Q2 2021 Teck Resources Ltd Earnings Call
Total population of 19 million people around 85% have had their first dose and 74 per cent of had their second dose and at QB 2 itself more than 60 per cent of the project. We are of course and fully vaccinated with over 80% of the workers having received at least 1 dose.
The most recent wave of the pen.
Has had a much larger impact on Q2 of them the first wave.
Construction and restarted last year following the temporary suspension, we had nowhere near of the challenges that we've had in these past 3 months.
All of the restrictions protocols and testing that had been so important and the prevention of the spread of COVID-19.
So a large burden it puts the QB teen QB 2 team to the test, but our team has risen to that challenge.
Tangible progress and the second quarter has been hard won and his remarkable under these challenging conditions.
It's a bit more color on what it's like for for those of you who may be sitting.
Our all in and investment center, perhaps and New York, where it's wide open.
And what we're dealing with now is 1 of the individual as symptoms that are taken off the project and they're taking the hotels on the coast, where we secured them permanently for quarantine purposes. They are PCR of tested the adults are returned and vote for days. There then contact.
Sitting here east and the contact individuals' of are also taken off the project and put and quarantine hotel and they are PCR testing.
The test negative the return to work that has positive the quarantine for 14 days at the peak in Q2, we had 350 individuals and quarantine and <unk>.
For.
<unk> trends were very high so you can imagine what that does to your crew consistency to your productivity and the construction of weekly plans, especially when the effects of individuals' are mission critical people like supervisors or crane operators are welders, and then you combine that with absenteeism and running at 12% of during the quarter.
The average is a huge challenge and so that is why we are immensely proud of the progress that we made during that quarter and now we are very excited because just in the last couple of weeks. We've now God things down to just about 3 active cases, and we are able already putting 3 people to the room and increase it and.
It is on site and finally getting a chance to go the full strength. So this will be a tale of 2 projects. The project up to date heavily influenced by Covid and we hope for the next 12 months and entirely different projects, where we can make full progress.
We continue to expect first production of QB, 2 and the second.
Second half of 2020, 2 which is next year and QB 2 is expected to double our consolidated copper production by 2023.
At the same time of our Neptune facility upgrade is ramping up to full capacity across the site.
Equipment, there is performing according to or better than plan I was there a week before last and it is.
The resourcing to see and this upgrade is a key component of securing a long term low cost much much lower cost and reliable supply chain for steelmaking coal business.
We saw a significant improvement and our financial results for the second quarter, reflecting spot price increases and all of our key commodity and.
Adjusted EBITDA.
And I was up 104% compared with Q2 last year.
Our operations performed well during the second quarter production was in line with plan across our business units and we met our quarterly sales guidance and steelmaking coal and zinc.
At the very end of the quarter, though our rail logistics were impacted.
And excited wildfires and British Columbia, and the situation remains very difficult and the provincial government declared a state of emergency last week.
We extend our deepest condolences to all of those who have been directly affected.
For the wildfires did not impact for a second quarter results. They are currently impacting transportation.
By the way at our operations and be see rail.
The rail services have been disrupted which is expected to negatively impact our steelmaking coal business, our third quarter steelmaking coal sales are now expected to be reduced by 500000 to 800000 tons with guidance revised to 5.7% and 6.
And 1 million tons.
For the quarter.
Our annual production guidance.
Range has been lowered by 500000 tons to be true and 25 and 26 million tonnes.
And we have increased our annual transportation cost guidance range by $3 Canadian per ton to 30.
Point of $1 to $42 per ton and I think it's important to view that increase and context and in our transportation cost. So that's the result of the wildfires within the context of current steelmaking coal prices, while we're raising our cost guidance range by $3, Canadian and Australia and F O B price during the quarter rose.
Rose by $100 U S. That's just a little bit of context for you and it is due to the wildfires.
The increase.
We do have contracts in place to shift through all 3 west coast ports and that gives us the flexibility to divert some training and vessels to Ridley terminals, which is clearly very economic for us.
At the same time like others and the industry, we are seeing signs of cost inflation across the business more generally we have noted increases and the cost of certain key supplies, including mining equipment.
Fuel tires and explosives.
Driven largely by price increases for underlying commodity such as steel crude.
Natural gas for.
Of our operations the largest impact is on the fuel costs.
While the impact on our second quarter results was slight as we delivered an adjusted EBITDA margin of 39%. We expect that these price increases to put modest upward pressure on our cash unit costs from the second half of the year.
Crude oil. Despite this we have not changed our guidance for full year total cash unit costs and copper and zinc.
And adjusted site cash costs of sales and steelmaking coal and we have lowered our guidance for full year net cash unit costs and zinc.
Finally, we were very proud to be named for the.
50, corporate citizens and Canada, which is the 15th consecutive year that we have been ranked as 1 of the top 50 companies of Canada for corporate citizenship.
Now turning to an overview of our second quarter 2021 financial results on slide 4.
Initial results are significantly improved compared to Q2 last year supported.
The best improved commodity prices copper.
Copper prices reached all time record highs and the quarter with average prices, 81% higher and in Q2 last year.
