Q1 2020 Earnings Call
Welcome to Teck resources Q1, 2020 earnings call at this time, all participants are in listen only mode.
Later, we will conduct a question and answer session. This conference call is being recorded on Tuesday April 21st 2020.
I would now like to turn the conference call over to Freezer Phillips Senior Vice President Investor Relations and strategic analysis. Please go ahead.
Hi, Thanks, very much Atlanta, good morning, everyone. Thank you for joining us for text first quarter 2020 results conference call before we begin I'd like to draw your attention to the caution regarding forward looking statements on slide two this presentation contains forward looking statements regarding our business. The slide describes the assumptions underlying.
Statements various risks and uncertainties may cause actual results to very tech does not assume the obligation to update any forward looking statement.
I would also like to point out the we use various non-GAAP measures. In this presentation you can provide explanations and reconciliations regarding these measures in the appendix with that I will turn the call over to Dawn Lindsay President and CEO.
Thank you Fraser and good morning, everyone.
Well. These certainly continue to be difficult times, not just in the mining sector, but for all of us as we navigate the evolving covert 19 challenge both personally and professionally.
Thank you we're continuing to work from home so the entire senior management team has dealt in remotely this morning.
So please bear with us in the event or any hiccups.
We last spoke during our Investor and Analyst Day Conference call on April 1st just for three weeks ago and that included a summary of Ur Cobot 19 response measures. Some initial highlights from our first quarter results and of course are QB two project update.
Today, we will focus on updates from the full results from our first quarter as well as some additional detail on Ur Cobot 19 protocols and the impact of Cowen 19 on her operations I'll begin on slide three with first quarter highlights followed by Ron Millos, Our CFO, who will provide additional color on our financial results, we will conclude with.
Kuni session. We're on a nine additional members of our senior management team would be happy to answer any questions.
Our focus is on managing the risks around covert 19, ensuring that we have the necessary measures in place to save Carter people and our local communities.
The global health situation posed by code 19 is unlike anything previously faced by companies like families and communities.
The scope and severity of this pandemic requires all of us to step up and do our part.
And we are proud to have announced last week the creation of a 20 million dollar fun to support the covert 19 response and future recovery efforts.
Nothing is more important than the health and safety of our employees, our contractors and the communities where we operate.
Well, our covert 19 response has temporarily reduced production at some of our operations.
All of our managed sites are currently operating.
There's been no material impact on sales or shipments of tech products due to kubat 19 to date, but there is a risk that sales volumes could declined significantly in Q2. Following the dramatic slowdown that we have seen in global economic activity.
It is clearly still very fluid situation with covert 19.
And the overall impact on her business will depend on the progression of the pandemic and on the success of measures in place to combat it.
And as such we have suspended adult previously issued 2020 annual guidance.
No. Despite the emergence of covert 19, there were a number of positives in the first quarter.
Steelmaking coal had a very strong finish to the quarter with sales exceeding or quarterly guidance.
Just to say cost of sales come in well below previous expectations.
Reduced finished coal inventories that are mine sites and that provides greater operational flexibility.
And the logistics supply chain performed very well in March including West shore.
We completed the L. few plant expansion in mid April. This is a very important milestone because it increases annual capacity adult few from 7 million tons to 9 million tons and this is important because it will enable us to replace higher cost production from Cardinal River, which produced 1.4 million tons in 2019 with me.
Much lower cost production from Elkview when Cardinal River closes later this year and taking into account both the cost savings and the higher average pricing for Elk few coal because it is higher quality and then assuming 150 dollar U.S. per ton of coal pricing and current exchange rates This strategic move.
You should translate to an annual increase in our EBITDA of approximately 160 million.
The initial investment was just a 135 million. So that is a rapid payback on an asset that will provide significant long term value to our business literally for decades to come.
At the same time, we continue to advance our four key priorities.
At March 31st we issued an updated capital cost estimate for QB two project with the to go capital.
Estimated at 3.9 billion U.S. before considering any impacts of the current suspension as a result, as a code 19 situation.
This estimate is based on an average exchange rate over the remainder of the build of 775 Chilean pesos per us dollar.
At the current exchange rate of around 850, Chilean pesos to the dollar capital expenditure would be $240 million U.S. lower than that 5.2 billion.
We are consolidating the improvements that we implemented in 2019 under our reached 21 initiative, which is now focused on transforming the company for the future. We continue to advance the strategically important Neptune terminal upgrades, which will securing long term low cost and reliable supply chain solution for steelmaking coal Bill.
This unit.
Preparations are underway for the suspension of terminal operations for five months was starting on May 1st you will recall that we made a decision to proceed with the extended shutdown at Neptune in order to match port capacity with reduced production and to improve productivity and safety as we advance construction.
We have increased our target for total reductions under our cost reduction program.
A billion dollars from previously planned spending through the end of 2020.
And we've achieved 375 million in capital operating cost reductions to date starting to program in the fourth quarter of 29 team.
And importantly, we have maintained a strong financial position with current liquidity of $5.8 billion.
Turning to our financial results on slide four.
In the first quarter revenues were 2.4 billion and gross profit before depreciation and amortization was 776 million.
Profitability was impacted by the significant negative effect.
I would 19 or commodity prices.
