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Teck takes $910M hit on Alberta oilsands mine, warns $1.13B more to come

A handful of raw tar sand north of Fort McMurray, Alberta, Canada. the centre of the tar sands industry. The tar sands is the world's largest industrial project and the most environmentally destructive. GETTY

Teck Resources (TECK-B.TO)(TECK) announced a major markdown on its stake in an Alberta oilsands mine, citing “lower market expectations for future oil prices.” Chief executive officer Don Lindsay said a spin-off or sale could be on the table in the future.

The $910-million non-cash, after-tax impairment on the Vancouver-based miner’s stake in the Fort Hills mine announced on Friday comes as the company awaits a decision from Ottawa on the fate of another oilsands project. 

The Liberal government’s decision on the company's Frontier project is expected by the end of the month. Frontier has become a political flashpoint, pitting Ottawa’s commitment to reduce carbon emissions against the need to support Alberta’s long-suffering resource economy. 

Teck estimates Frontier will have an output of 260,000 barrels per day. The project could generate up to 7,000 jobs during construction, as well as tens of billions of dollars in provincial and federal tax revenue.

The company warned on Friday it would face a $1.13 billion impairment charge if the government rejects its plan.

Teck has not determined if the $20 billion Frontier project is viable, given current commodity prices and the lack of take-away capacity in Canada’s oil patch. 

Speaking on a conference call with analysts following the release of the company’s fourth-quarter financial results on Friday, Lindsay offered no prediction regarding the project’s approval.

“As I’ve said before, it’s anyone’s guess,” he said. 

The $910 million impairment charge on Fort Hills weighed on the company results for the quarter ended Dec. 31. Teck reported a loss of $891 million, compared to a profit of $433 million a year earlier. The company’s stock has fallen more than 40 per cent over the past year. 

Teck owns a 21.3 per cent stake in Fort Hills, which is located approximately 90 kilometres from Fort McMurray. Suncor Energy (SU.TO)(SU) and Total Canada (TOT) own 54.1 and 24.6 per cent, respectively.  

“To achieve the kind of results that [Fort Hills] was built for we have to wait for the pipelines to be completed,” Lindsay said.

“At that time, which is a couple of years off, that if we’re not getting paid in the Teck Resources share price for that asset... we would look at doing something to release that value, whether it’s a spin-out or sale or some sort of transaction to make sure that the shareholders achieve some value.”