Not yet for Quintette:80 out of work as restart deferred; put into “care and maintenance” mode

Trent Ernst, Editor

 

Teck announced its first quarter results on April 22 and the news was not good for the Canadian mining company.

The company still turned a profit of $105 million, but that’s down from $319 million a year ago. And with coal prices taking a beating, the company has decided to defer restarting Quintette until prices improve.

Teck says they are suspending activities related to the potential opening of the mine, and are putting it into “care and maintenance” until market conditions are more favourable.

Teck says they’re letting go of “approximately” 80 of the employees currently working at Quintette. This represents a lion’s share of the workforce, as there are only about 90 Teck employees in Tumbler Ridge.

The 80 people being let go in Tumbler Ridge are only a fraction of the cuts around the company. When they’re done, 600 people—five percent of Teck’s total workforce—will no longer be employed with the mining giant.

The company is still moving forward to obtain the two remaining permits it needs so that they can restart Quintette as quickly as possible when coal prices improve. They estimate it would take about 14 months from a construction decision to shipping the first load of coal, and expect to be fully permitted sometime in the next couple weeks.

When it comes online, Quintette is expected to produce between three and four million tonnes of steelmaking coal, which would push Teck’s output over 30 million tonnes per year.

But when will prices improve? That’s a matter of much debate, but it’s not expected to get better anytime soon.

Part of the issue, says Teck’s President, Donald Lindsay, is there’s just too much coal on the market. He estimates that as much as 35 to 40 million tonnes of coal being sold annually is being sold at prices less than it cost to mine the coal. He says he expects to see this reduce sometimes, but “We continue to be surprised there remains so much uneconomic coal supply on the market.”

Coal prices are at their lowest levels since 2007. And, with the rising cost of production, he says, margins are at their lowest level in a decade. “Clearly, it’s not sustainable, and losing a portion of that would bring the market back to sustainable.”

Walter closing will reduce that by about 3.5 million tonnes, and the same day Teck announced Quintette was not re-opening, Arch Coal announced it would be reducing its output by 1 million short tons.

Still, analysts are not predicting that the market will stabilize until at least the middle of next year. Lindsay says this is being driven by Australian coal companies. He says that, as levels of production go up, the cost to mine that coal goes down. But with the giant Australian mines striving to produce more coal than the competition, it’s also driving the price of coal down.

Teck is still in a strong financial position, he says, but “at the same time we are mindful of returning cash to our shareholders.” With revenue declining be 17 percent in the first quarter, despite the coal arm of Teck’s business firing on all cylinders (they produced 27 million tonnes across all their mines, only about a million tonnes below their top capacity), the company had to take steps to reduce costs, which includes delaying the restart of Quintette.