Q1 2021 Teck Resources Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to tax of first quarter 2021 earnings release conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. The.
This conference call is being recorded on the Wednesday April 28th 2021 I would now like to turn the meeting over to Fraser Phillips Senior Vice President Investor Relations and strategic analysis. Please go ahead.
Thanks, very much Kate and good morning, everyone. Thank you for joining us for Teck's first quarter 'twenty to 'twenty. One results conference call for you again, I would like to draw your attention to the caution regarding forward looking statements on slide two of 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 vary.
<unk> does not assume the obligation to update any forward looking statements.
I'd also like to point out the we use various non-GAAP measures in the 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.
Thanks, very much Fraser and good morning, everyone.
I'll begin on slide three with first quarter highlights I'll be followed by Jonathan price of our CFO, who will provide additional color on the financial results and then we will conclude with the Q&A session for Jonathan and I and several additional members of our senior management team would be happy to answer any questions.
So strong operational performance and higher commodity prices contributed to a very solid start to 2021 on the first quarter.
Our operations continued to be resilient, despite ongoing challenges associated with COVID-19.
The team continues to rise to meet those challenges putting in place comprehensive measures to protect the health and safety of our people on our communities to ensure that we can continue to operate responsibly and progress of our strategy to grow copper production.
Across our businesses production was in line with plan, we met our quarterly sales guidance from both steelmaking coal and zinc and there are no changes to our annual guidance.
At the same time, we achieved major milestones for our priority projects. We are now past the halfway point of construction at our <unk> project, which is of long life low cost of operation with major expansion potential.
<unk> two is expected to double our consolidated copper production by 2023, and we continue to expect first production in the second half of 2022, which is next year.
Our net to your important upgrade project has moved into the commissioning phase we've now loaded 18 ships.
And we successfully commissioned the acapu saturated rock fill expansion on the first quarter on schedule and below budget.
The U S are up has been achieving near complete removal of selenium of nitrate from up to 10 million liters of water per day since 2018, it as part of our ongoing work to implement the Elk Valley water quality plan to maintain the health of the watershed of round or steelmaking cooperations.
You asked for apt expansion double of the water treatment facilities capacity to 20 million liters of water per day.
Turning to slide four.
Revenues were up 7% from a year ago, the 2.5 billion the profitability improved even more with adjusted EBITDA, increasing almost 60% to $967 million and bottom line adjusted profit attributable to shareholders, increasing almost 250 per cent to $326 million, which the 61 per share on the day.
Diluted basis.
This reflects higher prices for our principal of products, most significantly of copper zinc and the western Canadian select.
Jonathan will review our financial results in more detail on just a few minutes.
I will now run through highlights of our first quarter by business unit, starting with copper on slide five.
Our copper business unit had a strong Q1 with the 205% increase in EBITDA compared to the same period last year, reflecting substantially higher copper prices production.
Production was similar to a year ago with higher production at Highland Valley, copper and <unk> offset by lower production at Comdata Coy on QB as expected on our mine plans through 2021.
Net cash unit costs were $1 38 U S per pound in the quarter up from a dollar of 28 per pound a year ago, but in line with guidance. The increase from cost is primarily due to higher workers' participation in royalty expense, resulting from higher profitability of that as well as lower production volumes of Comdata coil.
Turning to an update on our Kiwi to project on slide six overall.
The overall project progress surpassed the halfway point in April we have been seeing the pace of construction trending upwards through the first quarter. In fact, we have been hitting new weekly records over the last month.
These successes are a reflection of the project teams efforts in effectively managing through the current wave of COVID-19 in Chile, we continue to enhance our extensive COVID-19 protocols in order to protect the health and safety of our workers and the communities in which we operate including pre screening of the entire workforce with PCR testing.
The situation is being actively managed to maintain the current workforce level and to allow for further ramp up as soon as possible.
As I mentioned earlier, we are still on track for first production on the second half of next year for <unk>.
Capital cost estimate remains at $5 2 billion U S. A.
Absent the COVID-19 related capital expenses, which are being tracked separately.
We have previously disclosed 450 to 500 million U S of COVID-19 related cost of which 197 million U S have been expense.
COVID-19 does continue to affect the project progress.
That said we are pleased with the progress we are making in light of the current COVID-19 restrictions, but the final extent of COVID-19 related cost will depend on the progress of the pandemic in Chile, and the extent of further impact on staffing levels.
Slide seven provides an aerial view of the concentrator area. The grinding lines shown in the middle remain the critical or longest path for the project. We have made significant progress on the grinding lines of five of the six mills are now in place since the start of the year, we have advanced the placement of the third and fourth ball mill and here.
And you can see the last shelf segment being lowered in place for the fourth ball mill.
We have also significantly advanced the structural steel of the grinding building and have installed the staged flotation reactor or so far of cells and the floatation area, which you can see just here in green on the far right of the photo.
These are just adjacent to the large blue rougher flotation tanks, which are well advanced in terms of mechanical installation.
Slide eight shows our marine works, we're piling for the jetty is advancing from sure you see that in the program as well as from a temporary island in the background.
Supporting two additional work for offshore.
Slide nine shows the starter dam of the tailings management facility.
We have significantly advanced construction on this area completing the abutment seen in the background of continuing to raise the elevation of the dam on the foreground.