Our realized steelmaking coal prices benefited from around 2 million tons of sales to customers in China that were priced at premiums and CFR.
China prices.
Revenues were up by almost 50% from a year ago to $2.6 billion per.
<unk> ability and prove even more with adjusted EBITDA, increasing 104% to $989 million and bottom line adjusted profit attributable to shareholders increased 281.
Sorted by and just $339 million, which is 63 per share on a diluted basis and Jonathan will review our financial results for more detail on the few minutes.
I'll now run through some second quarter highlights by business units, starting with copper on slide 5.
Our copper business unit and a strong Q2.
For the 300 and.
1 per cent per cent increase and EBITDA compared to the same period last year, driven by substantially higher copper prices.
Production was higher than and the same period last year.
And when and I mean, the had temporarily suspended operations due to COVID-19.
Total cash unit costs were $1.80 U S per pound, which was 23 cents.
85, and higher than the year ago.
But the increase and cost is primarily due to higher workers participation and royalty expense, resulting from increased profitability and and convener and this had a 20 U S per pound impact compared to a year ago as well as higher consumables cost and the.
Per pound of the Canadian dollar the.
Fight those cost pressures, we delivered an adjusted EBITDA margin for the copper business unit of <unk>.
And 67%.
And we've maintained our annual production and operating cost guidance and confidence.
Turning to an update on our QB 2 projects on slide 6.
As I mentioned earlier.
The strength of the project has continued to effectively advance construction with the best quarter of progress to date. Despite the significant ongoing wave of COVID-19 and Chile.
We continue to maintain and enhance our extensive COVID-19 protocols in order to protect the health and safety of the workers and the communities and which we operate free.
The screening and onsite.
Testing have been key to our success and managing Covid.
And in fact, we have screened out 1300 positive cases more than 1300 clause of cases that otherwise would have gone to the site.
Additionally, and coordination with the government, we successfully rolled out of the vaccination campaign for workers.
Site right on site.
With Covid, 19 cases, and Chile declining coupled with the countries and the project workforce is high rates of the vaccination and we are aggressively ramping up towards peak workforce levels. The critical path, which is the grinding circuit.
And on plan and we are still on track for.
The first production and the second half of next year.
And based on the solid piece of construction through that last quarter, we expect to achieve 60% overall completion in early August so either next week and very low part of the recapture.
Our capital cost estimate remains at 526 billion, including contingency.
Tendency and escalation.
And our estimate for COVID-19 capital impacts, which are tracked separately has been updated to 600 million and U S. As a result of the forecast impacts of the second wave of COVID-19.
Slide 7 provides an aerial view of the concentrator area, where we're making strong weekly construction and progress.
Yes grinding line shown in the background currently remain the critical of the longest path for the project and we have made significant progress here with all 6 mills now in place and.
Behind that you can see the tower for the core sourced actor that has been erected with stockpiled dome will go up.
And we continue to advance the.
It'll appeal of the grinding building and the mechanical installation of the staged flotation reactor yourself.
You can see and the middle of the after the photo of the Green just till after the 14 large 650 cubic meter of flotation cells and blue.
And the for ground, you can see where we've advanced construction and mechanical installation of the copper and bulk concentrator.
The structures and the re grinding facilities and lastly, and the middle right you can see the advanced stage of the onsite power substation.
Slide 8 shows the starter dam of the tailings management facility, where we have raised the dam elevation and significantly in the quarter. We are continuing to utilize the Teck mine fleet.
The thick the and some of our nuclear of Cat 794 of which are performing well.
Slide 9 shows our progress and advancing the jetty from the onshore work front and we have 2 additional offshore work for US now to advance the jetty from of Jackup barge and temporary island, where we've commenced the call driving.
As the pipeline right of way and platform development is now effectively complete we are focused on advancing the pipe stringing welding placement and backfill the slide 9 shows the pipeline trench the relative water pipe on the rate and the strength of concentrate pipeline on the left ready for welding and the back right now and you'll see our port.
Greetings.
The C more of the latest progress on QB 2 I encourage you to watch a video of the project and view of our latest quarterly photo Gallery, which we have posted with our quarterly conference call materials and the investors section of Teck Dot Com and you will find links to them and our Q2 press release.
Next.
Next our zinc business unit results for the second quarter are summarized on slide 11, and as a reminder, and to meet <unk> zinc related financial results are reported and our copper business unit.
Red Dog has strong performance from the quarter with production, increasing by 67% compared with the same period last year and.
And as.
And we had previously flagged lower 2020 production volumes at Red Dog resulted in lower material available for 'twenty for sale and higher unit cash cost of sale for zinc mining operations and the first half of this year.
We are now through that.
The Red dog sales zinc and concentrate were 39000 tons of <unk>, which was in line with our guidance.
Total cash unit costs of 61 cents per pound reflect higher treatment charges and the higher cost of inventory per sales related to the low or 2020 production volumes and.
The trail was impact.
Longer than planned annual zinc roaster of maintenance, which is now behind us.
Looking forward.
And of shipping season commenced on July 19th and.
And our Q3 sales guidance for Red dog zinc and concentrate is the 180000 and 200000 tons.
For 2021, we expect higher production at Red Dog.
