Q4 2022 Teck Resources Ltd Earnings Call

Speaker 1: So there P not for there. What is here? That here.

Speaker 1: Ladies and gentlemen, thank you for standing by.

Speaker 2: Welcome to Tech's fourth quarter 2022 earnings release conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. To join the question queue, press star then 1 on your touchtone phone.

Speaker 2: Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero on their telephone.

Speaker 2: This conference call is being recorded Tuesday, February 21, 2023. I would now like to turn the conference call over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead. Fraser Phillips, Senior Vice President, Investor Relations and Financial Analysis

Speaker 3: Thanks Ariel and good morning or good afternoon everyone. Thanks for joining us for TECHS 4th Quarter 2022 Conference Call.

Speaker 3: Please note today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. Tech does not assume the obligation to update any forward-looking statements. Please refer to slide 2 for the assumptions underlying our forward-looking statements. In addition, we will reference various non-GAAP measures throughout this call.

Speaker 3: The first on the spin-off who's still making coal business. The second on the stun step for the dual-class share structure. The third on the dividend and share buyback that was announced and finally of course on the Q4 results. In addition, there's a copy of our presentation to go with the releases. You do not have all five documents.

Speaker 3: They are available on our website. It's www.tech.com slash separation.

Speaker 3: To allow time to discuss the strategic announcements we issued this morning, Jonathan Price, our CEO , will begin today's call with a brief overview of the fourth quarter results. We'll then shift to the focus of the three strategic announcements, again the separation of tech into two independent publicly listed companies.

Speaker 3: The related transactions with our steel making coal joint venture partners and major customers Nippon and Pasco and the six year sunset protects class A shares. We will then conclude today's session with a question and answer period. With that, I will turn the call over to Jonathan.

Speaker 4: Thank you for either and good morning everyone.

Speaker 4: Starting on slide 5, we are pleased to have achieved several financial records in 2022, including a record $9.6 billion in adjusted EBITDA.

Speaker 4: This was driven by strong commodity prices, particularly steel making coal, which reached new heights during the year.

Speaker 4: Digital Business Units makes substantial contributions to our profitability in 2022.

Speaker 4: In the fourth quarter, the resilience of our teams was demonstrated as we successfully managed through severe winter conditions and short-term production challenges.

Speaker 4: specifically at Elkview, Highland Valley Copper and Trail. However, we did fall short of consensus analyst estimates for fourth-quarter adjusted EBITDA and EPS. The variance was driven by lower than consensus gross profit, which was partly because of the extended maintenance activities.

Speaker 4: trail during the quarter, higher than consensus non-operating expenses and the timing of the removal of foothills from analyst models. Importantly, strong profitability enabled us to deliver record cash returns to our shareholders in 2022.

Speaker 4: including $1.4 billion in share buybacks and $532 million in dividends, while continuing to strengthen our balance sheet through the repayment of $1.3 billion of debt during the year.

Speaker 4: And we are adding to this with our announcement that the board has declared a dividend of $0.625 per share to be paid on March 31st.

Speaker 4: This consists of our base quarterly dividend of $0.125 per share and a supplemental dividend of $0.50 per share.

Speaker 4: In addition, the board has authorized up to $250 million dollars share buyback.

Speaker 4: In total, these returns to shareholders include a distribution of 40% of the proceeds from the sale of Borthills received earlier this month in accordance with our Capital Allocation framework.

Speaker 4: In aggregate, these returns bring total approved returns of over $2.4 billion since the start of 2022.

Speaker 4: Now looking at slide 6, we made significant progress against each of the four pillars of our carbon growth strategy in 2022.

Speaker 4: We advanced our flagship QB2 Copper Grove project despite COVID-related productivity impacts and challenging weather and subsurface conditions.

Speaker 4: It is currently ramping up and we look forward to doubling our consolidated copper production when it reaches full capacity by the end of 2023.

Speaker 4: We also advanced the pass-to-value for our industry-leading copper growth pipeline through joint partnerships at Nicholas in Mexico and at New Range Copper and Nickel in Minnesota.

Speaker 4: I will come back to QB2 and our progress in copper growth in just a moment. As I mentioned earlier, we closed the sale of Port Hills in February . Our exit from the energy business provides a step change towards the rebalancing of our portfolio to low carbon metals.

Speaker 4: And we continue to balance copper growth with cash returns to shareholders as demonstrated by our record cash returns in 2022. As of February 20th we have $8.2 billion dollars of liquidity including $2.8 billion dollars of cash.

Speaker 4: We also made significant progress against our sustainability goals during the year. We secured 100% clean renewable power at QB2 from 2025. I'm especially proud that we recorded our lowest ever high potential incident frequency rate last year. Full details of our performance will be in our 2022 sustainability report.