Our adjusted EBITDA up also reflects a noncash pretax impairment charge of 647 million related to our interest in Fort Hills.
Bottom line adjusted profit attributable to shareholders was 94 million or 17 cents per share on both a basic Andy fully diluted basis.
Details of the quarter's earnings adjustments are on slide five.
With effect from January 1st 2020, we have made changes how we present adjusted profit attributable to shareholders and adjusted EBITDA.
Going forward. We will include additional items that we have not previously included in or adjustments comparative figures have been restated in this is really based on feedback that we've had directly from our shareholders.
We now include adjustments for environmental costs, including changes related to decommissioning restoration costs for close to operations.
Also share based compensation costs inventory write downs in reversals and commodity derivatives.
And we believe that these changes are adjusted profit attributable with these changes are adjusted profit attributable to shareholders and adjusted EBITDA will better reflect the results of our core operating activities and will help readers to understand the ongoing cash generating performance of our business and bring it's more in line with practice at our peer group.
In the first quarter. The most significant adjustment was the noncash impairment charge related to our interest in Fort Hills.
Which.
Was 474 million this time on an after tax basis.
There were also 22 million of Cobot 19 expenses in the first quarter on an after tax basis and run will speak to this in greater detail shortly.
Environmental cost and share based compensation reduced or adjusted profit attributable to shareholders by 87 million and 22 million respectively. And this was partially offset by 27 million in inventory write downs and 15 million in commodity derivatives. So.
So with these and other minor adjustments bottom line adjusted profit was 94 million or 17 cents per share again on both a basic and fully diluted basis.
Please note that we continue to not adjust for settlement pricing adjustments, which were negative 64 million or negative 12 cents per share in the first quarter on an after tax basis and again that is based on feedback from from analysts and shareholders.
Turning to our response to covert 19 on slide six.
As I've said many times nothing is more important than the health and the safety of our employees contractors and to communities, where we operate and so we have put in place comprehensive preventative measures at every one of our sites.
And these measures include reducing onsite crew sizes.
Enhanced cleaning and disinfecting protocols.
Eliminating group meetings and promoting physical distancing.
And also requiring anyone with symptoms not to come to work and promoting preventative measures like frequent handwashing. We also being diligent in ensuring those preventative measures are being followed and we are working closely in collaboration with employee unions, such as the United Steelworkers.
In the last three weeks alone. This is very important or health and safety teams have conducted over 5000 individual audits to ensure that covered 19 protocols are being implemented and if they are effective.
And earlier this month the regional Health authority conducted an audit of Cobot 19 prevention measures at our steelmaking coal operations, which confirmed that we and I quote.
We have strong protocols in place with regards to covert 19.
This growth.
As I mentioned earlier, we've also created a 20 million dollar fund to provide direct support to critical services in areas, where we operate in the this includes procuring and donating essential medical supplies such as the million Cadninety five masks.
Support local health and social services affected by covert 19 and contributing to relief efforts.
I will now run through highlights by business unit, starting with steelmaking coal on slide seven.
As I mentioned at the start steelmaking coal had a strong finish to the quarter with sales of 5.7 million tons, which exceeded our previously issued guidance.
Also adjusted site cost of sales coming in well below previous the expectations at $63 per ton.
And finished coal inventories have been reduced to their mine site.
Dancing operational flexibility I can tell you we're very pleased with that.
And then the logistics supply chains performed very well in March.
We also completed the few plant expansion to 9 million tons capacity in mid April. This again is a very important milestone.
We commenced a temporary slowdown over steelmaking coal operations on March 25th which lasted approximately two weeks.
We had reduced our crews by up to 50% of regular levels in the period resistant, which reduced production to between 80 and 85% of normal levels, but.
Because we now have greater confidence were further up the learning curve and dealing with covert 19.
Beginning a week ago operating crews were returned to 75% of normal levels. So thats a step in the right direction.
We are currently at stable levels of production across all operations and subject to market demand.
We are planning to increase production further in Q4 of 2020, when the Neptune extended outage at our annual major planned outages are scheduled to be completed.
In terms of sales our second quarter sales volumes could decrease significantly from first quarter 2020 levels. As cobot 19 is expected to continue to impact global economic activity and steelmaking coal demand and supply.
We are starting to receive notifications from customers that they may delay purchases.
In response to reduced demand for their steel products has their own customers are reducing versus spending production of their products.
Turning to our copper business unit or Q1 results as summarized on slide eight.
Copper production of 70600 tons in the quarter was similar to a year ago.
Higher production at Carmen de Andacollo, and hundred Valley, copper offset decreases and to me and cube.
Net cash unit costs after the cash margin for by products.
Have $1.27 U.S. per pound were 28 cents lower than the same period, a year ago, reflecting our CRP our cost reduction program and also favorable exchange rates.
As you know, we announced a temporary suspension of construction activities that are QB two project to March 18th that impacts the total of approximately 15000 workers.
Mobilization was essentially complete by March 20, Threerd. So.
Pretty good execution on that and while this was initially planned for a two week period project construction activities still remain on old today.
We continue to reassess the status of the suspension in light of the rapidly evolving cobot 19 situation.
