Flooding disrupts Teck logistics

Canada’s largest diversified miner Teck Resources (TSX: TECK.A; TSX: TECK.B; NYSE: TECK), says the unprecedented rain and flooding in British Columbia has disrupted the supply chain between west coast terminals and its BC-based operations.

Two days of torrential rain across BC caused significant flooding and mudslides. They shut rail routes operated by Canadian Pacific Rail (TSX: CP) and Canadian National Railway (TSX: CNR), Canada’s two biggest rail companies.

According to Reuters, the once-in-a-century weather phenomenon caused widespread landslides, severing critical Lower Mainland access routes from the interior and killing at least one person.

Teck said in a statement it had implemented measures to mitigate the effect of the disruption, diverting some trains to Ridley Terminals in Prince Rupert.

CP and CN have started repairs but do not currently have estimated return to service dates.

“The overall impact and any potential effect on Q4 sales will be dependent on the duration of the logistics chain disruption,” said Teck.

Production at its Elk Valley operations has not been impacted at this time, the company said.

BMO Capital Markets expects minimal disruption to Teck’s performance metrics, but analyst Jackie Przybylowski notes the latest logistics caps off a tough weather year for Teck.

“This outage follows rail disruptions for roughly five days in June and July 2021 due to wildfires and associated rail damage. For context, those disruptions impacted third-quarter sales by 500,000 to 800,000 tonnes to 5.9 million tonnes. The outage also raised operating costs due to rail traffic diverted to Ridley Terminals, a farther haul,” she said in a research report.

The analyst provided a sensitivity analysis to potential disruptions, saying a seven-day railway outage would reduce coal sales by 500,000 tonnes in the fourth quarter to 6.1 million tonnes. “It would reduce EBITDA by about $200 million, or about 6%,” Przybylowski said.

“Conservatively, this scenario assumes no sales are caught up; offsetting this, the above scenario also assumes no increase to transportation costs. We reiterate that our base case assumption is that any missed sales are caught up later in the current quarter,” according to BMO.