Teck (TECK) Updates on Q1 Operations, Withdraws '20 Guidance
Teck Resources Limited TECK has provided its operational update for the first quarter as well as revised the annual guidance for the ongoing year. Apart from this, the company announced precautionary measures to combat the coronavirus crisis.
Notably, the company’s operations are running production and its steelmaking coal segment results outpaced the first quarter guidance amid the coronavirus crisis. The company is taking precautionary measures for ensuring health and safety of its employees while maintaining operations.
Operational Update on Q1
The Steelmaking Coal Business Unit’s performance improved significantly in late February and March despite the turbulent start to the year. Sales from the steelmaking coal segment came in at 5.6 million tons for the first quarter, exceeding the prior view of 4.8-5.2 million tons. Also, the company expects to report adjusted site cost of sales of $65 per ton, lower than the previous projections. Finished coal inventories at mine sites reduced during the quarter, eventually driving revenues and enhancing operational flexibility.
Moreover, the steelmaking coal logistics supply chain performed well for the first quarter. Canadian Pacific Railway Limited CP and Canadian National (CN) both recovered from weather-related disruptions and blockades. CP and CN both help transport coals from Teck’s mining operations.
The company is progressing well on the Neptune Bulk Terminals facility upgrades and major equipment deliveries are on track, which will significantly boost terminal-loading capacity and improve its capability to meet delivery commitments to customers while lowering overall logistics costs. The facility upgrades are expected to be completed in first-quarter 2021. In a bid to replace higher cost production from Cardinal River Mine with lower cost production from Elkview, the company plans to expand Elkview plant capacity from 7 million tons to 9 million tons. The plant expansion is on track and will likely be complete by middle of this month. Hence, cost saving and higher average pricing for Elkview coal is likely to translate to higher annual EBITDA of $110 million.
However, the coronavirus outbreak might impact these projects on the cost and timeline front. Hence, the company closely monitors its project activities given the uncertainty caused by the outbreak.
On Mar 18, the company announced temporarily suspension of construction activities at its major Quebrada Blanca Phase 2 (QB2) project in Chile for initial two weeks amid escalating coronavirus fears. The QB2 project is significant project for Teck, as its completion will make the company a major global copper producer.
Measures to Contain Coronavirus
The company has implemented extensive precautionary measures across its operations to ensure safety of employees on account of the coronavirus outbreak. The company’s measures include social distancing, disinfecting protocols, screening contractors and visitors, self-isolation of employees returning from international travel etc. On Mar 25, the company decided to temporary slow down its operations and reduce half of its crew at steelmaking coal operations and Highland Valley Copper operations for initial two weeks.
Coronavirus cases across the globe have escalated to 750,890, per the World Health Organization’s situation report as of Mar 31, 2020, while the death toll stands at 36,405. Consequently, mining companies are halting their operations in a bid to contain the spread of the virus. Peru has declared a 15-day national quarantine period. As a result, Newmont Corporation NEM and Pan American, along with other miners, have halted their operations in the country. Apart from this, in Canada, Brazilian miner Vale S.A. VALE is slashing its output in Voisey’s Bay copper mine.
Production Disruption
Total production at steelmaking coal operations and at Highland Valley Copper is anticipated to reduce on average by 80% to 85% of normal levels during the initial two week period of production suspension.
Further, at the company’s Trail operations, Teck has temporarily reduced one-third employees on site, while continuing to operate at planned production levels. At Red Dog, production remains at planned levels despite the travel restrictions and modified schedules to maintain safe operations due to the fly-in fly-out nature of the operation. Moreover, the company continues to operate the Antamina mine with reduced workforce under an exemption from the restrictions imposed by the Peruvian Government amid the outbreak. Production has also been maintained at Carmen de Andacollo mine in Chile with minimum workforce.
Pulls 2020 Guidance on Slow Production
The coronavirus pandemic is likely to impact the company’s customers and global supply chain, straining demand for its products. Thus, the company has withdrawn its financial guidance for the current year on slowdown of production and workforce reductions.
Teck currently carries a Zacks Rank #3 (Hold). The company’s shares have plunged 67.9% over the past year compared with the industry’s decline of 30.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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