Teck Resources Ltd. announced its long-telegraphed exit from Alberta’s oilsands Thursday, in a deal to sell its 21.3 per cent stake in the Fort Hills project to Suncor Energy Inc. for $1 billion.
Fort Hills, the most recently constructed oilsands mine located north of Fort McMurray, Alta., has been plagued by a series of operational and market glitches that restricted it from full production since operations started in 2018. When the deal goes through, Suncor will own a 75.3 per cent stake in the project with France’s TotalEnergies SE holding the remainder.
The sale of the stake helps Teck lean into its strategy to produce “low-carbon metals,” such as copper and zinc, chief executive Jonathan Price said Thursday.
Third-quarter earnings released on Oct. 27 show that four metallurgical coal mines in British Columbia’s Elk Valley still account for the bulk of Teck’s revenue — about 48.6 per cent or $2.2 billion.
Fort Hills also was a growing source of revenue for Teck, representing eight per cent of its total in the quarter. The company said it would record an after-tax, non-cash impairment charge of approximately $950 million and expected the transaction to close in early November.
The oilsands mine, which cost $17 billion to build, once produced as much as 201,000 barrels of oil per day, but faced reduced operating capacity because of operational problems, government curtailments and lower oil demand and prices at the start of the pandemic.
Since at least 2020, under former chief executive Don Lindsay, who retired in July, Teck had been signalling its intent to exit the oilsands.
In February 2020, the company withdrew its application to build what would have been the largest oilsands mine in history. Known as Frontier, the mine would have produced 260,000 barrels of oil per day and cost an estimated $20 billion to construct.
The company didn’t even wait for the federal government to make a final approval decision on the project; Lindsay pulled the plug saying that the project had become a lightning rod for controversy and “squarely at the nexus of a much broader national discussion on energy development, Indigenous reconciliation and, of course, climate change.”
On Thursday, current CEO Price said Teck is not interested in developing the Frontier project. “We won’t be operators in the energy sector, nor in oilsands specifically and therefore, we will evaluate options to transact on [Frontier] over time.”
In 2020, the company’s share price went into freefall, dropping 70 per cent from its 52-week high in May, and Lindsay came under fire from investors — some of whom called for him to be ousted — over what exactly its strategy regarding fossil fuels was.
When asked how oil fit into the company’s future by an analyst in December of that year, Lindsay said: “We have said publicly for more than one year now, that when Fort Hills is back at full capacity, full production … if we do not feel that we’re being paid for that asset in Teck Resources’ share price, then the Board would consider a transaction.”
But he added that the company would wait until oil prices had “normalized” and it was operating at normal capacity.
At that time, oil prices were slowly recovering from the crash at the start of the pandemic, but Fort Hills was still operating at reduced capacity — about 120,000 barrels per day, down from 201,000 barrels per day.
This past July, Teck reported that it realized US$98.42 per barrel on average from its Fort Hills oil, up 72 per cent compared to 2021. Sales were 3.1 million barrels in the second quarter compared to 1.6 million the previous year.
“We’re conscious that there are quite a few investors that cannot buy Teck when we have a certain proportion of our revenues coming from oilsands,” Lindsay said at the time, “And so that suggests that it should be held in a different way outside of the Teck resources portfolio. We are working on that.”
That sentiment was reiterated on Thursday by Price, who said that the oilsands had created “an overhang” — meaning the company could never achieve its highest valuation because some investors refused to buy into a company with oilsands assets.
“We will rebalance our portfolio to low carbon metals and reduce the overall proportion of carbon in our portfolio,” Price said.
Teck is interested in moving more of its capital into copper, a metal used in batteries and electrical transmission, he said. It is building QB2 in Chile, a mine expected to produce around 300,000 tonnes of copper for its first five years, once it reaches full ramp-up, with a run of 28 years.
On Thursday, it announced that the cost of building QB2 has risen from between US$6.9 and $7 billion to between US$7.4 billion and US$7.5 billion. It also lowered its production forecast in 2023 to 170,000 tonnes — down from 245,000 tonnes.
We will rebalance our portfolio to low carbon metals and reduce the overall proportion of carbon in our portfolio
Teck CEO Jonathan Price
Still, Price told analysts that he remains committed to the same priorities as Lindsay: “the heart of our strategy is copper growth.”
Last month, the company announced it had enticed Toronto-based Agnico Eagle Mines Ltd. to invest $580 million for a 50 per cent stake in its proposed copper-zinc mine in Mexico, known as San Nicolas.
Whether Teck can pivot to a ‘green metals’ company remains to be seen. There have long been questions about whether some investors would avoid the company because of its stakes in fossil fuels, which now only includes metallurgical coal used in steelmaking.
The miner faces a quandary over coal, Lindsay said in his last earnings call in July. The supply and demand dynamics appear favourable and steelmaking coal prices were up 28 per cent this year.
But Lindsay said a large share of investors — he estimated their total holdings reach US$40 trillion globally — have declared policies that prevent them from investing in coal. He argued that the steelmaking coal that Teck produces differs from thermal coal used for heating, but noted it may still be keeping some investors away, implying that like Fort Hills and Frontier, it may no longer fit into Teck’s portfolio.
When asked if Teck would look to divest its coal business Thursday, Price left the question open.
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“We’ve always remained very active and thoughtful in reviewing the shape of the portfolio and then the composition of our portfolio,” he said.
In the third quarter, Teck Resources reported US$1.9 billion in adjusted EBITDA or cash flow, and said stronger commodity prices have helped it returned $468 million in dividends to shareholders this year. The company also reported 14 per cent inflation in operating costs, attributing this mainly to higher fuel charges.
After it pays taxes on the proceeds from the Fort Hills sale, the company would look to return at least one-third of the gross proceeds to shareholders through either a stock buyback program or dividends, Price said.
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