TORONTO (Reuters) - Teck Cominco Ltd will cut about 1,400 jobs, or 13 percent of its staff, as part of a plan to lower costs and keep competitive following a sharp drop in commodity prices, the mining company said on Thursday.
Teck, which has been cutting costs to pay down nearly $10 billion in debt taken on to acquire Fording Canadian Coal Trust, expects to save about C$85 million ($71 million) annually with the job cuts.
It also said it plans to reduce 2009 coal output by around 13 percent to 20 million metric tons due to declining global demand from steel-making and other industries.
About 1,000 employee and 400 contractor positions will be eliminated by the end of 2009, largely in the first quarter, said Teck. It expects to take a $35 million charge for severance and related costs in the first quarter.
“Given continued economic uncertainty, a significant reduction in our workforce is needed to further reduce costs and position Teck for both short and long-term competitiveness,” Chief Executive Don Lindsay said in a statement.
Teck’s shares were down 3.9 percent at C$7.30 on the Toronto Stock Exchange following the news.
The company, which is also a top copper and zinc producer and has holdings in the Alberta oil sands, took over Fording to get full control of the Elk Valley Coal Partnership, one of the world’s top producers of metallurgical coal.
But tight credit markets and plunging metal prices -- including expectations of a sharp drop in coal prices when they are set at the end of March -- have raised concerns that Teck may have trouble paying down or refinancing a $5.8 billion bridge loan that is part of the Fording debt.
Teck’s metallurgical coal sales are contracted at $275 a metric ton for the year ending March 31, but many analysts expect that to fall by 50 percent or more when new prices are set.
The 2009 coal production forecast follows sales in 2008 that Teck had projected to be just over 23 million metric tons. However, Lindsay has said some customers have deferred shipments.
Tony Robson, an analyst at BMO Capital Markets, said he had expected the company to project a drop in coal sales given plunging steel demand, and recent cutbacks and layoffs by other companies affected by steel demand, including Brazilian iron ore producer Vale.
“It’s a bit lower than I thought, but not too far off,” he said of the coal sales projections.
Teck said in November it will slash costs, suspend dividend payments and sell some non-core assets to cut the debt. The company has also said it could be forced to sell stakes in some core assets -- including possibly a stake in Fording itself -- if it has trouble wrestling the bridge loan lower.
Separately, Calgary-based metallurgical coal producer Grande Cache Coal said it had been told by some of its customer that shipments originally scheduled for delivery by March 31 would be deferred into the following fiscal year due to weakening steel demand.
Reporting by Cameron French; editing by Rob Wilson