Q4 2021 Teck Resources Ltd Earnings Call
Sorry for the assumptions underlying our forward 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 and our latest press release on our website.
Don Lindsay, our president and CEO will begin today's call with full year and fourth quarter highlights will be followed by Jonathan Pryce, Our CFO , who will provide additional color on our financial results.
Conclude today's session with the Q&A period to address 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.
Were pleased to close out the year by setting a number of financial records. Despite what was the very challenging backdrop.
Solid operational performance and strong commodity prices drove $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, who 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 continued.
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 agreement to them to Mena QB Fording River and <unk> 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 <unk> 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.
And we continue to expect first production in the second half of this year.
<unk> is already one of the world's lowest carbon intensity producers of each of copper zinc is steelmaking 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 2050.
In November we announced an agreement with old <unk> 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 Cotwo 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 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 in <unk>.
<unk> are being recognized by the industry. So for the third year in a row. We are ranked number one in the metals and mining industry on S&P's corporate sustainability assessments.
We also ranked number one among north Americas metals and mining companies by Moody's ESG, the number two and diversified metals by sustained Olympics and range of double AA by MSCI for 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 and zinc and steelmaking coal business units and importantly, our record profitability enabled us to deliver meaningful cash returns to shareholders.
Yesterday, the board approved an amended dividend policy declared a dividend and authorized the repurchase of up to $100 million of.
Our class B subordinate voting shares in 2022.
Under the new dividend policy. The annual base dividend has been increased from 20, a share to <unk> 50 a share.
And in accordance with the new dividend policy or capital allocation framework. The board declared a dividend of $62 five per share consisting of $12 five of our quarterly based 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 aggregate of dividends and share repurchases.
Our ability to deliver a supplemental dividend in 2021, and the increased annual base dividend and the 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 on 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 is 25 points higher than last year, we continue to experience inflationary cost pressures.
We also are seeing increases in our crop profitability based payments at Athena, but thats included in that 25% increase.
And as I've already noted we are pleased to have reached multiyear collective agreements enhance 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.
Lower 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 tons 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 <unk> 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 manner, which outlines a 5% increase every fifth gear to a maximum of 50%.
In 2022, we expect a significant increase in zinc production at Red dog and 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 per ton, which was $244 higher compared to a 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.
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 use 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 <unk>, Australia price assessments.
The remainder of our sales are sold based on the Applebee's, Australia price, which also averaged a record level through the fourth quarter.
And fourth quarter, adjusted <unk> cash cost of sales of $72 per ton were higher due to inflationary pressures, including higher diesel prices.
<unk> based compensation and our investment in <unk> 'twenty one.
Our annual adjusted site cash costs.
Of $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 vessels emerged in the quarter as a result of port service disruptions and higher rail fuel surcharges and.
The higher costs were partially offset by lower port costs as higher volume of sales went through connection.
And as a result of prolonged slot supply chain disruptions. We entered 2022 with very high mine same steel, making coal inventories.
With CN and CP rail, making progress towards fully restoring real service to our coal terminals, we expect to be able to largely recover delayed fourth quarter sales within the first half of 2022.
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, 5% to $25 5 million tonnes.
Our 2022 production estimate is reflective of Prudential production curtailments in the first quarter due to high inventory levels.
But we see that risk starting to decline now and have made some good progress recently.
Further while the recent surge in Omicron cases has not had a major impact on productivity to date.
<unk> 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 Fob prices are up again today.
We are currently.
Over $450 per ton it back closer to $459 per ton.
About $18 in the last three 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 Canada 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 <unk> safely and successfully resumed to a two train operation in December .
The facility is expected to operate at an average utilization rate of 90% through 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.
I note that <unk> is $97 30, <unk> as we speak and was differentials fairly stable that means that we have.
Western Canadian select price.
In the mid eighties U S or in well over $100 Canadian.
Moving on to slide 11, as I mentioned earlier, we continue to advance construction at QB two with overall progress now having reached 77%. We were very proud of Q4 by the way that 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 Chile, Chile grows very rapidly in January and early February . So we werent able to continue the rate of progress that we're making in Q4 during that time.
