Coal news and updates

Teck Resources ‘solid’ despite slumping coal market

Teck Resources Ltd. does not expect the miserable steelmaking coal market to turn around in the near future.

Speaking on a conference call to discuss the miner’s third quarter results, chief executive Don Lindsay said companies have announced production cutbacks and mine closures this year that will remove about 25 million tonnes of coal from the market.

That is encouraging news given that prices are extremely low and the world is awash in supply. But he does not think it is nearly enough.

“Even when [the supply cuts] are fully implemented through the first half of 2015, this will be insufficient to bring the market back into balance,” Mr. Lindsay said.

He said there will still be an imbalance of about 10 to 15 million tonnes. But with an estimated one-third of global seaborne output being produced at a loss, he thinks further cuts are likely.

But that will take time, and Mr. Lindsay does not think the market will be back in balance until mid-2015 at the earliest.

The steelmaking (or coking) coal market has been in the dumps because of soaring production from Australia and slowing demand from China. Prices are down to US$119 a tonne or lower; by comparison, Teck’s average sale price was US$257 in 2011.

The low prices have caused absolute chaos for higher-cost producers in North America. For example, two Asian firms that paid $1-billion for Grande Cache Coal Corp. recently agreed to sell their stakes for a dollar each.
Vancouver-based Teck has withstood the market weakness because its Western Canadian coal operations are among the best in the world. The company’s unit costs in the third quarter were US$84 a tonne, meaning it still has healthy margins.

All the same, the weakness in coal and other commodities has crushed Teck’s share price, which is down more than 30% since late July.

One reason for investor concern is that the company is in the midst of a massive $2.9-billion investment in the Fort Hills oil sands project, with only $421-million spent so far. The timing for that investment is not ideal given the current low prices for Teck’s products.

Not surprisingly, Mr. Lindsay used the conference call to assure investors that everything is fine, noting the company has about $5-billion of available liquidity.

“Teck is in a solid financial position. I want to repeat that: We are in a solid financial position to navigate current market conditions and a period of higher capital spending through 2017 as we invest in building a significant long-term asset in Fort Hills,” he said.

Some of the pressure came off the stock on Wednesday as Teck reported solid third quarter earnings. Adjusted profit of $159-million, or 28¢ a share, beat the average analyst estimate of 25¢.

“Results were better than expected, with solid operating results in coal and zinc,” RBC Capital Markets analyst Fraser Phillips said in a note.
The results also showed that Teck is making good headway with its cost reduction program. The company has achieved $590-million of annualized savings to date.

Source: Financial Post