Increased or full year of zinc and concentrate production guidance range by 20000.
Red Zone to 605, thousands of 630000 tonnes and.
And we've lowered our full year net cash unit cost guidance range by 5 cents per pound to <unk> 35 to 40 cents per pound.
We'd also Lord of full year of refined zinc production guidance range for trail.
And the time of 10000 tons to 290, the 300000 tons due to lower availability of quality of zinc concentrate feed sources and.
And the longer than planned roaster of maintenance shutdown during the quarter.
Turning to our steelmaking coal business on slide 12.
The <unk> pizza all remain on that'd be appreciated.
And the in the second quarter sales were $6.2 million tonnes in line with our guidance range and our average realized price includes around 2 million tons of sales to Chinese customers similar to the first quarter at high CFR, China prices and just.
And line you see of part of China and prices are around 314 and $15 a ton.
And our out of your operations set of new all time quarterly production records. Thanks to the expansion that we did last year.
Adjusted site cash cost of sales were $64 Canadian per tonne, which was at.
And Jeremy and of our guidance range as anticipated.
And for dollars Canadian per tonne lower than a year ago.
The transportation costs of $42 Canadian per tonne were above our full year guidance range, which was expected and higher than the year ago as a result of higher fuel surcharges and tariffs.
And as I mentioned earlier wildfires are currently impacting our operations and V. C. Rail services has been disrupted which is expected to negatively impact our third quarter sales volume and.
And our annual production volumes and annual transportation costs as 2 of making cool.
Our third quarter steelmaking.
The high sales are now expected to be reduced by 500 to 800000 tonnes and we expect $5.7 to $6.1 million tonnes of sales in the third quarter.
We will continue to prioritize the available spot sales volume to China, which is expected to continue to result and favorable.
Favorable price realization.
We continue to target and 7.5 million tons of sales to China, and 2021 and that is unchanged from previous guidance.
And in your production guidance range has been lowered by 500000 tonnes and 25% to 26 million tonnes and.
And we have increased our annual transportation.
Per patient cost guidance range by $3 Canadian per tonne to between 39 and $42.
Again, it is important to view this cost and trees and the context of screw.
Current steelmaking coal prices, which have risen by $100.
During the quarter.
We have non increase to adjusted.
Cost of sales guidance for the full year.
However, upward pressure on input costs to the cost inflation and the impact of the BC wildfires are expected to result in cost coming and at the higher end of the range.
And the second quarter, our steelmaking coal business unit delivered an adjusted EBITDA.
Carriage and of 41 per cent.
And in the third quarter, we expect the financial performance to reflect the sharp increase in prices that occurred and the latter half of Q2.
Slide 13.
As I indicated earlier, our Neptune Port project is in the ramp up phase and since the first 2.
Michael was unloaded using the new double of railcars and upper on April 19th.
<unk> and fully commissioning of the double dumper, and then moved on to the site wide and ramp up.
August and September are anticipated to the big months for train handling of the vessel loading.
We are seeing excellent train Henry times at Neptune with the combination.
And we're making double and single Doctor.
Indicating that the terminal will be capable of processing in excess of 18.5 million tonnes per annum.
Terminal throughput pause for the first 2 weeks of July as a result of the rail disruptions due to wildfires this should not affect the site.
<unk> ramp up and the.
Pause gave us the opportunity to complete the preventative maintenance.
Slide 14 shows the photo of the New index here for the double dumper, which is used to position and advance trains and the dumper and you see the drive system and the arm that comes down between the cars, which is world class technologies.
<unk> that the 15 shows the largest capesize vessel every loaded at Neptune terminal, which is 300 meters long and low depths of 200000 tons and the bunch of us want to see it and climb of apart and watch the loading and was very exciting.
We're really pleased to see the project moving to the statewide ramp up phase of Neptune is a key component of our long term.
Slide cost and reliable supply chain for steelmaking coal business and the.
See more of the latest progress at our Neptune upgrade project, we have posted our latest quarterly photo gallery with the quarterly conference call materials and the investors section of Teck Dot com with the link to it and our Q2 press release.
Term turning to our energy business unit results for the second quarter, which are summarized on slide 16.
Our realized price and the results reflect the material improvement in the Western Canada select prices compared with Q2 last year.
However, this was partially offset by higher unit operating costs and lower production due to.
Additional issues and the mine.
There has been a slower than planned ramp up of contract overburden stripping as well as challenges around managing groundwater inflow from deep sub surface aquifers and.
And subsequent to the end of the quarter in July we encountered additional challenges it will require mining.
The shallower and line spoke of and planned resulting in lost or and the need for additional overburden stripping.
The ramp up to 2 train operation has therefore been delayed until 2022.
As the result of the operational issues and the mining challenges, we have lowered our 2021 production guidance range.
And by 2 to 4 million barrels to the 6.8% to $8.1 million barrels for the year.
We've also increased for 2021 adjusted operating profit guidance range.
The $12 Canadian per barrel for.
40% to $44 per barrel.
And with that I will pass over to Jonathan for comments on our financial results.
Thanks, Don I'll start by addressing the details of the second quarter's earnings adjustments on slide 17.
