Teck Resources Limited (TECK - Free Report) has entered into a non-binding agreement in principal with Westshore Terminals Limited Partnership (“Westshore”) on proposed terms for the steelmaking coal shipment, following the expiration of the current contract on Mar 31, 2021.
The agreement will provide for the annual shipment between 5 million and 7 million tons of steelmaking coal at fixed loading charges. This shipment will be effective for the nine-month period from April through December 2021 and for each 12-month period in succeeding years until the volume of the contract is concluded.
The agreement with Westshore complements Teck’s Neptune Bulk Terminals facility upgrade as well as capacity upgradation at Ridley Terminals. Together, these will provide greater shipment flexibility to Teck, while also helping reduce costs and improving performance throughout the company’s steelmaking coal supply chain.
The Neptune Bulk Terminals upgrade project is progressing in line with budget, with construction expected to be completed in first-quarter 2021. This facility upgrade will strengthen the performance of the steelmaking coal-supply chain and meet the long-term requirements of customers for consistent, high-quality product while also lowering overall logistics costs. Furthermore, expansion of the Elkview Operations plant will boost the overall steelmaking coal production capacity. It has increased the Elkview’s annual steelmaking coal production capacity from 7 million tons to 9 million tons. The company projects annual steel making production capacity of 26-27 million tons.
Steelmaking coal prices came under pressure due to the unfavorable impact of the coronavirus pandemic on demand and supply for steelmaking coal, particularly outside of China. Steel producers outside China reduced production in response to the lower demand for steel products, while production in China has returned to the pre-pandemic levels. Teck expects steel producers outside of China to keep operating at reduced production levels through the third quarter.
For the second half of the year, management expects steelmaking coal production between 11 million tons and 12 million tons, down from the prior guidance of 23-25 million tons. The guidance reflects the scheduled shutdown of Neptune Bulk and impact of the pandemic. For third-quarter 2020, sales volume is projected at 5-5.4 million tons for the Steelmaking Coal segment.
Teck has implemented a cost-reduction program to lower its operating costs and deferred some of the planned capital projects in a bid to counter the uncertain economic conditions. Since the commencement of the program in the fourth quarter of 2019, it has so far achieved approximately $250 million in operating-cost reductions and $430 million in capital-cost reductions. Moreover, Teck Resources continues to implement its innovation-driven efficiency program RACE21 that is expected to improve productivity across the business.
The company’s shares have gained 13.5% over the past three months, compared to the industry’s growth of 19.7%.
Zacks Rank & Stocks to Consider
Teck currently carries a Zacks Rank #3 (Hold).
Few better-ranked stocks in the basic materials space include Galiano Gold Inc. (GAU - Free Report) , Eldorado Gold Corporation (EGO - Free Report) and Yamana Gold Inc. (AUY - Free Report) , each carrying a Zacks Rank #2 (Buy) currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Galiano Gold has an estimated earnings growth rate of 1,600% for 2020. The company’s shares have increased 34.7% in the past three months.
Eldorado Gold has an expected earnings growth rate of 2,225% for the current year. Its shares have appreciated 25.2% over the past three months.
Yamana has a projected earnings growth rate of 76.9% for the ongoing year. The company’s shares have gained 97.6% in the past three months.
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