Teck's San Nicolas, Zafranal projects could go up for sale in 2019

Teck Resources Ltd. will "likely" sell or partner on one or two of its more advanced projects later this year or early in 2020, Teck President and CEO Donald Lindsay said during an April 23 conference call on the back of a profitable first quarter.

"It is a logical time for us to start discussions," said Lindsay, who noted the company had received interest in some of its projects.

The two advanced projects are the Zafranal copper-gold project in Peru and the San Nicolas copper-gold-zinc-silver project in Mexico. Teck expects to publish a feasibility study on Zafranal soon and complete a pre-feasibility study of San Nicolas by the end of 2019.

Lindsay said Teck does not have a specific timetable for possible sales, and it has yet to start a formal process, although it could this year. "We are in no rush."

In terms of development projects, Teck's focus remains squarely on the QB2 copper project in Chile, which it aims to bring into production in 2021. Otherwise, Lindsay said Teck is not on the hunt for more mines to buy and build.

Considering more metallurgical coal

Beyond QB2, this year Teck also plans to make a decision on the development of the higher-cost Mackenzie and Redcap areas at the Cardinal River metallurgical coal mine in Alberta. Lindsay said it is too early to say whether Teck will go ahead with the project, but the board of directors will discuss the decision at its upcoming meetings.

Mackenzie and Redcap are higher cost, yet with strong metallurgical coal prices in recent years, the margin could still make for profitable production.

"You could think of it almost as a swing producer," Lindsay said.

Mackenzie and Redcap would add about 1.8 million tonnes of annual output, with some analysts seeing value. "If approved, this volume would be accretive to our estimates," Scotiabank analyst Orest Wowkodaw said in an April 23 note.

Teck remains bullish on copper. Lindsay said that with the apparent progress in Chinese-U.S. trade talks, the outlook for the next six to 12 months is "as positive as it has been for some time when it comes to copper." He also expects copper market deficits to deepen over the next few years, bolstering the value of production and projects in Teck's pipeline.

Lindsay also noted continued strength in zinc and metallurgical coal markets.

Potential for higher dividend

Teck plans to revisit the question of additional cash returns to shareholders at a board meeting at the end of May once it has signed a loan agreement related to the QB2 development, Lindsay said. It is also considering further debt repayments with an eye to its 8.5% 2024 notes.

"It's not an either-or situation; we're looking at both," Lindsay said, adding that Teck has a strong incentive to pay back the 2024 notes given the low interest rate environment.

A number of analysts held steady on their Teck share-price targets following the first-quarter results. Jeremy Sussman, an analyst with Clarksons Platou Securities, remained "neutral" on Teck with a C$32 target price on the stock but expected the estimate "to move up slightly on the solid quarter." Jackie Przybylowski, a BMO Capital Markets analyst, maintained a C$48 target with an "outperform" rating.