Q1 2020 Earnings Call

April 21, 2020

Welcome to Teck resources, Q1, 2020 earnings call.

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.

Fraser Phillips: Thanks very much, Elena, and good morning, everyone, and thank you for joining us for Teck's Q1 2020 results conference call. Before we begin, I would like to draw your attention to the caution regarding forward-looking statements on slide two. This presentation contains forward-looking statements regarding our business. This slide describes the assumptions underlying those statements. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statement. I would also like to point out that we use various non-GAAP measures in this presentation. You can find explanations and reconciliations regarding these measures in the appendix. With that, I will turn the call over to Don Lindsay, our President and CEO.

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 those statements various risks and uncertainties may cause actual results to very check does not assume the obligation to update any forward looking statement.

I'd also like to point out the we use various non-GAAP measures in this presentation you can find explanations and reconciliations regarding these measures in the appendix with that I will turn the call over to Dawn Lindsay President and CEO.

Don Lindsay: 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 COVID-19 challenge, both personally and professionally. Like you, we are continuing to work from home, and so the entire senior management team is dialed in remotely this morning. So please bear with us in the event there are any hiccups. We last spoke during our Investor and Analyst Day conference call on 1 April, just about three weeks ago, and that included a summary of our COVID-19 response measures, some initial highlights from our Q1 results, and of course, our QB2 project update. Today, we will focus on updates from the full results from our Q1, as well as some additional detail on our COVID-19 protocols and the impact of COVID-19 on our operations.

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.

Like 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.

I'll 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 acuity session. We're on a nine additional members of our senior management team would be happy to answer any.

Don Lindsay: I'll begin on slide three with Q1 highlights, followed by Ron Millos, our CFO, who will provide additional color on our financial results. We will conclude with a Q&A session where Ron, I, and additional members of our senior management team would be happy to answer any questions. Our focus is on managing the risks around COVID-19 and ensuring that we have the necessary measures in place to safeguard our people and our local communities. The global health situation posed by COVID-19 is unlike anything previously faced by companies, by families, and by communities. The scope and severity of this pandemic requires all of us to step up and do our part. We are proud to have announced last week the creation of a $20 million fund to support the COVID-19 response and future recovery efforts.

Questions.

Our focus is on managing the risks around covert 19, ensuring that we have the necessary measures in place to safeguard or people and our local communities.

The global health situation posed by code 19 is unlike anything previously faced by companies like families and communities.

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 code 19 response and future recovery efforts.

Don Lindsay: Nothing is more important than the health and safety of our employees, our contractors, and the communities where we operate. While our COVID-19 response has temporarily reduced production at some of our operations, all of our managed sites are currently operating. There has been no material impact on sales or shipments of Teck products due to COVID-19 to date, but there is a risk that sales volumes could decline significantly in Q2 following the dramatic slowdown that we have seen in global economic activity. It is clearly still a very fluid situation with COVID-19, and the overall impact on our business will depend on the progression of the pandemic and on the success of measures in place to combat it. As such, we have suspended all previously issued 2020 annual guidance. Now, despite the emergence of COVID-19, there were a number of positives in Q1.

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 climate 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.

Don Lindsay: Steelmaking coal had a very strong finish to the quarter, with sales exceeding our quarterly guidance, adjusted site cost of sales coming in well below previous expectations, reduced finished coal inventories at our mine sites, and that provides greater operational flexibility. The logistics supply chain performed very well in March, including Westshore. We completed the Elkview plant expansion in mid-April. This is a very important milestone because it increases annual capacity at Elkview from 7 million tons to 9 million tons. 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 much lower cost production from Elkview when Cardinal River closes later this year.

Steelmaking coal had a very strong finish to the quarter with sales exceeding our quarterly guidance.

Just to say cost of sales coming 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 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 of joining our team 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 L. 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.

Don Lindsay: Taking into account both the cost savings and the higher average pricing for Elkview Coal, because it is higher quality, and then assuming $150 per ton of coal pricing and current exchange rates, this strategic move should translate to an annual increase in our EBITDA of approximately CAD 160 million. The initial investment was just CAD 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. On 31 March, we issued an updated capital cost estimate for our QB2 project with the to-go capital estimated at $3.9 billion before considering any impacts of the current suspension as a result of the COVID-19 situation.

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.

On March 31st we issued 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 was a code 19 situation.

Don Lindsay: 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 lower than that $5.2 billion. We are consolidating the improvements that we implemented in 2019 under our Race 21 initiative, which is now focused on transforming the company for the future. We continue to advance the strategically important Neptune terminal upgrade, which will secure a long-term, low-cost, and reliable supply chain solution for our steelmaking coal business unit. Preparations are underway for the suspension of terminal operations for 5 months, so starting on 1 May.

This estimate is based on an average exchange rate over the remainder of the build.

775, Chilean pesos per U.S. 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 a 2019 under a 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 busy.

This unit.

Preparations are underway for the suspension of terminal operations for five months was starting on me first you will recall that we made the 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.

Don Lindsay: You will recall that we made the decision to proceed with the extended shutdown of 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 to $1 billion from previously planned spending through the end of 2020. We have achieved $375 million in capital operating cost reductions to date since starting the program in Q4 of 2019. Importantly, we have maintained a strong financial position with current liquidity of $5.8 billion. Turning to our financial results on slide four. In Q1, revenues were $2.4 billion, and gross profit before depreciation and amortization was $776 million.

We have increased our target for total reductions under our cost reduction program to a billion dollars from previously planned spending through the end of 2020.

We have achieved 375 million in capital operating cost reductions to date starting to program in the fourth quarter of 2019.

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.

Don Lindsay: Profitability was impacted by the significant negative effect of COVID-19 on commodity prices. Our unadjusted EBITDA also reflects a non-cash pre-tax impairment charge of CAD 647 million related to our interest in Fort Hills. Bottom line adjusted profit attributable to shareholders was CAD 94 million, or 17 cents per share on both a basic and a fully diluted basis. Details of the quarter's earnings adjustments are on slide 5. With effect from 1 January 2020, we have made changes to 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 our adjustments, and comparative figures have been restated. This is really based on feedback that we've had directly from our shareholders.

Profitability was impacted by the significant negative effect.

So with 19 or commodity prices.

Our unadjusted 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.

[noise] 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 and comparative figures have been restated in this is really based on feedback that we've had directly from our shareholders.

Don Lindsay: We now include adjustments for environmental costs, including changes related to decommissioning and restoration costs for our closed operations, also share-based compensation costs, inventory write-downs and reversals, and commodity derivatives. We believe that these changes are adjusted profit attributable. With these changes, our 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 us more in line with practice at our peer group. In Q1, the most significant adjustment was the non-cash impairment charge related to our interest in Fort Hills, which was CAD 474 million this time on an after-tax basis. There were also CAD 22 million of COVID-19 expenses in Q1 on an after-tax basis, and Ron will speak to this in greater detail shortly.

We now include adjustments for environmental costs, including changes related to de commissioning a restoration costs for close to operations.

Also share based compensation costs inventory write downs in reversals and commodity derivatives.

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 Ron 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.

Don Lindsay: Environmental costs and share-based compensation reduced our adjusted profit attributable to shareholders by CAD 87 million and CAD 22 million, respectively. This was partially offset by CAD 27 million in inventory write-downs and CAD 15 million in commodity derivatives. With these and other minor adjustments, bottom line adjusted profit was CAD 94 million or CAD 0.17 per share, again, on both a basic and a fully diluted basis. Please note that we continue to not adjust for settlement pricing adjustments, which were CAD -64 million or CAD -0.12 per share in Q1 on an after-tax basis. Again, that is based on feedback from analysts and shareholders. Turning to our response to COVID-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 the communities where we operate.

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.

Don Lindsay: We have put in place comprehensive preventative measures at every one of our sites. These measures include reducing on-site 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 hand washing. We're 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, our health and safety teams have conducted over 5,000 individual audits to ensure that COVID-19 protocols are being implemented and that they are effective.

