Teck Resources Ltd. is ramping up its cost-cutting efforts to reflect lower commodity prices, especially for steel-making coal, after reporting second-quarter earnings about half of what the miner saw a year ago.
“Teck is adapting to current market conditions,” president and chief executive Donald Lindsay told analysts during a conference call Thursday.
“We’re matching our coal production to market demand. We continue to reduce costs and we’ve increased our cost reduction targets. We are prudently deferring projects and capital expenditures … So we’re demonstrating a very disciplined capital allocation process.”
The Vancouver-based company – one of Canada’s largest coal producers and a major miner of copper, zinc and other commodities – has been hit particularly hard by lower prices for steel-making coal, which fell by 23 per cent compared with the same quarter last year.
The company said copper prices fell by 38 cents during the quarter, while zinc was down by two cents.
As a result, the company said it has decided to slow reopening of its Quintette coal mine in British Columbia and Phase 2 of the Quebrada Blanca copper mine in Chile.
“We’ve elected to delay the final decision to place the Quintette mine into production to minimize our production volumes and capital expenditures in these market conditions,” Mr. Lindsay said.
“I think it is the right move,” said Garrett Nelson, mining analyst at BB&T Capital Markets, about the Quebrada Blanca delay. “That was going to be a significant drain on free cash flow over the next few years.”
Teck said it was slowing the Quebrada Blanca expansion due to market conditions, but also because of permitting concerns as it moves to the second stage of the project.
“As previously announced, we have identified issues linked to permitting for existing facilities which need to be reviewed,” it said.
Teck also increased its cost reduction target to $300-million, up from the previous goal of $250-million.
The miner said it has already implemented $220-million of the original cuts and has identified an additional $80-million.
Teck also warned that economic uncertainty in the United States and Europe, along with less robust growth in emerging markets, would probably continue to affect prices and demand for its products.