Q1 2022 Teck Resources Ltd Earnings Call
[music].
This conference is being recorded so it goes to the homes that don't go as you see.
All participants.
Thank you for standing by and welcome to <unk> first quarter 2022 earnings release conference call.
At this time, all participants are in listen only mode.
We will conduct a question and answer session. This conference call is being recorded on Wednesday April 27 2022.
I would now like to turn the conference call over to Fraser Phillips Senior Vice President Investor Relations and strategic strategic analysis. Please go ahead.
Thanks, very much Patrick good morning, everyone. Thank you for joining us for Teck's first quarter 2022 results Conference call. Please note today's call contains forward looking statements various risks and uncertainties may cause actual results to vary Teck does not assume the obligation to update any forward looking.
Please refer to slide two for the assumptions.
Uh huh.
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. The latest press release on our website.
And Lindsay our president and CEO will begin today's call with first quarter highlights followed by Jonathan.
CFO , who will provide additional color on our financial results.
Include today, especially with the question and answer period to address any remaining questions with that I will turn the call over to Don Thank you Fraser and good morning, everyone.
We were pleased to report an exceptional start to the year and a record setting financial results in the first quarter and what is going to be a transformational year for all of US your attack.
Solid operational performance and continued strong commodity prices drove a quarterly record of $3 billion in adjusted EBITDA, which is more than triple the same period last year.
We delivered adjusted diluted earnings of $2 96 per share compared to 61.
In Q1 of 2021 and importantly, our strong financial performance enabled us to both strengthen our balance sheet and return.
Cash to shareholders.
We continue to advance our flagship QB two copper project with overall progress now surpassing 82% completion, we have to say, we're very proud of this achievement, especially in light of the significant impact the omicron wave had a workforce absenteeism, which exceeded 20% early in the quarter.
Our <unk> capital cost guidance remains unchanged and our teams are focused on systems completion and handover as we expect first copper from line. One in Q4 this year, assuming no further COVID-19 waves or other major disruptions.
During the quarter, we made meaningful progress towards our commitment to safety and sustainability leadership on safety our high potential injury frequency remained low at 0.14 in the quarter on climate.
You will have seen we expanded our climate action strategy building on our existing commitment to net zero across our operations by 2050. We included a new short term goal to achieve net zero scope to GST emissions by 2025.
And we also have an ambition to achieve net zero scope three emissions by 2050.
We were pleased to see our continued sustainability efforts being recognized by the industry. During the quarter. We were named to the 2020 to Bloomberg gender equality index and recognition of our high level of disclosure and performance in gender equality and Highland Valley was the first Canadian mine site to be awarded the copper Mark verification.
For its responsible mining practices.
Turning to slide four.
As stated earlier.
We delivered $3 billion in adjusted EBITDA in the quarter, notwithstanding global inflationary pressures, which increased our overall operating costs by 13% compared to last year, our results reflect meaningful contributions from each one of our business units.
Solid operational performance combined with the strong commodity price environment enabled us to further strengthen our balance sheet and accelerated our ability to return capital to shareholders.
The first quarter of 2022, we redeemed $150 million U S of our maturing notes and we also paid 337 million Canadian in dividends to shareholders and.
And subsequent to quarter end, we completed a $100 million of buybacks just last night, we announced our intention to repurchase further 500 million U S and class B subordinate voting shares. We think this demonstrates both our confidence in the outlook for our business and our commitment to balanced growth with shareholder returns.
Going forward, we will consider additional buybacks in the context of market conditions at the time.
And with the startup of QB. Two we are quickly approaching an inflection point, where the potential for further increase cash returns to shareholders will be.
Possible.
Turning to our operations.
Starting with our copper business unit on slide six.
Record quarterly copper prices of $4.53 per pound and higher contributions for byproducts drove EBITDA of $523 million in the first quarter, which is an increase of 25% from last year.
At Highland Valley production was impacted by unplanned maintenance that reduced mill throughput, however, copper sales exceeded production as it were.
Logistics changed recovered from the weather related disruptions at the end of 2021 and inventory was drawn down.
Overall unit operating costs were in line with our annual guidance.
Kris year over year was primarily the result of higher diesel prices and profit based compensation.