And these measures include reducing onsite crew sizes.

Enhanced cleaning and disinfecting protocols.

Emanating 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 covert 19 protocols are being implemented and that they are effective.

Don Lindsay: Earlier this month, the Interior Health Authority conducted an audit of COVID-19 prevention measures at our steelmaking coal operations, which confirmed that we, and I quote, "Have strong protocols in place with regards to COVID-19." Close quote. As I mentioned earlier, we've also created a CAD 20 million fund to provide direct support to critical services in areas where we operate. This includes procuring and donating essential medical supplies, such as the 1 million KN95 masks that support local health and social services affected by COVID-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.

And earlier this month the regional Health authority conducted an audit of covert 19 prevention measures at our steelmaking coal operations, which confirmed that we and I quote.

Have strong protocols in place with regards to covert 19.

Those quotes.

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.

Thats 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.

Don Lindsay: Adjusted site cost of sales coming in well below previous expectations at $63 per ton. Finished coal inventories have been reduced at their mine site, enhancing operational flexibility. I can tell you we're very pleased about that. The logistics supply chain performed very well in March. We also completed the Elkview plant expansion to 9 million tons of capacity in mid-April, and this again is a very important milestone. We commenced a temporary slowdown of our steel making coal operations on 25 March, which lasted approximately two weeks. Now, we had reduced our crews by up to 50% of regular levels in the period, which reduced production to between 80% and 85% of normal levels.

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.

Enhancing operational flexibility I can tell you we're very pleased with that.

And then the logistics supply chain 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 milestones.

We commenced a temporary slowdown number 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.

Don Lindsay: Because we now have greater confidence, we're further up the learning curve in dealing with COVID-19, beginning a week ago, operating crews were returned to 75% of normal levels. That's 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 and our annual major plant outages are scheduled to be completed. In terms of sales, our Q2 sales volumes could decrease significantly from Q1 2020 levels as COVID-19 is expected to continue to impact global economic activity, and steelmaking coal demand and supply.

Because we now have greater confidence were further up the learning curve in dealing with covert 19.

Beginning a week ago operating crews were returned to 75% of normal levels. So that's a step in the right direction.

We are currently it's Steve will 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 as steelmaking coal demand and supply.

Don Lindsay: We are starting to receive notifications from customers that they may delay purchases in response to reduced demand for their steel products as their own customers are reducing or suspending production of their products. Turning to our Copper business unit. Our Q1 results are summarized on slide 8. Copper production of 70,600 tons in the quarter was similar to a year ago. Higher production at Carmen de Andacollo and Highland Valley Copper offset decreases at Antamina and QB. Net cash unit costs after the cash margin for byproducts of $1.27 US per pound were $0.28 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 at our QB2 project on 18 March. That impacts a total of approximately 15,000 workers.

We are starting to receive notifications from customers that they may delay purchases.

In response to reduced demand for their steel products as their own customers are reducing or suspending 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 meet and cube.

Net cash unit costs after the cash margin for byproducts.

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.

Don Lindsay: Demobilization was essentially complete by March 23, so pretty good execution on that. While this was initially planned for a 2-week period, project construction activities still remain on hold today. We continue to reassess the status of the suspension in light of the rapidly evolving COVID-19 situation, but our priorities continue to be the safety of our workforce and supporting Chilean efforts to limit transmission of COVID-19. We cannot predict when the temporary suspension of the project will be lifted. If full kind of construction activities are restarted in Q2, 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 25, which lasted approximately 2 weeks.

Demobilization was essentially complete by March 20, Threerd. So.

Pretty good execution on that and while this was initially planned for 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.

Before 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 it or steelmaking coal operations, we commenced a temporary slowdown of operations at Highland Valley copper on March 25th which lasted approximately two weeks.

Don Lindsay: We initially reduced our on-site crews by up to 50% of regular levels in that period, and we reduced production to approximately 85% of 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 back up to normal operating levels while maintaining social distance measures. Antamina temporarily suspended operations on 13 April to support Peruvian COVID-19 response efforts and to facilitate a change in workforce. Antamina has implemented protocols to ensure the health and safety of all workers, and it is coordinating its response with public health authorities. Safe demobilization of the workforce has been completed, including implemented COVID-19 testing of employees and contractors.

We initially reduced or on say crews by up to 50% of regular levels in that period, and we reduced production to approximately 85% of normal levels, but getting a week ago again, because we're further up the learning curve and people have more confidence in our operating practices 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.

Don Lindsay: Antamina is working towards a restart, but timing on resuming operations is uncertain at this time. At our Chilean operations, Carmen de Andacollo, Toconoa, and Quebrada Blanca, we continue to operate at normal production levels with reduced workforce levels on site. Our zinc business unit's results are summarized on slide 9. As a reminder, Antamina's zinc-related financial results are reported in our copper business unit. Red Dog sales of zinc and concentrate of 134,000 tons were within our quarterly guidance range. Red Dog zinc production increased compared to a year ago, primarily due to substantially higher mill throughput, which was offset by lower grades and recoveries. In Q1 last year, mill operations were negatively affected by a 20-day shutdown due to the effects of severe winter weather.

And to me to is working towards the restart the timing on resuming operation operations is uncertain at this time.

At our Chilean operations Carmen de Andacollo 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 Mena 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 dog 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 20 day shutdown due to the effects of severe winter weather.

Don Lindsay: At Trail operations, production of refined zinc was higher than in Q1 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-out circumstances at our Red Dog operations in Northwest Alaska has necessitated significant travel restrictions and modified schedules to maintain safe operations. To date, normal production levels have been maintained. Sales of Red Dog zinc concentrate are normally lower in Q2 than Q1 ahead of the start of the new shipping season. This year, our Q2 sales could decrease significantly compared to Q2 2019, as COVID-19 is expected to continue to impact global economic activity, zinc demand, and supply.

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.

Don Lindsay: At our Trail operations, we have maintained production levels while reducing the workforce on site on weekdays by over 40%, resulting from restructured shift schedules and people working from home. Sales volumes of refined zinc from Trail could decrease significantly again from Q1 2020 due to COVID-19. Our energy business unit results are summarized on slide 10. As you are aware, global crude markets are in a period of unprecedented volatility. Now, this script was written a few days before yesterday, but that, of course, is an understatement. Prices declined dramatically in Q1 as a result of the unparalleled collapse in demand following the measures taken to combat COVID-19 across all major economies and exacerbated by an increase in supply from both Saudi Arabia and Russia. Our realized prices and operating results were hit hard by the drop in oil prices.

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 Youre aware global crude markets.

During a period of unprecedented volatility.

Now this script was written a few days before yesterday, but that of 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.

Don Lindsay: The gross loss before depreciation and amortization from our energy business was CAD 90 million in Q1, and included in the loss was an inventory write-down of CAD 23 million. In addition, we recorded a non-cash pre-tax impairment charge of CAD 647 million in the quarter related to Fort Hills. Looking forward, Fort Hills is temporarily operating as a single-train facility in light of COVID-19 and in light of depressed Western Canadian Select prices as previously announced. This should significantly reduce variable operating costs and mitigate losses.

The gross loss before depreciation and amortization from an energy business was 90 million in the first quarter 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.

Don Lindsay: Assuming Fort Hills is operated as a single-train facility through the balance of 2020, we expect our share of Fort Hills production will be 8 to 9 million barrels of bitumen, and our unit operating costs will be between CAD 37 and 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 our planned 2020 capital spending in our energy business unit, now down to CAD 85 million from previously CAD 175 million. With that, I will pass over to Don Mills for some comments on our financial results. Don, over to you.

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 a benjamin and our unit operating costs will be between $37 Canadian and $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.

Ronald Millos: Great. Thanks, Don. I'll start by addressing the changes in our cash position during Q1 on slide 12. We generated $279 million in cash flow from operations. The net change in debt was $220 million, and we received $61 million in proceeds from investments in other assets. We spent $818 million on capital projects and $172 million on our stripping activities. We purchased approximately 16.3 million Class B shares under our normal course issuer bid for $207 million in the quarter. That completes the $1 billion share buybacks previously authorized by our board. We paid $109 million in interest and finance charges.

