12 February 2010

Teck Signs Fixed-Rate Coal Port Deal with Westshore

A Canadian Pacific Railway coal train.

Vancouver British Columbia - Canadian miner Teck Resources said on Friday an agreement by Westshore Terminals to ship its coal at a fixed rate could result in big cost savings.
 
Teck, which drew $3.5 billion in revenue from its coal business in 2009, and also produces large amounts of copper and zinc, will ship at least 3 million tonnes per year from three of its British Columbia mines through Westshore's Vancouver-area port.
 
The two-year deal, which involves part of the production from Teck's Elkview, Cheviot, and Line Creek mines, replaces an existing three-year agreement that expires at the end of March. The current deal adjusts shipping rates on the basis of coal prices.
 
The two parties will also amend an agreement under which Teck ships coal from its Fording River, Greenhills, and Coal Mountain mines through Westshore. Under that deal, Teck's current floating rate will convert to a fixed rate from 1 Apr 2011 to the end of the contract in 2012.
 
"The reduction in the costs will be reasonably significant to our coal business," Teck spokesman Greg Waller told Reuters. Teck's operating profit from its coal business totaled $1.3 billion last year, or 47 percent of the company's total.
 
Waller said Teck would not know the amount of savings until the resumption of coal contract negotiations, which usually are concluded near the end of the first quarter.
 
The agreement follows a arbitration ruling last July in a rate dispute between Teck and shipper Canadian Pacific Railway, which gave Teck the right to ship at a fixed, rather than floating, rate.
 
Teck said at the time the fixed terms with CP would substantially reduce its shipping costs and also that the ruling could send a message to Westshore concerning negotiations over a new port deal.
 
Teck also said it plans to ship more coal through Neptune Terminals, in which Teck has a 48 percent interest.
 
The company expects to produce as much as 25 million tonnes of coal this year, most of which is used in the steel industry. Realized coal prices during the year were $139 a tonne, down from $247 a tonne in 2008
 
Teck's shares were down 23 Canadian cents at $37.47 on the Toronto Stock Exchange on Friday afternoon, while Westshore units were up 42 Canadian cents at $14.70.
 
Cameron French.