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Media Co-op Investor: June

Digging Around the Mines of Teck Resources Ltd.

by Geordie Gwalgen Dent

Media Co-op Investor: June

Welcome to Media Co-op Investor!

The Media Co-op Investor Series aims to help the general public understand the stock market, how it works and the major companies which benefit from it.

Every two weeks (or once a month) we examine an element or term in the stock market, how the Toronto Media Co-op has done fake-investing in companies on the Toronto Stock Exchange as well as highlighting specific large Canadian Companies, why their price has gone up and down and what they are all about.

To learn more go here.

This Weeks Term:  Exchange Traded Funds (ETF's)

All the rage for those ready to move along from Mutual Fund fever, ETF's or Exchange Traded Funds have been trumpeted for the last year by the Globe and Mail, Financial Post and most major investment companies looking to hook up small time investors into the next big thing.

Like a mutual fund, ETF's are simply pools of money which are invested in a variety of different financial products: stocks, commodities, bonds, etc.  They differ from mutual funds in one key respect, mainly that the funds themselves can be bought and sold traded on stock exchanges for more or less than the products within it might be worth at the time.  

Only major investors can get involved with ETF's however a number of large investment institutions can buy them (the buying process is difficult to explain).

The boom in ETF's is largely attributable to two things: they have extremely low fees (0.1%) compared to mutual funds (1-3%) and they allow investors to diversify.  As such, they've become so popular in Canada(where some of the first successful EFT's were ever created) that the Globe and Mail has their own web-section devoted to them.

Of course, ETF's are not without their detractors.  Several reports came out in April from the Financial Stability Board in the UK, the International Monetary Fund and Bank of International Settlement warning of some types of ETF's being potential and powerful sources of "contagion and systemic risk".  In addition several other investors have claimed that ETF's dedicated to gold and corporate bonds are setting up price bubbles which will inevitably pop.

This concern about 'bubbles' is what has a number of pundits irked by ETF's.   The inflows of money coupled with the fact that they can be prone to stock market speculation and the fact that they can be used to manipulate prices have some fearing that the money flowing into them could lead to another crisis.

But the madness continues.  Six EFT's have just been launched today by PowerShares on the TSX.

What we invested in this week

This week we tracked our largest Canadian Mining stocks.  We theoretically-bought about $1000 worth of each company on September 15th.

How we did this week

Good.  Our mining stocks have outperformed our other portfolios and are running at a 12.5% return.  
Surprisingly, very few of the major extractive stocks have seen any decline since last September.  

Around the world, economic dark clouds are on the horizon even though most folks don't seem to be focusing on the 'fundamentals' of the economy.  

The US is currently facing a fight around its debt ceiling, while Portugal's credit rating has been reduced to junk-bond status.

Chinese companies listed in North American exchanges had been feeling heavier scrutiny, and TSX-based Sino-Forest was at risk of a heavy drop-off in its stock price because of this.  Luckily for them, a US investor bought up a bunch of their shares stabilizing their price.  

While income from rental properties continues to be strong and while rents continue to rise across North America, Royal LePage and a number of other real estate companies are warning that the housing market is too hot (i.e. prices are too high and the bubble will soon burst).  Continued investment from China and the Middle East has sent housing prices soaring, but if that goes down, there will be a whole bunch of empty houses lying around.

Food prices have returned to their highs from a few years ago causing quite a stir.

Finally, the situation in Greece shows how precarious the whole banking sector is.  Facing 30% interest rates on their debt and a possible default if they were not able to pass austerity measures at their last parliamentary session Greece did hammer through a massive package of cuts and privatization at the urging of the IMF and European Central Bank.  While they were able to get much needed loans to keep the country afloat, talks have actually turned to forcing private banks to lose money on Greek debt.  Banks only took a small 'haircut' and only in France, but the fact that this option is on the table is new.

Todays Company: Teck Resources

Like several other Canadian mining giants, Teck Resources Ltd. is based in Vancouver, Canada and focuses on mining mostly coal, copper and zinc.

Teck was founded in 1913 to develop a mine in Kirkland Lake, Ontario.  Like several of the major TSX companies, it has a railway connection.  It merged with Canadian Pacific Railway-controlled Cominco in 2001 to become Teck-Cominco before rebranding itself as Teck Resources in 2009.

While most of their mineral exploration takes place in BC, Alaska, Chile and Peru, Teck also has an extensive presence in the Tar Sands.  They are also undergoing major exploration in Mexico, Australia and Africa.

It's operations in Latin America have seen Teck support the Columbia-Canada Free Trade Agreement.  Teck signed a letter along with 7 other mining giants in 2008 trying to push the agreement forward.

While Teck is currently doing well, it almost collapsed in 2008 after buying a massive coal trust.  Teck assumed almost $10 billion in debt forcing it to stop paying dividends, and lay off 1,400 jobs in Canada as the demand for steel (and the coal used to refine it) went down.

As a mining company, Teck is probably best known outside of the investor community for its commitment to damaging the environment.  It's been an impressive commitment.

It's been sued for multiple contaminations of the Columbia River with lead from its Trail, BC zinc smelter in 2003 and 2008.  In 2010 they contaminated both the the Columbia river and Stoney Creek with mercury and leachate continually drawing the ire of Washington State residents and the Colville first-nations.

It's Red dog mine is considered to be one of the most heavy polluting facilities in the US according to the U.S. Environmental Protection Agency.  Last year, it's Greenhils mine in Elkford BC had a tremendous explosion shutting the mine down for an extended period.

Carmen de Andacollo, a Teck subsidiary, has been accused of major polluntion over the last decade in Chepiquilla, Chile.  The company recently initiated a tailing piles clean up project in the area.

The company has set about trying to clean up its image and become an 'industry leader' in environmental initiatives.  It's done several high profile clean-ups and paid millions in fines, winning awards for its environmental practices.

Naturally, last month, on June 13th, Teck leaked 25 cubic meters of lead solution into the ground at their Trail plant.  

Sigh.

We fake-bought Teck Resources shares in September for $40.07.  With rebounding commodity prices in the last 2 years, the shares have risen to $50.98 for a gain of 27% or $272.

Archive

September: Potash Corp

September #2: Suncor and ARC Energy Trust

October: Shoppers Drugmart and Barrick Gold

October #2: Scotiabank and Power Corporation of Canada

November: Cameco Corp and TransCanada Corp

December: Saputo and Bombardier

December #2: First Quantum and Manulife Financial

January: Quarterly report

February: Magna

March: Brookfield Asset Management

April: CN Rail

May: Gildan Activewear

 


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