Ron Millos: Great. Thanks, Don. I'll start by addressing the changes in our cash position during Q1 on slide 12. We generated $279 million in cash flow from operations. The net change in debt was $220 million, and we received $61 million in proceeds from investments in other assets. We spent $818 million on capital projects and $172 million on our stripping activities. We purchased approximately 16.3 million Class B shares under our normal course issuer bid for $207 million in the quarter. That completes the $1 billion share buybacks previously authorized by our board. We paid $109 million in interest and finance charges.

Great. Thanks, Don all 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 about $72 million are.

Ladies and 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 109 million interest and finance charges repaid $43 million of lease liabilities and we paid 27 sellers in the regular basis.

Ronald Millos: We paid CAD 43 million of lease liabilities, and we paid CAD 27 million in the regular base dividends. After these and other minor items, we ended the quarter with cash and short-term investments of CAD 219 million. One other note about our quarterly financial results, not on the slide, but after adjusting for the Fort Hills impairment, our overall effective tax rate on profit before taxes was 39% in the quarter. That's above our longer-term general expectation of 35% to 37%. That's primarily due to the losses at Fort Hills and Trail, which are not subject to mining taxes.

Ron Millos: We paid CAD 43 million of lease liabilities, and we paid CAD 27 million in the regular base dividends. After these and other minor items, we ended the quarter with cash and short-term investments of CAD 219 million. One other note about our quarterly financial results, not on the slide, but after adjusting for the Fort Hills impairment, our overall effective tax rate on profit before taxes was 39% in the quarter. That's above our longer-term general expectation of 35% to 37%. That's primarily due to the losses at Fort Hills and Trail, which are not subject to mining taxes.

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 and pair, but our overall effective tax rate on profit before taxes was 39% in the quarter.

Thats above our longer term general expectation of 35% to 37%. So thats, 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.

Ronald Millos: If we remain in a lower operating margin environment and continue to experience losses at Fort Hills, we would expect our effective tax rate on profit before taxes to remain a little bit elevated above those normal expected levels. Turning to COVID-19 expenditures on slide 12. We previously mentioned that we were reviewing the accounting treatment of these expenditures that are incremental in nature and incurred specifically because of COVID-19. No COVID-19 specific expenditures will be charged against our capital projects as they really don't add any value to those projects. COVID costs related to the production of products will be expensed as incurred in our cost of sales rather than being charged to inventories and then flowing through to our future earnings when the products are ultimately sold.

Ron Millos: If we remain in a lower operating margin environment and continue to experience losses at Fort Hills, we would expect our effective tax rate on profit before taxes to remain a little bit elevated above those normal expected levels. Turning to COVID-19 expenditures on slide 12. We previously mentioned that we were reviewing the accounting treatment of these expenditures that are incremental in nature and incurred specifically because of COVID-19. No COVID-19 specific expenditures will be charged against our capital projects as they really don't add any value to those projects. COVID costs related to the production of products will be expensed as incurred in our cost of sales rather than being charged to inventories and then flowing through to our future earnings when the products are ultimately sold.

Profit before taxes to remain a little bit late.

Those normal exit levels.

Turning to our Cobot 19 expenditures on slide 12, we previously mentioned that we reviewing the accounting treatment. These expenditures that are incrementally in nature and incurred specifically because of.

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.

Ronald Millos: COVID-19 expenditures not related to the production of products will be expensed as incurred in our other operating expenses. To assist readers in analyzing, understanding our more normal operating results, we deducted all COVID-19 related costs that were expensed from our profit attributable to shareholders in our adjusted earnings table. In Q1, our COVID-19 expenditures were $44 million on a pre-tax basis, and that included $32 million related to the temporary suspension of construction at our QB2 project. $5 million of finance expenses were included in the adjusted items. That was due to us not being allowed to capitalize the interest expenses while QB2 is in suspension on the construction. In addition to that, there was $7 million related to incremental COVID expenditures throughout our various operations.

Ron Millos: COVID-19 expenditures not related to the production of products will be expensed as incurred in our other operating expenses. To assist readers in analyzing, understanding our more normal operating results, we deducted all COVID-19 related costs that were expensed from our profit attributable to shareholders in our adjusted earnings table. In Q1, our COVID-19 expenditures were $44 million on a pre-tax basis, and that included $32 million related to the temporary suspension of construction at our QB2 project. $5 million of finance expenses were included in the adjusted items. That was due to us not being allowed to capitalize the interest expenses while QB2 is in suspension on the construction. In addition to that, there was $7 million related to incremental COVID expenditures throughout our various operations.

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 arc opened 19 expenditures were $44 million on a pre tax basis and that included that 32 million related to the temporary suspension of the construction that our QB two project.

$5 million.

Thats expenses works were included in the adjusted items and that was due to its not allowing to capitalize the interest expenses, while QB two as suspension on the construction.

And in addition to that there was 7 million related to incremental expenditures at throughout our various operations cobot expenditures in the second quarter will depend on the trajectory of that.

Ronald Millos: COVID expenditures in the second quarter will depend on the trajectory of the pandemic, 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 the focus on our cost reduction program across the organization in the context of COVID-19. On 1 April, we announced our targeted reductions were increased to CAD 1 billion of previously planned spending from the launch of the program in the beginning of Q4 2019 through to the end of 2020. To the end of March, we've achieved approximately CAD 375 million of capital operating cost reductions since we announced the program last year.

Ron Millos: COVID expenditures in the second quarter will depend on the trajectory of the pandemic, 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 the focus on our cost reduction program across the organization in the context of COVID-19. On 1 April, we announced our targeted reductions were increased to CAD 1 billion of previously planned spending from the launch of the program in the beginning of Q4 2019 through to the end of 2020. To the end of March, we've achieved approximately CAD 375 million of capital operating cost reductions since we announced the program last year.

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 cold in 19 on April 1st we announced our targeted reductions were increased to 1 billion previously planned spending for the launch of the program into big.

Q4, 2019 through to the end 2020 until 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.

Ronald Millos: Turning to slide 14, our financial position remains strong with about CAD 5.8 billion of liquidity, and that includes CAD 525 million in cash. We maintain a $4 billion revolving credit facility, of which $3.75 billion is currently available. Importantly, this facility is committed out to Q4 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 borrowing condition. The only financial covenant is a net debt to capitalization ratio that cannot exceed 60%, and at 31 March, that ratio was 20%. We only have $500 million of notes maturing in the next four years with nothing due in 2020.

Ron Millos: Turning to slide 14, our financial position remains strong with about CAD 5.8 billion of liquidity, and that includes CAD 525 million in cash. We maintain a $4 billion revolving credit facility, of which $3.75 billion is currently available. Importantly, this facility is committed out to Q4 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 borrowing condition. The only financial covenant is a net debt to capitalization ratio that cannot exceed 60%, and at 31 March, that ratio was 20%. We only have $500 million of notes maturing in the next four years with nothing due in 2020.

About 5.8 billion Canadian of liquidity and that includes $525 million and cash we maintain a U S 4 billion revolving credit facility of which 3.75 billion is currently available and importantly this.

Facility as committed out to the fourth quarter of 2024, it does not have any earnings or cash flow based financial covenants.

Include a credit rating trigger and does not include a general material adverse effect ordering condition. The only financial covenant is that net debt to capitalization ratio that cannot exceed 60% 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.

Ronald Millos: No significant debt maturities prior to 2035, and we have investment-grade credit ratings from all four credit rating agencies. For our QB2 projects, the funds from the QB2 partnering transaction with Sumitomo Metal Mining and Sumitomo Corporation and the $2.5 billion limited recourse project financing facility dramatically reduces our funding requirements for the project. During Q1, we drew $50 million on the $2.5 billion limited recourse financing facility. Going forward, project spending will be from the project financing until it reaches a specific ratio of project financing to total shareholder funding. Teck's next contribution to the project capital are not expected until Q1 2021. That, of course, is subject to the impact of COVID-19 on the projected schedule and timing of capital spending.

