Teck Resources Limited (TSX:TCK.B)(NYSE:TCK) share price reached a 2016 high of C$27.31 on Friday, after a spectacular 617% run-up from a January 13th low of C$3.80. Teck shares slid from C$60 in 2011, driven by low commodity prices – especially for its prime products of metallurgical coal, zinc and copper – and by a burdensome debt of C$9.6B, together with a crushing B3 Negative debt rating from Moody’s. It also has capital commitments to a 20% interest in the massive new Fort Hills project in the Canadian oil sands sector, which is designed to be a fourth revenue stream, further diversifying the company. Teck is a significant copper producer in the Americas, the world’s third-largest producer of zinc concentrate and the second-largest seaborne exporter of steelmaking coal. It owns or has interests in 12 mines in Canada, the USA, Chile and Peru, and is building an energy business. In January, the future appeared bleak, with concerns that the company could default on debt service payments, or be unable to fund its 2016 Fort Hills project commitment of ~C$1B. Canada’s No. 1 and premier diversified mining company was on the ropes, facing shareholder desertion and a share price not seen since the 2009 world financial crisis. To address the situation, the company wrote down C$2.7B in 2015; it tightened its belt severely, reducing production costs, capital spending and employee and management head count. It issued new debt to defer payment dates, as well as entering mineral deposit streaming deals. Teck stubbornly resisted withdrawing from the cash-draining Fort Hills oil sands project, even though oil prices dipped below US $30/lb, making its investment look like a disaster. Teck’s massive C$9.6B debt load was the major reason its stock fell as far as $3.80 share. While the company remains highly leveraged, the three-year deferral of significant payments now eliminates the risk of a near-term cash crunch. Liquidity remains healthy, with C$3B in available credit, and it finished Q2 with C$1.4B in cash. This means it has the funds to complete Fort Hills, with production slated for late 2017/2018.

Real Share Price Impact – Commodity Prices Zinc represented 37% of Teck’s revenues and 34% of its profit in 2015. So far in 2016, zinc is up 47% at US$1.03/lb. on the back of tighter supplies from mine closures and production cuts, together with sustained demand. Observers predict zinc prices will continue to strengthen through 2016 and into 2017. While copper represented 27% of revenue and 35% of profit in 2015, it is the 2016 laggard, and its price is essentially flat so far this year. In 2016, copper has traded between US$2.31/lb. and US$1.96/lb., and most analysts expect the same trading range in the near term. Major producers of the red metal forecast mine supplies dwindling over the next two years, promising higher prices in the longer term. Providing 36% of revenue and 31% of profit in 2015, mtallurgical coal is 2016’s biggest surprise. After China reduced working hours for coal miners, spot prices rocketed to an astounding US$230/t. However, observers are cautious about the sustainability of this price level. Teck’s 2016 forecast profit sensitivity for metallurgical coal is C$20M per $1US/t price change. Bloomberg reports a possible Q4 settlement price of US$200/t between Nippon Steel and American producer Peabody Energy. Teck’s Q3 settlement price was US$92/t, and many analysts speculate the 2016 Q4 price will be up to US$150/t.

The Future Several analysts are rating Teck a buy, with Raymond James setting a C$27 target. The last time Teck shares bounced off a low of $4, in 2008, it hit C$60 within two years. There’s no guarantee that will happen again, but the stock has momentum, and the tide has turned in two of its three key market commodities. While Teck doesn’t yet produce oil, its 20% stake in the Fort Hills oil sand project is a significant future revenue source. With WTI oil back above US$50/bbl, the market is feeling better about the Fort Hills investment, as well as Teck’s ability to fund the project. Debt risk remains at C$9.6B, but significant for at least three years provides time for Teck to rebuild its financial war-chest – provided commodity prices cooperate. Its substantial, long-life and high-quality mineral resources base is also in its favour. For an investor interested in a good quality diversified miner with long-life assets and low quartile production costs, Teck is worthy of an in-depth investigation.