In April <unk> submitted an application for an amendment to its currently approved environment impact study to extend the mine life was 2028 to 2036 looking ahead. We continue to expect strong performance from all of our copper operations in 2022, our annual guidance is unchanged. However, there continues.
To be upward pressure on cash unit costs.
Moving on to zinc on slide seven.
EBITDA in our zinc business increased by 71% compared to Q1 last year to 298 million. The increase was driven by higher concentrate sales volumes of zinc prices, which were up 32%.
Partly offset by substantially higher royalty costs related to profitability at Red dog.
The higher zinc and concentrate sales volumes in Q1 were primarily a result of the late start of the 2021 shipping season, and the historic weather related delays, resulting in the hurdle of a portion of 2021 sales into Q1 2022.
Unit costs are down as a result of lower smelting processing charges, which more than offset inflationary pressures.
At trail refined zinc production was impacted by nonrecurring operational challenges, which are now behind us.
Looking ahead, we expect Red dog zinc in concentrate sales of 50 to 70000 tons in the second quarter, which reflects normal seasonality and our annual guidance is unchanged.
On slide eight our steelmaking coal business unit delivered yet another record quarter generating $2 1 billion in EBITDA, a five fold increase compared to $415 million last year.
Pricing for steelmaking coal increased significantly through the quarter, resulting in record quarterly realized price of $357 U S per ton.
Sales to our customers in China are based on our CFR, China price, which was at a discount to Apple would be Australia. During this quarter.
Sales in the quarter were 6 million tonnes exceeding production, but slightly below guidance and that was as a result of the CP rail work stoppage in late March.
Production was impacted by processing challenges and curtailments early in the quarter associated with Phi mine inventories, which were carried over from the various weather disruptions in late 2021.
Our rail infrastructure and complementary port capacity upgrade at our Neptune terminal demonstrated its value by mitigating the impact of major weather events. The rapid recovery of the logistics chain and the ability to recover deferred sales allowed us to capture higher margins and sales and a high price environment.
Adjusted site cash costs of $77 per tonne and transportation costs of $46 per ton in the quarter reflect continued inflationary cost pressures, including substantially higher diesel prices profit based compensation to merge costs and fuel surcharges. These increases were partially offset by law.
Port costs at Neptune.
Looking forward, we expect sales up six 3% to $6 7 million tonnes in the second quarter.
Given our lower production in Q1, we expect 2022 production to be in the lower half of our guidance range of 24, 5% to $25 5 million tonnes.
As a result of the same factors that impacted our first quarter costs. We now expect 2022 adjusted site cash costs between 79 and $83 Canadian per tonne.
Additionally, we increased our capitalized stripping cost guidance by $50 million, which reflects the inflationary mining cost pressures in 2022, and it's important to note that the primary cost increases are not related to key mining drivers such as mine productivity and strip ratio, which remained relatively stable.
Notwithstanding recent volatility in steelmaking coal prices the F O B and CFR benchmarks are currently trading at significantly higher levels compared to our record average realized price in the first quarter, which points to continued strong results in Q2.
Turning to slide nine our energy business delivered $119 million of EBITDA in the first quarter driven by the significant increase in the price of Western Canadian select and Fort Hills wrap up to a two train operation.
In addition to its positive contribution to our bottom line our investment in Fort Hills provides us a natural hedge against increasing W. T I and diesel prices.
Lower adjusted operating cost per barrel reflect higher production, which is partially offset by higher costs for natural gas and diesel.
The increase in the W. T. I price also impacted costs for diluent, which is required for blending with the bitumen.
And looking forward a 20 day planned maintenance outage in the second quarter is expected to reduce production to one train during this period.
But we continue to expect Fort Hills to operate at an average utilization of 90% in 2022.
As we have previously stated adjusted operating costs are expected to continue to decrease throughout the year. However, given increases in the price of natural gas and diesel we now expect adjusted operating costs for 2020 to be in the range of 28 to $32 Canadian per barrel.
And moving onto QB two on slide 10.
We now have 12500 workers on site, which is the highest to date evidencing the recovery from the impacts of AMR Con virus early in the quarter when absenteeism exceeded 20% at times with hundreds of workers in isolation.
Despite these challenges steady progress has been made since our last report just two months ago and QB. Two is now over 82% complete and we expect Bruce copper from line. One in Q4 this year, while our capital cost guidance remains unchanged.
