Fitch Affirm's Teck's IDR at BBB; Outlook Stable
NEW YORK -- March 21, 2013
Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Teck Resources
Limited's (Teck; NYSE: TCK; TSE: TCKb) at 'BBB' along with Teck's outstanding
debt. A full list of rating actions follows at the end of this release.
The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings reflect Teck's strong liquidity, modest financial leverage, long
lived reserves, leading low cost position in zinc, its leading position in the
seaborne hard metallurgical coal market, and solid core position in copper.
Globally, Teck is the second largest seaborne hard coking coal producer after
BHP-Mitsubishi Alliance and is in the second quartile on the cost curve (FOB
port). Globally, Teck is the ninth largest copper producer with about average
costs and the third largest zinc producer, in the lowest quartile on costs.
Mine lives are generally over 20 years.
Coal accounted for 51% and copper accounted for 37% of gross profit before
depreciation and amortization in 2012. Canada accounted for 66% of 2012 gross
profit by region and operations are also in the U.S. (10%), Chile (8%) and
Teck guided to $1 billion in major project spending for 2013 including C$120
million for the Quintette metallurgical coal mine in Canada, C$450 million for
the QB2 copper project in Chile, C$290 million for Fort Hills oil sands
project in Canada, and C$110 million for the Frontier oil sands project in
Canada. The Quintette mine is targeting 3.5 million tonnes (t) per annum with
a start-up in 2014 assuming permitting in the second quarter of 2013.
Management anticipates filing a revised social and environmental impact
assessment for the QB2 project in the second quarter of 2013 with the review
process expected to take 12 months after the filing. The QB2 feasibility study
was completed in 2012 and had production of 200,000 t of copper per annum over
the 39 year mine life at C1 cash costs of 1.07/lb. Engineering studies for the
Fort-Hills project, a partnership among Suncor Energy Inc. (40.8%), Total E&P
Canada Ltd. (39.2%) and Teck (20%), are ongoing with a project sanctioning
decision expected in 2013. If phase one of the project is sanctioned,
production is not anticipated to start before 2017. Teck owns 100% of the
Frontier project. The review of the project application is underway and the
company believes 2015 is the earliest an approval decision and receipt of
required permits could be expected.
At Dec. 31, 2012, liquidity remained strong with C$1.1 billion available under
credit facilities and C$3.3 billion in cash on hand. Teck's $1 billion
facility matures July 2016. The credit facilities require Teck to maintain a
debt to total capitalization ratio of not more than 0.5:1.0. At Dec. 31, 2012,
the ratio was 0.29:1.
Scheduled debt maturities over the next five years are C$35 million in 2013,
C$6 million in 2014, C$325 million in 2015, C$3 million in 2016 and C$599
million in 2017.
Fitch expects the company to be free cash flow negative in 2013 after capital
expenditure (guidance is C$2.3 billion before deferred stripping but after
investment in Fort Hills).
At Fitch 's 2013 copper price assumption of $3.40/lb. and Zinc price
assumption of $0.86/lb., EBITDA could decline to C$3.4 billion in 2013 and FCF
could be as low as negative C$1 billion. Teck states that a $1/tonne change in
coal prices affects EBITDA by C$25 million and a $0.01/lb change in copper
prices affects EBITDA by C$7 million based on their 2013 mid-range production
FCF could be negative in 2014 and 2015 depending on commodity prices and the
timing of development spending. Fitch expects that the company would delay
project spending beyond 2013 if the outlook for prices for metallurgical coal
or copper softens from current expectations.
Fitch expects funds from operations (FFO) adjusted leverage to be about 2.5x
in 2013. For the latest twelve months (LTM) ended Dec. 31, 2012, FFO adjusted
leverage was 2.4x and total debt of C$7.2 billion to operating EBITDA of C$3.7
billion was 1.9x.
The Stable Outlook reflects Fitch's view that Teck will maintain its current
Positive: Future developments that may, individually or collectively, lead to
positive rating actions include:
--A sustainable reduction in debt and financial leverage.
Negative: Future developments that may, individually or collectively, lead to
negative rating actions include:
--A leveraged acquisition, substantial share repurchases, or FFO Adjusted
leverage above 2.5x for an extended period of significantly lower prices for
copper, metallurgical coal, or zinc.
--Unwillingness to reduce capital expenditures during a period of weak market
Fitch rates Teck as follows:
--Issuer Default Rating (IDR) 'BBB';
--$1 billion Bank Credit Facility 'BBB'; and
--Senior Unsecured Notes 'BBB'.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Monica M. Bonar
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Christopher M. Collins, CFA
Sean T. Sexton, CFA
Brian Bertsch, +1-212-908-0549 (New York)
Press spacebar to pause and continue. Press esc to stop.