Q4 2021 Teck Resources Ltd Earnings Call
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Please standby your conference will begin momentarily to ask a question. Please wait for the moderator to start the conference then press Star one system, Tony will be heard when you request has been accepted to cancel your question Press Star two.
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This conference is being recorded.
It's going to stay home if they don't go as you see.
Ladies and gentlemen, thank you for standing by welcome to Teck's fourth 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 Thursday February 24th 2022.
I would now like to turn the conference call over to Fraser Phillips Senior Vice President Investor Relations and strategic analysis. Please go ahead.
Thanks, very much Patrick and good morning, everyone and thank you for joining us for Teck's fourth quarter 2021 results conference call.
Please note today's call contains forward looking statements risks and uncertainties.
Teck does not assume any obligation to update any forward looking statements.
Please refer to slides two and three for the assumptions.
Looking statements.
In addition, we will reference various non-GAAP measures throughout this call.
Explanations and reconciliations regarding these measures can be found in our MD&A.
<unk> press release on our website.
Don Lindsay, our president and CEO will begin today's call with full year and fourth quarter highlights.
Led by Jonathan Pryce, our CFO , who will provide additional color on our financial.
The results were good.
Concludes today's session with the Q&A period.
Any remaining questions with that I'll turn the call over to Don.
Thank you Fraser and good morning, everyone.
Well 2021 was a great year protect where.
We are pleased to close out the year by setting a number of financial records. Despite what was a very challenging backdrop.
Solid operational performance and strong commodity prices drove a $6 6 billion and adjusted EBITDA in 2021, and the highest ever quarterly adjusted EBITDA of $2 5 billion in Q4, which was more than triple last year's level.
I am incredibly proud of the tremendous resiliency demonstrated by our team all across the company will continue to operate our assets safely and sustainably through heat waves of heat dome I've never heard that term before wildfires incredibly heavy rains deep freeze freezing temperatures record cold temperatures in the continue.
That impacts of course of the global pandemic.
Unprecedented floods brought on by three atmospheric rivers a term I also haven't heard three.
Three of them in four days in the fourth quarter.
<unk> tested the resiliency of our steelmaking coal supply chain and British Columbia, and despite major rail and infrastructure damage caused by what is now referred to as one of the worst natural disasters in Canadian history, There was no material impact on our production.
We reached multi year collective agreements at AMT Amina QB Fording River and help you in 2021 and also at Highland Valley subsequent to year end. So we now have long term stable agreements at our three largest mines.
We continue to advance our priority projects in the fourth quarter and overall progress at our flagship QB two copper project has reached 77%.
We are focused on delivering on the projects key milestones, including the commissioning of systems as they are completed and.
We continue to expect first production in the second half of this year.
Tech is already one of the world's lowest carbon intensity producers of each of copper zinc and steel, making coal, but we are taking further action to support global efforts to combat climate change, we continue to reduce the carbon footprint of our operations as we progress towards our target of net zero by 2000.
50.
And in November we announced an agreement with olden dorf carriers to employ energy efficient bulk carriers, which is expected to reduce our scope three emissions on a portion of our steelmaking coal shipments by up to 40%.
Estimated savings can be up to 45000 tons of C. O two annually, which is the equivalent to removing nearly 10000 passenger vehicles from the road.
In January we announced our partnership with Caterpillar to deploy 30 zero emission large haul trucks at our mining operations and this is exciting progress because of the de carbonization of our fleet represents the single largest opportunity to reduce our scope one emissions and overall, we're very pleased to see our continued efforts to me.
S. G are being recognized by the industry. So for the third year in a row. We were ranked number one in the metals and mining industry on S&P's corporate sustainability assessment.
We're also ranked number one among north Americas metals and mining companies by Moody's ESG. We're number two in diversified metals by sustained analytics and rated double a by MSCI, where our ESG performance.
Turning to slide five.
Annual adjusted EBITDA of $6 6 billion in 2021 was a record reflecting strong contributions from each of our copper zinc and steelmaking coal business unit and importantly, our record profitability enabled us to deliver meaningful cash returns to shareholders yesterday. The board approved an amended dividend policy does.
<unk> dividend that authorized the repurchase of up to $100 million of.
Class B subordinate voting shares in 2022.
Under the new dividend policy. The annual base dividend has been increased from 20 cents a share to 50 cents a share.
And in accordance with the new dividend policy or capital allocation framework. The board declared a dividend of 62 and a half cent per share consisting of 12, and a half sense of our quarterly base dividend and a supplemental dividend of <unk> 50 per share.
In addition, the board authorized annual share buybacks up to 100 million and additional buybacks on top of that will be considered regularly.
Taking into account the new annual base dividend in 2022, and the supplemental dividend and assuming the $100 million and share repurchases. These initiatives represent a total of approximately $635 million in the aggregate of dividends and share repurchases.
Our ability to deliver a supplemental dividend in 2021, and the increased annual base dividend and a new annual share buyback demonstrate both our confidence in the outlook for our business.
And our commitment to balanced growth and returns to shareholders.
So turning to our operations.
Slide seven.
Fourth quarter EBITDA for our copper business unit increased by 64% compared to last year supported by copper prices, which reached an all time quarterly record.
Production was in line with plan, although copper sales were impacted by heavy rains and extreme winter conditions, which affected rail service and shipment schedules.
