Teck Resources Q1 coal sales strong in Q1, sees big decline in Q2: CEO

Teck Resources steelmaking coal segment had stronger-than-expected sales in the first quarter despite initial logistics challenges, however, the second quarter outlook is bleak due to the expected impacts from the coronavirus pandemic, Donald Lindsay, chief executive, said on the company's earnings call Tuesday.

"Now despite the emergence of COVID-19, there were a number of positives in the first quarter," Lindsay said on the call. "Steelmaking coal had a very strong finish to the quarter with sales exceeding our quarterly guidance."

Teck had sales of 5.7 million mt, down 8.1% year on year. Despite the drop, sales exceeded Teck's Q1 guidance of 4.8 million mt-5.2 million mt.

The average price during the quarter was $131/st, down from $186/st in the year-ago quarter.

Production totaled 4.9 million mt of coke, down 19.7% from the year-ago period.

According to the filing, Teck's logistics chain performance were impacted in January and February by extreme weather events and rail blockades. Those issues, combined with record-high site inventory levels led to reduced coal production.

Teck also announced it finished its Elkview plant expansion in mid-April.

This is a very important milestone because it increases annual capacity at Elkview from 7 million mt to 9 million mt, Lindsay said. "And this is important because it will enable us to replace higher cost production from Cardinal River, which produced 1.4 million mt in 2019, with much lower cost production from Elkview when Cardinal River closes later this year."

The company had a net loss of C$312 million in the first quarter, compared with a net profit of C$630 million in Q1 2019.

Teck revenue totaled about C$2.4 billion in the first quarter, down 23.5% year on year. Revenue from its steelmaking coal segment was over C$1 billion, down 34.1% from the year-ago period.

Teck produced 4.9 million mt of coke, down 19.7% from the year-ago quarter.

2020 OUTLOOK

Teck previously suspended its 2020 guidance following the coronavirus pandemic, and said it will offer a new guidance once the full impact of the pandemic is realized.

Currently, its operating crews have increased to 75% of regular levels from 50% at the start of April.

Additionally, Lindsay said, "we are currently at stable levels of production across all operations and subject to market demand. We are planning to increase production further in Q4 of 2020 when the Neptune extended outage and our annual major plant outages are scheduled to be completed."

Teck also added it has started receiving notifications from customer that they may delay shipments due to reduced demand in the current economic environment.

Regarding sales, Lindsay added that second quarter volumes "could decrease significantly" from the first quarter, driven by impacts from the coronavirus pandemic. The first quarter, on the other hand, had no material impact on sales or shipments due to the pandemic.