DBRS Comments on Teck Resources Red Dog Mine Permitting Issues

DBRS notes that Teck Resources Limited (Teck or the Company, Issuer Rating of BB (high)) has today announced that an appeal has been filed by several environmental and native tribal groups against the U.S. Environmental Protection Agency’s (EPA) renewal of the water discharge permit issued to Teck Alaska’s Red Dog Mine. The appeal has the potential to affect Teck’s ability to access and begin mining the Aqqaluk deposit, which is next in the sequence of deposits to be mined at Red Dog. Teck has indicated that if permit delays extend beyond May 2010, its transition plan to begin mining at Aqqaluk will be affected and production at Red Dog would likely be curtailed in October 2010. The Company would in that case not expect to resume transition activities until the appeal is resolved and the mine restarted, which could take up to 18 months to achieve. Red Dog contributed $402 million, or 12%, to Teck’s operating profit before depreciation in 2009 and was the major source of concentrates for the Company’s Trail refining facilities, whose metal refining operations generated an additional $82 million in operating profit for Teck. The filing of the appeal begins a regulatory sub-process that may or may not lead to a production interruption at Red Dog. DBRS would view any lengthy halt of production at Red Dog as a serious, negative event; however, with the uncertainty of how the process may evolve and with a strong year expected for the Company’s core metallurgical coal business, no rating action is contemplated at this stage.

Teck has indicated that the EPA is expected to issue a notice clarifying which provisions of the permit are subject to the appeal and will consequently be stayed within 30 days of its filing. The unstayed provisions would then come into effect 30 days after the notice. Until the EPA notice is issued, the entire new permit will remain stayed. Also, until the EPA issues the notice, Teck is not able to indicate whether and to what extent access to Aqqaluk will be affected by the appeal; hence the Company is unable to quantify the ultimate impact on Red Dog production.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Mining, which can be found on our website under Methodologies.

This is a Corporate rating.