We're proud of this progress we're also pleased to report.
<unk> two project has been named by Bechtel as their global construction project of the year.
We completed a number of key milestones in Q1, including the completion of the power transmission line tower construction.
A water supply the seawater intake and the outlet pipes are now in place on the seafloor and preparation for water extraction pipes, and we have entered the hydro testing phase for the water supply pipeline.
I'm proud to say that the QB mine fleet has completed their masters work scope for the tailings starter dam construction, which is now over 85% complete and the mine fleet has transitioned to open pit activities are.
Our focus going forward is on system completion, and handover of key facilities as we drive towards first copper.
Looking into Q2 key milestones include energized nation of the high voltage power transmission system, which is in progress completion of the main area of infrastructure that is required for pre stripping and we will begin turning over key systems at the concentrator to pre operational testing, including the line one mills.
The photo on the right side of the slide of Slide 10 shows workers installing deciding on the building which houses the mills.
Slide 11 shows the preparation for launching and placement of the second and final seawater intake pipe on the seafloor and this pipe is a key component of our water supply system and was successfully deployed during the quarter.
On the next slide Slide 12, you can see the placement of one of the last modules for the electrical room at the desalination plant and the reverse osmosis units on the left side of the photo.
On slide 13, it shows preparations for the hydro testing phase of the water supply pipeline, which is a key step in construction and pre commissioning of the pipeline for supplying water to the project for commissioning and operations.
On slide 14, you can see workers mounting the concave inside the primary crusher.
Major mechanical compulsion components associated with the primary crusher are now all installed.
Next you see the transfer station on the overland conveyor that will transport transport or between the crusher and of course or stockpile will begin shortly the installation of the conveyor belts in this area.
Slide 16 illustrates the progress we're making on the assembly of the stockpiled dome, which is well advanced and approaching its final height.
Accidently 15 storey high stacker structure can be seen feeding into the dome.
On slide 17 here, we have an overall view of the concentrator area from February with the stock restructure of the grinding building in the background to the flotation area in Florida.
The focus in this area is on completion of line one in preparation for first copper and as mentioned earlier in Q2, we will begin turnover of T systems. This area to pre operational testing, including the line one bills.
On Slide 18, you can see the progress on the cyclone station, which sits above the future tailings impoundment area cyclone station will be used to classify the tailings once we're in operation.
And finally on slide 19, you can see the starter dam, where we continue to make excellent progress as I said the Tech mind fleet has completed the masters work scope for the starter dam and it is true that transition back to the mine area. So in summary.
We continue to be very pleased with the progress we're making we are excited to build on our construction successes to date with a focus on delivering to the projects' key milestones and I encourage all of you to visit the investors section of our website to watch the latest progress video and view the most recent photo gallery.
And with that I will now pass it over to Jonathan to discuss our financial results.
Thanks, Don.
<unk> delivered record setting profitability in the first quarter largely as a result of continued strength in the prices for all of our principal products.
Strike it on slide 21.
Pulpwood prices reached an all time quarterly record average of U S $4 53 per timed in the first quarter, while zinc prices increased by 36% to an average of $1 70 per pound.
Western Canadian select the heavy oil benchmark price increased sharply due to the impact of the Russian War in Ukraine.
F O B, Australia coal prices reached peak levels in the first quarter, averaging a record high if U S $395 per ton for the quarter lagged by one month at a record high of U S $487 per ton for the calendar quarter.
C F O China prices traded at an average of U S $405 per ton in the quarter.
As you May have noted we published a press release on April 10th and I've seen the sales volume averaged realized price and pricing adjustments for our steelmaking coal business unit in the first quarter.
We intend to continue pretty releasing these data points each quarter going forward, given the lack of visibility and publicly available information.
Okay.
We've outlined the key drivers for our record profitability on slide 22.
Adjusted EBITDA of $3 billion in the quarter represents an increase of more than 2 billion compared to last year predominantly driven by strong commodity prices.
Like others in the industry, we continue to face inflationary cost pressures, which increased our Q1 operating costs by 13% compared to last year.
Approximately half of this increase relates to diesel costs at our operations and in our transportation costs.
The diesel prices increased by 52% compared to the same period last year.
Further increases in the cost of a number of our key suppliers, including mining equipment few tires, and explosives and being driven by price increases in underlying commodities, such as steel crude oil and natural gas.
