Teck Resources Ltd. TECK-B-T showed that it plans to spend a significant portion of the cash it receives from selling its steel-making coal business on share buybacks by announcing an unexpected $500-million stock repurchase plan on Wednesday, along with record copper production.
Vancouver-based Teck, the country’s largest mining company, announced a deal last year to sell its coal mines in British Columbia’s Elk Valley for US$8.9-billion to a consortium made up of Switzerland’s Glencore PLC and two Asian steel makers, Nippon Steel Corp. of Japan and South Korea’s Posco.
Teck needs federal government approval on the Glencore purchase, which is expected to close by September. In January, Teck finalized the sales to Nippon and Posco, raising US$1.3-billion.
On Wednesday, Teck said it will buy back up to $500-million of stock this year as part of a plan to use a minimum of 30 per cent of available cash for share repurchases. Over the past five years, Teck spent $2.5-billion on buybacks. In a report, analyst Orest Wowkodaw at Scotia Capital said solid financial results “and an early shareholder return that was not in market expectations” were positive developments for the company. He predicted the company would buy back up to US$2.5-billion of stock after the sale to Glencore closes.
Teck said expansion of its Quebrada Blanca copper mine in Chile is on schedule, after numerous delays and cost overruns. The budget on the project remained at approximately US$8.7-billion. Mr. Wowkodaw said the company built its credibility with investors by reaffirming its previous guidance on 2024 performance, including its expectations for the expansion, dubbed QB2.
Teck sold a record $3.43-billion of copper in 2023, up from $3.38-billion the previous year. As QB2 ramps up, the company forecasts it will roughly double copper production in 2024. In a press release, Teck chief executive officer Jonathan Price said: “We are well-positioned to deliver on our strategic priorities in 2024 as we execute on the planned separation of our base metals and steel-making coal businesses while significantly increasing our copper production.”
Teck made a $2.4-billion profit from continued operations in 2023, down from $4.1-billion the previous year. The decline in profit reflected a sharp drop in steel-making coal prices over the past year. Teck’s coal sales in 2023 were $8.5-billion, compared with $10.4-billion the previous year.
“The key focus for Teck in the near term will be on stabilizing operations at QB2 and the timing of the majority share of Elk Valley to Glencore and the subsequent return to shareholders,” said analyst Sam Crittenden at RBC Capital Markets in a report.
Teck is working with the B.C. government on plans to expand operations at the Highland Valley copper mine near Kamloops. The company is also asking the Mexican government to approve the San Nicolás copper-zinc project, which Teck co-owns with Agnico Eagle Mines Ltd.
Teck is selling its steel-making coal division as part of a pivot away from a commodity with significant carbon emission to minerals such as copper and zinc that are essential to the energy transition. The company expects the strategy will improve investors’ valuation of its stock.
Teck is also taking steps to lower its carbon emissions by introducing wind power on the ships that carry its coal from the port of Vancouver to Asian steel refineries by augmenting their engines with wind power.
In December, the miner teamed up with German shipping company Oldendorff Carriers GmbH and Co. to add a Flettner rotor sail system to a coal carrier. The refit is expected to be finished by this summer and will cut the ship’s emissions by 53 per cent.
Teck and Oldendorff did not disclose the cost of the project. European trade publications estimate the two companies would spend approximately €3.5-million ($5.1-million) to install rotors on a large freighter.
Andrew Willis