Teck Resources Ltd. eked out an adjusted project of $16 million in the fourth quarter of 2015 despite plunging prices for its products.
The miner’s adjusted profit worked out to three cents a share. The very fact that Teck was in the black surprised many sell-side analysts – on average, they expected a loss of one cent.
Nonetheless, the results highlight the fact that Vancouver-based Teck is dealing with an incredibly challenging environment. Prices for copper, steelmaking coal and zinc have all nosedived amid concerns about growth in China, and Teck had to slash costs dramatically over the last few years to keep its business competitive.
Teck’s overall net loss in the quarter of $469 million as it recorded writedowns due to falling metal prices.
Chief executive Don Lindsay said he is pleased with the company’s performance. “However, the commodity cycle continues to provide us with a very challenging environment,” he said in a statement.
Unlike many competitors, Teck is fortunate to have a strong liquidity position, with $1.8 billion of cash and US$3 billion available in a revolving credit facility. However, the company is in the midst of pouring $2.9 billion into the Fort Hills oil sands project, which is sucking up its liquidity and would not generate positive cash at current oil prices. It is expected to enter production late next year. Teck also has significant debt repayments coming due over the next several years.
The liquidity concerns have raised red flags at the credit rating agencies, which took away Teck’s investment-grade credit rating last year.
Teck did note that if it meets operating guidance for 2016 and commodity prices and exchange rates stay the same, it should exit the year with about $500 million of cash and no change to its overall debt level.
Lindsay said that Teck is “evaluating options” to strengthen its liquidity and plans to end the year without drawing on its line of credit. He also said the company plans to continue meeting all its commitments at Fort Hills.
Teck’s most challenging business right now is steelmaking coal, where prices remain extremely weak. However, the company did manage to make a gross profit of $29 million in this business in the fourth quarter, largely due to cost cuts. Its unit costs were US$58 a tonne in coal, down from US$79 in the fourth quarter of 2014.
Looking ahead, Teck repeated its frequent refrain that lower metal prices may persist “for some time.” However, the company does benefit from the weaker Canadian dollar, as much of its business is in Canada while its products are priced in U.S. dollars.