Priorities continue to be safety of our workforce and supporting Chilean efforts to limit transmission of covert 19, we cannot predict when the temporary suspension of the project will be lifted.
For construction activities are restarted in the second quarter. The soonest, we would expect first production would be mid 2022.
Similar to the actions we took at our steelmaking coal operations, we commenced a temporary slowdown of operations at Highland Valley copper on March 20, Fiveth, which lasted approximately two weeks.
We initially reduced or on say crews by up to 50% of regular levels in that period, and we reduce production to approximately 85% at normal levels.
Beginning a week ago again, because we're further up the learning curve and people have more confidence in our operating practices and protocols operating crews were returned to 75% of normal levels and opportunities are being evaluated to increase production backup to normal operating levels, while maintaining social distance measures.
And to Mena temporarily suspended operations in April 13th to support proving Cobot 19 response efforts and to facilitate a change in workforce.
And to Mena has implemented protocols to ensure the health and safety of all workers and it is coordinating its response with public health authorities.
Safety Beaumont demobilization of the workforce has been completed including implemented covert 19 testing of employees and contractors.
And to Mena is working towards a restart.
Timing on resuming operation.
Operations is uncertain at this time.
At our Chilean operations Carmen de Andacollo, Leo and provide a blanka, we continue to operate at normal production levels with reduced workforce levels on site.
Our zinc business unit's results are summarized on slide nine.
And as a reminder, and to means zinc related financial results are reported in our copper business unit.
Red dog sales the zinc zinc in concentrate of 134000 tons were within our quarterly guidance range.
Red Doug zinc production increased compared to year ago, primarily due to substantially higher mill throughput.
Which was offset by lower grades and recoveries.
Which offset lower grades and recoveries.
In the first quarter last year mill operations were negatively affected by a 20 day shutdown due to the effects of severe winter weather.
At trail operations production of refined zinc was higher than in the first quarter last year, we recorded an inventory write down of $19 million related to trail operations in the quarter.
Looking forward.
The unique fly in fly as circumstances at Red Dog operations in northwest, Alaska has necessitated significant travel restrictions and modified schedules to maintain safe operations, but to date normal production levels have been maintained.
Sales of Red dog zinc concentrate our normally lower in the second quarter than the first quarter ahead of the started a new shipping season. This year, our second quarter sales could decrease significantly compared to Q2 2019 as covert 19 is expected to continue to impact global economic.
Activity and zinc demand and supply.
At our trail operations, we have maintained production levels, while reducing the workforce onsite on weekdays by over 40%.
Resulting from restrict restructured shift schedules and people working from home.
Sales volumes of refined zinc from trail could decrease significantly again from Q1 2020.
Due to covert 19.
Our energy business unit results are summarized on slide 10, and as you are aware global crude markets.
Our in a period of unprecedented volatility.
Now this script was written a few days before yesterday, but.
Course is an understatement.
Prices declined dramatically in the first quarter as a result of the unparalleled collapse and demand following the measures taken to come back over 19 across all major economies and exacerbated by an increase in supply from both Saudi Arabia in Russia.
Our realized prices and operating results were hit hard by the drop in oil prices.
The gross loss before depreciation and amortization from an energy business was $90 million in the first quarter and included in the loss was an inventory write down $23 million.
In addition, we recorded a noncash pretax impairment charge of 647 million in the quarter related to Fort Hills.
Looking forward Fort Hills is temporarily operating as a single training facility in light of Cobot 19, and in light of depressed Western Canada select prices as previously announced.
And this should significantly reduce variable operating costs and mitigate losses.
Assuming Fort Hills is operated as a single training facility through the balance of 2020, we expect our share of Fort Hills production will be eight to 9 million barrels of bitumen and our unit operating costs will be between $37 can eating in $40 per barrel for the full year.
The Fort Hills partners continue to monitor market conditions and May adjust the operating plan for Fort Hills Accordingly.
For the full year, we have reduced or planned 2020 capital spending in our energy business unit now down to 85 million from previously $175 million.
And with that I will pass over to Ron Mills for some comments on our financial results.
Over to you.
Great. Thanks, Don I'll start by addressing the changes in our cash position during the first quarter on slide 12, we generated 279 million in cash flow from operations.
Change in debt was $220 million.
Received $61 million and proceeds from investments and other assets we spent 808.
Billion dollars on capital projects $172 million on our stripping activities.
We purchased approximately 16.3 million class B shares under our normal course issuer bid for 207 billion in the quarter that completes the 1 billion dollar share buybacks previously authorized by our board.
We paid $190 million interest and finance charges repaid $43 million of lease liabilities and we paid $27 billion in the regular basis.
After these and other minor items that we ended the quarter with cash and short term investments.
One other note about our quarterly financial results out on the slide but after adjusting for the Fort Hills apparel, but our overall effective tax rate on profit before taxes was 39% in the quarter.
Thats above our longer term general expectation up 35% to 37% and that's primarily due to the losses at Fort Hills, and trail, which are not subject to mining taxes. If we remain at a lower operating margin environment and continue to experience losses at Fort Hills, We would expect our effective tax rate.
Profit before taxes to remain a little bit late.
Those normalized levels.
Turning to our Cobot 19 expenditures on slide 12, we previously mentioned that we reviewing the accounting treatment. These expenditures that are incremental in nature and incurred specifically because of cold.
