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UPDATE 3-Teck may cut dividend if coal prices do not strengthen
February 12, 2015 / 10:57 AM / 3 years ago

UPDATE 3-Teck may cut dividend if coal prices do not strengthen

(Recasts with comments on coal supply imbalance and dividend, adds CEO quote)

By Susan Taylor

TORONTO, Feb 12 (Reuters) - Teck Resources Ltd said on Thursday it might have to reduce its dividend in July if industry-wide cuts in the production of steelmaking coal fail to lift prices from current historically low levels.

To bring the market back into balance, an additional 12 million tonne reduction in supply is needed above the 30 million tonnes announced since January 2014, Vancouver-based Teck said.

Teck, the world’s second-largest exporter of seaborne steel-making coal, said the market could be back in balance as early as the second half of 2015 if output cuts and mine closures continue at their recent pace.

Any change in the twice-yearly divided, or capital re-allocation, would be decided by Teck’s board between April and June.

“There may be a cut in the dividend, or there may not. If the coal price moves at all significantly, it doesn’t look like there would be a need to,” Chief Executive Don Lindsay said on a conference call.

“If it doesn’t move, then we might decide to be a bit more conservative and retain the cash that would otherwise have been used for dividend.”

Prices for seaborne coking coal have dropped from above $300 a tonne in mid-2011 to $117 now due to oversupply and weaker Chinese demand.

OIL, CURRENCY LIFT

In contrast, plunging oil prices help Teck, whose mines use large volumes of diesel fuel. Every $1 per barrel drop in crude prices reduces operating costs by about C$5 million.

Teck brushed off concerns about its stake in Suncor’s C$13.5 billion Fort Hills, Alberta, oil sands project, saying it is not worried by short-term price weakness in a 50-year project. It will spend C$850 million on the development this year.

Teck’s fourth-quarter results also got a lift from cost-cutting and a weaker Canadian currency. Every 1 Canadian cent drop against the U.S. dollar adds C$52 million to its EBITDA, Teck estimated.

Teck shares rose 4.5 percent to C$18.41 in Toronto as its results and outlook bettered analysts’ expectations.

Adjusted profit was halved to 20 Canadian cents a share and revenue fell 5 percent to C$2.26 billion.

Teck forecast 2015 coal production of 26.5-27.5 million tonnes at an operating cost of C$86-C$93 per tonne.

It has agreements to sell 6.2 million tonnes of coal in the first quarter at $117 per tonne for the highest-quality coal. Including spot sales, it sees sales at, or above, 6.5 million tonnes.

$1=$1.25 Canadian With additional reporting by Swetha Gopinath; Editing by Sriraj Kalluvila and Peter Galloway

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