A train containing a load of coal is delivered to Westshore Terminals in Delta, B.C., on April 23, 2013.Jeff Vinnick/The Globe and Mail
Teck Resources Ltd. has struck a deal with Ridley Terminals Inc. to double, and perhaps triple, its shipments of steel-making coal through Prince Rupert, B.C., sending the shares of rival Westshore Terminals Investment Corp. to their lowest levels since 2016.
The deal, announced by Teck on Wednesday, will run from January, 2021, to December, 2027, and will increase its coal shipments through Ridley from a capacity of three million tonnes a year to six million tonnes.
Teck has the option to further increase this volume to a capacity of nine million tonnes, effectively tripling the company’s current shipments.
The diversified mining company, based in Vancouver, has overhauled parts of its steel-making coal operations in recent months as it attempts to reduce costs. In December, Canadian National Railway Co. won a five-year contract long held by rival Canadian Pacific Railway Ltd. to haul Teck’s B.C.-mined coal to West Coast ports – boosting CN’s annual revenue by as much as $250-million.
The deal with Ridley follows a new ownership structure for the terminal after the federal government last year sold a 90-per-cent stake to a company owned largely by Riverstone Holdings LLC and AMCI Group.
A spokesperson at Ridley declined to comment on the deal with Teck, saying that “contracts are confidential.”
But the announcement of the deal sent the share price of rival Westshore Terminals down 10.6 per cent on Wednesday, reflecting concerns that the company is losing shipping volumes and negotiating leverage with Teck.
Since hitting a 52-week high in early November, Westshore shares have slumped a total of 29 per cent, delivering a loss of about $155-million for billionaire Jim Pattison, who owns a 32.9-per-cent stake in the company.
“Obviously, people have made some connection between [Teck’s] press release and our share price, and speculating on what’s going to happen next,” Nick Desmarais, a corporate secretary at Westshore Terminals, said in a phone call.
He added: “We’ve been in business for 50 years. We’ve invested the better part of $600-million in the terminal over the last 10 years and just finished a $270-million capital project at the end of last year, so we are in good shape for the short-, medium- and long-term.”
Fadi Chamoun, an analyst at BMO Nesbitt Burns, said that Teck’s deal with Ridley suggests that Teck is setting itself up to sever all ties with Westshore when their contract expires in 2021, perhaps as a negotiating tactic. But the analyst doubts that Teck would actually end its business relationship with the terminal without adding significant risk to its supply chain.
"Consequently, we believe there’s potential for a deal between Teck and Westshore so that Teck may achieve a more balanced, diversified supply chain,” Mr. Chamoun said in a note.
Walter Spracklin, an analyst at RBC Dominion Securities, noted that Teck could be looking for alternatives after delays in expanding Neptune Terminals, a Vancouver hub that Teck co-owns with potash exporter Canpotex Ltd.
“This announcement confirms our view that Neptune is likely not going to be ready on time nor at the capacity originally envisioned. Put directly, if Neptune was able to ramp up to 18.5 million tonnes [of coal annually] as originally projected, it is highly doubtful Ridley would be required at all,” Mr. Spracklin said in a note.
Editor’s note: An earlier version of this story said the deal between Teck and Ridley will run to December, 2021. In fact, the deal will run to December, 2027. This version has been corrected.
David Berman