Use access key #2 to skip to page content.

njbrown113 (< 20)

TMFSinchiruna.. I need help!!

Recs

10

March 03, 2009 – Comments (20) | RELATED TICKERS: TCK , BAC , C

Quick question for you TMF Sinchirua,

 I just read your article about Teck Cominco and how there underperforming the banks. I really could use some of your advice, I hear your the mining guru.

I have 30,000 shares invested with teck that I bought at $4 and was wondering what in the world I should do with them. Should I average down, just plain sell them now, or do you see a pontential upside to owning this stock.

What do you see in Teck's forecast for the next few months?

I thought that this was a good buy, but really starting to second guess myself. Any advice would be helpful, and all other fools who would like to help, please do, I appreciate all the help from everybody.

You can see my comments on the article you wrote.  Thanks so much for the help!

Fellow fool

20 Comments – Post Your Own

#1) On March 03, 2009 at 5:38 PM, njbrown113 (< 20) wrote:

any and all advice about Teck Cominco is welcome. Hopefully its good news...

Report this comment
#2) On March 03, 2009 at 5:50 PM, njbrown113 (< 20) wrote:

...anybody?

Report this comment
#3) On March 03, 2009 at 5:56 PM, EggplantWizard (99.46) wrote:

Teck never planned to pay their debt off immediately when they purchased Fording. The problem is that the decline in the price of coal, copper, and zinc (but primarily coal) paired with global credit contraction has made it impossible for them to refinance their bridge loan.

Based on their actions so far, it looks as though Teck will manage to pay down $4-5bn of the ~$8bn bridge loan through a combination of suspension of the dividend, profits from operation, the tax refund, and the sale of Lobo-Marte El Brocal and Helmo.

It's widely expected that they'll need to do one of the following to make the deal work, all of which are very bad for shareholders:

1) sell a part of Teck Coal

2) dillute existing shareholders (at current prices, this isn't looking very appealing)

3) sell bonds at insane interest rates

None of these are very good -- and that only takes them through the *bridge* loan -- they'll have $4bn more of debt to pay off at a more leisurely rate (and more than that if they choose debt financing -- if that's even possible for them) -- but will either be saddled with high financing costs or have dramatically lower productive capacity, in an uncertain commodities market.

That said,  personally, I believe commodities are headed up long-term, and probably not terribly-long term with all the inflationary monetary policy, which should be good for Teck's future earnings prospects, but not so much for their key coal contract, which I'd guess is likely to fix their coal around $140 / ton for 2009 -- a reduction of about 50% from 2008 levels. The prices of zinc and copper still matter, of course, but since the Fording purchase, they're less material to Teck's operations.

Because no one can predict *if* there will be a buyer for a reasonable enough price for one of Teck's key assets or *if* the banks will be willing to re-negotiate the bridge loan (which I see as doubtful because there are 21 banks involved, and all would have to agree), or *if* Teck will be able to raise money via a bond issue at rates that are even vaguely acceptable (note that they're one step above Junk credit at the moment, with a negative outlook from both Moody's and S&P), Teck should be considered *very highly speculative* -- if an economic recovery doesn't at least begin coming by October, there's a good chance that they'll be forced into liquidation.

That said, I do not believe that bankruptcy risks are being underpriced in Teck's current shareprice -- you may analyze things differently and disagree with me -- but neither of us can be sure, as it's a bit of a fuzzy metric -- that's why the share price is so low. IF Teck could refinance, even at usurious rates, but had any assurance of survival, I'd imagine that the share price would be at least a factor of 10 above the current level -- but that's not the case.

I'm remaining long here, and am in for a relatively significant portion of my portfolio (or at least that segment which I devote to speculative plays), as I see Teck as having one of the more promising risk to reward ratios of all of the companies in a similar position out there -- but to be honest, the prices they got for the asset sales that have already been anounced are more than a bit concerning. You shouldn't have any money in Teck that you can't afford to see disappear. If you do, sell at a loss.