Net cash unit costs after cash margins for byproducts were $1 52 U S per pound, that's 25 cents higher than last year, we continue to experience inflationary cost pressures.
And we also are seeing increases in our crop profitability based payments.
To me now, but that's included in that 25% increase.
And as I've already noted we are pleased to have reached multiyear collective agreements and that's amina compatible anchor and subsequent to quarter end at Highland Valley. So looking ahead, we expect strong performance from all of our copper operations in 2022.
Moving on to zinc in slide eight.
Our zinc business generated $290 million in EBITDA in the fourth quarter, and that's an 80% increase compared to last year.
The increase was driven by higher zinc prices and partly offset by higher royalty costs related to profitability at Red dog.
Laura Red dog zinc in concentrate production was primarily due to lower mill throughput and recoveries as a result of unplanned maintenance, which is now behind us.
Refined zinc production at our trail operations was 11800 times lower than a year ago due to issues, we encountered in the commissioning of new equipment as well as unplanned maintenance.
Looking ahead trails 2022 production will be impacted by major maintenance activities from September to November when the kids set furnace hearth and the dome in one of the zinc grocers will be replaced after 25 years of operation.
And our Red dog royalty will increase to 40% of October from 35% currently based on our operating agreement with Nana, which outlines a 5% increase every fifth year to a maximum of 50%.
In 2022, we expect a significant increase in zinc production at Red dog.
A decline in total cash unit cost before byproduct credits despite ongoing cost inflation pressures.
Turning to slide nine.
Our steelmaking coal business unit had a record fourth quarter generating $1 7 billion in EBITDA in the quarter and that compares with $118 million last year.
Realized prices averaged $351 U S, a ton, which was $244 higher compared to year ago.
And to capitalize on this premium pricing, we maximized available processing capacity to meet additional sales opportunities to China in the fourth quarter.
Thanks to our Neptune facility, which had ramped up and was exceeding design capacity during the quarter. We entered the first half of November with historically low levels of clean coal inventory at the mine sites.
This allowed us to continue operations with minimal production impact despite the logistics disruptions that occurred in the latter half of the fourth quarter.
Sales in the quarter were $5 1 million tons, which was slightly below our revised guidance, we sold $1 8 million tons of steelmaking coal to customers in China in the quarter that was pretty similar to the three previous quarters in.
And annual sales to customers in China totaled seven 6 million tons or approximately 30% of our annual sales volumes.
Sales to our customers in China are of course at CFR, China prices, which reached a record high of more than $610 U S. During October and although the steelmaking coal price in China decreased quite a bit during the fourth quarter. The average CFR, China price for the quarter exceeded F O B, Australia price assessments.
The remainder of our sales were sold based on the Applebee, Australia price, which also averaged at a record level through the fourth quarter.
And fourth quarter adjusted site cash cost of sales of $72 per ton were higher due to inflationary pressures, including higher diesel prices.
<unk> based compensation and our investment and raised 21.
Our annual adjusted cash cost of.
A $65 per ton was within our previously disclosed guidance range of 64 to 66.
Fourth quarter transportation costs of $49 per ton and reflects the extraordinary vessel demurrage in the quarter as a result of the port service disruptions and higher rail fuel surcharges.
The higher costs were partially offset by lower port costs as higher volume of sales with Neptune.
And as a result of prolonged slot supply chain disruptions, we entered 2022 with very high mine sites steelmaking coal inventories.
With CN and CP rail, making progress toward fully restoring real service to our cold terminals, we expect to be able to largely recover.
Laid forth quarter sales within the first half of 2022.
And assuming full recovery of the rail network, we expect sales to be between six one and $6 5 million tonnes for Q1.
We expect 2022 steelmaking coal production between 24, and a half of 'twenty, five and a half million tons.
Our 2022 production estimate is reflective of Prudential production curtailments in the first quarter due to high inventory levels.
See that risk starting to decline down it made some good progress recently.
Further while the recent surge in Omicron cases has not had a major impact on productivity to date.
<unk> absenteeism has the potential to have a negative impact on our operations.
So despite unprecedented logistics challenges and continued inflationary pressures our steelmaking coal business unit delivered record financial results in 2021 and is well positioned to deliver very strong financial performance again in 2022.
And I note that Australia F O b prices are up again today.
There are currently over $450 per ton it back closer to $459 per ton.
About $18 in the last few days.
Turning to our energy business unit on slide 10.
Our results improved from the fourth quarter 2020, largely due to the 88% increase in the western Canadian select oil price.
This resulted in a positive operating netback in the fourth quarter. The focus was on ramp up to full rates. We were pleased to see Fort Hills safely and successfully resumed to a two train operation in December .
The facility is expected to operate at an average utilization rate of 90% throughout 2020 to.
The midpoint of our guidance represents an increase of approximately 85% compared to 2021 for our share of the annual production.
And with higher production and productivity adjusted operating costs are expected to come down by approximately 40% to between 26 and $30 per barrel in 2022.
Underpinned by strong global energy prices, we expect to see a meaningful improvement in Fort Hills EBITDA in the first half of 2022.
And I note that W. T. I is $97.33 as we speak and with differentials are fairly stable that means that we have oh western Canadian select price.
In the mid eighties, U S or well over $100 Canadian.
Moving on to slide 11, as I mentioned earlier, we continue to advance construction of QB two with overall progress now having reached 77%. We were very proud of Q4 by the way because we achieved 11% completion in that quarter and 35% for the whole year.