We are continuing to aggressively mitigate the impact 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 position 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're continuing with our <unk>.
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.
This includes commissioning the port Substations to mine electrical loop and the first two electric shovels.
<unk> also completed commissioning and testing of the autonomous haul truck system and these trucks are now doing productive work from the mine area.
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, which shows the testing and commissioning of the electrical systems associated with the mine electrical Lou <unk> of the mine loop was an important step in completing commissioning of our mining fleet.
With the mine loop energize you can see the two new electric shovels that we've commissioned on slide 13.
These shuttles 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 pressure to the ore stockpile and you can also see the commencement of the erection of the ore stockpiled dome and the center of the photo.
Slide 15 is showing the grinding building, where we have all the mills in place for <unk>.
Working on the mechanical electrical systems, and we've commenced installation of the siding.
The next slide Slide 16 shows one of the 85 meter diameter tailings thickness, where we're 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 on the right photo you can see the pond liner which is in place in preparation for receiving water.
Work on the main jetty is progressing well and will support both the ship loader and the seawater intake system and the subsea work, including the 440 meter long, Brian <unk> pipe and the <unk> to two water intake price systems are now in place in preparation for seawater extraction.
As we head back onshore and you can see we've energized the poor substations there on slide 19 in.
<unk> is an important step towards commissioning of the infrastructure at the core area.
Finally, slide 20 shows the roof structure in place for the 75000 ton capacity concentrate storage building at support.
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 web site 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.
Okay.
Thanks, Tom profitability in 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 last year and has continued to increase through the first quarter of 2022 as John outlined.
Similarly, we benefited from record highs steelmaking coal prices.
Realized prices in the fourth quarter will use $351 per ton more than a three fold increase from $107 a ton a year ago.
As Don noted high realized prices reflected our strategy to increase our sales to customers in China in 2021, which was priced at a premium to FRB, 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 $44 million on an after tax basis.
Now we've outlined the key drivers of our record profitability on slide 23.
We generated $2 5 billion of adjusted EBITDA 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 declare respectively in the quarter.
We continue to experience inflationary cost pressures, notably in diesel prices mill steel on a replacement pumps driven largely by price increases for underlying commodities, such as steel crude oil and natural gas.
The inflationary pressures 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.
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 the pits to future production at our steelmaking coal operations.
This was higher than a year ago, primarily due to decrease stripping activities in Q4 2020 as a result of COVID-19 restrictions.
Yes.
Net 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 and the same period last year.
Now turning to slide 25, we are pleased to have enhanced our already strong financial position.
Solid operating performance combined with strong commodity prices resulted in a 49% adjusted EBITDA margin and <unk>.
$6 6 billion and adjusted EBITDA 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 on January 18th 2022, we redeemed U S $150 million of our maturing 475% notes.
As of February 20, <unk>, we have $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.
Adapted sustaining and committed growth capital of roughly $3 billion.
Net <unk> project financing and partner contributions.
$106 million of base dividends and $335 million for debt repayments to improve our capital structure.
This left us with over $730 million of available cash flow.
As you know the first 30% of any available cash flow is automatically returned 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 lease.
As Don noted at the start of the call. The board made the decision to pay a supplemental dividend of <unk> 50 per share.
$267 million representing.
Representing 37% of available cash flow above the minimums stipulated in our capital allocation framework.
And going forward the board approved a 150% increase in the annual base dividend $2 50 per share per.
A 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 tax reflecting both the near term strong cash flow generation of our business units and our anticipation of the transition of <unk> from construction into operations.
Annual share buyback provides management with the discretion to repurchase our class B shares such that we can offset the impact of dilution created by issuance of SaaS, 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.
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.
Our outlook for a dramatic decrease in spending in 2023.
We are approaching a major cash flow inflection point in 2023, driven by the completion of <unk>.
Sustaining capital spending is expected to increase in 2022 relative to 2021 levels due to onetime projects, including the harm our project to relocate maintenance and office facilities at the <unk> steelmaking coal mine to allow access to the next phase of mining.
A major smelter turnaround the trial.
Haulage truck rebuild program.
And the inclusion of sustaining capital for <unk> 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, two two to $2 5 billion of <unk> development capital on a consolidated basis in 2022.
