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Weak prices force Teck Resources to temporarily close six Canadian coal mines

Frail market conditions continue to wreak havoc on the mining industry as Teck Resources Ltd announced it will temporarily shut down six of its Canadian...

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|Jun 1|magazine7 min read

Frail market conditions continue to wreak havoc on the mining industry as Teck Resources Ltd announced it will temporarily shut down six of its Canadian coal mines.

The Vancouver-based miner said the suspensions would last three weeks and be staggered over the summer months – July, August and September -- with additional production adjustments being considered as market conditions evolve. The decision could have ripple effects in other sectors of the Canadian economy.

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“Rather than push incremental tons into an oversupplied market, we are taking a disciplined approach to managing our mine production in line with market conditions,” Don Lindsay, Teck’s chief executive officer, said in a statement.

"We will continue to focus on reducing costs and improving efficiency to ensure our mines are cash positive throughout the cycle and well-positioned when markets improve.”

The suspension will include five mines in British Columbia and one mine in Alberta.

Teck has already reduced its dividend, cut 600 jobs and deferred plans to restart one of its mines in B.C.  The suspension will also cut roughly 20 percent (1.5 million tons) from Teck’s quarterly production. The company said it could cut further production this year.

“While Teck’s move to lower production is a good start … the cut in and of itself is still only a drop in the bucket. More cuts are needed, in our view,” TD analyst Greg Barnes said in a research note.

Despite closing six coal mines, analysts still believe Teck Resources is a great pick for long-term oriented investors.

The shutdown will force Teck to reduce its annual production by six percent, from 26.5 million-27.5 million to 25 million-26 million. However, this cut could go a long way towards balancing the metallurgical coal market as 1.5 million tons of productions, which is roughly 10 percent of the supply glut.

According to Seeking Alpha, the production cuts could work out well for Teck as the higher prices of copper and zinc prices could offset the negative impact coming from the prolonged weakness in coal prices. 

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