We are proud of this achievement, especially in light of the challenges that we've faced around COVID-19, the number of cases in CIT, Chile rose very rapidly in January and early February so we weren't able to continue the rate of progress that we're making in Q4 during that time.
We are continuing to aggressively mitigate the impacts of the pandemic on QB two and.
And do we believe that we're past the peak there and it has improved quite significantly from the worst of it.
Construction continues to progress and we remain focused on delivering key systems as we positioned for first copper later this year.
We have completed more than 90% of the water supply pipeline welding and the tailings starter dam is more than 85% constructed. We've also energize the port area of Substations and we are continuing with our pre operational testing of the desalination plant.
Our operations in commissioning teams are working in close collaboration with the construction teams and are busy commissioning systems as they are completed and hand it over.
And this includes commissioning the port Substations to mine electrical loop and the first two electric shovels.
We've also completed commissioning and testing of the autonomous haul trucks system and these trucks are now doing productive work in the mine area and I was able to visit and see them in action in December a number of us will be growing again.
Next month.
Turning to slide 12 shows the testing and commissioning of the electrical systems associated with the mine electrical loop energized nation of the mine loop was an important step in completing commissioning of our mining fleet.
With the mine loop energized you can see the two new electric shovels that we've commissioned on slide 13, and these shovels will be used for pre stripping mining activities.
Slide 14 is a view of the 15 storey high ore stacked restructure which transfers or from the crusher to the ore stockpile and you can also see the commencement of the erection of the worst stockpiled dome in the center of the photo.
Slide 15 is showing the grinding building, where we have all the mills in place we're working on the mechanical electrical systems and we've commenced installation of deciding.
The next slide Slide 16 shows one of the 85 meter diameter tailings thickness, where we are completing the installation of the internal mechanical components now.
And from here Slide 17, we go to the starter dam at the tailings management facility, where we continue to make excellent progress and are now over 85% constructed.
<unk> mine fleet has done a great job in providing materials for construction and.
And on the right photo you can see the part of liner which is in place in preparation for receiving water.
Work on the main jetty is progressing well it will support both the ship loader and the seawater intake system and the subsea work, including the 440 meter long, Brian Outfall pipe and the first two water intake pipe systems are now in place in preparation for seawater extraction.
As we head back onshore you can see we've energized the poor substations there on slide 19.
<unk> is an important step towards commissioning of the infrastructure at the port area.
And finally slide 20 shows the roof structure in place for the 75000 tons of capacity concentrate storage building at the port.
So in summary, we continue to be very pleased with the progress that.
We are making and we are excited about building on our construction successes to date with a focus on delivering to the projects' key milestones I'd encourage you to visit the investors section of our website to watch a video of the project and view our latest quarterly photo gallery.
So with that I will now pass it over to Jonathan to discuss our financial results.
Yeah.
Thanks Dawn.
The ability and the fourth quarter improved significantly from a year ago as a result of higher prices for all of our principal products as shown on slide 22.
Copper prices reached an all time quarterly record of U S $4 40 per pound in the fourth quarter up 35% from last year, while zinc prices increased by 29%.
Western Canadian select the heavy oil benchmark price was 88% higher compared to the fourth quarter of last year and has continued to increase through the first quarter of 2022 as Don outlined.
Similarly, we benefited from record higher steelmaking coal prices.
Realized prices in the fourth quarter, where U S $351 per ton more than a three fold increase from $107 a ton a year ago.
As Tom noted high realized prices reflected our strategy to increase our sales to customers in China in 2021, which was priced at a premium to F O B, Australia price assessments.
The large increase in steelmaking coal prices from Q3 to Q4 resulted in pricing adjustments of approximately $69 million in the fourth quarter or <unk> $44 million on an after tax basis.
Now without willing to key drivers of our record profitability on slide 23.
We generated $2 5 billion of adjusted EBIT dollar in the quarter, an increase of more than one 6 billion compared to the same period last year.
This was largely driven by higher prices across all of our principal commodities, partially offset by lower sales volumes higher operating costs on the strengthening of the Canadian dollar.
It was also impacted by asset impairment, an impairment reversal related to Fort Hills and comment on the coil respectively in the quarter.
We continue to experience inflationary cost pressures, notably in diesel prices mill steel and replacement parts driven largely by price increases for underlying commodities, such as steel crude oil and natural gas.
The inflationary pressure is reflected in fourth quarter operating results across our business are expected to continue in 2022.
Cash flow from operations in the fourth quarter was $2 1 billion compared with $594 million a year ago.
Our capital investments in the quarter totaled $1 $1 billion.
<unk> $715 million on QB, two and $300 million in sustaining capital.
Capitalized stripping was $186 million.
Primarily related to the advancement of pitch for future production at our steelmaking coal operations.
This was higher than a year ago, primarily due to decreased drifting activities in Q4 2020, as a result of COVID-19 restrictions.
Debt proceeds were primarily driven by $303 million from our U S. $2 5 billion project financing facility in the quarter net net we also repaid $268 million on our revolving credit facility, bringing our balance on this facility to nil.
Including these and other minor items, we ended the quarter with cash and cash equivalents of $1 4 billion, an increase of approximately $1 billion as compared to the end of the last quarter on the <unk>.
<unk> periods last year.
Now turning to slide 25, we are pleased to have enhanced our already strong financial position.