While our underlying key mining drive has remained relatively stable key input costs and profit based compensation continue to put upward pressure on our unit costs and capitalized stripping guidance in 2022.
Now we generated cash flow from operations of $2 3 billion in the first quarter compared to $585 million in the same period last year.
This is largely a reflection of the positive impact of substantially higher commodity prices most significantly steelmaking coal.
Net proceeds from the QB two project financing facility with $260 million in the quarter.
The U S $2 5 billion facility was fully drawn in April .
In the first quarter, our capital investments totaled $867 million, including 654 million for QB, two 186 million in sustaining capital.
In addition, we incurred 233 million for capitalized stripping primarily related to the advancement of pitches for future production at our steelmaking coal operations.
This was higher than a year ago as a number of development mining areas transition from sustaining preproduction capital to early stages of operations.
As Don outlined earlier solid operating performance and strong commodity prices enabled us to pay down debt and return meaningful cash to shareholders in the quarter.
January we repaid 236 million in debt, including U S $150 million of our maturing 475% Tim nuts.
In the quarter, we paid out $337 million in dividends, consisting of a quarterly base dividends of $12.05 per share on a supplemental dividend of <unk> 50 per share.
In addition, we paid off another $100 million through the purchase of 2 million class B shares under our normal course, issuer bid 1.8 million shares or $90 million of which was completed in the first quarter.
As shown here on slide 24, our balance sheet remains strong with a net debt to adjusted EBITDA ratio of <unk> six times investment grade credit ratings and no significant debt maturities due prior to 2030.
As of April 26, we had $8 billion of liquidity.
Importantly, our record profitability and strong balance sheet has enabled us to deliver meaningful cash returns to shareholders.
Yeah.
I don't know Julia in accordance with our capital allocation framework, we announced our intention to repurchase the food or U S $500 million in class B subordinate voting shares.
This demonstrates both our confidence in the outlook for our business and our commitment to balanced growth with shareholder returns.
Going forward, we will consider additional buybacks in the context of market conditions at the time.
Supplemental distributions will continue to be considered annually by the board in February when they have the final results for the full year.
Slide 26 outlines our guidance for capital investments with the completion of QB, two 2022 will be the high watermark in our capital spending profile.
As previously noted we expect a significant decrease in capital investments into 2023 to a total of approximately $3 billion.
With first production from QB two in the fourth quarter of this year and the operation and then ramping up to full capacity. We are approaching a major cash flow inflection point, where we shift from a period of significant capital investment to a period of significant cash generation.
Pass it back to Don for closing remarks. Thank you Jonathan So in closing I have to say we are very pleased with how tech is positioned to drive long term shareholder value. Our first quarter results gave us an exceptional start to 2022 and as I said this is a transformational year protect as we rebalance our portfolio towards copper.
As we bring on QB, two and advance our overall copper growth strategy, we will rebalance and reduce the proportion of carbon in our overall business.
As we've done to date will continue to further strengthen our existing high quality assets to our race technology transformation program and our sustainability strategy.
Commodity prices over the last few months have accelerated our ability to return capital to shareholders. So looking ahead, we have the ability to generate even greater cash flows and returns and with that I'll turn the call over to the operator to open it up for questions.
Thank you you May press Star one at this time. He said the question. The first question is from Rs won't Codell from Scotiabank. Please go ahead.
Hi, good morning.
Todd obviously cost inflation is impacting the mining industry across the board and I'm not surprised to see your higher cost guidance for coal, but I am a little surprised that you're maintaining cost guidance in copper and zinc even when you look at it before byproduct credits can you maybe give us a bit of color on how your it how are you.
Managing that and whether that's related to perhaps some hedging done for fuel or something thats keeping costs at a lower level for some period of time.
Okay, I'm going to turn that question over to Suzanne So I'll just make it one of the contributing factors not just sounds but across the business is the success of our raised 21 program and it will be we'll be issuing a release summarizing some of the key accomplishments there in the next.
Short, while but should that over to you.
Thanks Dawn.
So I'll start with the zinc business unit our higher.
Duction is part of the reason compared to last year as to you know if that helps and maintaining the cost guidance and also the sensitivity to diesel which has gone up significantly is a lot less in copper and zinc that it would be in coal and and of course as Don mentioned, we've done a fair bit of work on base 21, both Highland Valley and and Red.