So no corporate 19 specific expenditures will be at charged against our capital projects as they really don't add any value to those projects.
Cobot costs related to the production of products will be expensed as incurred.
And our cost of sales rather than being charged inventories and then flowing through to our future earnings and the products are ultimately sold.
Cobot 19 expenditures not related to the production of products will be expensed as incurred in our other operating expenses and to assist readers and analyzing understanding our more normal operating results. We have duck deducted all cobot 19 related costs that were expense from our profit attributable to shareholders in our adjusted earnings.
Stable.
In the first quarter, our cobot 19 expenditures were $44 million on a pre tax basis and that included that 32 million related to the temporary suspension of construction at our QB two project.
$5 million.
Thats expenses works were included in the adjusted items and that was due to its not allowing to capitalized interest expenses, while QB two as suspension on the construction.
And in addition to that there was 7 million related to incremental cobot expenditures at throughout our various operations cobot expenditures in the second quarter will depend on the trajectory of that.
But they are expected to be higher than what we expensed in the first quarter of this year.
Slide 13 summarizes our cost reduction program as Don mentioned, we've intensified focus on our cost reduction program across the organization in the context. The cobot 19 on April Onest, we announced our targeted reductions were increased to 1 billion previously planned spending from the launch in the program into big.
Getting a Q4 2019 through to the end 2020 and to the end of March. We've received products are achieved approximately 375 million capital operating cost reduction since.
Thats the program last year.
Turning to slide 14, our financial position remains strong.
About 5.8 billion Canadian of liquidity and that includes $525 billion cash we maintain a U S 4 billion revolving credit facility of which 3.75 billion is currently available at importantly this.
Facility as committed out to the fourth quarter of 2024. It does not have any earnings or cash flow based financial covenants does not include a credit rating trigger and does not include a general material adverse effect boring condition. The only financial covenant is that net debt to capitalization ratio that cannot exceed 60 per.
And at March 31 that ratio was 20%.
We only have 500 million notes maturing in the next four years with nothing new in 2020 no significant.
Maturities prior to 20 to 35, and we haven't investment grade credit ratings from all four credit rating agencies and for our QB two projects. The funds from the QB two partnering transaction with Sumitomo metal mining Sumitomo Corporation, and the U.S. 2.5 billion limited recourse project financing facility dramatically reduce.
Since our funding requirements for the project.
During the first quarter, we drew 50 million on the USS 2.5 billion limited recourse financing facility.
Going forward project spending will be from the project financing and until it reaches a specific ratio of project financing to total shareholder funding.
Hi, Techs next contribution to the project capital are not expected until Q1 2021 that of course is subject to the impact of coal that 19 on the projected schedule and timing of capitals.
We do not expect cobot 19 impacts to prevent us from drawing on the project financing facility and overall, our financial position is in good shape to allow us to weather the challenges around cobot night.
And with that I will turn it back to dawn for his closing costs.
Well thanks Ron.
As I said at the outset. These continued to be unprecedented times that we're living in the covert 19 pandemic has had a significant negative impact on the global economy and commodity markets and the outlook remains uncertain. Our focus is on managing the risks around covert 19, ensuring that we have the necessary measures in place to safeguard our people Andrew.
Local communities.
While our cobot 19 response is temporarily reduce production at some of our operations all of our managed space are currently operating and that is acknowledging that into mean as a joint venture with BHP Glencore admits submission.
There has been no material impact on sales or shipments of tech products to decode 19, so far but there is a risk the sales volumes could declined significantly in Q2, following the dramatic slowdown that we've seen and global economic activity.
And despite the emergence of cobot 19, there were a number of positives, including a very strong finished for the quarter steelmaking coal and very importantly, the completion of the L. few plant expansion, which sets us up in really good position for decades to come.
At the same time, we continue to progress our four key priorities and those are the QB two project, which will help rebalance our portfolio reached 21, which will set us up transformed the company for the long term and improved productivity and reduce costs, Neptune, which will security long term low cost and reliable.
Supply chain solution for our steelmaking coal business and lower costs for decades to come and finally, our CRP. The company wide cost reduction program with an increased target of $1 billion.
We have a very strong financial position and we are well positioned to weather the storm in the challenges around over 19 and with that we'd be happy to answer any questions and as a reminder, we are all on phone lines from home. So please bear with us if theres a delay well, we sort out who will answer your question. So back to you operator.
Thank you.
We ask that you please limit yourself to one question and one follow up question.
Please press star one at this time, if you have a question there will be a brief possible participants register thank you for your patience.
The first question is from Auris welcome with Scotiabank. Please go ahead.
Hi, good morning.
Tom Im wondering if you could give us some more color on your comments about.
Significantly lower potential coal sales in Q2 and.
That you're seeing customers to for delivery.
Volume can you give us a sense of a how many customers.
Are you just seeing the beginning of that or or are you seeing substantial amount in the language here, obviously seems a lot different than what we heard three weeks ago.
And I'm curious how much of that might be related to the India being closed as well. Thank you.
Yes, no. That's an important question and you are correct that has changed a fair bit in the last three weeks, particularly in the last two weeks and the conversations are ongoing and turn it over to rail fully in a minute, but just to perspective on this it does feel similar to one of the quarters that we had during 2008 2009 and.
