Proactive Investors - Teck Resources (TSX:TECKa) Ltd (TSX:TECK.B)'s sale of its interest in EVR to Glencore (LON:GLEN) marks its shift into a pure-play base metals miner, boosting its balance sheet strength and potential for capital returns, according to analysts who also see potential undervaluation in its shares.
The move also positions the company favorably in terms of its organic growth pipeline, according to analysts.
As Jefferies analysts write, the regulatory process “is proceeding in line with expectations.”
Closing in 2Q is possible, analysts believe.
“The US$6.9 billion of proceeds will be used to reduce net debt and to repurchase shares and/or pay dividends,” Jefferies writes.
Following Teck's commitment to allocate at least 30% of its available cash flow towards returns to shareholders, Jefferies sees an allocation of US$2 billion towards share repurchases utilizing the proceeds from the Glencore transaction, alongside the initial reduction of debt to achieve a net cash position on the balance sheet.
Despite Teck's plan to return a significant portion of its available cash flow and the potential upside for its shares, there remains a notable discount in the valuation of its copper business compared to its peers – as much as 16%, according to Jefferies. This suggests that Teck may be undervalued as it transitions into a pure-play base metals miner with strong growth prospects and significant potential for capital returns.
Teck's shares may be undervalued relative to its future prospects, potentially making it an attractive investment opportunity.
“The bottom line is that Teck is transforming into an undervalued copper miner with imminent de-leveraging and capital return potential, copper volume growth (to 550-620kt total production on a consolidated basis) and low geopolitical risk,” Jefferies noted.
“Given this unusual combination, we would not rule out Teck being a part of the broader trend of industry consolidation. Stay long.”