POLITICS

Teck Resources announces temporary shutdown at Canadian coal mines in Q3

05/28/2015 09:02 EDT | Updated 05/28/2016 05:59 EDT
VANCOUVER - Teck Resources Ltd. (TSX:TCK.A, TSX:TCK.B) is temporarily shutting down its six Canadian steelmaking coal mines for three weeks due to weak market conditions.

The company said Thursday that the suspensions at its British Columbia and Alberta mines will be staggered over the summer months.

"Rather than push incremental tonnes into an over-supplied market, we are taking a disciplined approach to managing our mine production in line with market conditions," Teck chief executive Don Lindsay said.

"We will continue to focus on reducing costs and improving efficiency to ensure our mines are cash positive throughout the cycle and well-positioned when markets improve."

The move is expected to cut third quarter production by 1.5 million tonnes — or 22 per cent — to 5.7 million tonnes.

Teck says annual coal production is now estimated at 25 million to 26 million tonnes.

The company says it will continue to meet all contracted and committed coal sales, and that additional production adjustments will be considered as market conditions evolve.

Haywood Securities analyst Kerry Smith downplayed the significance of the move.

"I think for them it's just managing their inventory," said Smith.

The reduced production is expected to hit Canadian Pacific Railway Ltd., where Teck coal makes up roughly 90 per cent of its coal portfolio.

The drop in shipped coal is expected to shave off roughly three per cent of Canadian Pacific's earnings per share in the third quarter, according to RBC Capital Markets analyst Walter Spracklin.

The coal industry has been hit by a glut of supply from low-cost Australian producers as well as dropping demand from a slowing Chinese economy.

Teck sold metallurgical coal at an average of US$106 per tonne last quarter, down from US$131 per tonne for the first quarter of 2014, and well off the US$257 per tonne it averaged in 2011.

In addition to coal, Teck is a major producer of copper and zinc.