Teck Soothes Pain of Low Commodity Prices with Waneta Dam Sale

Diversified Canadian miner Teck Resources (TSX:TECK.A,TSX:TECK.B,NYSE:TECK) has released its third-quarter results for 2018, revealing that while its operations are performing well, lower commodity prices are chewing into its bottom line compared to Q2.

Teck said that commodity prices are a mixed bag, with steelmaking coal up, but copper and zinc values down 4 percent and 14 percent year-on-year, respectively. They are also down on the previous quarter.

“Commodity markets have generally weakened since the end of the second quarter and prices for our products declined in the third quarter compared with the second quarter of this year,” says the report.

It continues, “[c]opper and zinc average quarterly prices declined by 11 percent and 18 percent, respectively, while steelmaking coal prices declined to a lesser extent, decreasing by 6 percent.”

Profit attributable to shareholders in the quarter was C$1.3 billion, up from C$584 million at the same time last year. The credit for the increase went to the sale of the company’s two-thirds interest in the Waneta dam in BC to state-run power company BC Hydro for C$812 million.

That sale hides a fall in adjusted profit for the company brought about by falling commodity prices, with adjusted profit at C$466 million in Q3 2018 compared to C$605 million in Q3 2017.

“The decline in our adjusted profit in the third quarter compared with a year ago was partly due to lower base metals prices, negative pricing adjustments, lower steelmaking coal sales volumes and reduced volumes from our Trail (zinc-lead) operations,” explains the report.

As mentioned, Teck said that overall its operations are performing well. Though copper production was down 4 percent year-on-year, the company has increased its overall guidance for 2018 from 280,000 to 290,000 tonnes up to 285,000 to 295,000 tonnes.

Teck reported that Highland Valley copper production in BC was 23,100 tonnes, down 2,000 tonnes year-on-year; recoveries were higher, but grades were lower.

Antamina in Peru saw a 3-percent increase in copper output to 113,600 tonnes thanks to higher copper grades, as the mill processed more copper-only ore this year compared to copper-zinc ore in 2017.

Teck’s two Chilean copper operations posted mixed results; Carmen de Andacollo production was down 16 percent year-on-year to 16,600 tonnes, while Quebrada Blanda was up 27 percent to 6,500 tonnes.

During Q3, Teck’s Quebrada Blanca phase 2 received regulatory approval, which will see operations vastly expanded with an expected output of 300,000 tonnes of the red metal in the first five years of operations — though a final construction decision is yet to be made.

Copper was trading on the LME at US$6,214 a tonne as of October 24. At the same time in 2017, it was trading at US$7,073.

Zinc is hurting more, down to US$2,737 a tonne on October 24 (which represents a recovery from lows achieved earlier this year) from US$3,264 on October 24 in 2017 — though that’s been the subject of renewed attention in recent months.

On the TSX, investors did not react well to the report, with TECK.A shares trading down 8.46 percent at C$25 as of midday October 25, while TECK.B shares were down 7.23 percent at C$24.96.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.