I wouldn't average down if it's going to upset your asset allocation or over-invest you in Teck, as there is still a serious risk of insolvency here that results in a loss to equity holders (though I suspect that there would be substantial retained value, even in the common stock in the worst case -- my best estimate is about $1.50 / share, but it's impossible to know without knowing the liquidation prices of Teck's assets in the event of insolvency -- there is no guarantee of any retained value if it comes to that.

Report this comment
#4) On March 03, 2009 at 5:59 PM, goldminingXpert (29.46) wrote:

30,000 shares. Geez that is a lot for someone going to an internet website for advice. TCK has two outcomes possible. Either A) it goes bankrupt and your stock is worth zero (this is highly likely.) or B) it survives and is worth multiples of what you paid for it (easily $10+). This outcome is less likely. However, the depressed prices of oil, coal, zinc, and copper are likely to sink this company with it's billions of $$$'s of debt before the economy turns around. If you need the money for something, sell now, if you enjoy gambling, and losing $90k won't hurt your lifestyle, then by all means hold if you feel inclined.

Report this comment
#5) On March 03, 2009 at 6:06 PM, edzel48 (< 20) wrote:

I think.. that .. they will get thru those trouble... and they will be able to get high again... coal from Fording will be in great demand soon..  Edzel

Report this comment
#6) On March 03, 2009 at 6:07 PM, njbrown113 (< 20) wrote:

Well Im getting advice from alot of people, but I do value alot of peoples opinions on here, I think alot of you bloggers (goldminingXpert) have great knowledge when it comes to opinions on certain stocks. Just getting the most advice I can, and will figure out my outcome here shortly. Thanks for the help though.

Report this comment
#7) On March 03, 2009 at 6:09 PM, goldminingXpert (29.46) wrote:

they will be able to get high again

Michael Phelps style? ;)

Report this comment
#8) On March 03, 2009 at 6:12 PM, XMFSinchiruna (27.47) wrote:

njbrown113

I copy here my response to the same question you posed through the comments section on my recent update on Teck.

I can not offer advice on specific trades, so I will defer you to the CAPS blogs or the discussion boards. If you're already a CAPS member, I suggest you go and post the very same question to the community of your fellow Fools using the blogs. No matter how you slice it, yours could be a difficult question to answer, but a number of varying viewpoints could prove useful.

Here's what I can say:

Take a close look at the Galore Creek project with NovaGold. I found it very interesting that Teck recently agreed to foot the bill for the project over the near-term. I'll let you make your own interpretations of that news, but I saw glimmers of a company that is perhaps looking farther afield than this calendar year.

Teck also indicated that they have seen evidence of significant interest from potential buyers of a stake in the Elk Valley project. While it's unappetizing to say the least, selling a stake in the former Fording assets could certainly help alleviate a chunk of the company's debt crisis.

If Teck were to survive, it would remain but a pale reflection of its former self, but priced near the cash balance I see shares priced for failure... so upside would be a given. I feel no sense of certainty about either outcome for Teck, so I'm afraid I'm not of much help in this case.

So much depends upon what happens to demand, and prices, for copper and coal. Those factors in turn depend heavily, in my personal opinion, upon the impacts of China's stimulus spending and stabilization of industrial growth there from principally internal demand.

 

Report this comment
#9) On March 03, 2009 at 6:13 PM, edzel48 (< 20) wrote:

I am buying now... not selling!!!

Report this comment
#10) On March 03, 2009 at 6:13 PM, njbrown113 (< 20) wrote:

your hilarious, on a serious note, do you think they will bounce back up to $4. its been a roller coaster with this stock. Just seeking advice.

Report this comment
#11) On March 03, 2009 at 6:19 PM, EggplantWizard (99.46) wrote:

njbrown113:

I understand your anxiety -- but I don't think that anyone can tell you if Teck will bounce back up to $4. In the event that they resolve their debt problems, or sell some assets at more favorable prices, yes, they probably will.

