Low commodity prices bite into Teck’s bottom line

Teck Resources (TSX: TCK.B; NYSE: TCK) saw its adjusted fourth-quarter and full-year profit both fall 44.5%, as lower commodity prices overshadowed strong production.

Canada’s largest diversified miner reported an adjusted fourth-quarter profit of $227 million, or 40¢ per share, missing analyst estimates of 44¢. Adjusted full-year profits were $1 billion, down from $1.8 billion in 2012.

“Prices for all of our key products were down compared to last year, resulting in lower profits and cash flows than in 2012,” the company’s CEO Don Lindsay said in a statement.

Teck’s three main products are coal, copper and zinc. Compared to 2012, prices last year fell 23% for coal, 8% for copper and 1% for zinc.

Revenue slumped 11% to $2.4 billion in the last three months of 2013 and 9% to $9.4 billion for the full year. Cash flow from operations also tumbled, although Lindsay said on a conference call that “operationally, we achieved solid performance in 2013. I am pleased that we met or exceeded all of our production targets.”

Last year the Vancouver-based firm produced 25.6 million tonnes of coal, reaching the top-end of its guidance. Annual copper production was 364,000 tonnes, slightly above expectations, but below 2012 levels.

Lindsay says 2013 was Teck’s “second-highest copper production year ever,” thanks to a record fourth-quarter output of 105,000 tonnes.

Teck also surpassed its annual zinc projections, producing 623,000 tonnes of zinc concentrate and 290,000 tonnes of refined zinc.

Lindsay says coal and zinc sales last year were both higher than in 2012. But copper sales were down nearly 3% to 362,000 tonnes. However, coal sales hit a new annual high of 26.9 million tonnes, as global steel production picked up.

“This continues to highlight the strong demand for Teck’s high-quality met coal, despite the ongoing weakness in the coal market,” wrote CIBC analyst Alec Kodatsky in note.

This year Teck forecasts producing 26 million to 27 million tonnes coal at $55 to $60 per tonne. Costs are 12% higher than last year due “longer haul distances and higher fuel prices.”

It is guiding 2014 copper production of 320,000 tonnes to 340,000 tonnes, 9% below 2013 levels, owing to lower expected grades. Cash costs after by-product credits should range between US$1.70 and US$1.90 per lb.

To conserve capital, Teck intends to keep reducing costs. Last year, it implemented $360 million in annual cost savings, and another $150 million in one-time cost savings and deferrals.

Teck also expects to benefit from the weakening Canadian dollar, noting it could add $500 million in operating earnings in 2014 if the weakness continues.

Capital expenditures for 2014 are $2.6 billion, of which $850 million will go towards building the Fort Hills oilsands project in Alberta’s Athabasca region.

The miner anticipates investing nearly $3 billion over the next four years at Fort Hills to grow its energy business. “This is the first step towards building an energy business unit that will become a significant growth driver for Teck,” Lindsay said.

 At press time Teck shares traded at $26.01 apiece, for a $15-billion market capitalization. In the past 52 weeks Teck shares have traded in the range of $21.11 to $34.05. The company has a $2.5-billion cash position.