Teck Resources to benefit from weaker Canadian dollar

Everybody is looking for ways to play the weak Canadian dollar and rising greenback these days, and Greg Barnes at TD Securities highlighted the positive impact this should have on Teck Resources Ltd.

T he company r e por t s fourth-quarter 2014 earnings on Thursday.

Mr. Barnes noted that the weaker loonie is a tailwind for Teck since much of its cost base is in Canada. He estimated that every 1¢ change in the Canadian dollar/U.S. dollar exchange rate affects the company’s EBITDA by $62-million.

At the same time, since the bulk of seaborne coking coal comes from Australia and Canada, lower exchange rates reduce operating costs in local currencies.

The analyst said this will cut the pressure to shutter production despite the continued weakness in the U.S. dollar coal price.

American c oal producers, however, will feel more pressure.

Mr. Barnes estimates that roughly 50% of Teck’s consolidated operating costs are in Canadian dollars, approximately 40% in U.S. dollars and about 10% in other currencies.

He also noted that the company’s outstanding debt is denominated in U.S. dollars, and reported long-term debt is likely to substantially rise in Canadian dollar terms at year-end.

Teck’s guidance on the impact of the loonie is rather dated since it was last provided at the start of 2014 and is based on 2013 volumes and costs.

The analyst hiked his price target on Teck to $19 from $17, but thinks it is too early to overweight base-metals stocks since the global economy continues to struggle and the Baltic Dry Index is at a record low.