And for these works we had been using text current mine fleet, which includes several new cat 794 of haul trucks that were recently commissioned.
Check my credit is performing very well and has provided significant benefits of the project.
Slide 10.
The pipeline right of way and platform development is now essentially complete and we continue with trenching pipe stringing welding and placement of the pipelines.
The 10 shows the section of the water pipeline being lowered into place. This is the pipeline that will bring desalinated water from the port up to the site.
The C more of the latest progress at QB two I encourage you to take a look at a video of the project on our quarterly photo of photo Gallery, we have posted these with our quarterly conference call materials that Teck dot com and they're on links to them also in our Q1 2021 press release.
Yes.
Next our zinc business unit results for the first quarter are summarized on slide 11, as a reminder, and to me the zinc related financial results are reported in our copper business unit.
Yeah.
Substantially higher zinc prices were more than offset by a stronger Canadian dollar lower sales volumes and higher unit operating cost of the royalty expense as we had flagged last quarter lower 2020 production volumes at Red dog have resulted in lower material available for sale and higher unit cash cost of sales in the first half.
Of this year.
Red dog sales of zinc concentrates zinc and concentrate were 104000 tonnes, which was above our guidance range of 90 to 100000 tonnes looking.
Looking forward to Q2.
We expect Red dog zinc sales to be 35000 of 45000 tons, which is again lower than normal as the result of the reduced production in 2020.
And the trail, while we continue to expect to produce between 300000 to 310000 tonnes of refined zinc. This year Q2 production will be impacted by a planned annual zinc roaster of maintenance.
Turning to our steelmaking coal business on slide 12.
Sales were $6 2 million tonnes in line with our quarterly guidance on.
The second quarter average realized price reflects around 2 million tons of sales to Chinese customers at high CFR of China prices.
Our adjusted site cash cost of sales were $63 per ton on the quarter and this was higher than anticipated due to intermittent processing challenges, which are largely behind us and mining sequence adjustments, which advanced higher cost of steelmaking coal production of from later in the year into Q1.
Despite these challenges unit cost were within our annual guidance range in all operations currently have healthy raw steelmaking coal inventories.
We're now well positioned to maximize production out of the operations and deliver strong cash flows going forward.
Also in Q1, we resolved the charges under the Fisheries Act in connection with discharge of there's plenty of them and calculated 2012 for fording River and Green Hills operations.
I mentioned earlier, we have successfully commissioned the all for U S. R F on schedule and below budget.
Looking forward to Q2, we expect sales of six to $6 4 million tonnes.
We will continue to prioritize the available spot sales volumes to China, which is expected to continue to result in favorable price realizations.
We expect our realized price in Q2 to be materially higher than the 10 year average of 92% of the benchmark.
Coming from the average of the three of assessments lagged by one month.
And as I indicated earlier, our Neptune Port upgrade project has now moved into the commissioning phase. The first steelmaking coal was unloaded using the double rail car dumper pictured on slide 13 on April 19th I visited the site the day before yesterday saw at all on action it looks terrific.
Ramp up is proceeding as planned and all major equipment is performing according to or better than plan to date 18 vessels have already been loaded using the new out on system.
And at the same time, the upstream rail infrastructure improvements by both CP rail and CN rail to support our increased volume we would have to do it. They are all largely complete so.
So we're very very pleased with the status of Neptune as I said, the first steelmaking coal went through the new double dumper on April 19th and you can see the photo on slide 14 shows the being placed on our stockpile by the new Stacker reclaimer of you'd like to see the new double dumper and action. We have posted a short video with our quarterly conference call materials that Teck Dot com.
And there was the linked to it in our quarterly press release.
Slide 15 shows our new ship loader and loading steelmaking coal into the vessel.
We were really pleased to see the project moving to the commission fees and achieve for steelmaking coal is Neptune is a key component of our long term low cost and reliable supply chain for steelmaking coal business.
Turning to our energy business unit results for the first quarter, which are summarized on slide 16.
Our realized price in the results reflect the material improvement in benchmark oil prices and the Western Canada select compared with Q1 2020.
However, this was partially offset by higher unit operating cost due to lower production.
Bitumen production of the first quarter was impacted by little available my inventory levels at the end of 2020, so looking forward, though suncor expects to ramp up to two train production by mid year and just the same production of 175000 to 185000 barrels per day by the fourth quarter.
<unk>.
The focus is on overburden stripping and building my inventory levels to allow ramp up two of two trio production.
With that I'll pass it over to Jonathan for some comments on our financial results and if I could please ask everyone to keep their phone on mute while the presentations ongoing thank you.
Jonathan.
Thanks, Donald I'll start by addressing the details of the first quarter's ending adjustments on slide 17.
<unk> costs were $33 million off the Tex primarily relating to an increase in the rights of use the discounts of decommissioning and restoration provisions on increased expected remediation costs.
For the $6 million in inventory write downs share based compensation expense was $10 million on commodity derivatives for $15 million on and off the tax basis.
After these and other minor adjustments bottom line adjusted profit attributable to shareholders was $326 million in the quarter, which is 61 cents per share on both the basic and diluted basis.
The changes in our cash position during the first quarter are on slide 18.
We generated $595 million in cash flow from operations.
