Teck Resources

Teck's 2026 second-quarter adjusted NPAT of CAD 948 million, or CAD 1.93 per share, increased fivefold from a year ago, mainly due to increased copper prices and volumes. However, the CAD 0.125 quarterly dividend stands, due to its upcoming all-equity merger with Anglo American to form Anglo Teck.

Why it matters: Guidance is maintained. While copper and zinc sales volumes are tracking broadly in line with our full-year estimate, copper unit cash costs are tracking well below our estimate, and we reduce our near-term forecasts accordingly. Our longer-term copper forecasts are broadly unchanged.

The bottom line: We retain our USD 36 fair value for no-moat Teck. While the updates to our earnings forecasts are mildly accretive, they are broadly offset by the additional value dilution from the merger with no-moat Anglo. The additional accretion to Anglo is minor. Lower near-term copper unit cash costs are broadly offset by reduced earnings from diamonds and metallurgical coal after incorporating the latest guidance. Anglo's fair value estimate remains GBX 2,300. Shares in both miners are expensive, driven by the copper price trading near historical highs at about USD 6.20 per pound. This is significantly above our USD 3.80 long-term or midcycle assumption from 2030 based on our estimate of the long-run marginal cost of production.

Coming up: While Anglo Teck will be one of the world's largest copper miners, producing around 1 million metric tons (its share) in 2028, this is only about 4% of global mined production. So we think it will likely receive final regulatory approvals led by China, with the merger on track to close between September 2026 and March 2027.

Between the lines: Teck's 60%-owned Quebrada Blanca 2, or QB2, copper mine in Chile continues to perform soundly, and we think it will ultimately ramp up to full capacity of around 180,000 metric tons (its share), from about 130,000 in 2026. It also has expansion options.

QB2 and Teck's significant copper growth pipeline are the major attractions for Anglo. Teck's copper division generated more than 80% of its second-quarter EBITDA. Soaring average realized copper prices of USD 6.09 per pound, up 40%, and 33% higher sales volumes saw divisional EBITDA increase 160% to around CAD 1.8 billion. Unit cash costs after by-product credits fell 19% to USD 1.64 per pound, helped by higher prices for molybdenum and silver.

Our fair value estimate for Teck is USD 36 per share.

Cuing off the futures curve, our assumed average copper price from 2026 to 2028 is about USD 6.00 per pound. Based on our estimate of the long-run marginal cost of production, we assume a midcycle price of about USD 3.80 per pound from 2030.

We also assume zinc prices of about USD 1.60 per pound midcycle from 2027 based on spot.

Our Teck valuation is based on a 8.6% weighted average cost of capital and 5.5 terminal enterprise value/EBITDA multiple.

We assign Teck Resources a no-moat rating. As a commodity producer, Teck is a price taker and needs low-cost mines with long lives and a low installed capital base to support the longer-term excess returns needed to justify an economic moat.

With a few notable exceptions including Quebrada Blanca 2, or QB2 (copper) and Antamina (copper/zinc), most of its mines aren’t low enough on their respective cost curves to be considered moatworthy assets. Much of its operations also have elevated invested capital bases, including QB2, which came in significantly over budget and requires additional investment to ramp it up to full capacity.

The company generated average return on invested capital of around 5% for the five and 10 years ended 2025. We estimate that Teck will generate midcycle returns in the mid-single digits, well below its weighted average cost of capital of 8.6%. Accordingly, we don’t assign a moat to Teck.

In terms of commodity prices, our midcycle assumption for copper is about USD 3.80 per pound from 2030 based on our estimate of the long-run marginal cost of production. We also assume zinc prices of about USD 1.60 per pound from 2027 based on spot.

In calculating ROIC, we have added back to invested capital CAD 10.5 billion in asset and goodwill write-downs taken over the past decade on the basis that these amounts relate to assets developed or acquired in the ordinary course of business and so should be included when calculating ROIC. Some of the more material amounts we have added back include CAD 6.2 billion in relation to oil sands investments in Canada (since sold), CAD 2.1 billion relating to the company’s steelmaking coal mines (also since sold), and CAD 1.3 billion relating to its zinc business. Even if we instead chose not to add back any write-downs, Teck’s midcycle ROIC would still be materially below its WACC.

Teck is materially increasing its copper production to take advantage of increased demand due to trends including decarbonization and electrification.

Teck's extensive copper growth pipeline is the main driver of its so-called merger of equals with Anglo American.

Once its 60%-owned Quebrada Blanca 2 mine reaches full production, Teck’s copper business in aggregate will likely sit around the bottom of the second quartile of the industry cost curve.

The sale of its metallurgical coal business in mid-2024 means Teck is less diversified by commodity, with copper representing the vast majority of midcycle EBITDA.

Capital expenditure to develop Quebrada Blanca 2 in Chile is dramatically over budget, with additional investment needed to finally get the mine to full capacity.

Teck lacks the scale of larger peers, such as BHP and Rio Tinto. With an increasing focus on leveraging technology to lower unit costs, Teck may be disadvantaged given a lack of relative scale.