Teck unveils coal shipping deal with Ridley Terminals

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Teck Resources Ltd. [TECK.B-TSX; TECK.A-TSX; TECK-NYSE] has announced an expanded commercial agreement with Ridley Terminals Inc. for shipments of its steelmaking coal from Teck’s British Columbia operations.

The agreement runs from January, 2021 to December, 2027, and increases contracted capacity from three million tonnes per annum to six million tonnes annually with an option for Teck to expand to nine million tonnes annually.

This will enable Teck to increase its shipment volumes through the Ridley terminal near Prince Rupert, B.C., to provide greater flexibility and improved performance within its overall steelmaking coal supply chain. The terms of the agreement are confidential.

On Wednesday, Teck’s Class B common shares fell 2.8% or $0.615 to $21.09 on volume of 907,638. The shares are currently trading in a 52-week range of $19.35 and $34.32.

Ridley Terminals is a Federal Crown Corporation, which owns and operates a marine bulk handling terminal on the west coast of British Columbia. The terminal has the ability to load vessels at rates of up to 9,000 tonnes per hour, unload cars at rates of up to 6,000 tonnes per hour and has an overall shipping capacity of 16 million tonnes.

Wednesday’s announced comes on the heels of a long-term rail agreement for shipping of steelmaking coal from Teck’s four British Columbia operations between Kamloops and Neptune Terminals, and other west coast ports.

That agreement runs from April 2021 to December 2026, and will enable Teck to significantly increase shipment volumes through an expanded Neptune Terminals in North Vancouver, B.C. 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.

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 third quarter of 2019 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.

Teck recently reaffirmed its 2019 met coal production guidance of 25.5-25.6 million tonnes.

Metallurgical coal has been steadily moving in what can only be described as a stealth rally, Scotiabank said in an investment report. The report said this could be largely a function of restocking from Chinese customers, and also to a lesser degree a function of looser Chinese import quotas which hurt the seaborne spot price in the first half of 2019. Scotiabank said the price of metallurgical coal is currently trading at close to US$150 per tonne.

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