The most significant adjustment of $44 million and environmental costs on and off the box spaces.
This primarily relates to the decrease and the right to use the discounts of decommissioning and restoration provisions for closed operations.
For <unk> due to a tightening of our credit spreads.
Share based compensation expense was $24 million and the quarter and some.
Modestly derivatives for $20 million.
After these and other minor adjustments bottom line adjusted profit attributable to shareholders was 300, and says you know $1 million and the quarter, which.
Which is 63 per share on the diluted basis.
Now the changes and our cash position during the second quarter are on slide 18.
We generated $575 million and cash flow from operations, which is the significant day increase compared with 300 may and a year ago, reflecting higher commodity.
Of the feed prices.
We spent 1 billion of sustaining and growth capital, including $666 million on QB 2.
$158 million on the next impulse upgrade project and $203 million and sustaining capital.
Capitalized stripping was $175 million primarily relate.
I think for the advancement of pits for future production of all steelmaking coal operations.
This was higher than a year ago, primarily due to decrease the stripping activities in Q2.2020 as a result of COVID-19.
The net proceeds net of repayments on our U S $2.5 billion project financing.
And out of some facility for <unk> for $272 million and the quarter.
We also do and net $377 million on our U S 4 billion revolving credit facility.
We paid 77 million and interest and finance charges and $26 million in respect of a regular quarterly cash dividend.
Of <unk> per share.
After these and other minor items, we ended the quarter with cash and short term investments of $312 million.
And now turning to our financial position on slide 19.
We've maintained our strong financial position with current liquidity of Canadian and $6.
Billions of dollars, including our current cash and the amounts available on our U S 5 billion of committed revolving credit facility.
U S $3.5 billion is available on our U S 4 billion facility that matures and Q4, 2020.4 and on the.
U S 1 billion sidecar that matures and Q2.2020.
Wondering for maintenance Undrawn.
Both facilities do not have any earnings or cash flow based financial covenants and.
And so the credit rating trigger from day.
Not include a general material adverse effect borrowing conditions.
The only financial covenants and the net debt to capitalization ratio of that channel.
$22.60 per cent and at June 30th that ratio was 27%.
Of our U S $2.5 billion limited recourse project financing facility for the QB 2 projects.
We have drawn U S $1.8 billion as of June 30th of which U S $224 million withdrawn and the.
And I don't think quarter.
And <unk> entered into and you use 1 billion soon the loan agreements and July.
Of which 22, 5% share would be U S $225 million of slowly drill.
The loan is non recourse to us and <unk>.
<unk> and July 2026.
We have.
No significant low maturities prior to 2030 and investment grade credit ratings from all for credit rating agencies.
Importantly, we have significant potential for EBITDA generation from town steelmaking coal prices.
Every U S $50 for an increase and the quarterly index lagged by 1 month is estimating.
The make it to increase the annualized EBITDA by almost Canadian $1.5 billion.
With that I will pass it back to Donald for closing comments.
Thanks, Jonathan.
In closing we remain focused on the copper growth strategy and on delivering strong operating results and strong free cash flow and the current favorable.
<unk> commodity price environment.
We believe Teck is 1 of the best position the companies globally to capitalize on the strong demand growth, we see for copper with 1 of the very best copper production growth profiles and the industry.
Accelerating copper growth is the cornerstone of our strategy and the process, we expect to continue to reduce carbon as the proportion.
And of our total business, while continuing to produce the high quality of steelmaking coal required for the low carbon transition.
We're also continuing to strengthen our existing high quality low carbon assets through our rates of 21 technology and the innovation program, which is harnessing cutting edge technologies to drive the step change improvements and productivity efficiencies.
The safety and sustainability and at the same time, and we strive to maintain the highest standards of sustainability and safety and operational excellence and everything we do and we of our leadership team with the right mix of skills and experience to deliver on our strategy and.
And with that we'd be happy to answer your questions like many of you.
Most of us for on phone lines from.
Home and other locations. So please bear with US if there is the delay while we sort out who will answer your questions and the bat operator over to you.
Thank you Mr. Lindsay.
Please press star 1 at this time and if you have the question there will be a brief pause for all of the participants Register.
Mr for questions. Thank you for your patience.
And the first question is from <unk> <unk> from Scotiabank. Please go ahead. Your line is now open.
Hi, good morning.
To see the solid progress of QB 2 of just curious.
Did I hear correctly that you are.
And now able to take the head count up from 10000, approximately up to the planned 12000, and then I'm wondering if that is the case, how we should think about the COVID-19 related escalation costs at QB 2 I mean, they were $150 million higher this quarter.
And that.
I'm just wondering if we should anticipate those coming down materially.
Any color would be very helpful.
Okay. Thank you <unk> and I see you've done and again getting personal line well then.
So the.
The first part of your question. The answer is yes, that's true, but I'm going to turn it over to Red Conger for details read over to you.
Good morning, I appreciate the question.
We are absolutely aggressively.
Increasing the the headcount and App site, we're going to free to a room as as Don had mentioned so that had been a kind of strength up until now and.
And as as we're able to.
James the the work rules associated with all of that the protocols et cetera.
