Q1 2021 Teck Resources Ltd Earnings Call
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All participants please standby your conference is ready to begin.
Ladies and gentlemen, thank you for standing by and welcome to <unk> 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. This conference call is being recorded on 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 tax first quarter 'twenty to 'twenty one results conference call.
And again I would like to draw your attention to the caution regarding forward looking statements on slide two.
Presentation contains forward looking statements regarding our business and slide describes the assumptions underlying those statements various risks and uncertainties.
Actual results to vary.
And does not assume the obligation to update any forward looking statement would also like to point out.
We use various non-GAAP measures and the presentation you can find explanations and reconciliations regarding these measures and the appendix and with that and 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.
Followed by Jonathan price, our CFO, who will provide additional color on on financial results and then we will conclude with a Q&A session, where 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 and the first quarter.
Our operations continued to be resilient, despite ongoing challenges associated with COVID-19.
Our team continues to rise to meet those challenges putting in place a comprehensive measures to protect the health and safety of our people and 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 and boost steelmaking coal and zinc and there are no changes to our annual guidance at.
At the same time, we achieved major milestones for our priority projects. We are now past the halfway point of construction and our QB two project, which is a long life low cost operations with major expansion potential.
Two is expected to double our consolidated copper production by 2023, and we continue to expect first production and the second half of 2020, two which is next year.
Our net import upgrade project has moved into commissioning phase and we've now loaded 18 ships.
And we successfully commissioned the Yahoo saturated rock fill expansion and the first quarter on schedule and below budget.
Our app has been achieving near complete removal of selenium and nitrate from up to 10 million liters of water per day since 2018, it as part of our ongoing work to them.
Yep.
Water quality plan to maintain the health of the watershed around our steelmaking coal operations.
U S rapid expansion doubles, the water treatment facilities and capacity to 20 million liters of water per day.
Turning to slide four.
Revenues were up 7% from a year ago to $2 5 billion and profitability improved even more with adjusted EBITDA, increasing almost 60% to $967 million and bottom line adjusted profit attributable to shareholders, increasing almost 250% to $326 million, which is 61 cents per share on the debt.
Diluted basis.
And this reflects higher prices for our principal products, most significantly copper zinc and western Canadian select Jonathan will review, our financial results in more detail and 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 a 205% increase and EBITDA compared to the same period last year, reflecting substantially higher copper prices.
Reduction was similar to a year ago with higher production at Highland Valley copper and to me now.
Offset by lower production at Carmen de <unk>, and QB as expected and our mine plans through 2021.
Net cash unit costs were $1 38 U S per pound and the quarter up from $1 28 per pound a year ago, but in line with guidance the increase and cost is primarily due to higher workers' participation and royalty expense, resulting from higher profitability and then to me and as well as lower production volumes at Comed and acquire.
Turning to an update on our Q2 project on slide six overall.
Overall project progress surpassed the halfway point in April we haven't seen 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 and effectively managing through the current wave of COVID-19, and 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.
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 costs of which 197 million U S have been expensed.
COVID-19 does continue to affect 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 costs will depend on the progress of the pandemic and 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 remains a critical or longest path for the project. We have made significant progress on the grinding lines and five of the six mills are now in place.
And since we started the year, we have advanced the placement of the third and fourth ball mill and.
And here you can see the last shelf segment being lowered and place for the fourth ball mill we.
We've also significantly advanced the structural steel at 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 shore and see that and the program as well as from a temporary island and the background.
Supporting two additional work offshore.
Slide nine shows the starter dam on.
And the tailings management facility.
We have significantly advanced construction on this area completing the abutment as seen in the background and continuing to raise the elevation of the dam and the foreground.
And for these works we had been using ex current mine fleet, which includes several new cat seven and 94 haul trucks that were recently commissioned.
<unk> is performing very well.
As provided significant benefit to 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.
Slide 10 shows a section of the water pipeline being lured into place and this is the pipeline that will bring desalinated water from the port up to the site.
To see more of the latest progress at QB two I encourage you to take a look and video of the project and our quarterly photo photo Gallery, we have posted these with our quarterly conference call materials that Teck Dot com and there are and links to them also in our Q1 2021 press release.
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 and 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 costs and royalty expense.
And 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 and the first half of this year.
Red dog sales of zinc concentrate and zinc and concentrate were 104000 tonnes, which was above our guidance range of 90 to 100000 tons.
