BRITISH COLUMBIA

Teck Resources ramping up cost cutting efforts due to lower commodity prices

07/25/2013 05:52 EDT | Updated 09/24/2013 05:12 EDT
Teck Resources Ltd. (TSX:TCK.B) is ramping up its cost-cutting efforts to reflect lower commodity prices, especially for steelmaking coal, after reporting second-quarter earnings about half of what the miner saw a year ago.

"Teck is adapting to current market conditions," president and chief executive Donald Lindsay told analysts during a conference call Thursday.

"We're matching our coal production to market demand. We continue to reduce costs and we've increased our cost reduction targets. We are prudently deferring projects and capital expenditures ... So we're demonstrating a very disciplined capital allocation process."

The Vancouver-based company — one of Canada's largest coal producers and a major miner of copper, zinc and other commodities — has been hit particularly hard by lower prices for steelmaking coal, which fell by 23 per cent compared to the same quarter last year.

The company said copper prices fell by 38 cents during the quarter, while zinc was down by two cents.

As a result, the company said it has decided to slow reopening of its Quintette coal mine in British Columbia and Phase 2 of the Quebrada Blanca copper mine in Chile.

"We've elected to delay the final decision to place the Quintette mine into production to minimize our production volumes and capital expenditures in these market conditions," Lindsay said.

Teck also increased its cost reduction target to $300 million, up from the previous goal of $250 million.

The miner said it has already implemented $220 million of the original cuts and has identified an additional $80 million.

Real Foley, vice-president of coal marketing, said stabilizing spot prices suggest the commodity markets may be "bottoming out."

"There are a number of market areas where we see either improved or stabilizing fundamentals, and demand is reflecting that," Foley said.

"But, at the same time, there is still uncertainty around the world, so that is what is keeping pressure on the steel and coal prices."

Teck made its comments after reporting a second-quarter profit attributable to shareholders of $143 million or 25 cents per share, down from $354 million or 60 cents per share a year ago.

On an adjusted basis, which excluded a number of one-time items, the company said it earned $197 million or 34 cents per share — three cents better than analyst estimates, but down from $398 million or 68 cents per share a year ago.

The company's revenues from operations were $2.2 billion for the three months ended June 30, down from $2.6 billion a year ago.

Copper revenue totalled $693 million, down from $731 million, while coal revenue amounted to $1 billion, down from $1.36 billion a year ago.

Zinc revenue fell to $455 million compared with $467 million in the second quarter of 2012 and energy revenue doubled to $2 million compared with $1 million.

Teck shares were up $1.01 at $24.70 in trading on the Toronto Stock Exchange on Thursday afternoon.