Ron Millos: No significant debt maturities prior to 2035, and we have investment-grade credit ratings from all four credit rating agencies. For our QB2 projects, the funds from the QB2 partnering transaction with Sumitomo Metal Mining and Sumitomo Corporation and the $2.5 billion limited recourse project financing facility dramatically reduces our funding requirements for the project. During Q1, we drew $50 million on the $2.5 billion limited recourse financing facility. Going forward, project spending will be from the project financing until it reaches a specific ratio of project financing to total shareholder funding. Teck's next contribution to the project capital are not expected until Q1 2021. That, of course, is subject to the impact of COVID-19 on the projected schedule and timing of capital spending.

Maturities prior to 20 to 35, and we have 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 biting its Sumitomo Corporation and the U.S. 2.5 billion limited recourse project financing facility dramatically reduce.

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.

Techs next contribution to the project capital are not expected until Q1 2021.

Of course is subject to the impact that cobot 19 on the projected schedule and timing of capital.

Réal Foley: We do not expect COVID-19 impacts to prevent us from drawing on the project financing facility. Overall, our financial position is in good shape to allow us to weather the challenges around COVID-19. With that, I will turn it back to Don for his closing comments.

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 the weather challenges around coal good night.

Ron Millos: We do not expect COVID-19 impacts to prevent us from drawing on the project financing facility. Overall, our financial position is in good shape to allow us to weather the challenges around COVID-19. With that, I will turn it back to Don for his closing comments.

And with that I will turn it back to dawn for his closing costs.

Don Lindsay: Well, thanks, Ron. As I said at the outset, these continue to be unprecedented times that we're living in. The COVID-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 COVID-19 and ensuring that we have the necessary measures in place to safeguard our people and our local communities. While our COVID-19 response has temporarily reduced production at some of our operations, all of our managed sites are currently operating, and that is acknowledging that Antamina is a joint venture with BHP, Glencore, and Mitsubishi. There has been no material impact on sales or shipments of Teck products due to COVID-19 so far, but there is a risk that sales volumes could decline significantly in Q2 following the dramatic slowdown that we've seen in global economic activity.

Well thanks Ron.

As I said at the outset. These continued to be unprecedented times that we're living in the covered 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 and.

Our 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 and Mitsubishi.

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.

Don Lindsay: Despite the emergence of COVID-19, there were a number of positives, including a very strong finish to the quarter steelmaking coal and, very importantly, the completion of the Elkview Plant expansion, which sets us up in a really good position for decades to come. At the same time, we continue to progress our four key priorities, and those are the QB2 project, which will help rebalance our portfolio, RACE21, which will set us up, transform the company for the long term and improve productivity and reduce costs, Neptune, which will secure a 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.

And despite the emergence of code 19, there were a number of positives, including a very strong finish to the quarters 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.

Don Lindsay: We have a very strong financial position, and we are well-positioned to weather this storm and the challenges around COVID-19. With that, we'd be happy to answer any questions. As a reminder, we are all on phone lines from home, so please bear with us if there's a delay while we sort out who will answer your question. Back to you, operator.

We have a very strong financial position and we are well positioned to weather the storm and 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.

Operator 3: 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 pause while participants register. Thank you for your patience. The first question is from Orest Wowkodaw with Scotiabank. Please go ahead.

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 pause while participants register. Thank you for your patience. The first question is from Orest Wowkodaw with Scotiabank. Please go ahead.

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 Rochester. Thank you for your patience.

The first question is from Auris welcome with Scotiabank. Please go ahead.

Hi, good morning.

Orest Wowkodaw: Hi. Good morning. Don, I'm wondering if you can give us some more color on your comments about significantly lower potential coal sales in Q2 and that you're seeing customers defer delivery of volume. Can you give us a sense of, A, how many customers, are you just seeing the beginning of that or are you seeing substantial amount? The language here obviously seems a lot different than what we heard three weeks ago. I'm curious how much of that might be related to India being closed as well. Thank you.

So I'm wondering if you can 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 and 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.

Don Lindsay: Yeah, no, that's an important question, and you are correct that it has changed a fair bit in the last three weeks, particularly in the last two weeks, and the conversations are ongoing. I'm gonna turn it over to Réal Foley in a minute, but just a perspective on this, it does feel similar to one of the quarters that we had during 2008, 2009, and it lasted for a while. The customers you know went through the dip of you know demand for their own products. Came back quite quickly. We don't know how much volume might be deferred. It's not talking about cancellation, really. It's deferral to the next quarter, but you know it all kind of cascades through for the subsequent quarters.

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 then 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.

Went through the depth of.

Demand for their own products came back quite quickly.

We don't know how much volume might be deferred it's not talk book cancellation reviews deferral to the next quarter, but.

It all kind of.

Cascaded through for subsequent quarters.

Don Lindsay: We won't know for certain exactly which ships will come when for a few weeks. Really, it'll happen throughout the quarter. 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, it's very difficult to answer that. Réal, over to you for a little bit more color on the discussions.

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.

Réal Foley: All right. Thanks, Don. Orest, we are seeing hot metal capacity cuts around two-thirds of what has been announced to date. It's concentrated in Europe, the US, and India. As you said, India is definitely part of this. With the rapid spread of COVID-19, there's more countries that have implemented lockdown measures. As Don said during the presentation, the global economic activity has slowed with lower demand for a number of products that steel goes into. Recently we've seen announcement of BF blast furnace closures or reduced hot metal production in other countries that include Japan, Brazil, and South Africa as well. So far, the total hot metal cuts represent somewhere around 78 to 80 million tons on an annualized basis.

Our first we are seeing hot metal capacity cuts around two thirds of what has been announce today.

It is concentrated in Europe. The use of MBS was you said, India is 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 Don said during your presentation, the global economic activity slowed with 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 as well.

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.

Réal Foley: That is around 15% or so of the blast furnace capacity outside of China and Russia.

Thank you.

Orest Wowkodaw: Thank you. Don, when you say feels like 2008, 2009, and when I go back and look, it looks like in Q1 2009 your coal sales bottomed at 3.7 million tons. Is that? I realize you can't give guidance, but is that the sort of goalpost on one end of the spectrum that might be realistic?

When you see it feels like 2008 2009, when I go back and look.

It looks like in Q1 down your coal sales bottomed at 3.7 million tons.

Is that I realize you can't give guidance, but if I sort of goalpost on one end of the spectrum.

Might be realistic.

Don Lindsay: Yeah, I'd say yes. I mean, it's possible. I don't think so, but the way you phrased it as goalpost at one end of the spectrum, yeah, those kind of things are possible. It doesn't mean that those sales are lost forever. They tend to come back. In terms of the timing of deliveries, that kind of stuff can happen, yeah.

Yes, I'd say, yes, I mean, it's possible I don't think so but.

The way you phrase to his goal post the one in the spectrum.

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.

Orest Wowkodaw: Great. Thanks so much.

Great. Thanks, so much.

Thank you.

Operator 3: Thank you. The next question is from Carlos de Alba with Morgan Stanley. Please go ahead.

Operator: Thank you. The next question is from Carlos de Alba with Morgan Stanley. Please go ahead.

The next question is from Carlos de Alba with Morgan Stanley. Please go ahead.

Carlos de Alba: Thank you. Good morning. The question is maybe, Don, can you give us some qualitative comments on the cost performance that you expect in Q2? You discussed the impact on sales volumes both in zinc and coal in the press release. Presumably your cost also will come down. How do you see that part of the equation, you know, with less volumes but the impact on fixed costs potentially offset by progress in CRP and RACE21 progress?

Thank you good morning.

Question I mean, maybe don't can you give us some qualitative comments on the cost performance that you expect Q2.

This call is the impact on sales volumes, both in seeing and call in the press release, but surplus.

Similarly cost also will come down how do you see that part of the equation.