Looking forward to Q2.
We expect Red dog zinc sales to be 35040, 5000 tons, which is again lower than normal as a result of the reduced production in 2020 and.
And at trail and while we continue to expect to produce between 300000 to 310000 tons and refined zinc. This year Q2 production and will be impacted by planned annual zinc roaster and maintenance.
Turning to our steelmaking coal business on slide 12.
Sales were $6 2 million tonnes in line with our quarterly guidance are.
Our second quarter average realized price reflects around 2 million tons of sales to Chinese customers and high CFR genre prices.
Our adjusted site cash cost of sales were $63 per ton on the quarter and this was higher than anticipated due to internet and processing challenges, which are largely behind us and mining sequence adjustments, which advanced higher cost steelmaking coal production and from later in the year into Q1.
Despite these challenges unit cost were within our annual guidance range and all operations currently have healthy raw steelmaking coal inventories.
And now well positioned to maximize production out of the operations and deliver strong cash flows going forward.
And also in Q1, we resolved the charges under the Fisheries Act and connection with discharge their swimming and and calculated and 2012 from reporting River and Green Hills operations and as I mentioned earlier, we have successfully commissioned Yelp U S. R F on schedule and below budget.
Looking forward to Q2, we expect sales of six to $6 4 million tonnes and.
And we will continue to prioritize available spot sales volumes to China, which is expected to continue to result, and favorable price realizations.
We expect our realized price from Q2 to be materially higher than the 10 year average of 92% of the benchmark.
Which is coming from the average of the three 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 a day before yesterday saw at all and action it looks terrific.
Ramp up is proceeding as planned and all major equipment is performing according to or better than plan to date and 18 vessels have already been loaded using the new outbound and system.
And at the same time, the upstream rail infrastructure improvements by both CP rail and CN rail to support our increased volume would have to do and they are all largely complete so.
So we're very very pleased with the status of Neptune.
And I said, the first steelmaking coal and went through the new double Dumper on April 19th and you can see the photo on slide 14 shows that being placed on our stockpile by the new stacker reclaimer, if 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 is a link to it and our quarterly press release.
Slide 15 shows our new ship loader and loading steelmaking coal into the vessel.
And we're really pleased to see the project moving to the commission and fees and achieve first steelmaking coal as 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 and our results reflect a material improvement and benchmark oil prices and the western Canada select compared with Q1 2020.
However, this was partially offset by higher unit operating costs due to lower production.
Bitumen production and 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.
And <unk>.
The focus is on overburden stripping and building my inventory levels to allow ramp up to a two train production well.
With that I'll pass it over to Jonathan for some comments on our financial results and I could please ask everyone to keep their phones on mute while the presentations on going thank you.
Jonathan.
Thanks, Donald I'll start by addressing the details of the first quarter's ending adjustments on slide 17 and.
And then it'll costs were $33 million after tax primarily relating to an increase and the rates used to discount and saw decommissioning and restoration provisions and increased expected remediation costs.
And reverse $6 million and inventory write downs share based compensation expense was $10 million and commodity derivatives was $15 million on.
On an after tax basis.
After these and other minor adjustments bottom line adjusted profit attributable to shareholders was $326 million and the quarter, which is 61 cents per share on both a basic and diluted basis.
The changes and our cash position during the first quarter are on slide 18.
We generated $595 million and cash flow from operations.
Spent $869 million on sustaining and growth capital, including $523 million on QB, two $157 million on the Neptune upgrade project and $153 million and sustaining capital.
Stripping activities, but 134 million primarily related to the advancement of pits for future production and our steelmaking coal operations.
Was lower than a year ago, driven by the decrease and strip ratios and our steelmaking coal business.
Our investments and other assets, we paid $44 million on expenditures and received $11 million and proceeds.
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 $117 million and interest and finance charges.
We issued $6 million and class B subordinate voting shares and paid $27 million and respective all regular quarterly base dividend of five <unk> per share.
After these and other 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 and $6 3 billion.
Includes our current cash and the amounts available on our U S 5 billion committed revolving credit facilities.
U S 3.8 billion is available on our 4 billion facility that matures and Q4 2024 and on.
U S 1 billion sidecar that matures and Q2 2022 remains undrawn.