Dogs have been very active on the base 21 side, which has helped our cost management.
And as you know and you mentioned before byproduct credits and after byproduct credits and copper zinc credits at and to me that I have been very helpful. After byproduct credits.
And at the same thing and.
The zinc business unit with a with lower T. CS have also helped.
From last year.
Thanks for that is there any are there any hedges or or colors that are helping kind of contained cost for a certain period of time or is this your updated guidance, reflecting full market cost.
Oh no. The if this is Jonathan here or I know the guidance reflects you know the the.
As you see in the market, we we haven't hedged any of our key input cost.
Okay. Thank you and then just quickly if I may on the capital return program I'm pleasantly surprised the new 500 million U S. Buyback is this something now that the board plans to look at on a quarterly basis.
Okay.
I'll draw your attention to our release in February where we said that the board would be reviewing it regularly we.
We do it really didn't use the word quarterly because regularly could be a shorter than quarterly or it could be longer but.
I think this does demonstrate that that's exactly what's there.
Excellent Thanks Todd.
Thank you.
The next question is from Lawson Winder from Bank of America Securities. Please go ahead.
Okay.
Hello, and good morning, Thank you for the update today.
Can I ask you about the copper project pipeline, and whether or not you're sort of order of preferences has shifted at all particularly with some of the smaller projects.
Such as Zephyr, San Nicolas and shaft Creek and.
And then finally with San Nicolas in that for now.
It.
With taxi comfortable building those two projects alone should they not should you guys not by the partner thanks very much.
Okay. So.
The way we look at it is we have three projects that are and mining terms nearer term, meaning that they could all be in production by 2026 and those are <unk> that can be a mill expansion Zephyr now Anthony Nicholas and each of those cases, we have the teams working away advancing the project.
<unk> and Zephyr and else case, you know that the hearing in Lima, Peru took place.
At the end of March it was very successful very impressive.
Minutes to get there myself and see it in action.
We got very positive feedback from so actually the regulator at that time, I'm, saying Nicholas a lot of a lot of work going on there I should say on both of those projects. We still have a preference to have a partner of course, we have a partner on Jeff analysis, 80% are interested 20% with NFC.
But we are in discussions with.
Different parties on say Nicholas as well and at some point, we'll put the opinion, but what's important to US is getting the right partner is really like an interview process more so than our valuation process and.
I think that all the parties involved are excited about the project and at some point it will put the opinion, but we do want to stay on that schedule to have it in production by 2026. So those are the three near term Galore Creek would then be what we would think of as medium term. Its a 50 50 joint venture with with Newmont were working together updating the studies on that.
And of course, if it has a lot of gold in it. So there's got to real advantage of grades. So Sunday for sure that's going to be a great mine and then the other the other two are longer dated massawa in shop Creek, but but even with the soft but you know we were looking at different partner.
Partner and development options, there as well so I expected a different announcements throughout the year can't tell you exactly when.
But certainly there was a lot of activity.
The copper goes out for sure and we also I should say in the market hiring people and building building the team internally and so that if.
If we ended up choosing to do it on their own will have the capability to do so but.
We really like what we've done with QB, two and our partnership with Sumitomo metal mining and Sumitomo club.
I think the market really liked it too deep.
Derisk the project both financially.
And from a market point of view.
Customers are great partners. So we think that's a that's a pretty good model. So so while we're at this stage I think it's still worth pursuing.
Yeah.
Great story, it's a bit of a longer.
Long answer, but there's a lot in there.
Yeah.
Thank you for that insight.
On your.
Updated our goal to achieve net zero scope to I'm.
Are there any potential.
A substantial capex investment that might be required on behalf of tech in order to achieve that and what are sort of like the.
The.
The main point that happens you have to get achieve two to ultimately reach that.
Yeah, So I'm going to turn this over to Shazam.
Does that actually but the short answer is no on the on the Big capital, It's really all about a clean power, but Saturday.
Thanks, So and the chiller is where we have the lives of the skull to purchase agreements and.
Remember a couple of years ago, we converted two contracts that we had to renewable and we have one contract left right now that's 122 megawatts are with.
They are provider and we are in the process of looking at options and and and are working.
Working on development of new renewable projects to be able to convert that qualify.
