Delays At Highland Valley And Cost Hikes Will Weaken Prospects

Key Takeaways

• Reduced long-term demand for mined metals and rising competition for resources threaten Teck's revenue growth and profitability.
  
• Regulatory obstacles, operational disruptions, and ESG compliance pressures increase project delays, cost overruns, and margin headwinds.
  
• Teck is well-positioned for long-term growth and profitability through strong demand trends, copper project execution, disciplined capital management, and enhanced ESG performance.

Catalysts

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

• Despite Teck's current strong copper and zinc prices, the accelerating shift to a circular economy and broader metal recycling initiatives worldwide could meaningfully reduce demand for newly mined metals, undermining future sales volumes and compressing long-term revenue growth.
  
• As global governments double down on decarbonization policies and phase out coal-related infrastructure, Teck's ability to monetize or reallocate capital from its divested steelmaking coal business could diminish, eroding a buffer for cash flows and heightening earnings volatility in future cycles.
  
• Protracted permitting hurdles, regulatory disputes and indigenous consultations-in particular, the unresolved dispute resolution processes at the Highland Valley life extension and uncertainties surrounding new project approvals in Chile, Peru, and Mexico-pose the risk of chronic project delays and cost overruns, directly threatening revenue realization and exacerbating capital allocation risk.
  
• Ongoing operational disruptions at key assets-notably the extended tailings facility remediation at QB and weather
• and infrastructure-related shutdowns in Chile-underscore the vulnerability of Teck's core projects to external shocks, raising the likelihood of persistent net margin pressure and increased maintenance capital spend.
  
• Intensifying global competition for water, skilled labor, and critical energy resources, as well as the rising cost and complexity of meeting evolving ESG standards, are anticipated to structurally inflate operating costs for Teck's diversified portfolio, challenging forecasted improvements in free cash flow and ultimately weighing on future earnings per share.

Teck Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Teck Resources compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Teck Resources's revenue will decrease by 0.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -1.1% today to 7.2% in 3 years time.
• The bearish analysts expect earnings to reach CA$722.0 million (and earnings per share of CA$1.5) by about June 2028, up from CA$-109.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 37.3x on those 2028 earnings, up from -243.7x today. This future PE is greater than the current PE for the US Metals and Mining industry at 15.5x.
• Analysts expect the number of shares outstanding to decline by 4.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Teck Resources Future Earnings Per Share Growth

Risks

• Strong secular demand trends from global electrification, infrastructure growth, and energy transition initiatives are likely to support higher long-term pricing and sales for copper and zinc, which could drive Teck's revenues and profit margins higher over the coming decade.
  
• Teck's disciplined capital allocation, robust balance sheet, and active share buyback program, combined with significant liquidity of $10 billion, position the company to enhance earnings per share and potentially support higher valuation multiples over time.
  
• Ramp-up and optimization at the QB copper project is on track, with independently validated operational milestones and ongoing performance improvements, indicating that copper production and associated cash flow may increase significantly in the coming years, boosting future earnings.
  
• A pipeline of well-funded, lower-complexity copper growth projects-such as Highland Valley mine life extension, Zafranal, and San Nicolás-provide visible, multi-year volume growth that could meaningfully lift Teck's production, revenue, and operating margins if executed as guided.
  
• Ongoing portfolio optimization and strong ESG credentials may unlock further value, improve financing conditions, and enhance customer relationships, all of which could support higher net income and shareholder returns in the medium-to-long term.

Valuation

• The assumed bearish price target for Teck Resources is CA$50.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Teck Resources's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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$50.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CA$10.0 billion, earnings will come to CA$722.0 million, and it would be trading on a PE ratio of 37.3x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of CA$53.35, the bearish analyst price target of CA$50.0 is 6.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.