Teck posts record revenues, cash

Teck earned $12 billion in gross revenue in 2017, will give shareholders $260 million in dividends

'This exceeds the record that we set in 2011' – Teck CEO Don Lindsay

B.C.’s largest mining company, Teck Resources (TSX:TECK.B, NYSE:TECK), ended 2017 with record revenue and cash flows from operations, and began 2018 with first oil from the new Fort Hills oil sands mine in Alberta.

And while it is winding down its Coal Mountain operation in the Elk Valley in B.C., it plans to increase production at its four other Elk Valley steelmaking coal mines to make up for the loss in production.

Teck ended 2017 with record revenues of $12 billion and record cash flow of $5.1 billion. Profits attributable to shareholders were $700 million ($1.20 per share) in the fourth quarter and $2.6 billion ($4.45 per share) for the full year.

“This exceeds the record that we set in 2011, when commodity prices for both steelmaking coal and copper were significantly higher,” Teck CEO Don Lindsay said Wednesday, February 14 in a year-end earnings call.

As a result of Teck’s strong cash flow, the company is returning cash to shareholders through $260 million in dividend payments in the fourth quarter. It also plans buy back $230 million in class B shares by the first quarter of 2018.

The company increased production of both copper and zinc in the fourth quarter, but it was the company’s steelmaking coal business that generated the greatest profits. Gross profits from steelmaking coal were $3.8 billion in 2017, compared to just $2 billion in 2016.

As Lindsay pointed out, unlike the last commodities cycle, where coal prices were driven largely by demand in China and limited supply, rising coal prices are now demand-driven, thanks to more synchronized growth in the global economy. The increasing demand is now coming from India, Europe, Vietnam and Brazil.

While Teck has long been a diversified mining company, primarily invested in steelmaking coal, copper and zinc, it is now also in the energy business, thanks to its partnership with Suncor Energy (TSX,NYSE:SU) on the new $17 billion Fort Hills oil sands project, which is now in production.

The new oil sands mine has a capacity to produce 194,000 barrels of oil per day, and has an expected production life of 50 years.

Both Teck and Suncor recently increased their shares in the project by buying out Total S.A., which brings Teck’s share in Fort Hills to 21.3%.

“Fort Hills is a long-life asset that will generate significant value for our company for decades to come,” Lindsay said.

Teck confirmed that it has signed agreements to ship oil on both the Keystone XL and Trans Mountain pipelines.

In 2018, Teck plans to advance a prefeasibility study on the $3.5 billion NuevaUnion project in Chile, a 50-50 joint venture with B.C.’s Goldcorp. Inc. (TSX:G).

Teck owned a copper-molybdenum property while Goldcorp owned a copper-gold project 40 kilometres away, so the two companies decided to partner up and share the cost of infrastructure – power lines, roads and desalination plant.

Teck ended 2017 with $1 billion in cash and $3 billion in credit. The company’s shares were up 1.6% on the TSX and 2.6% on the NYSE following Wednesday’s earnings call.

nbennett@biv.com

@nbennett_biv