As volumes by the but don't fix calls.

But they said the offset by progressing.

And race to anyone progress.

Don Lindsay: Yeah. There are different parts to that question. What I'm gonna suggest is, Robin Sheremeta, why don't you start with costs and coal, and then Dale, you follow up on the copper and zinc. Robin, over to you first.

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.

Robin Sheremeta: Sure. It's, I guess in one sense, we're fortunate that, we've spent the last few years structurally changing the coal business unit. There's a number of things that will play out through 2020, and not the least of which is the declining strip ratio. If you remember back 2019, we were operating around 11.4 to 1. We'll be lower this year, around 10.7, and as we go into 2021, we're gonna be around 10 to 1. We're setting the business unit up to have an improved, cost structure around the strip ratio itself. Don mentioned the closure of Cardinal River. We're actually closing that early, so it's gonna be shut down around the end of June.

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 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 were resetting the business unit up to how an improved.

Cost structure around the strip ratio itself.

Don mentioned closure of Cardinal River were actually closing not 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.

Robin Sheremeta: We've got the 9 million complete at Elkview, so you've got a structural change around the operating costs within the business unit as well that's kicking in. Then with RACE21, you know, you've mentioned that as well. That strategy, it'll be focused on some of the shortest term, highest value projects, which will likely be focused on, you know, on the plant operations. So we'll see pretty good payback on that. Then just around CRP, you know, this is what we're good at. In coal mining, we go through ups and downs, and we've demonstrated in the past, we get into a little cycle like this, we're able to cut spending.

And then with raised 21, you'd mentioned that as well that strategy. It will be focused on some of them shortest.

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.

Robin Sheremeta: You know, that was reflected in a large part in Q1 when we saw the spending or the costs actually quite a bit lower than we anticipated or had signaled earlier in the year. We're pretty well set up to take this on right now.

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 one right now.

And Dale said they'll take a couple of quick comments on on copper and zinc I think the question.

Don Lindsay: Dale?

Dale Andres: Dale. I can make a couple of quick comments on copper and zinc. I think the question was specific to zinc. I just wanna remind that our quarterly zinc costs do depend on our lead sales. Typically those are stronger as the year progresses and start in Q2 and particularly stronger in the Q3 and Q4, although we have suspended guidance as we talked about previously. CRP and RACE21 are also being driven throughout the copper and zinc operations. I was quite pleased with both copper and zinc for the cost performance in Q1, and we're gonna continue to drive that as we go forward.

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, although 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 sort of cost performance in Q1, we're going to continue to drive as we go forward.

Great. Thank and just a follow up over at you said that question on these bosnians QB two financing has there been any operations to the schedule that was presented earlier.

Carlos de Alba: Great. Thank you. Just a follow-up or I guess an additional question on the disbursements of QB2 financing. Has there been any alterations to the schedule that was presented earlier, you know, for the remaining of the $3.9 billion that the project team needs to spend?

For the remaining.

2.9 billion that.

Great and need to spend.

Don Lindsay: I just wanna be clear on the question. Any changes to the schedule on our project finance, is that what you're referring to?

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.

Don Lindsay: I just wanna be clear on the question. Any changes to the schedule on our project finance, is that what you're referring to?

Carlos de Alba: Right, exactly. On the disbursement of that,

Right exactly that these bosman of goes that disbursement, Ron Mills or Scott Wilson over to you.

Don Lindsay: Oh, disbursement. Okay. Don Mills or Scott Wilson, over to you.

Scott you want.

Scott Wilson: Scott, do you wanna take that one?

Don Lindsay: Scott, do you wanna take that one?

Scott Wilson: Sure. Scott Wilson. The spending profile on QB2 will be somewhat impacted by the construction suspension. We updated the project finance lenders on this a couple of weeks ago, and over the balance of 2020, we think that there will be something like $200 million less drawn on the project finance facility than pre-suspension. That reflects procurement activities continuing and payments for commitments that have already been made. Other than that, we will continue to utilize the project finance facility as intended.

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. Then then then then pre suspension.

So that reflects a procurement activities continuing and payments for commitments that have already been made.

But other than that.

We'll continue to.

Utilize the project finance facility as intended.

All right. Thank you very much luck.

Carlos de Alba: All right. Thank you very much. Good luck.

Don Lindsay: Okay. I just wanna go back to Orest Wowkodaw's question earlier. While we talked about the tonnage sales in Q1 of 2009, the equivalent quarter, if you like, to upcoming Q2, and that number is possible. The most important number to watch is really the hot metal production that Réal Foley talked about, and that at this stage is down about 15%, outside of China. China, of course, is back, basically to 100% on steel production, and we do sell to China as well, though not as much as we used to. We could choose to sell more there. I think those are the more important driving factors in trying to make an educated guess on what will happen in Q2.

I just want to go back to Aurs question earlier, and well 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 real fully talked about.

And that at this stage is down about 15%.

Outside 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 used to 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.

Réal Foley: One thing maybe I could add also, Don, is we also need to look on the supply side for steelmaking coal. Currently the supply disruption, reduction or closures that have been announced add up to somewhere around 38 to 40 million tons. That is again outside of China. If you factor in China, the Mongolian exports into China are down 5 million tons year to date March, and the domestic China production for coking coal is also down 5 million tons year to date.

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 has 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.

In the domestic China production coking coal is also down.

5 million tons year to date.

Thank you.

Carlos de Alba: Thank you.

Thank you and your next question from Curt Woodworth with Credit Suisse. Please go ahead.

Operator 3: Thank you. The next question is from Curt Woodworth with Credit Suisse. Please go ahead.

Operator: Thank you. The next question is from Curt Woodworth with Credit Suisse. Please go ahead.

Curt Woodworth: Yeah. Hi, good morning. Question on the Coal side. I wonder if you could comment a little bit about sort of tactically how you're managing the volume flow. So you know, my understanding is that you don't have a lot of spot market sales. Is there an opportunity to try to divert, you know, some of your traditional contract customer base into China, you know, or other avenues? And then can you give us a sense for kind of what your year-on-year shipment rates look like today or kind of what April is at?

Hi, good morning.

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 to China.

On or other avenues, and then can you give us a sense.

For kind of what your year on year shipment rates look like today are kind of what April is that.

Okay, a rail over to you.

Réal Foley: Okay. Réal, over to you. All right. Of course we are in the market every day. As you can imagine, Kurt, with global economic activity slowing, there is less demand on the spot market as well. Now, we continue to talk to customers. We have customers in all markets, including China, India, Eastern Europe, Western Europe, pretty much in all areas of the world, the Americas also. It is a challenging time. It is difficult right now, specifically with respect to Q2 when we look at volume. April is looking pretty good. As we start to receive notification from customers, we could see the impact later on in the quarter, maybe in May or June, but it is too early to say.

All right so.

Of course, we are in the market every day.

As you can imagine with global economic activity slowing.

There 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.

Scott to.

Q2, when we look at all.

And April is looking pretty good.

But.

As we start to see notification from customers.

We could see the impact.

Later on in the quarter, maybe may or June, but it is too early to say.

Réal Foley: Because when you look at how the shipping world works for coal, the nominations for vessels are somewhere around two weeks or so prior to vessel loading. It is uncertain and a little bit unclear right now.

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 it is uncertain and little bit on Q right now.

Curt Woodworth: Okay. Thank you.

Okay. Thank you.

Thank you.

Operator 3: Thank you. The next question is from Gordon Lawson with Paradigm Capital. Please go ahead.

Operator: Thank you. The next question is from Gordon Lawson with Paradigm Capital. Please go ahead.

Our next question.

Gordon Lawson with paradigm capital. Please go ahead.

Gordon Lawson: Hi. Thanks for taking my question. Could you talk about the timing expected for the remaining permits for the water treatment facilities at Fording River and what work remains for Elkview's phase two SRF?

Hi, Thanks for taking my question.

Could you talk about the timing expected for the remaining permits for the water treatment facilities at Fording River and what work remains for out views phase two Srs.