We spent $869 million on sustaining and growth capital, including $523 million on QB, two $157 million on the net import upgrade project and $153 million in sustaining capital.
Stripping activities, but 134 million primarily related to the advancement of pits for future production at our steelmaking coal operations.
The lower than a year ago, driven by the decrease in strip ratios in our steelmaking coal business.
For investments on other assets, we paid $44 million on expenditures on received $11 million in proceeds.
The net proceeds in the first quarter were from a $577 million drawdown on the U S. $2 5 billion limited recourse project financing facility to fund the development of the QB two project.
We've repaid a net $44 million on a U S 4 billion revolving credit facility.
These payments totaled $33 million, and we paid $113 million in interest and finance charges.
We issued $6 million in class B subordinate voting shares on page $27 million irrespective of the regular quarterly base dividend of five cents per share.
After the east another minor items, we ended the quarter with cash and short term investments of $369 million.
Now turning to our financial position on slide 19.
We have maintained a strong financial position with current liquidity of Canadian $6 3 billion.
Includes our current cash on the amounts available on our U S 5 billion of committed revolving credit facilities.
U S $3 8 billion is available on our 4 billion facility that matures in Q4 2024 on a U S 1 billion sidecar that matures in Q2 2022 remains undrawn.
Both facilities do not have any earnings or cash flow based financial covenants do not include the credit rating trigger and do not include the general material adverse effect borrowing condition the.
The only financial covenants as of net debt to capitalization ratio that cannot exceed 60% on that.
Most of that he says that ratio was 26%.
Financing facility for the QB two project we have drawn.
Million was drawn in the first quarter.
The QB two project achieved its target ratio of project financing to total shareholder funding in April.
As a result, there will be shareholder contributions going forward starting in the second quarter.
We have no significant maturities price of 2030, and the investment grade credit ratings from all four of credit rating agencies.
Overall, we have a strong financial position to allow us to continue for whether the changes around COVID-19 on to complete the <unk> project.
With that I'll pass it back to the dome for closing comments.
Okay. Thanks, Jonathan in closing I want to say, we remain focused on tax prudent copper growth strategy growing into green metals as they're now called and we made solid progress on our key initiatives in the first quarter, we surpassed the halfway point of construction of QB. Two we've moved in the commissioning phase at Neptune and we successfully commissioned the Lps are off on sketch.
On the below budget.
We believe Teck is one of the best positioned companies globally to capitalize on the strong demand growth that we see for green metals and in particular for copper we have one of the very best copper production growth profiles in the industry and located in attractive jurisdictions accelerating copper growth is the cornerstone of our strategy and by growing.
Copper production, we rebalance our portfolio towards what's now called Green metals and.
And in the process, we expect to continue to reduce carbon as a proportion of out of our total business, while continuing to produce the high quality steelmaking coal that the world absolutely needs for a low carbon future.
We're also continuing to strengthen our high quality of our existing high quality low carbon assets through raised 21 technology, which is harnessing cutting edge technologies, including artificial intelligence and automation to drive step change improvements in productivity efficiency safety and sustainability, we strive to maintain the highest.
Standards of sustainability and April operational excellence in everything we do and we have a leadership team with the right mix of skills and experience to deliver on our strategy.
So with that we would be happy to answer your questions and like many of you most of us for on phone lines from home, although I'm in the office personally today. Please bear with US if there is a delay while we sort out who will answer your question and with that operator over to you.
Thank you, we'll now take questions from the telephone lines. If you ask the question and you're using a speaker phone. Please lift your handset before making your selection.
Do you have a question. Please press star one on your devices Keypad you may cancel your question of anytime by pressing Star two please press star one at this time ACR for question there'll be a brief pause for all the participants register for questions. Thank you for your patience.
Our first question Oreste Wow Codell from Scotiabank. Your line is open. Please go ahead.
Hi, good morning, and thanks for taking the question.
So on I was wondering if you could get some more color on the QB two development here just on the context of what's happening with the COVID-19 outbreak in Chile.
You did say that the COVID-19 is having an impact on the pace of development.
Just wondering where you are with respect of head count if you'd been able to get to the full rate and also where whereas the project with respect to consuming the contingency that was embedded in the original $5 2 billion Capex number.
Okay I'll make a on opening comment and then I'm going to turn it over to Red Conger and Alex Christopher which everyone wants to follow me.
So we have been affected by COVID-19 no question about that and so that has slowed us down relative to the ramp up schedule that we had but having said that we just had our best for weeks and the fact, we've just had our best two weeks. So it continues to improve and we're quite encouraged by the progress of the last month.
There's no doubt the February March were very tough, but things are coming along well and what COVID-19 is still with US. It is still an ongoing challenge in terms of the contingency.
We still have most of the contingency that we published the available.
Going forward, so with that I'll turn it over to a red or Alex whoever wants to go.
Yeah don't read here thanks for the question.
Again, we're really proud of the team and the Oi.
All of the accomplishments that they continue to make their lives in the face of these.
Circumstances head count right now as of about four.
But we've been able to hold that.
Level here of the last couple of bonds and the you know continue.
Continue to make the.
Progress that we would expect with that level of.
Of the effort on the site and the you know the beauty of how the team is managing the this as the.
That's that serve the.
It was the we face with COVID-19 continued etcetera, where the price position to springboard off the bat.
