DBRS Comments on Strike Call at Teck Resources Elkview Mine

DBRS notes that Teck Resources Limited (Teck or the Company), with an Issuer Rating of BBB (low) and a Positive trend, has announced that members of United Steelworkers Local 9346 have commenced strike action at its 95%-owned Elkview metallurgical coal operations in southeast British Columbia. The contract with workers expired October 31, 2010. Elkview produces about six million tonnes of coal per year (about 25% of Teck’s annual coal production). DBRS views the strike as an unfortunate event in a period of worldwide short supplies of metallurgical coal and robust coal prices. Nonetheless, Teck has made great strides in restoring its liquidity and balance sheet strength, and in an environment of strong coal, copper and zinc prices, DBRS does not expect the Elkview strike will result in a deterioration of the Company’s credit metrics; hence, we would not expect any related change in the Company’s ratings.

Metallurgical coal spot prices have been strong, soaring from about $200 per tonne to more than $300 per tonne as floods in Queensland, Australia, have led to restricted supplies in the presence of ongoing high world steel production. This has provided Teck an excellent opportunity to reap the benefits of high coal prices and strong customer demand, but problems with coal-handling rates at Westshore Terminals Limited Partnership’s Vancouver port facilities, railing issues because of weather conditions along its shipment corridor to the coast and reduced deliveries due to the need to repair damage from a 2010 dryer fire at its 80%-owned Greenhills mine have all reduced the Company’s opportunity to fully take advantage of the very strong markets. Given the shipment delays that have occurred, DBRS expects that Teck’s coal inventories should be sufficient to limit the impact of all but a lengthy work stoppage at Elkview.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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