Teck may grow copper output 40% by 2012, sees deficit in medium term

TORONTO (miningweekly.com) – Vancouver-based Teck Resources expects to increase its production of copper by at least 40% through 2012, and could triple output of the industrial metal in the longer term, based purely on existing resources and projects, CEO Don Lindsay said on Tuesday.

While metallurgical coal probably represents the better short-term prospects of all the company's commodities, Teck believes copper has the best medium- to long-term outlook, he told analysts and investors on a conference call.

Head grades at several large mines around the world are declining, which will put pressure on production levels, he said.

“They are having to move more rock to produce less metal. And there aren't that many large projects available...exploration hasn't been that successful globally.

“So we think that over the next ten-year period if copper demand grows even at a moderate rate, that the mining industry will not be able to keep up.”

After acquiring Fording Canadian Coal in 2008, Teck's new coal position drew a lot of attention, particularly as a significant portion of the coal was still being sold into old, higher-priced contracts signed before the financial crisis hit commodity demand.

The base metals business, by contrast, felt the pain of the downturn immediately, so that coal made up as much as 59% of operating profit in the third quarter of 2009, compared with 28% in a year earlier.

Copper represented 28% of operating profit in the third quarter of last year.

By the fourth quarter, however, the balance had shifted once again.

Coal pricing had declined compared with the previous year, while prices and demand for copper and zinc were looking a lot healthier.

In fact, for the fourth quarter, the operating profit from the copper business was equal to the operating profit reported for the company's coal unit, Lindsay said.

Both divisions accounted for 39% each of the total C$945-million quarterly operating profit. (The balance was made up by zinc.)

“And I'm sure that will surprise a few people,” he added.

Teck expects copper production to be about 10% higher this year, as it commissions and ramps up the Andacollo copper/gold concentrator project, in Chile.

The project is now mechanically complete and in the early stages of commissioning, said senior vice-president for project development Tim Watson.

The first small amount of concentrate was produced from the operation on February 2 design capacity is expected to be reached during the first half of 2010.

The new plant is expected to produce 80 000 t/y of copper and 55 000 oz/yof gold in concentrate over the first 10 years of operation.

DEVELOPMENT PROJECTS

Beyond Andacollo, Teck has several other internal growth projects in the pipeline.

The company and partners BHP Billiton, Xstrata and Mitsubishi Corporation announced in January they had approved a $1,29-billion expansion at their Antamina copper/zinc mine, in Peru.

Lindsay emphasised though that Teck, which owns 22,5% of the asset, will not put any new money into the project as the capital funding will come out of debt taken on by the asset holding company and from cash flow, which means that dividends from the mine will just be lower over the next couple of years.

Once Andacollo is commissioned, an expansion at the Quebrada Blanca mine, in Chile, will likely be next in line for Teck, followed about a year or so later by the Relincho copper project, also in Chile, which it bought in 2008, Lindsay suggested.

In the meanwhile, energy firm Suncor will also be reviewing the Fort Hills oil sands project, in which Teck owns 20%.

All three projects could likely see a construction decision made within the next five years, he said.

COAL 'TIGHT' FOR 2 – 3 YEARS

Teck has also indicated that it plans to boost metallurgical coal production – the company announced in December it would produce between 23,5-million and 25-million tons of coal this year, compared about 19-million tons in 2009.

Lindsey said he expects to boost coal production by some 20% over the medium term, just from the company's existing resources.

“Our view is that, near-term, seaborne met coal has the most interesting prospects, primarily because of the dramatic growth of imports into China,” he commented.

“If China just keeps doing what it is doing, it doesn't have to grow, just to stay where it is, you add some western europe and US recovery, we think that market is going to be very very tight for the next two to three years.

“Because there's not that much that the producers can do. We are all trying to increase production, but let me tell you there are all sorts of challenges and difficulties.”

Although it is expecting to see some returning demand from its traditional markets of Europe and South America, Teck still expects to sell a significant percentage of its production into Asia again this year.

“It will definitely be more than half into Asia,” Lindsey confirmed.

Shares in Teck, which reported fourth quarter profit of C$411-million and record revenue late on Monday, rose 5,04% on Tuesday, to C$36,24 apiece by 15:36 in Toronto.