Teck Cuts Steelmaking Coal Target Amid Virus Threat

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(Bloomberg) -- Teck Resources Ltd. lowered its forecast for steelmaking coal after the Canadian producer was hit by extreme weather and rail blockades just as the coronavirus outbreak threatens demand. The shares plunged the most in three years.

The Vancouver-based company will temporarily reduce production and shut down its Neptune shipping terminal, it said Friday in its quarterly earnings report. The move will help address high levels of inventory and allow it to move forward with an upgrade at the Neptune facility.

It’s been a tough period for Teck, as profit in 2019 was hurt by slumping coal prices and a C$910 million ($686 million) after-tax writedown on its stake in the Fort Hills oil-sands mine. Permitting delays and unrest in Chile will affect the cost of the company’s Quebrada Blanca Phase 2 project. A new schedule and updated capital estimate for that is planned for the first quarter.

The miner is also waiting for approval from the Canadian federal government on its Frontier oil-sands project in Alberta. A negative decision could result in an additional impairment of about C$1.13 billion, Teck said. It expects a decision by the end of the month.

Teck fell as much as 13% in early trading in Toronto, the most intraday since May 2016, and was trading down 11% to $15.13 at 9:37 am. in Toronto.

Work to upgrade the Neptune Bulk Terminals will include a five-month shut-down from May to September, with completion of the work expected in the first quarter of 2021. If that’s delayed, “we may limit our production and sales temporarily on expiry of our contract with Westshore Terminals.” The miner has expressed frustration in its dealings with Westshore Terminals Investment Corp. and has been shifting steelmaking coal freight to its own facility as a result.

“Given the potential for weaker demand in the short-term due to the effects of the coronavirus and the high inventory levels due to rail and port constraints, we are choosing to temporarily reduce production,” Teck said. “The extent and duration of impacts that the coronavirus may have on the demand and prices for our commodities, on our suppliers and employees, and on global financial markets is not known at this time, but could be material.”

Key Figures

  • Teck forecast first-quarter steelmaking coal sales of 4.8 million to 5.2 million tons, compared with a Feb. 6 estimate of 5.1 million to 5.4 million tons.
  • Full-year steelmaking-coal production is seen at 23 million to 25 million tons, down from 25.7 million last year.
  • The company reported fourth-quarter adjusted earnings per share of 22 cents, missing the lowest analyst estimate compiled by Bloomberg.

©2020 Bloomberg L.P.

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