Teck still on solid ground, despite coal price slump – by Nelson Bennett (Business Vancouver – July 29, 2014)


BC’s largest mining company remains on solid financial ground, despite its profits dropping 63% in the first half of 2014 and a commitment to spend $850 million this year on a new oilsands project in Alberta.

In a second-half earnings call, Teck Resources Ltd. (TSX:TCK.B) reported its profits dropped from $197 million in the second quarter of 2013 to $72 million in this year’s second quarter.

That decline was due largely to a global glut of metallurgical (“met”) coal, which accounts for about half of Teck’s business. The company’s gross profits were down from $871 million in Q2 2013 to $633 million to date.

But unlike American coal miner Walter Energy Inc. (TSX:WLT), Teck has not had to resort to closing any of its B.C. mines, although it has officially mothballed the long-planned restart of the Quintette mine in Tumbler Ridge.

Teck estimates it could take several months to whittle down the current oversupply of steelmaking coal. Teck’s coal sales in Q2 were up by 500,000 tonnes, but prices were down 23% to US$122 per tonne. The company expects to ship 26 million to 27 million tonnes of coal in 2014, and has contracts to sell at US$120 per tonne for the higher-grade coal.

Despite the hit Teck has taken in its profits from lower coal prices, the company has offset the loss with cost-cutting measures, including a workforce reduction of 530 workers in the first six months of the year, and has managed to improve its liquidity and pay dividends of $0.45 per share on July 2.

And it continues to invest in new ventures, including the $13.5 billion Fort Hills oilsands project.

“We continue to execute well in difficult market conditions, particularly in steelmaking coal, where oversupply continues to impact prices,” Teck CEO Don Lindsay told analysts during a conference call July 24.

“Teck itself, though, is in solid financial position, with $2.1 billion in cash June 30 and no substantial debt due over the next three years.”

Curtailments and mine closures are expected to reduce the global oversupply of met coal by 20 million tonnes, although those curtailments have yet to have much of an impact because mining companies still have inventory.

Teck has reduced its costs by $150 million in the second quarter, in part through workforce reductions. By the end of this year, the company plans to reduce its workforce by another 60 people, mostly through attrition.

Teck has fared the coal glut better than some of its competitors, notably Walter Energy, which has idled its B.C. mines. Whereas Walter Energy is focused solely on met coal and coal-bed methane, Teck is more diversified, with copper and zinc properties as well as oil investments.

For the original version of this article, click here: http://www.biv.com/article/20140729/BIV0108/307299963/-1/BIV0108/teck-still-on-solid-ground-despite-coal-price-slump