It's a contract over to renewable.
I wanted to get it done faster than 2025, so I'm, putting a lot of pressure on that.
Will do.
Alright, Thats excellent. Thank you very much.
Thank you.
The next question is from Carlos de Alba from Morgan Stanley . Please go ahead.
Yes. Good morning, everyone. Thank you very much so on QB two.
Congratulations on the continuous progress I noticed that your spec line one to start producing in the first in the fourth.
The fourth quarter, but yet on the culprit outlook copper copper production guidance.
You're not including any volumes there.
Could you elaborate a little bit more why why that is the case and give us a range as to how much volumes are maybe just minimum and that is the reason that you are not including in your guidance, but any color on battery that will be great as well as I noticed that there was no comment related to QB, two coffee Cup stock cost.
I just wonder if the guidance remains between 901 billion.
U S dollars.
For that.
And then if I may on the cold side.
Could you comment on the Chinese market and your expectations for shipments into that are in that market in Q2 or for the remainder of 2022. Thank you.
Okay. Carlos I think we've got four questions there I'm going to take the one on guidance I'm going to turn to Jonathan on the copper.
<unk> guidance I'm not going to ask Red to talk about QB two since you raised it and he's on the line and can give you. Some insights on how things are going there and lastly, I'd be real fully on the China and in the coal side. So on guidance. So we've been quite clear there's no change to guidance on either of the definitive estimate capital cost that we had put out before on the call.
Okay. So no change there at all.
On production forecasts, yeah on the production guidance, we haven't guided to volumes at this point in time as you as you highlight we will do so of course.
For 2023 in due course, but for the time being we'll you know we we continue to just follow the progress of the project and will provide updates throughout the remainder of the year.
Okay, and then Red's on the line in Red since Q2 s on the table and maybe turn it over to you to share your thoughts.
Yeah. Thanks for the question Carlos.
Just in general we're really excited about where we're at right now our team has come through this omicron waves are extremely well, we're very proud of how they've managed the health and safety of our employees. They you know they weathered through these really high absentee rates that we had earlier and.
Your large hundreds of people in quarantine as many as 800, but at one point and you know we've got a really clear path now to to first copper in the fourth quarter. So we're all about.
It really positive for us momentum is building and we're having a very good month right now and in April when when you talk about volumes of production during.
Particularly the first couple of months of ramp up I think let me just give you some color on what that looks like on the ground. You you know you start to see equipment.
And start you know putting load in at rock in it.
And then the first thing you do is you turn it all and you re torque bolts in check.
Tolerances, and clearances and those kinds of things and you turn it on and you put more rock and it.
One of the next things you could do is adjust the shoots are good.
All all have to be kind of custom.
And for US as you get the larger volumes of <unk>.
Material going in there. So it's just really perky jerky up down up down.
Jake out process.
You go through so we're you know, we're very comfortable with where we're headed in the in the fourth quarter and just.
Not gonna make guesses about how got up down up down goes in in the first couple of months.
Getting this thing really tightened up and fine tuned in and ready to run for decades.
Thanks, Rich thank you very much tremendous color.
And then rail fully for the colon.
Yeah. Thanks for the question Cardoso on coal sales to China for 2022, we're expecting there'll be between 25 and 30%.
Keep in mind that we always reserve tons for spot sales and will be placing these tons in markets, where we achieve the best returns.
Alright excellent. Thank you very much everyone.
Good luck.
Thank you.
Yeah.
Thank you. The next question is from Lucas pipes from B Riley Securities. Please go ahead.
Hey, good morning, gentlemen, and congrats on all the progress and.
Dan I have a higher a higher level question. So.
QB two.
Homestretch, there much lower Capex next year, you're generating.
Incredible amount of free cash flow in the coal business here.
Here in Q2, and possibly longer giving given given the global backdrop.
And I'm reminded us of the book never rest on your or so so what are you going to do.
Next year to year.
Here's to come yet you have a really strong.
And of course, you know what what are your priorities.
Okay.
Like to buy the whole company back myself, but.
We think we're in great position, we take the company's in really strong shape, we have great optionality to continue to grow the copper business you know, there's several different projects three of which were.