Speaker 4: which will be released on March 16th. Now coming back to our progress on copper growth on slide 7. Our priority for 2023 will be the ramp up of Qv2.

Speaker 4: We are in commissioning of Line 1 at the Concentrator and making final preparations to feed water the mills.

Speaker 4: Construction and commissioning are progressing across all areas of the project. Construction is essentially complete in the pipelines, power and mining areas.

Speaker 4: We expect Qb2 to reach full capacity by the end of 2023. Our CAPEX guidance for the project remains unchanged from previous disclosure.

Speaker 4: We expect QV copper production of 150 to 180,000 tons in 2023, increasing to a range of 285 to 315,000 tons in 2024 to 2026.

Speaker 4: It is important to note that recent changes to IFRS will impact unit costs of QB2 this year.

Speaker 4: We are now required to recognize sales proceeds and related costs associated with products sold during the ramp up and commissioning phase through earnings rather than capitalizing these amounts.

Speaker 4: Once QB2 is at full capacity, we expect average net cash unit costs of US$1.40 to $1.60 per pay.

Speaker 4: Turning to slide 8, we are also making meaningful progress on other projects in our industry-leading copper growth pipeline.

Speaker 4: We initiated a feasibility study at San Nicolas last year and expect completion in early 2024.

Speaker 4: We are targeting submission of the EIA in the first half of this year. The transaction with the Gneco Eagle is expected to close in the second quarter of 2023.

Speaker 4: We are continuing to advance the feasibility study for QB mill expansion, representing a throughput increase of approximately 50% to QB. The IAA permit application was submitted to the Chilean regulator in early 2023 and the feasibility study is expected to be completed later this year.

Speaker 4: At Zafranal, we successfully completed a comprehensive public participation session and responded to the SEIA observations last year.

Speaker 4: We are expecting receipt of the SEIA permit in the first half of this year. And just last week, we closed the new range copper-nickel LLC transaction with PolyMet to jointly advance both Northmet and Masaba. At Galore Creek, completion of the Pre-Feasibility Study is targeted for the second half of the year.

Speaker 4: Overall, our progress in 2022 positions as well for our very exciting next chapter. So with that, we'd like to move from the fourth quarter results and discuss the transaction we announced today.

Speaker 4: to spin off tech's steelmaking coal business to shareholders and the creation of two world-class independent companies. Starting on slide 10, this is a significant and exciting day for our company, our shareholders, and our people as we take a major step forward to unlock value for tech shareholders.

Speaker 4: by establishing a path to separate our steelmaking, coal, and base metals businesses. As independent companies, Tech Metals and Elk Valley Resources, or EVR, will have simplified portfolios allowing for heightened strategic and financial focus and the ability to pursue their own tailored capital allocation strategies.

Speaker 4: We are confident this plan positions both companies for greater success while supporting a sustainable future for the benefit of our employees, communities and indigenous peoples in the areas where we operate.

Speaker 4: Importantly, this separation will provide investors with choice for allocating their portfolios between two businesses and commodities.

Speaker 4: with unique fundamentals and value propositions. We will realize our full potential at Tech Metals as a premier growth-oriented producer of critical metals essential to the energy transition.

Speaker 4: And EBR will be a pure play, high margin steelmaking coal producer. Dec metals will retain a significant portion of the steelmaking coal cash flows during a transition period to fund our proper growth.

Speaker 4: And current with the separation, we announced agreements with two of our steelmaking coal joint venture partners and major customers.

Speaker 4: to exchange their minority interests in the health view and green health operations or interest in EBR.

Speaker 4: Notably, Nippon Steel's $1 billion cash investment implies an $11.5 billion enterprise value for us steelmaking coal assets.

Speaker 4: Lastly, we also announced today a sunset for the dual-class share structure, which would modernize tech metal governance structure.

Speaker 4: I'm turning to slide 11. I want to provide some context on the rationale for this transaction and Ytech is taking this step now.

Speaker 4: We recognize that the investment landscape has changed over the last 10 to 15 years. Previously, broad-based demand growth across all commodities to support global development drove investor preferences for miners with diversified strategies.

Speaker 4: who as a result were often rewarded with premium valuations. In recent years, the investor bases for base metals and steelmaking coal businesses have become increasingly divergent.

Speaker 4: This proposed separation responds to that changing landscape. It will allow investors to optimize their exposures to each of these metals and steelmaking coal through the creation of two world-class pure-play companies with compelling but different value propositions.

Speaker 4: COPPA's critical role in electrification and the energy transition will drive continued demand growth and premium valuation. High quality steelmaking coal will remain an essential input for steel production necessary to support decarbonization infrastructure over the long term.

