Low met coal prices sap Teck's profitability

TECK Resources has reported second-quarter adjusted profit of $C197 million compared with $398 million for the same period last year, as prices for the Canadian group’s metallurgical coal eat into profitability.
Low met coal prices sap Teck's profitability Low met coal prices sap Teck's profitability Low met coal prices sap Teck's profitability Low met coal prices sap Teck's profitability Low met coal prices sap Teck's profitability

A Teck operation.

Lou Caruana

President and chief executive Don Lindsay said the company would continue to pursue a cost-cutting strategy and slash capital spending to put it back on track.

“We are pleased with our operating performance this quarter and have made good progress on our cost reduction program,” he said.

“However, prices for our products have continued to weaken, particularly steelmaking coal. We continue to adapt to changing market conditions and are taking steps to further reduce our capital spending, slowing the start of our Quintette mine reopening and delaying the development of Quebrada Blanca Phase 2.

“In addition, we are reducing our sustaining capital expenditures and increasing the targets for our cost reduction program.”

Coal revenues for the second quarter were $1 billion, compared to $1.3 billion for the previous corresponding period.

Half-yearly coal sales reached a new record high of 12.9 million tonnes, a 7% increase over the first half of 2012 and nearly half a million tonnes above the previous record established in 2004.

The average coal price of $US156 per tonne in the second quarter was 23% lower than the same quarter a year ago, due to weaker steelmaking coal market conditions and a corresponding reduction in spot pricing levels.

Teck noted prices have remained relatively steady for the past two months and that there are encouraging signs from the world's developed economies.

Coal sales of 6.3Mt in the second quarter were 6% lower than the same period last year. The average coal price of $US156 per tonne in the second quarter was 23% lower than the same period a year ago and reflects weaker steelmaking coal market conditions, and a reduction in spot market pricing levels through the quarter.

Coal prices for the third quarter have been agreed on with the majority of the quarterly contract customers based on $145/t for the highest quality products.

“We currently expect coal sales in the third quarter to be at least 6.4 million tonnes and we are continuing contract discussions with our customers and anticipate selling additional tonnage on the spot market,” Teck said.

“Vessel nominations for quarterly contract tonnage are determined by customers and final sales and average prices for the quarter will depend on timely arrival of vessels and the performance of our coal-loading facilities.”

The cost of product sold in the second quarter, before transportation and depreciation charges, was $50/t compared with $59/t in the same period a year ago.

“Cost reduction efforts at the mines, which accompanied the reduction in production levels beginning in mid-August 2012, have been successful and are ongoing,” the company said.

Cash production costs in the second quarter were over $16/t lower than a year ago.

This decrease resulted from reductions in the consumption of repair parts and minimizing the use of maintenance contractors and contract miners. In addition, costs were positively impacted by reductions in overtime, a hiring freeze, shutdowns of higher cost equipment and shutdowns on statutory holidays.

These initiatives continue as part of a coordinated cost reduction initiative across the coal business unit which focuses on productivity improvement in mining, maintenance and processing operations as well as the reduction of input and overhead costs.

In the current period capitalized stripping costs were $121 million compared to $161 million a year ago.

“We expect our 2013 annual cost of product sold to be in the range of $51 to $58 per tonne, based on our current production plans,” Teck said.

Transportation costs in the second quarter were $39 per tonne, $2 per tonne or 5% higher compared with the same quarter a year ago. This increase was primarily due to higher port charges incurred throughout the quarter, resulting from an outage at Neptune Bulk Terminals while a new stacker reclaimer was erected and some vessels were loaded at higher cost port facilities.

The installation of this piece of equipment was completed on schedule and commissioning is expected to be completed by the end of July.

The stacker reclaimer upgrade increases the capacity of Neptune up to 12.5 million tonnes per annum. Detailed engineering work supporting the next expansion phase at Neptune is also underway.

This expansion would further increase capacity from 12.5 million tonnes to 18.5 million tonnes. The proposed upgrades will include a second railcar dumper and associated conveying system, a new rail track within the existing rail loop, the replacement of a ship loader and foundation reinforcement of the loading berth. The timetable for this project is dependent on market conditions.

“As a result of a strong performance in the first half of 2013 and a strong sales outlook for the second half, we now expect coal production to be in the range of 24.5 to 25.5 million tonnes in 2013, up from our previous guidance of 24.0 to 25.0 million tonnes,” the company said.