Diversified mining and metallurgical company Teck Resources Limited (TCK,TCK-A.TO, TCK.B.TO) on Wednesday reported a 44% surge in profit for the third quarter from last year, helped by foreign exchange translation gains on the company's net debt and higher coal sales volumes following the company's purchase of Fording Canadian Coal Trust last year.
Third-Quarter Results
The company's net earnings for the third quarter increased to C$609 million, or C$1.06 per share, from C$424 million, or C$0.95 per share, in the same period last year.
The results for the latest quarter non-cash foreign exchange translation gains of $311 million on the company's net debt, positive after-tax pricing adjustments of $67 million from rising base metal prices, and an after-tax gain of $27 million from the sale of the company's Pogo gold operation. These were partially offset by a $58 million after-tax asset impairment charge related to the company's investment in the Fort Hills oil sands project and the write-off of $26 million of previously capitalized debt financing fees due to the early repayment of the company's bridge loan in the quarter.
Excluding items, adjusted net earnings for the latest quarter declined to C$337 million from C$403 million in the prior-year period. Comparative net earnings were C$270 million, down from C$529 million a year ago.
Net earnings from continuing operations for the quarter was C$583 million, or C$1.02 per share, up from C$427 million, or C$0.95 per share, in the previous-year quarter. On average, three analysts polled by Thomson Reuters expected the company to earn C$0.47 per share for the quarter. Analysts' estimates typically exclude special items. Revenues for the quarter rose 22.4% to C$2.13 billion from C$1.74 billion in the corresponding period last year.
Operating profit for the quarter increased to C$694 million from C$679 million in the same period last year.
Don Lindsay, President and CEO of Teck Resources said, "Our major operations continue to perform well and produced record revenues of $2.1 billion in the third quarter despite coal and zinc prices that were less than 50% of previous highs. Our total debt has now been reduced by $5 billion since we completed the Fording transaction in October 2008. We expect further reductions of approximately $1.1 billion upon the completion of previously announced asset sales expected later this year and early 2010."
Teck Resources' total debt balance as at September 30, 2009 was C$8.5 billion, down from C$11.2 billion at the end of the preceding second quarter. The company noted that since it acquired the Fording assets in October 2008, total debt was reduced by C$5.0 billion, of which C$3.7 billion was repaid and about C$1.3 billion was from the translation to the Canadian dollar equivalent on account of the stronger Canadian dollar. The company also has committed bank credit facilities aggregating C$1.2 billion, the majority of which mature in 2012 and beyond.
Teck has been selling assets and cutting costs in order to pay down the debt acquired after the US$9.8 billion purchase of Fording Canadian Coal Trust last year. After the deal was struck in July, prices for most commodities tumbled. The deal closed in October 2008, after the company received its financing and just as the global economic slowdown accelerated.
Copper
Business wise,Teck Resources' copper revenues for the quarter totaled C$642 million, up from $522 million a year ago, as revenues from the company's base metal operations in the third quarter were affected by positive pricing adjustments compared with significant negative adjustments last year.
Operating profit for the business increased to $298 million after recording $72 million of positive pricing adjustments. This compares to operating profit of $200 million in the year-ago period after negative pricing adjustments of $187 million. The company's operating profit, before the pricing adjustments, was lower in the latest quarter primarily due to copper prices that were 24% lower compared to the same period last year.
Coal
Coal revenues for the quarter rose to C$869 million from C$600 million in the prior-year quarter, with the increase primarily attributable to the higher sales volumes resulting from the company's increased ownership in Teck Coal, partially offset by significantly lower realized coal prices. Coal production levels, which were reduced in the first half of 2009 as a result of reduced demand from customers, increased in the third quarter to the same level as the third quarter of 2008.
Operating profit for the coal business declined to C$236 million from C$350 million in the year-ago quarter as results were negatively affected by significantly reduced realized coal prices, which averaged C$152 per tonne in the third quarter compared with C$252 per tonne last year. The results for the latest quarter reflect the company's 100% ownership interest in Teck Coal compared with a 40% direct interest last year. Coal sales volumes improved from the previous two quarters and were 5.7 million tonnes in the third quarter, compared with 6.0 million tonnes last year.
Zinc
Zinc revenues for the latest quarter edged up to C$620 million from C$618 million a year earlier, as revenues from the company's base metal operations in the third quarter were affected by positive pricing adjustments compared with significant negative adjustments last year.
Operating profit for the business was C$160 million after recording C$35 million of positive pricing adjustments, up from operating profit of C$129 million in the year-ago period after the impact of C$21 million of negative pricing adjustments. Lower sales from the company's Red Dog mine due to timing of shipments and lower refined zinc volumes from Trail as a result of production curtailments reduced operating profits before the pricing adjustments.
Year-To-Date Results
For the nine months, Teck Resources' net earnings increased to C$1.42 billion from C$1.27 billion in the year-ago period, while on a per share basis earnings declined to C$2.75 per share from C$2.84 per share a year ago.
Adjusted net earnings for the period declined to C$818 million from C$1.22 billion a year ago, while comparative net earnings for the period were C$672 million, down from C$1.28 billion in the same period last year.
Net earnings from continuing operations for the nine-month period was C$1.33 billion, or C$2.58 per share, compared to net earnings of C$1.27 billion, or C$2.85 per share, a year ago. Revenues for the nine-month period increased to C$5.51 billion from C$5.06 billion in the same period last year.
Outlook
Looking ahead, Teck Resources noted that the markets in which the company sells its products have seen significant improvements, including a significant increase in base metal prices, improvement in customer demand as well as steel industry utilization rates. However, the company said that despite the improvement in general economic conditions and return of stability to financial and commodity markets, significant uncertainty concerning the short and medium term global economic outlook persisted.
Teck Resources raised its outlook for coal sales for the full year to a range of 19.5 million -20.5 million tonnes. Earlier, the company had forecast coal sales for the year to be at the upper end of its previously announced guidance range of 18 million to 20 million tonnes.
The company said it has completed 2009 coal year price negotiations with all of its traditional customers, with pricing consistent with previously announced settlements at US$128 per tonne. Accordingly, the company now expects average realized selling price for the 2009 calendar year in a range of US$155-US$158 per tonne, compared to the prior range of US$155-US$160 per tonne.
Teck Resources also said it continues to review its discretionary capital spending in light of current market conditions, our debt reduction targets and restrictions on capital spending arising from the amendments to our term loan. While reporting its financial results for the second quarter in July, the company had said it expects capital expenditures for the remainder of 2009, excluding the Fort Hills project, to be about C$280 million, including C$120 million of sustaining capital expenditures and C$160 million on development projects.
Teck Resources noted that proceeds from the previously announced asset sale program, including the sale of a one-third interest in the Waneta Dam, the sale of the Morelos gold project, a portion of the future gold production from Carmen de Andacollo and two Turkish gold projects are now expected to total approximately US$1.2 billion. The net proceeds from these sales of US$1.1 billion are expected to be applied against the company's term debt.
Stock Quotes
TCK closed Wednesday's regular trading session on the NYSE at US$28.39, down US$2.83 or 9.06% on a volume of 12.12 million shares.
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