Company stock valuation using DCF and multiples method, and also a WACC method

1. Diversified mining company operating in North
& Sounth America
Focus on the steelmaking coal, copper and
zinc.
Traded on the Toronto Stock Exchange and
the New York Stock Exchange
ResourcesLtd.
1/12

2. •Long developmenttime of for new revenues
•Relianceoncommodity Prices
•Highfixed costs
•High CapEx
2/12

3. P/E
weighted 33.3%
ForwardP/E
weighted 33.3%
Target
Price
Valuation methodology
EV/EBITDA
weighted 33.3%
Comparables
weighted 50%
DCF
weighted 50%
3/12

4. Benchmark P/E Forward P/E EV/EBITDA
Rio Tinto PLC 13.77 11.31 6.3
BHP Billiton 18.88 13.95 6.6
Glencore PLC 30.91 10.87 9.26
Anglo American PLC 6.25 7.97 3.79
Average 17.4525 11.025 6.4875
P/E TTM of Teck Resources
7.16
EV/EBITDA TTM
4.18
Source: morningstar.com
Multiples
4/12

5. Multiples
5/12
P/E
weighted 33.3%
17.4525
ForwardP/E
weighted 33.3%
11.025
EV/EBITDA
weighted 33.3%
6.4875
58.21

6. Market Risk Premium – 5.69%
Risk-free rate – 2.38%
Credit Rating – BB+
Beta of Debt – 0.17
Beta of Equity – 1.35
Debt Cost of Capital –
3.35%
Equity Costof Capital– 10.06%
WACC – 7.82%
Sources:
Market Risk Premium
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
US T-Note10yr
https://www.bloomberg.com/markets/rates-bonds/government-bonds/us
Credit Rating
https://www.standardandpoors.com/en_US/web/guest/ratings/entity/-/org-details/sectorCode/CORP/entityId/119547
Beta of equity
https://www.reuters.com/finance/stocks/overview/TECKb.TO
WACC
6/12

7. DCFRevenueestimation
• Profit is typically more sensitive to changes in
revenue than itis to changes in cost due to the high
fixed cost nature of the business.
• Commodity price is a principal determinant of
revenue, but itis also the factor with which the
greatest level of financial risk is associated.
Zinc
Copper
Lead
200
400
600
800
1000
0
2012 2013 2014 2015 2016 2017
2018
2019
2020
2021
Production levels,000 tonnes.
24
25
27
26
28
23
2012 2013 2014 2015 2016 2017 2018 2019
2020
2021
Production levelssteelmakingcoal, mil.tonnes.
5
10
15
0
2012 2013 2014 2015 2016 2017 2018 2019
2020
2021
Production levelsmolybdenum,mil.pounds
7/12

8. DCFRevenueestimation
Zinc
Lead
Copper
8000
7000
6000
5000
4000
3000
2000
1000
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
Price estimates,$USpermt
107
108
109
110
106
2020
2021
Price estimates steelmakingcoal, mil.mt.
5
10
15
0
2012
8/12
2013 2014 2015 2016 2017 2018 2019 2020 2021
Price estimates molybdenum,mil.pounds
World Bank Commodities Price Forecast (nominal US dollars) Released: October 26, 2017
KPMG, Coal Price and FX consensus forecasts, September/October 2017
No reputable sources provide the molybdenum forecast.
Molybdenum’s high volatility complicates forecasting.
We use GEOMEAN to determine the central tendency.

9. DCFRevenueestimation
0
9/12
2000
4000
6000
8000
10000
12000
14000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Revenue, CAD
Nominal terms
Assumptions:
• Production levels will
remain close to the
maximum production
capacity due to high fixed
costs and good market
outlook
• Molybdenum’s overall
revenue streams will
average out to be similarto
the last 5 years
• Assume stable US /CAD
rate of 1.3

10. • Good (stable) commodities outlook
• Debt 6.1bil.CAD $
Reduce debt strategy
DCFCapEx, NWC &Expensesestimation
• No significant correlation between revenue and
CapEx, NWC or Expenses in the last 5 years
Stable assets &CapEx
Uncoupled estimates of CapEx & Expenses basedon
historical data
NWC is based on stabilizedassets and
the schedule of debt repayments
provided by annual reports
10/12

11. DCFFree CashFlows
WACC 7.82%
Industry revenue
averaged annual
growth rate 3.5%
(Damodaran)
2017 2018 2019 2020 2021
2700.1
904.0
1433.7
1647.4
1313.6
2017 2018 2019 2020 2021
2911.3
1051.0
1797.1
2226.6
1914.3
Discountedterminal
value 17430
Fair price Pershare
56.41
11/12

12. 12/12
P/E
weighted 33.3%
ForwardP/E
weighted 33.3%
Target
Price
Valuation methodology
EV/EBITDA
weighted 33.3%
weighted 50%
DCF
weighted 50%
58.21Comparables
56.41
57.3130.67