Q3 2020 Teck Resources Ltd Earnings Call
Need to achieve overall project progress of approximately 40% by year end.
As a result of coal with Nike, we expense to $170 million of costs related to the project's extension, both construction and $23 million of interest that would have otherwise been capitalized projects in the third quarter.
And to the end of September Weve expense total cost of $272 million.
A $103 million in.
Interest that would have been the capitalized for the project.
We commenced capitalization of borrowing costs on the TV to project in the third quarter consistent with the return to active construction on the project.
Similarly ramp of proceeds through the quarter as currently planned the aggregate estimated impact from the suspension is expected to be approximately $350 million to $400 million you EPS, excluding interest with the scheduled delivery of approximately five to six months.
As well the additional Tam space as an incremental cost 45 million warrants.
Above that.
First production at QB two is expected in the second half of 2022.
Turning to slide eight.
And attack our approach to safety and sustainability our core businesses.
Accesses our business.
Robust over 19 protocols in place at all of our operations to continue to focus on preventative measures, some controls and compliance and integration into our normal.
Year to date, our high potential incident frequency is 31% lower than the same period of 2019 is that 1.1 trillion hours work.
In September together with the EPS Corporation, we entered into a long term power purchase agreement to provide 100% renewable power are accommodated coil operation in Chile.
This agreement is expected to eliminate approximately 200000 tons of greenhouse gas emissions each and every year.
And it is our goal to be the leading diversified mining company when it comes to sustainability SG rankings in performance.
I'll just say our efforts on sustainability has been recognized by a number of organizations.
I'm 2019, Teck was named to the Dow Jones sustainability World Index for the 10th consecutive year.
And we were the top ranked mining company in the index.
We are also the top ranked diversified metals mining company on sustain Olympics.
Highly ranked on Sci in comparison to our peers.
We are nice VMM member company I, just finished three years as chair.
And we have been recognized as a strong performer.
I assess pudsey for good and others.
We were proud to announce yesterday that tech has been named to the boards Worlds best employers 2020 list, which is an employee driven ranking of multinational and large companies from 45 different countries. They looked at topics, including COVID-19 response and.
And willingness to recommend an employee or two friends or family.
Well we are of course, we are proud of our performance, but we do know that there is more work to be done on these two issues as they become much more important to many stakeholders.
I will now run through highlights of our third quarter by business unit, starting with steelmaking coal on slide nine.
Third quarter Steelmaking coal sales were 5.1 million tons, which was within our guidance range.
We had planned mining and production outages at our operations in the third quarter to correspond with anticipated reduced demand related to cold 19.
We reduced logistics capacity in accordance with that are using the class five much shutdown at Neptune terminal and that was completed in September.
As a result, our Q3 production at 5.1 million tons is 22% lower than the same period last year.
And that affects costs as you would expect our adjusted cost of sales at $67 per tonne reflected that lower production and lower sales volumes.
Transport costs were higher than the same period, a year ago, primarily due to the lower volumes to Neptune during the planned five much shutdown terminal operations.
And on August 25th we announced that we signed an agreement in principle with west shore terminals for the shipment of 32.25 million tons, starting on April Onest 2021.
Together with the Neptune upgrade and our contract with good returns.
This will provide much greater flexibility and optionality protect shipments and contribute to reduce costs and improve performance and reliability throughout our steelmaking coal supply chain. So looking forward. We expect strong sales of 5.8 6.2 million tons in Q4 of 2020 up from the five.
0.1 in Q3.
We expect our adjusted cost of sales to decrease over the remainder of the year and to be below $60 per ton in December supported by restructuring the cost base and assuming from coal business.
Turning to our copper business unit.
Quarter results are summarized on slide 10.
And Semina performed well at full production rates in the quarter.
Only a temporary suspension of operations to the coconut team that happened in Q2 2012.
Production was lower than the same period last year for final Valley and Carmen de Andacollo Highland Valley production was impacted by harder than expected Youre. Following a change in mine sequencing earlier in the year in support of reduced waste movement as well as maintenance challenges.
Production is expected to be hired before the increase mill throughput and higher ore grades.
The decrease in your coil was primary the result of lower ore grades which were expected in line pipe.
And also reduce mill throughput due to longer than anticipated maintenance shutdown.
Notwithstanding the reduced production, where you would expect costs to go higher.