Both facilities do not have any earnings or cash flow based financial covenants did not include a credit rating trigger and do not include a general material adverse effect borrowing condition.
The only financial Covenant is a net debt to capitalization ratio that cannot exceed 60% and <unk>.
March 31st that ratio was 26%.
Financing facility for the QB two project we have drawn.
And was drawn and the first quarter.
The QB two project achieved its target ratio of project financing to total share holder funding in April.
As a result that will be shareholder contributions going forward stopping and the second quarter.
We have no significant note maturities price of 2030 and investment grade credit ratings from all four credit rating agencies.
Overall, we have a strong financial position to allow us to continue to weather the changes around COVID-19 and to complete the QB two project.
With that I'll pass it back to Don for closing comments.
Okay. Thanks, Jonathan and 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 and the first quarter, we surpassed the halfway point of construction at QB. Two we've moved in the commissioning phase at Neptune and we successfully commissioned the Lps are offline and sketch.
And 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 and 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 the process, we expect to continue to reduce carbon as a proportion of our total business.
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 and productivity efficiency safety and sustainability, we strive to maintain the high.
Standards of sustainability and opera operational excellence and 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 from 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 have a question and you're using a speaker phone. Please lift your handset before making your selection.
If you have a question. Please press star one on your devices keypad and you may cancel your question on anytime by pressing Star two please press star one at this time and if you have a question there'll be a brief pause while 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.
And 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 and Chile.
You did say that the COVID-19 is having an impact on the pace of development.
Just wondering where you are with respect to 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 and opening comment and then I'm going to turn it over to Red Conger, and Brian and Alex Christopher which everyone wants to follow me.
And 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 in fact, we just had our best two weeks. So it continues to improve and.
And we're quite encouraged by the progress the last months Theres no doubt that February and 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 are available on a going forward so with that I'll turn it over to a red or Alex whoever wants to go.
Yeah, Doug and read here thanks for the question.
Again, we're really proud of the team and and.
All of the accomplishments that they continue to make their lives and the face of these.
Circumstances headcount right now is about.
But we've been able to hold that.
Level here the last couple of months and continue to make.
And the progress that we would expect with that level.
The effort on the site and the you know the beauty of how the team is managing that book.
Yes, Sir.
The.
And it says that we face with COVID-19 continued etcetera, where the price position to springboard off the bad debt.
Please go with this slow growth.
And all of the sites. So all in all very very proud of where we're at.
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 and what percentage of that of of where you're supposed to be in terms of back from them.
Yeah, It's it's 9400 and and I.
And have the percentage of book.
Total debt.
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I'm guessing and 10%, whilst Alex if you want to add more.
Precision to that.
Yes, I think almost our peak numbers here.
And our.
And coming over and that's an investment that we were going to hit just shy of 12000 workers on site.
And so at 9400 were sought.
20% or so below that or and that older.
And this is really our ability to move from let's say two people per per room per three people per overtime.
And actually comes it comes true.
Current wave of COVID-19.
And I think there's lots of positives here with respect to Chile on back on me.
Well, they've now given I think vaccines to 42% of the control population and and nearly nearly 32 per cent of the population of 7 million people, obviously at a debt to two vaccine doses. So so this is really positive there and I think one of the leading countries and the world in terms of.
Of vaccination, so and this gives us lots of them.
View towards what's going to happen over the next two months and our ability to start to ramp back up to three people per room.
And we should note that the peak workforce wasn't intended to be there today that was a target per 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 book.
What completion rates 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.
And it varies quite a quite a bit of a 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 you have QB, two and flight you've got a couple a couple of projects and the pipeline and potentially if you want to build them.
There's a lot of talk about what the right long term incentive copper price is do you have a view on that and could you give us your your ideas on that.
Yeah, So and then.
And that could be a very long answer, but I'll just fill it. So so in our planning I'll give like what we do as a company and then personal view if you like.
And our planning, we've generally used $3 copper and.
And.
And at some cases, we've used 310 or $3 15, but it's been down and those ranges.
See quite a few research reports now coming out 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 on my own view is that COVID-19 has accelerated copper demand from what would have been a long term rate of about 2%.
And has probably gone up a full percentage point to three woodmac says 3.2 or 3.5 and.
And that's probably right if you see the activity and the work we see what's happened and the last week between President Biden, holding hosted and the climate summit.
President XI, making his announcements and.
