Teck Resources aggressive cost cutting delivers surprise profits and stock surge

Canada’s largest diversified miner, Teck Resources (NYSE:TCK), reported second quarter results on Thursday that beat estimates, but only just. 

The Vancouver based company posted earnings of $0.01 a share, or $3 million profit. Revenue also came in higher than expected at $1.74 billion, beating forecasts of $1.33 billion. Analysts had predicted losses of $0.01 a share, but with commodity stocks making a shaky recovery, Teck has remained optimistic about its growth projections. 

“While the commodity cycle continues to be challenging, we are starting to see some positive changes in the direction of Zinc and steelmaking coal prices,” said CEO Don Lindsay in a statement earlier today. He added that the company has continued to reduce costs while maintaining production volumes in order to counter the challenging bear market cycle.

Systematic cost cutting has taken some strain off Teck's balance sheet over the last few years as metal prices have slumped. 

The stock was up more than 6% to $15.27 in New York at 1:00pm ET. and equally high to Cdn$20.11 in Toronto on the news. But it hasn’t been an easy ride for the mining giant; the company’s revenue has dropped 13% in the last 12 months, with earnings per share down from $0.14 in the same quarter of 2015. 

Systematic cost cutting has taken some strain off Teck's balance sheet over the last few years as metal prices have slumped. Overall operating costs were down 15% this quarter, dropping to $691 million, the company said. Teck made especially hefty cuts to its coking coal unit, slashing costs from $68 a tonne in the same quarter last year to $59 a tonne in Q2.   

The company upped its production guidance for the second half of the year on copper, zinc and coal following the positive profit numbers. Copper especially, saw better than predicted sales volumes. Coal sales, however, were weaker than expected for the quarter at 6.3 million tonnes, disappointing analyst forecasts of 6.5 million.

Oil sands progress

Teck is speeding ahead with its Fort Hills Oil sands project, based in Alberta, and is expected to start production in the second half of 2017. The company has committed $2.9 billion to the project, which is reported to be over 60% complete.

The investment has generated some uncertainty among investors, especially after the development of the site was delayed back in May due to wildfires near the project location. Despite its substantial debt load of almost $9 billion, Teck is projected to round off the year with around $700 million of cash liquidity. 

VP Greg Waller announced that he will retire from the company in mid 2017, his replacement has not yet been announced.

Teck Resources is the biggest producer of steelmaking coal in North America and has a market cap of US$8.28 billion, with operations in the US, Canada, Chile and Peru.

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