Visitors pass a Teck logo during the PDAC annual convention in Toronto, on March 4, 2019.Chris Helgren/Reuters
Surging coal prices mean that Teck Resources Ltd. TECK-B-T may put off selling its metallurgical coal unit indefinitely, but the recovering oil price could see Canada’s biggest diversified miner unload its oil sands unit, says Shane Nagle, analyst with National Bank Financial Inc.
Last year, The Globe and Mail reported that Vancouver-based Teck was exploring the sale of its coal unit. While the biggest by far of Teck’s divisions from a profit and revenue perspective, coal is problematic from an environmental, social and governance aspect. Not as damaging to the environment as thermal coal, metallurgical coal, used in the production of steel, is still a major contributor to greenhouse gas emissions. Teck has said repeatedly that it is determined to reduce its carbon footprint.
Mr. Nagle said in an interview that because coal prices have become so inflamed this year, nobody is likely to step up because of the risk of buying at the top. Coal prices hit a record high level in the first quarter, thanks in part to a ban on Chinese imports of Australian coal because of a trade dispute.
“At these coal prices, I can’t see how they could come to a level for a transaction that makes any sense,” Mr. Nagle said. “I don’t think there’s a buyer that’s going to pay fair value on current cash flow given how elevated coal prices are.”
Teck spokesperson Chris Stannell said the company does not comment on market rumours or speculation.
For now, holding on to the coal unit is a good problem to have for Teck. In the first quarter, coal accounted for $2.7-billion in revenue at Teck, which was more than its zinc, copper and energy units combined. Coal also accounted for $1.8-billion, or 70 per cent, of Teck’s profit.
But, while coal is king at Teck, the remaining business segments are also performing well. Copper in particular had a strong quarter, bringing in $930-million in revenue, and close to half a billion in profit, owing to a record high commodity price.
Operationally, Teck is humming along at the moment, but it is also benefitting from a broad-based multiyear bull market in the commodities sector that is benefitting many mining companies. Coal, copper, crude oil, uranium, nickel, wheat, are all trading near multiyear, decade or in some cases even record highs.
A confluence of factors is driving the commodities train, including persistent supply chain problems related to the COVID-19 pandemic, anxiety over supplies of certain inputs because of the war in Ukraine, and the inexorable shift to cleaner energy power sources, that require a whole swath of minerals and metals.
Shares in Teck shot up by 11.7 per cent on the Toronto Stock Exchange on Wednesday to close at $50.36 apiece. Also abetting its share price was a surprise announcement of a US$500-million increase in Teck’s share buyback program, roughly doubling what the company had previously forecast.
While Teck may not be able to sell its coal business in this environment, the timing may be right to land a buyer for its oil sands business, Mr. Nagle said. Oil has rebounded strongly over the past few months, with Western Canadian Select trading at around $88 a barrel on Wednesday. Teck has a 21.3-per-cent stake in the Fort Hills project, with Total E&P Canada Ltd. and Suncor Energy Inc. holding the rest. Teck had previously indicated it would consider a sale if the commodity price improved.
“We’re in now an approved oil price environment, so maybe there’s an exploration of a possible sale, or spin out, or some other transaction,” Mr. Nagle said.
Teck also, on Wednesday, said that its QB2 copper mine in Chile is on track to start production in the fourth quarter after a multiyear construction. The US$6.5-billion mine is a joint venture with Japan’s Sumitomo Corp. and Chile. QB2 is a key part of Teck’s strategy to reduce the percentage of fossil fuels in its portfolio, and derive a bigger chunk of revenue from metals used in cleaner energy applications, such as copper in electric car batteries.
“We’ve got a very serious global commitment to decarbonization,” Don Lindsay, chief executive officer of Teck, said in a conference call with analysts, following the earnings release.
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Niall McGee