Editorial: Teck, Freeport burned by falling oil and gas prices – by John Cumming (Northern Miner – October 27, 2015)

The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry.

It must have seemed like a good idea at the time a few years ago when Teck Resources and Freeport-McMoRan management bought deeper into the oil and gas sector and diversified further away from their mining businesses, but those decisions to dabble have come back to sting both companies.

In a new phase of financial reporting, miners like Teck and Freeport are posting major non-cash losses related to falling commodity prices, rather than the scenario several years ago when writedowns more often stemmed from cost overruns at projects under construction, or overpayment for acquisitions.

In its quarterlies released on Oct. 22, Teck recorded impairment charges totalling $2.2 billion on an after-tax basis ($2.9 billion pre-tax), including $1.5 billion on its metallurgical coal assets, $340 million on the Andacollo copper assets and $343 million on its 20% share of the Fort Hills oilsands megaproject in Alberta.

The rest of Fort Hills’ ownership is split between Suncor Energy (40.8%) and Total E&P Canada Ltd. (39.2%), a subsidiary of Paris-based Total. With its partners, Teck’s board made the decision in October 2013 — at a time of peak oil — to go forward with Fort Hills, with Teck’s share of the anticipated construction bill coming in at a hefty $2.9 billion.

The prolonged downturn in mining recently forced Teck to raise almost $1 billion in two streaming transactions: a silver stream with Franco-Nevada at the Antamina mine, and a gold stream with Royal Gold at the Andacollo mine.

With these fresh funds, the diversified major paid down its debt by $400 million and beefed up its cash position to $1.8 billion — more than enough to fund its remaining $1.5-billion share of the capital needed at Fort Hills, where construction is 43% complete, and remains pretty much on time and on budget to start production by late 2017.

For the rest of this editorial, click here: http://www.northernminer.com/news/editorial-teck-freeport-burned-by-falling-oil-and-gas-prices/1003716373/

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