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 and accelerated demand for copper. So I think the prices are going to be there, we're seeing that and the market now I. Just don't think the resources are there to develop where and a very fortunate position we have.
Long list of projects at different stages, some of which could be built quite shortly or built by partners quite shortly and then.
On 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.
On a real value, adding for the company so.
I think given the nature of the resources that are out there you are.
We are going to need $3 50, copper to get companies to mobilize to go after tax and developed and there's got to be a real reward for going through the 10 to 15 years of pain to get something built.
Okay. Thanks, that's very helpful and if I can one final question and maybe the Jonathan <unk> 42 per cent tax rate and 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, and 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.
Yes.
Okay.
Thank you. Our next question is from Jackie PRIZM allows ski from BMO capital markets. Your line is open. Please go ahead.
Thanks, very much and wanted to just ask a quick question on the coal the coal Division first your cold.
For Q1.
And it seemed quite strong and 2 million tons and.
And the guidance you had given previously was for the year 2021 at seven and 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 they call sales into China could go above that $7 5 million ton number that you had 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, and the first quarter you'd have a little lower number but the answer to the Big picture question is is no seven 5 million as are our target so real more detail yeah.
Yeah, and not much more to add.
Jackie I guess and reality, where we're continuing to try to maximize sales to China.
And as Don and see.
And we have contractual commitments with long term customers and in other markets. So we're still looking.
And the sooner target seven 5 million tonnes 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 I 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.
Can you give us a little bit of commentary on on what Youre seeing in terms of the CFR premium versus.
And we'll be benchmark 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, and CFR China is at 227, So if we deduct ocean freight, which currently for US is and the low twenty's.
And up with very close to a $100 U S on premium.
Thank you very much that's amazing and maybe just shifting gears I just I've been reminiscing on some old site visits since we haven't left the husband awhile.
And I'm thinking back to the site.
And we did the Highland Valley I think it was around September 2019, and we saw it.
We saw that the technology working there the ore sorting autonomous haulage on what did you give us a would you mind, giving me an update maybe on how the trials are going I think it's been a while since you've been doing those trials are on.
Are you seeing success, there and is there and.
And read throughs for how that might be kind of rolled through other mines or other areas of your business.
And that's pretty good shows that and why don't you start.
Sure Thanks, John and Jackie had on EHS at Highland Valley, We have now converted 21 trucks and not all are in service and autonomous but will it be as 2021 progresses and our plan is to be to have 35 trucks fully autonomous and Bo.
On the pets by the by Q1 of 2022 and that was our plan in terms of the performance of DHS and its performing as as designed as expected and we are doing test work to see longer term benefits such as C on entire life.
Maintenance and and.
And from savings, which we're on top of our expected.
Benefits from IHS on utilization and labor issues and of course safety 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 and.
We have them on three shovels and depending on where 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.
And even more robust and so.
<unk> expectations.
I should also add that on race 21 aspect of Highland Valley has been one of the only on one side of the gate.
And with respect to our flotation models and and.
The combination and the grinding circuits and models that we've created are bearing fruit and performing really well and valleys.
And as delivered significant improvements and.
And expected throughput compared to our.
Geological models and.
And even recoveries as well so very happy with that.
Is there any plan to expand these trials to other other operations.
Okay.
I can perhaps Andrew and Robin can talk we do have EHS.
At El true as well right now and.
And as Robin if you want to add to that.
And Robin why don't you do your version of which is adjusted.
Okay.
Yeah, you got it.
And pretty much be a repeat where we're pursuing the same technology at the <unk> mine, we've got about half the truck fleet converted there and also about the same 21 trucks.
And we will have that fully converted by the end of the year and we're seeing very similar safety improvements maintenance type improvement tire life and that kind of thing so.
Very very strong technology, and and it's so far quite successful and coal as well.
Thanks, very much everybody that's it from me.
Okay.
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 that call and just maybe on the time views on the commodity that and certainly doesn't seem to be a lot of new greenfield growth and that coach that makes it part and on the supply side, but how do you square that off against what's happening and global steel market longer term.
Well you know.
Different regions, and while China and in particular, and you know, perhaps looking at curtailing production.
Globally, Youre, seeing and transition tomorrow and ask capacity.
Okay real fully why don't why don't you start on that.
Yeah and can.
And do that thanks for the question Natalie and.
So what we're seeing actually in the short term is record high steel prices and.