He actually had significantly lower total and net cash unit costs in the same period last year and this was supported by our cost reduction program and the contribution from weighs 21.
Looking forward, we lowered our copper production guidance range for the second half of 2020 to 100 and quarter 155000 tons, which declined by a 1000 tons than before and that's due to the lower production at Highland Valley.
Our zinc business unit results for the third quarter are summarized on slide 11, as a reminder, and to me is zinc related financial results are reported in our copper business unit.
Red dog sales of zinc in concentrate were 175300 tons, which was in line with our guidance range.
Red dog zinc production will significantly improve continue to Coney Island.
Climate change I have to say is effecting site conditions, which limited our ability to discharge to midwater.
However, operating restrictions due to excess water will result in the third quarter, we completed a raise of the tailings facility earlier than originally planned which provided us with additional flexibility for water storage.
We also installed a new water treatment plants increased the water discharge capacity when permits limitations a lot.
At trail and refined zinc production was higher than the Q3 2019 and looking forward.
We continue to expect to ship all concentrate during the Red dog shipping season reports it will complete them just a matter of days.
On repair to the loading on one of the two shipping barges was completed by the end of July.
We expect sales of Red dog zinc in concentrate of 145 to 155000 tons of port quarter, which reflects normal seasonality.
And we have lowered our guidance for net cash unit costs in the second after 2020 to 30 to 40 cents us per pound from previous in 40 to 50 cents on so thats definitely the right direction.
Our energy business unit results for the third quarter are summarized on slide 12.
Our realized prices and operating results were significantly impacted by both the lower production and a material decline in benchmark oil prices compared with Q3 of 2019.
As previously announced the poor hills partners safely and efficiently reduced operations to a single train facility in the second quarter, which helped reduce negative cash flows in the third quarter in light of coordinated team then.
And the very low Western Canada select crisis.
Production was also negatively impacted by extreme wet weather, which resulted in soft conditions certainly in June and continuing into July.
Looking forward the portals partner decided to restart the second train begin to ramp up production to around 120000 barrels per day by the end of the year that was earlier than had previously anticipated.
On October 23rd just five days ago.
The government of Alberta announced that it will not issued monthly production limits for the December 2020 production line.
In December 2020 that means that operators will be able to produce above the previously issued production limits without having to purchase quickly on the credits or to acquire the special production ounces.
The curtailment rules have been extended to December through the post 2021 I will.
The government of Alberta will only issue ministerial orders to limit production when utilities need it.
It requires new shareholders will be issued with 30 to 60 days quarters to allow time for producers to respond to plan accordingly.
The Board Hills partners continue to monitor the business environment.
Yes plans to maximize cash flow.
The potential to increase production and lower costs.
We have lowered our guidance for adjusted operating costs in the second half of the year to 35% to $38 Canadian per barrel of Richmond down from the previous 37 to $40 per barrel, but of course, what we're all looking forward to is to gain to that that level that we were in in December of 2018, when it which was the last month when.
For hills was and allow it to run at full capacity and when that money to average 201000 barrels a day at a cash cost of 23 Canadian per barrel. So looking forward to getting back there sometime in the future.
With that I'll pass over to Ron Mills for some comments on our financial results finally.
All right great. Thanks, Don I'll speak to the changes in our cash position during the third quarter and that's on slide 13.
We received net proceeds of $540 million from debt in the quarter and that was made up of that draws of Usforty 9 million on our revolver and Usthree hundred 41 million on the QB two project financing facility.
We generated 390 million cash flow from operations, we spent 589 million on capital projects and that included 246 million on QB, two and 89 million odd that Neptune facility upgrade our.
Our stripping activities used $110 million that was lower than our Q3 2019, due mainly to the planned mining and production outages at our steelmaking coal operations in the quarter, we paid 104 million in interest and financing charges and $54 billion on expenditures on investments and other assets.
Lease payments totaled 41 million and we paid $27 billion at our regular five cent quarterly base dividend and after these and other minor items, we ended the quarter with cash and short term investments of $403 million.
Turning to the impact of COVID-19 at our business on Slide 14, as Don mentioned earlier, our third quarter financial results reflect the negative effect of COVID-19 on the prices and sales of our products compared with the same period last year, we saw strong recovery compared with Q2 of this year, which was significantly negatively impacted by the pandemic.
