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.
Still, economic uncertainty in Europe and the United States, along with less-robust growth rates in China and other emerging markets, will continue to hurt both demand and prices, especially for coal, Teck said.
“We believe that the medium to longer term fundamentals for steelmaking coal are quite favorable, although, the recent weakness in the seaborne steelmaking coal market is expected to persist for at least the first half of 2013,” the company said in a statement.
With some 6 million metric tonnes of coal already contracted for sale in the first quarter, and more expected, the miner expects 2013 coal output of 24.0 million to 25.0 million tonnes, in line with 2012 sales of about 24.0 million tonnes.
Copper production is expected to fall to 340,000 to 360,000 tonnes in 2013, compared with 373,000 tonnes in 2012, on declining output at the Quebrada Blanca mine in Chile and lower ore grades at Highland Valley Copper in Canada.
Production of zinc in concentrate in 2013 is expected to be some 560,000-590,000 tonnes, down slightly from 598,000 tonnes in 2012, while refined zinc production in 2013 is expected to be some 280,000-290,000 tonnes, in line with 284,200 tonnes in 2012.
The Vancouver-based company, which also owns energy assets in the Canadian province of Alberta, plans to spend some C$2 billion in 2013 on capital projects.
In October, the company deferred some C$1.5 billion in capital spending planned through 2013 and said it would spend C$1.2 billion on capital projects in 2012.
Fourth-quarter coal production shrank to 6.4 million tonnes, compared with 6.7 million tonnes a year earlier. Copper production rose to 103,000 tonnes from 89,000 tonnes.
The average price of copper in the quarter rose 6 percent to $3.59 per pound from $3.40, while the average coal price fell 37 percent to $159 per metric tonne from $253.
Earnings attributable to shareholders plunged to C$145 million, or 25 Canadian cents a share from C$637 million, or C$1.08, a year earlier.
Adjusted to remove one-time items, profit dropped to C$354 million, or 61 Canadian cents, from C$613 million, or C$1.04, a year earlier.
On that basis, analysts on average had expected earnings of 48 Canadian cents per share, according to Thomson Reuters I/B/E/S.
Revenue fell 10 percent to C$2.7 billion, while analysts had forecast C$2.55 billion.
Shares were down 3.1 percent at C$35.50 on the Toronto Stock Exchange on Thursday morning.
Reporting by Julie Gordon. Editing by Jane Merriman and Lisa Von Ahn and Chizu Nomiyama