Robin share met over to you.

Don Lindsay: Robin Sheremeta, over to you.

Just a just to opt to ask you to repeat the first one just on the L. QSR route that project will it's under construction down it would be completed by the fourth quarter of 2020, but I didn't quite understand occurs.

Robin Sheremeta: Yeah, just, I'll just have to ask you to repeat the first one. Just on the Elkview SRF, it's under construction now, and it'll be completed by Q4 2020. I didn't quite understand the first question.

Question.

Gordon Lawson: You talk about there's remaining permits for the treatment facilities at Fording River. Is there any guidance you could provide with respect to timing?

You talk about.

Theres remaining permits for the treatment facilities at fording river as or any guidance you provided with respect to timing.

On the while the permits or.

Robin Sheremeta: Well, the permits just go through stages. There's the construction permit and then there's an operating permit. The timing on those are really just staged around the progression of the project itself. Presumably, the timing on the actual operation permits will occur in 2021. We're just working through construction now.

They're just go through stages. So there is the construction permanent then there is 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.

Gordon Lawson: Okay. As a follow-up, the strip ratio was quite high this quarter. When can we expect this to come down to the 10 times range?

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 and seven so I'll be the average across the year. So you saw higher strip ratio in the first quarter simply because of the.

Robin Sheremeta: Yeah, Well, through 2020, the current mine plan has us around 10.7, so that would be the average across the year. You saw a higher strip ratio in Q1 simply because of the logistics challenges we had through January and February. Our production levels were quite a bit lower than what we had anticipated. That affected strip ratio in the short term, and that'll balance out over the next 3 quarters. If you think about it in a sense, we got ahead of stripping in Q1 and that smooths out for the rest of the year. You can expect the average for the year to be around that 10.7 range.

The logistics challenges, we had through January and February and so our production levels were quite a bit lower than what we had anticipated.

Not affected strip ratio in the short term and that will balance out over the next three quarters. So you think about it in a sense. We got ahead of stripping in the first quarter and that's moves 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.

Robin Sheremeta: Following that, just as we progress into 2021, the strip ratio does drop down to around 10 to 1 on average.

Following that.

We.

Just as we progressed into 2021, the strip ratio does drop down to around 10 to one on outage.

Don Lindsay: Robin, then that 10.7 compares to, is it 11.4 last year?

And Rob.

10 that 10.7 compares to is 11.4 last year.

Robin Sheremeta: It was 11.4 in 2019. You bet.

With 11.4 in 2019.

Okay excellent. Thank you very much.

Gordon Lawson: Okay, excellent. Thank you very much.

Thank you.

Operator 3: Thank you. The next question is from Jackie Przybylowski with BMO Capital Markets. Please go ahead.

Operator: Thank you. The next question is from Jackie Przybylowski with BMO Capital Markets. Please go ahead.

Your next question is from Jackie present, Latzky with BMO capital markets. Please go ahead.

Jackie Przybylowski: Thanks very much. I just wanted to dig into a little bit the comments that you've got in your MD&A on the Elk Valley water quality. Maybe following up a little bit on Gordon's questions. You've got a note in the MD&A about fish population, this specific kind of trout, being affected. Maybe a little bit of a scary sentence at the end where it 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 kind of studies are required to determine the causes of this population decline? What actually the risks would be to your operations?

Jackie Przybylowski (BMO Capit: Thanks very much. I just wanted to dig into a little bit the comments that you've got in your MD&A on the Elk Valley water quality. Maybe following up a little bit on Gordon's questions. You've got a note in the MD&A about fish population, this specific kind of trout, being affected. Maybe a little bit of a scary sentence at the end where it 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 kind of studies are required to determine the causes of this population decline? What actually the risks would be to your operations?

Thanks, very much I, just wanted to dig into a little bit the comments that you cutting your and DNA on.

The Kelley water quality, so maybe following up little bit on Gordon's question.

You've got a note in the Mdna about.

This population.

So the kind of trial being affected.

And maybe a little bit of is Gary sentence at the end, which says that you may face delays and 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 of 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 your operations to be impacted.

Jackie Przybylowski: Like, what would we need to see, I guess, in terms of the study results for your operations to be impacted? Thanks.

Jackie Przybylowski (BMO Capit: Like, what would we need to see, I guess, in terms of the study results for your operations to be impacted? Thanks.

Don Lindsay: Okay, Robin, why don't you start and then you can throw it to whoever you like for the balance.

Okay Robin why don't you start and then you can throw it to whoever you like for the balance.

Robin Sheremeta: Sure. As far as the causation study, there's a considerable amount of work that has to be done in that area, so it's not a simple process to land on a cause. Because we haven't got a sense of what the outcome of that's gonna be, it'd be pretty tough to speculate on from how we'd respond to it. That work continues. There's an incredibly competent team that is working through that. By the middle of the year, probably closer in H2, we should have some outcome on those results. I wouldn't wanna speculate on how that's gonna impact the operations.

Sure.

Just as far as the causation study that there's a considerable amount of work that has to be done 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 I would respond to it so.

That work continues there's 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 to impact the operations.

So if I could just ask a follow up.

Jackie Przybylowski: If I could just ask a follow-up on that. If it's determined that, you know, hypothetically, let's say some activity at the mine or the saturated rockfill treatment or something like that was contributing to this issue, would that cause the government to require you to slow mining down or slow processing down?

Jackie Przybylowski (BMO Capit: If I could just ask a follow-up on that. If it's determined that, you know, hypothetically, let's say some activity at the mine or the saturated rockfill treatment or something like that was contributing to this issue, would that cause the government to require you to slow mining down or slow processing down?

On that.

If we determine that.

Pathetically, let's say some activity.

Or or the seaside treater rock, so treatment or something like that one's contributing to this issue.

That be.

The government too.

To require you to slow mining dollars slow process.

I think all that's just speculation.

Robin Sheremeta: I think all that's just speculation, you know, to be honest. Until we have an actual cause or some combination of causes, there's no real way of knowing what the response would be.

To be honest and so we have an actual cause.

Some some combination of causes.

No real way of knowing what the.

What the response would be.

Jackie Przybylowski: Okay. Well, thank you for that. If I can just ask one other question on Antamina. The previous release that you put out had basically said that, you know, you're doing a shift change, sanitizing all the work services and bringing the crews back. This MD&A that you put out today is a little bit more vague on timing. Has there been a change in terms of the activities that are required for the miners to return to work? Are you now sort of looped in with the state of emergency legislation in the country, or are you still able to return to work as soon as it's sanitized and the crews are ready to go?

Jackie Przybylowski (BMO Capit: Okay. Well, thank you for that. If I can just ask one other question on Antamina. The previous release that you put out had basically said that, you know, you're doing a shift change, sanitizing all the work services and bringing the crews back. This MD&A that you put out today is a little bit more vague on timing. Has there been a change in terms of the activities that are required for the miners to return to work? Are you now sort of looped in with the state of emergency legislation in the country, or are you still able to return to work as soon as it's sanitized and the crews are ready to go?

Mhm.

Just one other question.

Thank you mean.

Hello.

Hi, basically said you can shift change.

Sanitizing, all the work services and bringing the decrease back this this.

Any they couldn't say, there's a little bit more take on timing is is there have been the change in terms of E activities that are required for miners to return to work are you are you now.

With.

With the state of emergency legislation in the country or are you still able to return to work as soon as.

Genotypes and increase are ready to go.

Don Lindsay: Dale Andrews, over to you.

Deal Andrus overview.

Yes, thanks, Jackie it is.

Dale Andres: Yeah. Thanks, Jackie. It is, we basically said it's uncertain at this time because it is gonna take a little bit longer. It did take a little bit longer to demobilize the crews. There still is the state of emergency in effect, and that does limit transportation of workers between regions. We have now demobilized all the crews except for, we'll call it a care and maintenance crew or core essential services crew. We currently have about 400 to 500 people on site. We moved about 2,000 people off after initially moving 4,000 people before the original state of emergency.