In the second quarter all of our mines had recovered from COVID-19 production disruption and in the third quarter, we expensed $130 million related to COVID-19 on a pre tax basis, which is half of the amount expensed in Q2 and of course, we Expensed 107 million other operating income expenses related to the temporary.
Suspension of construction and re mobilization at QB, two projects and $23 million in additional finance expense representing interest that would have otherwise been capitalized construction on QB two have not been suspended.
Well, we have certain increased costs associated with operating our minds at full production and the new normal environment over 19, such as medical testing safety equipment and supplies and additional transportation and accommodation costs for social distancing bare.
Their cost of operating in this environment and are not adjusted for an adjusted earnings calculations.
And on a year to date basis, we expenses totaled 434 million related to COVID-19 and that included $103 million of interest that would otherwise have been capitalized.
We recommenced capitalization of borrowing costs on the QB two project in the third quarter and that was consistent with our return to active construction on the project and barring any further negative developments around COVID-19, we do not expect significant COVID-19 specific costs on a go forward basis.
[music].
Slide 15 summarizes the latest results of our cost reduction program to the end of September we've achieved approximately $270 million of operating cost reductions of $500 million of capital cost reductions and these reductions are against what we were expecting to spend back at the end of June 2019, when we started looking for cost reduction opportunities. So it may.
Pretty good progress against our targeted reductions of $1 billion. The reductions are spread throughout the company with the majority of the operating business units and it also includes satellite projects the exploration projects, our IP systems, and our admin and marketing costs throughout the company and the realize and remaining.
Targeted cost reductions from our cost reduction program have been included in our guidance since we announced the program in October last year and are reflected in our current guidance as well.
Turning to our financial position on Slide 16, we have a strong financial position with current liquidity of 6.8 billion Canadian and this includes our cash balance and the amount available on our usfive billion committed revolving credit facilities.
You asked 3.8 billion is available on our 4 billion facility that matures in that fourth quarter of 2024, and our U.S. 1 billion sidecar that matures in the second quarter of 2022 is undrawn.
Importantly, both of these facilities do not have any earnings or cash flow based financial covenants do not include a credit rating Trevor trigger and do not include a general material adverse effect boring condition.
Only financial Covenant is a net debt to capitalization ratio that cannot exceed 60% and at September thirtyth that ratio was 23%.
And for our two U.S. 2.5 billion limited recourse project financing facility for QB. Two we've currently drawn about eight us $860 million of which $240 million 341 million sorry was drawn in the third quarter.
Going forward our project funding will be from the project financing until the project reaches a specific ratio about project financing to total shareholders funding and tax next contributions to project capital for QB two are not expected until the first half of 2021.
And we have no significant maturities prior to 2030 investment grade ratings from all four of the credit rating agencies. So overall, our financial position is in good shape to allow us to continue to weather the challenges around COVID-19 and to complete the Neptune facility upgrade and the QB two project and with that I will.
I turn it back over to Don for his closing comments.
Thank you Ron and to wrap up on slide 17 despite.
Despite the ongoing challenges our financial performance did recover strongly in Q3.
Following the second quarter that was obviously negatively impacted by COVID-19.
We believe the tech as quality operating assets in stable jurisdictions, and we are advancing a copper growth strategy that is funded and is being implemented we.
We continue to progress or four key priorities to create shareholder value and physician tax advances to come those are the QB. Two project reached 21, Neptune and our company line CRP cost reduction program.
We believe tech is well positioned to generate shareholder value as it will adapt to the new normal with COVID-19.
And with that we would be happy to answer your questions I should say like many of you most of US run phone lines from home. So please bear with US if there is a delay what we sort of tooling outreach question. So now operator over to you for questions.
Thank you please.
Please press star one at this time, if you have a question it will be a brief pause whether participants register thank you for your patience.
The first question is from Orange to popped out at Scotia Bank. Please go ahead. Your line is now open.
Hi, Good morning, Todd I was hoping we could get a bit more color on the cost guidance for the call I find the languishing in the mdna fairly confusing because it on one hand, you say that you expect on site costs and coal to exit this year 60 Bucks a ton, but then.
In the disclosure. It also talks about kind of preliminary 2021 site cash guidance to be in line with H two levels, which are 60 to 64.
Can you help explain how should we should interpret that.
Ill turn it over to turn it over to.
Robert in just a minute.
You should have the context and we haven't finished our budgeting for 2021, yet so we didn't want to put a formal numbers very specifically until weve done that and.
