Teck Gets No Pay for Earnings Win as Equity Rout Takes Hold

  • Adjusted profit beat estimates on cost cuts and currency moves
  • Teck expects to end 2016 with $500m cash and same U.S. debt

Canada’s largest diversified miner can’t catch a break.

On a day Teck Resources Ltd. surprised analysts by reporting adjusted earnings rather than an estimated loss, its shares slumped for a fourth straight session, losing as much as 8.6 percent as part of a global equity rout as investors lost faith in central banks’ ability to support the global economy.

“At the end of the day, earnings seem to be taking a back seat to the macro side of things," Jeremy Sussman, an analyst at Clarksons Platou Securities Inc., said by phone from New York. Even to the extent that there are nuggets of good news, the market is still selling, he said.

Although the Vancouver-based company had a fourth-quarter net loss loss of 80 cents a share, versus a 23-cent profit a year earlier, its adjusted earnings beat analysts’ estimates as costs declined and a weakening local currency helped support profitability. Earnings before writedowns and other one-time items of 3 cents a share compared with a 1-cent loss estimated on average by 21 analysts tracked by Bloomberg.

Best Results

The results came on the same day as Peabody Energy Corp. missed earnings estimates, Rio Tinto Plc cut dividends and Glencore Plc said copper production slumped.

“Among those four companies, Teck had the strongest results relative to expectations,” Sussman said. “From an operations standpoint, a very solid quarter.”

Like other commodity producers, Teck has been stung by collapsing demand from China, which sent prices plunging for its main products: metallurgical coal, zinc and copper. In November, Teck said it would cut C$650 million from capital spending and costs in 2016 and eliminate a further 1,000 jobs. Costs declined across all operations in 2015 compared with a year ago, helped in part by lower oil prices, the company said.

“This is actually one of the strongest earnings releases we’ve seen from the group so far this earnings season,” Garrett Nelson, a Richmond-Virginia based analyst at BB&T Capital Markets said by telephone. While costs fell, total cash was up $400 million sequentially, he said. “It really helps alleviate investor concerns about their balance sheet.”

Cash Goal

As of February 10, the company had a cash balance of $1.8 billion and $3 billion available under a revolving credit facility that matures in 2020, Teck said in Thursday’s statement.

Assuming current commodities prices and exchange rates stay the same, there are no unusual events, and the company meets its guidance, it should end 2016 with at least $500 million in cash and no material change in its US dollar debt level, the company said.

In addition to benefiting from lower energy prices, Teck also gains from a stronger U.S. dollar because most of its costs are in local currencies while production is priced in greenbacks. The Canadian dollar slumped 3.8 percent relative to the U.S. dollar in the fourth quarter.

Oil Sands

Teck took C$736 million of pretax writedowns in the quarter, including C$598 million on its stake in the Fort Hills oil-sands project in Alberta, C$45 million on its steelmaking coal assets and $93 million on copper assets.

Sales fell to C$2.14 billion during the quarter from C$2.26 billion a year ago. That exceeded the C$1.93 billion average estimate.

“The commodity cycle continues to provide us with a very challenging environment," Chief Executive Officer Don Lindsay said in the statement. “Our near-term priorities are to keep all of our operations cash flow positive, meet our commitment to Fort Hills with internal sources of funds, evaluate options to further strengthen our liquidity and maintain a strong financial position by ending the year without drawing on our lines of credit."

Teck shares has dropped about 70 percent in the past 12 months in Toronto, more than the 36 percent decline of the 22-company Bloomberg Americas Mining Index.

(The company scheduled a conference call to discuss earnings for 11 a.m. New York time at +1-416-340-2216 or +1-866-225-0198. No pass code is required.)

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