NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Teck Resources Limited's (Teck; NYSE: TCK; TSE: TCKb) at 'BBB' along with Teck's outstanding debt. A full list of rating actions follows at the end of this release.
The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings reflect Teck's strong liquidity, modest financial leverage, long lived reserves, leading low cost position in zinc, its leading position in the seaborne hard metallurgical coal market, and solid core position in copper.
Globally, Teck is the second largest seaborne hard coking coal producer after BHP-Mitsubishi Alliance and is in the second quartile on the cost curve (FOB port). Globally, Teck is the ninth largest copper producer with about average costs and the third largest zinc producer, in the lowest quartile on costs. Mine lives are generally over 20 years.
Coal accounted for 51% and copper accounted for 37% of gross profit before depreciation and amortization in 2012. Canada accounted for 66% of 2012 gross profit by region and operations are also in the U.S. (10%), Chile (8%) and Peru (16%).
Teck guided to $1 billion in major project spending for 2013 including C$120 million for the Quintette metallurgical coal mine in Canada, C$450 million for the QB2 copper project in Chile, C$290 million for Fort Hills oil sands project in Canada, and C$110 million for the Frontier oil sands project in Canada. The Quintette mine is targeting 3.5 million tonnes (t) per annum with a start-up in 2014 assuming permitting in the second quarter of 2013. Management anticipates filing a revised social and environmental impact assessment for the QB2 project in the second quarter of 2013 with the review process expected to take 12 months after the filing. The QB2 feasibility study was completed in 2012 and had production of 200,000 t of copper per annum over the 39 year mine life at C1 cash costs of 1.07/lb. Engineering studies for the Fort-Hills project, a partnership among Suncor Energy Inc. (40.8%), Total E&P Canada Ltd. (39.2%) and Teck (20%), are ongoing with a project sanctioning decision expected in 2013. If phase one of the project is sanctioned, production is not anticipated to start before 2017. Teck owns 100% of the Frontier project. The review of the project application is underway and the company believes 2015 is the earliest an approval decision and receipt of required permits could be expected.
At Dec. 31, 2012, liquidity remained strong with C$1.1 billion available under credit facilities and C$3.3 billion in cash on hand. Teck's $1 billion facility matures July 2016. The credit facilities require Teck to maintain a debt to total capitalization ratio of not more than 0.5:1.0. At Dec. 31, 2012, the ratio was 0.29:1.
Scheduled debt maturities over the next five years are C$35 million in 2013, C$6 million in 2014, C$325 million in 2015, C$3 million in 2016 and C$599 million in 2017.
Fitch expects the company to be free cash flow negative in 2013 after capital expenditure (guidance is C$2.3 billion before deferred stripping but after investment in Fort Hills).
At Fitch 's 2013 copper price assumption of $3.40/lb. and Zinc price assumption of $0.86/lb., EBITDA could decline to C$3.4 billion in 2013 and FCF could be as low as negative C$1 billion. Teck states that a $1/tonne change in coal prices affects EBITDA by C$25 million and a $0.01/lb change in copper prices affects EBITDA by C$7 million based on their 2013 mid-range production guidance.
FCF could be negative in 2014 and 2015 depending on commodity prices and the timing of development spending. Fitch expects that the company would delay project spending beyond 2013 if the outlook for prices for metallurgical coal or copper softens from current expectations.
Fitch expects funds from operations (FFO) adjusted leverage to be about 2.5x in 2013. For the latest twelve months (LTM) ended Dec. 31, 2012, FFO adjusted leverage was 2.4x and total debt of C$7.2 billion to operating EBITDA of C$3.7 billion was 1.9x.
The Stable Outlook reflects Fitch's view that Teck will maintain its current financial profile.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating actions include:
--A sustainable reduction in debt and financial leverage.
Negative: Future developments that may, individually or collectively, lead to negative rating actions include:
--A leveraged acquisition, substantial share repurchases, or FFO Adjusted leverage above 2.5x for an extended period of significantly lower prices for copper, metallurgical coal, or zinc.
--Unwillingness to reduce capital expenditures during a period of weak market conditions.
Fitch rates Teck as follows:
--Issuer Default Rating (IDR) 'BBB';
--$1 billion Bank Credit Facility 'BBB'; and
--Senior Unsecured Notes 'BBB'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
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