April 24, 2012 / 10:40 AM / in 6 years

UPDATE 5-Teck operating profit lifted by coal segment

* Q1 adjusted EPS C$0.86 vs average Wall St view of C$0.88

* Teck says well positioned to benefit from rise coal demand

* Teck completes feasibility study on proposed QB2 project

* Teck shares close higher on the TSX and NYSE

By Euan Rocha

April 24 (Reuters) - Teck Resources Ltd’s quarterly operating profit rose 13 percent on strong coal pricing and shipments, and t h e miner said it expected coal prices to rise again, sending its shares hig her on Tuesday.

Teck, one of the world’s top producers of coking coal used for making steel, said supply disruptions in Australia and rising global demand have put it in a strong position, as it has large coal stockpiles.

“We have come through a weak point in the global steel production cycle, and we certainly see the market improving now,” Chief Executive Don Lindsay said on a conference call.

“It is true we have had a couple of quarters where we have produced more than we’ve sold,” said Lindsay. “But it wouldn’t surprise me if this quarter we sell more than we produce - that’s how it’s unfolding right now.”

The favorable outlook, coupled with a lower-than-expected forecast for capital costs at an important project, pushed its shares higher in both Toronto and New York even though Teck’s first-quarter earnings fell short of some expectations due to higher than expected copper production costs.

In its sanguine outlook for coal, Teck echoed its larger rival Rio Tinto , which last week told investors that it saw Chinese demand for commodities staying robust while U.S. demand recovers.

Even so Teck cautioned that markets for its products, which also include copper, lead and zinc, remain volatile on persistent uncertainty over economic conditions in Europe.

Europe’s sovereign debt crisis and concerns about slowing Chinese growth have hurt miners. The Dow Jones Titans Basic Resources Index, which reflects share prices of the world’s top miners, is down some 30 percent in 12 months.

Teck’s shares, which also tumbled during that period, closed up 1.5 percent at C$35.85 on the Toronto Stock Exchange, while its U.S.-listed shares rose 1.7 percent to $36.30.

QUARTERLY PROFIT

Teck’s first-quarter operating profit, which excludes tax provisions, interest expenses and other items, rose to C$941 million ($946 million) from C$832 million a year earlier.

Excluding an after-tax charge for refinancing some of its debt and other smaller one-time items, profit was C$504 million, or 86 Canadian cents a share, up from C$450 million, or 76 Canadian cents.

That was just shy of the average analyst forecast of 88 Canadian cents, as compiled by Thomson Reuters I/B/E/S.

Net profit attributable to shareholders fell to C$218 million, or 37 Canadian cents, from C$461 million, or 78 Canadian cents.

In addition to the one-time refinancing charge, pressures in Teck’s copper business held back profit. Higher input costs, maintenance outages, weather-related issues and a one-time labor settlement all contributed to the weakness in copper.

Quarterly revenue rose 7.7 percent to C$2.55 billion on the back of stronger coal prices and higher zinc, copper and coal sales volumes. Average coal prices were 8 percent higher than those in the year-earlier period, but average copper and zinc prices fell 14 percent and 16 percent, respectively.

Teck said it has so far sold about 6.3 million tonnes of coal for delivery in the second quarter at an average price of $202 per tonne. While average pricing is below first-quarter levels, Teck said it believes it is past the bottom of the cycle and pricing will not dip below $200 a tonne.

EXPANSION CONTINUES

Teck said it is committed to investing to expand its copper and coal operations as it positions itself for improved market conditions.

It has completed a feasibility study on the proposed Phase 2 expansion at its Quebrada Blanca mine in Chile. The study estimates capital costs of $5.6 billion, of which Teck’s funding share would be $4.8 billion.

Teck owns a 76.5 percent stake in Quebrada Blanca. The other shareholders are a private Chilean company, which owns 13.5 percent, and state-owned Chilean miner Empresa Nacional de Minera (ENAMI), which has a 10 percent non-funding interest.

Analysts reacted positively to the capital cost estimate for the project, noting that projected costs are well below the Street’s average expectation of well above the $6 billion mark.

Teck plans to file a social environmental impact assessment for the project with Chilean regulators later this quarter. It said it is in talks with its partners on financing options for the project, which may include bringing in a new partner.

The company also said a feasibility study for the reopening of its Quintette coal mine in British Columbia remains on track.

If permits are approved on a timely basis and development proceeds as planned, the mine could be in production in the second half of 2013 with production ramping up through 2014 to about three million tonnes per year, the company said.

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