Teck warns Frontier oilsands mine rejection could lead to $1.1 billion in impairment charges


Vancouver-based Teck Resources Ltd. warned Friday it could face a $1.1-billion impairment charge if the federal government rejects its Frontier oilsands project — a proposed $20.6-billion mine capable of producing 260,000 barrels per day, that is raising tensions between Alberta and Ottawa.

The federal government is expected to make a decision on the project by the end of February, and chief executive Don Lindsay told shareholders during an earnings call on Friday that “it’s anyone’s guess” how the government will decide.

Meanwhile, the company announced it is writing down the value of its 20 per cent stake in Fort Hills, an operational Alberta oilsands mine, by $910 million amid declining expectations for future oil prices.

During the call, Lindsay shared his “big picture” view about energy projects, saying Fort Hills has been hampered by a lack of pipeline capacity in Alberta.

If new capacity is added in the next few years, Fort Hills could emerge as a top asset for Teck, Lindsay said. But if new pipelines are not constructed or the asset is not adding value to Teck’s shares, he would consider other options, including “a spinout or sale or some sort of transaction.”

While its oilsands projects are in the limelight, Teck’s coal and other mines are also grappling with global economic uncertainty from the U.S.-China trade war and the looming unknown effects of the coronavirus, which have weakened commodity prices.

At its coal operations in British Columbia, the company said it is scaling back its planned production to around 4.8 million tonnes at the low-end, compared to a previous guidance of 5.1 million, due to severe winter weather and the impact of ongoing rail blockades across Canada.

“As many of you know we are Canada’s largest railway customer,” Lindsay said. “Given this backdrop, our focus remains on those aspects of our business that are within our control.”

Meanwhile, in Chile, where the company is building one of the largest copper mines in the world, known as Quebrada Blanca Two, the company said that permitting challenges and social unrest have delayed construction.

In recent months, the South American country has been rocked by protests about the cost of living and the government had imposed nighttime curfews.

On the bright side, Teck said that it has benefitted from a devaluation of the Chilean currency, from an expected 625 pesos to one U.S. dollar to 800 pesos today, which should positively affect the cost. The company had previously indicated it would provide an update in March on the capital expenditures for the project, so on Friday executives declined to comment about costs.

Alexander Hacking, an analyst with Citigroup Global Markets Inc., wrote in a note that Teck investors remain “broadly nervous” about the capex update in March.

“The additional cut to coal guidance is out of the Teck’s hands but not helpful to investor perception that the company is struggling to deliver operationally,” Hacking wrote.

Shares of the Vancouver-based miner fell nearly 15 per cent to $14.54 on Friday afternoon on the Toronto Stock Exchange.

Overall, Teck reported $649 million in earnings before interest, taxes and depreciation, also known as EBITDA, roughly half of the $1.3 billion posted in the same quarter of the previous year.

Financial Post

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