That process is ongoing there are always a number of different factors with any operation that come that too.
You know throughout the course of the year. So we want to make sure that we've examined all those things before we put a very specific guidance, but for sure. The cost structure of the business has been materially reduced the law would be plus or minus a couple of bucks of going forward. We are at a level substantially lower than it was before and then the starting point going in.
The 2021 is pretty good but with that said robin over to you.
You bet. Thanks.
Thanks to our stuff as some.
As Don said.
We're going through a budget process right now so there's a lot of things like whole dozens planned maintenance outages that normally occur in Q2, and Q3 that we ought to take into account and we've also got to new water treatment facilities coming online this year with 40 herself.
To be completed in at the end of Q1 as well as the LG saturated rock. So would you just going online also so those things all have to be rolled into a budget but.
I want to give you I'll give you a few important data points that will help you kind of frame of you around us.
So our strip ratio and this is a key cost drivers is going to be we're coming down to around 10 to one to this last quarter. We won't go through 2021 at that 10 to one and we see ourselves over the next few years staying at 10 10 to one.
Again, thats, an extremely important cost driver for US you remember our strip ratio through 2019 was 11.4 to one it's going to be around 11.1 to one to 2020.
So now that we've got.
Expansion helps you behind us.
We see that separation stabilizing so thats, one really important data point, Don also mentioned by closure of Cardinal River.
From a structural point of view that was our highest cost off ratio lower quality coal and that Tony Gen more actually has been.
Ben created through the L. few expansion, which is now successfully executed and we're running at a pace of 9 million per year at that operation and Thats, our lowest one of our lowest cost operations.
Hi.
In the business and at a higher quality coal sold so thats. Another factor you have to take into account because it's both cost and it gives us greater value on the product side.
The other thing that we probably haven't talked much about but through this time through the Colgate time, Weve maintained our mine plants and the key assets.
So weve got healthy raw coal inventories now going into 2021, if you remember that was one of the constraints that we actually suffered through here over the last couple of years, when we were driving to produce into the high price market.
So that's behind US. So we all have healthy Rocco inventories. Our mine plans are are very stable thats why were able to maintain intend to one.
And the other piece of the puzzle as we had trouble with full clean coal inventories as well not just three of the four operations now or are pretty much down to stable levels and that means that's no longer a constraint for us. So that's another reason that we've got a pretty strong base going into 2021.
And then additional end on one last positive note, we're we're driving range 21.
That strategy through coal and we're seeing significant value right now in a kind of just to illustrate if we saw.
Record high mine productivity is in Q3 above anything we've seen.
Previously so.
That will be sustained for and that's the kind of structural changes occurring that supports a very strong cost base going into 21.
So again I don't want to get.
Specific numbers out at this point as we go through the budget.
But suffice to say, we're operating on a much much better cost base that we have to do this to your transition. Thanks.
Thanks, Robin just on that I mean for all the reasons you cite here I guess I'm not understanding why costs were not going to remain below 60 Bucks a ton in 2021.
For Q4, I mean, one one aspect about Q4 as we don't have plant shutdowns during that quarter is typically a quarter, where that's all behind us and we on average will operate at a lower cost normally in Q4 than we do over full year.
So quarter to quarter.
You have different.
Impacts on your cost base. So that's.
Why we're confident we'll we'll end the year below $60, but that doesn't mean that every quarter forward and 21, we'll be at that same level.
Okay. Okay.
Okay. Thank you very much or as you can assume it is certainly our objective to stable at $60. If we can.
It's at all possible, but we don't want to represent right now to tiller finished the budget process.
Yes, okay. Thanks.
I might add just on the ultra productivity comment that Robin made but we actually had a.
Really high records all truck productivity during spring runoff for those of you ever been a permanent financing with it will conditions are like at that time of year Betsy.
That's incredible savings to be able to make so at least when one is certainly helping us along.
Next question please.
Thank you. The next question is from Carlos de Alba of Morgan Stanley. Please go ahead.
Hi, good morning, and thank you.
My question, maybe Darren it's on.
Highland Valley copper.
Just.
Two point there Chris.
Given the guidance for the fourth quarter EPS.
C to speak to them that the hard or they you processed in Q3, and then resulted in lower output.
I think on the patch and meaningful going forward that is normalized and production should just couple of IPO beyond the fourth quarter guidance that was provided.
Also on Dod.