Gonna have less and less of that.
From the.
And the pandemic.
For the second quarter.
So you know the the.
Better weekend.
And manage all of that.
The higher vaccination rates et cetera.
And then the law.
And as additional Covid expenses, we will have so we're very optimistic the we've seen the the peak of.
Of those protocols.
Calls that we've had the tolls that of effect.
But the cost and productivity.
And just to.
1 thing to Don's comments earlier, you showed a picture of.
Of the pipelines.
The small 1 for the concentrates the big 1 for the water.
1 of the things that our team has done and keep.
Keep us on schedule during this unprecedented second quarter that we just came through.
When when people report off and we have those problems of Don described we reconstitute the crews.
Keep working on the most critical items from <unk>.
And that.
Taking a photo of the most critical item is the water pipe.
Not the concentrate price we've got to get the water pipe from.
Please so we can do commissioning of the hydro testing et cetera, and and we can finish the concentrate pipeline later. So that's that's just 1 example of how.
That per diem has collapsed and and the responded during the 7 and now with more head count on site more consistent work crews et cetera, we can do that work in parallel and again, we had originally planned for June.
Where are you allowed to take the head count up to the the maximum plan sort of peak levels now.
And here's the here's the way, we should think about of Don mentioned.
The projects so we are.
Now.
Getting the work plans for the for the remainder of the.
So struction the.
It takes into account and all of the things that have changed since we made the plan just 3 or 4 short months ago.
And and so that the plan will will have the maximum employment levels possible that the we can deploy.
The countries.
Take advantage of every work front possible.
And that.
That may be a slightly different of head count.
What we have had decided earlier.
And.
You know with good the EFS.
And and a little bit of luck could be.
Floyd and could even be higher than what we had planned before of it for sure. It will be the maximum amount of the.
People the we can deploy.
And again I'll, just remind you of some of the forward looking things that the the team has done what and when.
And we added the.
The extra cap space.
When when the pandemic first hit.
That now allows us to do some different things with 3 to a room and.
Like I said, we're going to take full advantage of of all of that and be very creative.
So with these work plans.
Okay, and just finally any guidance you can give us read on.
Sort of a run rate of Covid cost increases moving forward as you wrap up.
Look the forest.
The forecast that we've provided you know.
And as our very best estimate of what we think it's going to be at completion.
So for that what that 150 is to completion and that's not just the catch up.
Sort of where the.
The forecast and we have given you.
We believe will be the.
Total cost.
At completion.
Great. Thank you Brad.
Thank you. The next question is from Matthew Murphy.
Barclays. Please go ahead. Your line is now open.
Hi, just a follow up on that last 1 of the.
600 million.
That's been the how much of that would've been realized to date and how much are you leaving.
And you know for the rest of the project.
And from that 2 of the lion's share of that has not been incurred so those are our.
Those of our estimates of of how this is this is going to be played out.
Okay, Okay, so yet and I'll say yet to be unrealized okay and.
And I'm just wondering when you talk.
About the 60% complete that's physical progress and.
From here on I mean, how does the pace of the project compare to your original.
The Covid budget.
Yeah. So it so that's total.
Yes, that's for the entire project and the 60%.
Number so that includes.
Engineering and.
And everything and.
Again, just to reiterate what Tom said.
The the pace of this will be just for a share forward.
And then.
And it has been.
So we we intend to increase the pace of.
Construction completion.
So you've.
And a good example of that Matthew.
The second quarter and we just completed was the best pace.
The project.
So that was our best quarter for construction and completion to date.
And we intend to continue to.
Depots.
This third quarter, the wear and now won't be better than the second.
And.
We will get a peak.
Yeah.
On the for Corp, fourth quarter the early next year.
Okay. Thank you.
Thank you. The next question is from Greg Barnes from TD Securities. Please go ahead. Your line is now open.
Yes. Thank you.
And I'd go back.
Back to you again read just from.
And the pace of completion and obviously, that's a critical point to get the project done by second half of next year. Just you know easy numbers you'd have to achieve of about 3 to 3 and half the same completion rates per month.
From all of the storm.
Sound about right.
And I guess, what was the number for Q2.
Well the shares which is the way to think about it.
What what we've been able to do is maintain the critical path through the grinding loans on schedule.
So again just using that same example, I used on the 2 pipelines and then let me go.
When when we had all of these report of tissues quarantine issues.
Critical personnel not presence, particularly in the last quarter.
We made sure that we re consist of reconstituted crews.
Sure.
Every home possible on the critical path items.
For those those.
The critical path through the grinding lines.
And trained the schedule.
And so now when I, what I've mentioned increasing headcount.
The other work.
So do the we come the open up et cetera.
That will be.
Picking up those other pieces of that.
The we very appropriately.
Deep prioritize the if you will during these challenges so it's.
<unk>.
Just what is the percent complete because like you said, that's part of the mathematical thing.
This has all been very targeted out of okay, we're going to get.
You know the first grinding line of the concentrate or.
Right and when the second half of 2022 and the second 1.
It's not right after the other.
But the program and that's that's how we're doing all of them.
That's why we're.
Mike and such a big deal about keeping the critical path.
