Teck Resources: Rough road on oil sands investments

April 01, 2015

Tom Sanzillo and Deborah Lawrence

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Key Findings

Although the company's main business lines are steelmaking coal, copper and zinc, it diversified into oil sands extraction with the purchase of SilverBirch Energy Corp. for $435 million in 2012, giving the company full ownership in the Frontier and spinning out the rest into a new junior company, Silver Willow Energy Corp.

Teck estimates that from 30 million to 35 million tonnes of U.S. metallurgical coal are "losing cash" at current spot prices. This situation is further complicated by the recent strengthening of the U.S. dollar.

Executive Summary

Teck Resources, a Canadian company that dates from the early 1900s and that built its business on mining of minerals and metallurgical coal, has ventured more recently into two major oil sands projects in Alberta, including the Fort Hills Mine and the proposed Frontier Mine. Teck has reported significant financial losses over the past three years, as is evident from these key metrics:

Net income plunged to $330 million in 2014 – down from $951 million in 2013 and $1.145 billion in 2012, meaning that profits have effectively fallen by two thirds in one year after a number of years of downward progression.
Free cash flow, while still positive, is marginal. It fell to $207 million in 2014 from $1.205 billion in 2012. If this trend continues, the company will see a negative free cash flow in 2015.
The company’s five-year stock return is -66.8%.

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Press release: Teck Resources: Rough Road on Oil Sands Investments

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures.

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Deborah Lawrence

Financial Consultant Deborah Lawrence works on the U.S. Extractive Industries Transparency Initiative, has served on the Advisory Council of the Dallas Fed and the working group for the U.S.

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