It lasted for a while will the customers.
When through the depth of.
Demand for their own products came back quite quickly.
We don't know how much volume might be deferred instant book cancellation reviews to federal to the next quarter, but.
It all kind of.
Cascaded through subsequent quarters.
And we won't know for certain exactly which ships will come when.
For for a few weeks real it'll it'll happen throughout the quarter. So Unfortunately, we can't give guidance on it I know you're looking for a better sense for the volumes involved and at this stage is very difficult to answer that but.
Well over to you for little bit more color on the discussions.
Alright, Thanks Don.
Our first we are seeing hot metal capacity cuts around two thirds of what has been announced to date.
It's concentrated in Europe. The use of MBS was you said in the eyes definitely part of this.
But also with the rapid spread of coal that 19, theres more countries that have implemented logged out.
Measures and.
As as Don said during the presentation, the global economic activity slowed.
Lower demand for number of products that.
Goes into.
Recently, we've seen announcement.
The.
Last four disclosers or reduced hot metal production in other countries, including Japan, Brazil, South Africa's wells.
So far the total hot metal Cod.
Represents somewhere around 70 to 80 million tons on an annualized basis, so that is around 15% or soul of the blast furnace capacity outside of China and Russia.
Thank you and.
How many when you see it feels like 2008 2009, when I go back and look.
It looks like in Q1 thousand nine your coal sales bottomed at 3.7 million tons.
Is that I realize you can't give guidance, but is that sort of goalpost on one end of the spectrum.
Might be realistic.
Yeah.
Yes, I'd say, yes, I mean, if possible I don't think so but.
The way you phrased it is goalpost that one of the spectrum, yes, those kind of things are possible and it doesn't mean that those sales are lost forever they tend to come back but.
In terms of the timing of deliveries that kind of stuff can happen.
Great. Thanks, so much.
Thank you.
Next question is from Carlos de Alba with Morgan Stanley. Please go ahead.
Thank you good morning. So a question I mean, maybe don't can you give us some qualitative comments on the cost performance that you expect you to you. This caused the impact on sales volumes, both inside and call in the press release.
So plus so presumably you would call salute come down.
How do you see that part of the equation.
With that as volumes by day, but don't fix calls.
As I said, the offset by progressing.
And rates to anyone progress.
Yes. So there are different parts to that question. So what I'm going to suggest is our our robin share Meadow why don't you start with costs and coal and then Dale you follow up.
On the copper and zinc revenue producers.
Sure. It's I guess in one sense, we're fortunate that we spent the last.
To your structurally changing the coal business units with as a number of things that will play out through 2020.
Im not the least the which has the declining strip ratio. So if you remember back 2019, we were operating around 11.4 to one will be lower this year around 10, seven and as we go into 2021, we're going to be around 10 to one. So we're we're setting the business unit up to how an improved.
Cost structure around the strip ratio itself.
Don mentioned closure of Cardinal River were actually closing out early so it's going to be shut down around the end of June we've got the 9 million completed LP. So you've got a structural change around the operating costs within the business unit as wallets kicking in.
And then with raised 21, you'd mentioned that as well that strategy. It will be focused on some of them shortages.
Term highest value projects, which will likely be focused.
On the plant operation so.
We'll see pretty good payback on that and then just around CRP.
This is what we're good at in coal mining, we go through ups and downs and demonstrated in the past we get into a little so I think a like this we're able to cut spending and.
That was reflected in large part in Q1, when we saw the spending or the cost actually quite a bit more than we anticipated or signaled earlier in the year. So we're we're pretty well set up to take this line right now.
And Dale said they'll take a couple of quick comments on on copper and zinc I think the question.
Specific to zinc.
Just want to remind.
That our quarterly.
<unk> costs do depend on our led sales.
And typically that are those are stronger as the year progress and start in Q2.
Particularly strong stronger in Q3 in Q4, but we have suspended guidance as we talked about previously.
But CRP and raised 21 are also being driven through out the copper and zinc operations and I was quite pleased with both.
Copper and zinc so the cost performance in Q1, we're going to continue to drive as we go forward.
Great. Thank and just a follow up though you said that he had a question on the investments QB two financing has there been any operations to the schedule that was presented earlier.
For the remaining.
$3.9 billion that.
Great and need to spend.
So I just want to be clear on the question any changes to the schedule on our project finance is that what you're referring to.
Right exactly that these bosman of goes that disbursement, Ron Mills for Scott Wilson over to you.
Scott you want.
Sure Scott Wilson.
The spending profile on QB, two will be somewhat impacted by the construction suspension.
We updated the project finance lenders on this a couple of weeks ago land over the balance of 2020, we think that.
There will be something like $200 million less drawn on the project finance facility than than than than pre suspension.
So that reflects a procurement activities continuing and.
Payments for commitments that have already been made.
But other than that we will continue to.
Utilize the project finance facility as intended.
All right. Thank you very much luck.
And I just want to go back to Aurs question earlier, and while we talked about the tonnage sales in Q1 and 2009 the equivalent quarter if you like.
Two upcoming Q2 and that number is possible the most important.
