October 23, 2008 / 4:42 PM / 10 years ago

UPDATE 2-Teck Cominco to cut exploration, could sell assets

* Teck priority to pay down Fording acquisition debt

* No details on what assets could be sold

* Shares sag nearly 17 pct as copper hits 3-yr low (Adds details, analyst comments; in U.S. dollars unless noted)

By Cameron French

TORONTO, Oct 23 (Reuters) - Teck Cominco TCKb.TO plans to rein in its exploration budget and is considering asset sales to rapidly repay the debt it took on with the $13 billion acquisition of Fording Canadian Coal Trust FDG_u.TO, the company’s chief executive said on Thursday.

Speaking on a conference call, Teck CEO Don Lindsay did not offer details on what assets could be on the block, but he said paying off the $9.8 billion in bridge and term loan facilities taken on for the acquisition was the company’s No. 1 priority.

“We intend to pay down a substantial portion in the next year from our operating cash flow, a cash tax refund of about $1 billion ... from potential asset sales and from cash,” Lindsay said.

“We are going to look at exploration budgets, both oil sands related and on base metals and gold projects, but they will be cut back,” he said.

The acquisition of Fording, which will give Teck full control of the Elk Valley Coal Partnership, is expected to close by the end of the month.


Teck and its partners in the Fort Hills oil sands project also said they’ll likely delay investing in the upgrader portion of the project, and instead consider just funding the mining operation initially.

The multibillion-dollar project is jointly owned by Teck, UTS Energy Corp UTS.TO and Petro-Canada PCA.TO. Under an agreement, Teck is obliged to satisfy a chunk of the project funding as Fort Hills moves forward.

The cost-cutting moves come as plunging base metal prices look set to bite into Teck’s cash flow over the next year, while frozen credit markets mean the company will want to get its balance sheet in shape as quickly as possible.

“They’re going to pare the debt down as quickly as they can, but I think they need to do that be because they obviously have capital commitments that are going to start hitting them in the face with Fort Hills,’ said Kerry Smith, an analyst at Haywood Securities.

The sharp drop in copper prices and funding squeeze has prompted speculation Teck could try to defer or walk away from committing funding the Petaquilla copper project in Panama.

Teck has to commit by late next year either to help fund the project or to sell its 26 percent stake to Inmet Mining IMN.TO.

Teck’s shares, which are down more than 60 percent this month, fell C$2.37, or 16.5 percent to C$11.95 on the Toronto Stock Exchange, dropping alongside other base metal miners as copper prices hit a three-year low.

Teck said late on Wednesday its third-quarter profit retreated 13 percent, due to weaker copper and zinc prices.

The company also warned the commodity price retreat, which has picked up speed in October, will affect its fourth-quarter results.

However, Teck said it had entered into hedges on about 55 percent of its expected copper production through the end of March 2009, which, combined with the fixed nature of Teck’s coal shipments, means it has locked in pricing on about 73 percent of its expected revenue through March.

$1=$1.26 Canadian Reporting by Cameron French; editing by Rob Wilson

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