TSX Commentary

Teck Resources Limited (TCK.B) – $40.00 – Antamina Expansion a Positive
Sector Perform, Average Risk, Price Target: $40.00 (prev. $38.00)
Teck and its partners announced the approval of the expansion at Antamina. The expansion of mining and processing capacity at Antamina will increase ore throughput by 38% to 130,000 tonnes per day and copper and zinc production by approximately 30%. Mine life will be extended by 6 years from 2023 to 2029. First production from the expansion is planned for late 2011. Antamina is owned 22.5% by Teck, 33.75% by BHP, 33.75% by Xstrata, and 10% by Mitsubishi. Teck’s share of the Capex is US$290 million. The project will be funded by a combination of operating cash flow from Antamina and debt borrowed by the Antamina operating subsidiary. The Antamina expansion was widely anticipated following the 75% increase in ore reserves in 2008. While the NAV increase attributable to the expansion is not significant, the incremental $0.17 in EPS could be worth between $1.50 and $2.50 per share assuming a P/E range of 8x to 15x. RBC CM has increased its target price from $38.00 to $40.00 to reflect the incremental value. Teck offers investors exposure to coking coal, copper and zinc in a diversified Canadian mining vehicle. RBC CM believes the shares should be considered a core holding among Canadian mining shares. While Teck intends to further reduce its debt over the next 12 months, the company no longer has any balance sheet or liquidity problems and further asset sales are unlikely. Over the longer term, the company has assembled an interesting portfolio of projects in copper and oil sands to match its long life assets in coal and zinc. However, following the recent strong price performance, the shares appear relatively fully valued compared to the peer group on near-term earnings and cash flow; RBC CM therefore maintains its Sector Perform rating.