With six coal mines in Western Canada, Teck Resources Ltd. (TSX:TCK.A) is well positioned to capitalize on high coal prices caused by flooding in Australia’s mining province of Queensland, but the Vancouver-based firm has reduced its production guidance as it contends with its own force majeures.
Teck said Wednesday morning that avalanche warnings along Canadian Pacific Railway’s rail lines in B.C. and a mechanical failure at Westshore Terminals in Delta will result in first quarter coal sales of 5 to 5.5 million tonnes compared to 5.25 million tonnes in the first quarter of 2010.
Bad weather is also causing delays in re-commissioning of a coal dryer at the company’s Greenhills mine in southeast B.C.
Teck said planned sales for 2011 are in the range of 24.5 to 25.5 million tonnes.
Meredith Bandy, an analyst with BMO Capital Markets, said Teck’s reduced production volumes are unfortunate, given coal’s high price and margins right now.
High-value metallurgical coal is currently around US$300 a tonne.
“And the cost of mining coal is US$85, so the margin on each of those tonnes is very high,” said Bandy.
Teck’s production troubles, however, could ultimately help drive coal prices higher, offsetting the company’s lower production volumes.
“You already have the Queensland flooding, which is why the spot price is so high,” said Bandy.
“There are a lot of supply constraints. What [Teck] loses in production will benefit them in price.”
She noted coal producers are all facing the same issues.
BMO predicts coal prices to remain around US$300 a tonne in the second and third quarter of 2011.
It forecasts coal prices to fall to US$255 in the fourth quarter when coal mines in Queensland are expected to fully recover from the province’s floods.
Coal prices reached record highs of US$400 in 2008 – the last time Queensland experienced widespread flooding.
Teck’s share price was largely unchanged during midday trading Wednesday.
It’s share price range during the last week: $62.34 to $64.99; 52-week high: $65.31; 52-week low: $32.00.
On Tuesday, Arch Coal Inc. (NYSE: ACI), which is the second-largest coal producer in the U.S., signed a five-year shipping agreement with Ridley Terminals Inc. near Prince Rupert.
The five-year agreement will give Arch throughput capacity at the terminal of up to 2 million tonnes for 2011 and up to 2.5 million metric tonnes of coal for 2012 through 2015.
Arch’s operations are largely in the Powder River Basin in Wyoming, the U.S.’s largest coal-supply region.
"This agreement is a very important contract for the terminal,” said George Dorsey, Ridley’s president, in a release. “Arch Coal's guaranteed U.S. coal volumes will support our goal of doubling our capacity by 2015."