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 demobilize. The crews there still is the state of emergency in effect and that does limit transportation of.

Workers between regions.

We have no demobilized all accrues, except for a we'll call it a 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.

After initially moving 4000 people before the original state.

So we're working through the details of.

Dale Andres: We're working through the details of how regional movement of crews. We're still cleaning the facilities, and we do expect it to take a little bit longer, but the exact timing is uncertain.

How regional movement, it's crews were still cleaning the facilities.

And.

I do expect it to take a little bit longer but that the exact timing is.

Sure.

Jackie Przybylowski: Thanks very much.

Jackie Przybylowski (BMO Capit: Thanks very much.

Thanks very much.

Operator 3: Thank you. The next question is from Timna Tanners with Bank of America. Please go ahead.

Operator: Thank you. The next question is from Timna Tanners with Bank of America. Please go ahead.

Thank you.

The next question from Tim that generous with Bank of America. Please go ahead.

Great. Thank you.

Timna Tanners: Great. Thank you, and hope everyone's doing all right and healthy. Just wanted to ask a little bit more. I know you suspended guidance, and we've been talking about some specific projects, but if you could talk a little bit on a high level on CapEx, on what amount or percent, if you will, could be flexible or could be reassessed if conditions continue to remain depressed. Along those same lines, if you could provide some more color about what you and your partners at Fort Hills are discussing in terms of when and how to make a decision on any further cuts.

Right and healthy just wanted to ask a little bit more I know you ended guidance and we've been talking about some specific projects, but you could talk a little bit on a high level on capex on what.

Amount kept percent if you will could be flexible it 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 and your partners at Fort Hills are discussing in terms of when and how to make a decision on any further cuts.

Okay.

Don Lindsay: Okay. On CapEx, I may turn over to Don Mills a bit in a minute, but really the reductions in CapEx are included in our CRP targets because they are both CapEx and OpEx. We're going through business by business. I meet with the 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 Don Mills is managing that. I'll just talk to the Fort Hills question first, then turn it to you, Don. On Fort Hills, we are having an ongoing dialogue with the partners, Suncor, the operator, of course, and Total, and looking at different options.

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.

Full or actual.

Enhancement projects or whether they can be stopped deferred.

Reduced and then the total reductions will show up in that CRP number and a 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.

Don Lindsay: There are a lot of factors to consider. It's a complicated decision. You know, the starting point is you have to take a view on what you think oil prices and WCS prices are likely to be and when. Because if you're looking at reducing production for down, then you have to look at the winterization costs that would be quite substantial if you were all the way into sort of the November, December period. If you're going to do that, you'd wanna make sure that you were gonna be shut down for a long enough period to justify that versus sustaining operating losses on fewer barrels operating. Those are the trade-offs.

A lot of factors to considers it's a complicated decision and the starting point as you have to take a view of 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 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 a period to justify that persists.

Sustaining operating losses on fewer barrels operating so those are the tradeoffs and if you think that fuel prices coming back.

Don Lindsay: If you think that the oil price is coming back, a year or two from now, then you clearly wouldn't do that because there's lots of risk associated with as well. Suncor is, you know, going through the different iterations and studies, and we'll be looking at that with them, I think, towards the end of this month. You'll hear more in due course, but, you know, it is a very complex decision for sure. Ron, back to you on CRP and CapEx.

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.

Going back to you on CRP and Capex.

I sure Don the.

Ronald Millos: Sure, Don. Of the CAD 1 billion target, about two-thirds of that is CapEx reductions, and that's spread amongst the various sites.

Ron Millos: Sure, Don. Of the CAD 1 billion target, about two-thirds of that is CapEx reductions, and that's spread amongst the various sites.

The 1 billion target about two thirds of that is capex reductions and that's that's spread amongst the various sites.

Don Lindsay: Just the total program itself of the CAD 1 billion, about a little over 80% of it is at the operating sites being coal, base metals, and energy. The balance is split amongst our IT systems, satellite projects, corporate costs, you know, exploration, and other project type expenditures. That gives a sense of where the cost reductions are currently coming from. That's based on the full target.

The total program itself the.

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 exploration and other project expenditures so that gives a sense.

Where the cost reductions are currently coming from.

Thats simple based on the full target.

Timna Tanners: Okay, great. Just to complete the thought then, can you remind us on QB2, that decision was made because of COVID-19, is my understanding, but is there any decision that you would make, with regard to the copper price on any of your projects given the depressed level? How do you think about that? 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 further. Thanks a lot.

Okay, great and just to complete the top end can you remind us.

TV to that decision is made because I've covered 19 is my understanding that is there any decision that you would make with regard to that copper price on any of your projects given the depressed level on 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.

<unk>.

Don Lindsay: On the first question, there's no change in our outlook for the long term for the copper price. In fact, if anything, COVID-19 has probably made that more positive. I think most people know about the antimicrobial properties of copper and the COVID-19 virus dies within four hours on a copper surface, but it lives for days and days on stainless steel or other surfaces. We would hope that in the long term, various public transit infrastructure and healthcare hospital facilities would be using more copper. No change in that at all.

On the first question that Theres no change in our outlook for long term for copper price impact.

If anything code 19 is probably made that more positively 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.

Don Lindsay: Yes, we completed the authorized buyback, and the board would review that again, you know, as we go through and have a better understanding of when QB2 is started and how COVID-19 has shaken out. We clearly believe that it's good value at these levels. It's very good value. We do want to make sure, Timna, that you and everybody at BofA Merrill Lynch did see the Elkview plant was completed, and that's a very important investment. Some could even say a milestone or catalyst related to our coal business for the long term.

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 on because even say a milestone or catalyst related to our coal business for the long term.

Timna Tanners: Thank you.

Thank you.

Don Lindsay: Lana. Sorry, Don, just Robin's gonna jump back in here.

Atlanta.

Sorry, just robin is going to jump back in here.

Okay I appreciate that.

Robin Sheremeta: Okay, appreciate that. I just want to come back to a question that Jackie had, and I might have misunderstood that question in the particular part of the MD&A that was being referred to, but that qualifier that's in the MD&A about the Elk Valley permitting, it's not specific to the missing trout. Generally, we need to show progress in managing water quality issues in order to keep permitting on track. We're doing that and working closely with the regulators. This is a really complex problem with numerous stakeholders, and there's always a chance that something unexpected comes up, but we are making progress, and that's really what that statement was meant to highlight.

Hi, just wanted to come back to your question the Jackie hat and I'm wondering if I 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.

They are really complex problem with numerous stakeholders and there's always a chance at something unexpected comes up about but we are making progress and that's really what.

Statement was meant to highlight.

Thank you.

Operator 3: Thank you. The next question is from Chris Terry with Deutsche Bank. Please go ahead.

Operator: Thank you. The next question is from Chris Terry with Deutsche Bank. Please go ahead.

Next question from Chris carried with Deutsche Bank. Please go ahead.

Chris Terry: Hi, Don and team. First question from me, just in terms of the oil FX declines, should be benefiting your operations. I think you've provided sensitivities in the past, but just wondering if you could go through those. Then as a follow-on to that, I think you talked about it on the call at the start of April around the Investor Day, that you wouldn't hedge anything related to QB Two. I just wondered if you could just talk about any hedging policies, not on the revenue side, but on the cost side for FX or oil for the broader business. Thanks.

Oh, I don't think long.

First question for me just in terms of the oil FX declawing should be benefiting your operations 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.

Hedge 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 cost thought but effect so oil for the for the broader business. Thanks.

Non.

Don Lindsay: Don, are you on? Sorry, I was on mute, I apologize. Ron, if you could take the first question on FX, but I'll start by addressing the overall hedging question. Our hedging policy, broadly speaking, is we don't hedge the 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 in coal and then quarterly benchmarking, we hedged the Canadian dollar, the currency we locked in our cost base once we'd known we'd locked in the tonnage and the sales price. But since so much more business is done on spot, we don't do that anymore. For sources of supply at places like Red Dog, when we're buying diesel, we can hedge that.