Please go with the slow.
Personnel on the site. So all in all very very proud of where the.
Thanks, Brett I didn't quite catch the number you gave us sorry, the head count could you give me the head count one more time on what percentage of that of of where you're supposed to be in terms of Maxwell.
Yeah, It's it's 9400.
Have the the percentage of of <unk>.
Total but.
<unk>.
I'm guessing the 10% last Alex if you Wanna add for.
Precision to that.
Yes, I think almost our peak numbers here.
Got it.
Our plant coming over to kind of investment that we were going to hit just shy of 12000 workers on site.
So at 9400 quarter.
The 20% or so below that or in that order.
And this is really the ability to move from I say two people per per room for free people per overtime.
The Chile comes comes through the.
Current to the wave of COVID-19.
I think there's lots of positives here with respect to Chile on that for me.
Well the value of given I think vaccine for 42% of the control population in the near these nearly 32 per cent of the population of 7 million people actually at the two two vaccine doses. So so this is a really positive there, but I think one of the leading countries in the world in terms of.
Of vaccination. So this gives us lots of of.
View towards what's going to happen over the next two months on our ability to start to ramp back up the free people per room.
And we should note that the peak workforce wasn't intended to be there today that was the target for mid year.
Okay. Thank you very much.
Thank you.
Our next question from Greg Burns. Your line is open. Please go ahead.
Yes, thank you not to belabor the point on the.
What completion rates come on are you achieving right now.
Oh April will be our best month, and I don't have that number yet he pulls not quick finished I think we're gonna have to leave that Greg because it.
It varies quite a quite of bit week to week, but we're very pleased.
With April having had a tough February and March.
Okay.
Just a question for you don't.
Given the you have QB two and flight you've got a couple of couple of projects in the pipeline potentially if you want of building.
There's a lot of talk about the what the right long term incentive couple of price is do you have a view on that could you give us your your ideas on that.
Yeah. So I mean, then.
That could be of very long answer, but I'll just fill it. So so in our planning I'll give like what we do as the company then personal view if you like.
In our planning, we've generally used $3 copper.
In.
In some cases, we've used 310 or $3 15, but it's been down in those ranges.
See quite of few research reports now coming out of saying incentive price has to be at least $3 50 to do it and you always have to look at these things whether they are inflation adjusted or not.
Relative to sort of real prices.
My own view as the COVID-19 has accelerated copper demand from what would've been of long term rate of about 2%.
And has probably gone up a full percentage point to three woodmac says 3.2 or three five and that's probably right. If you see the activity in the world to see what's happened in the last week between President Biden holding hosted on the climate Summit press.
President XI, making his announcements.
Mark Carney getting the banks and insurers to mobilize trillions of dollars to to net zero all of that is going to accelerate de carbonization of an accelerated demand for copper. So I think the prices are going to be there and we're seeing that in the market now I. Just don't think the resources are there to develop we're in a very fortunate position we have of law.
Long list of projects at different stages, some of which could be built quite shortly or built by partners quite shortly.
At QB QB itself is massive over 8 billion tons now headed to 10 billion tons. So we could do nothing but just that for the next 10 years and that would be.
The real value, adding for the company so.
I think given the nature of the resources that are out there you are probably going to need $3 50 copper to get companies to mobilize to go after tax for the development, there's gotta be of real reward for going through the 10 to 15 years of pain to get something built.
Great. Thanks, that's very helpful on that if I can one final question, maybe the Jonathan the 42 per cent tax rate in the quarter.
What drove that.
Significantly above what the normalized rate would be.
Yeah, Greg there were a couple of items, which were unique to the quarter that were essentially non deductible for tax purposes in the absence of that would probably be net 37% so consistent with our usual range.
But nothing nothing significant and nothing that's structural.
Okay. Thank you.
Yeah.
Okay.
Thank you. Our next question is from Jackie Press the allows ski from BMO capital markets. Your line is open. Please go ahead.
Thanks, very much I wanted to just ask a quick question on the coal the coal division first of your cost.
For Q1 on it.
It seemed quite strong the 2 million tons and on the guidance you had given previously was for the year 2021 at $7 5 million tons. I think Q1 was supposed to be sort of a lower run rate versus the rest of the year. So are you are.
Are you thinking that there is any way that the hotels into China could go above that $7 5 million ton number that you'd previously guided.
I'll turn it over to rail, but I'll, just say that we thought the same as you because normally with Chinese lunar new year in the first quarter you'd have a little lower number but the answer to the Big picture question is there's no seven 5 million as are our target so real more detail.
Yes, not much more to add.
Jackie I guess in reality of where we're continuing to try to maximize sales to China.
As Don is saying.
We have.
Contractual commitments with the long term customers in other markets. So we're still looking.
The sooner target some of that has millions of tons for all of 2021.
Okay. Thank you can you maybe while we're on the topic can you talk a little bit about what youre seeing today, you know things change so quickly.
The Chinese coal market seems pretty strong right now, but maybe that's not the case in other markets like India is can you give us a little bit of commentary on on what Youre seeing in terms of the CFR premium versus.
On the F O b benchmark of today.
Yeah sure Ken Jackie.
So the current premium is getting very close to $100 U S F.
