Teck Cominco - Q1 2007 Update

This report lays out some of the reasons I like and have bought this stock. It does not constitute personalized financial advice. Please do your own due diligence or hire a financial advisor (if you're so inclined) before making any investment decisions. DISCLOSURE: Author is long this stock.

Teck Cominco released 1st quarter results that on the surface warrant cause for concern. Net income is down due to a number of factors:

negative pricing adjustments due to lower commodity prices
reduced production
increased costs
lower negotiated coal contracts at Elk Valley

In addition, the company is still struggling to monetize their gold assets. This quarter saw a net loss on their gold operations.

While we'd prefer better news, I don't think we should get overly agitated. The first quarter is traditionally a slow quarter for the company due to seasonal transportation issues at their largest mine. Actual operating cash flow was up once the pricing adjustments are accounted for (management has no control over commodity pricing). Commodity prices have rebounded as we've progressed through the year. The lowered production was expected as they modify some of their copper mines. And another gold mine has finallly reached commercial production levels.

Management laid out a strong case for the strong fundatmentals underlying the zinc and copper markets and long-term, Teck still looks strong. In any case, the stock split 2-for-1 and is up nearly 20% so there's not too much to complain about other than it's moved away from me before I got my full allocation. Predictions are pretty useless but it wouldn't surprise me if the stock came back down close to our accumulation range in the next few months. If it does, I'll be buying more.

DISCLOSURE: Author is long this stock.

The Enlightened American

Teck Cominco - Q1 2007 Update