Rich Press/Bloomberg filesTeck has not made a major acquisition since 2008, and this would be a reasonable time to do it.
When Teck Resources Ltd. holds its quarterly earnings conference calls, chief executive Don Lindsay is always asked about acquisition opportunities. His usual response is that Teck is looking, but price tags are too high.
That changed on Thursday’s call. He acknowledged that values have come down in recent months and more assets have come available. That includes projects in the iron ore sector, an industry that Teck has been eager to break into for years.
Mr. Lindsay also speculated more assets could come available as many large mining companies are writing down projects, firing senior management and cleaning up their portfolios.
Teck has not made a major acquisition since 2008, and this would be a reasonable time to do it. In addition to the iron ore opportunities, the Vancouver-based miner is facing declining copper production over the next couple of years. Its key copper growth projects in Chile are being held up by permitting delays, meaning it is unclear when they will reach production.
“Something that might fill the gap would be of interest to us,” Mr. Lindsay said.
However, he tempered speculation that Teck will do a deal. He said it remains “pretty tough” to pull off a successful transaction, and pointed out that Teck’s “stay the course” strategy of organic growth is poised to deliver major production increases for shareholders in the years ahead.
“It’s kind of an odd time in the industry right now. You can’t build anything because you [either] can’t get permits or the market is worried about cost over-runs, and you can’t buy anything because the market is worried about overpaying,” he said.
Teck has plenty of financial flexibility to do a deal, with more than $3.2-billion of cash on its balance sheet at the end of December. But Mr. Lindsay and CFO Ron Milos both stressed that the company would not do anything to threaten its investment-grade credit rating.
Teck had an excellent fourth quarter, as adjusted earnings of $354-million (or 61¢ a share) topped even the highest analyst expectations. The results were driven by solid copper sales volumes and lower-than-expected costs in the steelmaking coal division.
The company maintained a cautious guidance. Teck expects the coking coal market to remain weak through “at least” the first half of 2013 due to global economic uncertainty. The company plans to produce below its capacity in order to match coal supply with demand.
Teck also said it expects to spend up to $600-million over the next five years on water diversion and treatment facilities at its coal operations in Western Canada to combat increasing selenium concentrations in the water. Operating costs on those treatment facilities could reach $140-million per year, the company said. Those large expenses demonstrate that this is a major issue for Teck in the years ahead.