On that operation a doubling the molybdenum production in the third quarter declined significantly year on year.
Due to particularly lower grades and what can you comment on the multi grade going forward at that higher end product. Thank you.
Okay I think most of those questions can go to deal Anders Please.
Yes, Thanks, Carlos just.
Just to start on the first question with hardness.
Basically there is two factors that led us to change to the mine plan and the sequence for the year.
I wanted you to reduce stripping around call that in the second quarter.
Where we focus more and on the on the on the Valley pit.
And as well as some.
Geotechnical constraints that limited our flexibility buffer for the various sources that we feed to the mill.
We found ourselves in a particular area in the pit that was harder than expected an area that we didnt quite have as much hardness data around and Thats. The reason for the for the lower guidance for the quarter, we do expect higher production.
And throughput going into the end of the fourth quarter.
And.
And into 2021 as well so.
Well, we won't completely be out of that area. In 2021, we do have other areas that will.
Blend and mix was softer ore. So we don't anticipate to have the same kind of issues as Q3 going forward.
Just on Mali again, it's due to the change in mine sequencing originally more wars plan from from other areas of the mine and when we changed the mine sequence that directly affects the Somali production grades.
So again, we don't anticipate that.
As as low as we've had from only we do anticipate that strengthening going forward as well well issue updated.
And for 2021 on on Q4, EPS, we finished the budgeting process.
So that's one.
Okay. Thank you very much good luck.
Thanks.
Thank you.
The next question is from the correct what breadth of credit Suisse. Please go ahead.
Thank you good morning.
Question on coking coal I'm curious, what you're what you're seeing on the on the demand side given some of the port restrictions announced in China. It seems like if you look at the domestic price in China, it's up about $15 a ton to 200.
Yeah. It starts really in place has done a quickie turning in a given their out of the market. So it seems like the arb is extremely wide.
And potentially India is coming back in the market. So just curious your what you're seeing with respect to that and do you have any sense at a consumer level, how you're viewing coking coal inventories because obviously, it's there's no but the data for us to look at thank you.
Thank you for your question I thought this would actually be the first question today.
There are some exciting developments, there, but I'll turn it over to real food.
Okay.
Alright. Thanks.
So maybe I'll start with your second question with respect to inventories.
So you'll recall back to steel production was actually turned down in class from Asus were shut down a lot quicker.
With the pandemic.
And as a result of that inventories of steelmaking coal will also brought down very quickly so.
Going into this quarter.
From the second half of the second quarter of the third quarter.
We've seen it.
Blast furnaces, you start again and as those blast furnaces are you targeting.
The steelmakers are trying to replenish inventories as well so orders have been trending up and that is reflected in our Q4 sales guidance.
Just a note of.
Caution on that demand is not yet back to pre coal that level. So just wanted to qualify that also.
Now your first question on what is happening like.
With Twitter.
The coal market overall, what we believe.
The impact.
Hi, seaborne import restrictions.
The first thing I guess to say is there has been no official announcement on on those restrictions, but they appear to be mainly directed toward industrial than coal.
And.
Continuing to see China steel production run at record high levels. So you have.
Hi, Craig the.
Steelmakers requires steelmaking coal.
And we are starting to see a few sales to China above original expectations and that is coinciding well.
With our operations ramping up through the quarter and small than it was just explaining.
Now when we look at China per Se and yes.
There's three sources of steel.
Steelmaking coal for China seaborne market is one Mongolia is another and of course in domestic coal where the majority of the coal comes from.
And so on the seaborne side.
The impact of the pandemic as reduced supply from remaining supply areas, Australia Us Canada Mozambique.
Are all down and its total of around 20 million tons.
Just year to date, Australia alone this down around 10 million tons August year to date, so that annualizes roughly at 15.
And when we look at.
Hi, H smart beta.
For October steel, making coal vessel loadings are actually trending down somewhere around four and a half million tonnes a month over month.
So there is likely and impacts from from that report that.
The other point to me can you is there is vessel queues.
The China ports.
Around 6 million tons of coal is sitting in teams right now at the port.
But we do not see any Australian cargoes are waiting at Chinese ports being diverted to other reports and as as you mentioned with.
The coal prices, having come down quite a bit to actually close to $30 since the beginning of October.
It's quite difficult to resell. It is some of those cargoes as has the loss would be quite large on top of the extra costs to move the coal, but there is also another part.
Okay.
