Teck Resources: America’s Ally in Rare Earth Elements

Key Points

• China banned the export of rare earth elements germanium, gallium, and antimony on December 3, 2024.
• The United States is looking to fortify its supply chain of rare earth elements necessary for semiconductors, solar panels, and ammunition.
• Canadian miner Teck Resources is the largest producer of germanium in North America.

China flexed its muscles in the tit-for-tat technology resources squabble as they banned certain rare earth mineral exports to the United States. Specifically, they banned the sale of germanium, gallium, and antimony, effective immediately on December 3, 2024. These rare earth elements are key components used for products and applications in the computer and technology, aerospace, and auto/tires/trucks sectors. While China is the largest producer of rare elements in the world, there are other providers. Teck Resources Ltd. NYSE: TECK is a diversified Canadian mining company focused on the production of zinc and copper with operations in North and South America and Asia.

Producing Byproducts Like Germanium for Fiber Optics and Solar Panels

Teck Resources is a beneficiary of the Chinese ban on exports of certain rare earth elements. Notably, they are North America’s largest producer of germanium. Germanium is a byproduct of zinc, making Teck a significant producer with the potential to increase their output to meet rising demand. Germanium is crucial in the core of fiber optic cables due to its high refractory index, which allows it to transmit data effectively as light signals over long distances.

Since it’s transparent to radiation, germanium is essential for infrared lenses, windows, and detectors for applications like thermal imaging cameras, infrared spectroscopy, and night vision devices. Germanium is a crucial element in high-efficiency solar cells due to its ability to convert sunlight to electricity more efficiently than conventional silicon.

Gallium and Antimony Production

China produces 80% of the world’s gallium. Trace amounts of gallium are found in zinc ores and bauxite, the main ore of aluminum. While Teck doesn't produce a significant amount of gallium, the United States allies and trading partners Germany, Ukraine, and Kazakhstan are minor suppliers. Gallium is a key component in compound semiconductors, optoelectronics, solar cells, and integrated circuits. Neo Performance Materials Inc. OTCMKTS: NOPMF is a Canadian producer of gallium.

Teck produces antimony as a byproduct of its lead-zinc smelting operations. Antimony is used as a flame retardant by being added to materials like plastic, building materials, electronics, and textiles to make them less flammable. It’s also used in ammunition and lead-acid batteries.

Despite Lower Revenues, Q3 Beat Top and Bottom-Line Consensus Estimates

For Q3 2024, Tech Resources reported EPS of 45 cents, beating consensus estimates by 16 cents. Revenues fell 20.6% YoY to $2.12 billion versus $2.05 billion consensus estimates. Record copper production as Quebrada Blanca helped drive $986 million in adjusted EBITDA. The company completed the sale of its remaining 77% interest in the steelmaking coal business. Copper production achieved another record quarter with 114,500 tonnes. The company ended Q3 with $7.8 billion in cash.

For 2024, the company’s production guidance for copper is 420,000 to 455,000 tonnes, zinc is 565,000 to 630,000 tonnes, and 240,000 to 250,000 tonnes of refined zinc.

Teck Resources CEO Jonathan Price commented, "The third quarter marked a new era for Teck as we successfully transformed into a pure-play energy transition metals company with leading copper growth." Price concluded, “We closed the sale of our remaining interest in the steelmaking coal business and have returned over $1.3 billion to shareholders so far this year while also reducing debt and ramping up copper production."

TECK Triggers a MSL Buy, But a Potential Bear Flag Looms

A bear flag pattern forms after a dead cat (temporary) bounce, as it forms parallel upper and lower ascending (rising) trendlines. The breakdown triggers when the stock collapses through the lower trendline as the downtrend resumes.

TECK formed a market structure low (MSL) buy trigger on the bounce through $41.48 after a sharp selloff. The MSL is a reversal pattern comprised of a low, lower low, and higher low, with the trigger forming on the breakout through the high of the higher low candle, which was $41.48. TECK formed a parallel channel comprised of an ascending upper trendline resistance and an ascending lower trendline support. The daily anchored VWAP support rises to $41.71. The daily RSI is powering up at the 54-band.

Fibonacci (Fib) pullback support levels are at $41.48, $39.75, $37.96, and $34.13.

TECK stock’s average consensus price target is 49.8% higher at $64.73, and its highest analyst price target sits at $80.00. It has six Buy ratings and five Hold ratings from analysts. The stock has a 1.18% short interest.

Actionable Options Strategies: Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip. If assigned the shares, then writing covered call at upside Fib levels executes a wheel strategy for income on top of its 0.81% dividend yield.