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TORONTO (miningweekly.com) – Canada’s largest diversified miner Teck Resources has improved its adjusted profit for the three months ended June 30, by 10%, despite falling commodity prices that put downward pressure on margins and profits.
For the second quarter, the Vancouver-headquartered miner reported net income, excluding special items, of C$79-million, or C$0.14 a share, compared with C$72-million, or C$0.13 a share, in the second quarter of 2014. This was better than analyst expectations of C$0.11 a share for the period.
Net profit attributable to shareholders fell by 21% year-on-year to C$63-million, or C$0.11 a share, compared with C$80-million, or $0.14 a share, a year earlier.
"Our operations have turned in a solid performance for the quarter. All of our operations have remained cash flow positive after sustaining capital investment and our balance sheet remains strong with over C$6.5-billion of liquidity. This has been achieved notwithstanding a material drop in the US dollar spot coal price since the beginning of 2015,” president and CEO Don Lindsay said.
The average realised coal price of $95/t was 14% lower than that recorded for the second quarter of 2014, reflecting oversupplied steelmaking coal market conditions and a large drop in spot price assessments. However, Teck noted that the favourable effect of a stronger US dollar in the second quarter partly offset the lower coal price, which weakened by 5% in Canadian dollar terms compared with the same period a year ago.
Teck produced 6.6-million tonnes of steelmaking coal in the second quarter, up 3% over the same period last year, while Canadian-dollar denominated unit cash production costs at its coal mines were 15% lower than in the comparable period, as a result of initiatives undertaken through the company’s cost reduction programme, slightly higher output rates and lower energy prices.
Revenue of C$2-billion was slightly lower, but in line with analyst estimates. Gross profit before depreciation and amortisation was C$676-million in the second quarter, compared with C$636-million in the second quarter of 2014. Cash flow from operations, before working capital changes, also rose C$11-million to C$531-million.
Teck said it had reached agreements with the majority of its customers for the current quarter, based on a quarterly benchmark of $93/t for the highest-quality product, expecting total sales in the period to be at least six-million tonnes of steelmaking coal.
A falling Canadian dollar, lower oil prices and the company’s cost reduction programme had contributed to reduce Teck’s US dollar unit costs, with copper and coal unit costs falling by $0.15/lb and $17/t, respectively, compared with last year.
The average realised copper price fell 11% year-on-year to $2.74/lb for the quarter under review.
WAVERING OUTLOOK
Teck had, on May 28, in response to weakening steelmaking coal market conditions started with rotating shutdowns at certain of its coal mines. The company warned that it could take further steps to reduce output in the fourth quarter, unless the supply-demand balance in the market had improved.
Further, the diversified miner lowered its copper production guidance for the second half of the year by between 5 000 t and 10 000 t, to between 340 000 t and 350 000 t after unexpected ground movement on June 25 at the Quebrada Blanca operations, in Chile, had resulted in a temporary suspension of cathode production. Partial production had since resumed.
Teck expected a normal season at its Red Dog zinc mine, in north-west Alaska, expecting sales of 170 000 t of contained zinc metal in the third quarter and 200 000 t in the fourth quarter.
Earlier this month, Teck agreed to sell future gold output from its Carmen de Andacollo copper mine to Royal Gold for an upfront payment of $525-million.
Meanwhile, Teck was soldiering on with investments for its 20% stake in the C$13.5-billion Fort Hills oil sands project controlled by its partner Suncor. The miner reported that all critical milestones were being achieved and the partners were focused on opportunities to manage capital cost in the current low-oil-price environment.
The company’s liquidity remained strong at more than C$6.5-billion, including C$1.5-billion cash at July 22, and $4.2-billion of undrawn, committed credit facilities. Teck expected to finish the year with at least C$1-billion cash in the bank.