Fob price. This morning is down to around 109 in CFR, China is at 227, so if we deduct ocean freight which currently for US is in the low twenties.
End up with.
Very close to $100 U S on premium.
Thank you very much that's amazing and maybe just shifting gears.
Reminiscing on some old site visits since we haven't left the Hudson of while.
And I'm thinking back to the site visit when we did the Highland Valley I think it was around September 2019 of we saw on we saw the the technology working there the ore sorting the autonomous haulage on what did you give us the would you mind, giving me an update maybe on how those trials are going I think it's been a while since you've been doing those trials.
Or are you seeing success, there and is there any.
Read throughs for how that might be kind of rolled through other lines or other areas of your business.
That's pretty good she's Ed why don't you start.
Sure. Thanks, John Jackie had on EHS at Highland Valley, We have now converted 21 trucks and not all of our in service and autonomous but will be as 2021 progresses and our plan is to be to half of 35 trucks fully autonomous and both.
The pets by the by Q1 of 2022.
And that was our plan in terms of the performance of DHS its performing as as designed as expected and we are doing the test what to see longer term benefits such as seen on the tire life.
Maintenance and the.
And from the savings, which we're on top of our expected.
The benefits from IHS of utilization and labor issues and of course safety of being one of the best things. We have had really no issues on the safety front.
It has performed really well.
With respect to my sense was your other question.
We have them on three shovels in the depending on the way we are we usually use two of them.
And we continue to utilize them the utilization is a little bit lower than expected, but the way we're working through the technology issues of May.
The more robust and so.
As per expectations.
I should also add that on raised 21 aspect of the Highland Valley has been one of the early of ones out of the gate.
And with respect to our of flotation models in.
And.
The combination in the grinding circuits. The models that we've created are bearing fruit and performing really well how long of ollie's.
<unk> has.
<unk> has delivered significant improvements in expected throughput compared to our geological models and.
And even the companies as well so very happy with that.
Is there any plan to expand these trials to other other operations.
Okay.
I can perhaps of Andrew of Robyn can talk we do have EHS at all true as well right now.
Andrew It's Robin if you want to add to that.
Robin why don't you do your version of which is that adjusted.
Yeah, you got it.
Pretty much be of repeat where we're pursuing the same technology at the <unk> mine, we've got about half of the truck fleet converted there now so about the same 21 trucks.
And we will have the fully converted by the end of the year and we're seeing very similar safety improvements maintenance type of improvement tire life of that kind of thing so.
Very very strong technology in and it's so far quite successful in coal as well.
Thanks, very much everybody.
That's it for me.
Yes.
Thank you. Our next question from Emily Chang Goldman Sachs. Your line is open. Please go ahead.
Good morning, everyone I wanted to pivot back to net call and just maybe a lot of the time views on the commodity that that's the only doesn't seem to be a lot of new greenfield credit and that coach that makes the part of on the supply side, but how do you square that off against what's happening and the global steel market on that.
M y.
Different regions of the wild type of in particular as you know part of looking at curtailing production of all of our global Youre, saying of transition to more of capacity.
Okay real fully why don't why don't you start on that.
Yeah.
Can do that thanks for the question Natalie.
What we're seeing actually in the short term is record high steel prices and the.
That is.
In large part due to recovering demand.
In all parts of the world.
For the China, India and also outside of those regions.
The there was an announcement.
This morning actually that China is removing the tax rebate on the <unk>.
Alrighty.
Steel product exports.
That will also support steel production in other countries and we will help China two to reduce their exports on the exports from China. Just put this in perspective were 54 million tons last week estimates of that announcement again.
Just as of this morning, so it's pretty early but it looks like it could reduce those explored by 70% to 75% so.
In that sense around 40 million tons or so.
And that compares to record high exports from the.
From China that were around 115 million tons of few years ago.
So that day.
There is.
The bid of the <unk>.
The shift in terms of scrap utilization that we're starting to see in China. China is currently using round. It's in the low 20% range in terms of scrap utilization.
But overall the <unk> production in China is still very low and given the stage that China is that in terms of the.
Scrap generation of lot of the steel in China is going into construction of infrastructure, which is a longer cycle to January of <unk>.
And if he can scrap to support.
The fast increase of.
Yes in other countries like.
India.
For the majority of the growth is going forward story is quite similar scrap availability is lowered.
And when we look at more.
Developed markets.
The scrap utilization is probably somewhere around the.
Low threes to mid 30% utilization. So we could see eventually shifting to that kind of level of debt.
We'll probably take some time to get there just in terms of the scrap.
Yeah.
That's truly helpful color and then maybe just one follow up if.
If I may on on the copper price environment and positive demand trends that you're seeing for the green metal in that line or keep the two delivering into that should be a very exciting time, but as you think about your longer term organic portfolio of is there a need to accelerate any of the other growth projects that you have all.
Oh, Oh from the Tech perspective would you rather see how the couple of price environment plays out for a little while longer enjoy the free cash flow harvest and then make those decisions.
But let me speak to that the we don't need to see the copper price play out any longer we have confidence in the long term copper price debt.
The the market is going to need those projects. So so.
That wouldn't be the limiting factor limiting factor is the stage of which each of the projects are at so for example, QB two of its obviously going to be finished next year.
Even if we wanted to go ahead with QB three the earliest we could sanction that is probably.