And Scott.
Okay. So maybe it's a bit I'm, sorry, I'll read the what.
Is the target completion date for the first grinding line.
But from a half of 2022.
[laughter].
John can I switch back to you just the pace of.
Inflation, and you're seeing cost inflation on consumables reagents equipment.
And from what Youre seeing is this cyclical or is it or is the structural.
Element of this going on.
I would say of clinker, Colombia, but as I said and my comment that the the source of this is the underlying increase from different commodities. The makeup think so of steel and few of them.
Of course, driven by 1 of your.
WTO price.
The the kind of.
So I would think of in the structural category might be for example, if you have labor agreements that.
We're locked in for for several years of at at numbers that were a dramatic change and the good news is we've just settled at our 2 largest mines for 6 years and in a reasonable range.
The higher than the last time, the the workers benefit but.
And and.
And our and the way.
Way that we think could be quite productive and thats the ability for 6 years, so and I'm sure.
Short answer I am too cyclical.
Not too concerned about 2022, I know, it's early and there's not too concerned about.
Higher cost at this point next year.
Not really because we'll still be benefiting from the investments that we made it and help you are shutting down and Cardinal River.
Neptune of running at full capacity of that stage, which is the significant benefit so the.
Our.
Strong positive that that should help.
The increase.
The increases in other income.
Okay, great. Thank you.
Thank you the.
Next question is from Lucas pipes from B Riley Securities. Please go ahead. Your line is now open.
Hey, good morning, everyone and.
All of this is Tim.
Balance to continue to ask questions on QB, 2 I'll I'll tried to switch the topic.
First on unmet call 1.
And just kind of shorter term question and then my follow up there'll be a longer term 1 but in the short term when I when I look at your year to day production figures channel speakers.
And it looks.
<unk> midpoint of guidance is baking and a ramp up and the second half of the year and just instead of.
So that is kind of stretch goal given what's going on and the province or do you have a pretty good line of sight to get to those levels. Thank you very much for that.
The good question and I'm going to have both rail and fully and Robin.
Looks like net of 2 to give the answers to the O U S.
You have to take that into the context with what the.
The dramatic effect of the wildfires and the last 2.
2 or 3 weeks and and.
That's the big factor and we're not completely through that yet so it's anyone's guess for now that'll be past us.
Robin why don't you start.
Sure and just to reiterate.
Right that the wildfires are certainly, causing us from uncertainty.
And on the bright side as we came into this period, we actually had.
Considerable room at the sites, we logistics was strong through the first half. So we were able to move most of our rock.
Our sort of clean coal to.
Support so that gives us some flexibility to get through this period, we can't run as fast when we're running to ground.
So as we stockpile, we got this low production rates down a little bit.
But the majority of our shutdowns are behind US now and there are some left to go into Q3, but.
Over half.
Done through the maintenance.
Processed here through the first half so we're in really good shape from an operational point of view, it's really just a matter of what kind of logistics constraints, we see going forward now with rail, but we're in good shape to hit our new guidance range of 25 to 26.
Thanks, Robin and rail do you want add any market.
Market color for the second half of the year.
Yeah happy to do that government. So yeah. The Lucas, we're continuing to see the market.
The strong.
Whether it's demand in China.
And they have their own supply issues with the.
The domestic mines and Mongolia and.
On the markets outside of China demand is extremely strong as well and steel prices are running at record levels.
The steel production in the hot metal production is back to pre pandemic levels. So.
We're continuing to see the strong demand across the board for <unk>.
Okay.
Very very helpful. Thank you all for for your perspectives.
And my follow up I mentioned the longer term question on the met coal market and we and.
And the past it seems like we it seems like a lifetime ago.
We spend more time thinking about.
What is it what is the reasonable met coal price.
And and Don as you kind of a survey that market from both the supply and demand.
Vantage point, what what's your view.
Today, what is it reasonable price to.
And if you do your internal planning or or or and conversations with investors. Thank you very much for your perspective.
Yeah. So we always start and stable where has it been in the last 10 or 12 years and the average price is actually and the 170.180 range depending on whether you are using in a place for an adjusted number or not.
And today.
Right on price and terms it would be 1 of heating and.
And then with some of what's going to happen and the next 10 years on supply and demand and it's pretty clear that there are constraints on investments and new supply.
And not just.
Capital providers willingness to provide capital, but also permitting issues and we've seen it right here in Canada.
The recently.
The project proposal, the even though they.
They've done all of the hard work for 6 years and some of them, but it was turned down and we've seen the same Australia as well so.
I have a view of that there'll be less supply, but roughly the same demand and the reason why we say that is the.
Well each of US has been bombarded in the lab.
Last year or so with research reports, 2 or 3 week of Green steel and the hydrogen based technologies and so on.
It's pretty clear that it's going to take a long long time for that to have a meaningful impact on the total volume of steel produced globally and remember, it's the boat at $2 billion tonne.
Hi.
Market and the kind of.
And that's what it would take to to make the material impact on that type of industry and it's trillions of.
And we just don't think it's going to happen for quite a while so Meanwhile, our core customers and Japan, and Korea and China.
And in India.