Our solid operating performance combined with strong commodity prices resulted in a 49% adjusted EBITDA margin of $6 6 billion in adjusted EBIDTA for the year.
Our net debt to adjusted EBITDA ratio was one times.
During the quarter, we converted our U S 4 billion committed credit facility into a sustainability linked facility with zero drawn at this time.
Subsequent to the end of the quarter or January 18th 2022, we redeemed USD $150 million of our maturing $4 75 per cent Tim Knox.
As of February 20, <unk>, we had $7 billion of total liquidity.
Importantly, our strong financial performance enabled us to return meaningful cash to shareholders.
Applying our capital allocation framework on slide 26 to our cash flow from operations of $4 1 billion in 2021, we deducted sustaining and committed growth capital of roughly $3 billion net with QB two project financing and partner contributions.
<unk> 6 million of base dividends and $335 million for debt repayments to improve our capital structure.
This left us with over $750 million of available cash flow.
As you know the first 30% of any available cash flow is automatically return to shareholders.
This totaled approximately $220 million.
According to our framework. The balance is 70% can also be returned to shareholders or otherwise used for investment in growth or debt reduction or a combination of these.
As Tom noted at the start of the call. The board made the decision to pay a supplemental dividend of 50 cents per share or $267 million, representing 37% of available cash flow.
The minimum stipulated in our capital allocation framework.
And going forward the board approved a 150% increase in the annual base dividend to 50 cents per share per year from <unk> 20 per share and authorized an annual share buyback that allows us to repurchase up to $100 million.
Additional buybacks will be considered regularly.
The increased base dividend is indicative of our confidence in the outlook for tech, reflecting both the near term strong cash flow generation of our business units and our anticipation of the transition of QB two from construction to operations.
Annual share buyback provides management with the discretion to repurchase all class B shares such that we can offset the impact of dilution created by issuance of shares resulting from the exercise of employee stock options as well as ensuring the flexibility to time repurchase repurchases in the context of market conditions.
As shown we have amended our capital allocation framework to reflect this additional regular return mechanism was the cash used for share repurchases during the year to be deducted from our calculation of available cash flow.
Slide 28 outlines our guidance for capital investments for 2022.
Alright look for a dramatic decrease in spending in 2023.
We are approaching a major cash flow inflection point in 2023, driven by the completion of QB two.
Sustaining capital spending is expected to increase in 2022 relative to 'twenty to 'twenty, one levels due to one time projects, including the harm our project to relocate maintenance and office facilities up Yelp, you steelmaking coal mine to allow access to the next phase of mining.
A major smelter tune around the trial.
Haulage truck rebuilds program and.
And the inclusion of sustaining capital for QB two for the first time.
In total we expect these factors to increase 2022 sustaining capital by approximately $500 million over 2021 levels.
We expect to spend in Canadian dollar terms 2.2 to $2 5 billion of QB two development capital on a consolidated basis in 2022.
With the completion of QB, two and a normalization of other categories of spend such as capitalized stripping. We expect our total capital expenditures to decline by roughly $2 billion into 2023.
And with that I will pass it back to Don for closing remarks.
Thank you Jonathan So as you can see this is an exciting year protect this is the year of transformation, where we rebalanced our portfolio and really start.
Wrapping up our copper production, we are months away from the startup of QB two in the second half and we are particularly excited by this position because we.
We find ourselves as QB two ramps up to full capacity, we expect to shift from a period of significant capital investment to what will be a period of significant cash generation.
At between U S $3 50, a pound and $4 50, a pound copper prices and with QB two at full production. We believe that we can generate somewhere between six to $7 per share of what we call available cash flow for shareholders, which we can use to grow our copper business or while returning significant cash to.
Orders at the same time and also maintaining a strong investment grade balance sheet.
And as a result of texts long term and consistent commitment to seek out high quality long life based on all the resources, we have a portfolio of high quality growth options that is the envy of our peers.
After carefully assessing multiple configurations for the further expansion of QB beyond QB. Two we have determined that the next phase of development will be the QB mill expansion or is it will be known <unk>.
And the mill expansion is expected to increase concentrated throughput by 50% with the addition of one identical semi autogenous quite anyway, that's one Sag mill and two ball mills.
And we believe this configuration optimizes the timeline to obtain approvals the permitting process and to progress the development of this world class ore body, while leveraging the existing infrastructure that we're building right now for maximum capital efficiency.
The QB any previous ability study has already started including all of the environmental baseline activities and with completion targeted for the fourth quarter of this year and <unk> will be a significant contributor to our medium term copper growth portfolio.
At the same time, we are also continuing to progress the project satellite assets.
Zephyr in L. A.
Feasibility study has been completed and we have now received confirmation of RC admissibility and Q1 2022.
That's very very important milestone.
I'd say Nicolas we've commenced work on a pre feasibility study and that was in our in Q1 and with completion targeted for Q3 of 2023, and we are deeply and partnering negotiations right now.
At Galore Creek.
Fluor has been appointed to undertake a pre feasibility study starting in Q1 with completion targeted in the first half of 2023. So that's another notable step with our partner Newmont.
Finally, strategic technical and commercial assessments for the advancement of them, even young Massawa shock Creek are ongoing.
So in closing we're pleased with how <unk> is positioned to drive long term shareholder value. There are meaningful opportunities ahead as global growth and the transition to a lower carbon economy drive new copper metal demand.