Ron Millos: Don, are you on?

Yeah.

Don Lindsay: Sorry, I was on mute, I apologize. Ron, if you could take the first question on FX, but I'll start by addressing the overall hedging question. Our hedging policy, broadly speaking, is we don't hedge the 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 in coal and then quarterly benchmarking, we hedged the Canadian dollar, the currency we locked in our cost base once we'd known we'd locked in the tonnage and the sales price. But since so much more business is done on spot, we don't do that anymore. For sources of supply at places like Red Dog, when we're buying diesel, we can hedge that.

Sorry, I was on mute I apologize.

And 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 has done a spot that we don't today more.

For sources of supply in places like Red dog, when we're buying diesel we can hedge that we also do smoothed out to 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.

Don Lindsay: We also do smooth out the zinc price received at Red Dog because there's so much seasonality to its shipping, but it ends up net sort of average zinc price for the year. We don't end up in a position where we're long or short a commodity or the exchange rate because we don't want to build that risk into our business for our shareholders. Ron, and on sensitivities to FX, over to you. You might be on mute as well, Ron.

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 a business for shareholders running on sensitivities FX over to you.

You might be on mute as well run.

Ronald Millos: Sorry, here I am. My apologies. Sorry. If I heard the question properly, I thought it was related to the asset impairment, and the details on the sensitivities are provided in note 4 to the financial statements. A 1-cent strengthening in the Canadian dollar would affect the impairment by about CAD 50 million, and a $1 change in the WCS price would be about CAD 147 million.

Ron Millos: Sorry, here I am. My apologies. Sorry. If I heard the question properly, I thought it was related to the asset impairment, and the details on the sensitivities are provided in note 4 to the financial statements. A 1-cent strengthening in the Canadian dollar would affect the impairment by about CAD 50 million, and a $1 change in the WCS price would be about CAD 147 million.

Sorry here I am my apologies.

Sorry, if I heard the question profit I thought it was related to the asset impairment and details on the sensitivities are provided for two.

All statements 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.

Chris Terry: Thanks, Ron. Yeah, I was more asking about the operations. How it actually translates through on a real-time basis on falling FX in some of your operations right now. Thanks.

Thanks, a lot more asking about the operation. So I just how it actually translates through on a real calling buys the song on falling effects and somebody that somebody there somebody operations right now. Thank you everyone. Just got our main sensitivity chart.

Chris Terry: Thanks, Ron. Yeah, I was more asking about the operations. How it actually translates through on a real-time basis on falling FX in some of your operations right now. Thanks.

Fraser Phillips: Everyone, just our main sensitivity chart.

Don Lindsay: Yeah. The main sensitivity chart, we obviously withdrew that, because the sensitivities are based on our estimates of production volumes. We, you know, with pulling back the guidance, we're a little concerned that providing any sort of sensitivity information could result in numbers that are not correct. That's the sensitivities are disclosed in our annual report. I 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 gave and withdrawn. I would be...

Yeah. So the main sensitivity chart, we obviously with Andrew that.

Because the sensitivities are based on.

Our estimate subodh production volumes and.

We.

What 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 sensitivities of into slogans and at our annual report.

I don't have been number handy my recollection was it's around $60 million for every penny and that was based on the guidance that we previously game with drawn so.

I would be I would caution people could be very very careful on using those sensitivities now because they are impacted by volumes are impacted by prices.

Don Lindsay: I would caution people to be very careful on using those sensitivities now because they are impacted by volumes, they're impacted by prices and movements and they're probably no longer accurate.

And.

Probably 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 it's a good jackie's question, but there's also comment on Red dog in the relates around piling send water related projects in 22.

Chris Terry: Okay. Okay, thanks. The follow on from me, just you talked a bit about the water treatment on in coal and giving some color on that, so I think in Jackie's question earlier. There's also a comment on Red Dog in the release around tailings and water-related projects in 2020. I just wondered if you could give some more details on that and any CapEx associated with it. Thank you.

20, I just wanted if you could give some more details on that in any capex associated with it. Thank you.

Deal I guess.

Dale Andres: Dale, I guess.

Dale Andres: Yeah, I'll take that, Don. Yeah, we have over the last couple of years experienced higher than normal water, you know, precipitation and water inflow. 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 you know originally capital guidance in our Q4 release. We've now withdrawn that guidance due to COVID. Those are the kind of projects. I think there was a question earlier about what's our potential to reduce sustaining capital going forward.

Yeah, I'll take that dawn.

Yet.

However 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, theres, 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 a 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 a 2020.

Don Lindsay: That's one area that we will not be able to reduce, and it will be higher than normal for 2020 in Red Dog.

Atlanta.

Fraser Phillips: Elena, I think we've come to the end of our time. We should hand it back here to Don for his closing remarks. Thanks.

I think we've come to the end of our time, we should handed back here to dawn for his closing remarks. Thanks.

Don Lindsay: Okay. Well, thank you, Fraser, and thank you all for joining us today. I just wanna sort of give a overview, a summary if you like, the how we see things. If you look back at the last six or seven weeks, I sort of think of that as the operational phase of dealing with the effects of COVID-19, where all of us, you know, both in our work and in personal lives, have had to go up a learning curve and figure out what protocols need to be in place and how to deal with it, physical distancing and the rest. I'm encouraged because we've got through that operational phase and we are well up the learning curve now. We are able to operate at close to capacity levels.

Okay, well. Thank you phrased your 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.

Don Lindsay: We now have taken the step to go from 50% of our employees on site back up to 75% with the full support of the Interior Health Authority. We see a lot more confidence among employees and their families, the communities, the mayors of the towns, the president of the United Steelworkers, and a lot of support, people working very hard to get through this, and they have been successful. Now we have confidence that we are able to operate, and even logistics chain has been performing extremely well too. Now we're going to the next phase and that's where, you know, the market is going to be reduced somewhat as all the things that the world had to do in the global economy take hold.

50% of our employees onsite back up to 75% with the full support to the interior 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.

Vincent we are able to operate in leaving logistics chain has been performing extremely well to snow was 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.

Don Lindsay: we look at the length of that, we know it's one quarter, it's probably two, 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 98.5%. Their steel industry is at 100%. We see what Korea's doing. We see countries all over the world getting their arms around this issue, and the world will fix itself. It always does. At some point, there is the other side of the valley, which we kinda think looks pretty green and lush when you figure that $8 trillion of stimulus, monetary and fiscal, has been announced around the world.

Take hold but.

We look at the length of that we know it's one quarter is 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 continue 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 kind of think looks pretty green and less when you figure that eight trillion dollars the 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.

Don Lindsay: Yes, we have cautioned about our sales volumes in Q2, and I think that should be expected, but in no way makes us think that the long-term prospects for the business has changed radically. In fact, we think the comeback could be pretty interesting once we get through this next quarter or two. I do wanna thank all of my team that have performed at an extraordinary level these last six or seven weeks as we were dealt with challenge after challenge. We will have other cases of COVID-19. There's no question about that. There's an inevitability to that, but we know how to deal with that, and we will.

Long term prospects for the business.

Changed has changed radically and in fact, we think become back.

Could be could it be pretty interesting times once we get through this next quarter too. So I do want to thank all of my team.

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.

Don Lindsay: Thank you to all the shareholders, and the analysts who have joined the call today, and we look forward to updating you again after Q2. Thanks very much. Call is adjourned. Oh, I should say, at the end of every meeting at Teck, I always say this. Stay healthy, keep the faith, this too shall pass, and all will be well. Thanks very much, everyone. Bye now.

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.

Thank you.

Fraser Phillips: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you all for your participation. This conference is no longer being recorded.

Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you all for your participation. This conference is no longer being recorded.

The conference has now been blips.

Disconnect your lines at this time and we thank you all for your participation.

Thank you. The conference has now ended to please disconnect your lines at this time and we thank you for your participation.

This conference is no longer being recorded.

Q1 2020 Earnings Call

Request a DemoDemo

TEC

Teck Resources

Earnings