And are seeing strong demand India's steel industry of courses is play.
Planned by the government to to basically triple in the next 10 years or so.
We we think that the outlook from a price point of view was actually quite strong we've thankfully seen the.
Recirculation and the market that we had the disruption between.
China, and Australia, and in and that whole issue and it took a while to sort that out and the global markets, but it seems to have done that now so it's much more stable for non <unk> price.
And I think we can collect the cash now.
And see some stability.
And there's always going to be volatility and commodity markets and to make cologuard and exception, but for our planning purposes.
For at the higher numbers and.
We're not planning to grow our ours to make and cold business either right. So.
And we don't see that happening.
And our major competitors.
And new projects because typically the permits so I think supply is going to be tight.
That helps.
Very helpful really appreciate it and the best of luck.
Thank you.
Thank you the.
Next question is from Carlos de Alba from Morgan.
Morgan Stanley. Please go ahead. Your line is now open.
Great. Thank you. Thank you very much and good morning, everyone. So on and on the coal production.
And we heard about the temporary mining ban and this weakening and BC, So I wonder if that.
And the additional incremental risk to call volumes in the third quarter.
And if that is in a way and already incorporated in your latest guidance.
And on the cost from there.
And related to the water treatment. So we saw an increase of 100 million per.
For a year.
Expected between the 2001 and 21 and 2.
And thirdly, what drove that and.
And what should we expect going forward.
And then finally.
And I guess on the on the <unk>.
And of the of the golf business on Neptune, you to what extent isn't it too and helping you offset the higher call drives per cost because we also red.
And the release of <unk>.
To see a little bit reviews.
Throughput through Neptune and that is contributing to the higher cost transportation guidance.
Okay.
And with the first 2 parts of the question to Robin share of meta and I believe the last part per railcar.
Or.
Uh huh.
I guess real pull and thanks.
Okay.
Thanks, Carlos just on the on the first question around production pretty much the same answer I walked through that.
And really we kind of get through this fire situation and see how we come out the other side, but we've tried.
And the cut in the guidance of 25 to 26, and we did reduce the guidance by about half of million.
So that's pretty much the issue on and water treatment.
The main reason for the increase and water capex over the over the period of 'twenty to 'twenty for is really just the change and project timelines and so we're advancing some water treatments.
And to Reflag, each as a result of consultation and and some of that can actually enhance our mine planning auctions. So just for an example of all of few phase 3 of the Srs and we've got there we've advanced that from 25% to 23, so we pulled out and earlier and that supports potentially lower cost funding options.
Over the time period so it's.
Treatments for the shift and the timeline on on on those developments.
Alright, then the Carlos your question on the Neptune, So the the increase and the transportation cost is.
Really due mainly to the forest fires.
Really just in the B C.
As a result of this the the train service to Vancouver was competing all cause for over 2 weeks and.
And it's starting to come back to normal now so what we did during that period diehard of trains and.
For the soles to Ridley terminals in order to continue delivering the article to market. The fact that for me.
Capacity true.
The true West coast ports actually allowed us to do that and to capture the.
The high price.
And the market now.
And that's at home and above.
And that's hard China above 300.
And overall when you look at Neptune.
Yes, and the site is ramping up that is doing well.
And we're expecting that.
And by the end of Q2 will be running at above.
Now when you have millions of tons of capacity and as such and delivering the cost savings that we're expecting to see going forward for the long term.
Alright. Thank you that's very clear and I appreciate the color.
Yeah.
Thank you.
The question is from Abbvie had the wrong from Deutsche Bank. Please go ahead. Your line is now open.
Morning morning, all the time for a lot for the call.
I have of I have a couple of questions. Please the first 1 unmet dude.
As a day I'll just mention the transportation costs for the second half have been impacted.
The ongoing by the buyers, but most of that once once the situation has normalized is it fair to assume that transportation cost step down over the course of next year to the lower and the lower end of the 75% to $40 Canadian but and range.
For the Henry hub.
<unk>.
And so if you look at the previous guidance that we had the.
Is that 36.39 for the sooner.
Specced in.
It could be actually and that range for next year and possibly lower.
The the volume growth.
Net and true Neptune will be much higher than what we would've seen this year.
With this and perspective, we're expecting volume to net to <unk>. This year to still be somewhere around the 13 to 14 million tons range next year should be about $18.
And we've done so we will see the benefit so the the fact that Neptune and scale.
The cost of throughput as oppose to a commercial.
The commercial rate that we're paying out of it.
Yes.
Okay.
Got it thanks, a lot and the next 1 is also.
The answer on the.
The steelmaking coal division.
So can you give us a bit more color on the growth capex and the stripping capex increase at the.
For the division and regarding the rest of 'twenty, 1 capex uplift is it possible for you to quantify the quantum of improvement and productivity and the reduction on cost going.
For all of it thank you.
Robin over to you.
Just wanted to I think you were talking about capitalized stripping on the.
On the first part of the question that's simply a again, it's just the timing of mine sequence of activities. So.
On occasion.
Occasion, we mined and higher strip ratio of areas and it sets us up for future production. So that's that's really just the change and capitalized stripping and then I apologize what was the the second part of your question was around quantifying raised 21.