As a result of text longterm and consistent commitment to seek out high quality long life based on our resources from mineral exploration discovery acquisition partnership and development, we have a portfolio of high quality growth options. If that is the envy of our peers and.
And as we move forward, we will rebalance our portfolio to copper, while reducing the proportion of carbon in our overall business the.
The strong performance in the commodity prices over the last few months has accelerated our ability to return capital to shareholders and looking ahead, we have the ability to generate even greater cash flow and returns and as we've always done we will continue to strengthen how we operate both through cutting edge innovation to improve productivity and through our leading ESG performance.
And with that I'll turn the call over to our operator to open up for questions and I should say that we're all doing this call remotely and so we have people in different time zones on lines all over the place. So after your questions be asked it may take a moment or two until we sort out who's going to answer it.
Operator over to you.
Thank you.
Press Star one at this time he said one question.
The first question is from Greg Barnes from TD Securities. Please go ahead.
Okay.
At least the MD&A I didn't see any commentary about coal sales into China in 2023, as you had last year.
Okay and.
Congratulations Gregg.
The first question usually somewhere else.
Yes, it is you're surprised yourself.
So I'll turn that question over to Reale, we've done a lot of thinking about it as soon as you know the CFR price and the Fob price do not necessarily move in sync, sometimes one fire sometimes goes higher.
Rail over to you.
Alright.
Thanks, Greg. So you know overall looking at 2022, we're expecting our sales distribution to be similar to 2021.
You know as we've discussed previously we're continuing to maintain our supply to our ex China customers because those are long term relationships and.
And we're confident as well in China as the steel production recovers actually we've seen steel production.
<unk> come back very strongly right. After the Olympics, so we see that guys.
Continuing to support CFR, China pricing is China.
<unk> to be sure hard coking coal.
So.
And the last point is we keep a portion of our book for spot sales and of course, the spot sales will be placed in markets, where we achieved the highest returns.
Great.
Thanks Ralph.
Follow up question again for you Don on coal.
Your thinking around the near term.
Future of coal in your portfolio seems to be evolving can you talk about how you're positioning the business in your mind from this point forward.
And when you say the business do you mean, the overall portfolio.
Yeah coal in the overall portfolio and how you see that.
Oh my.
Nothing nothing has changed from what we've said before that we're on the journey to rebalance our portfolio so that carbon.
Both coal and oil sands, there will be a lower percentage of the portfolio, whether you measure it in terms of revenue or EBITDA and this is a big year of transformation for that because we double the consolidated copper production with QB, two but as we're going to start featuring throughout the year. The other projects in our portfolio are probably coming a little sooner.
People might have expected in.
We hope to announce a partner on say Nick.
In due course, if it's taken a little longer than we thought, but we're certainly deep into it.
And we're giving more information today and in the next few weeks on <unk> and moving at a pace. So the coal part of it will.
Reducing proportion naturally as copper goes.
But we still.
At the same position on oil sands on the Port Hills project that I've talked about before so nothing's changed in that we're in the midst of our first quarter operating with two trains running and so while that that was a long time in coming but it's up and running now was tough in the first couple of weeks of January one.
When temperatures were so cold and so on but.
It seems to be going smoothly now so that'll give us some financial results and allow us to move forward on whatever.
Strategic action, we take on that so we we we believe that the carbon Arctic portfolio will be reduced.
That step and then we'll take a look and say well can we.
Get down to a level that shareholders find acceptable by keeping the whole coal business or do we need to to reduce our exposure there somewhat we love the business as you can see it's a tremendous cash generation business.
I just wanted to give a shout out to our whole team that works on the coal division because.
There's a lot of ESG pressures and so on but Miami, they're so so dedicated so determined an innovative and addressing issues. We've now got tremendous water treatment capacity up and running in the highest William concentrated areas and it's really going well.
Fish population has been increasing and so on so I just I'm just so proud of everything you do there so I I call. It one of the best mining businesses in the world when I say that frequently to other people I should say it publicly too.
That said, we know that.
With all of the different ESG pressures and movements. There is a lot of people that are shy away from anything called call, even though it's a good call steelmaking coal if the world absolutely needs for a low carbon future and so we have to take that in consideration, but the board has been studying this intensely for a couple of years and even more intensely.
Ah recently, but.
Whether any specific action is taken.
And the next few months.
No nothing is eminent that's for sure, but we should look at it a lot I do want to say that our coal our steelmaking coal is amongst the highest quality in the world and if you produce a ton of steel with our KOL, there's between five and 30% lower carbon emissions than coal from the U S Australia.
Mongolia, and so on so it's a it's a very valuable.
Business and it certainly doing extremely well, especially with coal prices, having jumped $18 a ton in the last three days so.
Sorry, that's a lot Craig, but that's how I'm thinking about it.
Oh, that's great. Thanks, Tom just wanted to clear that up and then I'll pass it on.
Thank you.
The next question is from Rs <unk> from Scotiabank. Please go ahead.
Good morning.
Questions for me, if I could Don first one I've noticed that your language around the share buyback seems to suggest that.
Work may consider buybacks a lot more often than just annually is that the right way to interpret it that we could actually see something.
<unk> quarterly.
We didn't say quarterly, but we said regularly but.
Direction of your question. Your question is correct that where we're at now you know, we're 77% complete of QB, two but there's still a lot of capital this year and so we're taking a prudent measured approach we wanted to increase the base dividend we wanted to.
