Teck cuts jobs, dividend

Diversified miner Teck Resources (TSX: TCK.B; NYSE: TCK) is slashing jobs and lowering its dividend to protect its liquidity amid the commodity price collapse.

The senior producer of metallurgical coal, copper and zinc employs 10,000 but  will cut another 1,000 positions across its global offices, operations and senior management. This will bring its total reductions to 2,000 in the past 18 months.

To keep its financial flexibility, Teck aims to reduce total spending in 2016 by $650 million. Of that, $350 million will be in capital expenditures and deferrals, and $300 million in operating savings.

“Active cost reduction is an appropriate and generally welcome response during commodity price downturns,” BMO analyst Aleksandra Bukacheva notes.

Teck is also suspending its phase two extension at the Coal Mountain mine in B.C., with mining at the operation expected to wrap up in late 2017. Teck could replace phase two’s estimated annual coal production of 2.3 million tonnes by optimizing output at its five other steelmaking-coal mines in Canada.

Shelving the Coal Mountain extension was largely anticipated after Teck implemented three-week rotating shutdowns at its metallurgical coal mines in July, noting it would take more action in the fourth quarter if market conditions didn’t turn for the better.

Teck has lowered its semi-annual dividend for December to 5¢ per share, down from 15¢ per share in July. This is the second dividend cut this year, after decreasing its July payout to 15¢ per share from 45¢ earlier, Raymond James’ analyst Mike Plaster says.

“The dividend cut and further cost reduction efforts aren’t really a surprise, given the continued price weakness for met coal and other commodities,” he adds.

Although Plaster expected another dividend cut, he assumed Teck — after generating $1 billion in cash from the recent streaming deals on the Antamina and Carmen de Andacollo mines — would delay until 2016.

Plaster and Bukacheva agree it was a prudent move, and could save Teck $110 million to $115 million annually.

Bukacheva says the cost savings could protect Teck’s margin from more commodity price declines and improve its balance sheet, as it develops the Fort Hills oilsands project in Alberta.

At the end of the third quarter, Teck had $1.8 billion in cash, and $1.5 billion left as its minority share of construction costs at Fort Hills.

While Teck is set to release its 2016 capital budget in February, Bukacheva notes she previously forecasted capital spending next year of $1.8 billion, which is $300 million below 2015. 

Given the announced $350-million cut, she says the company’s 2016 capital budget could be in line with her estimate. Plaster estimated Teck’s original 2016 budget would be higher at $2.2 billion.

Both analysts remain cautious of Teck’s valuation in the low commodity-priced environment. Bukacheva has a $9 target price and a “market perform” rating, while Plaster has a $10.50 target and a “hold” recommendation.