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Teck Reports Unaudited Fourth Quarter Results for 2016
MarketwiredFebruary 15, 2017
VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb 15, 2017) -
All dollar amounts expressed in this news release are in Canadian dollars unless otherwise noted.
Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) ("Teck") reported unaudited record fourth quarter adjusted profit attributable to shareholders of $930 million, or $1.61 per share, compared with $16 million, or $0.03 per share, in the fourth quarter of 2015. Annual adjusted profit attributable to shareholders for 2016 was $1.1 billion, or $1.91 per share, compared with $188 million, or $0.33 per share in 2015.
"We had a very good year in 2016. We came through one of the longest and deepest down cycles our industry has faced and emerged as a stronger company," said Don Lindsay, President and CEO. "We set a number of production and sales records while continuing to reduce our costs. We used the significant increase in cash generated by the higher steelmaking coal and zinc prices to reduce our debt by over $1.0 billion in the last few months."
Highlights and Significant Items
- Record adjusted profit attributable to shareholders in the fourth quarter of $930 million, or $1.61 per share, compared with $16 million in 2015, or $0.03 per share. Annual adjusted profit attributable to shareholders was $1.1 billion, or $1.91 per share, compared with $188 million in 2015, or $0.33 per share.
- Record gross profit before depreciation and amortization of $2.0 billion in the fourth quarter compared with $614 million in the fourth quarter of 2015. Gross profit before depreciation and amortization in 2016 was $3.8 billion compared with $2.6 billion in 2015.
- Record cash flow from operations of $1.5 billion in the fourth quarter of 2016 compared with $693 million a year ago. Cash flow from operations was $3.1 billion in 2016 compared with $2.0 billion last year.
- Profit attributable to shareholders was $697 million in the fourth quarter compared with a loss of $459 million in the fourth quarter of 2015. Annual profit attributable to shareholders was $1.0 billion compared with a loss of $2.5 billion in 2015.
- In late September and early October, we repurchased US$759 million (CAD$1.0 billion) principal amount of our outstanding notes in market transactions, recording a gain of CAD$76 million. At December 31, 2016, our outstanding notes totaled US$6.1 billion, down from US$7.2 billion at September 30, 2015. Our liquidity is strong at CAD$5.5 billion including approximately CAD$1.6 billion in cash at February 14, 2017 and US$3.0 billion of undrawn, committed credit facilities. We exceeded our original target to end the year with a cash balance of at least CAD$500 million even after retiring CAD$1.0 billion of debt not contemplated in our original guidance.
- We set a number of quarterly and annual sales and production records while reducing total costs in each of our business units on an annual basis.
- We have reached agreements with the majority of our steelmaking coal customers for the first quarter of 2017, based on a quarterly benchmark of US$285 per tonne for the highest quality product, and we expect total sales in the first quarter, including spot sales, to be approximately 6.0 million tonnes of steelmaking coal.
- Construction of the Fort Hills oil sands project as of year end has surpassed 76% of completion, with two of the six major project areas (mining and infrastructure) turned over to operations. All major plant equipment and materials are on site, and all major vessels and process modules have been installed. Mobilization for operation has begun and the project remains on track to produce first oil in late 2017. The revised total project capital forecast is approximately 10% above the project sanction estimate, excluding foreign exchange impacts. Our share of project capital costs through to completion (including foreign exchange) is now expected to be $805 million, of which approximately $640 million will be spent in 2017. Due to the increase in capital cost, we recorded a pre-tax impairment charge of $222 million in our fourth quarter results.
- Unionized employees at the Fording River and Elkview steelmaking coal mines each ratified new five-year collective agreements.
- Our quarterly profit was reduced by impairment charges of $268 million ($198 million on an after-tax basis) including $222 million on the Fort Hills oil sands project and $46 million on non-core assets ($164 million and $34 million, respectively, on an after-tax basis). For 2016, total pre-tax asset impairment charges were $294 million and $217 million on an after-tax basis.
This news release is dated as at February 14, 2017. Unless the context otherwise dictates, a reference to "Teck," "the company," "us," "we," or "our" refers to Teck and its subsidiaries. Additional information, including our annual information form and management's discussion and analysis for the year ended December 31, 2015, is available on SEDAR at www.sedar.com.
This document contains forward-looking statements. Please refer to the cautionary language under the heading "CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION" below.
Overview
We achieved record cash flow from operations of $1.5 billion, record gross profits of $2.0 billion, before depreciation and amortization, and record gross profits of $1.6 billion in the fourth quarter. This performance was a result of significantly higher realized steelmaking coal prices in the quarter and, to a lesser extent, higher zinc prices.
Steelmaking coal spot prices peaked in mid-November, exceeding US$300 per tonne for the third time in the last eight years. Our realized steelmaking coal price in the fourth quarter of US$207 per tonne exceeded the quarterly benchmark price of US$200 per tonne settled in early October, as the spot priced component of our sales reflected the market trend. Tight steelmaking coal supply and increased demand from steel mills during the fourth quarter drove prices up and the quarterly benchmark price for the first quarter of 2017 was settled at US$285 per tonne in mid-December. Steelmaking coal prices have since retreated. Prices on the spot market are more than 45% below the first quarter benchmark price and are currently trading at approximately US$155 per tonne. Despite increased supply from existing producers and a number of mine restarts, spot pricing levels remain nearly double what they were a year ago.
The improved prices provided additional profits and cash flow and we took the opportunity to strengthen our balance sheet by repurchasing US$759 million (CAD$1.0 billion) principal amount of our outstanding notes in September and October. Since the beginning of 2016 through to early 2017, we have reduced our debt by US$793 million. Our debt to debt-plus-equity ratio declined from 37% at the start of 2016 to 32% at December 31, 2016. We may purchase further debt from time to time on an opportunistic basis.
Construction of the Fort Hills oil sands project as of year end has surpassed 76% of completion, with two of the six major project areas (mining and infrastructure) turned over to operations. All major plant equipment and materials are on site, and all major vessels and process modules have been installed. Mobilization for operation has begun and the project remains on track to produce first oil in late 2017. The revised total project capital forecast is approximately 10% above the project sanction estimate, excluding foreign exchange impacts. Our share of project capital costs through to completion (including foreign exchange) is now expected to be $805 million, of which approximately $640 million will be spent in 2017. Due to the increase in capital cost, we recorded a pre-tax impairment charge of $222 million in our fourth quarter results.
Profit and Adjusted Profit(1)
