Eight mining and steel stock buys

Since we published ourJuly 12 issue, the 10 stocks in the table below are up by an average of 14.4 per cent. This beats the 10.3 per cent rise in the S&P/TSX Composite Index. All 10 are expected to earn more in 2014 than in 2013.

Key stock Teck Resources remains a buy for long-term gains and dividends that are on the rise

Lower commodity prices have more than offset higher production and have reduced Teck Resources' earnings in 2013. Even so, it continues to invest for higher earnings when commodity price recover.

In 2014, Teck's earnings are expected to recover somewhat. That's likely why its share price is up by 25.5 per cent since we published our July 12 issue. It remains a buy for further price gains and attractive dividends-if you can accept the cyclical volatility of the prices of resources and their impact on earnings.

In the nine months to September 30, Teck earned $777 million, or $1.34 a share, excluding one-time items from both periods. This was down by nearly 43 per cent from $1.367 billion, or $2.34 a share, a year earlier.

Teck writes that its "Profits are lower than last year as a result of lower prices for all of our principal products." This more than offset higher output. The company writes that "Production and sales volumes were at or above last year's levels for our major products other than copper."

In response to difficult markets, Teck is cutting costs. So far it has cut its yearly costs by $300 million. The company will cut its annual costs by another $30 million. It has also implemented one-time cost savings and cost deferrals of $130 million.

Teck has deferred capital spending on some projects. For instance, it will wait for better demand for steel-making coal before starting to develop its Quintette mine. It has also reduced investment in developing Phase 2 of its Quebrada Blanca copper mine. It will accelerate investment when the market improves.

Teck has trimmed its exploration costs by 15 per cent. And it has reduced its company overhead costs. But Now it will assist its partners in developing the Fort Hills oil sands project. Teck owns 20 per cent; Key stock Suncor Energy owns 40.8 per cent; and a subsidiary of Total S.A. of France owns the other 39.2 per cent.

Fort Hills is expected to start producing oil by the fourth quarter of 2017. Over the following year, its production is expected to ramp up to 90 per cent of its planned production capacity of 180,000 barrels a day.

Teck president and chief executive officer Don Lindsay says,"With an expected mine life in excess of 50 years, Fort Hills is one of the best undeveloped assets in the Athabasca region and is a natural fit with our business strategy of acquiring and developing long-life assets in stable jurisdictions." He expects the new oil sands division within Teck "will create value, significant cash flow and diversification for our business for decades to come."

Teck's share of the project costs is $2.94 billion from 2014 through 2017. Fortunately, its balance sheet is much stronger these days. On September 30, the company held cash of $2.250 billion. Its short-term debt it only $46 million. Subtract the cash from total debt of $7.469 billion and it's only 1.9 times the cash flow of $2.729 billion over the latest four quarters.

In 2013, Teck is expected to earn $1.73 a share. That's down significantly from earnings of $2.56 a share last year. In 2013, its earnings are expected to recover somewhat to $2.06 a share. From a long-term viewpoint, large and growing economies in Asia will require more natural resources.

Teck remains a buy for long-term gains and attractive dividends. Since reinstating dividends of 50 cents a share in 2010, it has raised them every year since.

Non-Key stock buys

Non-Key stock buys remain Canam Group, First Quantum Minerals. Labrador Iron Ore Royalty, Lundin Mining, Taseko Mines and Thompson Creek Metals. First Quantum's profit is expected to recover to $1.23 a share next year. Lundin's profit is expected to recover to 38 cents a share next year. Taseko Mines is expected earn 27 cents a share next year. Thompson Creek is reasonably prices based on an expected profit of 24 cents a share next year.

This time we rate Cameco a buy.

HudBay Minerals and Imperial Metals remain buys.

E - Earnings for 2013 or fiscal 2014 are estimated.

* Price-to-Cash Flow - Stock price divided by cash flow per share; a number below 5.0 may be a buy indicator.

** Debt-to-Cash Flow - Total debt less cash divided by cash flow; a number below 2.0 times indicates a company can adequately manage its debt-loads.

***We convert First Quantum Minerals', Lundin Mining's and Thompson Creek Metals' U.S. dollar figures to loonies at 0.9544.