Teck Resources Ltd. TCK-N +3.55%increase has cut its production forecast yet again at its QB2 mine as it continues to grapple with engineering problems at the high-altitude operation in Chile.
Vancouver-based Teck announced the latest QB2 guidance cut as it tries to convince its investors to vote for the takeover of the company by Anglo-American PLC NGLOY +3.45%increase.
Teck on Wednesday said that it is reducing its guidance to roughly 180,000 tonnes of copper from about 220,000 tonnes. The company had already cut its QB2 guidance in July and January.
QB2 has been a problem asset for Teck for years. The US$8.7-billion project went 85 per cent over budget. After going into production in 2023, the ramp up didn’t go well either, with grade shortfalls, unscheduled maintenance shutdowns, and persistent technical issues.
This year, slow water drainage in the tailings dam has repeatedly dragged down production. Teck on Wednesday said it will spend an additional $420-million on the tailings dam in 2026, as it tries to achieve steady state production at the mine.
Jefferies analyst Christopher LaFemina said in a note on Wednesday that the updated QB2 guidance was worse than expected and that makes it less likely that Anglo will need to increase its offer for Teck.
“This makes the Anglo-Teck merger more likely to close without Anglo needing to bump,” he said.
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London-based Anglo in September said it intended to pay no premium to buy Teck, in an all-stock deal worth about $20-billion.
Doubt exists in some quarters about whether Teck shareholders will approve the deal in a vote that is likely to happen in December, given the lack of a premium and questions over the timing of the transaction.
“While the industrial logic of an Anglo-Teck combination is sound and the significant expected corporate/operational synergies are compelling, we continue to believe that the proposed transaction under the current terms appears unlikely to succeed,” Orest Wowkodaw, analyst with Scotia Capital, said in a note to clients on Wednesday. “As securing the minimum required Teck class B shareholder approval of 66 2/3 is likely to prove challenging.”
About a week before the Anglo deal was announced, Teck launched a major overhaul at QB2 and cut ties with its chief operating officer, the second COO to leave the company amid problems at the mine.
Still, despite years of problems, some analysts believe the problems at QB2 will get ironed out over time.
“QB2 appears bent but not broken,” Mr. Wowkodaw said in his note.
“Although the near-term guidance revisions are slightly weaker than we anticipated, our biggest takeaway is that QB2 does not appear to be a structurally broken asset,” he added.
Anglo chief executive Duncan Wanblad told The Globe and Mail last month he was confident the company would be able to fix any outstanding technical issues at QB2. He said that Anglo had overcome similar problems at one of its mines in the past.
Teck owns 60 per cent of QB2 and is the operator. Japan’s Sumitomo Metal Mining Co. Ltd. and Sumitomo Corp. hold a 30-per-cent stake, and Chile’s National Copper Corporation owns 10 per cent.
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