Vancouver – Don Lindsay, the president and CEO of Teck (TCK.B-T, TCK-N), addressed the company’s heavy debt-load and burgeoning fourth quarter net-loss in a conference call with investors on Feb 17.
Teck saw a $424 million net-profit in the third quarter of 2008 melt away into a $607 million net-loss in the fourth. Non-cash writedowns and pricing adjustments sucked Teck into the red.
About half of $844 million in asset and goodwill impairment charges hitting the company’s books in the fourth quarter stemmed from its acquisition of Aur Resources in 2007. Through that purchase it received several copper assets including the Quebrada Blanca, Andacollo and Duck Pond mines.
On top of the writedowns Teck also suffered a $270 million negative pricing adjustments (after-tax). The price of copper was down 45% during the quarter and zinc, 55%.
Coal continued to drive Teck’s operating profit. Of $808 million here 64% was from its coal division while 25% came from copper. A year ago copper was Teck’s premier asset.
Commodity sale prices between 2008 and 2007 fourth quarters underscore the changing importance of its coal and copper divisions. For copper Teck received $3.26 per lb. in 2007 compared to $1.79 in 2008. For coal it was $93 per tonne in 2007 compared to $247 per tonne in 2008.
In large part, however, Teck’s coal earnings have come at the cost of a more than eightfold increase in its debt-load. It started the quarter with $1.5 billion in debt but ended the quarter with $12.9 billion.
Teck took on nearly $10 billion in loans to buy Fording Canadian Coal and its Elk Valley Coal assets in Alberta and B.C. Prior to the takeover Teck held 40% of Elk Valley.
About $5.8 billion of $9.8 billion in loans came in the form of a 364-day bridge loan. That matures October 29, 2009. The rest was a three year loan facility.
Addressing concerns over the bridge loan Lindsay said Teck is in discussions with its lender about the possibility of getting an extension. He said for the moment he could not provide details of those discussions.
“We have a large refinancing requirement,” he said. “But our large asset base is strong and we have a great deal of flexibility to address our short term refinancing requirements.”
He noted that Teck has paid down $1.1 billion in debt during the fourth quarter and has a cash balance of $1.4 billion.
He said Teck has sold some assets such as Lobo Marte ($160 million) and that it is in advanced discussions to sell others. These include Pogo, Hemlo, Morelos and its exploration properties in Trukey.
He said there has been a “strong expression of interest” by prospective buyers.
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