Canada: Teck Resources Cut Capital Expenditure for Coal Operations amid Lower Prices

Canada’s largest diversified resources company- Teck Resources has trimmed its capital expenditure envisaged for coal mining operations.

The company had accounted declining coal prices for the slowdown as it deferred planned capital expenditure by an additional 70 Million CAD (Canadian Dollar) from the previous guidance. It was noted that capital expenditure now stands at 830 Million CAD, down from 900 Million CAD intended earlier.

Of the 70 Million CAD deducted from the planned expenditure, 60 Million CAD was envisaged for sustained capital expenditures and remaining 10 Million CAD for major enhancement capital expenditures.

Teck resources, engaged in coking coal mining across Canada, highlighted that a strong steel production and demand for seaborne steel-making (coking) coal prevailed through the first half of 2019 before market conditions deteriorated in the third quarter. Apparently, average prices of coking coal noted from Teck resources had fallen 9% Y-o-Y to USD 156/MT in the third quarter of CY19 (Jul-Sep’19).

The company stated that coal spot prices were affected by pressure on steelmakers’ margins created by lower steel pricing and continued high iron ore pricing. However, it was reported that the company will retain its guidance issued in the second quarter, to produce 25.5-26 MnT coal in CY19.

In the first 9-months of CY19 (Jan-Sep’19), Teck Resources coking coal production reached 19 MnT as against 18.9 MnT noted in the year-ago period.

Third quarter production of 6.5 MnT was 2% higher than the same period a year ago, but sales were marked 9% lower on the year at 6.1 MnT also below the guidance range of 6.3-6.5 MnT. Notably, sales volume was affected by material handling issues and planned construction outages as the facility upgrade at Neptune Bulk Terminals progressed.

Future Outlook:

The company anticipates subdued coking coal price to sustain as a number of steelmakers have reduced production as uncertainty created by trade disputes and the global economy slowdown persist.

Citing lower cost of sales in the fourth quarter of 2019, Teck resources has planned to complete the majority of our major plant outages earlier in 2020, reducing coking coal production in the first half of the year and increasing production in the third and fourth quarters.

Consequently, quarterly cost of sales were expected to be significantly higher in the first quarter of 2020 than the fourth quarter of 2019 with the lower production rates, and then decreasing significantly in the second half of the year when full production levels were attained.

Overall, the company expects cost of sales to be lower in 2020 than in 2019.