Implement the capital allocation framework, and we put it in a pretty decent supplemental dividend on top of that which in total gives you a dollar for the year.
And then start the buyback we wanted to.
Have have the approvals in place so that if the events in the world happened as they seem to be happening in the last 24 hours and there's moments of weakness or we can be ready we can start any time.
But we didn't want to.
Go too far right now until we get further on QB, two but if you roll the clock forward a quarter or two and we're over 90% or something in that but there is no particular disruption and we're generating the kind of cash that that these commodity prices can generate.
And why would we wait all the way until next February or something so we wanted to signal that the board is very attuned to this issue.
And this will be a subject to discussion frequently.
As cash generative, but you know.
Month by month.
These prices makes a huge difference to this company like every month.
There's a lot of cash that comes in so.
We would look at how best to deploy it and I think when you see.
<unk> and how that would be financed and say, Nick and how that would be financed you'll see that the.
Uh huh.
The ability to still grow copper, while generating a lot of cash that's available for return to shareholders. We will start to unfold more and then the board can make those decisions in that context.
Good. Thank you for yours to sorry, you missed the first question.
Excellent.
Thanks, Don just as a follow up on QB, two you gave us a fair amount of.
Status updates on the key pieces, but what about the concentrate or where's that at with respect to completion and is that now the critical path to startup.
Very good question and I look at pictures of it every day, so I'm going to ask Red Conger to take that question and he may work with Alex Christopher as well, but read over to you.
Good morning, Morris I appreciate the question Yeah, it's been a busy time.
And for US on the project and we're you know we're please.
He used with progress.
Don had mentioned just just specifically on the concentrator when when we talk about critical path through grinding line, one that that still remains the critical path. So.
That work is key to getting the first copper production.
But a lot of work.
With our contractors late last year or two.
As you have seen reassess what the Covid capital.
Cost impacts are going to be we renegotiated a contract.
With that I'm, taking all of their current therapy.
Dances into account hiring additional people et cetera, getting everybody aligned on the construction plans as they are today and the completion date so.
And I'll tell you. We've you know we've Alex has been down there I I've been.
Down there in December January and February working closely.
With the team on these issues and you know when I when I walked out concentrate that grinding line and compare it to other things that that Oh.
What we've done elsewhere in the world.
Good morning.
And cost to go on this resolved very practical very doable and we're excited.
Millstones coming up the first one.
First water to commission the.
The desalinization plant and and you know what.
At this time all of that's going on.
Eating well.
First grinding oriented country traders, so that's ready to run.
When the waters, there and then all of those.
Our employees just naturally go to grinding willing to and you know in other aspects of the project to complete it. So we're we're excited about where we're at.
The grinding line number one remains the critical path to first for.
Yes.
Just to be clear can you give us a percentage of completion on that.
Yeah, well worth we're at 77% now and you.
You know it all all of the effort is around.
The sequence that it takes to complete all of those things. So there are complete at a time when you can actually make something and it's not about.
Bulk construction completion at this point the two.
The thing that's most critical for US right now are the key milestones that we need to achieve in the order that we need to achieve them in for instance, it doesn't do us any good to complete grinding line one before we have water to two.
To put in it.
So all you know all of the work plans work well.
[noise] workout efforts intensity is around that proper sequence.
To get us to our first copper as you know safely and rapidly as we can.
Okay. Thank you Ross.
Thank you.
The next question is from Matthew Murphy from Barclays. Please go ahead.
Hi, probably too early but I can't resist asking about our capital on the QB expansion.
Any kind of ballpark.
<unk> of a possibility you could give us.
Well, it's like half of QB two but.
Without a lot of the infrastructure pipeline transmission lines ports that stuff so less than that but then you got to roll the clock forward. The number of years for whatever cost inflations happens over that time I think it would be too early to give you an actual number but.
To your question ballpark order of magnitude, that's how I'd think about it.
So if I said something like 2 billion that's like.
Not ridiculous or.
Well, it's in that range, but you got to think when this gets.
<unk>.
We've had like.
Like the $5 6 billion of QB, two that was in $2019 I think.
And so.
You got to roll the clock forward five years, six years and whatever cost increases have happened in steel and all the different things.
No.
Take that had considered yes.
Yeah, No fair enough.
That's that's helpful. And then I had another question just on tax pools.
And there was a note in the earnings of.
An expectation to be accruing for current Canadian corporate income taxes, starting this quarter. So could you just remind us where the tax pools are and how much further you have to go on those Jonathan over to you.
Yeah. So so those tax pools are ahead are held in Canada of course.
So the guidance, we've given expected was fully consumed those pools are early in this year and therefore, we start to accrue.
Canadian income tax seasons, and start will convert of course into cash taxes.
<unk> course.
Okay. So that's like the poll.
Full amount.
Yeah.
We've held these these pools for a long time of course, but you know we have a.
No significant profits being generated right now in the business in particular of course from the coal business here in British Columbia.
And that we will see.
The <unk>.
The end of those tax pools, essentially in us paying them corporate income tax on those profits.
Okay. Thank you.
Welcome.
Thank you. The next question is from Carlos de Alba from Morgan Stanley . Please go ahead.
Yes, Thank you and good morning, everyone, so coming back to QB two.
Given where we are and that's sort of the run rate did you mention dawn of 11% progression in the fourth quarter, which was really good but some slow down in the first quarter.
To say than that.