December 2019.
Stats were showing that only around 120000 tons.
Were imported into China from the seaborne market at that time, however, again.
Yes.
Market data shows that around 4.8 million tons of coal was off loaded in December of 2019, but did not make it into the stats on till early 2020.
And that that could happen again, and we are hearing.
In the market that there has been at least one Australian coking coal vessel that was discharged after the bank.
So how long will the ban lives and we don't know but.
Hi, Quinn Mongolia imports flowed back in 2016 and 17, they lost his life and one month.
Another point to keep in mind is of course, there is inventory in China and.
We're estimating that there is somewhere around 45 to 50 million cartons.
Coking coal and Coke and coal equivalent.
In the supply chain in China, right now that is equivalent to about four weeks at the rate that China is running right now and so they.
They are of course consuming some of that inventory as has tightened goals.
Now the other two areas for supply steelmaking coal to China Mongolia.
Slog decoupled from Mongolia to benefit from the possible loss of Australian coal imports and the market is expecting that Margo you guys trying to recover the loss exports during the early months of the pandemic when the China border was shot.
And.
Ongoing I sports were down.
10 million tons September year to date.
But they also reached a new record high in September and just around 3.9 billion tons into money.
And if Mongolia can you keep running at.
Record high levels.
For the in the remaining three months of the year imports from Mongolia in 2020 would still be down somewhere around 6 million tons year over year.
The other point is that.
Goliat.
Imports have never run at this current level.
Three consecutive months the previous record was in August 2019, and active towards one month.
At around 3.75 million tons.
And.
And then ended with domestic.
China domestic production is virtually flat September year to date and expectations are that when China domestic production will be flat for the full year 2020 compared to 2019.
Production in 2019 was right around 480 million tons.
And we're seeing more aggressive safety and environmental inspection.
Ongoing in China so.
And.
The belief in the market.
Supply production.
Coking coal from Australia will be flat.
For the full year.
So eventually we're expecting that.
The global demand.
We'll be on that on affected by those trade restrictions.
We're also expecting that the improved sentiment and the potential disruptions related to weather in.
In Australia.
In the fourth quarter and ultimately then in early 2021.
Support increased activity in the steelmaking coal market and we are seeing that as soon as shown.
Guidance for Q4, so it's a long answer I know.
But there's a lot of moving parts and as I said right at the outset.
There has been no official announcements about this there's also expectations that quotas ports import quotas will reset at the beginning of 2021, but you know same thing again, the quota as I talked about a lot to the market.
There is really no official announcement about that.
No any further color on the Chinese domestic price in the spread between that in the seaborne price and whether any of that will find its way to a non us drilling seaborne supply.
Hey.
Good question.
We the carrier arbitrage is somewhere around $70.
Just under that actually.
And we're starting to see.
Just a few sales to China, a bottle of original expectations.
And.
Yes, there if if.
The steelmakers become pinched for steelmaking coal it could very well, we'll continue looking to the seaborne market.
For more supply from regions other than Australia, and that could very well continue to push price up.
Okay.
Thank you I appreciate all the granular data that's very fast.
And maybe a quick one for you Don.
You know as were kind of coming at it obviously that the base metal performance. I think has been has been pretty remarkable certainly within both copper and zinc.
With respect to portfolio construction can you give us an update on kind of project satellite has there been any more.
Traction there with regards to.
Divestiture potential and then I guess similarly, with let's Fort Hills as you see.
Some additional capacity coming on is there there's been some consolidation in energy is there any.
Any potential for.
Looking at monetizing that asset potentially ahead of when you would get back to your more basic.
Baseline level of 200 barrels a day and 23 cost structure. Thank you.
Yeah. So first on on project satellite.
We continue to add value, where we can on the five different assets as you know there's still travel restrictions. So whether you want it to do its sales process or not it would be difficult for people to say to diligence and and so on but we certainly like the way the direction. The market is taking and as you point out to copper zinc.
Perform pretty well so.
The market looks stronger than it was when we had on this after an l. sale process before so that should be a benefit.
We're not in a rush because we we can't really do anything you'd want to do until you have much freer travel than than we have today, but certainly the assets are getting more valuable and at some point.
Well, we gave some some sort of transaction to to get that to shareholders terms of Fort Hills I think.
The partners will have to come up with a plan on on how they ramp up toward hills to to the next level as I said in my comments that would be looking at different market conditions and operating parameters, but.