Number to watch is really the hot metal production that rail fully talked about.
And that at this stage is down about 15%.
Side of China, China of course is back basically to 100% steel production than we do sell to join as well, though not as much as we do use too.
We could choose to sell more there. So I think those are the more important driving factors in trying to.
Make an educated guess on what will happen in Q2.
And one thing maybe I could add also Don is.
We also need to look on the supply side for steelmaking coal.
So currently the supply disruption reduction more closures that I've been announced.
Add up to somewhere around 38 to 40 million tonne. So.
That is again outside of China, If you factor in China, the Mongolia and exports into China are down 5 million tons year to date mileage.
And the domestic China production coking coal is also down.
Hi million tons year to date.
Thank you.
Thank you.
Next question from Curt Woodworth with credit Suisse. Please go ahead.
Hi, good Warner.
Question on the the coal side I Wonder if you could comment a little bit about.
Sort of tactically, how you're managing the volume flow. So my understanding is that you don't have a lot of spot market.
Sales is there an opportunity to try to divert some of your traditional contract customer base and the China.
Or other avenues, and then can you give us a sense.
Kind of what your year on year shipment rates look like today are kind of what April was that.
Okay rail over to you.
All right so.
Of course, we are.
Mark.
As you can imagine.
Good to a global economic activity slowing.
He is less demand.
On the spot market.
Well now we continue to talk to customers, we have customers in all markets, including China.
The eastern Europe Western Europe.
Pretty much in all areas of the world The Americas also.
So it is it is a challenging time it is difficult to.
Right now.
Specifically with.
That too.
To Q2, when we look at volume.
And April is looking pretty good.
But.
As we tied to some notification from customers.
We could see the impact.
Laid them all into quarter, maybe it may or June but it is too early to say.
As when when you look at how.
The shipping World works for coal.
The nominations for vessels.
Somewhere around two weeks or so prior to vessel loading so it is uncertain and little bit on Q right now.
Okay. Thank you.
Thank you.
The next question from Gordon Lawson with paradigm capital. Please go ahead.
Hi, Thanks for taking my question.
Could you talk about the timing expected for the remaining permits for the water treatment facilities Fording River.
And what work remains for our views phase two Srs.
Robin share met over to you.
Now just I'm just op ask you to repeat the first one just on the L. QSR route that project tool. It's under construction now and will be completed by the fourth quarter of 2020, but I didn't quite understand.
A question.
You talk about.
Theres remaining permits for the treatment facilities at Fording River is there any guidance you can provide with respect to timing.
On the while the permits or.
There are just go through stages. So there's the construction permitted then there was an operating permit so the timing on those are really just staged around the progression of the project itself. So.
[music].
Presumably the timing on the actual operation permits will occur in 2021. So we're just working through construction now.
Okay and as a follow up by the strip ratio was quite high this quarter.
When can we expect us to come down to the the 10 times range.
Yes, well through 2020 current my plan has us around 10.7, so that'd be the average across the year. So you saw higher strip ratio in the first quarter simply because of the.
The logistics challenges, we had through January February and so our production levels were quite a bit lower than what we had anticipated so.
That affected strip ratio in the short term and that will balance out over the next few quarters. So you think about it in a sense. We got ahead of stripping in the first quarter and Thats moved out for the rest of the year, but you can expect the average for the year to be around that 10.7 range and then.
Following not as we.
This as we progress into 2021, the strip ratio does drop down to around 10 to one on outage.
And grown tend that 10.7 compares to is 11.4 last year.
It was 11.4 in 2019 you about.
Okay excellent. Thank you very much.
Thank you.
First question is from Jackie landscape with BMO capital markets. Please go ahead.
Thanks, very much I, just wanted to dig into a little bit the common so you've got in your and DNA on.
Ill collie water quality, so maybe following up a little bit on Gordon's question.
You've got a note in the DNA about.
Fish population.
To the kind of trial being affected.
And maybe a little bit miscarry sentence at the end, which says that you may face delays in permitting or restrictions on mining activities can you give us a little bit more color in terms of like what.
What kind of studies are required to determine the causes that this population decline and what what actually the risks would be to your.
Your operations like what would we need to see I guess in terms of this study results for.
So the impact.
Okay Robin why don't you start and then you can throw it to whoever like for the balance.
Sure.
As far as the causation study that there is a considerable amount of work that has to be down in that area. So it's it's not a simple process to land on a clause.
And because we haven't got a sense of what the outcome of that's going to be it be pretty tough to speculate on.
From what how would respond to it so that work continues there is an incredibly.
Competent team that is working through that and by the middle of the year probably closer in the second how we should have some outcome on on those results I.
I wouldn't want to speculate on what how that impacts how that's going impact the operations.
So if I could just ask a follow up.
On that.
If we determine that.
Pathetically, let's say some activity.
Or or the seaside treat a rock phil treatment or something like that once contributing to this issue.
That be.
Caused the government too.
To require you to slow mining dollars slow process.
I think all that's just speculation.
To be honest and so we have an actual cost.
Some some combination of causes.
No real way of knowing what the.
What the response would be.
Mhm.
Just one other question on.
You mean.
Previous really see you put out.
I think basically said you can shift change.
Sanitizing, all the work services numbers.
