Teck Resources Ltd. TECK-B-T is cutting its copper forecast because of grade problems at its QB2 mine just weeks after the big Canadian miner doubled down on the critical mineral after jettisoning its legacy coal business.
Vancouver-based Teck on Wednesday lowered its full-year copper forecast by just under 7 per cent to about 468,000 tonnes. The company also reduced its guidance on molybdenum, a key steel alloy, by 19 per cent.
Teck’s production woes stem from problems at its giant QB2 mine in Chile. Teck put the copper mine in the high mountains of northern Chile into production last year after an arduous and expensive multiyear construction period.
The company on Wednesday said that its grades at QB2 will come in slightly lower than predicted in the second half of the year, because of both geotechnical issues and pit dewatering. Shehzad Bharmal, senior vice-president of operations with Teck, said Wednesday in a conference call with analysts that the problem stems from an area of instability in the open-pit mine that is preventing access to higher-grade ore. Teck is now working to reinforce and buttress the affected area.
“We expect to complete this work later this year, and have full access by early next year,” Mr. Bharmal said.
QB2 hasn’t been an easy project for Teck. Commissioned in 2018, its construction costs were revised upward multiple times, as Teck dealt with myriad issues, including engineering setbacks, COVID-19-induced inflation, and challenges in building some of the port’s infrastructure. QB2′s costs eventually spiralled to about US$8.7-billion, or 85 per cent higher than predicted.
Lucas Pipes, managing director with B. Riley Securities in Arlington, Va., said in an interview that while he mostly felt reassured that the grade problem at QB2 won’t last long, investors never like to hear about these kinds of things so early in the life of a mine.
“People get really nervous when there’s an operation starting up and things don’t go to plan,” he said. “And so with a grade, people get very sensitive, like, ‘Oh gee, we went through all this pain, 10 billion dollars, two times over budget, oh and now the grade is lower than you thought. Like, are we looking at a lower grade for the next 20 years?’”
Teck earlier this month doubled down on copper after receiving US$7.3-billion for selling 77 per cent of its metallurgical coal business to Glencore PLC GLNCY of Switzerland. Teck had already sold the other 23 per cent to Japan’s Nippon Steel NPSCY and South Korea’s POSCO.
Despite generating billions in free cash flow every year, Teck a few years ago decided that its coal business had become an albatross. That’s mainly because of environmental, social and governance mandates that prevent many big investors from investing in fossil fuels such as coal. By focusing solely on metals such as copper, which doesn’t have the same dirty image as coal, Teck hopes to appeal to a wider class of investors. Unlike coal, copper is classified as a critical mineral in Canada, which gives it an extra allure.
Glencore originally proposed buying all of Teck early last year, including the company’s copper and zinc mines, in a US$23.1-billion transaction. But Teck repeatedly rejected Glencore’s advances. Controlling Teck shareholder Norman B. Keevil said he was opposed to Glencore buying all of Teck, telling The Globe and Mail that “Canada is not for sale.”
When Federal Industry Minister François-Philippe Champagne approved the Glencore takeover of Teck’s coal business, he sent a stern message that essentially echoed Mr. Keevil’s comments. From now on, he vowed to approve the acquisition of Canadian miners with significant critical-minerals operations by foreign investors only under the most exceptional of circumstances. That appears to mean that Teck and other big Canadian critical-minerals miners are essentially takeover-proof.
But Mr. Pipes said the lack of absolute clarity over the takeover rules in Canada is troubling and casts doubt on a central tenet of the stock market.
“The ability to exit is deeply ingrained in our system,” he said. “But times are changing, and so how far does it go?”