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Low commodity prices to take bite out of Teck earnings

Teck has coal mines in southeastern B.C., but it’s hoping to revive its dormant properties in the northeast.

Teck Resources Ltd. is experiencing tough times because its three core business units have been hit by commodity pricing slumps.

About 41 per cent of the diversified miner's revenue originates from its coal operations, 32 per cent from copper and 27 per cent from zinc.

Against a bleak commodity backdrop, Teck is expected to post weak profit when the Vancouver-based company releases its first-quarter financial results on Tuesday.

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Industry analysts forecast that Teck will post per-share profit of 29 cents for the first three months of this year, or half of the 58 cents in earnings per share in the first quarter of 2013.

Lower commodity prices and volumes have combined with slightly higher expenses to erode Teck's quarterly results, said RBC Dominion Securities Inc. analyst Fraser Phillips.

While the downward pricing trend continues for coal and copper, there are signs that zinc might be staging a recovery. Still, Teck's zinc performance is expected to be down on reduced sales volume in this year's first quarter, compared with a year earlier, Mr. Phillips said.

In British Columbia, Teck has been hoping for a rebound in prices for metallurgical (or coking) coal, an ingredient used to make steel.

The company, which has metallurgical coal mines in southeastern British Columbia, has been counting on improved market conditions in order to revive its dormant Quintette coal property in the northeast part of the province.

China is a major customer for coal and copper, but slower-than-expected economic growth in the Asian country has put a damper on Teck's corporate outlook.

A subsidiary of China Investment Corp. has held a stake of more than 17 per cent in Teck since July of 2009.

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Last week, Walter Energy Inc., based in Birmingham, Ala., announced the suspension of its coal mining operations in northeastern British Columbia, where temporary layoffs are affecting nearly 700 employees.

The world is awash in coal supplies, said Raymond James Ltd. analyst Alex Terentiew.

"Australia remains the most important swing factor, with sizeable supply growth potential continuing to sit on the sidelines," Mr. Terentiew said in a research note. "We believe Teck may need to use its undrawn $2-billion credit facilities by late 2015 to retain a comfortable cash cushion and continue paying its dividend."

Teck has an annual dividend rate of 90 cents a share. The company's stock price has fallen 12 per cent since the start of this year.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More


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