Back this this.
They couldn't today is a little bit more take on timing has there been any change in terms of E activities that are required for miners to return to work are you are you now is for Luton with.
With the state of emergency legislation in the country or are you still able to return to work as soon as soon genotypes and increase are ready to go.
Deal Andrus overview.
Yes. Thanks, Jackie It is a we basically said it's uncertain at this time, because it is going to take a little bit longer.
It is take did take a little bit longer to de mobilize the crews there still is the state of emergency in effect and that does.
The transportation of.
Workers between regions.
We have no demobilized all accrues, except for a little color to care and maintenance crew or core essential services crew and we currently have about four to 500 people on site. So we moved about 2000 people off a after initially living 4000 people before.
I will state agency.
So we're working through the details of.
How regional movement, it's crews were still cleaning that facilities.
And.
We do expect it to take a little bit longer, but but the exact timing is uncertain.
Thanks very much.
Thank you.
The next question from Timna Tanners with Bank of America. Please go ahead.
Great. Thank you.
All right unhealthy just wanted to ask a little bit more I know you ended guidance and we've been talking about some specific projects, but you can talk a little bit on a high level on capex on what.
Amount kept percent if you will could be flexible or can be we assessed if conditions continue to remain depressed and along those same lines. If you could provide some more color about what you in your partners at Fort Hills are discussing in terms of when and how to make a decision on any further cuts.
Okay.
On Capex and I turn it over to run mills submit in a minute, but really the reductions in Capex are included in our CRP targets and because they are both capex and opex and so we're going through business by business I meet with leaders of each division and we go through what the trade offs are in sustaining.
Capital or actual.
Enhancement projects, whether they can be stopped deferred.
Reduced and then the total reductions will show up in that CRP number and run those has mentioned that well just talk to the Fort Hills question. First then turn it to run on Fort Hills, we are having an ongoing dialogue with the partners Suncor. The operator course in total and looking at different options. There are a lot of.
Factors to considers it's a complicated decision and the starting point as you have to take a view on what you think oil prices and WCS prices are likely to be in and win.
Because if you're looking at them.
Reducing production for.
And then you have to look at.
Winterization costs that would be quite substantial if you. If you were all the way into sort of.
The November December period, so if you're going to do that youd want to make sure that you were going to be shut down for a long enough period to justify that versus.
Sustaining operating losses on fewer barrels operating so those are the tradeoffs and if you think that the oil prices coming back.
Year to from now than than you clearly wouldn't do that because there's lots of risk associated with as well.
So.
Suncor is.
Going through the different iterations and studies and we'll be looking at that with him I think towards the end of this month and you'll hear more in due course.
But.
It is a very complex decision for sure run back to you on CRP and Capex.
I sure Don the.
1 billion target about two thirds of that is capex reductions and that's that's spread amongst the various sites.
Just that the total program itself the Oh the billion dollars about 80 per little over 80% of it is at the operating sites being coal base metals.
And the balances split amongst our T systems satellite projects corporate costs and exploration and other project expenditures.
That gives a sense.
Where the cost reductions are currently coming from.
Thats the pool based on the full target.
Okay, great and just to complete the top end can you remind us on TV to that decision is made because I've covered 19 is my understanding but is there any decision that you would make with regard to that copper price on any of your projects given the depressed level.
How do you think about that and with the buybacks. It sounds like I just want to confirm it sounds like that was completing an authorization and you don't have anything set up thanks.
On the first question that Theres no change in our outlook and long term for copper price impact.
If anything code 19 is probably made that more positive I think most people know about the antimicrobial properties of copper and to covert 19 virus dies within four hours on a copper surface, but at least for days in days on on stainless steel or or.
Other services, so we would hope that in the long term that.
Various public transit infrastructure and healthcare hospital facilities would be using more comfort. So no change in that at all and yes, we completed the authorized buyback in the board would review that again.
As we go through and have a better understanding of when QB. Two has started and how covert 19 as shaken out, but we clearly believe that.
That is good value at these levels is very good value and we do want to make sure Timna that you and everybody BAML did see the few plant was was completed in that's very important.
Investments some could even say a milestone or catalyst related to our coal business for the long term.
Thank you.
Lana.
Sorry, just robbins going to jump back in here.
Okay I appreciate that I.
Hi, just wanted to come back to a question that Jackie had and I might've missed understood that question in particular part of the idea that was being referred to but that call fire. That's in a mdna a bumpy ultimately permitting it's not specific to the missing truck.
Generally we need to show progress in managing water quality issues in order to keep permitting archrock, we're doing that working closely with regulators.
This is a really complex problem with numerous stakeholders and there's always a chance at something unexpected comes up about but we're making progress and that's really what.
That statement was meant to highlight.
Thank you and the next question from Chris carried with Deutsche Bank. Please go ahead.
Okay.
Oh, I don't think long.
First question for me just in terms of the oil FX declawing should be benefiting your operations and they provided sensitivities in the past. It just wondered if you could go through those and then the follow on to that I think you talked about it on the coal thought of IPO around the Investor day that you would you wouldn't have.
Page anything related to keep it too, but I just wondered if you could just talk about any hedging policy is not on the revenue saw but on the call thought but FX so oil for the for the broader business. Thanks.
