UPDATE 2-Teck profit falls on lower prices, delays new mines
TORONTO, July 25 (Reuters) - Teck Resources Ltd on Thursday reported a sharp drop in second-quarter earnings on lower copper and coal prices, and cut its capital spending plan through 2014, delaying new mining projects.
The company, Canada's largest diversified miner, is slowing the restarting of its Quintette coal mine in British Columbia until the steelmaking coal market recovers, and it delayed development of its Quebrada Blanca Phase 2 copper expansion in Chile.
"I think it is the right move," said Garrett Nelson, mining analyst at BB&T Capital Markets, on the Quebrada Blanca delay. "That was going to be a significant drain on free cash flow over the next few years."
Shares rose 4 percent to C$24.64 on the Toronto Stock Exchange.
A feasibility study last year pegged the project's capital cost at $5.6 billion, with Teck's share at $4.8 billion. It had planned to complete a study on its social and environmental impact by the end of the second quarter, but now does not expect to finish before the fourth quarter of 2014.
Teck also warned that economic uncertainty in the United States and Europe, along with less robust growth in emerging markets, would probably continue to affect prices and demand for its products.
"While we believe that the longer term fundamentals for steelmaking coal, copper and zinc are favorable, the recent weakness in these markets may well persist for some time," the company said in a statement.
Teck said it does not plan to approve any new mine development projects this year.
Teck said it was slowing the Quebrada Blanca expansion due to market conditions, but also because of permitting concerns as it moves to the second stage of the project.
"As previously announced, we have identified issues linked to permitting for existing facilities which need to be reviewed," it said.
It plans separate regulatory filings on the matter before submitting its impact assessment for Phase 2.
The mine's original environmental approvals ran from 1993 to 2007, Teck said on last quarter's conference call, and it has been operating since then on extensions. In the meantime Chile's regulatory regime has changed.
Teck would not be the first miner to run into difficulties in Chile. Goldcorp Inc and Barrick Gold Corp have both faced regulatory headaches there in recent years.
Teck's coal sales fell 6 percent to 6.3 million tonnes in the quarter, while expense-cutting reduced the cost of sales by 15 percent to $50 a tonne. Coal revenue fell 26 percent, mainly on a 23 percent drop in the realized price to $156 a tonne.
The Vancouver-based company said it had commitments in place to sell 6.4 million tonnes of coal in the third quarter at an average price of $143 per tonne.
Copper sales rose, but unit revenue fell 5 percent as the realized copper price declined 9 percent to $3.24 a pound. Copper cash costs fell to $2.97 a pound from $2.14 a year earlier.
BB&T Capital's Nelson said the sales figures were slightly better than he expected, and thus operating results were relatively strong.
Teck said it expected about C$1.85 billion ($1.80 billion) in capital spending in 2013, down from a previous estimate of C$2 billion, and about C$500 million for 2014. It may make further cuts.
The company posted a second-quarter net profit of C$143 million ($139 million), or 25 Canadian cents a share, compared with C$354 million, or 60 Canadian cents a share, a year earlier.
Excluding one-time items, earnings were 34 Canadian cents a share. On that basis, analysts expected 31 Canadian cents, according to Thomson Reuters I/B/E/S. Revenue from operations fell 15 percent to C$2.15 billion.