Teck profit tumbles but miner's cost cuts help

Thu Feb 7, 2013 10:38am EST
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By Julie Gordon

TORONTO (Reuters) - Canadian diversified miner Teck Resources Ltd TCKb.TO reported a sharp drop in fourth-quarter earnings on Thursday as coal prices sagged, though production cost cuts and strong copper sales softened the blow.

Shares of the company fell more than 3 percent shortly after the market open as it warned that global economic uncertainty was still weighing on prices and demand for some of its products, particularly coal.

On a more optimistic note, Teck managed to carry through on its promise to slash operating costs in the coal unit in the latest quarter.

"Sales of all three of their major products - coal, copper and zinc - exceeded expectations, and they benefited from a huge sequential drop in coal production costs," said Garrett Nelson, a mining analyst with BB&T Capital Markets.

Operating costs for Teck's coal unit fell 17 percent in the quarter when compared to the first three quarters of 2012, as the company implemented a hiring freeze, shut down some equipment and cut down on its use of outside contractors.

"It's very rare that you see this kind of sequential drop in production costs," said Nelson. "It was very, very positive."

Escalating operating and capital costs have weighed heavily on the mining industry in recent years, eroding profits and prompting miners to promise cost-cutting measures and improved returns to shareholders.

COAL TO WEIGH   Continued...