Teck Savings Plan Spurs Shutdown Speculation; Shares Pare Gain

  • Measure brings job cuts in the past 18 months to about 2,000
  • Company says no mine closures planned, operating costs to drop

Teck Resources Ltd. deepened cutbacks as Canada’s biggest diversified miner battles to protect margins and contain credit costs amid slumping commodities prices. The stock pared earlier gains.

The Vancouver-based producer lowered its 2016 spending plan by C$650 million ($488 million) and will eliminate a further 1,000 jobs, including senior management positions, bringing total job cuts in the past 18 months to about 2,000, it said in a statement dated Tuesday.

Teck plans to halt an expansion at its Coal Mountain mine, meaning output there will cease in late 2017, and lowered its operating cost estimates by C$300 million. That spurred speculation more operations such as the Quebrada Blanca copper mine in Chile may be curtailed or closed, Garrett S Nelson, an analyst with BB&T Capital Markets, said in a phone interview from Richmond, Virginia.

The company has “no mine closures planned,” Chris Stannell, a Teck spokesman, said in an e-mail late Wednesday.

“It’s important to note all of our operations remain cash flow positive,” Stannell wrote. “Moving forward we will continue to assess and ensure our operations and production are aligned with market conditions.”

The stock, which rose as much as 6.6 percent, was up 1 percent at the close in Toronto. Teck has slumped 66 percent in the past year, more than the 49 percent average decline by peers.

Debt Load

Wednesday’s announcement is the latest effort to shore up financing as commodity prices tumble amid slowing Chinese demand. It sold future production of gold and silver in the past fives months.

Teck continues to bear the consequences of an ill-timed expansion into metallurgical coal. A 2008 acquisition saddled it with an additional $9.8 billion in debt and led to its spiral into junk credit-rating status as the financial crisis struck. The company regained its investment grade in 2010 only to be relegated to junk again this year with downgrades from Moody’s and Fitch as coking coal extending declines.

The measures announced this week intend to “maintain financial flexibility in light of very difficult market conditions,” Chief Executive Officer Don Lindsay said in the statement. “These steps build on our ongoing cost reduction program.”

Oil Spend

They may also bolster funds available for the remaining C$1.5 billion the company will spend on its share of the Fort Hills oil sands project in Northern Alberta, Sasha Bukacheva, a Toronto-based analyst with the Bank of Montreal, said in a note to clients.

Oil dropped below $40 a barrel for the first time since August as producers’ output swelled global inventories to a record. While investors are still concerned by how much Teck is investing at Fort Hills, they should be seeing the light at the end of the tunnel given spending is halfway though, Nelson said.

Teck, which plans to announce its 2016 capital spending forecast in February, will pay an eligible dividend of C$0.05 a share.

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