Teck Resources Ltd., the second-largest exporter of seaborne coal used in steelmaking, reduced its dividend as the company defends its investment-grade credit rating amid lower prices for the commodity.
The semi-annual payout will drop 67 percent to 15 Canadian cents (12 U.S. cents) a share, Vancouver-based Teck said Tuesday in a statement, the first reduction since the financial crisis in 2008.
That will save Teck about C$346 million a year, almost equal to the its annual debt interest payments, Alex Terentiew, an analyst at Raymond James Financial Inc., said in a note.
Teck also may consider ways to “monetize” some smaller assets, Chief Financial Officer Ron Millos said on a conference call when asked about what else it can do to strengthen its balance sheet.
Coal is Teck’s biggest business, accounting for 39 percent of its revenue last year. The quarterly benchmark price for metallurgical coal has fallen to a seven-year low amid slowing Chinese demand and a global supply glut that’s set to continue.
At the same time, the company’s total debt has soared to C$9.2 billion, or 8.9 times earnings before interest and taxes, according to data compiled by Bloomberg.
Lower coal and copper prices have coincided with Teck’s commitment to fund its 20 percent interest in the C$13.5 billion Fort Hills oil-sands project now under construction in northern Alberta.
Teck had C$1.4 billion of cash and $3 billion available under a revolving credit facility as of April 20. The company said that’s consistent with its goal of ending the year with at least C$1 billion in cash at existing debt levels.
Fitch Ratings last week lowered Teck to BBB-, the lowest investment-grade rating from BBB, with a stable outlook, citing weaker coal and copper prices. That brought Fitch into line with similar reductions by Standard & Poor’s and Moody’s Investors Service, Millos said on the call.
While Teck continues to eye potential acquisitions to boost its copper output, completing a deal “may not necessarily be as easy as it looks” because of competition from other buyers who have higher commodity price assumptions, Teck Chief Executive Officer Don Lindsay said on the call.
Teck reported first-quarter profit excluding one-time items was 11 cents a share. That trailed the 15-cent average of 25 analysts’ estimates compiled by Bloomberg.
Net income slipped to C$68 million, or 12 cents a share, from C$69 million, or 12 cents. Sales fell 2.9 percent to C$2.02 billion, missing the C$2.12 billion average estimate.
The shares fell 6 percent to C$15.91 at 2:22 p.m. in Toronto.
The company also said its Line Creek and Coal Mountain coal mines in British Columbia are operating under expired collective agreements and labor talks are continuing.