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Mining Giant Teck Resources Offers Coal Investors Another Red Flag

October 29, 2015
Tim Buckley

Repetitive as it is, Teck Resources is offering another recent lesson in how investing in coal is a serious wealth hazard.

Teck Resources shareholders have lost Canadian $18 billion of equity value in five years.

In addition to being a major global producer of copper and zinc, Teck Resources is Canada’s largest coking coal producer, with 2015 sales of 26 million tons.

As such, it is very telling that Teck this week announced a write-down of its coking coal business by Canadian $2 billion, acknowledging a massive and permanent diminution of its core coal business.

Like most coal companies globally, Teck’s share price has declined by 80 percent in the past five years. That includes a more than 50 percent decline in the past 12 months alone.

Teck reported a third-quarter coking coal price of US$88/ton, down 20 percent year over year. Like Australian, Columbian, Russian and South African coal miners, Teck Resources was protected to some extent by a nearly offsetting depreciation of the Canadian dollar versus the U.S. dollar. This meant that operating profits in Canadian dollars were insulated from the collapsing coal price by the combination of a falling currency, lower oil prices and cost-reduction initiatives.

In the face of weakening seaborne coal demand, the global coal cost curve continues to decline, dramatically lowering long-term equilibrium coal price expectations and hence lowering expectations for returns for investors.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.

Tim Buckley

Tim Buckley, Director, Climate Energy Finance (CEF) has 30 years of financial market experience covering the Australian, Asian and global equity markets from both a buy and sell side perspective.

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