With the completion of <unk> 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.
Ramping up our copper production, we are months away from the startup of <unk> in the second half and we are particularly excited by this position because.
We find ourselves as <unk> 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.
And between U S $3 50, a pound and $4 50, a pound copper prices with QB two at full production. We believe that we can generate somewhere between 6% 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 share.
Holders at the same time and also maintaining a strong investment grade balance sheet.
And as a result of <unk> long term and consistent commitment to seek out high quality long life based on our resources, we have a portfolio of high quality growth options in the envy of our peers.
After carefully assessing multiple configurations for the further expansion of <unk> beyond <unk>, we have determined that the next phase of development will be the <unk> mill expansion or is it will be known as <unk>.
And the mill expansion is expected to increase concentrated throughput by 50% with the addition of one identical semi charges grinding line Thats, one Sag mill and two ball mills.
And we believe this configuration optimizes the timeline to obtain approval 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 <unk> 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. The.
At the same time, we are also continuing to progress the project satellite assets at that for now.
Feasibility study has been completed and we have now received confirmation of our C. Admissibility in Q1 2022.
So that's very very important milestone.
Saint Nicholas we commenced work on a pre feasibility study and that was in Q1 and with completion targeted for Q3 of 2023, and we are deeply 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 thats another notable step with our partner Newmont.
Finally, strategic technical and commercial assessments for the advancement of maybe Neil the Saba and shop 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.
And as a result of test long term and consistent commitment to seek out high quality long life based on our resources through mineral exploration discovery acquisition partnership and development, we have a portfolio of high quality growth options that is the envy of our peers.
And as we move forward, we will rebalance our portfolio to copper, while reducing the proportion of carbon in our overall business.
<unk> 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 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. He asked it may take a moment or two until we sort out who's going to answer it.
Operator over to you.
Thank you you May press Star one at this time I just have a question.
The first question is from Greg Barnes from TD Securities. Please go ahead.
Okay.
In the press release, the MD&A semi commentary about wholesale leases signed in 2023 as we had last year.
Okay and.
Congratulations Gregg.
The first question usually from Allen <unk> co.
So this you supply to follow up quickly.
I'll turn that question over to reality of dental I'm thinking about <unk> as you know the CFR price an fob price.
Not necessarily move in sync, sometimes one fire some of those higher but rail over to you.
Alright. Thanks.
Thanks, Greg.
<unk>.
Overall looking at 2022, we're expecting our sales distribution to be similar to 2021.
As we've discussed previously we're continuing to maintain our supply to our ex China customers because those are long term relationships.
And we're comfortable as well in China as the steel production recovers actually we've seen steel production.
Randy come back very strongly right. After the Olympics. So we see that that is.
Continuing to support CFR, China pricing as China.
To be sure.
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've achieved the highest returns.
Great.
Thanks Ralph.
Follow up question again can be done on coal.
We are thinking around the near term future coal in your portfolio seems to be evolving can you talk about how you are positioning the business in your mind from this point forward.
And when you see the business and do you mean, the overall portfolio.
We've got coal in the overall portfolio and how you see that development.
Nothing nothing has changed from what we've said before that.
On the journey to rebalance our portfolio so that.
Carbon.
Both coal and oil sands 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 <unk>, but as we are going to start featuring throughout the year. The other projects in our portfolio are probably coming a little sooner than people might have expected in.
We hope to announce a partner on same neck.
In due course, it's taken longer than we thought but we are certainly deep into it.
We're getting more information today in the next few weeks on <unk> and moving that.
Pace so.
The coal part of it will.
Reducing proportion naturally as copper grows.
But we still.
While at the same position on oil sands on the portion of those projects 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 Matt was.
A long time in coming but it's up and running now with tough in the first couple of weeks of January one.
<unk> was so cold and so on but.
That seems to be growing smooth announced so that will give us some financial results and allow us to move forward on.
Whatever strategic.
Strategic action, we take on that so we believe that the carbon part of portfolio will be reduced.
That step and then we'll take a look and say well can we do.
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 coal division.