That is.
And in large part due to recovery and demand in all parts of the world.
On the China, India and also outside of those regions and.
There was an announcement.
This morning actually that China is removing the tax rebate on the majority of its steel product exports and.
That will also support steel production and in other countries and we will help China two to reduce their exports and the exports from China. Just put this in perspective were 54 million tons last week estimates of debt announcement again it's.
Systems of this morning, so it's pretty early but it looks like it could reduce those explored by 70% to 75% so.
And that's around 40 million tons or so.
And that compares to record high exports from is.
And from China.
And we're around 150 million tons, a few years ago.
So that day.
And there is.
A bit of day.
The shift in terms of scrap utilization that we're starting to see in China. China's currently using round, it's and the low 20% range in terms of scrap utilization and.
But overall production and China is still very low and given the stage that China is that in terms of.
And scrap generation a lot of the steel and China is going into construction and infrastructure, which is a longer cycle to January.
Significant scrap to support.
And the fast increase of Eas and other countries like.
And India, where the majority of the growth is going forward story is quite similar scrap availability is and it is lower and and when we look at more.
Developed markets.
Scrap utilization is probably somewhere around.
Low threes to mid 30% and 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 scrap.
And 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 are except for the green metal and that lean or it could be two delivering into that should be a very exciting time, but as you think about your longer term organic falling or is there and need to accelerate any of the other growth projects that you have all.
Oh, Oh from a tech perspective would you rather see how the copper price environment plays out for a little while longer enjoy the free cash flow harvest and then make those decisions.
Let me speak to that day we.
We don't need to see the copper price play out any longer we have confidence and the long term copper price debt. The the market is going to need those projects. So so that.
And that wouldn't be the limiting factor looming factors the stage at which each of the projects are at and so for example, QB two and it's 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.
Beginning of 2026, because we have to finish the pre feasibility study and now and then feasibility and then file for the CIA and so on and.
And if everything went perfectly you might be able to do it three to six months faster, but nothing ever does go perfectly so theres going to be a GAAP between when QB two star.
Starts up next year.
Probably three or four years of very very strong free cash flows and even when <unk> sanctioned the first equity capital that comes from our partners and and project finance. So Teck would have to come up with any funding till 2027 or 2028, so theres a long stretch there.
Where there should be very very strong cash flow is available to return to shareholders. The other projects Zephyr and out of the feasibility is finished but theres a lot of optimization going on.
Proves still locked down and.
And 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 and visit is not for several months yet.
Say Nicolas we've just finished the.
Pre feasibility study, which will be publishing in due course, we're just working on some final quest.
Questions and that's one debt.
And 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 that's the same worldwide by the way you look at all the list of projects, there's about four or five that are already under construction coming on and the next two years and 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 their consultants a research report out a couple of days ago, calling for a four and a half million ton GAAP between supply and demand by 2030.
And that's 15 <unk>, they're just they're 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 and taking my questions actually I just have one it's a follow up to artists and related to QB, two and with today's update the project past, 50% completion and coming back to 2020 Update's article you were targeting 40% completion by year end, which ultimately you achieved and Mike.
And as and I know that COVID-19 and the variable, but on your updated project schedule and what percentage of completion and are you targeting by 2021 year and.
I don't think we're going to give you a number on that because it's so dependent on COVID-19 and you know we're not true 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.
A better and better number.
What we can say is that we've just had our four best weeks and April so its going the right direction, we expect our debt.
Per cent completion per week to continue to increase week by week going forward as long as COVID-19 doesn't get in and 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 have a lot of confidence a very high level of confidence that that's going to be finished as we've always said and the second half of 2020.
Okay.
Excluding COVID-19.
If we try to attack it publicly and at a very high level first production is expected second half of next year. We're at a past, 50% now would it be fair to split the difference and say that to be on track for first production on schedule and that's the <unk>.
<unk> needs to be at or about 75% per year and is that a fair reference.
I think you're trying to get too specific and we're going to leave the disclosure as it is.
Okay. Thank you.
And.
Thank you. Our next question from Timna Tanners Bank of America. Your line is open. Please go ahead.
Hey, good morning, guys and two follow ups and cause the topics. We had earlier on met coal and on the satellite project. So on met coal on.
It's really I'm 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 this contract do they come due at any point. If this is a long term situation.
