July 25, 2012 / 3:33 PM / in 5 years

Teck profit tumbles on weaker coal, metal prices

(Reuters) - Teck Resources Inc TCKb.TO, Canada’s largest diversified miner, said on Wednesday lower coal and metal prices contributed to a steeper-than-expected drop in quarterly profit and that it sees no reprieve anytime soon, sending its shares more than 7 percent.

Vancouver-based Teck said economic uncertainties in Europe and the United States and ebbing growth in China, India and other emerging markets held back both demand and prices for many of its products in the second quarter.

“While we believe that the medium to long-term fundamentals for steelmaking coal, copper and zinc are quite favorable, the recent weakness in these markets may well persist over the near term,” the company said in a statement.

Net profit dropped nearly 65 percent to C$268 million ($262.84 million), or 46 Canadian cents a share, from C$756 million, or C$1.28, a year earlier.

Adjusted profit, excluding one-time items such as asset sales, fell 53 percent to C$312 million, or 53 Canadian cents a share.

Analysts, on average, had expected a profit of 64 Canadian cents a share on revenue of C$2.47 billion, according to Thomson Reuters I/B/E/S.

Revenue fell to C$2.56 billion from C$2.80 billion, as coal, copper, zinc and other metal prices dropped below year-ago levels.

Teck, which has operations in Canada, the United States, Chile and Peru, produced a record 90,000 tonnes of copper in the quarter, but sales fell 2 percent to C$731 million due to a decline in copper prices.

Coal revenues dropped 7 percent to C$1.36 billion on lower prices, while zinc sales volumes slipped due to seasonal fluctuations at the Red Dog mine in Alaska.

Teck’s shares slid 7.58 percent to C$27.18 on Wednesday morning on the Toronto Stock Exchange. The stock is down more than 25 percent so far this year.

HIGHER COSTS

Rising operating costs at the both the coal and copper divisions also weighed on Teck’s second-quarter profit.

Teck’s coal division was the largest contributor, with total operating and transportation costs increasing some 10 percent to $114 a tonne, Desjardins Securities analyst John Hughes said in a note to clients on Wednesday.

“Overall, we view the 2Q12 results as disappointing due to the increase in operating costs at the company’s major operating divisions,” he wrote.

Coal production fell by some 700,000 tonnes in the quarter, mainly because of a nine-day Canadian Pacific Railway (CP.TO) strike that shut down rail operations from the company’s Elk Valley mines in British Columbia. That led to lower production volumes and higher unit operating costs.

Teck said to date it has reached agreements with customers to sell 5 million tonnes of coal in the third quarter of 2012 and it expects to conclude additional sales over the course of the quarter.

The average price for its premium coal has been settled at $225 per tonne, with average price for all its coal products at just shy of $200 per tonne.

Teck said its balance sheet remains strong with C$3.6 billion of cash, which will allow the company to advance its longer-term growth plans.

Coal accounts for 57 percent of Teck’s business, with copper production weighing in at 32 percent and zinc at 11 percent.

FUNDING QUEBRADA

Earlier this month, Teck temporarily withdrew the environmental assessment application for its Quebrada Blanca Phase 2 project in Chile.

The company said on Wednesday it was reviewing requests and comments from regulators and once the requirements are clarified, it would resubmit the application.

The $5.6 billion expansion will more than double output at the copper mine and extends its life by some 30 years. Teck said it was in talks with its partners on financing the development, and could potentially bring in a new partner.

It will base a decision to move forward with the expansion on the financing negotiations, as well as the permitting issues, Teck said.

($1 = 1.0197 Canadian dollars)

Reporting by Euan Rocha, Julie Gordon, Adithya Venkatesan and Ankur Banerjee; Editing by Jane Merriman, Supriya Kurane and Gerald E. McCormick

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