Teck Resources Ltd. posted a $305 million profit for their first quarter, starting 2021 strong and foreshadowing a solid year ahead. Compared to the first quarter last year, the number represents a $600 million swing in the opposite direction from a $312 million loss in 1Q20. The 246.8% jump in first-quarter adjusted profit is a big move to start the year that is expected to be the start of a long, profitable run for the industry.
Much of that loss came from a $474 million asset impairments charge at its Fort Hills oil sands operation. Still, it is clear that high commodity prices in 2021 are a large part of what is driving the company’s performance and stock price. Revenue for the quarter was also up 7.14% YoY to $2.55 billion from $2.38 billion in the same quarter the year before.
While analyst consensus had an estimate of 62 cents per share and Teck hit an adjusted 61 cents, this didn’t phase investors, and the 247% profit bump was what investors decided was more important. In a statement, chief executive Don Lindsay said, “Strong first-quarter operational performance, in line with plan, and higher commodity prices contributed to a very solid start to 2021. We achieved major milestones for our priority project, including surpassing the halfway point at our flagship QB2 copper growth project and moving into the commissioning phase of our Neptune steelmaking coal terminal upgrade.
Higher copper prices continue to drive profits and progress for copper miners right now as demand for raw materials increases with economic reopenings and COVID-19 vaccine rollouts. The first quarter of 2021 saw a 54% price increase to US$3.92 per pound, giving a strong boost to copper miners and contributing to a lift in commodity prices across the board.
With such a strong start to 2021, Teck Resources seems set up for a long run this year as investors continue to pile into copper mining companies to get a piece of the decades-long supercycle the red metal is entering now.
Shares of Teck Resources (NYSE:TECK) had a great session today, surging more than 9%. While the past few weeks have been tough from a PR perspective, the company’s operations and future plans are set to propel it forward at warp speed if plans are approved. Teck Resources is Canada’s largest metallurgical coal producer, and as such has a significant carbon profile.
The company put together a sustainability report in 2019 assessing its mining operations across Canada, the U.S., and Chile. In a world increasingly concerned with the environmental impact of mining, Teck has pledged to reduce carbon intensity over the next nine years and has a goal of being completely carbon neutral by 2050.
This matches a lot of the goals being put forward by governments (including Canada’s) and seems to be the standard expectation for rich countries now. If the company can hit those targets, it will mean a lot to the environment, but also investors who increasingly put environmental, social, and governmental (ESG) principles at the forefront of stock selection for their portfolios.
The cost of an ambitious goal like this is sure to cut into the company’s balance sheet, but it is a necessary one if the company hopes to continue being the biggest coal producer in the country. On top of their difficult goals, they also have to contend with a world that needs and wants less coal overall. However, this is primarily a perception problem as the industry and metallurgical coal are necessary to the production of steel. The steelmaking process wouldn’t work without it (and the world needs a lot of steel).
Whether environmental activists and local communities agree or not, coal mining will still be necessary for the foreseeable future. Teck’s plans ensure that this necessary and extremely valuable resource – British Columbia’s government forecast production to be worth almost $4 billion in 2020 – is mined with controls in place to protect the environment and wildlife.
The company will first need to deal with its management of selenium pollution in southeastern British Columbia. Environment Canada investigators found Teck guilty of not having “a comprehensive plan to address the deposit of coal mine waste.” The element selenium is actually necessary for life in small doses. Unfortunately in the large amounts found (as much as 90 micrograms per litre in the Fording River and as much as 177 micrograms in settling ponds at the mines), it can cause fish deformities and reproductive failures.
The $60 million fine levied on Teck Coal, a subsidiary of Teck Resources is the largest fine ever imposed under the Fisheries Act. This setback should be a minor one, and a lesson going forward on the ESG side of their business that will be a necessary priority going forward, particularly if the company wants to hit its targets for decarbonization on the scheduled timelines.
Teck plans to build additional water treatment plans to bring down the selenium pollution from existing mines first. Then it will develop a plan to control the impacts on water quality from the extension project. This would be a huge step toward their ESG goals and a signal to investors that they are ready for the future.
Once the company is able to put this fine behind it, it can look forward to the future with a proposed mine that is poised to log the highest annual coal production. Their Castle Mountain proposal includes mining metallurgical coal just south of the company’s existing Fording River operations.
The expected 10 million tonnes per year to come from the Castle Mountain mine by 2030 would extend the life of the Fording River operations by several decades. The company is now waiting for project approval and is in the early engagement stage of a coordinated provincial and federal assessment process. The company will likely be on the hook for preparing a detailed strategy to combat emissions and the selenium pollution issue.
If they can address the issues of selenium and nitrate contamination, impacts on First Nations’ use of the land, preserving biodiversity and greenhouse gas emissions, the project is set to be a positive silver lining for the future of the company and metallurgical coal mining.
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