Speaker 4: COP's critical role in electrification and the energy transition will drive continued demand growth and premium valuation. High quality steel making coal will remain an essential input for steel production necessary to support decarbonization infrastructure over the long term. Turning to slide 12.

Speaker 4: Following the separation, Tech Resources will become Tech Metals, a premier growth-oriented base metals company. Tech Metals is focused on copper growth, and we are well positioned to capitalize on the strong demand generated by the accelerating transition to the low-carbon economy. The foundation of our portfolio is our high-quality, low-cost, and long-life technology.

Speaker 4: to double in the near term.

Speaker 4: And the vast long life deposit at Cravrata Blanca can support multiple expansions. We currently have a little over 8 billion tons of reserves and resources at QB and the ore body is open in multiple directions for further potential increases.

Speaker 4: Beyond QB2 we have an attractive suite of additional projects diversified by geography, scale and time to development. We have the potential to add more than 1.5 million tonnes of annual copper equivalent production to our current portfolio. Tech Metals have the potential to become one of the top 10 copper producers.

Speaker 4: in the world. Importantly, cash flow from the transition capital structure provides tech metals with continued funding to make prudent investments in growth, balanced with disciplined returns to our shareholders, and while maintaining our financial resilience. This transaction will unlock...

Speaker 4: full potential of our industry-leading copper growth portfolio which is significantly undervalued relative to our peers.

Speaker 4: Turning to slide 13, EBR will be a pure play, world class, Canadian steel making coal company.

Speaker 4: with high quality, long life assets that are high margin operations focused on long term cash generation and providing cash returns to shareholders. The existing Elk Valley operating team will continue to lead EBR and ensure continuity of operating principles and responsible environmental and social stewardship.

Speaker 4: The team will be led by President and CEO , Robin Sharamita, who is currently tech senior vice president Cole. EBR will own four producing steel making coal operations in the out value of British Columbia, and the recently expanded coal handling facilities at Neptune terminals in North Vancouver. It's high quality low emissions hard-coking coal production.

Speaker 4: It's sought after by the world's largest steel makers as they work to reduce their own emissions. This is demonstrated by the agreements with Nipon Steel and Posco, we announced today. A significant participation by two of our major customers emphasised the long term and critical importance of high quality steel making coal. As I mentioned earlier,

Speaker 4: The $1 billion investment by Nippon Steel implies an enterprise value of approximately $11.5 billion further validating the EBR value proposition. Importantly underpinned by its extensive reserve base with over 30 years of reserve life, EBR has significant equity value accretion potential and the transition capital structure is paid down.

Speaker 4: as shown in the graph in the bottom right. Attending to details of the transaction on slide 14.

Speaker 4: At the highest level of separation is a spin-off of Tech's steelmaking coal business to shareholders. Tech Metals will retain substantial access to steelmaking coal cash flows in the form of royalty and preferred shares.

Speaker 4: The separation will be implemented by way of a distribution of the equity common shares of EBR to existing tech shareholders.

Speaker 4: Shareholders will receive one common share of EVR for every 10 shares of tech resources together with a share of a total cash distribution of $200 million. Shareholders can elect to maximize the amount of cash or EVR common shares they receive subject to proration through a Dutch auction process.

Speaker 4: In consideration for the transfer of the steelmaking coal assets to EBR, EBR will issue a gross revenue royalty and preferred shares together called the transition capital structure in which tech metals will maintain an 87.5% interest.

Speaker 4: Further, in exchange for their minority interest in the Elkview and Green Hills operations, with an additional $1 billion cash investment by Nick on Steel, the Elkview and Green Hills

Speaker 4: Nipons Steel and POSCO will only combine 12.5% in dress in both EVR common shares and the transition capital structure.

Speaker 4: Payable quarterly, the Royalty will be based on still making coal revenue, generally equivalent 90% of EVR's free cash flow, and payable until the later on, an aggregate amount of $7 billion in Royalty payments would be made, or year end of 2020-A.

Speaker 4: DVR will also issue $4.4 billion with redeemable preference shares with a 6.5% cumulative dividend. TechMaples will continue to be listed on the Toronto and New York Stock Exchange's.

Speaker 4: EBR has applied for a listing on the TFX. I'm looking at the planned capital structure for EBR in more detail on slide 15.

Speaker 4: Cash flow from operations will be prioritized for use to ensure the resiliency of operations, including capital investments and fixed annual contributions to a new environmental stewardship trust, which will provide for long-term environmental obligations.

