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Feb 15

Teck Resources swings to quarterly profit

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Canadian miner Teck Resources Ltd (TECKb.TO) reported a better-than-expected quarterly profit on Wednesday, lifted by a surge in the price of coal for steelmaking, but weaker demand at the start of the year spooked investors, sending its shares lower.

Teck, North America's largest producer of steelmaking - or coking - coal, said that inquiries from buyers had picked up recently and that it expects sales to be weighted toward the second half of this quarter after a slow start.

"I actually feel much better today than I did three weeks ago," Teck Chief Executive Donald Lindsay said on a conference call.

Teck blamed the weaker start on customers drawing down coal inventories following a fourth-quarter buying binge, sparked by global supply worries that were ultimately unfounded. The Lunar New Year holidays also crimped demand in Asia.

Why investors need to exercise caution on Teck Resources

Despite posting a strong quarter, Lyle Stein, senior portfolio and managing director at Vestcap Investment Management says investors need to be cautious when investing in Teck Resources.

Shares of the Vancouver-based company, which also mines copper, gold and silver, were down 9 per cent at $29.70 in mid-afternoon trading. It was the best-performing stock on the Toronto Stock Exchange in 2016.

Teck has reached agreements with the majority of its coal customers for the first quarter, based on a quarterly benchmark price of US$285 per tonne.

But since that benchmark was set in early December, spot prices have plunged to about $155 per tonne. Teck expects an average realized price this quarter of about 70 per cent to 75 per cent of the $285-per-tonne benchmark.

Teck forecast first-quarter steelmaking coal sales of approximately 6 million tonnes, down from 7.3 million tonnes last quarter.

But Lindsay said the miner's top priority was reducing debt, and it was aiming to get debt levels, possibly this year, below $5 billion from $6.1 billion at the end of 2016.

A surge in coal prices last year from below US$80 a tonne to above US$300 had raised expectations of mine restarts. Real Foley, Teck's coal marketing vice president, said less than 15 million tonnes of coking coal had come online globally and that there had been no restarts since last October.

The company forecast 2017 steelmaking coal production of 27 million to 28 million tonnes, but said output may be adjusted depending on demand. Teck, the world's second-biggest exporter of seaborne coking coal, reported an adjusted profit of $1.61 per share in the three months to the end of December, ahead of analysts' consensus estimate of $1.56.