It is what it is hunker down for the long wait.

Teck Resources Ltd.

(TCK.B-T, TCK-N) C$17.38

Bonita To (Associate)

Market Data (C$)

Coal Market Weakness Returns Focus to Dividend; M&A Unlikely

Event

Teck management hosted an investor day in Toronto on Tuesday, March 31.

Impact: NEGATIVE
China view most muted we have heard from Teck — Don Lindsay recently returned from China and his perspective was the most downbeat we have heard from the company in some time. On the China macro front, he noted that the transition to consumer-led growth in demand is underway, but that it has a long way to go. Ultimately, this transformation of the economy should be positive for demand for copper, zinc, and oil as consumer demand for these commodities in the form of white goods and energy consumption should drive long-term demand. However, for the more capital-intensive steel sector (and demand for iron ore and coking coal), the outlook is less promising. In Teck’s view, steel production in China is close to peaking at ~850 million tonnes per year.

M&A unlikely — Teck has made no secret of its interest in acquiring a copper asset. But management is focusing on finding an under-managed producing asset where it can surface value. We believe that a larger transformative-type transaction (e.g. merger with Antofagasta) is very unlikely, based on management’s comments. Don Lindsay noted that Teck has closely monitored recent transactions in the copper sector, but could not find a value-accretive situation.

Dividend to be reviewed at upcoming board meetings — With coking coal market fundamentals appearing to be weaker — the spot price has declined to ~US$95/t and the market remains oversupplied — we expect that the board will review the current dividend at the next board meeting in late-April. A decision on whether or not to reduce the dividend could be postponed until mid-June — the next semi-annual payment of dividend will be in mid-July. We believe that a reduction in dividend is likely — we have assumed that it will be reduced by 50% to $0.45 per annum. With a cut in dividend widely expected, we do not expect a material share-price response when it finally happens.