Speaker 4: While the TCS is in place, 90% of free cash flow will go to the Royalty and Preferred Share Redemptions. The TCS is in place, 90% of free cash flow will go to the Royalty and Preferred Share

Speaker 4: Once the TCS is extinguished, 100% of free cash flow is retained by GVR. The remaining free cash flow will go towards an initial base dividend of $0.20 per share and supplemental shareholder returns made up of at least 50% of the free cash flow after TCS payments. More importantly, EVR will be well capitalized at launch.

Speaker 4: with $1 billion in cash and working capital and no debt. Tech Metals is expected to retain investment grade credit ratings based on preliminary indications.

Speaker 4: Fight16 provides detail on the sensitivity on the proceeds from the transition capital structure to changes in steelmaking coal prices. The TCS is leveraged to hard-coking coal prices to provide flexibility and resiliency for EVR, while also providing tech metals with continued access to steelmaking coal cash flows during the transition period.

Speaker 4: This will allow Tech Metals to prudently invest in our industry-leading copper growth portfolio while delivering cash returns to shareholders. DTS is forecast to provide Tech Metals with not less than $12 billion in pre-tax proceeds over time. Because of the leverage to hard-coking cold prices, a higher price environment with both accelerate payments and accelerate payments.

Speaker 4: and provide upside participation for tech metals through the Royal Bank. Assuming a US$185 per tonne long-term benchmark hard-coking coal price and a Canadian-US dollar exchange rate of 130, we will be able to make a difference.

Speaker 4: the TCS would be fully paid in approximately 11 years. If long-term prices stayed at current spot levels, the TCS could be paid in only seven years while providing $34 billion in combined royalty payments and preferred share redemptions on a 100% basis over that time.

Speaker 4: Turning to slide 17, another important step announced today is the proposed six-year sunset for the multiple voting rights attached to the Class A shares of tech. This will modernize TechMedal's governance and provide a simplified and competitive capital structure. On the effective date, the

Speaker 4: Each tech Class A common share will be exchanged for one new Class A common share and 0.67 of a Class B subordinate voting share.

Speaker 4: Terms of the new Class A common shares will provide that on the sixth anniversary of the effective date of the dual class amendment, all new Class A common shares will be automatically exchanged for Class B subordinate voting shares, which will be renamed common shares, at which point the Class A common shares carrying multiple voting rights will be eliminated. Based on the 7.8 million Class A common shares currently outstanding and the exchange premium.

Speaker 4: to approval by a majority of Class B shareholders other than Tamagami Mining Company, Simitomo Metal Mining and Dr. Keeble.

Speaker 4: Those votes are expected to be held at TEC's annual and special meeting of shareholders on or about April 26, 2023.

Speaker 4: In addition to tech shareholder and court approvals, the separation is subject to customary conditions, including approval by the TSX.

Speaker 4: We expect that the transaction will be completed in the second quarter of 2023, at which time Tech Metals and EBR would begin operating as separate companies.

Speaker 4: So before we turn to Q&A, I want to start where I began. We could not be more excited about this transformational transaction that will unlock significant value for our shareholders. We strongly believe this transaction is the best pathway to separate and realize the full potential of the two businesses. It will increase the strategic and financial focus for both organisations.

Speaker 4: allowing the two entities to pursue tailored growth and capital allocation strategies to realize their full potentials. It will enable tech metals to unlock the value of our world-class copper growth portfolio and capitalize on the opportunities created by the energy transition, funded by steelmaking coal cash flows during the transition period.

Speaker 4: A position EVR has a pure play, high margin steel making cold producer, with exposures of strong steel fundamentals and a significant equity value accruciation potential, accruciation potential as the transition capital structure is paid.

Speaker 4: The separation will provide investors with the flexibility to optimize portfolio allocation between base metals and steelmaking coal, with each company providing exposure to different commodity fundamentals, capital return policies, and value propositions. Further, the dual-class sunset will modernize tech metals governance structure.

Speaker 4: As we move forward, our purpose and values which are deeply embedded will ensure health and safety and sustainability are up to four fronts of everything we do across both businesses. This includes our on waivering commitments to become net zero by 2050 and nature positive by 2030.

Speaker 4: and ongoing support for the people and communities where we operate for decades to come. With that, operator, please open the line for questions. Certainly.

Speaker 2: To join the question queue, please press star then 1 on your touch tone telephone. You will hear a tone acknowledging your request. We ask that you please limit yourself to one question and one follow-up. If you are using a speakerphone, please ensure you lift the handset before pressing any keys.

Speaker 2: If you wish to remove yourself from the question queue, you may press star then two. The first question comes from RS Wild Gdau of Scotiabank. Please go ahead.

Speaker 5: Hi, good morning and congratulations on the proposed transaction. I'm wondering, Jonathan, if you can give us some color in terms of some of the options that were being evaluated and while ultimately the spin-out was the chosen...

