Teck revises coal shipping contract with Westshore

Teck Resources Ltd. [TECK.B-TSX; TECK.A-TSX; TECK-NYSE] has reached a deal in principle with Westshore Terminals [WTE-TSX] on proposed terms for a substantially reduced metallurgical coal shipping contract following the expiration of the current 10-year, 19 million tonne-per-year contract in March, 2021.

Located in Delta, southwest British Columbia, Westshore Terminals is Canada’s premier coal export terminal and handles over 33 million tonnes of coal annually. The Westshore Terminals Ltd. partnership is owned by Westshore Terminals Investment Corp. On Wednesday August 26, the shares fell 12.5% or $2.28 to $15.87 on volume of 876,010 and trade in a 52-week range of $11.89 and $24.23.

Under the terms of the proposed new agreement, Westshore will ship 5.0-7.0 million tonnes per year at fixed loading rates starting in April 2021 until the total contract volume of 32.25 million tonnes is reached. That equates to between four and six years.

The materially lower volume requirements (-68% annually) are driven by the expansion of Teck’s Neptune terminal facility in North Vancouver, BC which is on track to be completed by the end of the first quarter of 2021. While financial terms were not disclosed, potentially paying higher rates is not expected to be material given the low volume.

The agreement is expected to materially de-risk Teck’s coal logistics as the company will now have access to three British Columbia west coast ports, including Ridley, Neptune and Westshore.

On Wednesday, Teck’s Class B common shares rose 1.3% or 19 cents to $14.90 on volume of 718,960. The shares trade in a 52-week range of $25.74 and $8.15.

The Vancouver-based mining giant ranks as the world’s second-largest seaborne exporter of steelmaking coal, with six operations in Western Canada and significant steelmaking coal reserves.

Steelmaking coal – or metallurgical coal – is a higher-grade coal which is a necessary component in the chemical reactions that transform iron into steel.

News of the Westshore deal comes after Teck recently announced an expanded commercial agreement with Ridley Terminals Inc. for shipments of its steelmaking coal from Teck’s southeastern British Columbia operations.

That agreement runs from January, 2021 to December, 2027, and increases contracted capacity from 3 million tonnes per annum to 6 million tonnes annually with an option for Teck to expand to 9 million tonnes annually.

This will enable Teck to increase its shipment volumes through the Ridley terminal near Prince Rupert, B.C., to provide greater flexibility and improved performance within its overall steelmaking coal supply chain. The terms of the agreement are confidential.

Ridley Terminals is a Federal Crown Corporation, which owns and operates a marine bulk handling terminal on the west coast of British Columbia. The terminal has the ability to load vessels at rates of up to 9,000 tonnes/hour, unload cars at rates of up to 6,000 tonnes per hour and has an overall shipping capacity of 16 million tonnes.