Shares in B.C.-based metals and mining company Teck Resources (TSX:TECK.B)(NYSE:TECK) fell more than 18% as of Friday following a disappointing third-quarter earnings report.
Earnings missed analyst expectations by more than 13%, or $0.13 per share, on the back of weaker realized prices for its commodities.
Management attributed the underperformance to lower prices for all of its key products, including steel-making coal, copper, and zinc.
GAAP earnings were $1.3 billion ($2.23 per share) compared to $584 million in the year-ago period; however, it was adjusted earnings (normalized to exclude one-time variances) that disappointed, coming in at just $0.81 per share compared to $1.05 per share a year earlier.
EBITDA (earnings before interest, depreciation, taxes, and amortization) was $2.1 billion in the third quarter versus $1.4 billion in the third quarter of 2017; however, adjusted EBITDA was also lower, coming in at $1.2 billion compared to $1.4 billion a year ago.
Gross profit was also slightly lower in the third quarter as well, down from $1.1 billion in the third quarter of last year to $1 billion this year.
Meanwhile, there were also a couple of positives to take away from the earnings report.
Performance at its Fort Hills oil sands mine, which it co-owns with Suncor Energy, produced ahead of expectations and the company now expects full-year production to be towards the high end of its previous guidance.
It also announced that its finally received official regulatory approval for its Quebrada Blanca Phase 2 project in a unanimous vote from Chilean authorities.
Teck continues the search for a J.V. partner on the Quebrada project, and it maintains that it is looking to retain a 60-70% ownership in the project once a deal has been reached.
In July, it also completed the sale of its two-thirds interest in the Waneta Dam to BC Hydro for cash proceeds of $1.2 billion, recording a pre-tax gain of $888 million on the sale, and used the proceeds to re-purchase US$1 billion of its own outstanding near-term debt maturities.
Bottom line
This week’s volatility will, no question, be discouraging for Teck shareholders; however, on the bright side, it does look as though the company is learning from some of its past mistakes.
The move to retire its near-term debt maturities is a prudent one, and rationalizing its portfolio to focus capital investments on core assets only makes sense.
Meanwhile, the long-anticipated Fort Hills project with Suncor is recognized as one of the best assets in the region and represents a critical step towards reducing Teck’s exposure to volatile metals and mining prices.
Fool on.
