Fort Hills a ‘sweet spot’ for Teck

The Fort Hills oilsands project remains Teck Resources’ (TSX: TCK.B; NYSE: TCK) main growth project, Andrew Golding, the company’s senior vice-president of corporate development, said during the 2014 Global Metals, Mining and Steel Conference in May. 

“Mined oilsands are right in the ‘sweet spot’ for Teck for a number of reasons. Our strategy is to be a diversified mining company, and oilsands are a great addition to our product portfolio,” he said. (Teck’s current portfolio focuses on metallurgical coal, zinc and copper.)

Fort Hills is in Alberta’s Athabasca region, 90 km north of Fort McMurray. Teck, which owns 20% of the project, describes it as “one of the best undeveloped oilsands mining assets in the region.” 

Golding added that the province is a “tremendous place” to invest in, and that the project complements the company’s strategy of working in low-risk jurisdictions. 

Fort Hills, operated by 40.8% owner Suncor Energy (TSX: SU; NYSE: SU), will be developed as an open-pit truck-and-shovel mine. Total E&P Canada Ltd., a subsidiary of Total (NYSE: TOT), owns the remaining 39.2%. 

The project is set to process 110 million tonnes of oilsands a year. This works out to 180,000 barrels of bitumen per day at full production. Teck’s share of output is 36,000 barrels of bitumen per day, or 13 million barrels a year. 

Suncor estimates that first production could start as early as the fourth quarter of 2017. Once online, the project should ramp up to 90% of its full capacity within a year. 

The total reserves falling under the company’s 20% working interest are 608 million barrels of bitumen. Fort Hills also has a contingent resource of 26 million barrels associated with Teck’s interest. 

“It is a truly world-class resource, providing for an exceptionally long life of 50 years or more,” Golding said. 

Since Fort Hills was green-lighted for development six months ago, many investors highlighted execution risk as their main concern, Golding noted. 

However, Teck believes that risk will be minimized due to Fort Hills’ disciplined execution plan and Suncor’s proven track record of bringing projects online, and within budget. 

“Particularly notable is that the management team is scheduling the development around a balanced manpower profile to avoid the inefficiencies and costs associated with having temporary peaks in the workforce,” Golding said. 

Suncor forecasts total spending of $3.2 billion on the project this year, putting Teck’s share at $850 million, including its earn-in commitments. In the first quarter of 2014, Teck had spent $114 million at Fort Hills.  

From 2014 to 2017, Teck expects to invest US$3 billion in the project.