Canadian miner Teck Resources Inc. TCK in a recent Global Metal and Mining conference revealed plans of how the company intends to deal with the persistently weak coal industry fundamentals. Amid weakening demand for the fossil fuel, the company aims to conserve capital and reduce operating expenses.
Cost Savings
Cost saving initiatives undertaken by the company have helped to lower operating costs by $650 million In the 2012 to 2014 time period. Teck Resources aims to save nearly $100 million in 2015.
Continuing with the cost saving measures it targets to reduce costs by $650 million in 2016. These savings will come from $300 million of operating cost savings and $350 million of capital spending reductions and deferrals.
Teck Resources also decided to remove 1,000 positions and suspend the Coal Mountain Phase 2 project
Strong Portfolio Will Help
Teck Resources’ strong portfolio of long-life assets, cash balance and credit facilities will help to withstand the softness in demand.
The miner stands to benefit from its stronger leverage to copper and zinc markets and from the weaker Canadian dollar. In addition, growing demand for met coal ex-China is going to benefit Teck Resources’ prospects over the long term.
Open to Divestures
Teck Resource’ management believes the actions taken will be sufficient to counter the slump in the global mining industry. However, if the condition worsens from current levels, they might opt to monetize assets worth $1 billion.
Equipment Makers in the Same Boat
The dismal demand scenario has also affected all mining equipment makers. Caterpillar CAT said it would cut jobs due to weakening demand and expects its 2016 sales to be 5% lower than 2015 levels. Another mining equipment maker, Joy Global JOY lowered its fiscal 2015 revenues and earnings per share expectation citing softness in global demand for mining equipment.
Zacks Rank
Teck Resources currently has a Zacks Rank #3 (Hold). A better-ranked mining company worth considering is Vedanta Limited VEDL, carrying a Zacks Rank #2 (Buy).
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