The beginning of 2026, because we have to finish the pre feasibility study. The 10 now than feasibility then file for the CIA and so on.
If everything went perfectly you might be able to do it three to six months faster, but nothing of or does it go perfectly so theres going to be a GAAP between when QB two.
<unk> is up next year of <unk>.
The three full years of very very strong free cash flows and even when the <unk> sanctioned the first.
Equity capital that comes from our partners and project Finance, So teck would have to come up with any funding till 2027 of 2028, so theres a long stretch there.
There is should be very very strong cash flow is available to return to shareholders. The other projects that for now the feasibility is finished but theres a lot of optimization going on <unk>.
<unk> still locked down.
I saw.
Earlier that that's likely to stay until September so the earliest to anybody who wanted to partner with US there could go visit is not for several months yet.
San Nicolas we've just finished the pre.
Pre feasibility study, which will be publishing in due course, we're just working on some final questions.
That's one that.
Maybe it could be built during the period between QB, two and <unk> three.
We'd probably have a partner build that for us. So again, we wouldn't have to come up with any capital.
The market will need the projects, but.
The project themselves have to go through the stage gate process.
Until they are ready to be built so.
That's really the state of affairs and Thats the same worldwide by the way you look at all of the list of projects. There's about four of five that are already under construction coming on in the next two years and after that there's a long period. When there is quite a GAAP that's going to open up.
Great. That's perfect. Thank you there was the consultants a research report out of couple of days ago, calling for a four and a half million ton GAAP between supply and demand by 2030.
That's 15, QB twos Theyre just not around.
Thank you our next question Adam price CIBC capital markets. Your line is open. Please go ahead.
Hi, good morning, Thanks for the update on taking my questions actually I just have one it's a follow up the artists on related to the QB two.
For today's update the project cost, 50% completion and coming back to 2020 Update's article you were targeting 40% completion by year end, which ultimately you achieved. So my question is and I know that COVID-19 is the variable but on your updated project schedule what the.
The synergy of completion of you're targeting by 2021 year end.
I don't think we're going to give you a number on that because it's so dependent on COVID-19.
Got through that situation, yet well once we are through it and we can.
Finish the ramp up to peak workforce than the predictability and the per cent per weeks to go back to Greg question on all of that becomes much clearer and we can give you.
Better a better number.
What we can say is that we've just had our for best weeks in April so it's going the right direction, we expect the.
The percent completion per week to continue to increase week by week going forward as long as COVID-19 doesn't get in on the way, but until we have COVID-19, well and truly behind us.
It wouldn't be right for us to be too definitive on those things, but we do it for a lot of confidence a very high level of confidence that there's going to be finished as we've always said in the second half of 2020.
Okay.
Excluding COVID-19.
If we try to attack it publicly and out of very high level first production is expected second half of next year, we're agile cost, 50% now would it be fair to split the difference inside of that to the on track for first production on schedule the project needs to be at or about 75% for year end is that a stay of reference.
I think youre trying to get too specific and we're going to leave the disclosure as it is.
Okay. Thank you.
Thank you. Our next question from Timna Tanners of Bank of America. Your line is open. Please go ahead.
Hey, good morning, guys I had two follow ups cause of the topics. We had earlier on met coal and on the satellite project. So on met coal on.
It's really missing the party in terms of global prices and the GAAP you pointed out it is very wide and I know you've said you have long term contracts, but are there any potentials for revisiting the contracts do they come due at any point. If this is the long term situation. You know is there anything that can happen down the road.
And then I'll ask the follow up on that day.
Per project.
We certainly understand why you're asking the question and it's something that we would.
Kind of.
Conceptually look at here, but I think it's too soon to conclude that as the long term situation between China and Australia.
And.
And then yeah.
Even if it was the.
The fact is like.
I have to look at the market globally, you can't be totally dependent on one country and we have some really good strong important customers that we've had long term relationships with.
What I think you would more likely see is the the <unk>.
Current pricing mechanism evolve over time, so that.
And so right now we are of a bifurcated market with two distinct prices once the risky good we're very happy with it.
And yes, we wish we could sell more tons at the higher price obviously, but.
I think if if the market concludes that the geopolitical situation is long term that the pricing mechanism will change in that and that will be favorable to us some.
Some competitors and won't be available.
Alright that makes a lot of sense on thank you for that and then on the project. The satellite project you just went through and explained that the earliest thank you think the cubic feet would be 'twenty 'twenty six and sat for now needs to go on has done the feasibility in the nickel assets potentially for that but can you just go through and give US you know earliest production and what are the the.
GAAP net the Pratt.
So he could cause. He also said that you know teck is in a favorable position to start earlier than other on other companies I'd just like to understand that timing a little better. Thank you.
Yeah.
That's a fairly detailed question what I'm going to suggest is that.
What's the best way of handling because theres eight projects really in all different timetables, because there are different levels of development from pre feasibility of feasibility and so on and the permitting and different countries take said the different length of time I think.
What we'll probably do is put a package the answer to that and get it out to the market generally and in some form between now and the next quarterly and certainly at Investor Day, we'll be going through that those plans and details but.
It would be of very long answer.
And it would only.
Generate a whole bunch more questions. If we tried to go through the whole list today. So.
So that's kind of 3%.
