Teck Profit Exceeds Estimates as Coal, Copper Costs Decline

  • Diversified miner’s adjusted profit beats by 1 cent a share
  • While prices are improving, the market is still ‘challenging’

Teck Resources Ltd., Canada’s largest diversified miner, reported second-quarter results that beat analysts’ estimates as the company managed to further trim costs. Shares surged.

Net income fell to C$15 million ($11 million) from C$63 million a year earlier, the Vancouver-based company said Thursday in a statement. Excluding one-time items, Teck posted a profit of one Canadian cent a share, topping the breakeven result estimated on average by 19 analysts tracked by Bloomberg.

The company has “continued to reduce costs while maintaining production volumes,” Chief Executive Officer Don Lindsay said in the statement. “While the commodity cycle continues to be challenging, we are starting to see some positive changes in the direction of zinc and steelmaking coal prices.”

Operating costs for metallurgical coal, which include transportation charges, fell 8.4 percent in the second quarter from a year earlier to C$76 a metric ton, while copper cash-unit costs after byproduct credits declined 10 percent to $1.34 a pound.

‘Strong Quarter’

“Q2 was another strong quarter operationally and results should provide increased confidence in Teck’s operating costs going forward,” Shane Nagle, a Toronto-based analyst at National Bank Financial, said in a note Thursday. He maintained his sector perform rating on the stock and C$22 price target.

Teck rose 5.4 percent to C$19.95 at 9:50 a.m. in Toronto. The shares have more than tripled this year as prices for steelmaking coal and zinc climbed. The miner, which also produces copper, has been borrowing this year to buy back near-term unsecured debt to push maturities further out.

Teck has increased its steelmaking coal production-forecast range for 2016 by 1 million tons to a range of 26 million to 27 million tons, at a cost of C$42 to C$46 a ton. The previous cost forecast was C$45 to C$49 a ton.

Second-quarter revenue fell 13 percent from a year earlier to C$1.74 billion, missing the C$1.76 billion average estimate.

“Despite the recent modest improvements in zinc and steelmaking coal pricing, our industry continues to experience difficult business conditions and compressed operating margins,” the company said in the statement.

Second Half

Copper, which accounted for 29 percent of Teck’s revenue last year, was down 23 percent on average in the second quarter compared with a year earlier. And while met coal and zinc have risen this year, second-quarter prices for coal were little changed year-over-year while zinc prices on the London Metal Exchange fell on average 12 percent.

Prices for metallurgical coal are likely to improve over the course of 2016, which should position Teck for future strength, according to Jeremy Sussman, an analyst at Clarksons Platou Securities. He recently upgraded his rating on the company to buy from the equivalent of hold.

“We’re now outright bullish on metallurgical coal, and people are generally comfortable with zinc, so the only other question is copper,” Sussman said in a phone interview last week from New York. While copper prices are off their recent peak, “Teck is probably in the three commodities that we like the best,” he said.

Coal was Teck’s biggest product by revenue last year at 37 percent, followed by zinc at 34 percent and copper at 29 percent.

(The company scheduled a conference call to discuss its results at 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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