UPDATE 2-Teck plays down M&A moves as profit hit by coal price

Tue Apr 23, 2013 12:50pm EDT

* First-quarter adj EPS C$0.56 vs C$0.93 yr earlier

* Revenue falls 9 pct on lower coal, copper prices

* Quebrada Blanca copper expansion faces delay

* Shares down 1.9 percent at C$25.52 on TSX

* CEO says M&A speculation overblown (Recasts with comments from CEO and analysts, adds share price)

By Julie Gordon

TORONTO, April 23 (Reuters) - Teck Resources Ltd reported a sharp fall in quarterly adjusted profit on Tuesday as sagging prices for coal and copper hurt Canada's largest diversified miner, whose CEO played down any major takeover moves.

While the earnings in the first quarter were higher than market expectations, Teck's shares fell as much as 7 percent shortly after the market open as copper prices dropped to a fresh 18-month low. Some analysts voiced concerns over the delay of a major Teck development project and the impact of lower copper and coal prices on the company.

The stock cut its losses and was down 1.9 percent at C$25.52 on the Toronto Stock Exchange around midday.

The company, which has been touted as a potential suitor for Rio Tinto Plc's iron ore assets in Eastern Canada, will be prudent with the use of its balance sheet, Chief Executive Don Lindsay told investors on a conference call.

"There has been a lot of speculation about us pursuing major M&A transactions and I can tell you this is grossly overblown," he said. "We continue to be disciplined in our approach to new investment."

Teck, under pressure from the recent plunge in commodity prices due to global growth concerns, said efforts to cut spending were going well, with some C$275 million ($267.81 million) in cost savings and expenditure deferrals already identified for this year.

"They're doing a good job of managing the business in a pretty tough metallurgical coal and copper market," said Garrett Nelson, a mining analyst at BB&T Capital Markets. "The coal business appears to be firing on all cylinders in a very challenging environment."

Teck's coal sales rose 24 percent to 6.6 million tonnes in the quarter, while the cost of sales fell 20 percent to C$47 a tonne. Despite higher volumes and lower costs, coal revenues dropped by C$138 million as coal prices plunged 28 percent to $161 a tonne.

The Vancouver-based company said it has contracted sales of about 5.4 million tonnes of coal in the second quarter at an average price of $154 a tonne and that total coal sales in the quarter, including spot sales, are expected to top 6 million tonnes.

Teck warned in February that demand for coal would remain soft through at least the first half of 2013 due to economic uncertainty in Europe and the United States, and lower growth rates in emerging markets.

The drop in second quarter coal prices had some analysts questioning if prices for the steelmaking material would indeed rebound in the second half of 2013 as the company hopes.

"What's going to happen with China? That's the big question," said Kerry Smith, a mining analyst at Haywood Securities.

MORE QB2 DELAYS

On the copper front, Teck warned its $5.6 billion Quebrada Blanca Phase 2 copper expansion project in Chile may be delayed further due to an ongoing community impact assessment.

The miner withdrew its social and environmental impact assessment report for the copper development last summer to review regulator comments. Teck had planned to resubmit the report by the end of the second quarter, but that has now been pushed back to at least the fourth quarter.

Copper revenues fell 9 percent in the first quarter on lower realized copper prices and higher cash costs. Total copper cash costs rose to $1.61 a pound, up from $1.51 a pound, as molybdenum and silver prices fell, reducing the value of by-products from copper production.

Teck produced about 83,000 tonnes of copper in the quarter, up slightly from the year-earlier period, but down 19 percent from the fourth quarter of 2012.

"While the company beat estimates on effective cost containment, we believe that lower copper output levels, further delays to Quebrada Blanca Phase 2, and 2Q13 metallurgical coal pricing levels will likely be viewed negatively," Daniel Scott, an analyst at Cowen Securities, said in a note to clients.

EARNINGS BEAT

On an adjusted basis, Teck's earnings fell to C$328 million, or 56 Canadian cents a share, from C$544 million, or 93 Canadian cents a share, a year earlier.

Analysts, on average, had expected earnings of 37 Canadian cents a share, according to Thomson Reuters I/B/E/S. Part of that earnings beat was attributed to new accounting standards for waste removal treatment costs.

Net profit, before items, rose to C$319 million, or 55 Canadian cents per share, from C$258 million, or 44 Canadian cents per share, a year earlier. Profit in the year-before quarter was hit by a $329 million after-tax charge related to the refinancing of a portion of its debt.

Revenue from operations fell about 9 percent to C$2.33 billion from $2.55 billion in the first quarter of 2012.

Teck plans to produce around 24.5 million tonnes of the metallurgical coal in 2013 and 350,000 tonnes of copper. It also produces zinc.

($1=$1.03 Canadian) (Additional reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Jeffrey Hodgson and Peter Galloway)

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