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Underneath the noise, Teck Resources Ltd. continues to perform pretty well.
The Vancouver-based miner has been under immense scrutiny from investors in recent weeks, as three rating agencies have cut its credit rating to junk status. It is grappling with poor commodity prices and huge spending requirements in the oilsands. And on Thursday, it reported a massive third-quarter loss of $2.1 billion due to non-cash impairment charges.
Despite those overhanging issues, investors are giving the company credit for continuing to deliver solid operating results. The stock rose 43 cents or five per cent to $8.79 on Thursday as Teck reported an adjusted profit of $29 million, or five cents a share, which was well above expectations.
“The commodities cycle continues to provide a very challenging environment, but we are responding,” chief executive Don Lindsay said on a conference call.
Teck has maintained decent margins in its coal and base metals businesses by continuing to cut costs. It has also benefited from low oil prices and a weaker Canadian dollar.
Regardless, weak commodity prices (particularly for steelmaking coal) are having a devastating impact on the company’s profitability. Teck’s realized coal price was just US$88 a tonne in the third quarter, compared to US$285 in the same period in 2011, when the market was peaking. Teck’s adjusted profit in that quarter four years ago was US$742 million, a number that seems inconceivable today.
Until this week, Teck was using a long-term coal price of US$185 a tonne to value its assets. That was obviously out of line with the current market realities. The company cut that price to US$130 on Thursday, which triggered a $1.5-billion writedown on its coal business.
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