I appreciate the question and.
Of course, we will get you.
The more reasonable answer.
Thank you.
Thank you. Our next question from Lucas pipes E of Riley Securities. Your line is open. Please go ahead.
Hey, good morning, everybody.
I have questions along the same lines as well and first to turn to to China in the met coal market. You noted the decline of 80% of imports in the release.
And.
Obviously, the steel markets globally, very strong and I'm wondering what your perspective is on on how China is meeting its.
Demand today, if not with with seaborne imports and then how sustainable you think that situation is longer term. Thank you.
Okay I'll over to you.
Alright, Thanks Lucas.
So what China is doing in the short term is increasing their domestic production in Q1 2021 of their domestic production was up 13 million tonnes year over year.
That is on the backdrop of.
Some challenges that the domestic industry has faced.
In terms of the.
The coal mine accidents.
Yes.
Following the.
Increased safety and environmental inspections.
So.
It remains to be seen where it could increase to currently.
The China consultants are expecting that steel production will be above five non steel domestic coal production will be above 500 million tons of bit about 500 million tonnes.
In 2021 that is up somewhere around 15 million tonnes compared to.
<unk> 2020.
And as a result of the tight availability of course, the domestic price in China as the increase that is now sitting around $2 31 CFO of equivalent.
The other place where China is getting more coking coal is from Mongolia.
So during Q1.
The imports were up also.
But.
They are still down on an annualized basis compared to the record high in 2019 that record high of 20 was 34 million tonnes in the.
In Q1 the.
On the numbers annualize at 24 million tons in the a lot of it is the result of.
Increasing COVID-19 cases.
In the.
In Mongolia that is putting a damper on.
On the on the exports that started from about mid March and is still ongoing today.
The imports from the seaborne market as you said are lower given that there is non from Australia now since December of 2020.
But overall seaborne imports for Q1 on an annualized basis are up to above 21 billion tonnes and that compares to about 13 million tonnes, excluding Australia.
In 2020, so that's kind of where the the call is coming from during the Australian Matt.
Well I really appreciate all of his office detail.
My second question is along the lines of copper project satellite et cetera on and when I think back to a few years back.
It seemed like those some of those projects, where a potential monetization targets it.
It sounds very different today, obviously and what I wondered.
In terms of strategy going forward.
Would you be.
Go on so far is too.
Be inquisitive on the M&A side when it comes to two copper project, specifically and if so where would you be.
Would you be looking and then given.
Of the.
I think you mentioned earlier regarding to the outlook for copper what would be the implications for exploration spending et cetera would really appreciate your perspective on this thank you.
Okay. There are several questions within that I'll start with some of the first in terms of.
You mentioned inquiries are looking at buying we're not interested in buying anything because we are very rich and the resources.
And technically we have eight projects to work through so that's.
That's not to say that our eyes are closed for obviously you kind of keep an open mind if something comes along.
Is that much better than everything we've already got then we will take a look at but we don't expect that to occur.
In terms of exploration budget is.
We get further along knocking off all of these initiatives such as the.
Neptune few water treatment fording river water treatment and with pricing with copper zinc, where they are more capital becomes available and I would expect that exploration.
We will share on that.
And we've been very pleased with the work of our exploration team has done over the years.
Yes is the answer to that question.
In terms of.
Monetization of the assets I guess I'd make two observations one is clearly the assets are worth more today than they were a year ago of pre COVID-19 and Thats just the function of two.
Two things one is the long term view of copper price for copper demand, which drives price has shifted from about 2%.
Copper demand growth to three to three and a half that opens up a big GAAP, which means that.
These projects are more valuable based on the long term price people are using but then also the mid caps.
That really need their next project they have much better access to capital markets and they can do a bought deal for 500 million of equity and put that to work.
Getting themselves of new projects so the the.
The number of buyers and the ability of the buyers to pay has increased significantly over the last year.
So in that context, we will look at the market, but is one of our board members said why would you ever sell of copper project given the outlook for the world over the next 10 years.
I think the answer is somewhere in between.
Getting the right balance and we.
We've looked at.
Some of our situations.
Listen to the inbound calls that we've been receiving.
And there are some interesting opportunities whereby we could bring on a partner and they build it with their capital on their people and we're left with.
Half of mine are more for free.
And if that sneaks in between QB, two and Q3, then that's a pretty good situation. So we're looking at those kinds of options and then what we'll do is we'll put together a whole package.
Of information on the portfolio and just back to <unk> question earlier, I mean, one of the reasons. We can't really answer today is because we just don't know when COVID-19 is going to end and COVID-19 is the single determining factor as to whether people can even visit a site to decide whether they want to buy something or partner with us or whatever that's still up on the year is still not possible.
In some circumstances, so thats why its hard to be too definitive on the dates.
Yes.
I really appreciate the perspective, thank you very much in the best of luck.
Thank you.
Thank you. Our next question from Matthew Murphy Barclays. Your line is open. Please go ahead.
Hello.
I was wondering if you could share any thoughts you might have on Peru.
We've got the leading presidential candidate positioned.
Fairly aggressively against.
For an miners I'm just wondering if.
You are Anthony of the management or the chamber of mines of had any.
Recent insights into it.
His administration and.
Just anything you can suggest we should think about is this oh the election plays out.
