No matter how they add up the numbers, analysts see Teck coming up short of cash as the mining company scrambles to pay down debt.
Teck faces an October deadline on a $5.8-billion (U.S.) bridge loan, part of the debt shouldered last year when the mining company paid $12.4-billion in cash to buy full control of Fording, a coal mine income. With hindsight, it's clear Teck bought at the top of the cycle, as coal prices have been sliding steadily. That doesn't change the fact that loans must be repaid.
After plugging its latest coal price forecasts into financial models for Teck, RBC Dominion Securities published a report Monday showing the mining company faces a $3.8-billion shortfall on the bridge loan. That calculation reflects the fact that the investment bank cut its estimate on coal prices to $140 a tonne, from $190.
“The shortfall will have to be made up from asset sales and refinancing, both of which remain a challenge in the current economic and credit environment,” said RBC Dominion.
The investment bank then looked at what properties Teck might sell to pay the bills. The alternatives aren't attractive. RBC Dominion said if Teck sold a 30-per-cent stake in its Elk Valley coal property in British Columbia - an asset acquired just a few shorts months ago - the shortfall in October will still be $2-billion.
Other analysts have estimated that Teck could glean $400-million to $500-million from selling its remaining gold assets. The company has a joint venture on the Hemlo mines in northern Ontario with Barrick Gold, and a minority stake in the Pogo mine in Alaska, which is controlled by Sumitomo Metal Mining Co.
“Teck's share price remains under pressure as the market focuses on the liquidity risks and the uncertainty around coal price settlements and the company's ability to sell assets in the current environment,” said the RBC Dominion report. But the investment bank's analyst said the firm “continues to see the value here and believes the liquidity issues can ultimately be overcome.”
