Teck Resource’s chief executive officer Don Lindsay, seen in Vancouver on Friday, says 2016 ‘was a year to remember’ for the mining company.DARRYL DYCK/The Globe and Mail
It has been heartening this fall for Don Lindsay to watch ships in the Port of Vancouver as they transport steel-making coal headed for Asia.
The coal ships plying the waters of Burrard Inlet have again become a welcome sight for Teck Resources Ltd.'s chief executive officer, who has a panoramic view of the inlet from the company's head office in downtown Vancouver.
The market for metallurgical coal – a raw material that is used in the steel-making process – began edging up earlier this year and started surging even higher in September.
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Canada's largest diversified mining company has staged a remarkable comeback in 2016. It hasn't been solely lucky timing owing to rising commodity prices. Teck managed to bounce back by maintaining a healthy balance sheet through paying down debt and preserved its core assets while avoiding any issuance of shares, Mr. Lindsay said in an interview on Teck's 34th floor of a Vancouver office tower.
Buoyed by a surprising recovery in coal prices, Teck is in stellar financial shape heading into 2017. Zinc and copper markets have rallied, too, though to a lesser extent than coal.
Teck shares, which ended 2015 at $5.34 on the Toronto Stock Exchange, closed at $29.37 on Friday – soaring 530 per cent so far in 2016. The optimism at Teck is in stark contrast to the beginning of 2016, when doom and gloom surrounded the company and the three main commodities that it produces.
"It certainly was a year to remember – a unique year, an extraordinary year in the true sense of the term," Mr. Lindsay said, recalling how coal, zinc and copper prices were in the dumps in January. "That environment compared with today – I don't think we've had a calendar year with both extremes."
Teck has experienced a roller-coaster ride over the past decade – in 2009, China Investment Corp. came to Teck's rescue as a major investor. China is a large buyer of coal, zinc and copper.
"The general economic outlook in 2017 will be pretty good in China," Mr. Lindsay said.
Next year, Teck will finish its share of financial commitments for the Fort Hills joint venture in Alberta's oil sands. "We had the flexibility to carry on building Fort Hills, even though the downturn was very severe," he said.
Calgary-based Suncor Energy Inc. holds a 50.8-per-cent stake in Fort Hills, while France's Total SA has a 29.2-per-cent interest and Teck owns 20 per cent. The $15.1-billion oil sands project is slated to begin production of bitumen in December, 2017.
Teck could see rough patches looming back in 2013, when it embarked on a cost-cutting program. Over the past three years, the firm has chopped 2,000 jobs, leaving it with fewer than 10,000 workers. The company reduced its dividend twice in 2015 as it sought to survive a financial squeeze.
But in the third quarter of this year, Teck posted a $234-million profit, compared with a loss of $2.1-billion in the third quarter of 2015, when it took a massive writedown on the value of its assets.
The rapid turnaround means Mr. Lindsay is now able to contemplate long-term plans for reviving the Quintette coal project in northeastern British Columbia and consider selling off Teck's stake in Neptune Bulk Terminals (Canada) Ltd. in North Vancouver.
"You want to see that the coal demand is structurally increased. So, we're watching it very carefully. Quintette will come in at some point, but we're not going to be likely making that decision in the near term," Mr. Lindsay said.
The Quintette mine opened in 1982 and supplied Japanese steel mills, but the operation near Tumbler Ridge, B.C., shut down in 2000 amid depressed coal prices.
In 2016, Teck is on track to produce more than 27 million tonnes of metallurgical (or coking) coal.
"We wouldn't rush to put Quintette into production," he said. "We don't want to bring tonnes on the market that causes the price to go down for the other 27 million or 28 million tonnes that we're already producing. One thing that we've learned in this business over many cycles is that you make more money on price than volume."
Teck owns 46 per cent of Neptune and is the sole shipper of coal through the North Vancouver terminal, though the miner's primary coal export point is south of Vancouver at Westshore Terminals Investment Corp., whose largest shareholder is B.C. billionaire Jim Pattison.
"Given just the sheer extent of our cash flow right now, we don't need to do a transaction. I don't think you'll see anything change in Neptune for a couple of years, but will something happen there? Eventually, yes," Mr. Lindsay said. "Neptune does provide negotiating leverage with Westshore because if they want to charge a higher price, we can move more tonnes to Neptune, so that's a very important part."
The Teck CEO said the first quarter of 2017 will be strong, bolstering the company's chances to be attractive for new investors: "The reality is if they do the arithmetic, they'll see a very compelling story."
Brent Jang