
• The company has a portfolio of value-accretive copper growth projects, such as mine life extension at Highland Valley and greenfield projects in Peru and Mexico, which are expected to augment copper production and improve revenue streams before the end of the decade.
  
• Teck's disciplined cost management, including a significant reduction in copper net cash unit costs, from higher production, increased byproduct credits, and improved efficiencies, is anticipated to positively impact net margins and overall profitability.
  
• Active share buybacks and returning cash to shareholders through dividends highlight Teck's focus on increasing earnings per share, potentially enhancing investor perception of value creation.

Teck Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Teck Resources's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.1% today to 10.2% in 3 years time.
• Analysts expect earnings to reach CA$1.2 billion (and earnings per share of CA$2.41) by about May 2028, up from CA$-109.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CA$1.8 billion in earnings, and the most bearish expecting CA$722 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.3x on those 2028 earnings, up from -222.8x today. This future PE is greater than the current PE for the US Metals and Mining industry at 13.3x.
• Analysts expect the number of shares outstanding to decline by 4.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

Teck Resources Future Earnings Per Share Growth

Risks

• The threat of global economic downturn, geopolitical tensions, inflation, and supply chain disruptions creates a challenging environment that could negatively impact metals demand and ultimately reduce revenues.
  
• Potential tariffs and retaliatory trade measures, particularly from China, pose a risk to the demand for Red Dog's zinc and lead concentrate sales, potentially impacting sales volumes and revenues.
  
• The ongoing maintenance shutdowns and tailings development issues at QB could disrupt production plans, leading to higher costs and lower margins in the short term.
  
• Dependence on favorable commodity prices for profitability means that any decline in copper or zinc prices could significantly reduce revenues and profit margins.
  
• Political and regulatory uncertainties, such as the potential impacts from indigenous government disputes or changes in U.S. trade policies, could affect project timelines and operational costs, posing risks to earnings.

Valuation

• The analysts have a consensus price target of CA$64.864 for Teck Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$82.0, and the most bearish reporting a price target of just CA$47.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$11.5 billion, earnings will come to CA$1.2 billion, and it would be trading on a PE ratio of 30.3x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of CA$48.77, the analyst price target of CA$64.86 is 24.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.