Is there anything that can happen down the road and.
And then I'll ask a follow up on that and copper projects.
And we certainly understand why you're asking the question and it's something that we would.
Kind of concept.
Conceptually look at here, but I think it's too soon to conclude that us and long term situation between China and Australia.
And.
And then even if it was you know the.
And the fact is you have to look at the market globally, you can't be totally dependent on one country and.
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.
Current pricing mechanism evolve over time.
So that.
And so you don't right now we have a bifurcated market with two distinct prices no one's really 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 as long term debt the pricing mechanism will change and that and that will be favorable to us.
Some competitors and won't be as favorable.
Alright that makes a lot of sense and 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 2020 six and.
And that for now and needs to go and has done the feasibility and then nickel Atlas potentially for that but can you just go through and give US you know earliest production and what are the gaps and the projects that he could cause. He also said debt yeah Teck is in a favorable position to start earlier than other on other company and so I'd just like to understand that timing a little better.
Thank you.
That's a fairly detailed question what I'm going to suggest is that.
And what's the best way to handle because theres eight projects really and all different timetables, because there are different levels of development from pre feasibility and feasibility and so on and the permitting and different countries takes at 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 and those plans and details but.
It would be a 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.
And certainly appreciate the question and and in.
Of course, we will get to.
More reasonable answer.
Thank you.
Thank you. Our next question from Lucas pipes Ive rallies Securities. Your line is open. Please go ahead.
Good morning, everybody.
And I have questions along the same lines as well and first to turn to two China and the met coal market. You noted the decline of 80% of imports in the release and.
And obviously the steel markets globally, very strong and I'm wondering what your perspective is on on how China is meeting.
Demand today, if not with with seaborne imports and then how sustainable you think that situation is longer term. Thank you.
We're all over to you.
Alright, Thanks Lucas.
So what China is doing day in the short term is increasing their domestic production in Q1, 2021 day or domestic production was up 13 million tonnes year over year.
And that is on the backdrop.
And there's some challenges that the domestic industry has faced.
In terms of that.
Coal mine accidents and.
Following.
Increased safety and environmental inspections and.
And so.
It remains to be seen where it could increase to currently.
And then China consultants are expecting debt steel production and will be above five non steel salary domestic coal production will be above 500 million tons, a bit about 500 million tonnes.
In 2021 that is up somewhere around 15 million tons compared to.
Two 2020.
And as a result of the tight availability of course, the domestic price and China as increase that is now sitting on.
Around 231 CFR equivalent.
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 and on an annualized basis compared to the record high in 2019 debt record high was 2000 and was 34 million tons and.
And in Q1.
The numbers annualize at 24 million tons and.
Lot of it is resolved.
And increasing COVID-19 cases and.
And Mongolia that is putting a damper on.
On the on the exports that started from about mid March and is still ongoing today.
Imports from the seaborne market as you said are lower given that there is non from Australia and now since December of 2020, but overall seaborne imports for Q1 on an annualized basis are up to above 20.
And 1 billion tonnes and that compares to about 13 million tonnes, excluding Australia.
In 2020, so that's kind of where the call is coming from during the Australian Matt.
Well I really appreciate all this all this detail.
And my second question is along the lines of copper project satellite et cetera, and and when I think back to a few years back.
It seemed like those some of those projects, where a potential monetization targets. It sounds very different today, obviously and what I wondered and in terms of strategy going forward, which you'd be.
And so far as to.
Be inquisitive on the M&A side when it comes to two copper project, specifically and and if so where would you be where would you be looking and then given.
Some of the.
I think you mentioned earlier regards 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 and there are several questions within that I'll start with some loans first in terms of.
You mentioned inquiries are looking at buying we're not interested in buying anything because we are very rich and resources.
And Teck.
We have eight projects to work through so.
That's not to say that our eyes are closed and we're obviously going to keep an open mind if something comes along that is.
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 as we get further along knocking off all these initiatives such as.
Neptune few water treatment toward and river water treatment and with pricing and with copper and zinc where they are more capital becomes available and I would expect that exploration well.
We will share on that.
And we've been very pleased with the work on 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 pre COVID-19 and Thats just a 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 and new projects so 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 a copper project given the outlook for the world over the next 10 years.
I think the answer is somewhere in between getting.
Getting the right balance and we.
We've looked at.
Some of our situations and.
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 and their people and we're left with.