First production was really come most likely during the fourth quarter, perhaps until the end of the year.
And then the second question was on QB two weeks on Capex.
Could you.
Give us a reminder of that 5% of additional contingency.
The original Capex.
A $5 six 2 billion.
Is it the ethics that is embedded in that in that 5%.
Michelle continuously expanding.
The steel side 75, Oh, you know Jan.
Peso per dollar or has it moved closer to spot.
Okay I'll take the first one and then turn it over to either red or Jonathan or Alex for the second one but.
Yeah.
<unk>.
Completion of Q4 was our best quarter and I can tell you January and February with Omicron is nowhere near that.
Pretty rough going at one stage, we had over 800 people isolated the absenteeism has been really high and so you can't sort of project that and so we.
We keep saying just second half because we don't know if we'll get back to that Q4 rate, which would be great and obviously.
Two quarters like that.
You'd be in great shape.
Carry on where it's been in the last six or seven weeks and we've been through a few phases like this you know.
Just as Theres been phases of our of the Corona virus.
Alpha Delta Consoling, so we're trying to stay away from <unk>.
Predicting two specifically and we're just going to say look we're going to get this thing done in the second half I'm just going to be produced and then we're going to drive forward with.
A tremendous new asset that's going to be around for generation. So.
Fortunately now on the exchange rate.
Red or Jonathan.
Yeah, Don Red Red here Carlos.
We've got the capital to go the spend to go along as we use more current rates that we were saying at the time, a 825 to 850 exchange rate on capital to go.
Spend to go it's mostly labor.
Just in Chilean peso expense to grow.
Alright.
Good morning.
I'll just add to that right.
If you look through our previous expenditure for QB, two and the guidance, we've given folks for the underlying estimate the contingency and now the Covid spend is 900 million to $1 1 billion.
When you look at all of that in U S. Dollars terms it'll give you a you can pretty accurately figure out what we're going to spend this year based on the guidance, we've given and what would be carried over into 2023. So.
Read says use you sort of spot FX rates.
So for what we're spending right now given that's predominantly labor costs that we're incurring.
Alright, Thank you very much everyone.
Thank you. The next question is from Lawson Winder from Bank of America Securities. Please go ahead.
Yes, Thank you operator, and good morning, everyone and thank you for the update.
I wanted to ask about <unk>.
Julian Constitutional convention and how that might factor into your decision to proceed with <unk> and <unk> and do you expect to have the ability to attain attain a stability agreement or might it be even potentially grandfathered bandwidth QB two.
I'll make some preliminary comments and then.
I'll turn it over to on par with Cornell, who I believe she's on the call from Chile. So.
In terms of making a final sanction decision for <unk> and we've got a fair bit of work to go there. We've got finished the pre feasibility this year and there is some work on the final feasibility going on in parallel with that but.
But at the time you get to sanction.
We should have much better clarity on what's going on in Chile, with the constitution with the different tax and royalty proposals and that sort of thing.
And.
Then.
The board can make a decision whether they're comfortable with the risk.
We believe that.
The proposal were making falls under the current tax stability agreement an.
And Curt within current permitting for some of the infrastructure that's already there. So that's one of the reasons for two of the reasons why going with a 50% expansion like the one line one Sag mill two ball mills.
Expansion of the current mill that QB QB mill expansion.
Makes sense, because it's sort of the.
The least regulatory challenging in our tax or whatever.
Just a lot a lot less.
Risk or uncertainty and a lot faster and faster when I say faster faster by somewhere between two and four years compared to doing a larger expansion.
And if for some reason the Chile decides to.
Impose.
Taxes that are just too high and.
Make us come to a conclusion that we.
We don't want to.
But what is clearly going to be $2 billion or north of previous questioner was we're showing.
Then we wouldn't do it right. So so it's in Chile's hands to put together a good investment environment.
Has done that for decades, frankly, Chile has been one of the best countries in the world too.
The mining copper in it.
I'm, a big believer that it will continue to be so, but we'll be able to wait and see what the final rules are before we make any sanction decision.
On par with appear there. Please please feel free to comment on the latest developments and constitutional discussions.
Okay. Thank you Dom and good morning, everybody.
So you have to have some issues with the connection so hopefully I can continue.
But Don explained he is correct and there is no indication that the mining royalty deal that is currently under discussion we have any impact on that waste Habibi agreement that has been affected by all the party sumitomo.
You mentioned gummies mix will be respected in relation to the constitution that convention goldfish, which is of course very important for the future.
In order to establish a new <unk> and <unk>.
<unk> future is stability, we believe that the process has not finished its too early to really comment up to this moment.
<unk> been approved by the day.
Convention a tool.
Knocks off parts of the Constitution.
Or is there a discussion about environmentally issue some of the others that could have an impact on the mining of DVD have not yet been voted and we expect that both of the convention we take place around mid March.
It's important to remind everybody that dose.
<unk>.
Two third so put through so at this moment, we don't really have enough information that is not a block of the constitution, where we can say that the outcomes are going to generate additional ways of course, we are following the process very closely daily stay low dose national debate.
A lot of information around the constitution, but it's important to mention that it's done.
Related to the industry have enough can be volatile.
Thank you both that's extremely helpful perspective and.
A follow up if I might on H D. C 2040, what's your latest view on the timeline to approval.
<unk>.
