Teck unveils coal shipping deal with CN Rail

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Teck Resources Ltd. [TECK.B-TSX; TECK.A-TSX; TECK-NYSE] on Wednesday December 4 announced a long-term rail agreement for shipping steelmaking coal from four British Columbia operations between Kamloops and Neptune Terminals, and other west coast ports.

The agreement runs from April 2021 to December 2026, and will enable Teck to significantly increase shipment volumes through an expanded Neptune Terminals, located on the Vancouver harbour in North Vancouver. The agreement also provides for investments by Canadian National Railway Co. [CNR-TSX, NYSE](CN) for more than $125 million to enhance the rail infrastructure and support increased shipment volumes to Neptune.

“This agreement and the associated infrastructure investment will provide us with rail capacity to match the major upgrades underway not at Neptune Terminals,” said Teck President and CEO Don Lindsay. “We expect this will lower our total transportation costs and improve the overall rail and terminal performance,” he said.

“This agreement further enhances CN’s role as a supply chain enabler for Teck’s shipments into Neptune Terminals,” CN said in a press release. With this new agreement in place, Teck and CN are committed to working together to move significant volumes of steelmaking coal to markets safely and efficiently. The terms of the agreement are confidential.

Teck’s Class B common shares advanced on the news, rising 3.4% or 68 cents to $20.57 on volume of 1.5 million. The shares are currently trading in a 52-week range of $19.34 and $34.31.

Teck is Canada’s largest diversified resource company with operations and projects in Canada, the U.S., Chile and Peru. It is also producer of copper, zinc, steelmaking coal and energy.

The Vancouver-based mining giant ranks as the world’s second-largest seaborne exporter of steelmaking coal, with six operations in Western Canada and significant steelmaking coal reserves.

Steelmaking coal – or metallurgical coal – is a higher-grade coal which is a necessary component in the chemical reactions that transform iron into steel.

However, the company said coal sales in the quarter were negatively impacted by material handling issues and planned construction outages related to an ongoing expansion of the Neptune terminal.

Teck has warned that the capital expenditure for the Neptune expansion has increased to $750-$800 million, up from only $400 million previously. However, it said the project remains on track for completion in the first quarter of 2021.

Despite stronger coal production of 6.5 million tonnes in the quarter, coal sales of 6.1 million tonnes were below the company’s guidance range of 6.3-6.5 million tonnes.

While Teck reaffirmed its 2019 met coal production guidance of 25.5-25.6 million tonnes, the fourth quarter production forecast of 6.7 million tonnes is lower than expected due to planned outages at both the Neptune and Ridley terminals. The Ridley terminal is located near Prince George, B.C.

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