If They don't begin making progress toward their debt payment, it could still happen of course, but I'd think that the general trajectory would be down in that case. Obviously, there is a floor on the share price until they actually announce bankruptcy or default on their bridge loan, but I can't tell you if we're anywhere near it, because at the minimum there's implied value in whatever the probability of Teck reaching a successful resolution of their issues is (if the market loses all faith in the company, it will begin trading like an option. This may or may not have occured already)

Losses are rough, but in general, if you no longer have confidence in Teck's prospects, or find yourself overallocated, you should sell and find other opportunities -- it's easier to make up opportunties than losses, after all, and running the risk of extending your loss just to have a chance to sell closer to your cost basis, if that's your decision, probably isn't a great move. (Unless you believe in TA, and there are TA related reasons for buying / holding at the moment -- I'm answering from a fundamental perspective).

Report this comment
#12) On March 03, 2009 at 6:24 PM, njbrown113 (< 20) wrote:

TMF Sincharuna

Thanks for insight, it means alot to take the time to help and give your knowledge about this Company. Thanks again

Eggplantwizard

Thanks for the fundamental perspective, im still not sure what im going to do, but none the less, thanks for the help and insight, it means alot.

Report this comment
#13) On March 03, 2009 at 6:31 PM, XMFSinchiruna (27.47) wrote:

njbrown113

In his response, EggplantWizard exhibits a detailed and nuanced understanding of the company's predicament. I would not envision as huge a recovery as he suggests in the event of survival (10-fold would bring it back to where I bought in... which is not something I consider very likely). 

On the other hand, I am perhaps slightly less pessimistic about the company's survival prospects than "goldminingXpert". He's also calling for $500 gold, so be careful to weigh the underlying assumptions of those whose advice you absorb.

I consider a strong rally in copper and coal entirely plausible going forward, though insufficient visibility exists again to make any helpful forecasts for when or how. Personally, I see dollar weakness looming which would send commodity prices rising even if demand only stabilizes. If demand from China were to recover to even a fraction of its former glory, and the stimulus plan certainly doesn't hurt its chances with respect to copper and coal, then desperately needed cash flow could fow more swiftly into Teck's coffers and perhaps assuage the fears of lenders.

There are more 'ifs' in the above statement than I care to count, which is precisely why I don't envy your position. My role here is to lay out as many of the parameters as I can for you to consider.

Here are some of my recent articles touching upon related topics:

http://www.fool.com/investing/general/2009/02/13/coal-and-the-edward-scissorhands-dilemma.aspx

http://www.fool.com/investing/general/2009/02/13/can-obamanomics-save-terex.aspx

http://www.fool.com/investing/dividends-income/2009/02/13/the-midnight-ride-of-patriot-coal.aspx

http://www.fool.com/investing/general/2009/02/06/copper-is-conducting-some-excitement.aspx

http://www.fool.com/investing/general/2009/02/05/coal-fires-masseys-earnings.aspx

http://www.fool.com/investing/value/2009/02/03/your-bridge-over-troubled-water.aspx

http://www.fool.com/investing/general/2009/02/02/the-scariest-balance-sheet-of-all.aspx

http://www.fool.com/investing/value/2009/01/30/does-usg-have-the-eye-of-the-tiger.aspx

http://www.fool.com/investing/general/2009/01/29/us-steel-will-be-under-stimulated.aspx

http://www.fool.com/investing/general/2009/01/29/railroads-brakes-beginning-to-screech.aspx

http://www.fool.com/investing/dividends-income/2009/01/09/when-the-schnitz-hits-the-fan.aspx

http://www.fool.com/investing/international/2009/01/09/peabody-cross-trains-for-the-ultimate-contest.aspx

http://www.fool.com/investing/international/2008/12/22/the-case-for-coal-in-2009.aspx

http://www.fool.com/investing/general/2008/11/28/bargain-stocks-for-black-friday-southern-copper.aspx

 

Report this comment
#14) On March 03, 2009 at 6:43 PM, njbrown113 (< 20) wrote:

Thanks again, I appreciate the help.