Half of mine are more for free and.
And if that sneaks in between QB, two and can be three then that's a pretty good situations and so we're looking at those kinds of options and and what we'll do is we'll put together a whole package.
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 and and COVID-19 is this 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.
And in some circumstances. So that's why it's hard to be too definitive on the dates.
Okay.
I really appreciate the perspective, thank you very much and best of luck.
Thank you.
Thank you and your 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.
And you've got the leading presidential candidate positioned.
Fairly aggressively against.
And for and miners and I'm just wondering if.
You are and to me and our management or the chamber of mines and had any.
Recent insights into and.
His administration and just anything you can suggest we should think about is this oh election plays out.
Yeah.
Clearly, we're all watching it.
And you know there is different.
Professional geopolitical commentators that published reports every day I read some of them on and I'm sure. Most of the team does but I don't think there is.
As much additional insight that we can add to that to help you with your question and no one knows the answer and the result, I see the sales been modifying and is positioned somewhat and the and.
He comes from.
Vantage point, and that's fairly far left and it looks like and the polls he has.
As a lead and our case for our company.
It's.
It's an important thing to watch.
We have.
Two key assets and to me and of course, it's very very important asset.
Zephyr and alloy development asset so it's not that material to our company as it would be to some other companies.
But and the and 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 stabilization agreement in place right now.
And can you just remind if we look just at anthem and you know like how much cash.
Capex you'd be planning to put into the asset over the next two.
Two years.
I'll turn that to Jonathan, but just saying because you prompted the issue.
We do have one on QB, two which is very important but jonathan over to you.
Sorry, and just getting off mute there I don't have the outlook for on and made a capex two hands.
If you can get with phrase or after this call. We can we can just give you whatever relevant disclosures we have on that point.
Okay.
Okay. Thank you.
Thank you our next question, Brian Macarthur from Raymond James Your line is open. Please go ahead.
Hi, good morning, Dan.
You can mine has to do with project satellite and I know, you've given lots of answers, but just so I.
And obviously, you've got lots of strategic options.
Are we now thinking originally project satellite with all monetization you talked about a partner building one of your projects can.
Can I assume that you don't really want to build any of these eight projects and I could argue maybe you should have another production center are or what's your philosophical thinking on that.
And given originally you thought you could monetize project satellite for 3 billion or at least 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.
And we took these projects that were all very early stage and what we said is we would move them through the scoping and resource reserves scoping study pre feasibility feasibility and then decide what best to do with it whether it was to actually build it.
And it made sense as part of <unk> portfolio or to partner or to contribute into another company take back shares ride the cycle or to sell outright per 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 this summer.
And then would it be monetized.
We set a target of $3 billion of value in terms of who we are.
Significantly exceeded that for those five projects.
But we haven't necessarily realized any of it and the cash we do know from just a.
And just inbound calls and.
Letter proposals and things that we get on AST debt.
And that we could clear significantly over a $1 billion.
One on a couple of them.
If we chose to do that.
And we've said we know we know we have received offers that say those numbers and we did.
And the way from.
And later to actually closing a deal, but so that's a significant value has been created by the satellite team.
The 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 and long term demand for copper and 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.
Our competitors to see what they have 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.
Our 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 was maybe start calling about and.
And so that people can see just what kind of a pipeline and we've got but it's pretty exciting and we've got tremendous resources, where rich and resources.
Great. Thanks, that's very helpful and just a second question just for a.
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 a final thought on your last question.
Thanks, we almost no for sure we will be building and <unk> I don't know, whether it's a <unk>.
Direct 50% quick expansion of doubling or tripling right because certainly the resources are 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 and I'll turn that to Peter Rajeev.
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 fines and yet they are recorded as a short term liability 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 Don Lindsay.
Okay, well with that thank you very much for joining us today, we look forward to having the next quarterly call and July and we'll give you another update on QB two and we're very excited to have passed the halfway point very excited with our progress and the law.
And last four weeks, we do see.
Some improvement and the COVID-19 situation in 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.
Delighted to have Neptune.
And the full commissioning stage 18 ships, having already been loaded as I said I was there on Monday.
Terrific and it's going to be a tremendous.
Long term asset for our coal business and structurally lowest lower the cost for decades to come and allow us to deliver deliver high quality metallurgical coal to our customers when they want it and 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.
Okay.