Yeah.
Clearly, we're all watching it.
The.
The different.
Professional geopolitical commentators that published reports every day I read some of them on I'm sure most of the team does.
Don't think there's much additional insight that we can add to that to help you with your question No. One knows the answer on the result, I see the field the.
On modifying is positioned somewhat but in the end.
He comes from.
<unk> point of its fairly far left and it looks like in the polls. He has as the lead in our case for our company.
It's an important thing to watch.
We have to.
Two key assets at domain of course of very very important asset.
Zephyr and all of the development assets. So it's not that material to our company as it would be to some other companies.
But in the end of I'm, sorry, we're all just going to have to watch and see what happens.
Sure and maybe just as a follow on on that it's my understanding that you don't have a tax a.
The stabilization agreement in place right now.
And can you just remind if we look just to the Anthony you know like how much cash.
Capex you'd be planning to put into the assets over the next.
A few years.
I'll turn that to Jonathan, but just saying because you've prompted the issue.
We do have one on QB, two which is very important.
But jonathan over to you.
Sorry, just getting off mute there I don't have the outlook for on the maintenance Capex two hands.
If you can get with Fries are also on this call. We can we can just give me what I've of relevant disclosures, we have on that point.
Yeah.
Okay. Thank you.
Thank you our next question, Brian Macarthur from Raymond James Your line is open. Please go ahead.
Hi, good morning, Don again.
Ken mine has to do with project satellite I know, you've given lots of the answers, but just so I.
And obviously, you've got lots of strategic options.
Are we now thinking originally project satellite with all of monetization you talked about a partner of building one of your projects can.
Can I assume that you don't really want to build any of these eight projects I mean I could argue maybe you should have another production center or or what's your philosophical thinking on that.
And given the originally you thought you could monetize.
Project satellite for 3 billion right.
That number was originally put out I don't know if you'd be willing to put out a new potential number you might be able to get out of this.
Okay, a couple of clarifications.
We took these projects that were all the very early stage and what we said is we'd move them through the scoping of resource reserves scoping study pre feasibility of feasibility and then decide the best to do with it whether it was to actually build it.
Makes sense as part of <unk> portfolio or to partner or to contribute into another company to take back shares ride the cycle or the sellout rate for cash. So it was never contemplated that we would monetize all of them, but some were less likely to become part of the tech portfolio going forward and so it was always thought that some of them.
Would be monetized.
Set of target of $3 billion of value in terms of NAV, we have significantly exceeded that for for those five projects.
But we haven't necessarily realized any of the cash we do know from just.
Just inbound calls and letter of proposals of the things that we get on AST.
That we could clear.
<unk> over $1 billion.
On a couple of them.
If we chose to do that.
We've said we know we know we have received offers that say those numbers with you.
The way from getting the letter to actually closing the deal, but so that sort of significant value has been created by the satellite team.
Market has shifted structurally we think for for some time COVID-19 has had a big impact on the world No question about it and part of that is de carbonization and the associated electrification of long term demand for copper it looks very strong so that causes us to rethink it carefully so that we don't leave value on the table. We've done studies of all of our competitors.
The C. What they ask the coming and like a lot of people don't have much on the covered in terms of copper resources to develop and if you look at the exploration track record as an industry.
Copper industry hasn't done that well overall.
There had been some some successes.
But.
It is limited so.
We're looking at very carefully and as I said earlier, we will commit to putting out a full update on our copper growth Division. If you like maybe start color of that.
And so that people can see just what kind of of pipeline, we've got but it's pretty exciting and we've got tremendous resources, we're rich in resources.
Great. Thanks, that's very helpful and just the second question just for.
A detailed question for the settlement with the Fisheries I think there were $230 million payments have they been made yet are they out of cash flow yet.
Just the final thought on your last question, where do you think.
We almost no for sure we will be building <unk>.
I don't know whether it's the dirt.
Direct 50% quick expansion of doubling or tripling right because certainly the resources of there to sustain that so you can assume that teck and our partners Sumitomo metal mining from Corp will be building and expanding QB overtime.
On the fisheries I'll turn that to Peter of Z.
I don't hear Peter already so I'll, just say that the <unk> have not been paid yet I think we have a year to do so sorry getting myself off mute.
The answer is we have not paid the Fisheries act guidance yet they are recorded as a short term liabilities at quarter end.
Great. Thank you very much.
Thank you there are no further questions registered at this time I would like to turn the meeting back over to John Lindsay, Okay, well with that thank you very much for joining US today, we look forward to having the next quarterly call in July and we'll give you another update on QB. Two then we're very excited to have passed the halfway point.
Very excited with our progress in the last four weeks, we do see.
Some improvement on the COVID-19 situation of Chile, We certainly hope that continues and that allows us to ramp back up to peak forward peak workforce.
Towards the middle of the year.
We're delighted to have Neptune.
In the full commissioning stage 18 ships, having already been loaded as I said I was there on Monday.
Looking terrific and it's going to be tremendous.
Long term asset for our coal business is structurally lowest the lower the cost for decades to come and allow us to deliver deliver high quality metallurgical coal to our customers when they want it when prices are high.
Once again, thank you all have a good day.
Thank you. The conference has now ended please disconnect your lines at this time. Thank you for your participation.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Okay.