Teck Cominco slashing 1,400 jobs

VIRGINIA GALT
Globe and Mail
January 8, 2009

Teck Cominco Ltd. is cutting 1,400 jobs globally, or 13 per cent of its work force, because of slumping demand for coal and plunging commodity prices.

The Vancouver-based miner said Thursday the staff reductions are part of a broader strategy to cut costs, and are expected to save the company about $85-million.

Teck said it also plans to scale back coal production this year to 20 million tonnes given falling global steel demand.

Analyst Ian Howat of National Bank Financial said in a research note that Teck had previously announced that its 2008 coal production would come in on the low end of their 23-to-25 million tonne guidance range.

Don Lindsay, Teck CEO Teck Cominco Ltd.

“The reduction in coal production is negative for the company and will lower earnings for the year,” Mr. Howat wrote.

“It isn't clear yet how much the company will deliver into 2008 contracted prices and how much will be delivered into what will surely be much lower 2009 contract prices,” he said.

After a delayed opening on the Toronto Stock Exchange, Teck Comino shares were down 75 cents, or 5.5 per cent, to $12.76 in early trading.

Teck said the work force reduction is “part of its broader strategy to reduce costs and bolster competitiveness in the face of persistently weak commodity prices,” Teck said in a statement.

“Given continued economic uncertainty, a significant reduction in our work force is needed to further reduce costs and position Teck for both short and long-term competitiveness,' said Don Lindsay, president and chief executive officer.

“Notwithstanding the substantial decline in commodity prices, this was a difficult decision,” he said.

Teck said about 1,000 employees and 400 contractor positions would be cut by the end of the year, most in the first quarter. It expects a charge of $35-million in the quarter for severance and other costs.

Teck is Canada's largest diversified mining, mineral processing and metallurgical company. It is a world leader in the production of copper, metallurgical coal and zinc. It also produces gold, molybdenum and specialty metals, with interests in several oil sands development assets.

The company owns, or has interests in, 16 operating mines in Canada, the United States, Chile and Peru.

In a separate announcement Thursday, Calgary-based Grande Cache Coal Corp. said demand for metallurgical coal has been affected by the decline of global steel production as a consequence of the global economic slowdown.

As a result, steel producers are rethinking their orders.

“Grande Cache Coal has received indications from certain customers that shipments originally scheduled for delivery by March 31, 2009, will be deferred into the following fiscal year,” Grande Cache said in a statement.

“The full extent of these delays is unknown at this time given that many steel companies have yet to provide detailed shipping schedules for the quarter ending March 31.”

Statistics Canada reported Tuesday that the contraction of prices for petroleum and coal products accelerated for the second straight month in November, decreasing 18.9 per cent compared with a drop of 13.8 per cent in October.

The Toronto-Dominion Bank, in a report on commodity prices earlier this week, noted that 2008 “was a wild ride for commodity markets, turning from a bull market to a bear market in a matter of months…

“Compared with year-ago levels, base metals prices were down by 50 per cent as 2008 came to a close, with all metals experiencing significant declines of 40 to 60 per cent,” TD Bank said in its weekly commodities report.

Against this backdrop of lower prices for coal, copper and zinc, Teck is also paying off the debts incurred in its $14-billion (U.S.) takeover of Fording Canadian Coal Trust last summer before coal prices plunged.

Mr. Howat wrote that Teck should “still pass the debt covenants related to the Fording acquisition, but this may change depending on any writedowns the company will incur as a result of lower commodity prices.”

In November, Teck announced that it was suspending dividends for 2009, selling its interest in the Lobo-Marte gold property in Chile and reducing zinc production at its operations in Trail, B.C.

In its statement Thursday, Teck did not provide details on where the staff cuts would take place, other than to say that they would be across the board.

“Each strategic business unit is adjusting personnel levels to protect operating margins given difficult commodity markets,” Teck said.

“The company is also significantly reducing staff and contractors associated with exploration activities and research and development. Finally, the work force reductions eliminate redundancies at the corporate level created by Teck's recent acquisition of Fording Canadian Coal Trust's assets.”