There's a lot of ESG pressures and so on but mainly they are so so dedicated so determined an innovative and addressing issues. We've now got tremendous water treatment capacity up and running in the highest volume 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 we do there so I call. It one of the best mining businesses in the world when I say that frequently to our people I should say it publicly too.
That said, we know that with.
All of the disciplined ESG pressures and movements. There is a lot of people that shy away from anything called call even though it's.
The good coal 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 than even more intensely.
Recently, but.
Whether any specific action is taken.
In the next few months.
No nothing is imminent for sure, but we should look at it and 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 call. There is between five and 30% lower carbon emissions.
The coal from the U S Australia, Mongolia in time so.
It's a very valuable.
Business, and it's certainly doing extremely well, especially with coal prices, having jumped $18 a ton last year to April sorry that select Brexit that's that sounds good.
No that's great. Thanks, Tom just wanted to clear that up from a partial launch.
Thank you.
The next question is from Rs <unk> from Scotiabank.
Good morning.
Questions for me, if I could Don first one I've noticed that your languaging around the share buyback seems to suggest that.
Sure 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 take quarterly, but we said regularly but.
The direction of your question. Your question is correct that where we're at now we're 77% complete of <unk>, but there is 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 in a pretty decent supplemental dividend on top of that which in total gives you a $1 per year.
Then start the buyback we wanted to.
Have the approvals in place for that.
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 anytime but.
But we didn't want to.
Go too far right now until we get further on in <unk>, 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.
Why would we wait all the way till next February or something so we wanted to signal that the board is very attuned to this issue.
And it'll be a subject to discussion frequently.
As cash to generate but.
Month by month.
These price it 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 contain NEC and how that would be financed you'll see that.
The ability to still grow copper, while generating 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 <unk> sorry, you missed the first question.
Protecting.
Thanks, Doug just as a follow up on <unk>, 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.
Yes, it's been a busy time.
And for all time on the project.
We're pleased with progress.
John had mentioned just just specifically on the concentrator when when we talk about critical path through grinding line one.
That still remains.
So Bob about Dot work is key to getting the first copper production at <unk>.
Lot of work.
With our contractors late last year too.
As you have seen reassess flipped COVID-19 capital.
<unk> comps are going to be.
We renegotiated a contract.
Taking all of the current circumstances into account hiring additional people et cetera, getting everybody aligned.
Construction plans as they are today or the completion date so.
And I'll tell you we.
Alex has been down there.
Down there December January and February worked closely.
Team on these issues.
When I when I walked out comps that grinding line and compare it to other things.
So.
We've done elsewhere in the world.
Yes.
Cost to go on this resolved very practical very doable and we're excited.
Key milestones coming up.
First one being <unk>.
First water to commission the.
<unk> plan.
At this time all of that's going on so we're competing.
First brining volume pumps and traders so that's ready to run.
When the waters, there and then all of those.
Our employees just now go to brining worrying too.
In other parts of the.
Project completed so we're we're excited about where we're at.
So driving volume number one remains.
Our critical power for first for.
Yes.
Just to be clear can you give us a percentage of completion on that.
Yes, we're at 77% now.
All of the output 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 some things and its not about Paul.
Paul construction completion at this point.
But the thing Thats most critical for us right now.
Our 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 reward before we have water.
To put in it.
All of the work plans work.
Efforts intensity is around that proper sequence.
To get us to our first copper is safely and rapidly as we can.
Okay. Thank you rod.
Thank you.
The next question is from Matthew Murphy from Barclays. Please go ahead.
Hi.
It's probably too early but I can't resist asking about capital on the <unk> expansion.
Any kind of ballpark.
<unk>.
Possibility you could give us.
Well, it's like half of <unk>, but.
Without a lot of the infrastructure pipeline transmission lines towards doing that.
So that's not but then you got to roll the clock forward a 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 of Thats, how I think about it.
So if I said something like 2 billion not quite.
Ridiculous or.
It's in that range, but you got to think when this gets started.
We've had like.
Like the $5 billion to $6 billion of QB, two that was in $2019 type thing.
And so.
You got to roll the clock forward, five or six years and whatever cost increases have happened in steel and all the different things.
No.
I'll take that in consideration.
Fair enough.
That's helpful. And then I had another question just on <unk>.
