Teck Resources Limited reported profit attributable to shareholders of CAN$1.3 billion (CAN$2.23 per share) and adjusted profit attributable to shareholders of CAN$466 million (CAN$0.81 per share) in the third quarter compared with profit of CNA$584 million (CAN$1.01 per share) and adjusted profit of CAN$605 million (CAN$1.05 per share) a year ago.
“We continued to advance our key growth initiative and strengthen our financial position by receiving regulatory approval for our Quebrada Blanca Phase 2 project, closing the CAN$1.2 billion Waneta Dam sale and reducing our outstanding notes by US$1 billion,” said Don Lindsay, President and CEO. “Our operations continued to perform well, although commodity prices for all our key products declined during the third quarter, resulting in lower adjusted earnings and EBITDA compared with the second quarter of this year.”
Prices for our principal products were mixed in the third quarter compared with the same period a year ago. Steelmaking coal prices increased by 10% compared with a year ago and averaged US$172/t in the third quarter, reflecting continued strong demand and supply constraints for seaborne steelmaking coal. However, copper and zinc prices declined by 4% and 14%, respectively, compared with the third quarter of 2017. Commodity markets have generally weakened since the end of the second quarter and prices for our products declined in the third quarter compared with the second quarter of this year. Copper and zinc average quarterly prices declined by 11% and 18%, respectively, while steelmaking coal prices declined to a lesser extent, decreasing by 6%.
In Teck’s steelmaking coal business, unit cost increases were partly driven by our decision to increase mining activity to capture margin in this favourable steelmaking coal price environment. In addition, increased diesel and operating supplies costs also resulted in increased unit costs. Costs were higher at the company’s Trail Operations due to both maintenance issues and the effect of wild fires in southeast British Columbia. At Fort Hills, mining operations were constrained due to soft ground conditions in July, but subsequently improved in August and September. In addition, Fort Hills completed its first planned maintenance at the end of September, which restricted production to half the plant capacity for the last two weeks of the quarter.
In August, Teck received regulatory approval for its Quebrada Blanca Phase 2 (QB2) project in Chile. QB2 will be a high quality, low cost, long-life operation with significant expansion potential, and will significantly increase its copper production. QB2 has an initially permitted mine life of 25 years utilising only a quarter of the currently estimated mineral reserves and resources, with expected annual production of 300 000 t of copper equivalent in the first five years. Regulatory approval is a key step forward towards a potential construction sanction decision, which could be considered as early as December. In advance of a potential sanction decision, work is progressing to further optimise the initial mine life of QB2 as well as mining and production rates in the early years of operation. Engineering studies are also underway to assess the potential to double the throughput of QB2 in a subsequent expansion, which we refer to as the Quebrada Blanca Phase 3 project (QB3).
In July, Teck completed the sale of our two-thirds interest in the Waneta Dam to BC Hydro for CAN$1.2 billion in cash. We recorded a pre-tax gain of CAN$888 million, with no cash taxes payable on the transaction. In August, we strengthened our balance sheet by purchasing US$1 billion principal amount of its near-term debt maturities. We may purchase further debt from time to time as opportunities arise. At the end of the third quarter, our net debt to net debt-plus-equity ratio was 14% compared with 21% at 31 December 2017 and 28% at 31 December 2016.
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