Speaker 4: I guess, avenue to separate the business versus just an outright sale of the core business. Yeah, Oris, thanks very much for your question. You know, this is something that's been under consideration by the Board of Directors at Tech for a number of years now. And we've worked very hard through a range of alternatives to get to this point that we're announcing today.

Speaker 4: Ultimately, we decided that a separation by a spin-out of still making coal business to tech shareholders was the optimal means of creating these two great companies, TechMath tech maples and our value resources. It sets both companies up for success. For TechMath, of course, this allows us to continue to use cash flows from the coal business to fund.

Speaker 4: our unrivaled copper growth portfolio, and continue to develop and deliver the copper that the world is gonna need for electrification and decarbonization. In the case of the steelmaking coal business or Alkali Resources, that will be a world-class standalone company with high margins, long life reserves, and producing a product that the world needs for decades to come to produce steel required for the infrastructure for decarbonization. Ultimately, the creation of these two separate companies, we believe will give investors choice to allocate funds within their portfolios based on their priorities and based on the difference.

Speaker 4: strategies and capital allocation frameworks that these companies will have going forward. So it's been an extensive process as you would imagine conducted over an extended period of time with all alternatives on the table but ultimately the board and the management team concluded that this would be optimal way forward. Thank you and as a follow-up on your slide 16 that talks about the

Speaker 5: I guess revision here to the norm with respect to CapEx and OpEx. I'm just wondering you know in terms of backing into the 11-year TCS payment on the base case. Yeah I think what you'll see in that, Orest, and I'll start with referencing the the coal prices used there that you know they they reflect the the near-term consensus prices over the coming years and then we make a long term.

Speaker 4: a assumption that a US $185 per tonne for hard coping tolls. It would be fair to say that good operating costs somewhat followed up profile in the near years. They reflect elevated costs as a result of the inflationary environment that we're working in. And as we've said in our quarterly, we expect elevated costs to retain to remain through 2023. And of course, potentially.

Speaker 4: into 2024, but beyond that we would expect to see some reversion and reduction in unit costs in the steel making coal business, which of course is going to be required if we're going to see the sort of reversion in coal prices that we highlight in the deck. From a capital expenditure perspective we do expect, you know, elevated levels to remain through the current year and in the near years, in particular as we continue to make heavy investments in water management, water treatment in the coal business, however beyond that...

Speaker 4: The investments in water management and treatment should decline and we'd expect to see our sustaining capital revert back towards historical, volatile levels. So Horace, that's a long answer I know, but we do see some continued elevated unit costs and capital costs in the near years, but we do expect to see something over reversion in the years beyond that. Our next question comes from Greg Barnes of TD Securities. Please go ahead. Yes, thank you. Jonathan, can you talk about the timelines for all of this to really unwind? It's 7 to 11 years on this?

Speaker 4: TCS and six years on the sunset on the Class A's. Was there some reason you pushed them out that long or is it just maximizing the opportunity? So starting with the TCS, Dreg, what we've tried to achieve here is getting a balance between continuing to fund the copper growth portfolio for tech metals and of course to do to realise the full value of the EVR business against the desire ultimately to separate the two companies. And that's a balance that I think will struck well through the timelines here. Of course, as you note, ultimately that will be a function of predominantly hard coping toll prices, but also the underlying cash-wide generation of the EVR business. With respect to the sunset provision on the Class A shared, ultimately that was the new subject of a negotiation between the...

Speaker 4: The majority class I shareholders and a special committee of text board of directors. We think that the 60th sunset provides tech metals with good cover to continue to deliver on our unrivaled copper growth pipeline, but ultimately provide a fixed timeline for a version to a model, a modern capital governance structure. And secondarily, both these transactions require votes from shareholders, because either one of the votes depends on the other or they go ahead independently of each other. But why not vote for the other? Yeah, these votes for the separation Greg and for the changes to the A-Class share structures are independent on another.

Speaker 5: So one will go ahead if the others are not approved. That's correct, yes. Thank you. Our next question comes from Lucas Pipes of Be Rily Securities. Please go ahead. Thank you very much. Good morning, everyone. My first question is on the capital return profile of tech metals. You mentioned discipline. How do you envision balance in capital returns?

Speaker 4: at TechMattles with the desire to grow that business. Thank you very much. Yeah, thanks for the question, Lucas. And essentially, the approach to capital allocation will remain unchanged. At TechMattles, as it has been in tech for the last number of years, we will continue to advance copper growth pipeline, and we will continue to invest in the development of both copper projects throughout the Americas. However, we will continue to focus on balancing that investment in growth against strong cash returns to shareholders, as well as maintaining the foundation of a strong balance sheet.

