June 3rd, 2015 ~ Vol. 85 No. 22
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Teck announces mine shutdowns
Crowsnest Pass Herald Front Page
Stock Photo
EZRA BLACK
Pass Herald Reporter
Teck Resources Inc. announced today it would be implementing temporary shutdowns at its six Canadian steelmaking coal mines in response to weak commodity prices and a market glut.
Each of Teck’s steelmaking coal operations will be temporarily shut down for approximately three weeks in July, August and September. The work stoppages will be staggered over the summer months among the operations.
“Rather than push incremental tonnes into an oversupplied market, we are taking a disciplined approach to managing our mine production in line with market conditions,” Don Lindsay, Teck’s chief executive officer, said in a statement.
The company will continue to meet all contracted and committed coal sales for its entire suite of products but its third quarter production will be reduced by approximately 1.5 million tonnes to 5.7, a reduction of 22 per cent for the quarter.
The company’s annual coal production is now estimated to be 25 to 26 million tonnes.
Teck could make additional production cuts. “Additional coal production adjustments will be considered over the course of 2015 as market conditions continue to evolve,” said the statement.
“We will continue to focus on reducing costs and improving efficiency to ensure our mines are cash positive throughout the cycle and well-positioned when markets improve,” said Lindsay.
According to Bloomberg Business, the benchmark price for steelmaking coal fell to a six-year low after Australian coal producers and Japanese steel mills agreed to a price of $109.50 per tonne starting April 1, which was down from $117 in the first quarter.
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The price for metallurgical coal has fallen from a high of $330 per tonne four years ago.
This has affected Teck’s bottom line. The company’s 2014 profit of $362 million was just a third of its 2013 profit. About 40 per cent of Teck’s revenue is generated from metallurgical coal.
Last year, Teck cut 600 jobs as the company reported a 68 per cent drop in adjusted first quarter profits due to low commodity prices.
The Vancouver-based company also deferred the restart of its Quintette Coal Project in B.C., which has not been in operation since 2000.
But Teck’s not alone. In a recent report on the metallurgical coal market, Anthony Martin, chief financial officer of Riversdale Resources, a junior mining company, said about 25 per cent of global producers are not turning a profit at current prices.
“Everyone is making less money in the industry than they were a few years ago,” he said.
On the brighter side, Martin predicted metallurgical coal would be selling for around $150 to $155 US per tonne in 2017 or 2018.
On the other hand, investment advisor Matt Smith, in his analysis of the coal industry, said that some analysts believe a slowdown in China will cause its demand for steel in 2015 to fall for the first time in 35 years, which does not bode well for metallurgical coal demand.
Despite lower demand and prices, Smith said supplies of metallurgical coal have been growing because it’s cheaper to mine. The reason for this is low oil prices, which have allowed higher cost producers to continue production instead of shutting down.
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Riversdale managing director Steve Mallyon explained that metallurgical coal production peaked at around 830 million tonnes per year in 2014 with the expectation of stable demand from China, the world’s largest user of metallurgical coal.
“That hasn’t come to fruition,” said Mallyon. “In the interim there has been a modest increase in steel making in other markets like India but not enough to offset the slowdown in China.”
As a result, there are probably 20 or 30 million tonnes of coal that have been left idle but the exact amount of oversupply is difficult to calculate. One of the reasons for this is because there are a number of private coal companies in the U.S. that are not required to publish their data, said Mallyon.
Facing an uncertain future, Mallyon said Teck has made a wise decision.
“What Teck has done is a very disciplined approach to addressing the oversupply,” he said. “I think it’s quite a smart thing that they’ve done and I expect there may be other producers that follow suit in the coming weeks.”

Shut down schedule:
Line Creek/Coal Mountain June 28-July 5
Elkview July 2-July 5
Greenhills/Cardinal River July 6-July 13
Fording River July 14-July 21
Line Creek/Coal Mountain July 22-Aug 2
Elkview Aug 3-Aug 6
Greenhills/Cardinal River Aug 7-Aug 18
Elkview Aug 19-Aug 26
Fording Aug 27-Sept 7
Elkview Sept 8-Sept 11
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June 3rd ~ Vol. 85 No. 22
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