Teck Resources Ltd. [TECK.B-TSX; TECK-NYSE] issued a profit warning Friday saying it expects to report fourth quarter earnings and EBITDA (earnings before interest, tax, depreciation and amortization) to be well below consensus estimates.
Analyst said many of the issues raised appear to be associated with isolated incidents and market conditions during the fourth quarter of 2018.
For example, at the Fort Hills oil sands project in Alberta, Teck expects to report an after-tax loss of $0.15 per share due to the dramatic widening in heavy oil differentials in addition to higher fourth quarter diluent costs.
It is worth noting that the Canadian Crude Index (CCI), often referred to as Western Canadian Select (WCS) has increased significantly since the announcement of oil production curtailments by the Alberta government in early December, 2018.
From US$29.80 per barrel at the beginning of October 2018, the WCS price dropped to a low of US$6.42 per barrel in late November before recovering to end the year at US$24.66, with the index averaging only US$19.35 per barrel during the quarter.
At Teck’s Trail operations in British Columbia, the company expects to report an after tax loss of $0.05 due to some interruptions from third party suppliers, in addition to a small fire in the silver refinery plus ongoing maintenance at one of its lead smelter furnaces.
As well, additional base metals inventory write-downs (none of which are met coal related) resulted in the remaining after-tax adjusted loss of $0.10 per share.
These factors together reduce earnings by $0.30 per share and EBITDA by $195 million.
Teck is a diversified mining company with interests in such key metals as copper, zinc coal.
With an expected mine life in excess of 50 years, The Fort Hills oil sands project in the Athabasca region of Alberta is considered one of Western Canada’s best undeveloped oil sands assets. It is located 90 km north of Fort McMurray.
Teck holds a 21.3% interest in the Fort Hills Energy Ltd. Partnership, which owns Fort Hills. Total E&P Canada Ltd. holds a 24.6% stake, while the balance of 54.1% is held by Suncor Energy Inc. [SU-TSX], the project operator.
In addition to Fort Hills, the company’s energy division also includes a 100% interest in the Frontier oil sands project, as well as other interests in the Athabasca region. The Frontier Project, which is located 110 km south of Fort Chipewyan in northeastern Alberta, is currently moving through the joint provincial-federal regulatory review process.
On Friday, Teck’s Class B common shares eased 3.16% or $1.01 to $30.99 on volume of 1.34 million. The 52-week range is $23.90 and $39.08.
Teck said it will release its fourth quarter 2018 earnings on February 13, 2019, before markets open.