Teck closes in on debt targets
miningweekly.com
By: Liezel Hill
18th November 2009
TORONTO (miningweekly.com) – Canadian diversified miner Teck Resources won't argue with suggestions that it could achieve its own targets for debt ratios by early next year, a top executive said on Wednesday. The company is aiming to put itself in a position that will merit an investment-grade label from ratings agencies.
Last year, Teck borrowed $9,8-billion to buy Fording Canadian Coal Trust, just before debt markets turned sour late in 2008.
The firm has since been working hard to get the debt paid down, selling noncore assets, $4,2-billion in bonds and a stake in itself to Chinese State-owned sovereign wealth fund China Investment Corp.
The company has already made impressive headway – the $5,81-billion bridge portion of the Fording debt has been repaid, and CEO Don Lindsay has reduced the $4-billion term loan to about $2,35-billion.
However, some investors seem to need a little more time to digest the progress, Greg Waller, who is vice-president for investor relations and strategic analysis, said in a presentation at a Metals and Mining conference under way this week in New York.
“Interestingly, I think there is still a fairly significant component of the marketplace that is still somewhat behind on this story, about the plan for getting debt down,” Waller commented.
He pointed to the strong performance put in by the company's stock on Tuesday, after it announced that the sale of a noncore gold asset had closed.
“That tells me that people are still looking for delivery on these elements of the plan to give full recognition for it.”
Teck has said several times this year it is targeting a debt to capitalisation ratio of 25% to 30% and debt to earnings before interest, tax, depreciation and amortisation of 2,5 times, which it believes should meet ratings agencies' requirements for investment grade.
These targets are now “well within reach,” Waller told delegates at conference, which was hosted by Knight and John Tumazos Very Independent Research.
“I can't give you my own forecast on this, because we don't give guidance, but I can tell you that the analysts that cover us and know us well have run the numbers and believe we could could be in those ranges in early 2010.
“And we think that is a reasonable forecast.”
The same goes for predictions that the term debt could be off by the middle of 2010, he said.
Teck has announced asset sales worth a total of $1,6-billion, about $600-million of which have closed so far.
All the proceeds will be put towards paying down the term debt, and should bring it down to $1,3-billion, after which the company expects to use cash flow to eradicate the remainder of the debt.
COAL OUTPUT
Since the closing of the Fording transaction, coal has become the biggest earner for Teck – it accounted for 59% of operating profit in the third quarter, compared with 28% in a year earlier.
The remainder comes from copper (28% in the September quarter) and zinc (13%).
In fact, Teck is now the second-biggest producer of seaborne hard coking coal. The company produced 23-million tons of the steelmaking ingredient last year, and is forecasting 20-million tons for this year.
Waller said the company is looking at investment opportunities to boost production, although any decisions will be carefully weighed against market appetite.
From its six operating mines, Teck could quite easily increase output to around 27-million or 28-million through incremental growth projects, he said.
There is also the potential to restart the Quintette mine with new resources in the area, which would then push annual production beyond the 30-million tons mark.
“So there is definitely the potential to grow production by more than 50% over the next five or six years,” Waller said.
“But, we will be very focused on the market's ability to absorb this.”
Teck has also not ruled out selling a 20% stake in its coal business, but will pick potential investors carefully and wants to see some strategic benefit or synergies from any deal.
“We're not actively pursuing it right now, but we're still holding it out as a possibility.
“And clearly getting the right value is important to us.”
In its copper business, production is expected to increase by 25%, to 870-million pounds, by 2012.
However, this does not take into account a potential project to double production at its Quebrada Blanca mine, in Chile, nor a proposed expansion at the Antamina mine, in which the company owns 22,5%.
The company is also working on a scoping study for the Relincho copper project, also in Chile, which it bought last year.
Waller said that, although the miner is “happy” with its position in the zinc market, it doesn't expect to invest much in its zinc business over the next few years, beyond sustaining capital, as it will rather put money into the copper, coal and oil sands units.
Shares in Teck rose 2,5% on Wednesday, to C$36,79 apiece in Toronto. The company ended 2008 at just C$6,02 a share. |