Tax pools.
There was a note in the earnings.
An expectation to be occurring for current Canadian corporate income taxes, starting this quarter. So could you just remind us where the.
The tax pools are and how much further you have to go on those Jonathan over to you.
Yes, so so those tax pools had held in Canada of course.
So the guidance we've given expected.
But you can assume those pools early in this year and therefore, we start to accrue.
Income tax seasons, and Scott will convert a course into cash taxes in due course.
Okay. So that's like portal.
Full amount.
Yes.
How these vehicles for a long time of course, but we have.
Significant profits being generated right now in the business in particular of course from the coal business here in British Columbia.
That will see the.
The <unk>.
The end of those tax pools, essentially in us paying 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 good morning, everyone, so coming back to QB two.
Given where we are sort of the run rate that you made.
Dawn of 11% progression in the fourth quarter, which was really good.
But some slowdown in the first quarter.
Is it fair to say then that.
Production were really come most likely during the fourth quarter, perhaps until the end of the year.
And then the second question is on QB two weeks on Capex.
Could you.
Give us a reminder of that 5% of addition, now continue to see.
On the regional Capex.
562 billion.
Is it the FX that is embedded in that 5%.
We shall continue to see.
Pending.
Skilled it sounds or 85 or Jim.
Sure.
So per dollar or hasnt move closer to spot.
Okay I'll take the first one and then turn it over to either red or Jonathan for Alex for the second but.
The percent completion in Q4 was our best quarter and I can tell you January and February with Omicron is nowhere near that.
There's 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 as 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 value.
<unk> 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 us.
Just as they had been phases.
Of.
The Corona virus.
<unk> Delta on <unk>, So we're trying to stay away from that.
Predicting two specifically and we're just going to say look we're going to get this thing done in the second half for Scarborough is going to be produced.
Then we're going to drive forward with.
A tremendous new asset that's going to be around for generation. So we're looking forward to it.
Now on the exchange rate.
Red or Jonathan.
Yes, Don read here Carlos.
The capital to go the spend to go on this we use more current rates.
We're seeing at the time 25 to.
<unk> exchange rate.
Capital to go.
Spend to go it's mostly labor.
For the Chilean peso expense to grow.
Alright.
Got it.
I'll just add to that range and if you look through.
Previous expenditure for <unk> and the guidance, we've given you both for the underlying estimates the contingency.
The Covid spend is $900 million to $1 1 billion.
And 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 will be carried over into 2020. So as read says you see 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.
Chilean 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 run rate side.
I will make.
Some preliminary comments and then.
I'll turn it over to <unk>, who I believe she is on the call from Chile. So.
In terms of making a final sanction decision for <unk> and we've got perimeter where to go there. We've got finished pre feeds will be this year and there is some work on.
Final feasibility going on in parallel with that.
<unk>.
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 are comfortable with the risk.
We believe that.
The proposal were making falls under the current tax stability agreement Tim.
Within current permitting for something infrastructure, sorry, 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.
It's just an expansion of the current mill that can be.
More expansion makes.
It makes sense, because it's sort of the.
So at least regulatory challenging in our tax or whatever.
Just a lot a lot less.
Risk or uncertainty and a lot faster and faster and faster faster by somewhere between two and four years compared to doing a larger expansion.
Sure.
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 don't want to.
One is clearly going to be $2 billion or north of <unk>.
We use question Vishal.
Then we wouldn't do it right. So so thin chili's hands to put together a good investment environment.
The has done that.
For decades, frankly, Chile has been one of the best countries in the world.
The mining copper and in.
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 PARO appear there please.
Feel free to comment on the latest developments in constitutional discussions.
Okay. Thank you Bob and good morning, everybody. Thank you. So you have to put some niches within the next one so hopefully.
<unk>.
Well Don explained.
And Debbie no indication that the mining royalty deal that is currently under discussion we have any impact on that would be convenient that has been affected by on the part D. So international agreements and commitments will be respected in relation to the constitutional level.
Ralph It with yourself of course, the important part of the change in SG&A.
Yes.
As Bob mentioned, you will still come back and show us.
Immediately we didn't.
