Copper already accounts for about 25% of overall revenue at Teck Resources Ltd., but the base metal’s role in the company’s portfolio should become even greater after 2014.
Deutsche Bank’s Jorge Beristain, who was part of a group of analysts that recently toured two of Teck’s copper assets in Latin America, noted that ongoing expansion in the region points to approximately 25% in additional copper output from Teck by 2014 and more beyond that date.
Three mines – Antamina in Peru, Carmen de Andacollo and Quebrada Blanca 2 (both in Chile) – account for about 60% of Teck’s copper output and the lion’s share of its production growth in the metal going forward.
So while Mr. Beristain expects Teck to become a formidable copper producer post-2014, he noted that the cost of the company’s expansion is extremely varied and clearly rising.
For example, the Carmen de Andacollo expansion is running at $2.50 per pound of capex, brownfield expansion at Antamina is at approximately $7.50, while Quebrada Blanca 2 could possibly run as high at $13.50.
“Hence, even despite Deutsche Bank’s bullish outlook for cooper, the return-on-capital employed for each project will vary significantly,” mostly due to the amount of invested capital, Mr. Beristain told clients.
For this reason, the analyst continues to believe that it may be cheaper for Teck to buy new mining capacity than build it.
Deutsche Bank rates Teck shares at buy with a US$50 price target.