Speaker 4: I think that's something we did very well through 2022, where we invested significant capital in QB2 and bringing that towards completion, whilst ultimately approving and announcing around $2.4 billion of returns to shareholders through a combination of dividends and buybacks, and also buying back $1.3 billion of our debt to improve the balance sheet foundation that we have. So that will remain unchanged. Just as a reminder, the way the capital allocation framework operates is that the first 30% of available cash flow is automatically returned to shareholders by way of dividends and buybacks. And beyond that, the balance of 70% could also be returned to shareholders or could be allocated to new growth options in the portfolio. And that will be the same allocation framework to take levels going forward. That's very helpful. Thank you. Quick follow-up on.

Speaker 2: Our next question comes from Brian MacArthur of Raymond James. Please go ahead. Good morning and thank you for taking my questions.

Speaker 6: Can you just tell me what happened in this scenario? I realize there's a minimum 250 in the coal business and I understand there's a sunset in 2028, but what happens if

Speaker 6: You know, coal business has a really tough year. You go down to the 250, so you don't kick out anything for the quarter. Then the coal price goes up a lot. Is there a catch up mechanism to get back that cash flow in the quarter you miss or do you just play?

Speaker 4: lose it because you tap out at the low end if that makes sense to you if you see what I'm saying. Yeah I wasn't quite sure Brian about the 250 that you were referencing here but essentially there wouldn't be a catch-up in the quarter. The cash flows will flow to the TCS and detect metals when

Speaker 6: when available. Oh, so you mean the cash balance in a cash balance? Yeah, the cash balance, the 250. So say it goes to 150, right? Then technically for a quarter, I guess you don't, I assume you pay the prep, but you don't pay the royalty. Then the next quarter, your cash balance goes up because the call price is volatile. Do you actually make up that loss payment? I guess is what my question is. Or does it just, you know, the time clock keeps moving to 2028 and then what, or the 7 billion and you either make it or you don't make it? So you would still operate on the 7 billion dollars of royalty and the $4.4 billion of fresh shares. They would be unchanged. I guess in the scenario you're painting, it would just take slightly longer to recover those cash flows.

Speaker 6: once the coal business has recovered its cash position back to $250 million. So there's no permanent loss of recovery of cash flows to tech metals. It really just extends the duration. Perfect, thank you. And the second question, just to be very clear, on the A shares, you're spinning out these new shares in coal. They don't have A's and B's, right? They're just common shares in the new vehicle. So there's no protective right there. That's exactly right. There'll just be a single class of common shares at EBR. Thank you very much. I'll get back in line. Thanks, Brian . Our next question comes from Tamina Tanners of Wolf Research. Please go ahead.

Speaker 7: Hey, good morning everyone. Thanks for the detail. I'm just trying to process it all still, but I wondered on that call spin. If you could talk a little bit more about, you know, could there be further partners any offtake agreements or is this just purely a stake? Why just Toronto listed and, you know, is there any price embedded in the 11.5Billion? Or is that simply in this conclusion from the amount that was paid by or that will be paid by Nippon Steel? Yeah, thanks. Thanks for the questions, Tim. Now, I mean, this is just a straight spin of the coal business here. We don't have plans for further investment.

Speaker 4: into that business and we don't have plans for further offtakes associated with that business. As I said, we're incredibly excited by the investments we have secured from Nippon and POSCO, but nothing in the words beyond that at this point in time. You know, the 11.5 billion enterprise value, of course, reflects the long-term outlook for the business based on typical production operating costs and capital assumptions and of course, there is an embedded long term steelmaking coal price in that as well. We think it's an absolutely fair valuation for the business and we're very happy to see Nippon Steel confirm that with their one billion dollar investment of 9%. Okay, thanks. Just on the last question, just wondering.

Speaker 4: briefly who can just give you a slightly more update, detailed update on status and when that first production is expected.

Speaker 8: Yeah, good morning, Tim. We're really in an exciting part of the project right now. We're commissioning all of the equipment from the seashore all the way up to the concentrator at elevation. We're really happy with the decolonization plant and how that's running and we're pushing water. We're really happy with the decolonization plant and how that's running.

Speaker 8: up the hill now to the concentrator. At the concentrator, we've run all of the motors, the big mills, a lot of those pieces in commissioning require lengthy runs of eight, 12 hours consistently. We've done all of those successfully. There were a couple of items with key conveyor belts where one, we're resplicing it. Right now, we weren't happy with that configuration.

