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Teck cutting 600 jobs worldwide
Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK) (Teck) intends to reduce its worldwide workforce by 600 jobs following a downtrend in profits in the first quarter of 2014.
Teck April 22 reported first quarter adjusted profit attributable to shareholders of $105 million, or $0.18 per share, compared with $328 million or $0.56 per share in 2013. Profit attributable to shareholders was $69 million ($0.12 per share) compared with $319 million ($0.55 per share) a year ago, outlined a company news release.
“We are pleased with our operating performance in the first quarter, with higher production volumes for our major products,” said Don Lindsay, President and CEO. “However, prices for these commodities were weak, particularly coal, compared to the first quarter of 2013 resulting in lower profits and cash flows than last year. As a result, we are increasing our efforts to reduce our costs and capital spending.”
In an overview of its operations Teck noted, “Our operations performed well during the quarter, with a number of mines achieving increases in throughput. However, profits are lower than last year as a result of lower prices for most of our principal products, especially coal as increased supply from Australian mines has affected markets. It is uncertain how long the current low coal prices will prevail. Coal and copper prices in U.S. dollar terms were lower by 19% and 11%, respectively, in the first quarter of 2014 compared with a year ago. Coal prices are currently at their lowest level since 2007 and margins are at their lowest level in ten years. Lower prices were offset by a strengthening of the U.S. dollar against the Canadian dollar. Sales of our products are denominated in U.S. dollars and strengthening of the U.S. dollar has a favourable effect on our operating margins.
“Our cost reduction program that began in the second half of 2012 exceeded our initial goals. We identified $380 million of ongoing annual operating cost savings across the company and to date have implemented $366 million and realized $345 million. However, in light of the current low commodity price environment, we are increasing our efforts on reducing our costs and capital spending in order to ensure we maintain our competitiveness and emerge stronger from the current price cycle.”
Teck stated that as a result, it is taking the following actions:
– We are targeting a five per cent or approximately 600 position reduction in our global workforce through attrition, hiring freezes and reductions in contractors and employees at our operations and corporate offices. We are also targeting a five per cent reduction in our other costs for total savings of approximately $200 million.
– Our sustaining and development capital spending will be reduced by approximately $150 million primarily through the deferral of equipment purchases and a reduction of spending on our development projects, except for Fort Hills, which is progressing as announced when we sanctioned the project in October 2013.
– The potential restart of our Quintette coal mine, which is expected to produce between three and four million tonnes of steelmaking coal, has been deferred and the project is being put on care and maintenance until market conditions for a restart are favourable. With the Mines Act Permit Amendment previously approved we will continue to work on obtaining the two remaining permits that will enable us to restart the mine as quickly as possible when coal market conditions improve. Production could commence within 14 months of a construction decision.
“We believe the outlook for zinc is the most favourable of the base metals. With recent and expected closures of a number of zinc mines, we believe that approximately 1.5 million tonnes of current zinc mine production will be closed by the end of 2016 in a 13 million tonne per year market. As a result, we are planning to restart our Pend Oreille mine, which has been on care and maintenance since early 2009. The Pend Oreille mine is an underground operation and has the capacity to produce approximately 44,000 tonnes of zinc in concentrate per year. It is expected to take approximately seven months to ready the mine for operations and a further five months to achieve its full productive capacity. The capital cost required to restart the mine is approximately US$41 million and the expected average cost of production is approximately US$0.80 per pound of zinc produced over the estimated remaining life of the operation, which is currently five years. All production from Pend Oreille will be processed at our Trail metallurgical operations as concentrate characteristics in the ore and lower transportation costs provide us with approximately $15 million of annual benefits that cannot be obtained from other sources of concentrate,” the company outlined.
There has been no indication that any job cuts will be coming at any of the company’s Elk Valley coal operations.
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