Non UAN.
Sorry, I was on mute oncologists run if you could.
Take the first question on FX, but I'll start by addressing the overall hedging question.
And so our hedging policy broadly speaking as we don't hedge the this specific commodities that we produce because we know our shareholders are buying us for exposure to those commodities.
Historically, when we used to have annual benchmark pricing and coal in the quarterly benchmarking, we hedged to Canadian dollar that currency, we locked in or cost because once we don't we locked in.
The tonnage and the sales price, but since so much more business is done spot that we don't today more.
For sources of supply and places like Red dog, when we're buying diesel we can hedge that we also do smoothed out the zinc price received at Red dog, because there's so much seasonality to it shipping, but it ends up net sort of average the price for the year.
But we don't end up in a position where were.
Long or short commodity or the exchange rate.
Because we don't want to build that risk into our business for shareholders.
Ron and on sensitivities FX over to you.
You might be on mute as well run.
Sorry here I am my apologies.
Sorry, if I heard the question profit I thought it was related to the asset impairment and the details on the sensitivities are provided for two.
Actual state but.
You asked one cents strengthening in the Canadian dollar would affect the fab.
Yeah impairment by about $50 million and at a one dollar change in the WCS price would be about $147 million.
Thanks, a lot more asking about the operation. So I just how it actually translates through on a real clung buys the song on falling effects and somebody that some of your somebody operations right. Now. Thank you everyone just remain sensitivity chart.
Yeah. So the main sensitivity chart, we obviously with Andrew that because the sensitivities are based on.
Our estimate subodh production volumes and.
We.
You know.
Pulling back the guidance, it's it's a little concerned that providing any sort of sensitivity information could be a.
Results and numbers that are not correct and that the the sensitivities of into slogans and at our annual report.
Don't have the number handy my recollection was it's around $60 million.
For every penny and that was based on the guidance that we previously game withdrawn so.
I would be I would caution people to be very very careful on using those sensitivities now.
They are impacted by volumes are impacted by prices.
That's it.
Probably no longer accurate.
Okay. Okay. Thanks, and then the follow on from a just you talked a bit about the water treatment Oh on call and given some color on that so the good jackie's question earlier, but there's also comment on Red dog in the relates around piling send water related projects in 2000.
20, I just wanted if you could give some more details on that in any capex associated with that thank you.
Deal I guess.
Yeah, I'll take that dawn.
Yet.
We have over the last couple of years experience a higher than normal a water.
Precipitation in water inflow and so we're just flagging that in 2020, there's a higher than normal amount of projects associated with water and tailings to manage that situation.
To set ourselves up well for the longer term.
As far as the specifics I think we did have.
Originally capital guidance in or Q4 release sleep smell withdrawn that guidance due to cold it but.
Those are the kind of projects I think there's a question earlier about what's our.
Potential to reduce sustaining capital going forward. That's one area that we will not be able to reduce and it will be higher than normal for 2020.
[noise] Atlanta.
I think we've come to the end of our time, we should handed back here to dawn for his closing remarks. Thanks.
Okay, well, thank you Fraser and thank you all for joining us today I just wanted to sort of give.
An overview of summary, if you like that and how we see things. If you look back at the last six or seven weeks I sort of think of that is the operational phase of dealing with the effects of cobot 19, where all of us.
Both in our work in personal lives.
I've had to go up a learning curve and figure out a but protocols need to be in place and how to deal with it physical distancing in the rest, but I'm encouraged because we've got to that operational phase and we are well up the learning curve now and we're able to operate at close to capacity levels. We now have taken a step to go from.
50% of our employees onsite back up to 75% with the full support to the until health authority and we see a lot more confidence among employees and their families communities. The members of the town's the president of the steel workers Union and a lot of support people working very hard to get through this and they had been successful. So now we have comp.
Since that we are able to operate in leaving logistics chain has been performing extremely well too. So now we're going to the next phase and that's where.
The market is going to be.
Reduced to someone as all the things that will it had to do in the global economy.
Cold but.
We look at the length of that we know it's one quarter, it's probably too but is it three or four I don't think so it doesn't look like it because we see the results in China, where industrial production base is back up to 98, and a 5% Theres two industries at 100%, we see we're creating weve piece countries all over the will of getting your arms around this issue.
And we'll we'll fix itself it always does so at some point.
There is the other side of the valley, which we trying to think looks pretty green and less when you figure that eight trillion dollars of stimulus monetary and fiscal has been announced around the world. So yes, we have caution to boto sales volumes in Q2, and and I think that should be expected, but noise makes who think that the long term prospects for that.
Business have changed has changed radically and in fact, we think become back.
Could be could it be pretty interesting.
Once we get through this next quarter too so I do want to thank all of my team that has performed at an extraordinary level. These last six or seven weeks as we dealt with challenging challenge. After challenge. We will have other cases of code 19, Theres No question about Theres inevitability to that but we know how to deal with that and we will.
Thank you to all the shareholders.
And the analysts who joined the call today and we look forward to updating you again. After Q2. Thanks very much calls adjourned I should say at the end of every meeting attack I always say this stay healthy keep to face this too shall pass and all will be well.
Thanks, very much everyone.
Right now.
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