Speaker 5: another conveyor where we're doing a little extra work on the tensioning mechanism. So it's ready to go. We've already crushed rock in the primary crusher, and it's imminent pushing rock through those grinding mills and getting all the rest of the equipment going. So very, very exciting time for us on the project. Okay, great. Thank you. Our next question comes from Emily Chang of Goldman Sachs. Please go ahead. Good morning, Jonathan, and thanks for taking my question. My first is just around the tech models business. It sounds like there's going to be a lot of copper growth there in the portfolio, but how are you thinking about the zinc assets? Do they at some point become non-core, or is there still investment there ahead? Hi, Emily. Thanks very much for that question. No, zinc remains absolutely core to tech metals going forward as it is today.

Speaker 4: very strong cash generative business for us you know give or take it does about a billion dollars of UBITDA here and doesn't consume a great deal of capital so it's a solid contributor to the group and will continue to be a core part of the technical sector. Great that makes sense and a follow-up is just around the dual class share structure collapse discussion there during the sunset.

Speaker 9: All right, that's very clear. Thank you.

Speaker 10: Our next question comes from Lawson Winder of Bank of America. Please go ahead. Hi, good morning Jonathan and team. Thanks for the update and congratulations on an interesting transaction. I wanted to get your thoughts on the way that the Class A shares are being converted. So, effectively each class share is being converted plus they're getting 0.67% of a Class B. And...

Speaker 6: Yeah, I'd love to hear your views on how that kind of valuation gets arrived at. Well, look, ultimately Lawson Black was a negotiation between the majority holders of the Class A shares and the special committee of the board. You know, it reflects consideration for valuable voting rights, essentially, that will be foregone through this sunset. But importantly, this represents only 1% dilution of tech shares overall. So, in that context, we think that the valuation struck here benchmarked very well against presidents. Okay, that's fair. Obviously, I understand that you can't say a lot there. And I also wanted to follow up on QB2 and just get an idea of what you're saying.

Speaker 8: facility will be running at full speed and you know that guidance range that we've provided would have copper production commensurate with that.

Speaker 10: Okay, so maybe I asked another way, do you expect to produce concentrate in Q1? Yeah, we'll make first copper in Q1 for sure. Okay, okay fantastic. Thanks for clearing that up.

Speaker 5: Our next question comes from Carlos De Alba of Morgan Stanley . Please go ahead. Yeah, thank you. Good morning, Jonathan and team. Just on the transaction EVR, given the potential environmental and remediation considerations of that business, does the authorities in Canada have to approve the transaction or have you discussed with them?

Speaker 4: will be debt free. Talking then just about you know the environmental and external approvals you asked about there there are no required approvals for the separation there is an approval required from the TSX for the listing but aside of my challenges.

Speaker 4: for approvals, we don't require anything from regulators or government. We have engaged with both provincial and federal government regarding this transaction, and we've also critically engaged with the Indigenous groups who are present in the Elk Valley and very much involved with our steelmaking coal business there. We don't require approvals from them, but of course, we will continue to maintain very strong productive relationships with them going forward. All right, great. Thank you. Our next question comes from

Speaker 4: those to assist with the growth of our copper portfolio while balancing return to shareholders and maintaining a strong balance sheet. So we will use those proceeds in a manner that's very consistent with our strategy.

Speaker 6: Okay, and then when you're running tech metals, does the strategy remain the same or will you look to be more aggressive on things like M&A to accelerate the growth profile? The strategy will remain the same, Dalton. The focus is on copper growth and the focus of our copper growth is through our organic pipeline of projects.

Speaker 4: while returning cash to Shell. So no change in that respect. And of course, we maintain for a number of years what has been a key part of our strategy, which is to use cash flows from the steel making co-op business to support that capital allocation strategy. Okay, thanks. There may be one last one. Yeah, your harvest.

Speaker 4: there whilst 90% of the free cash flow from EVR goes to the transition capital structure 87.5% of that goes to tech metals and 12.5% goes to Nippon and POSCO just just a clarification there. But we are creating two entirely separate businesses here with separate listings with separate management teams and separate boards. We do recognize of course that

Speaker 4: you know, through the transition capital structure. This is, as it's described, a transition which will go on for a number of years until we see a complete separation or financial independence of the two companies. And of course we think, you know, as that is paid down, then that will create value accretion or equity accretion.

Speaker 5: for EBR and will increasingly have Tech Metal seen as an entirely independent base metal company. Thanks Jonathan, that's all for me. Our next question comes from Chris LaFamina of Jefferies. Please go ahead. Thank you operator. Thanks for taking my questions. I have a couple of questions about changing control provisions. I think I read somewhere that...

Speaker 11: In the case of EVR and a change of control, the royalty payment that Tech Metals would receive would increase from 90% to 92.5% of the free cash flow. What happens in the event that Tech Metals becomes a potential acquisition target? Is there any change of control around tech's ownership in EVR, any sort of poison pill there that would reduce the value to a potential buyer of tech if you were to be acquired? And then, sorry, so the first question is around, am I right about the change in control on EVR and then secondly, change of control on tech if Tapcore were to be acquired? Thank you. Yeah, you're correct on both fronts. In the first instance, there is a step up from 90% to 92.5% and there would be no implications.

