Personal Finance

Why This Coal Miner's Shares Jumped 14% in August

A mining engineer holding a notebook and flashlight

What happened

Shares of miner Teck Resources Ltd. (NYSE: TECK) rose 14% in August, a huge gain considering that other coal-focused companies such as Alliance Resource Partners (NASDAQ: ARLP) fell during the month. There were a couple of reasons for this, however, including the type of coal Teck produces, and the fact that it mines for other things, too.

So what

Teck's biggest business is metallurgical coal, which accounted for nearly three-quarters of the miner's gross profit in the second quarter. That's been a volatile commodity of late, with Chinese government policies and extreme weather events causing massive price spikes. However, when Teck reported second-quarter earnings in late July, it noted that it was seeing some stability starting to take hold. More important, that stability left met coal prices above their extreme lows of recent years.

A mining engineer holding a notebook and flashlight

Image source: Getty Images

So the news on the metallurgical coal front is much better than the ongoing drip of negative news surrounding thermal coal, which is Alliance's focus. Thermal coal is slowly being replaced as an energy source by alternatives like natural gas, solar and wind.

Teck's focus on met coal, then, is one reason it was able to produce a relatively strong showing in August, but it's not the only reason. Teck also mines for copper (12% of gross profit) and zinc (14%), and prices for both of those metals have been on an upswing lately.In short, investors are reacting to generally positive news throughout Teck's portfolio.

Now what

Teck is heavily weighted toward met coal, but it has other operations that are important to its top and bottom lines, adding valuable diversification to its business. If you're looking for a miner, Teck is already worthy of consideration, but there's one additional factor to note that didn't play too big a role in its performance this month. Teck is on the verge of adding a fourth major commodity to its portfolio: oil. That should help further reduce its reliance on steel-making coal, and create a fundamentally better company.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Alliance Resource Partners. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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