Report this comment
#15) On March 03, 2009 at 9:58 PM, Bays (30.06) wrote:

Great response Eggplant... 

Sinch, good article

Here I was getting frustrated with just a meesly 500 shares.  30,000 shares is a lot for a spec play, but if you got the money and can handle the risk good for you.  Ill risk my 500 shares, but I would consider selling a portion of my 30,000 if it helps you sleep better at night.  Like Eggplant said, this is a tough environment for companies who are in a lot of debt.

TC has no debt and seems to be in good position to whether this storm.  They were the only company who popped up on a screen I did here on CAPS.

CAPS Rating
5 - 5 on 2009-03-02 Price-to-Earnings (TTM)
<= 4 Price-to-Sales (TTM)
<= 1 Price-to-Book (TTM)
<= 1 LT Debt-to-Equity Ratio
<= 1 Current Ratio
>= 4 Gross Margin
>= 25 Return on Equity (TTM)
>= 25

Although I don't own any shares, I'd like to dig a little deeper to see if I should be buying some.

Sinch :  have you wrote anything on TC?

Report this comment
#16) On March 12, 2009 at 4:52 PM, lquadland10 (< 20) wrote:

If the dollar tanks then comedies will go through the roof. Something you will need to take into consideration.

Report this comment
#17) On March 20, 2009 at 2:15 PM, XMFSinchiruna (27.47) wrote:

njbrown... was thinking about your plight today, and wondering whether you held on to enjoy this gain?

If so... you lucked out Big Time... :)  timing-wise that is. I suppose Bernanke is your new best friend. :P

Anyway, I hope it worked out well. Let us know.

Report this comment
#18) On March 28, 2009 at 3:45 PM, njbrown113 (< 20) wrote:

oh yah, I held on to it, it took off like a freakin rocket, actually still own it all 30k shares, have sell order if goes back to 6 bucks, so I made some dough, I appreciate the help and really oh you guys big time. Thanks again

Report this comment
#19) On November 14, 2009 at 11:01 AM, njbrown113 (< 20) wrote:

TMF Sinchiruna,

Still own all 30,000 shares, Selling them all on Monday.  $900,000 profit.  Really just want to thank you for your help and insight. 

Report this comment
#20) On November 14, 2009 at 11:43 AM, XMFSinchiruna (27.47) wrote:

njbrown113

Holy Moly! Glad I could be of service. :)

Here's my latest article on TCK:

http://www.fool.com/investing/general/2009/10/29/teck-enjoys-a-new-lease-on-life.aspx

And based upon that stellar cash flow potential from Elk Valley in the context of a tight global market for met coal, I added TCK to my list of five coal stocks for the next 20 years:

http://www.fool.com/investing/general/2009/11/11/5-top-coal-picks-for-the-next-20-years.aspx

Looking back over my comments from last March, I found this paragraph interesting. That pretty much sums up how it ultimately played out, but I lacked your speculative spirit to take a chance on such an indebted company.

I consider a strong rally in copper and coal entirely plausible going forward, though insufficient visibility exists again to make any helpful forecasts for when or how. Personally, I see dollar weakness looming which would send commodity prices rising even if demand only stabilizes. If demand from China were to recover to even a fraction of its former glory, and the stimulus plan certainly doesn't hurt its chances with respect to copper and coal, then desperately needed cash flow could flow more swiftly into Teck's coffers and perhaps assuage the fears of lenders.

Congratulations on landing the big fish, and bravo for locking in profits at this point (I never would have been able to wait this long, either. I would have locked in profits sometime during the summer when I first started perceiving the broader equity rally as fundamentally overextended). You can see it in my silverminer portfolio ... a conservative bent within my approach that sees me commonly closing out gains before the greatest gains are made. I care more about accuracy and repeatable results than squeezing the most gain out of every trade, so I play my non-core picks in and out within trading channels while leaving room for error.

Yours was a visionary trade that overcame enormous risk to reward you handsomely ... well done!

Report this comment

Blog Archive

2009
March (1) January (2)

Featured Broker Partners


Advertisement