Trent Ernst, Editor
Teck Resources reported its second quarter results, and they’re going the wrong way.
For the second quarter, Teck reported adjusted profit of $197 million, or $0.34 per share, compared with $398 million or $0.68 per share in 2012. That’s down nearly by half from the same time last year.
Don Lindsay, President and CEO with Teck says that profits of nearly $200-million mean the company is still making money, but much of that is due to a cost reduction program. “Prices for our products have continued to weaken,” says Lindsay, “particularly steelmaking coal.”
As a result, says Lindsay, the company is taking steps to “further reduce our capital spending, slowing the start of our Quitette mine reopening.”
The start date, which has already been pushed back a few times already, is being pushed back yet again, with no fixed date set.
A construction camp was expected to be set up last month and opening in August, but even that seems to have been put on hold. The company is not willing to give any timeframe for when they might move foreward.
The news comes barely a month after Quintette finally recieved its Mines Act Permit Amendment.
Also affected by the cuts is the Quebrada Blanca mine, which was moving into Phase 2 of its operation. The Chilean copper mine had been losing money, but returned to profitability, though that is in no small part due to a reduction of the workforce.
Neither of these projects have been canceled at this time, says Lindsay. The company is “slowing” the start of Quintette and “delaying” development at Quebra Blanca.
However, the company hasn’t been as hard hit as analysts expected. Sales fell from $2.56 billion to $2.15 billion, but analysts predicted that number would fall to $2.08 billion.
With coal prices dropping $20 in the last few weeks alone, the company continues to tighten its belt. Lindsay says “we are reducing our sustaining capital expenditures and increasing the targets for our cost reduction program.”
Teck’s operating cost per tonne of coal dropped from $59 to $50 over the last year, a 16 oercent reduction. This and other cost reductions has allowed the company to save $220 million dollars. Teck was planning on cutting $250-million from the budget, but has hiked that number to $300 million.
As of June 30, Teck has $2.8 billion in the bank. Cash flow from operations, before working capital changes, was $584 million in the second quarter compared with $874 million a year ago. Gross profit before depreciation and amortization was $871 million in the second quarter compared with $1.1 billion the second quarter of 2012.
Teck says they have 6.4 million tonnes of coal on order for the third quarter of 2013, at an average price of US $143 per tonne.
Last year, Teck was selling coal at $198 per tonne. That represents a price drop of $55 in the last year.
In Q1 of 2013, the average price was $154.
When it finally comes on-stream, the open-pit Quintette is expected to yield three million metric tonnes of steel-making coal per year.
But with nearly a half dozen mines also in the Environmental review process in Northeast BC alone, the amount of coal on the market may soon far outstrip demand, so Teck is adopting more of a wait and see attitude towards Quintette.