Speaker 2: with respect to any acquisition of the sale of fake metal. Okay, thank you. Our next question is followed from Maress Waukidao's Goshabank. Please go ahead.

Speaker 5: Hi, thanks for taking the follow-up. Jonathan, just curious, given the spin-out of the coal business, do you, you obviously have a lot of copper growth options internally, do you see advancing those some of those growth options quicker than you would have previously? I'm just wondering if

Speaker 6: You know, given now you've got very clear focus on call cashflow coming into the business, the fund copper, whether we should anticipate that you may bring forward some of those internal I mean, I think, you know, in one sense here, there's no real change to the strategy for tech metals, which is to develop that copper growth pipeline and this transaction per say doesn't signal a change or an acceleration of that, you know, of course we're always.

project here and given you know the focus on critical minerals from from a number of governments around the world it could be that permitting timelines are reduced somewhat but as I mentioned you know this transaction in and of itself doesn't change the strategy because we've already been very focused on the development of the project before failure.

That's perfect, thanks. And can you just remind us what's your current plan for the timing of the QB Mill expansion? So we have submitted a permit application this quarter and we are in the process of completing a feasibility study which will be done by the end of this year. And therefore we said that there's the potential.

for an approval for the QBVIL expansion in early 2024. Great. Thank you so much. You're welcome. Our next question comes from Alex Taranto of Stiefel. Please go ahead. Good morning, everybody. I know there's a lot of details in here, and I appreciate you guys doing this call earlier today. But question for you on the TechCoal spin-out EVR. I know you mentioned that you expect tech meds...

the three credit rating agencies that cover us, Fitch Moody's and S&T, and their preliminary indications are that we will maintain investment grade ratings for tech metals, but I'll just let Chris briefly explain how those cash flows are trending. Hi Alex, thanks for your question.

Just in the context of the treatment on our financial statements, maybe that's the most important place to start. We will, in tech metals, deconsolidate our interest in the coal business unit on closing of the transaction. So, in our unadjusted profit figures, you won't see the results from the coal business.

with calculations as well as adjusted EPS, and you could model it that way.

Okay, great. Thank you.

Okay, great. Thank you.

Our next question comes from Lucas Pipes of B. Riley Securities. Please go ahead. Thank you very much, Operator. Thank you for taking my follow-up question. I believe Nippon and Pascar are receiving rights to the coalist that in exchange for their prior interest. How should we think about...

those off-tech rates. Thank you very much. Yeah so both Nippon and POSCO have been joint venture partners in Alphew and POSCO as well in Greenhill. So part of what's happened here is a conversion of those interests to their interests in equity and the transition capital structure here. They will retain long-term off-tech agreements with

BVR, I won't talk about the commercial terms of those contracts, but substantially similar to the sort of agreement that we've had with NIMH in the past, so no significant change there.

All right, I appreciate it. Thank you and again best of luck. This concludes the question and answer session. I will now hand the call back over to Mr. Phillips for closing remarks. Thanks Ariel and thanks everyone. Just before I hand it over to Jonathan for his closing remarks.

I just want to say that again, lots to digest. I'm sure there will be plenty of other questions. Please reach out to me or Helen or indeed anybody on the IR team. We'll be happy to do our best to get in touch with you and have a conversation and we will be delighted to help out. With that, Jonathan, over to you for any final remarks.

Thanks, Fraser, and thanks everyone for joining the call today and for the good questions. We at TEC couldn't be more excited about this transformational transaction that we've announced today. We believe it will unlock significant value for our shareholders. We do believe that this transaction structure is the best pathway to separate and realize the full potential of both of these great businesses.

As I mentioned, it will increase strategic and financial focus for both organizations, allowing the two entities to pursue tailored growth and capital allocation strategies into the future. Tech Metals, this is about unlocking the value of the world-class carbon growth portfolio and capitalizing on the opportunities presented by the energy transition, continuing to be funded by steelmaking coal cash flows through the transition period. And of course, we set up EBR as a pure play, high margin steelmaking coal producer.

exposed to strong long-term steel fundamentals and we have the potential for strong equity value accretion as the capital structure is paid down. Critically, the separation provides our investment flexibility to choose and optimize their portfolio allocation between base metals and steel agent coal given that both companies provide exposure to different commodity fundamentals and capital return policies. And finally, of course, the dual-class share sunset will compromise tech metal governance structure. So with that, thank you very much. We look forward to following up this conversation with you beyond this call.

And yes, once again, thank you. Very exciting day today. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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