Visitors pass a logo of Teck Resources Ltd mining company during the Prospectors and Developers Association of Canada annual convention, in Toronto, in a March 4, 2019, file photo.Chris Helgren/Reuters
Teck Resources Ltd. says it will have to take a $1.1-billion writedown on the Frontier heavy oil-mine proposal if the federal government doesn’t approve it, as the company considers a full-scale exit from the Canadian oil patch.
Teck on Friday also took a separate $900-million dollar writedown on its existing Fort Hills heavy oil mine because of lower expectations for the price of crude oil.
The Liberals are expected to make a decision by the end of the month on whether Vancouver-based Teck is allowed to proceed with the northern Alberta Frontier project, which is undeveloped.
Teck hasn’t proven whether Frontier, which it said in 2014 would cost $20.6-billion to construct, would be commercially viable. Such a case would be laid out in a bankable feasibility study, which the company has not yet conducted.
Amid widespread weakness across its core metallurgical coal business, Teck’s chief executive, Don Lindsay, said on Friday in a conference call with analysts that in a couple of years if Fort Hills is not performing, it will consider selling both its stake in Fort Hills, as well as the Frontier project.
“We would look at doing something to realize that value, whether it’s a spinoff, or some sort of transaction,” he said about Fort Hills.
“If we did that, then probably Frontier would go with it,” he added.
Teck is a junior partner in Fort Hills with a 21.3-per-cent stake. Suncor Energy Inc. is the majority owner and operator with a 54.1-per-cent stake. Total SA of France owns 24.6 per cent.
Teck is mulling giving up on oil sands a little over a week before a deadline expires for the federal government to approve or reject the Frontier project, or delay a decision.
Over the past few months, Frontier has become a political flashpoint in Canada. Its proponents, such as Alberta Premier Jason Kenney, argue that approving the project would boost the ailing provincial economy, but its detractors point out that Frontier would significantly set back Canada’s attempts to reduce its carbon footprint and meet international emissions benchmarks.
Last month, Mr. Lindsay told investors at a conference that for the project to go ahead, it would need higher oil prices, sufficient pipeline capacity and a partner to help shoulder the burden.
On Friday, Teck talked up the potential economics of the project, but offered no hard data, saying in a statement that because of technological and operational improvements, the miner believes Frontier will be “technically feasible and commercially viable.”
Outside of its energy unit, which is only a small component of Teck’s overall business, the company is grappling with myriad problems.
Teck’s fourth-quarter results were drastically weaker than expected, as well as its 2020 outlook for its core metallurgical coal business.
Teck’s shares fell by 15.5 per cent on Friday to close at $14.45 apiece on the Toronto Stock Exchange, its biggest one-day drop in almost four years.
The company reported a $891-million net loss in the quarter ending Dec. 31, compared with a profit of $433-million during the same period last year.
After adjustments and impairments, the company earned 22 cents a share, far short of the 39 cents a share analysts expected.
Production at Teck’s core metallurgical coal business fell by more than 8 per cent during the quarter and the price it earned for selling the commodity fell by 31 per cent. The company pinned the blame partly on the impact of the novel coronavirus for dragging down commodity prices.
Teck reduced its coal forecast for the first quarter of 2020 to roughly five million tonnes from 5.25 million tonnes, attributing the softness to bad weather and the rail blockades in British Columbia that are affecting shipments.
The weak coal outlook surprised Bay Street, and some analysts pointed the finger at management, rather than external factors.
Scotia Capital Inc. analyst Orest Wowkodaw wrote in a report to clients on Friday that the disappointing coal forecast “serves to further erode management credibility” at Teck.
Teck also warned the market that its QB2 copper project in Chile will likely be facing a capital cost increase. The company has started construction on the $4.7-billion copper mine, but says that a number of obstacles have materialized, including “social unrest,” which has affected the movement of equipment and people.
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