Our our as I've, just mentioned reasonably near term and they can be developed on a capital light basis. That's that's our objective. That's that's one of the reasons why we wanted to partner and so on and so if we keep going down that path, that's going to put us in a very good position to continue to return capital to shareholders, whether it's buybacks or dividends as it gets.
Decided that the time and so that's a pretty clean strategy easy for people to understand great cash flows from our steelmaking coal business, our energy business, now and zinc business and that that cash going into the copper growth, which reflects whats going on in the world. We've got a very serious global commitment to Decarbonize nation.
Which means electrification, which means copper and so that's where basically reflecting what's going on in the world. So I think we keep executing our as you can tell from listening to Red Conger and his color on the project as the projects in very good hands. The whole team is pulling together here and so we think these next few years are going to be very exciting.
Thank you very much for what that outlook and my my My second question is higher level on the coal side I'd say, the one area, where I have the greatest concerns from investors is announcements in China with regards to increased.
Increased coal production.
Yeah.
Do you have expectations for.
Their success.
And in alleviating some of the coal pressures and what this could mean for global coking coal prices in.
In the quarters to come.
Yeah, I'll I'll turn that over to rail, but I'd make sort of this big picture observation throughout the years, there have been different announcements and events in different markets China included.
It's one thing to make analysis to see what actually happens and if you track that.
Steelmaking coal production in China.
Pretty stable, but Rialto would you.
Yeah. Thanks Lucas.
So, yes, China increased overall coal production during the quarter. When you look at it just for coking coal the increase is very small.
And local consultants in China are you expecting that the increase in production this year it could be.
Maybe up to 4 million tons that would bring it up to about 494 million tons compared to $4 90 last year.
No I say up to 4 million because there is a number of challenges with safety inspections that are continuing there is also the 20th Party Congress that will take place in October and November this year.
Those increased safety inspections at the coal mines are expected to go on from now right through the.
The 20th Party Congress, so theres going to be pressure actually two to maintain even production at the level that it's at right now.
Yeah.
Very very helpful. Really appreciate all the all the color and continued best of luck.
Thank you.
Thank you. The next question is from Brian Macarthur from Raymond James. Please go ahead.
Hi, good morning.
Follow up on Slide 26, you talk about the 2 billion decrease in capital next year, which is obviously very positive, but then you go on to say.
Sustaining capital and capitalized stripping all coming back down so if I just buy ball that that maybe I don't know 500 of that the other 1 billion five decrease some of the QB. Two obviously, but are there other growth projects built in there and where I'm going with it little bit is.
Obviously, the QB two cash is different than the corporate cash just given your relative percentage ownership. So I'm just trying to figure out.
I actually would have thought it might have gone down a little bit more on a on a corporate basis I'm just trying to figure out what else is in there. If you can give us any color.
Yeah. Thanks. Thanks for the question that so we will see a reduction in sustaining capital a year over year into 2023, we've guided this year to one point for sustaining we think a longer term sustainable level is closer to $1 billion, including QB, two but we're not going to get all the way.
There by 2023, so you'll see some step diamond and sustaining capital will also see a step down in capitalized stripping as you mentioned with respect to QB. Two it's important to note here that all of these numbers around 100% basis will you be too because we consolidate that.
If you look at our guidance in terms of to go capital.
Look at the guidance for 2022, you'll see there's a reasonable amount of capital carried over into the first half of next year and that could be six or $700 million. So that is well explains why you don't see you know sort of a cliff in the QB two capital year over year, and then finally I'd say you know if you look at all.
<unk> for this year.
We've guided to a 300 million in other drugs across the business and that goes to you know a bunch of studies that we're doing across many of our base metals assets and we expect that to continue as well you know as Don mentioned, we have this pipeline of projects ahead of US we are readying a number of those Uh huh.
Near term development.
Development decisions and therefore, the the studies and sort of pre execution work continues to ramp up. So you know there's a lot of growth activity is still in the portfolio in 2023 boats QB, two and on future options, which which explains why the number perhaps isn't falling as much as you might assume.
Great. Thank you everybody we tend not married yeah, that's very helpful.
I was going to say if you want a further breakdown on not just just contact Fraser and he can he can help with the numbers.
Great cause because that's great. That's very helpful. That's exactly I was trying to get out and can I just ask QB working capital does that get counted in that 700 million as well carry over.
No no the working capital is more than that.
Great. Thank you very much that's very helpful.