Yes, it would be to get back to full production.
And thereby lower their cost per barrel not quite significantly as it goes up.
So I think you'll see some version of that Suncor as the managing partner obviously in the <unk> and then we'll see announcements from them on on that is that we do course, when the terms of where it stands within the tech portfolio before construction I think you called it a.
We have said for more than a year now that we get through some of these issues in the market in terms of getting it back when in the quarter.
Core capacity and people better visibility pipelines.
And it's clear that we're not going to be paid Gordon Tech resources, and we will engage in a transaction.
Where its own differently, whether it's no rights sale per cash whether its contributed into.
Another company, taking back shares in some sort of consolidation plays it's not lost on us there's some consolidation going on in the sector.
So you can assume conversations are taking place.
I wouldn't anticipate you would see anything.
The near term.
Not until we've been able to ramp up.
Demonstrated with the asset can do I mean, when when portals first started up per se, even nine months. It was absolutely terrific operating performance for the start up and got to a point, where it was running about capacity.
No. There's been told 80% of projects that scope never had was on the cost save on this.
On got there pretty quickly and had good.
Could the bottlenecking on top of that so I think you want to be sure. We can demonstrate that value before we engage in a transaction.
But.
And as we move account sooner than people expected and.
We started up the second train now so it seems like production.
Great, Thanks, very much or something.
Thank you.
The next question is from Craig Barnes of TD Securities. Please go ahead.
Thank you I just.
Sure Don already out can you have the ability to meet additional demand from China is a Canadian coal.
He said the coming to you.
Does the guidance imply that you are getting some of that demand or is there upside to that number the guidance number.
Rail altered.
Ill turn it over to you, but Greg as you might expect.
Putting a lot of pressure on.
Hello.
Yes.
Got it thanks, Greg so.
Yes, we are starting.
Starting to see some of that demand, we are making a few sales into that demand by.
As as we look at the full quarter keep in mind that.
The guidance that we've provided is based on the fact that.
Overall demand.
For steelmaking coal in the world, notably, China, but in the world is not that pre corporate level. So.
No.
The Guidances, we feel is appropriate and let's keep in mind too that.
There remains a risk to the recovery with the second wave that we were seeing with the pandemic.
In a number of places in the world.
Getting hit pretty hard right now.
Sure.
I want to go back or a question on the cost of 2021.
Does that also include some.
I guess conservatism on what volumes could be next year, and obviously you don't have any guidance out there yet but.
No it does still challenging into 20 or 21 still.
That would obviously have an impact on the unit costs at volumes on backup plan 26 27 tomorrow.
I'll let.
Robin.
Okay.
Initial production plans, but directionally, Greg we want to be going into 2021 at full production or very close to it.
Go ahead Rob.
Not much to add to that dawn that's the plan so.
We said, we would go into 21 quite strong with with.
Healthy raw coal inventories are stable mine plan.
Record productivity is almost things set us up so if the market supports full production. The plan obviously is to meet that demand.
Okay.
Just a follow up question finally for you Robyn any mdna. It says something about regulatory changes coming shortly that will increase water management costs.
Over and above the 350 to 400 million. This plan to 2021 through 2024.
What is that all about.
Yes, probably defer to Peter for that one.
Yes. Unfortunately.
Greg There is not much more we can say on that in light of the ongoing prosecution, but we do expect some additional regulatory requirements.
In the near future well complement.
Complement measures that were already taking out of the valley water quality plan and to the extent that does represent a significant change in our spending plans, we probably make an announcement when those are finalized.
Okay fair enough. Thank you.
Yeah.
Thank you.
The next question is from Jackie it picks the latchkey CMO capital markets. Please go ahead.
Hi, Thanks, very much I have a couple of questions I guess I just want to ask them first on your dividend policy I know when you initiated the formula the dividend Formula last summer are you.
As mentioned for four last year, you would either provide an update on your dividend in November or in February and if I could get that came in February last year and this year do you have a sense of what the policy is going to be on that going forward can we expect dividend announcement.
Next month or are you more likely to update the market ediary on that.
No. It would be February there. The decision was made to wait until the year is complete before determining any supplementary capital returns we have the capital allocation model. This published and I believe we keep it in the <unk> by our appendix in every presentation. So you can see how the decision making close on that.
One.
If there's a cap.
Capital available for further returns above the base dividends and.
