Teck Resources more than doubled its third-quarter profit compared with a year ago, but warned Thursday that a slowing global economy could reduce steel demand and the market for steelmaking coal.
Revenue totaled $3.38 billion in the third quarter, up 40 per cent from $2.41 billion in the same period a year ago.
Excluding one-time items, Teck reported an adjusted third-quarter profit of $742 million, or $1.26 per share, up from $452 million, or 77 cents per share, in the third quarter of 2010.
In Trail, the company’s gross operating profit was $40 million in the third quarter on revenues of $492 million. This compared with a profit of $18 million on revenues of $340 million during the same period in 2010.
For the nine months ending Sept. 30, the Trail operations recorded a profit of $171 million on revenue of $1.5 billion, compared with $75 million and $1.1 billion during the first three quarters last year.
The company attributed the improved performance at the Trail operations to higher metal prices, particularly for silver and higher production and sales volumes of lead and silver. Production was negatively affected in the third quarter by an unscheduled outage of the Oxygen plant owned and operated by the Linde Group’s BOC Gas division.
Zinc prices were up 10 per cent in the third quarter to an average of $1.01 US a pound compared with the same period a year ago. Lead averaged $1.12, up 22 per cent, and silver $39, which was more than double the quarter price in 2010.
The stronger performance in Trail is encouraging for the community and unionized workers as they head into a bargaining year, according to Steelworkers Local 480 president Doug Jones. The union’s four-year collective agreement is up at the end of May.
“They’ve done considerably better this year and, obviously, that is good news for us.”
After a three-month strike in 2005, the Steelworkers had “really successful bargaining in 2008, and we have worked hard at maintaining that relationship.
“When things are going well (financially) it is better for both sides.”
When negotiations begin next spring, the union will be looking at a settlement at Teck’s Highland Valley Copper property near Kamloops earlier this month, which provided a four per cent wage increase annually for five years, a $10,000 signing bonus, and improvements to an already attractive pension plan, Jones noted.
“They did very well. There were some concessions on the table and they managed to fight those off. They wage package is very good. In today’s market, people are generally around three per cent.”
Highland’s wages and pensions have traditionally been higher than most others in the industry and recent market conditions are working to maintain that, he added.
“A few years ago copper was 86 cents and now its over $4. It’s the big money maker and so it’s reflected in their contract.”
Chief executive Don Lindsay said the company expected to ship in the range of 22.2 million to 23 million tonnes of coal for the year, down from earlier estimates.
The company had earlier forecast coal shipments to come in at the low end of its guidance for between 23.5 million and 24.5 million tonnes.
“Achieving this sales range is predicated on full delivery of our contracted volume commitments for the fourth quarter,” Lindsay said.
However Lindsay said the company was continuing to have talks regarding more sales.
Teck also lowered its 2011 copper sales guidance to approximately 320,000 tonnes, down from its previous guidance range of 330,000 to 340,000 tonnes, due to lower than expected production from its Quebrada Blanca mine in Chile.
Lindsay noted that while the steel companies have been conservative about purchasing coal, they haven’t shut production down that much.
“That means generally they are drawing down their inventories of coal, hoping that they can buy it cheaper later,” he said.
“I think it is going to be an interesting stand-off and with more confidence in the markets as we’re seeing today, maybe the customers decide that’s enough of holding back.”
Analysts on average estimated Teck would have a third-quarter profit of $1.26 per share on $3.13 billion in revenue, according to data compiled by Thomson Reuters.
Teck attributed the higher revenue to favourable prices for its major products, especially copper and coal. This was partially offset by the combined effects of a stronger Canadian dollar, higher operating costs and other factors.
Demand for steel has slipped in recent months amid concerns about a slowing global economy and slower than expected growth in China, a key market for steel.
The possibility of a slower Chinese economy has rattled financial markets, as it has been one of the few bright spots during the economic turmoil.
On Wednesday, Teck boosted its semiannual dividend payments by 33 per cent to 40 cents per share, up from 30 cents.
Last month, the company announced plans to spend a total of $685 million on improvements at two of its major metals operations in British Columbia.
The company’s B shares gained $3.63 to $40.96 on the Toronto Stock Exchange, off an earlier high of $42.79 shortly after markets opened.