Teck Resources (TSX:TCK) is hitting the pause button on its plans to restart its Quinette coal mine in Tumbler Ridge, and is planning to reduce its global workforce by 5% through attrition, hiring freezes and layoffs.
This runs contrary to the mining giant's annual report, which said it still plans to restart the Quintette mine.
Teck will continue moving forward on a major oil sands project in Alberta and plans to restart a zinc mine in Washington State, company officials said in a Q1 conference call April 22.
About 47% of Teck's profits come from metallurgical coal, which is used to make steel.
While coal production was up at Teck's Western Canadian mines, met coal prices continue to fall, thanks to falling demand for steel making coal, particularly in China, and increased production in Australia.
Teck has contracts for 5.5 million tones of coal at US$120 million per tonne in Q2 – about one-third of the price per tonne in 2011.
Lower met coal prices have taken a gouge out of the company's profits. Gross profits for Q1 were $732 million, down from $994 million in Q1 2013. Q1 shareholder profits were $105 million ($0.18 per share), down from $328 million ($0.56 per share) in 2013.
"Coal prices are at their lowest level since 2007, and margins are at their lowest level in 10 years," said Teck CEO Don Lindsay.
Lindsay said the company planned to reduce annual operating costs by $200 million.
"Half of the reductions is expected to come from a 5% reduction in our workforce, which represents approximately 600 positions," Lindsay said.
The company also announced plans to delay a planned restart of its Quintette coal mine, which has been idle since 2000.
The company confirmed a large number of the job cuts will come from the coal side of Teck's business. About 80 of those jobs are related to the Quintette restart project, a company official said.
The news followed last week's announcement by Walter Energy Inc. (TSX: WLT) that it was laying off 415 miners from its mine in Tumbler Ridge and plans to idle another mine in Chetwynd in July, which would result in another 280 layoffs.
Teck's profits from copper mining are also down, though a "favourable outlook" for zinc prices has the company now planning to restart the Pend Oreille zinc mine in Washinton state.
It is also moving ahead with the $13.5 billion Fort Hills oil sands project in Alberta in partnership with Suncor Energy Inc. (TSX:SU) and Total E&P Canada Ltd.
Teck's share of that project for 2014 alone is estimated to be $850 million.