We we have in the past surveyed shareholders to determine whether buybacks or for cash dividends are our preferred and then the board makes a decision at that stage. So.
Basically nothing has changed from let's wait list.
Okay. Thanks.
Thanks and to follow up on Gregs question about coal and if you do see and I know.
I know you mentioned that there's still some risks to the to the volumes and outlets, but if you did see higher demand for coal.
From China through Q4, and 320 21.
Are are there still mechanisms like like you talked in the past Q push the the mines to raise volumes could you bring in contract labor or something like that too.
He start producing more than what you normally would for a short period to take advantage of that high demand is that still possible.
[music].
Robin.
Yes, well, it's less possible and it might have been when we had six operating margins were down to four now so flexibility around that as.
Incrementally less I guess than it was before.
There's there's still opportunity I think there are some latent capacity and.
The one mine right now, but it is pretty marginal so.
That's why I was asking was the change to the number of mines, yeah that makes sense. Thanks, and maybe just one final question I know.
It's difficult for you guys could comment on on the water treatment costs.
We see some press releases press reports recently about about some more stringent.
Prior treatment protocols, whether it's through Canada or or in some of the BLS states like Montana.
Potentially more that teck would have to do to keep selenium levels under control beyond what you guys have already invasion in the water treatment plant.
Just something you can talk to you on that.
Yes, I think we start with Peter on that one.
And maybe on.
Okay.
Yeah, So I think.
What we have to do over the long term is going to depend very much on the results of our.
Our current program and ongoing environmental monitoring, we're obviously committed to protecting.
Water quality.
As far down as as the Transboundary.
Packs of our operations, including Lincoln produce.
And though there Theres, Montana rulemaking, that's still ongoing we're primarily regulated NBC and the BC government hasn't yet.
Announced a recommended water quality objective.
Relate to consent.
And they recently announced they remain committed to a science based processed.
And that BC, we're only commit to a standard.
Once.
Once that that science based process has has been fulfilled and obviously there is ongoing consultation with the to no nation Council, we're participating in the regulatory process on on both sides of the border and from a kind of a good news perspective.
Annual average same level somebody Cook news has been stable since 2014, and we expect to see reductions in those levels as as treatment capacity comes online.
As Robin said earlier, the ultimately seminary rock mills being commissioned in the morning.
Second water treatment facilities coming online very shortly so.
Difficult to say.
Okay and what the.
What the future hopes, but I think we believe that our current.
Setting estimates are reasonable subject to the.
Additional regulatory actions that Greg.
Spoke about which which.
Hey.
Requires some some additional spending.
Okay. So it is helpful.
And the good news Jackie is in the next three or four months, our capacity to treat waters. The boat to go up dramatically from 7.5 million liters. A day currently 247 and a half million liters. So that see Elk few extra will be finished shortly and ramping up to be finished under.
Under budget and ahead of schedule and Affordable care Act to water treatment plant will be coming online.
In the next quarter, and so that will really increase the capacity for water treatment and will demonstrate.
All the other plants or Srs or no plans EPS rents are coming on and we will continue to help.
So we're looking forward to getting that capital deployment, which makes the company better company behind us.
So we're past nine o'clock down so I'm going to call. It close and just make a couple of final comments first I do want to say how exciting October eightth was and.
For those of us in the company because in the morning, We had pictures sent to US who Chile will be sub ball mill number one being that.
The almost rolled into place and that's just a significant.
Threshold.
Instructions savings large piece of equipment in there and that after we saw the ship order coming in Vietnam.
Moving into the hardware sales underneath the landscape bridge.
These are two big pieces of equipment into two initiatives that we have that are really going to make the company not much stronger for decades to come on the cost side the Neptune.
The initiative is going to lower costs by by quite a few dollars for decades to come on a lot of times and just make us a stronger more competitive steelmaking coal business and of course QB. Two when finished is going to double on a consolidated basis of copper production and change the look of our portfolio.
Well. This is that's what we're working towards making the company.
Much stronger company.
My question has to do what they will be but somebody to handling assets will will be much stronger and then finally I do want to say thank you to on those once again.
Sure and then just 25 years of contribution.
To make this company where it is today, we very much wish you all the best Smith timeline. Thank you for all the tremendous service.
With that operator, we'll closely.
The conference has now ended please disconnect your lines at this time. Thank you for your participation.
Okay.
Yes.
Yeah.