UPDATE 4-Teck profit tumbles on weaker coal, metal prices

Wed Jul 25, 2012 5:03pm EDT

* Q2 net EPS C$0.46 vs C$1.28 a year ago

* Q2 revenue falls 8.4 pct to C$2.56 bln

* Shares close down 7.28 percent at C$27.27 on TSX

By Julie Gordon and Euan Rocha

TORONTO, July 25 (Reuters) - Teck Resources Inc sees no near-term reprieve from the lower coal and metal prices that dragged its quarterly profit lower, news that sent its shares tumbling on Wednesday.

Vancouver-based Teck, Canada's largest diversified miner, said economic uncertainties in Europe and the United States and ebbing growth in China, India and other emerging markets held back demand and prices for many of its products in the quarter.

Its net profit dropped nearly 65 percent, while adjusted profit missed analyst estimates. Teck shares fell 7.28 percent.

"While we believe that the medium to long-term fundamentals for steelmaking coal, copper and zinc are quite favorable, the recent weakness in these markets may well persist over the near term," the company said in a statement.

Teck's problems reflect mounting worries that a darkening debt outlook in Spain and the euro zone could hit demand for industrial metals, and that the aggressive Chinese growth that drove metal prices to record highs, may be subsiding.

But Teck remained positive on the longer-term outlook for base metals and especially coal, noting that development in China and other emerging nations will require more steel. The metallurgical coal that Teck produces is used in steelmaking.

COST PRESSURES

Teck, which has operations in Canada, the United States, Chile and Peru, said higher operating costs weighed on both its coal and copper divisions in the second quarter.

"Overall, we view the 2Q12 results as disappointing due to the increase in operating costs at the company's major operating divisions," Desjardins Securities analyst John Hughes said in a note to clients.

Coal revenues dropped 7 percent to C$1.36 billion, while coal production fell by some 700,000 tonnes as a nine-day rail strike shut down rail operations from the company's Elk Valley mines in British Columbia. Total operating and transportation costs for the coal division rose some 10 percent.

Teck's copper division produced a record 90,000 tonnes of the red metal in the quarter. But sales fell 2 percent to C$731 million as copper prices fell.

Zinc sales volumes slipped on seasonal fluctuations at the Red Dog mine in Alaska. Zinc accounts for just 11 percent of Teck's business, with copper production weighing in at 32 percent and coal making up the remaining 57 percent.

Teck said the decision to move forward with its Quebrada Blanca Phase 2 copper project in Chile could be delayed, as it wrestles with permitting and financing issues.

Earlier this month, Teck temporarily withdrew the environmental assessment application for the $5.6 billion project. It said on Wednesday it was reviewing comments from regulators and once the requirements are clarified, it would resubmit the application.

The issues are mainly around plans to use ground water during construction, Roger Higgins, senior vice president of copper, said on a conference call with investors.

"How long it will take us to address that is really part of our ongoing discussions with the regulators," he said. "They have made it quite clear that they like the project, they want to see the project proceed."

Quebrada Blanca Phase 2 will more than double output at the Quebrada Blanca copper mine and extend its life by some 30 years. Teck said it was in talks with its partners on financing the development, and could potentially bring in a new partner.

COAL SALES

Teck said it has reached agreements with customers to sell 5 million tonnes of coal in the third quarter and it expects to conclude additional sales during the quarter.

The average price for its premium coal has been settled at $225 per tonne, with average price for all its coal products at just shy of $200 per tonne.

Teck net profit fell to C$268 million ($263 million), or 46 Canadian cents a share, from C$756 million, or C$1.28, a year earlier. Adjusted to exclude one-time items such as asset sales, profit fell 53 percent to C$312 million, or 53 Canadian cents a share. Analysts had expected a profit of 64 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell to C$2.56 billion from C$2.80 billion, as coal, copper and zinc prices dropped below year-ago levels.

Teck said its balance sheet remains strong, with C$3.6 billion of cash, which will allow the company to advance its longer-term growth plans.