Teck Resources Ltd. [TECK.B-TSX; TECK.A-TSX; TECK-NYSE] on Thursday October 24 released its third quarter financial results and said it is reducing costs and cutting spending for the balance of 2019 and 2020.
“Over the past few years, we have focused our attention on maximizing production to capture margin during periods of higher commodity prices,” said Teck President and CEO Don Lindsay. “However, current global economic uncertainties are having a significant negative effect on the prices for our products, particularly steelmaking coal,” he said. “As a result, we are focusing our attention on our RACE21 program to improve efficiency and productivity across our business, the development of the QB2 [Quebrada Blanca Phase 2] project, which is key to Teck’s future growth, and the execution of our priority project at Neptune.”
Quebrada Blanca Phase 2 is a low-cost, long life copper project that is being built by Teck and project partners in northern Chile. The other partners are Sumitomo Metal Mining Co. Ltd., Sumitomo Corp., and the Chilean state agency known as ENAMI. The project is targeting completion by the fourth quarter of 2021.
RACE21 is an innovation-driven efficiency program involving the renewal of Teck’s technology infrastructure.
While Teck said its financial position is strong, in light of uncertain economic conditions, it has implemented a company-wide cost reduction program and will defer some planned capital projects, targeting reductions of approximately $500 million from previously planned spending through the end of 2020.
Teck’s Class B common shares declined on the news, falling 5.26% or $1.16 to $20.88 on volume of 1.4 million. The shares are currently trading in a 52-week range of $19.34 and $34.31.
Teck is Canada’s largest diversified resource company with operations and projects in Canada, the U.S., Chile and Peru. It is also producer of copper, zinc, steelmaking coal and energy.
In the third quarter, Teck beat street estimates by reporting an adjusted profit of $403 million or 72 cents a share, down from a year ago profit of $466 million or 81 cents per share. The adjusted profit for the third quarter of 2019 was above the consensus estimate of 66 cents.
However, the company said coal sales in the quarter were negatively impacted by material handling issues and planned construction outages related to an ongoing expansion of the Neptune terminal in Vancouver, British Columbia.
Teck has warned that the capital expenditure for the Neptune expansion has increased to $750-$800 million, up from only $400 million previously. However, it said the project remains on track for completion in the first quarter of 2021.
Despite stronger coal production of 6.5 million tonnes in the quarter, coal sales of 6.1 million tonnes were below the company’s guidance range of 6.3-6.5 million tonnes.
While Teck reaffirmed its 2019 met coal production guidance of 25.5-25.6 million tonnes, the fourth quarter production forecast of 6.7 million tonnes is lower than expected due to planned outages at both the Neptune and Ridley terminals. The Ridley terminal is located near Prince George, B.C.