Teck Resources beats expectations
Operations perform well in tough environment
Teck Resources Ltd. eked out a small profit in the second quarter, but the miner is hopeful that better days are ahead as commodity prices continue to recover from their lows earlier this year.
“While the commodity cycle continues to be challenging, we are starting to see some positive changes in the direction of zinc and steelmaking coal prices,” chief executive Don Lindsay said in a statement.
“We are pleased with the performance of our operations, which have continued to reduce costs while maintaining production volumes.”
Teck’s adjusted profit in Q2 was $3 million, or a penny a share. That was better than expected. Analysts, on average, expected a loss of one cent. The Vancouver-based company’s profit before interest, taxes, depreciation and amortization was a more robust $468 million, down from $596 million in the same quarter a year ago.
Teck, Canada’s largest diversified miner, has slashed costs aggressively over the last few years to respond to weak metal prices. Those cuts have borne fruit and enabled the company to withstand a brutal commodity bear market.
Some of the most notable cuts have come in the coal business. Teck’s cash costs in its coking coal unit were $59 US a tonne in the second quarter, down from $68 US in the second quarter of 2015. By comparison, its realized selling price in Q2 was $83 US a tonne, meaning it still maintains a healthy margin.
Teck also boosted its 2016 production guidance for coal, copper and zinc on Thursday following its solid performance in the first half of the year.
RBC Capital Markets analyst Fraser Phillips said in a note that Teck’s realized coal selling prices in the second quarter were better than he expected, while costs in that unit were lower. Copper sales volumes were also higher than he assumed, he said.
While Teck is performing well, investors have been concerned about the company’s $2.9-billion commitment to the massive Fort Hills oilsands project in Alberta. The timing is unfortunate, as Teck is spending the money while metal prices are down and it has limited cash flow from its other operations. That has put some pressure on its balance sheet, which is carrying a heavy debt load of nearly $9 billion.
However, Lindsay noted that the company has no major bond maturities coming until 2021 after it refinanced some notes in a key transaction last month. Teck also has $5.4 billion of available liquidity and expects to end the year with more than $700 million of cash.
Teck also said construction at Fort Hills is going well. The project’s first phase is more than 60 per cent complete, and production is expected to commence late next year. Construction activity was interrupted for about a month when wildfires struck the Fort McMurray area in May.