Hi.
The benefits.
Yes.
Yes.
It's a little difficult to give.
Give you a quantification and any kind of specifics because it's across the broad very broad range of the initiatives. So.
I can tell you that everything that we have invested from the capital side is leading to actually quite short term and strong economic.
Benefit and maybe.
Maybe the 1 way and illustrated.
And we've maintained our cost guidance, despite a number of different inflationary pressures with fuel and things like that and some of the reduction and production and yet we're still seeing strong strong cost performance and I think.
And when you roll all of that up in the large part of our.
Collection on the rate of 21 initiatives that are in play.
Right now so we are we are seeing good good response on those but I cant break that down into and kind of detail for you.
What I would add got it thank you very much.
And what I would add on that 1 is the bigger.
Beginning of 'twenty, 1 we were reporting the incremental EBITDA gains the.
Quarter to quarter, but it became difficult.
To do that during the first of all with the Covid the effects from having to take some pretty dramatic action and the initial stages of the pandemic and and the volatility of the prices and so.
And we're really focused on all of the different projects themselves and we will report on the incremental benefit that year and at the commodity prices at that.
Time, so that you can get a good feel for the value of that that has brought to the table, but suffice it to say that.
People people have been pretty excited by the progress we've made.
Thank you and thanks, a lot for the color.
Thank you.
Next question is from Ryan Mccarthy.
Of course is from Raymond James. Please go ahead. Your line is now open.
Hi, Good morning, sorry can I just go back to the capitalized stripping on the coal that's up $105 million. This year is that.
Just being proactive because you have to ramp back production because of the sales and you're trying to get ahead of the game.
And that will benefit us.
Next 2 years or or is there anything structurally really change because of that we sort of got the script, taking down 2 way.
Lower level, if you could just the.
Elaborate on that and second Don and I don't know if you can make any comments on project satellite.
Sure Rob and you go ahead and I'll come back on the table.
Yeah, you bet Theres nothing structural has changed we're still operating right around that 10 to 1 strip ratio and really the situation. We are little lower on production and we've got strong raw coal inventories and so this allows us to do stripping and areas that don't released as much coal at the front end, but but.
Are going to set us up very strongly over the next couple of years. So it's really just shifting some of the stripping around.
Can we expect of.
That will be 1 of the things at the start of Op health.
Set by assumed cap of our cost inflation going forward and thats sort of how youre looking at it right now.
It's far too much in the autumn.
Sure.
Sorry go ahead.
Or just any time you can you can get ahead on stripping to some extent and set yourself up with that kind of flexibility on the mine planning side is it just puts you in a much stronger position and the future. So we have that capability and it's allowed us to make that kind of move.
Okay. Thank you.
Okay, and then back on satellite which.
And we're really internally starting to think of it more of the copper growth Division satellite of course has 5 projects and then on top of that we have.
Q3, and and Hugh and then so in the last a major investor.
The conference we did publish.
Some details and and IRR and any of these and so on on the key projects. So you can look and the appendix of our our IR presentation and to get those can be divided into the near term medium term and longer term auction the.
And 2 near term ones of course or is that for now and saying of course and.
And is that from Alice case, as we've said before we needed the wait to see how things landed in Peru, We now know that Castillo as president and we still need to wait to see as this cabinet kits.
Appointed and confirmed so we don't think will be and are positioned to move forward.
And and whichever direction, probably until the fall, sometimes as we see we see and how things go and Peru, we own 80 per cent of that project 1 thing's for sure is that if.
And if we partner and some way that we'll be doing it in such a way that we retain an interest and that copper.
The exposure, whether its by taking back shares of our selling less and 80% of that sort of thing but the.
The projects that the processes all ready to go but it's also clear that you can't start it yet until the Peru and.
It gets a little further along and their transition and then the Saint Nicholas obviously.
And you'll see the numbers as of very high quality project that we've had a lot of interest it's very exciting and the we're sorting that sort of true that the that now dealing with different parties and their proposals. So you'll see more of that and the second half of the year and then it can be true as well and we're making good progress there.
And I would hope that we would be reporting to the market.
It will have narrowed the the.
The options for for that project and give some more detail of long time between now and the end of the year as well so.
Could see you know.
Incremental decisions on all 3 of those between now and the end of the.
And I think praised the if I'm not mistaken the that's the last question there were pass the hours that range.
Yes, and you can.
And yes closer to the merchant.
Okay, and I do want to draw People's attention that we will be holding our annual investor and analyst day.
And it will be of virtual session on September 21.
And please mark the date and your calendar and then we look forward to join US and we will send out save the date notices shortly and a press release with further details will be issued closer to the date and just as the final comment I can tell you that the last week read and I visited 5 of our sites and we are at the port below the before the week before and we took a number of people with.
With us.
I can only say I wish all of you could have been with us and to see the exciting projects that are going on we have so much talent. So many really great hardworking people, who are so passionate about what theyre doing it was just just inspiring to be there and see all of the progress, we're making fill and we hope to share.
First of you on Investor Day and.
And we look forward to speaking with you on September 21st Thanks, very much and everybody for joining the day bye now.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Okay.