VANCOUVER – Teck Resources Ltd. (TSX:TCK.B) is forging ahead with its Fort Hills project and remains committed to the oilsands development even as the price of oil heads lower.
“Fort Hills, in our view, is looking better and better,” CEO Donald Lindsay told analysts during a conference call to discuss the company’s third-quarter results. “We’re particularly encouraged by the progress one year in.”
Teck reported Wednesday a drop in profits compared with a year ago due to a change in Chilean law, lower coal prices and lower copper production.
When asked by an analyst if Teck was looking to sell or reduce its stake in the Fort Hills project it is building with Suncor Energy Inc. and Total E&P Canada Ltd., Lindsay said “no and no.”
Fort Hills is expected to cost $13.5 billion and start producing crude oil in late 2017.
The price of oil has fallen sharply this year, dipping below the US$80 per barrel mark, prompting some companies to shelve plans for proposed oilsands projects.
However, construction of Fort Hills is well underway with $4.5 billion in contracts related to the project awarded in the latest quarter and the engineering work more than half complete, Teck said.
Lindsay said the price of oil may be lower, but the discount paid for oilsands crude has narrowed to more than make up for the drop.
“We’re all systems go,” he said.
Teck reported Wednesday a third-quarter net profit of $84 million or 14 cents per share, down from $267 million or 46 cents per share a year earlier, as it was hit by a $64-million charge related to Chilean taxes.
Excluding the Chilean taxes and other one-time charges, the company said it earned an adjusted profit of $159 million or 28 cents per share, down from an adjusted profit of $252 million or 44 cents per share a year ago. Revenue for the quarter totalled $2.25 billion, down from $2.52 billion in the same quarter last year.
The average estimate was for Teck to have 25 cents per share in adjusted profit on $2.25 billion of revenue, according to Thomson Reuters.
RBC Capital Markets analyst Fraser Phillips, who has an “outperform” rating on the company, called the results positive.
“Results were better than expected, with solid operating results in coal and zinc,” Phillips wrote in a note to clients. “The focus on cost reduction continues, though no new initiatives were introduced.”
Teck said it has found some $590 million in annual savings as part of a cost-cutting initiative launched in the second half of 2012.
The company also revised its capital spending plan down $375 million to $1.5 billion.
Teck said $225 million of the reduction was due to the timing of spending at its Fort Hills project, while the balance related to its cost-cutting program.
In its outlook, Teck raised its zinc in concentrate production guidance to between 615,000 and 630,000 tonnes this year due to the performance at its Red Dog Operations, up from original guidance of between 555,000 and 585,000 tonnes.
However, Teck cut its refined zinc production guidance to between 275,000 and 280,000 tonnes, down from 280,000 to 290,000 tonnes.
Copper production this year is now expected to be in the range of 330,000 to 340,000 tonnes compared with earlier guidance of 320,000 to 340,000 tonnes.
Costs are also expected to be lower at US$1.90 to US$2.00 a pound before margins from byproducts and US$1.60 to US$1.70 per pound after byproduct margins compared with US$1.95 to US$2.05 and US$1.65 to US$1.75 per pound, respectively.
Teck said coal production is expected to be in the range of 26.5 million to 27 million tonnes compared with earlier guidance of between 26 million and 27 million tonnes.
The company’s cost of product sold for coal before transportation and depreciation charges are expected to be in the range of $52 to $55 per tonne, while transportation costs are expected to be in the range of $37 to $39 per tonne. That compares with $52 to $57 per tonne and $37 to $41 per tonne, respectively.