We've got the process has not seen this is too early to really comment. After this moment data have already been approved.
Thanks, Sean.
<unk>.
Lots of parts of the Constitution.
The discussion about environmental issues.
That could have an impact on the mining of DVT.
The Baltic and we.
Effect of that vote of the convention will take place around mid March.
Important to remind everybody that dose.
<unk> spend that's required to set itself up to 11. 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 means of course, we are following the process very closely and Danny said no.
National debate in the mode of information around the Constitution.
It's important to mention that it does.
Related to the analyst day have left in the market.
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.
And.
And I guess, just thinking to the evolution of the overall portfolio towards more copper I mean is it possible that agency <unk> could become an expansion and throughput. Thanks.
I'll turn that one over to shows that by mouth.
Thank you.
<unk> 2040, our plan is to submit our permitting documentation in the fall after consultation with indigenous groups and other communities.
And the first corner less next year, and then with that 12 months.
Permitting timeline.
And remember that it is.
Mostly an extension with a little bit of expansion as well. So there is more grinding capacity being installed and our throughput should be higher by about 10% or so 10% to 15%.
Such 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 and attack 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 sitting in longer term. Thank you very much.
Yes, so we've been fairly public about our position on that it's been a long road to get to full production. When we said once we got to pulp production and it was kind of.
Down in operating well.
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 for many institutions that.
That are interested in buying company involved in oil sands and yet the asset itself looks like and generate tremendous EBITDA and cash flow, particularly at these prices.
So yes.
It's not valued within tech resources.
We may conclude that it should be held differently.
Allows shareholders to continue to participate if they so choose and that could be any one of three general directions, and one one would be sale to another partner.
Our partnership with Suncor into account one will be contributed into.
A mid sized company and taking back shares distributing those shares to shareholders.
On 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 it leased.
Quarters financial results walnuts running at full production. So we're in that quarter now.
Although we grew tougher first couple of weeks. So the board will be considering this and theyre not too distant future but.
So I think 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 are a bunch of other good reasons well first of all we are in the mining part of the business large open pit shovel 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 second.
The province of Alberta is pretty good geopolitical jurisdiction to invest and if you consider my chair and you look at the choices you have around the world.
Alberto looks pretty good.
It was very tax efficient to capital that we invested.
As shelter against the cash flows from Highland Valley, and the coal operations and travel and so on that technology risk was minimal, but we do.
While the advantage of some new technology, the paraffinic froth treatment process has improved it means it's much lower carbon footprint and the original <unk>. It's about one third of original operation So that was good.
<unk> itself is something you could hedge a long way out you could hedge is <unk>. If you wanted to as copper zinc or certainly not call you cant do it yet.
Whole bunch of other not particularly lot of geological risk resource has been drilled those Eric so there's a whole bunch of really good.
Reasons too heavily in the portfolio back then.
But 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 tack.
Question on slide 28.
Looking at the reduction of Capex of $2 billion in 2023.
It looks like an increase.
US $200 million to $500 million.
Any particular driver on that is that sustaining capital or excuse me two that gets rolled in inflationary pressures.
Any perspective, you could share on that thank you. Thank you very much.
Jonathan over to you.
Yes. 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 that out by 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.
It will come down.
It'd 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 that that some of the some of the key drivers in that and that capital number.
Terrific very helpful. Thank you for that 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 creating <unk> 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 sensitivity to the various commodities and in particular to the exchange rate I know you've got some tough views happening in the Ukraine, and we hope that things can be resolved.
For the benefit of all the people basically and so on but in the meantime, the rule.
It is quite concerned on risk off in the Canadian dollar has moved to full penny today and the sensitivity shows that for every penny became dollars declines that increases our EBITDA by $143 million and then just a little further down the chart on steelmaking coal.
I noted two making calls.
Around $459 up $18 for every dollar it increases that's another $28 million.
And EBITDA to tax so I think.
These are important and even just below that youll CW Ti WCS sensitivities as well so.
Well its a tough day in the markets for sure in terms of the <unk>.
To drive our financial results are actually very very positive.
And with that thank you very much we look forward to speaking to you in April .
Bye now.
Please disconnect your lines at this time and thank you for your participation.