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Teck misses profit mark

Canada’s largest diversified miner Teck Resources (TSX:TECK.B) has fallen to a new 12-month low Thursday after announcing disappointing September-quarter results.
Teck misses profit mark Teck misses profit mark Teck misses profit mark Teck misses profit mark Teck misses profit mark

The equity fell as much as 8.3% in the morning session on the back of the Vancouver-based company reporting a C13c miss on analyst forecasts, as lower metal prices and reduced production impacted finances.

Teck said third-quarter headline earnings fell 23% year-on-year to 81c a share, well below market expectations that called for adjusted earnings of 94c, on revenue of $3.17 billion.

The miner said lower base metals prices, negative pricing adjustments, lower steel-making coal sales volumes and reduced volumes from its Trail operations that were impacted by wildfires impacted its performance in the period. These were only partially offset by higher steel-making coal prices in Canada, and a weaker Canadian dollar, which boosted the bottom line since most revenues were realised in US dollars.

Net profit for the period doubled to $1.3 billion, or $2.23 per share.

"We continued to advance our key growth initiative and strengthen our financial position by receiving regulatory approval for our Quebrada Blanca Phase 2 project, closing the C$1.2 billion Waneta Dam sale and reducing our outstanding notes by US$1 billion," said CEO Don Lindsay.

"Our operations continued to perform well, although commodity prices for all our key products declined during the third quarter, resulting in lower adjusted earnings and EBITDA compared with the second quarter of this year."

Metallurgical coal production fell 6% year-on-year to 6.4 million tonnes and recorded higher unit costs as the company ramps up output to take advantage of 10% higher met coal prices. The lower output was mainly attributed to falling output at the Coal Mountain Operations, which reached the end of its life, and site cost of sales were $67/t compared with $51/t a year earlier.

The company maintained its full-year 2018 met-coal production guidance of 26-27Mt, but expected to come in near the low-end of the range. 2018 site costs were forecast to be higher $60-$63/t, compared with the earlier guidance of $56-$60/t. Met coal production is expected to rise to a range of 26.5-27.5Mt between 2019-2022. Teck forecasted current quarter coal sales to remain flat at 6.7Mt.

Base metals

Copper output fell 4% year-on-year to 72,000t, due to lower ore grades and mill throughput at Highland Valley Copper, as expected in the mine plan.

Unit costs before by-product credits in the third quarter increased by 5% to US$1.75/lb, compared with $1.66/lb during the same period a year ago. Higher site operating costs, attributable to higher fuel costs and tailings storage construction activities, were mostly offset by significantly higher sales of zinc and molybdenum.

As a result, cash unit cost after by-product credits increased by only $0.02/lb to $1.29/lb in the period, compared with$1.27 in the same quarter last year.

The company increased the 2018 copper guidance to 285,000-295,000t from 280,000-290,000t, at net cash costs of US$1.25-1.30/lb, down from previous guidance of $1.30-1.40/lb.

Management is taking a more cautious approach to developing the company's Quebrada Blanca Phase 2 project, in Chile. It had launched a formal process to seek a development partner for the project and said it aimed to ultimately hold on to a 60-70% interest in the project.

But with liquidity of C$5.7 billion, including $1.8 billion in cash, and about $3 billion undrawn under its debt facilities, the company could be able to undertake the project itself. It expects to make a development decision before year-end. Total debt stood at $5.24 billion at the end of the quarter.

Zinc output was also lower, with refined metal production falling to 74,000t and zinc in concentrate down to 156,000t in the period.

Cash costs per unit net of by-product credits climbed to US7c/lb, from positive 2c/lb in the prior-year period.

Teck guided for overall zinc metal production to be between 660,000-675,000t, compared with the previous guidance of 655,000-670,000t. Higher production from Red Dog and Antamina was expected to offset any shortfall at Pend Oreille.

Meanwhile, mining operations at the new Fort Hills oilsands project, in Alberta, were constrained due to soft ground conditions in July, but subsequently improved in August and September. In addition, Fort Hills completed its first planned maintenance at the end of September, which restricted production to half the plant capacity for the last two weeks of the quarter.

Plant performance at Fort Hills had exceeded expectations and Teck expected full-year production to be near the high end of its guidance.

Teck had earlier this month announced a stock buyback of up to 40 million shares. With the stock down nearly 20% in the past week, it might be a good time to make some highly accretive transactions in this regard.

The equity is down 16% over the past 12 months at C$24.83, giving Teck a market capitalisation of $14.26 billion.