TSX Commentary

Teck Resources (TCK.B) – $34.50 – Q4/09 Results Fall Short of Expectations
Sector Perform, Average Risk
Teck’s Q4/09 was weaker than expected: Teck reported adjusted Q4/09 EPS from continuing operations of $0.53 versus consensus of $0.65. Excluding prior-period pricing adjustments, EPS was $0.43 versus $0.58 in Q3/09 and $0.95 in Q4/08, well short of RBC CM’s estimate of $0.73. Shortfalls at Teck Coal and Trail and higher costs account for the bulk of the shortfall versus RBC CM’s expectations: Lower coal sales volumes and prices than assumed accounted for $0.13 of the shortfall in EPS and higher SG&A accounted for another $0.08. The remaining difference was due to slightly lower sales at Highland Valley and Red Dog, poorer results at Trail, and higher costs in the copper operations than RBC CM had anticipated. At the end of Q4/09, Teck had cash on hand of $1.3 billion, total debt of $8.0 billion, and net debt/total capitalization of 29.6%. Following the closing of the sale of the Andacollo gold royalty, the Turkish gold properties and the one-third interest in the Waneta Dam in Q1/2010, debt will be reduced a further $1.3 billion to $6.7 billion. Remaining scheduled term loan repayments are expected to be US$440 million in 2010, US$420 million in 2011, and US$280 million in 2012. While Teck is now in a fairly strong financial position following the completion of the asset sales program, there was no mention of reinstating the dividend. Teck will host a conference call on Tuesday, February 9, at 11:00 a.m. ET. Dial-in number: 416-695-6616. While the results fell short of RBC CM’s expectations, RBC CM does not expect to have to significantly reduce its forecast earnings and cash flow at this point. RBC CM will review its estimates and outlook following the conference call.