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Teck Debt Falls, But Zinc Mine Permit Seen a Risk
Feb 10,2010 09:09CST
industry news

TORONTO, Feb. 10 -- Teck Resources (TCKb.TO: Quote) has nearly finishing digging itself out from beneath a mountain of debt taken on to finance its purchase of Fording Coal in 2008, the company's chief executive said on Tuesday, but it is now facing a key hurdle at its flagship zinc mine.

Native groups appealed state certification of a water discharge permit at Teck's Red Dog mine in Alaska last month. The permit is needed for an expansion that will keep Red Dog, the largest zinc mine in the world, running beyond next year.

The action has raised concerns that an appeal of U.S. environmental and water discharge approvals could be filed before a deadline next Wednesday.

"That's a big overhang," said John Hughes, an analysts at Desjardins Securities.

Earlier, on a conference call to discuss the company's year-end financial results, Teck's general counsel Leonard Manuel said that if an appeal successfully stays one of the key permits, access to the new orebody -- called Aqqaluk -- could be delayed by as much as 18 months.

"If we're unable to pre-strip and access Aqqaluk, then the operation could shut down as early as October this year," Manuel said.

Red Dog produces more than half a million tonnes of zinc concentrate a year, and also feeds Teck's smelter in Trail, British Columbia.

Hughes said approval of the Red Dog expansion is key for Teck to achieve its goal of having its debt upgraded by ratings agencies, which would set it back on course to restarting its dividend and considering acquisitions.


Major rating agencies downgraded Teck's debt following its takeover of Fording in 2008, which was financed with $9.8 billion worth of bridge and term debt just before resource prices crashed.

The company became a top producer of hard coking coal with the acquisition. It also mines copper and zinc, and has a minority stake in the Fort Hills oil sands project.

Teck spent the past year selling non-core assets -- as well as a minority stake to state-owned China Investment -- and should soon have its ratio of net debt to debt-plus-equity down to 25 percent, a level at which it expects ratings agencies will consider restoring investment grade status.

That would open the door to restoring the dividend, which was canceled early last year.

On the call, Lindsay acknowledged his desire to restore the payout, but said the company's focus was on paying down the remaining term debt.

"That's the kind of thing that's a board decision. It's not something that I think people should be building into any models," he said of the dividend.

Teck expects the remaining term debt will total just over C$1 billion by the end of the month, which is less than the company's current cash position.

Regarding potential acquisitions, Lindsay said Teck should enjoy strong growth in its core coal and copper businesses through its current assets, including a tripling of its copper production over the long term, meaning there's little need for takeovers over the next while.

He said it makes sense for Teck to one day be involved in iron ore production, but said current high iron ore prices makes potential targets too expensive.

The company's shares have quintupled in the past 12 months, but are down 16 percent from early January, due in part to the concerns about Red Dog. They were up C$1.46, or 4.2 percent, at C$35.96 on Tuesday.

Teck earned C$411 million, or 70 Canadian cents a share, in the fourth quarter ended Dec. 31, rebounding from a year-earlier loss.



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