No just just thinking to the evolution of the overall portfolio towards more copper I mean is it possible that <unk> 2014 could become an expansion and throughput. Thanks.
I'll turn that one over to shows that bar mill.
Thank you.
So <unk> 2040, and our plan is to submit our permitting documentation default after consultation with indigenous groups and other communities.
In the first corner off next year, and then with that 12 months.
Permitting timeline.
And remember that it is mostly.
Mostly an extension with a little bit of expansion as well. So there is more grinding capacity being installed and throughput should be higher by about 10% or so 10% to 15%.
So it's an extension as well as a minor expansion.
Yes.
That's all very helpful. Thank you so much.
Hi, Patrick operates Fraser I think we have time for one more question. Please.
Certainly the last question will be from Lucas pipes from B Riley Securities. Please go ahead. Thank.
Thank you very much intact good morning, everyone.
I wanted to follow up on the portfolio management, obviously Fort Hills here in this energy price environment is a nice hedge and I wondered if you can update us on where you see that asset fitting and longer term. Thank you very much.
Yeah. So we've been fairly public about our position on that it's been a long road to get to full production, but we said once we got to full production and it was down.
Down in operating well then the board would look to see whether we felt we were getting paid for Fort Hills.
Teck Resources' share price.
As you know with all of the ESG focus through many institutions that.
That arent interested in buying a company involved in oil sands and yet the asset itself. It looks like it can generate tremendous EBITDA and cash flow, particularly at these prices.
So if it's not valued within tech resources, then we may conclude that it should be held differently.
And it allows shareholders to continue to participate if they so choose and that could be any one of the three general directions, and one one would be sale to another party partner.
What are your wire in partnership with Suncor and total one would be contributed into.
A mid sized company and taking back shares distributing those shares to shareholders as part of the consolidation play or it could be just spun out directly as a yieldco than it would be a pretty pretty healthy yield.
In these circumstances, so, but we do need to get at least a quarter's financial results.
It's running at full production and so were in that quarter now.
Although were pretty tough with the first couple of weeks. So the board will be considering this and they're not too distant future but.
That's how we think about it you're quite right. It is a good hedge on oil prices that was one of the reasons why we went into it.
Years ago, there were a bunch of other good reasons as well first of all we are in the mining part of the business large open pit shell a truck operations and we have thousands of people within an hour's drive of the Alberta border, who do just that and do it very very well.
The province of Alberta is pretty good geopolitical jurisdiction to invest in it.
Sit in my chair and you look at the choices you have around the world.
Alberta looks pretty good.
Third it was very tax efficient to capital that we invested.
<unk> provided a shelter against the cash flows from Highland Valley, and the coal operations and travel and so on the technology risk was minimal, but we do.
But have the advantage of some new technology to paraffinic froth treatment process. It has improved it means it's a much lower carbon footprint and the original oil sands. It's about one third of original operations. So that was good.
Oil itself is something you could.
Hedge along way out you could hedge as far out as 15 years, if you wanted to whereas copper zinc or certainly not call you cant do it yet so there are a whole bunch of other was not particularly a lot of geological risk resource had been drilled that was there. So there's a whole bunch of really good.
Reasons to have it in the portfolio back then.
But you know the world's changed and so to the extent that our invest abilities affected by having that within tech resources than the board's going to look at and how to deal with that but first let's get through this quarter and get some financial results.
That's very helpful. Thanks, Thank you for that.
And then a quick.
Question on slide 28.
Youre looking at a reduction of Capex of $2 billion in 2023 so.
It looks like an increase.
Of $200 million to $500 million.
Any particular driver on datasets sustaining capital of QB, two that gets rolled in inflationary pressures any any any perspective, you could share on that thank you very much Joe.
<unk> over to you.
Yeah. Thanks for the question as I mentioned previously there will be some carryover of QB two capital into 2023.
As I mentioned, you can sort of figure it out I buy by looking at our guidance.
In aggregate for total spend that this is what we've spent and our guidance for 2022, so youll see that sort of a stub year in 2023.
Things like sustaining capital will start to come down capitalized stripping will come down to be more consistent with prior years.
Therefore, when we wrap up.
QB two all else being equal and then we would see a further reduction again into 2024, but that's some of the some of the key drivers in that in that capital number.
Terrific very helpful. Thank you very much and best of luck.
Thank you.
So I would like to turn the meeting back over to Mr. Lindsey Okay, well. Thank you very much everybody for attending today in closing I want to say how excited we are about 2022 and this transformational year in screen QB, two one and starting down that copper growth trail.
And rebalancing the portfolio I just want to.
Bring people's attention to page 33 in our quarterly release, because there you will find a chart on the sensitivities to the various commodities and in particular to the exchange rate I know, we've got some tough news happening in the Ukraine, and we hope that things can be resolved.
For the benefit of all the people recently and so on but in the meantime, the world.
It is quite concerned con risk off in the Canadian dollar has moved to full penny today and the sensitivity shows that for every penny of the cane dollar declines that increases our EBITDA by $143 million and then just a little further down the chart on steelmaking coal as I noted to making calls around 450.
$9 up $18 for every dollar it increases.
Another $28 million.
And EBITDA at attack so I think.
These are important and even just below that youll CWT.
WCS sensitivities as well so.
Well its a tough day in the markets for sure in terms of the things that drive our financial results, it's actually very very positive.
And with that thank you very much we look forward to speaking to you in April .
Bye now.
Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.
Yeah.