BUSINESS
10/27/2011 05:40 EDT | Updated 12/27/2011 05:12 EST

Teck Resources Ltd. reports Q3 adjusted profit of $742 million

Diversified miner Teck Resources Ltd. (TSX:TCK.B) more than doubled its third-quarter profit compared with a year ago, but warned Thursday that a slowing global economy could reduce steel demand and the market for steelmaking coal.

Chief executive Don Lindsay said the Vancouver-based company expected to ship in the range of 22.2 million to 23 million tonnes of coal for the year, down from earlier estimates.

The company had earlier forecast coal shipments to come in at the low end of its guidance for between 23.5 million and 24.5 million tonnes.

"Achieving this sales range is predicated on full delivery of our contracted volume commitments for the fourth quarter," Lindsay said.

However Lindsay said the company was continuing to have talks regarding more sales.

Teck also lowered its 2011 copper sales guidance to approximately 320,000 tonnes, down from its previous guidance range of 330,000 to 340,000 tonnes, due to lower than expected production from its Quebrada Blanca mine in Chile.

Lindsay noted that while the steel companies have been conservative about purchasing coal, they haven't shut production down that much.

"That means generally they are drawing down their inventories of coal, hoping that they can buy it cheaper later," he said.

"I think it is going to be an interesting stand-off and with more confidence in the markets as we're seeing today, maybe the customers decide that's enough of holding back."

However, despite the lower guidance, shares in the company gained eight per cent Thursday after Teck reported a profit of $839 or $1.37 per share, up from $340 million or 54 cents per share a year ago.

Revenue totalled $3.38 billion in the third quarter, up 40 per cent from $2.41 billion in the same period a year ago.

Excluding one-time items, Teck reported an adjusted third-quarter profit of $742 million, or $1.26 per share, up from $452 million, or 77 cents per share, in the third quarter of 2010.

Analysts on average estimated Teck would have a third-quarter profit of $1.26 per share on $3.13 billion in revenue, according to data compiled by Thomson Reuters.

Teck attributed the higher revenue to favourable prices for its major products, especially copper and coal. This was partially offset by the combined effects of a stronger Canadian dollar, higher operating costs and other factors.

Demand for steel has slipped in recent months amid concerns about a slowing global economy and slower than expected growth in China, a key market for steel.

The possibility of a slower Chinese economy has rattled financial markets, as it has been one of the few bright spots during the economic turmoil.

Beijing is trying to steer growth to a more sustainable level and hold inflation in check by tightening bank lending, but some have raised concerns it might slow the economy too much, as both Europe and the U.S. continue to struggle.

Ian Kilgour, Teck's senior vice-president for coal, said a number of steel makers have reduced production and inventories.

"The global uncertainty has led people to be cautious," he said.

BMO Capital Markets analyst Meredith Bandy noted that Teck wasn't alone in dealing with a weaker than expected steel market and its consequences.

"Near-term economic concerns have pressured all the coal stocks, including Teck, so Teck’s more cautious outlook may be priced into the stock," Bandy noted in a report to clients.

Bandy rated Teck an "outperform" with a $60 price target.

On Wednesday, Teck boosted its semiannual dividend payments by 33 per cent to 40 cents per share, up from 30 cents.

Last month, the company announced plans to spend a total of $685 million on improvements at two of its major metals operations in British Columbia.

Teck said it will invest $210 million to increase capacity of an electronic waste recycling operation in Trail, B.C., where Teck has a major zinc smelter and hydroelectric plant.

It will also spend $475 million to modernize and extend the life of a 40-year-old mill at the Highland Valley copper mine, about 75 kilometres southwest of Kamloops, B.C.

The company's class B shares closed up $3.02 at $40.35 on the Toronto Stock Exchange, off an earlier high of $42.79 shortly after markets opened.