Most welcome.
Okay.
Thank you. The next question is from Jackie <unk> from BMO capital markets. Please go ahead.
Thanks very much.
Just want to follow up on the question or is that start earlier in the call on the share buyback so.
You know I guess Theres a lot of moving parts I just wanted to make sure I'm clear can you maybe talk a little bit about how quickly you expect.
To complete this new $500 million in share buyback and can you just maybe remind us.
If you finished the 100 million Canadian dollars that you announced in in.
February and also the 40 million share in Tid that was approved in November its your where you're adding all of those programs. If you don't mind. Thanks.
Yeah sure. So the the November announcement is the annual amount announcement of the renewal of the NCI B and you pick a total possible numbers. So we I think I mean, there is a regulated maxim and so we put 40 million shares there, which is a big number that doesn't guarantee that you're going to do all 40 million.
Chairs, but it gives you that under the room to start.
And then of course, you have to authorize a dollar amount that the board gives myself and Jonathan.
Want to work with when we were doing the special dividend and increasing the base dividend we just.
You know it started with a small amount to get the N C. I V going.
And we are completed that that amount.
While back so we just reloaded last night.
As we have said in February the board will be reviewing it regularly.
So 500 million U S gives us something to work with I I Couldnt tell you how long, it's going to take to execute that really it depends on market conditions and so on.
And then the board will review it again it reviews it again.
<unk> board meetings actually at the end of May and there's you know there's different informed me scheduled and generally we would review it had a scheduled board meeting, but as Jonathan and I feel that.
We want to reload sooner, we can we can call a quick color.
Or or something so it will be reviewed regularly and that's basically the our position and that sort of matches. What you know as we continue to generate all this cash we don't know what.
What the commodity prices are going to be next quarter to quarter. After we've seen a lot of volatility as you know and so but but while the prices are.
Reasonably high where they are now a general this cash we'd probably want to review.
That buyback very regularly and then if the prices happen to fall off then that maybe it would be sort of that so I.
I think that's about all we can take.
It's always done. This this is probably a really dumb question, but the.
The authorization the normal annual authorization of 40 million shares in the fall I mean does that.
Possibly.
What kind of get gobbled up by the Q1 hundred.
$100 million announcement in this new announcement, so would you need to go back in and add to that.
Blanket N T O P approval, if you wanted to.
To do another buyback at some point later this year, yeah. So NCI views of course issuer bid I'd encourage you to go and read the rules on that.
We are buying back stock under that authorization.
Authorization, if we get to the maximum allowed by the regulators under that we would then have to actually do a tender offer something more formal so right now.
Pretty under that 40 million shares and I suspect that'll that'll be enough for now.
Jackie just just for context, we bought back 100 million Canadian through to April and that was 2 million shares in the NCI <unk> 40, So there's plenty of headroom under that right now even accounting for the U S $500 million that was authorized yesterday.
Okay. Thanks, that's helpful. And then maybe I could just ask about the the QB no expansion I know you didn't.
Or at least that you've got a pre feasibility that youre working on I mean that doesn't mean different things that different companies. Sometimes so can you maybe talk a little bit about what level of detail you're expecting to include in that pre feasibility study.
I'll turn that one over to Red Conger. Please.
Unless there is unless you want to jump in on the Red Red overdue.
Good morning, Jackie.
We're really excited about this development.
Chuck a roughly 12.
He calculations for fatal flaws. One example would be can the tailing dam that we currently.
Have constructed.
Accommodate the rate of rise that we would do.
So we would incur from increasing the <unk>.
Paucity by 50% so we've gone through those kinds of things got positive.
Engineering results on all of those so that's that's what's a really triggered us to be bullish about this particular approach and where we're actually working on combining the elements of a feasibility study into the work that we're doing right now to fast track.
So where.
We're trying to get all of that in place too.
To do permitting etcetera here at the end of the year.
That's what I was hoping I would here. Thank you very much. Thanks. Thanks Brendan.
And Jonathan.
Thank you.
Thank you.
To conclude the today's question and answer session I would like to turn the meeting back over to Mr. Lindsay.
Okay, well, thanks to all for attending today and we're very excited about the position. We're in a very pleased with the results in Q1, Q2 s looking even better and so we look forward to discussing that with you at the next call in July thanks very much.
Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.